Analysis of Zara's Corporate Strategy: UK Market Focus

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Applied Corporate Strategy
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Table of Contents
Introduction................................................................................................................................3
Q1...............................................................................................................................................4
Q2...............................................................................................................................................8
Q3.............................................................................................................................................13
Conclusion................................................................................................................................16
Reference List..........................................................................................................................17
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Introduction
In this study, a report on business applied corporate strategy will be discussed. The strategic
report contains both internal and external analysis. Corporate business strategy is a business
practise by which a company achieves its business goals in a competitive environment. For
this study, a case study on Zara will be conducted along with its external and internal
analysis. The chosen company Zara is an online business retailer based in the UK. It is the
main brand name in the Inditex Group, which is currently the largest apparel retailer in the
world. In the year 2017, Zara manages to collect up to twenty clothing collections in a year.
After opening first in Spain, Zara spread its business in Portugal, United States, France,
Belgium, Sweden, Greece, Japan, Singapore, Malaysia, Russia, China, India, South Africa,
Australia, the UK and many more nations. Hence, the study report will be focused on the
international business strategies of Zara, especially their online business outlets, though they
have their physical or offline stores and shops worldwide (zara.com, 2019).
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Q1.
Discuss the business environment and identify a number of Opportunities - Os and
Threats - Ts (we expect six issues from the business environment to be discussed in total
each of which concluded as an O or a T). Industry analysis (5 Forces) should be applied
to assess industry attractiveness (each force should be discussed and assessed as High,
Moderate or Low and industry attractiveness should be assessed having those forces in
mind).
External Analysis: For the external analysis of Zara, PESTLE analysis is carried out in this
context.
PESTLE Analysis is defined as the framework or tool to determine the external business
environment, such that the macro-environmental factors that can affect the business strategies
of a company. This strategy is specifically fruitful for a new start up business while entering
foreign market (Velásquez and Meunier, 2017). There are six factors in total while doing the
PESTLE analysis, such as-
Figure-1: PESTLE Analysis Model
(Source: Created by the Learner)
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PESTLE Analysis
Political
Technological Legal Environmental
Economical Social

In this study, the PESTLE analysis in the UK in terms of the business strategies of Zara is
discussed as follows-
Factors Effects
Political In European countries, free trade agreements have helped Zara to boost its
sales accordingly. Zara freely imports and exports its products and services
without any tariff and trade barriers and no political restrictions as such.
More specifically, the whole online retailing industry has been profited as
they got their potential international customers. Moreover, Zara is profited
by being free from the trading laws and can sell its UK products in the
European market. The European Union is the UK’s largest clothing and
textile market that accounts for 74% Zara’s exporting sales market. Hence,
this provides a big opportunity for Zara to increase its number of outlets in
the global market in future.
Economical Initially, the population rate and the fast-growing economic rates of Spain
helped Zara to boost its sales in the clothing retailer industry by gaining
more profit compared to the low labour cost. However, the exit of Britain
from the European market adversely affected the profitability of Zara. The
UK market also faced a high inflation rate as well as increased living costs.
This, in turn, decreased the profit margin of the local retailing industry
including Zara. Continuation of this economical scenario will be proved as
a major threat. Moreover, foreign direct investors (FDI) may have a lack of
interests while investing for Zara (Duarte et al., 2017).
Social The online shopping urge of UK customers enhances the sales amount of
Zara. The main advantage by which the online customers in the UK got
profited is its 24*7 servicing. The orders from the customers end never
stops processing in their online shopping systems. However, the lack of
linked shipping expenses forced Zara to open more online shops in the
global market. This also opens Zara’s opportunity to spread its online
business in a global prospect.
Technological Incorporation of the emerging technologies by Zara helped the customers
to choose their required products or services by only a click using Smart
phones. The modern technologies are also implemented in the online
website, where the customer interface is being user-friendly by dividing it
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into several categories like ladies fashion, men’s fashion, kids fashion,
accessories and all. This is done in order to attract the new young generation
customers of UK hence by giving it a window of opportunity for
expanding the business further as a fashion brand.
Legal Larger fashion brand retailers like Zara need to enforce copyright law
strongly. This means and authentication from the UK government so that
when the company’s products will be launched, the products cannot be
resold at the local shops of the UK at lower values by making sure that these
products will be marketed from end to end licensed trademarks. This
legislation helped to make a unique brand image of Zara and thus, can be
considered as an opportunity for product development.
Environmental UK government recently strives to make a pollution-free and eco-friendly
environment. Accordingly, Inditex Group, as mentioned above, the parent
company of Zara has announced to invest over $ 7.5 billion to create
manufacturing units with sustainable greener products using energy efficient
machinery and organic materials. Zara, if once manages to cope up with
this eco-friendly and pollution-free environment by proper maintenance,
will surely help it to earn more opportunities to make a brand image as a
competitive advantage over others through performing corporate social
responsibility (CSR) activities.
Table-1: PESTLE Analysis of Zara in the UK
(Source: Created by the learner)
Porter’s Five Forces is considered as a framework or tool for measuring the external
competition for a business, especially a global business. According to him, there are main
five factors which can drive the business strategies of a multinational organisation (Mathooko
and Ogutu, 2015), such as-
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Porter’s Five Forces
Threat of new entrants
Industrial Rivalry
Threat of substitutes

Figure-2: Porter’s Five Forces Model
(Source: Created by the learner)
For further external analysis, Porter’s Five Forces analysis is done on Zara as follows-
Forces Analysis
The threat of new
entrants
There is a huge margin of scope for the new entrants in the fast-growing
fashion industry of the UK. Hence, a mass of people is looking for goods
within a certain economical budget. Zara resolves this problem by
providing quality goods at comparatively lower price rates constantly.
Threat of
substitutes
Only H&M can give Zara a competition with product affordability and
quality as well. However, it spends much more amount of its revenues on
advertising compared to Zara. Most importantly, the supply chain of
H&M is not as actively responsive as of Zara. Hence, this will not be a
threat to Zara while considering substitute products in the fashion
industry of the UK.
Industrial rivalry The major competitors of Zara are Hennes & Mauritz (H&M), the
Gap and Benton in the retailer industry of the UK. However, the supply
chain model of Zara is very much responsive. The rival retailers spend
months in launching new textile items, whereas Zara constantly changes
its fashion products in every two weeks, which gives it a fair amount of
competitive advantage (Wood et al., 2019).
Bargaining power
of buyers
Zara spends about 0.04% of their revenues for advertising purposes.
Moreover, it relies more on mouth-to-mouth marketing. Zara does not
compromise with its product quality along and provides at a much lower
price so that they can earn customer loyalty, which means the power of
the potential consumers is moderate.
Bargaining power
of suppliers
In the modern world, due to the effects of globalisation, the bargaining
power of the suppliers is weakened by low wage boundaries (Padin and
Svensson, 2015). However, Zara signs contractual deals with its local
suppliers in the UK market by means of proper licensing so that they
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Bargaining power of suppliersBargaining power of buyers

cannot leave even a slight amount of variation.
Table-2: Porter’s Five Forces Analysis on Zara
(Source: created by the learner)
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Q2.
Identify and discuss the organisation’s resources & unique capabilities (at least 6
Strengths and Weaknesses should be covered in total).
Zara’s resources and unique capabilities are discussed along with their strengths and
weaknesses as below-
Strengths & Weaknesses
Key
Resources
Financial Resource-
Zara has a very strong supply chain as
mentioned earlier. Moreover, 66% of the
total revenues of Inditex are earned by sales
of Zara. It also financially supported by its
parent group accordingly.
Human Resource-
Zara cooperates with well-trained fashion
designers, which makes their fashion sense
higher in the industry.
Technological Resource-
Zara uses sophisticated internet technology
systems especially in their headquarters
from where they operate its online stores
(Mougayar, 2016).
Reputation-
As a multinational retail brand since 1975,
the company has earned customer loyalty
over the years and reputation for delivering
quality products. Now in order to cite is a
brand image, an example of its popularity
over the social media can be stated as- it has
over one million followers in Twitter, over
sixteen million on Instagram and over
twenty-five million in Facebook. They all
Strengths-
 According to the annual report
published by the official group of
Inditex (inditex.com 2019), Zara is
ready to launch more of its online
stores in the Asian market like
India, Singapore, Thailand, Vietnam
and Malaysia after its enormous
success in the European market.
 Spanish background gave them
initial advantages like high
population rates and low labour
costs that fuelled them for later
improvements.
 They sell fashionable brands at an
affordable price that gave them
more chances to grab the market of
the young generation.
Weaknesses-
 The company’s low advertisement
strategy can expose its weakness in
the new markets.
 Zara’s self-contained distribution
system may raise its unpredictable
problems.
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together reduce the advertising costs
concerning its competitors.
 They are more imitator than the
creator, such that they do not
believe in innovation as such.
Unique
capabilities
 Zara maintains a highly engaged
workforce that makes it highly
interactive with online customers.
 Zara understands the fact that
experience matters more than the
product in shoppers mind which put
them well ahead of its competitors as far
as its unique capabilities are concerned.
 The fast-changing fashion experience
formula of Zara helps in the success of
frictionless shopping.
 Moreover, Zara makes its brand
experience a meaningful one. The
shopper frequency on the women
apparel in Zara two to three times
higher with compared to traditional
women wears.
 Zara has a vastly evolved data
infrastructure unit worldwide.
Strengths-
 They have a well-established brand
name and reputation worldwide.
 Zara changes its modern fashions
more regularly according to the
market demands than its
competitors.
 They lack in marketing
communications in worldwide
business (Luxton et al., 2015).
Weaknesses-
 The new product stocks are
available in their online stores
mostly as limited editions, such than
for a shorter span of time.
 Zara has only one large distribution
and manufacturing unit each in the
world.
 Zara’s pricing systems in the new
units of Asia will not be as effective
as in Europe and the UK.
Table-3: Zara’s key resources and unique capabilities with strengths and weaknesses
(Source: created by the learner)
Demonstrate how unique capabilities link to competitive advantage (use VRIO to
identify Core Competences for the organisation).
VRIO Analysis efficiently helps in evaluating the competitive advantages and the resources
of an organisation. From the name itself, it specifies that the evaluated dimensions through
this analysis are Value, Rareness of the company; Imitability and the Organisational
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dimension (Chatzoglou et al., 2018). It is a part of the strategic scheme of any firm or
organisation. It is another framework of internal analysis of any organisation.
Figure-3: VRIO Analysis framework
(Source: Augenstein, 2017)
The company whose competitive advantages will be analysed in ZARA, a UK based
multinational company in the fashion industry. The management team of ZARA can utilise
the VRIO framework to understand the resources and develop their sustainable competitive
advantages (Almeida, 2018). In the present scenario, ZARA has developed a strong online
base in the fashion industry. It has proved itself as one of the most innovative fashion retailer
in the world by having more than six million Facebook connections across the globe. The
online strategy of ZARA is much better than its outlets as their customers can purchase their
products 24*7.
Resources Values Rareness Imitation Organisation Competitive
advantages
Ability to
capture the
local as well as
global business
markets
Yes,
ZARA
possess the
business
strategy of
innovating
Yes, it is
essential for
business
growth
It is quite
difficult to
be imitated
by other
rivals
Yes, very
surely for a
wide extent
Competitive
advantage
for this
resource is
very strong
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and
building up
a effective
distribution
of their
products
Competitiveness
regarding
logistic costs
and distribution
costs
Yes, it is
beneficial
for
reduction
in the
expenses
No Although it
is difficult
but can be
imitated by
other rival
organisations
Yes Competitive
advantages
vary
between
medium to
long term
tenure
Brand
positioning in
the global
market
Yes, very
high value
in the
market
No Competitors
in the
industry
would
require huge
budget for
marketing to
imitate the
position
Yes, on the
basis of
customer
reactions the
organisation
has
positioned
itself
Competitive
advantage is
provisional
Ability of
managing and
regulating legal
compulsions
Yes, the
firm is
aware of it
No The rival
companies
can imitate
this ability
Yes This factor is
not that
significant
for
competitive
advantage
Admittance to
significant raw
materials for
effective
business
Yes Yes,
because it
would take
a long time
for the
There are
possibilities
of imitation
by the rival
companies
Yes This
resource
provides
long term
competitive
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