Managing Across Borders: Zara's Expansion Strategies in Asia

This report provides a comprehensive analysis of Zara's expansion into the Asian market. It details the company's internationalisation strategies, including holistic and strategic approaches, and examines the fashion giant's growth in Asia, highlighting the opportunities presented by the region's expanding fashion industry. The report discusses the various entry modes Zara employed, such as own subsidiaries, franchising, and joint ventures, and the strategic adaptations made in countries like China and India. It explores the challenges and problems Zara faced, including competition and cultural differences, and the strategies used to overcome these hurdles. Furthermore, the report analyzes the company's use of global, cooperation, ethnocentric, polycentric, and geocentric strategies to navigate the complexities of the Asian market and maintain its competitive advantage. The report concludes by assessing Zara's overall success in establishing a significant presence in the Asian market and offers insights into the company's future prospects.

MANAGING ACROSS
BORDERS

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EXECUTIVE SUMMARY
This report presents the whole description about the Zara and its expansion in Asia. It
presents the approaches of internationalisation like holistic and strategic approaches to enter
into many parts of the world and so is in Asia. The growth of fashion industry in Asia gave
many types of opportunities for growth to this fashion giant. Zara being a bigger brand name
in the fashion and retail industry used many types of strategies so as to make their growth
stable as well as ensure that their expansion process remains smooth. In the process of
expansion they have faced many kinds of challenges and have confronted many problems
while being the bigger player in the region. The report discusses all the challenges that are
being faced by the Zara and pragmatic approach it has used for the Internationalisation.

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Contents
INTRODUCTION......................................................................................................................1
ZARA expansion in Asia...........................................................................................................3
Approaches to Internationalisation............................................................................................3
Process of Expansion..............................................................................................................4
Strategy that they have used while expansion........................................................................5
Challenges and problems that Zara has faced while expanding in Asia....................................7
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................10

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INTRODUCTION
In the age of globalisation there are many companies that have expanded across the borders.
It is generally done by understanding the dynamics of the market and the factors that could
produce profit to the company in that region. Managing businesses across borders have
become a difficult task and needs a series of actions to make business profitable. The Asian
market is a highly dense market and hence many companies have crossed borders to come to
countries in Asia. Due to the complexity that is present in the Asian market, the chances of
failures of business are also high. In this threats and opportunities that Asian market
produces, many firm have used their resources so as to expand in this part of the world
(Lopez and Fan, 2009). Organisations have used several approaches to internationalisation. In
their expansion plan they have faced many kinds of challenges especially in terms of
establishing themselves. With the increasing competition in the Asian market, companies are
facing many kinds of problems in their operations. Various process and strategies have been
used by the organisation to make sure that they become successful in their expansion plans.

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These strategies are long ranging and had a holistic point of view where each and every
department of the companies plays a vital role.
Fashion Industry has expanded its reach in various parts of the world and so is Asia. ZARA is
one such global fashion company which has expanded its business in Asia. They have been
leaders in the European market but in order to increase their profit margins companies have
planned for expanding in highly dense market like Asia. Since a large cultural diversity is
present in various parts of the Asia hence it has given Zara a great opportunity to expand in
this region. China is the biggest manufacturing centre of its parent company Inditex in Asia.
Even the raw material requirements are also filled from the countries like India and
Bangladesh. Even after the challenges and the problems that exist for the fashion companies
in Asia, Zara with the help of its brand name did not faced problems in making their name in
the market (Ghemawat, Nueno and Dailey, 2003). Still due to excess of competition that is
present in Asian market and the lower purchasing capacity of the major part of the market has
increased the challenges of the company. The management of Zara needs to rethink about the
strategies that could help in confronting all the challenges that are faced by them. With so
many operational units in Asia, managing business across boundaries has become difficult for
Zara.
This report highlights the different approaches to internationalisation that Zara used for
crossing over the boundaries and doing business in the Asian region. It also showcases the
challenges and problems that Zara have faced while expanding their business in Asia as well
as the challenges and problems that it is facing while being operational in Asia. Along with
this it also discusses the process that has been followed by the Zara while expanding as well
as the strategies that are used by the firm for making their business successful.
ZARA expansion in Asia
Zara in its expansion policy started to expand in Asia from the country named China. They
opened their first store and manufacturing plant in China. Zara came to Asia as it is a very
dense market and have the potential to change the growth rate of Zara. This is also because it
is one the fastest emerging market in all across the globe.
In only a decade of its expansion into Asian market, they have become the major player in the
market. Countries like India and China are their major market. Since China is a
technologically advanced market and promotes research and development hence Zara

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adopted China as their manufacturing Hub. Recently China’s production unit is not only
satisfying the needs of the Asian market rather it has become capable of satisfying the needs
of their global customers (Tokatli, 2008). With their strategic planning of availing resources,
they started taking raw materials from the countries like India and Bangladesh. Due to lower
cost of Jute, Zara has shifted its focus towards Bangladesh.
Approaches to Internationalisation
Internationalisation is a process of expanding into the new market for ensuring higher
stability and growth of their business. Almost all the companies have used it for their
benefits. Zara while expanding in the markets like Asia used a strategic approach to
internationalisation. This is illustrated by the fact that they have incorporated many strategies
ranging from expansion to marketing for their expansion plans (Crofton and Dopico, 2012).
Most of the time it is done for reducing the cost of operations as well as to enhances their
profits. Internationalisation of Zara has significantly changed the dynamics of the Asian
fashion market. Apart from this a holistic approach to internationalisation has also been used
by Zara, as they did not only focused on exports and imports rather they established a
strategic alliance with the suppliers in the region. With its manufacturing centre in China they
further gave a push to holistic approach.
The strategic approach to internationalisation has empowered them to gain competitive
advantage over their rivals (Larke, Dawson and Burt, 2006). This was necessary for the
entering into the market and establishing themselves in the new market. In their later stage to
expansion into Asia, they adopted contingency approach so as to tackle all the challenges that
are confronting their business. This has helped them in expanding in the Asian market
country wise i.e. for making business successful as per the challenges that is present in the
market (Bartlett, 2011). This is necessary in the modern market.
It is to be understood that there are larger number of competitors present in the Asian market
and hence just importing into Asia world not have helped the company in establishing their
base in the market. The strategic approach to Internationalisation has helped them in
smoothening of the expansion process as it aligned all the resources available with the firm in
one line. With all the approaches mentioned above, Zara has been successful in making edge
in the market.

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Process of Expansion
Zara entered in Asian market with the aim to capture the larger part of the market. In their
approach to internationalisation the process they have used for expansion is unique in itself as
they were using pragmatic approach. In their process the entry mode that they have chosen
for expansion is different in different countries (Carugati, Liao and Smith, 2008). But
basically they have chosen three entry modes which are common in all across the globe. They
are Own subsidiaries, Franchising and Joint ventures. In china their expansion mode is equity
where it opened its flagship store in different parts of the nation. While expanding they have
understood the environment that is present in China. Since Chinese market is highly
technologically advanced market which attracted them to open Inditex’s factory in that
market. In the Chinese market they used the strategies like differentiation strategy and cost
leadership strategy. Due to easy and low cost availability of all the resources they did not
faced problems in entering into the nation.
On the other hand for expanding in India they have taken another way. In Single brand retail
there is no 100% Foreign Direct Investment possible in India. In order to overcome this
problem, they have chosen TATA as their partner so as to open their shop in India. Tata
Limited holds the 49% of their share in Zara India. For entering into the market of India they
have chosen strategy of Joint venture where they have tied up with Trent Limited which is a
highly recognized clothing line distributor. They followed cooperation strategy as the
technological and industrial experience of Zara combined with the market knowledge of
Trent has been used for gaining competitive advantage. This was a highly beneficial market
entry strategy since it was a combination of both the best practices in the market as well as
the knowledge of the market (Mo, 2015). It enabled ZARA to open their stores in India with
the same brand name while following the laws present in the nation.
The process of collaboration between the two partners was not easy as in the starting phase
there were many conflict that have arisen among them (Deresky, 2010). Trent helped Zara in
understanding the market but there was a problem that both companies had cultural
difference as well as ways of operation was also dissimilar. The problem of cultural
dissimilarity from parent nation to Chinese culture was a hurdle for them. They did not face
such problems in India because they had the partnership with the company that is having
greater knowledge about the Indian environment. In the beginning Zara was highly
concerned about the demography, cultural and the language barrier in the nation but having
such a big distributor as partner has helped them.

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Strategy that they have used while expansion
Zara took a very small amount of time to establish in the Asian market even when they do not
use promotional campaigns. This was possible because of two reasons first its brand name
and second is the strategy that they are using. They have used many types of strategies for
making sure that there growth in the Asian market remains on higher side.
In the expansion they used Internationalisation strategy for expending across borders. In this
also they have used Growth strategy, international strategy, transactional strategy and multi
domestic strategy (Ferdows, Lewis and Machuca, 2003). The selection of strategy differed
from country to country. But in most of the countries they have used global strategy for
crossing borders. Following this strategy they offer products that are of lower cost. Following
this strategy Zara relies on low cost structure and offers products and services in they have
expertise. Their standardisation of products as well as the quality that they maintain helped
them in expanding their reach in the market. Global strategy is also adopted by the company
because Asian market has higher cost pressure as well as low local responsiveness.
Figure 1: Business Jargons: Expansion through Internationalisation

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In some parts of Asia like India where the 100% Foreign Direct Investment is not possible
because of the prevailing rules in the country, they have selected cooperation strategy which
has been discussed in the previous part of the report.
At the time of entering into the Asian market they are using the strategies so as to stabilise
their presence in the market. In the starting phase of its expansion it used ethnocentric and
polycentric strategy for staffing and at later stage they used the strategy named geocentric
strategy. This helped them in encountering the unexpected difficulties that they were facing
in terms of cultural differences (Hansen, 2012). This proved to be highly beneficial in China
where they had to open their wholly owned subsidiary. In India they used polycentric and
geocentric strategy for staffing.
With the adoption of fast fashion strategy they have been able to enlarge their customer base.
In order to capture the pre-defined target market in the nation where they want to expand,
Zara used Sprinkler strategy that is based on the principle of diversification in which a firm
attempts to enter as many market as possible in a very short period of time (Matic and
Vabale, 2015). Their joint ventures in some parts of the Asian region have helped them in
their expansion plans.
Apart from this product diversification and new product development has helped them in
penetrating deep into the market. This has helped them in gaining the competitive edge over
the market.
Challenges and problems that Zara has faced while expanding in Asia
Expanding into Asia was not an easy job for the fashion giant like Zara. This was not due to
multiple factors present in Asian market. Along with these factors there are several
challenges and problems that are present in the Asian market. Some of the problems and
challenges are as follows:
 Over competition: Large numbers of companies are operational in Asian market
before Zara came in Asia. It included many small and international players. In such an
intensive competitive market, it was a challenge for them to make their position
(Hurley, 2017). This problem gets bigger as there are competitors present in the
market that are offering products at highly lower cost price.

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 Imitate Zara’s fashion: There are few countries in Asia like India, where there is
copying of the Zara’s fashion that too at lower prices. Many small unregistered firms
copy the style and their trade name on their products. This is extremely hard to
eliminate as it happen at very ground level.
 Lower cost market: In Asian region most of the markets have lower per capita income
population hence they do not prefer branded products of Zara. People prefer to have
lower cost products and hence Zara also needed to adopted low cost structure and still
ensuring higher profits (Viardot, 2014). Purchasing power of the people is on the
lower side which never supports fashion industry.
 Market regulations: There were many market regulation that were present in the
market like the constraint of being unable to become the major partner in the country
like India. Apart from this opening a new stores in these countries were typical as
compared to other regions of the world. This is due to the reasons like space
complexity or hostile business acquiring property. This produced a challenge as
because of it there was significant decrease in the growth of the company.
 Lesser use of technology: In most parts of Asia except countries like China, there is
lesser utilisation of technology in the business activities. It can also be understood by
the fact that these countries are not producing the technological devices that will be
required in the business process hence Zara are availing it from other countries which
makes it a costly affair. In European nation much more advanced technologies are
available.
 Communication and cultural gap: Since there are communication barriers that existed
in between the companies in Asian region as well as its parent nation. Due to the
language barrier between the management and the lower level of staffs, it was not
easy to implement the strategies that have been made by the firm for entering into any
nation (Rao, 2014). Apart from this, there are cultural difference between their parent
nation and countries in Asia. Overcoming this was a serious challenge. This gets
intensified in the country like India where huge cultural diversity exists in the nation
itself.
 Understanding demographics: The society of Asia is very diverse and the
demographics present in the nation makes the equation more complex. Understanding
such a complex demographic needs and making products as per their demand needs a
heavy research. Society also has a high fluctuation in their demands i.e. different
generation people have different choices and that too choices varies a lot.

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 Huge marketing competition: It was also found that there was larger amount of
competition present in the fashion industry (Swoboda and Elsner, 2011). But the
worry is that this market is highly driven by marketing efforts as people buy products
as per the perceptions. This was a challenge for the Zara as they did not believe in
promotional campaigns. Brands like H&M or Mark and Spencer already have a larger
brand name which is giving tuff competition to Zara.
 Lesser loyal customers: Since so many companies are present in the Asian market
hence consumer’s loyalty is on the lower side. This is due to the reason that they have
a larger numbers of options available with them. The lower consumption rate in the
market with lower market base was a problem for the company.
 Bureaucracy: Except fewer nations, the role of bureaucracy in business has been
negative. This is due to the reason that it is extremely slow in taking decisions as well
as they are very corrupt. Most of the company has to do lobbying so as to get entrance
in the market (ToughNickel, 2018). It is also reflected in their ease of doing business
ranking as most of the companies in this region lies on the lower side. Poor
infrastructure was another big problem that it faced in the south Asian region.
 Developing nations: Most of the nations in the Asian region are developing and their
economic conditions are highly dependent on the other developed economies. Due to
this reason there is quite instability in the market. Such type of instability is not good
for any industry as it cannot provide economic support to them at the time of financial
crisis.
 Government Policies: Government policies related to fashion industry is not very
enthusiastic. This has forced the firm to make sure that they make effective strategy
so as to overcome any policy that affects their business. In India rule regarding 100%
FDI in retails have had poor effect on the business of the company.
 Larger population in rural area: Since the larger part of the population in this region
was present in the rural area, it was set to the bigger firm like Zara. This is due to the
reason that the type of operational mechanism they have needs cities to operate hence
it becomes a challenge for the company to ensure higher sale in the rural regions.
CONCLUSION
From the above based report it can be concluded that Zara is a bigger fashion retail company.
Its parent Company Inditex is one of the biggest in all across the globe. Asian market is an

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emerging market and hence provides large number of opportunities as well as poses threats to
the business of the firms. This company has used many strategies so as to expand their
business in the Asian Sub-continent. It is due to this reason that they have been able to reach
to larger part of the market. They have been using many types of approaches of
internationalisation so as to expand in the Asian market. This company has followed a unique
pragmatic approach to expand in different markets which has helped them in making their
business growth stable. Strategies such as internationalisation strategy especially global
strategy have helped them in making their mark in many markets at the same time. Along
with this in some countries they have used cooperation strategy where they could not have
their own subsidiary. Apart from all this, Zara has faced many kinds of challenges in their
business in Asia and hence they need to make changes in their strategy to ensure growth.
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