Analysis of Zara's International Business Operations and Strategies

This report provides an in-depth analysis of Zara's international business operations and strategies. It examines Zara's organizational structure, international competitive strategies, and market entry approaches such as Greenfield investment, joint ventures, and franchising. The report also highlights the critical role of supply chain and operations management in Zara's global growth. Furthermore, it identifies key issues and opportunities for management, offering recommendations for improvement. The document discusses Zara's unique business model, emphasizing its quick response to customer demands and vertical integration, which contributes to its competitive advantage. The report concludes by summarizing Zara's successful expansion into various nations and its ability to maintain a strong brand image in the global fashion retail industry. Desklib provides access to this report along with other solved assignments and study materials for students.

Running Head: INTERNATIONAL BUSINESS 1
Managing International Business: Zara

INTERNATIONAL BUSINESS 2
Executive Summary
Managing the international business is very important when any organization expand its business
across national boundaries. International business is the process through which a company
engages in the business practices among various countries. Most of the largest organizations
choose international business as their growth strategy as it enables them to increase their
operations among a large population. Zara is one of them that are working as a translational
organization in fashion retail industry. The major objective of this report is to discuss different
aspects of Zara in its international growth and business. The report includes all the facts which
assist the organization to successful establishment of business in international markets. It
includes the organizational structure of the company and its international competitive strategies.
The company is using effective strategies to enter into the market like Greenfield investment,
joint venture and franchising. Supply chain and operations management plays an important role
in the growth of organization across the borders. There are some issues which company is facing
in these markets.

INTERNATIONAL BUSINESS 3
Table of Contents
Introduction......................................................................................................................................4
Company Overview and Current Operating Position......................................................................4
International Competitive Strategy..................................................................................................5
Existing Organizational Design Structure and Control Issues........................................................6
Entry Strategies Used......................................................................................................................7
Operational Control, Production and Distribution/ Supply Chain Management.............................9
Management of Human Resources................................................................................................10
Key Issues or Opportunities for Management...............................................................................10
Recommendations to Management for Improvement...................................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

INTERNATIONAL BUSINESS 4
Introduction
International business is the process to exchange the products and services among businesses and
individuals in more than one nation. It is the activity where an international company or multi-
national corporation engages in business processes among multiple nations. The term,
international business includes all the commercial practices which take place to increase the
transfer of products, services, people, ideas, technologies and resources across the national
boundaries (Cavusgil et al, 2014). When a company plans to use the products from any foreign
country, it needs to develop contractual agreements which enable the firm to use goods and
services from other countries. Under international business expansion, a firm focuses
development and operations of manufacturing, sales, R&D and distribution process in other
markets.
The below report is focused on international business growth of the most popular fashion retailer
i.e. Zara. Zara is translational organization that has successfully expanded its business in various
nations like Mexico, India, China, Indonesia, Hungary, Japan, Singapore, South Korea, Ireland,
UK, Australia, France, Germany etc. This report discusses about the international competitive
strategy of the organization. It includes the discussion entry strategies of the company and its
operation management processes. More, it consists of some issues which are confronted by
organization in international environment. At the end, it includes the recommendations which
can be used by Zara’s management team to improve its operations in international markets.
Company Overview and Current Operating Position
Zara is a Spanish fast fashion retailer that is based in Arteixo, Galicia (Spain). It is one of the
most successful retailers all over the world that is using effective strategies for its international
expansion and logistic system. The organization was founded in the year 1975 by Amancio
Ortega and Rasalia Mera. It produces fashion products by using different fabrics. Zara is the
major brand of Inditex group that is the largest apparel retailer across the world. Apart from this,
it also owns some other brands as well like Massimo Dutti, Bershka, Oysho, Uterque, Zara
Home etc. Zara is going ahead with the changing fashion and trends and providing excellent

INTERNATIONAL BUSINESS 5
quality products to its potential customers. As of the year 2017, the company is able to manage
up to 20 clothing collections a year (Zara, 2018).
After its establishment in the year 1975, Zara has started to expand its business operation in
international markets such as Paris, Portugal, Malta, Sweden, Greece, UK, Australia, Israel,
France, Russia etc. Today, there is hardly any developed nation without the store of Zara. Now,
the company has more than 2250 retail stores which are strategically located in major cities
across 96 nations. The current operating position of Zara can be understood by looking at the fact
that in the year 2017, it was ranked 24th on the list of best international brands which is released
by global brand consultancy interbrand (Zara, 2018). The company is operating its business with
four core values like clarity, beauty, sustainability and functionality. Zara have a different market
positioning and exclusive business model from its competitors like H&M, Myer, Burberry etc.
which make it more successful in world fashion retail industry. The organization is positioned
more fashionable and stylish than its competitions but with a comparatively low pricing
behavior.
International Competitive Strategy
When an organization plans to operate its business operations in international markets, first it
thinks about the competitive strategy that will assist it to compete with already existing brands
and attain compete advantage. This is the ways through which the companies make the
alternatives about using and purchasing the resources to attain international objectives. It
includes various decisions which deal with all the processes and functions of firm. Each and
every organization develops international competitive strategy with the goal to attain a valuable
and unique position in global markets (Byun, 2013).
As a one of the largest fashion retailers, Zara is also using effective competitive strategies in
international markets. One of the major international competitive strategies of Zara is its unique
business model. The major concept of its business model is to offer the medium quality fashion
cloths and accessories at mass population at reasonable prices. The key to this business model is
quick response to customers’ demands and vertical integration. This business model of the
company is featured by the higher degree of vertical integration. Time is the major factor beyond

INTERNATIONAL BUSINESS 6
costs of production (Caniato, et al, 2014). This model enables the firm to attain great flexibility
and cut the turnaround times. It has reduced the stock to minimum and declined the fashion risk.
In addition to this, Zara adopts effective intensive strategies so that it can stay competitive in
international markets. It implements market develop strategy in which they are planning to enter
into new market like India, China and Indonesia (Kotler, 2015). Additionally, in American and
European markets, the company is enhancing its online stores and customer services so that it
can compete with its direct competitors in international markets. By using these strategies, Zara
is able to establish a strong brand image in foreign nations and gain sustainable competitive
advantage against domestic and global competing firms.
Existing Organizational Design Structure and Control Issues
The indtex Group is made of 8 retail sales formal including Zara. This brand operates its
business with a fashion concept that fosters quality design and creativity together with quick
response to demands and expectations of customers. Currently, Zara runs its business by
developing a lean organizational structure that focuses on the high performance. At Zara, this
type of organizational structure has reduced the managerial hierarchy levels and decentralized
decision making process (Mihm, 2010). By using this structure, the company aims to limit the
focus of business on additional administrative processes.
From product designing to delivery, the company takes only five weeks for a cloth and only two
weeks for an existing garment design. This type of organizational design structure has shortened
the product life cycle that enables for great success to meet the needs and wants of customers.
The organization structure of the company is totally based on the customers of work of
coordination and communication (Tungate, 2008). Customer satisfaction is very important to this
company and purchases of customers shape most of the business decisions at Zara. The firm and
its lean organization design structure prosper on the utilization of information technology. The
stores of Zara use this technology sources to report directly to designers and production centers
in Spain. Moreover, the managers at stores use the PDAs to check the latest fashion clothing
which has been manufactured and place the orders on the basis of demand they look in the stores.
The below given is the organizational structure of Zara which it is using currently:

INTERNATIONAL BUSINESS 7
About the control issues at Zara, it can be stated that company is using lean type of
organizational structure that has reduced the hierarchy levels of management so there are less
chances of control issues. If the span of control is wide, supervision of various subordinates is
very stressful and difficult for the managers (Jacobs and Chase, 2013). The organizational
structure of Zara focuses on managing the quality of fashion accessories and increasing customer
satisfaction so company wants to stay away from these control issues.
Entry Strategies Used
Market entry mode strategy is one of the significant strategic choices. It affects the resource
commitment, firm’s degree of control, share of profits and investment risks (Cuc, and Tripa,
2017). To enter into international markets, Zara has adopted effective entry strategies which are
given below:

INTERNATIONAL BUSINESS 8
Greenfield Investment
Greenfield Investment is the most preferred entry mode by Zara. It is a kind of foreign direct
investment where a parent firm builds its operations in international market from the base. Zara
thinks that it is the most advantageous entry mode as the major benefit of this entry strategy is
control over the business processes (Cowe, 2010). However, this mode needs higher level of
commitment and resources so Zara has implemented this strategy in high profiled nations with
lower business risk and higher growth prospects.
Franchising
Zara uses this mode in the nations where foreign direct investment is not possible. There are
various markets which are risky and small. Zara has entered in many countries where foreign
ownership ruled out its direct entry. So, company used this entry mode and it has opened
company owned stores in the country. These franchises are among the well-settled and financial
strong stores of Zara (Deresky, 2017).
Joint Ventures
In addition to above entry strategies, the largest fashion retailer Zara has adopted joint venture
agreements. The company has used this entry mode in more competitive and larger markers
where there are various barriers to direct entry. In these nations, Zara faced difficulties to obtain
prime space for its retail stores in city centers. In Japan and Germany, Zara formed the joint
ventures with Bigi and Otto Versand respectively. Otto Versand is one of the largest retailers in
Germany and significantly a mall owner. Moreover, Bigi is a Japan based textile distributor with
the knowledge of local market. These are the major reasons why Zara formed joint ventures with
these firms (Gallien, et al, 2015).
In this way, currently Zara is using three major strategies to enter in international markets. The
strategies are such as Greenfield Investment, Joint Venture and Franchising.

INTERNATIONAL BUSINESS 9
Operational Control, Production and Distribution/ Supply Chain
Management
Different components of operations management play an important role in the growth and
success of Zara in foreign markets. Under this, the major components are such as production and
supply chain management. Operations management and supply chain are two major reasons
behind Zara’s competitive advantage. The company is focused on the 3 major areas like reducing
the inventory, increasing the resources and time overtaking (Forsgren, and Johanson, 2014). The
operations of the company are totally controlled by company’s head in Spain. Under its
production process, it can be stated that Zara has the capacity to maintain and cross the
boundaries of fashion and trends. The business model of the company is totally focused on the
customers and it produces the fashion products and accessories considering the demands of
customers and changing fashion and trends (Çifci, et al, 2016). As Zara is only accountable for
the designing process of its products, the method of designing includes all the designers,
commercial teams, market specialists, staff and procurement team with frequently updated
assessments from store management. The organization uses updated technology in its production
and designing process that assists the company to stay competitive in the textile industry (Cortez,
et al, 2014).
In its operations, Zara ignores to stock up the inventories from raw materials to end customers as
it assists the company to reduce the unnecessary costs of material handling. As compared to its
international competition, Benetton, H&M and Zara maintain the lowest inventory too reduce
additional costs as % of yearly sales (Gorrepati, 2016).
Apart from above operations strategies, supply chain management processes are the most
significant part of Zara’s key success factors. Zara uses vertical integration to manage its
logistics and supply chain operations. It manufactures the apparel in bulk that customers buy
from its retail stores. Vertical integration is the secret behind Zara’s retail success as it assists the
organization to fast introduction of new products in international markets. Most of the production
operations are centered in the manufacturing grounds in Spain. It has its own retailers and
production facilities which are vertically integrated (Ayers and Odegaard, 2017). The success
story of this brand shows the strengths of its operations strategies. Zara’s cross functional
operation strategy that is coupled with vertical integrated supply chain allows the mass

INTERNATIONAL BUSINESS 10
manufacturing under the push control, directing the company to lower markdowns, well-
organized inventories and higher profitability.
Thus, the company has managed its operations effectively in both national and international
markets so that it can maintain its brand image and gain sustainable competitive edge against its
competitors.
Management of Human Resources
Human resource management is major aspect for any company. When the company plans to
expand its business across the borders it ensures that its employees have shared values and vision
which are built on sustainability through equality, diversity, professional development and
volunteering. To manage its human resources across borders, Zara provides effective training to
the employees about the culture and language of foreign nation (Venkataraman and Pinto, 2017).
The company recruits the people from young generation so that it can offer the products
according to changing fashion and trends. Furthermore, senior management gives its store
managers full freedom, control over the operations of their stores and performance with growth
and profit targets with flexible and fixed compensation scheme. The organization uses various
schemes in international markets to motivate the employees so that they can perform their roles
and responsibilities effectively.
Key Issues for Management
Internationalization of business operations has posed various challenges to both the Zara’s
management and its human resource department. There are various issues which are faced by
Zara in its international markets. Because of its business model, it was complex to be
implemented the joint venture entry mode, specifically in the conditions where they have to join
its criteria with their partner in terms of control and strategy. Due to this, sometimes Zara has
bought back its shares after the dissolution of joint venture. In addition to this, the company is
facing issue due to the higher prices of its products (Li, Ragu-Nathan and Subba, 2006). The
company sets higher prices of its products and accessories as it cannot compromise on the
customer service and product quality. One of the most important issues at Zara is its common
and simple design of products. It products and designed can be copied by other players in textile
industry. Moreover, in some of the international markets company is facing the issues related to

INTERNATIONAL BUSINESS 11
inflation. If there will be increase in the inflation rate, it will directly affect the purchasing power
of people towards fashion brands (Carbonara and Pellegrino, 2017). Thus, these are the major
issues which can affect the growth and business of Zara in international markets.
Recommendations to Management for Improvement
By considering the above issues, it is hereby recommended to management that it should develop
a flexible business model that can be altered according to different market entry strategies. Zara
should implement effective marketing and advertising strategies so that it can increase its brand
awareness among customers. It should use effective market entry modes so that it can establish
its stores successfully and attain competitive advantage against its competitors. In addition to
this, the management at Zara should make efforts to improve the management of its human
resources as they are the major part of its operations. They should motivate the store managers to
develop an excellent environment at stores. Under designing process, it should introduce new
and innovative designs of its products. The staff should be customer friendly so that they can
attract more customers in international markets.
Conclusion
From the above report, it can be concluded that Zara is a growing fashion retailer in international
market. The company uses effective marketing and competitive strategies in these markets. The
above report includes different aspects which are related to the international growth and
expansion of Zara in global textile industry. However, the organization is successful in these
markets but still it faces some issues. These issues may affect the growth and brand image of the
company among a large population. The company should make efforts to improve its conditions
in the market considering the above recommendations. These recommendations will assist the
organization to stay competitive in global fashion retail industry.

INTERNATIONAL BUSINESS 12
References
Ayers, J.B. and Odegaard, M.A. (2017) Retail supply chain management. CRC Press.
Byun, J.W., (2013) A study of SPA Brand Zara's successful international marketing
strategy. Business Economics, 46(1), pp.229-248.
Caniato, F., Caridi, M., Moretto, A., Sianesi, A. and Spina, G. (2014) Integrating international
fashion retail into new product development. International Journal of Production
Economics, 147, pp.294-306.
Carbonara, N. and Pellegrino, R. (2017) How do supply chain risk management flexibility-driven
strategies perform in mitigating supply disruption risks?. International Journal of Integrated
Supply Management, 11(4), pp.354-379.
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L. (2014)
International business. Pearson Australia.
Çifci, S., Ekinci, Y., Whyatt, G., Japutra, A., Molinillo, S. and Siala, H., (2016) A cross
validation of Consumer-Based Brand Equity models: Driving customer equity in retail
brands. Journal of Business Research, 69(9), pp.3740-3747.
Cortez, M.A., Tu, N.T., Van Anh, D., Ng, B.Z. and Vegafria, E., (2014) Fast fashion quadrangle:
An analysis. Academy of Marketing Studies Journal, 18(1), p.1.
Cowe. (2011) Sources of Competitive Advantage, (3rd), Essex, Pearson Education Ltd
Cuc, S. and Tripa, S. (2007) Strategy And Sustainable Competitive Advantage- The Case Of
Zara Fashion Chain. Fascicle of Management and Technological Engineering, 6(16), pp. 2521-
2524.
Deresky, H. (2017) International management: Managing across borders and cultures. Pearson
Education India.
Forsgren, M. and Johanson, J. (2014) Managing networks in international business. Routledge.

INTERNATIONAL BUSINESS 13
Gallien, J., Mersereau, A.J., Garro, A., Mora, A.D. and Vidal, M.N. (2015) Initial shipment
decisions for new products at Zara. Operations Research, 63(2), pp.269-286.
Gorrepati, K. (2016) Zara's Agile Supply Chain Is The Source Of Its Competitive Advantage,
Available from http://www.digitalistmag.com/digital-supply-networks/2016/03/30/zaras-agile-
supply-chain-is-source-of-competitive-advantage-04083335. [Accessed on 24 May 2018].
Jacobs, R. and Chase, R. (2013) Operations and supply chain management, McGraw-Hill Higher
Education.
Kotler, P., (2015) Framework for marketing management. Pearson Education India.
Li, S., Ragu-Nathan, B. and Subba, R. S. (2006) The impact of supply chain management
practices on competitive advantage and organizational performance. Omega Journals, 43(2), p.
107–24.
Mihm, B., (2010) Fast fashion in a flat world: Global sourcing strategies. The International
Business & Economics Research Journal, 9(6), p.55.
Tungate, M., (2008) Fashion brands: branding style from Armani to Zara. Kogan Page
Publishers.
Venkataraman, R.R. and Pinto, J.K. (2017) Operations management: Managing global supply
chains. SAGE Publications.
Zara. (2018) ZARA India | New Collection Online, Available from https://www.zara.com/in/.
[Accessed on 24 May 2018].