Zara's Global Expansion: Managing Across Borders in the Asian Market

This report examines Zara's cross-border management and expansion strategies, focusing on its successful entry into the Asian market. It highlights Zara's internationalization approaches, expansion processes, and key strategies, including internationalization, transactional, growth, and multi-domestic strategies, supported by its parent company Inditex. The report details Zara's strategic and holistic approaches to internationalization, utilizing joint ventures and establishing manufacturing units in China to optimize costs and meet consumer demands. Challenges faced during expansion, such as cultural differences and market competition, are also discussed. The report concludes by emphasizing the importance of adaptive strategies in navigating the complexities of global expansion and maintaining a competitive edge in the fashion industry. This document is available on Desklib, a platform offering a wide range of study tools for students.

MANAGING ACROSS
BORDERS

1
EXECUTIVE SUMMARY
In the era of globalisation, fashion brands have crossed borders and have reached to those
countries that were understood to be as the third world (Lynn Childs and Jin, 2014). This
report signifies the approaches that global fashion brand Zara have used for itself so as to
successfully set up their businesses in these regions. Various aspects related to Zara business
have been highlight along with its expansion process in Asian region specifically. The
strategies that Zara have used over the years for expansion have been identified and
illustrated in this report. The way in which these strategies have helped Zara in crossing
borders and making their marks have been showcased. In the last section of the report the
challenges and problems that Zara have faced in their expansion process have been described.
Content

2
s
INTRODUCTION.................................................................................................................................3
Zara expansion in Asian market............................................................................................................4
Internationalisation approaches.............................................................................................................5
Expansion process.................................................................................................................................6
Expansion strategies used by Zara.........................................................................................................7
Business problems and challenges that Zara is facing...........................................................................9
CONCLUSION...................................................................................................................................10
REFERENCES....................................................................................................................................10
APPENDIX.........................................................................................................................................12
INTRODUCTION
Today fashion industry is not only restricted to some European or American markets rather
the companies have crossed border to reach to new destinations so as to increase their market
base (Bhardwaj, Eickman and Runyan, 2011). This has helped the firms to manage their high
profit margins as well as ensure that growth rate. Globalisation has empowered firms to

3
manage their business across the global horizon. With the use of online business they have
been able to find pathway to reach to international borders. The expansion process has been
done based on various dynamics of the marketplace and the environment that is present in the
organisation. As the issues in the market have increased considerably hence managing
operations has become difficult in spite of their several efforts.
Zara has been known for implementing the technologies and strategies for improving their
business standards. Zara is one of fashion giants that is present in various parts of the world
and has taken several steps to ensure high level of growth (Gaur, Kumar and Sarathy, 2011).
With the help of their parent firm Inditex they have successful in meeting the demands of
their global customers. In order to strengthen their position in the market, they have used
many strategies from time to time. With the big brand name it has along with the strategies
they have made for themselves, they have been able to reach to new regions like Asia. China
and Indian subcontinent has become one of the major regions of their focus. They have
utilised several types of strategies so as to face the challenges which is increasing day by day
in numbers. Strategies have also been shaped in such a manner that they successfully
implemented all their expansion plans (Mo, 2015). All the departments have played a major
role in their management of strategies.
The story of Zara’s stretch to Asian market has started with fact that the type of products that
Zara produces does not only restricted to European and American market. Rather there is a
very huge amount of population that is living in the Asia who are the potential markets for
this European industry giant (Mohr and Batsakis, 2014). For meeting the Asian demands they
have opened their business in many parts of the Asia. Since a whole lot of fashion companies
have entered into this region with a huge amount of resources and capability to change the
business scenario. This has increased the tension in terms of market share and many
challenges for Zara have occurred. Having so many operational units in this region has
further made the problem bigger.
This report signifies the approaches that has used by Zara in their process of expansion. It
also presents the strategies they have used for the business to expand in Asian region along
with the challenges that are facing in this part.

4
Zara expansion in Asian market
With the support of their parent company Zara have been able to make their presence felt
among the various fashion giants present in Asian region. They have opened their
manufacturing unit in China as well as have opened their flagship store in Chinese market
(Mollá-Descals, Frasquet-Deltoro and Ruiz-Molina, 2011). With the support of their fast
fashion strategy and the supply and distribution chain it has, they have been able to satisfy the
needs of the consumers. One of the major reasons for Zara’s selection of Asian market is that
this region has lot of countries which are developing and has a huge population that can be
targeted by Zara. Countries like India and China have a huge population and have a potential
to convert Zara as the highest selling brand in Australia.
China is a technologically advanced nation with a highly stable economy. It has attracted
Zara to open their shop in this nation. It is acting as a centre for where various operations of
Zara and hence they can satisfy their global market (Swoboda, Elsner and Morschett, 2014).
India and China is used as a nation from where they are availing their raw materials because
of the high quality raw materials the produce that too at lower prices. Their expansion in
Asian market has also been seen with the fact that due to several factors existing in the
business environment, their growth have slow in this region.
Internationalisation approaches
In the expansion of Zara over the borders in various markets, they have been using many
approaches to internationalisation. Internationalisation is described as the process of
expanding business in the new regions for making sure that considerable growth
opportunities can be provided to their business (Asarpota, 2014). This has also empowered
firm in maintain their stability in terms of profits they are making. Many players in this
industry have used it for their own benefit.
Zara’s approach to internationalisation has been very selective and has used a wide range of
process so as to stabilise their business. The first approach to internationalisation of Zara is
has been the strategic approach which made it capable of reaching into new regions of the
world (Frasquet, et. al., 2018). This approach to internationalisation has been highlighted by
the fact that they have been consistently using a series of strategies to expand their business
in the new areas. These strategies have been made as per the effectiveness of different
organisational units. They have a different set of strategies for each functional unit of theirs.

5
This approach was basically used for reducing the operational cost and at the same time
increasing the profit values. Zara’s internationalisation process has not only affected them but
has also effected the business operations of the other competitors performing in this region.
Zara has been able to change the market dynamics in the Asia. The strategic approach to
internationalisation has provided them competitive advantage over most of the players in the
industry (Macchion, et. al., 2015).
The second approach which they have selected for themselves is an holistic approach which
suggest not only be believe on the exports and imports to reach to a particular region rather
stress on making strategic alliance with the companies, suppliers and distributors. This
approach can be seen with the example that that they have opened their manufacturing unit in
China. After expansion they are using contingency approach that helped them in tackling the
challenges Zara as a firm is facing. This approach has helped them in stabilising their
business from nation to nation. In the expanding global business challenges this approach is
highly useful.
From time to time they have been using all these approach so as to bring smoothness to their
expansion process. The competition in the market has gone cut throat and collective use of all
these approaches can help in establishing their base in the market which gave them
competitive advantage over their rivals.
Expansion process
Zara have entered into the market of Asia with the aspiration of capturing the lager section of
the market base. Uniqueness can be noticed in their process of expansion. Their pragmatic
approach towards choosing of strategies has helped them in tackling all the problems they are
facing in their business (Martínez, Errasti and Rudberg, 2015). While conducting the
internationalisation pragmatic approach can be seen by the fact that they had to use various
modes of entry for expanding into different countries. Joint venturing, own subsidiaries and
franchising has been their three common approaches or say entry modes for entering into the
new countries.
Using their different mode of entry, they selected China as their country where they opened
their first flagship store. This has been considered to be as the equity mode of entry. After a
short period of time they have opened their first manufacturing unit in China. With the
effective supply chain they were able to avail the raw materials form the Indian sub-

6
continent. This has utilised differentiation and cost leadership strategy for increasing their
market base in China (Caraballo, 2011). With the easy availability of the resources in this
region along with the cost leadership and differentiation strategy, they have been able to
capture the larger part of the neighbourhood. Easy availability of cheap and cost effective
resources have helped them in successfully implementing marketing strategies.
While in India their entry has been simplified with the use of some other kind of strategies. In
India no retail firm can invest 100% through FDI. For resolving this problem, they utilised
the approach of Joint Venture as a part of their expansion strategy. This strategic alliance
with one of the biggest distributor in the region named TATA group has helped them in
reaching into the market base at a very fast speed. Trent holds the 49% share in this alliance
(Varma, 2017). This alliance has empowered their supply chain management which is
necessary for the growth of any firm. They utilised each other competencies for the
development of whole as an organisation. ZARA provided its technology as well as its
experience in the market for fulfilling the market demands. Its brand name has facilitated
them to establish their business easily. This strategy has helped them to open their store
inside the nation even after complying with all the norms made by government of India.
The strategic alliance has not been so smooth in the starting as the working culture of both
the firm differed. This problem was not faced by the firm in Asia when they opened their
store in china. Their strategy of offshoring and outsourcing has helped to reduce their
business operational cost as well as to improve their position in the overall market.
Manufacturing unit in China and other operations in Indian sub-continent has been a prime
example of use of these two strategies.
Expansion strategies used by Zara
The cited firm has been able to handle their operations across the borders with the help of
their made strategies. These strategies have helped them in stabilisation of their Asian
business in a very quick time. Their strategies have helped them in achieving the objectives
they have made for themselves. In the process of expansion first strategy that they have
chosen is Internationalisation strategy which consists of four other strategies like
international strategy, transactional strategy, growth and multi-domestic strategy (Turker and
Altuntas, 2014). They have been selecting each of their strategies according to requirements
of any nation. The challenges that they face in the process of expansion plays a bigger role in

7
the selection of strategies. Growth strategy has been their major strategy as it brings
standardisation the work process which help in yielding of standardised products. Growth
strategy also helped them in terms of lowering down the product prices which was essential
for maintaining their low cost structure in their pricing. It has also helped them in maintaining
their standards while keeping things simple which is their major competency.
Figure 1: Internationalisation strategy Zara
In order to meet their staffing requirements, their major strategy was polycentric. This has
helped them in managing the problem related to cultural dissimilarity that is present in its
parent nation and Asian or other markets (Crofton and Dopico, 2012). Cooperation strategy
helped them in strengthening their position in the markets where they had no market reach.
Along with this their major reason for attracting customers towards their stores is the
adoption of Fast fashion strategy. With their strong distribution network they have been
successful in implementing this strategy.

8
Sprinkler is another crucial strategy that the cited firm has used over the years. This strategy
enabled them to enter into the new markets in the shortest possible time. This strategy has a
direct relation with the diversification in the work process. For expansion they also used Joint
ventures like in India, new product development for attracting fashion lovers.
Business problems and challenges that Zara is facing
In the competition that is present in different markets, it has become essential that any firm
checks the problems and challenges it will face while entering into any market (Fernie and
Perry, 2011). Some of the most common type of challenge that Zara faced in expansion are as
follows:
 Excessive competition: There are very large numbers of firms that have arisen in
Asian market which have made the competition very intense (Marco, 2016). There are
many smaller and bigger firms that are operational in this area. In such competition
establishing the market base in new areas is difficult.
 Piracy: It has been seen that there is a huge piracy issues in Asian market as many
local firms are copying their design as well as the logo that they are using. This has
making huge loss to the Zara. This is most common in the Indian Sub-Continent.
 Lower purchasing power: In Asian region since the per capita income is on the lower
side hence the purchasing power of the people is also less (Johnson, 2013). This has a
negative effect on the sale of branded products of Zara.
 Regulation: The rules regarding the FDI in the Indian market and many other
regulations by other government have made their growth rate to be very slow. The
government regulation has not been supporting the fashion retail industry. It can also
be seen by the fact that on clothing and branded products the taxes is one very higher
side.
 Weaker economies: Since most of the nations in the Asian region are at developing
stage hence they have a lot of fluctuation in their economic strength (Retail in Asia,
2017). This is not good for the company that is trying to expand in that market as they
may face many kinds of financial problems.
 Bureaucratic system: In this region the bureaucratic system has been slow in
responding towards the business problems. Corruption has been the major problem in
these markets and hence companies had to spend a lot in lobbying for making their

9
things done. Such type of system brings negative environment to the companies that
are planning for expansion.
 Cultural gap: The area where the company is planning its expansion has a completely
different kind of culture when compared to its parent nation Spain. Understanding the
operational procedure in local region is always a major challenge for Zara.
 Local demands: Since there is huge cultural difference between two different nations
hence before making expansion companies need to ensure that they have a proper
understanding of local demands (Chang, 2015).
CONCLUSION
From analysing the above report a conclusion can be derived that Zara is a big fashion brand.
It has crossed borders for increasing the profit margins and growth rate. In the expansion
process, various approaches to internationalisation have been used. There are series of
strategies have been used by Zara and is based on the type of environment they are facing.
The choice of strategies have been pragmatic in nature and differed from nation to nation and
the environment present in that market. Strategies like offshoring and outsourcing have
helped them in reducing their operational cost. Joint ventures and many other strategies have
helped the firm them in achieving higher growth rate in a quick time. There are several
challenges that this company have faced from time to time and hence they need to make
strategies accordingly for facing these challenges.
REFERENCES
Asarpota, J., (2014) Global franchising operational issues. Procedia-Social and Behavioral
Sciences, 130, pp.193-203.

10
Bhardwaj, V., Eickman, M. and Runyan, R.C., (2011) A case study on the
internationalization process of a ‘born-global’fashion retailer. The International Review of
Retail, Distribution and Consumer Research, 21(3), pp.293-307.
Caraballo, N.M., (2011) Zara: International brand image and fashion site launch in Western
Europe. Intangible Capital, 7(2), pp.375-409.
Chang, G.G., (2015) In China, The Devil Now Wears Zara. Online. Available at:
https://www.forbes.com/sites/gordonchang/2015/06/14/in-china-the-devil-now-wears-zara/
#2a081d2256c8. [Accessed on 26th May 2018].
Crofton, S.O. and Dopico, L.G., (2012) Zara-Inditex and the growth of fast fashion. Essays in
Economic & Business History, 25.
Fernie, J. and Perry, P., (2011) The international fashion retail supply chain. In Fallstudien
zum Internationalen Management(pp. 271-290). Gabler Verlag, Wiesbaden.
Frasquet, M., Dawson, J., Calderón, H. and Fayos, T., (2018) Integrating embeddedness with
dynamic capabilities in the internationalisation of fashion retailers. International Business
Review.
Gaur, A.S., Kumar, V. and Sarathy, R., (2011) Liability of foreignness and
internationalisation of emerging market firms. In Dynamics of Globalization: Location-
Specific Advantages or Liabilities of Foreignness? (pp. 211-233). Emerald Group Publishing
Limited.
Johnson, M. (2013) Inditex expansion pushes Asia sales above group’s home market. Online.
Available at: https://www.ft.com/content/1feb495c-2040-11e3-b8c6-00144feab7de.
[Accessed on 26th May 2018].
Lynn Childs, M. and Jin, B., (2014) Is Uppsala model valid to fashion retailers? An analysis
from internationalisation patterns of fast fashion retailers. Journal of Fashion Marketing and
Management, 18(1), pp.36-51.
Macchion, L., Moretto, A., Caniato, F., Caridi, M., Danese, P. and Vinelli, A., (2015)
Production and supply network strategies within the fashion industry. International Journal
of Production Economics, 163, pp.173-188.

11
Marco, S.D. (2016) Zara has been described as “possibly the most innovative and devastating
retailer in the world”. Online. Available at: https://www.translatemedia.com/translation-
blog/zara-tackling-india-china/. [Accessed on 26th May 2018].
Martínez, S., Errasti, A. and Rudberg, M., (2015) Adapting Zara’s ‘Pronto Moda’to a value
brand retailer. Production Planning & Control, 26(9), pp.723-737.
Mo, Z., (2015) Internationalization process of fast fashion retailers: evidence of H&M and
Zara. International Journal of Business and Management, 10(3), p.217.
Mohr, A. and Batsakis, G., (2014) Intangible assets, international experience and the
internationalisation speed of retailers. International Marketing Review, 31(6), pp.601-620.
Mollá-Descals, A., Frasquet-Deltoro, M. and Ruiz-Molina, M.E., (2011) Internationalization
patterns in fashion retail distribution: implications for firm results. The Service Industries
Journal, 31(12), pp.1979-1993.
Retail in Asia (2017) Zara to go online in Thailand, Vietnam and India. Online. Available at:
http://retailinasia.com/in-sectors/fashion-accessories/fashion/zara-to-go-online-in-thailand-
vietnam-and-india/. [Accessed on 26th May 2018].
Swoboda, B., Elsner, S. and Morschett, D., (2014) Preferences and performance of
international strategies in retail sectors: an empirical study. Long Range Planning, 47(6),
pp.319-336.
Turker, D. and Altuntas, C., (2014) Sustainable supply chain management in the fast fashion
industry: An analysis of corporate reports. European Management Journal, 32(5), pp.837-
849.
Varma, A., (2017) Zara's secret to success lies in big data and an agile supply chain. Online.
Available at: https://www.straitstimes.com/lifestyle/fashion/zaras-secret-to-success-lies-in-
big-data-and-an-agile-supply-chain. [Accessed on 26th May 2018].

12
APPENDIX
The global store and online sales performance of Zara in the year 2015 has been depicted in
the fig. Asia has become the second biggest markets for Zara after Asia and its market base is
increasing at much faster rate.
The process of expansion of Zara over the years has been depicted in the picture below i.e.
from Spain to international markets in many regions of the world.

13