Zara's Internationalization: Strategies, Analysis, and Evaluation

This report provides a comprehensive analysis of Zara's international marketing strategies. It begins by assessing Zara's internationalization using the Uppsala model, highlighting factors like pricing strategies, store expansion, and the use of joint ventures. The report then evaluates the competitive strategies of Zara, Gap Inc., and H&M, identifying their strengths and weaknesses. It delves into Zara's multi-brand store strategy, outlining its advantages, such as increased market share and customer trust, and disadvantages, like the risk of cannibalization. Finally, it explores the advantages and disadvantages of a joint venture with Tata in India. The report offers insights into Zara's success in the global fashion market and provides a detailed overview of its strategies and competitive landscape.

INTERNATIONAL
MARKETING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1: Assessing a theory which represents the Zara's (Inditex's) internationalization.1
Question 2: Evaluating the competitive strategy of the three world market leaders..............2
Question 3: The advantages and disadvantages of Zara's multi-brand store Strategies.........4
Question 4: 'Risk of Cannibalization' as a consequence of the multi-brand strategy.............6
Question 5: Advantages and Dis-advantages of going into a Joint Venture with Tata in India
................................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
International marketing is the multinational process of planning and executing the
concept of, pricing, promotion and distribution of goods and services to create an exchangeable
method that satisfy individual and organizational objectives. However, it is commonly expressed
that a business cannot just concentrate on domestic market, they have to cover the international
market also. If they want to be competitive, here, in this report, there is a brief discussion of
Zara's tactics, theories and strategies for international marketing (Terpstra, Foley and Sarathy,
2012). Zara (Inditex) is a Spanish clothing retailer based in Arteixo and Galicia, in 1975. Zara's
1,830 retail stores are in 82 countries which is owned by Amancio Ortega a Spanish
businessperson.
Question 1: Assessing a theory which represents the Zara's (Inditex's) internationalization
The internationalization practice of Zara states that they have to follow the steps by the
manner of gaining experience from the domestic market before moving to the foreign. Zara
started its international operations by starting business in culturally and geographically close
countries, further moving gradually to culturally distant countries such as Spain (Berthon and
et.al., 2012).
Uppsala model would be best to represent the Zara's internationalization. Zara expanded
into foreign market after getting exposure from the domestic market. Its (Inditex's)
internationalization theory, that led it to the stage where it operats1,830 stores in 82 countries
(Smith and Zook, 2011). Following are the key factors that can be specified by the mentioned
activities of uppsala model in Zara's internationalization theory of marketing:
Setting the Price as per the market Situation: As mentioned in the Uppsala
Internationalization model, at the beginning of the business, Zara set the price of its
product as per the market situation and not on the basis of actual cost. Market
demand and supply indicates the customer preferences, taste and choice in the
clothing line etc. As per the trading activity of Zara product is available in the stores
until the customer buys it and it would be removed from the store after a week.
Market forces like accessibility of subsidiaries, income level of the customer, product
quality etc. that defines the market trend and on the basis of these trends the price of
the product would be set by the company (Gilligan and Hird, 2012). Considering all
1

the situations of the market, Zara generally sets the price for its product which
satisfies the customers at their best. Expanding the Stores and allocating new opportunities: Further as per the stages of
Uppsala model theory, the revenue earned from all the stores is allocated for expansion of
the outlet stores in the overseas, and also on the logistics i.e. where to purchase raw
materials, best supply chain etc. Although, Zara do not invest much on advertising,
irrespective to this it spends on expanding the stores in overseas. Similar to this it opened
its first flagship store in Australia (Fletcher and Crawford, 2013). The company focuses
over discovering new opportunities in the local market of the overseas areas is by based
on knowing the customer preference, their choices, fashion style trending in that market
and competition. In order to enhance the reputation and accessing the customer, the
clothing company multiply its stores in that particular market and expands itself in that
country. Rising the number of outlet stores, attracts a large number of its customer, and
generate income and profits (Rathmann, 2011).
 Techniques used by Zara: The methods of expanding the business in the international
market through joint ventures and providing franchising service to the local market
people in the overseas, according to the Uppsala model act as a useful technique of
generating more revenue from the international market. This successful technique of
adjusting the pricing of the products by price discrimination in different markets, results
maximization in sales and profits to the company (Paliwoda and Thomas, 2013). The
strategy of 'Oil Stain' (influence strongly in one place, then spread across the grounds of
the country, like an oil stains) is the activity of Zara's international expansion, developing
and increasing experience to function locally and then continue to other regions.
Question 2: Evaluating the competitive strategy of the three world market leaders
The three main world market leaders in fashion retailing are:
1. Zara (Inditex) from Spain
2. Gap Inc. from United States
3. H&M (Hennes & Mauritz) from Sweden
Following are the competitive strategy used by them:
 Competitive strategy of Zara: It is evaluated that the competitive strategy of Zara focuses
on the concept of, Amancio Ortega (the founder of Inditex), offering the latest fashion in
2

medium of quality at affordable prices. Comparing all the three market leaders of
Fashion, Zara always attempts to bring the new products to the stores in short duration
which is a particular factor that makes the company more competitive in global market.
Zara internally manufactures its 'live collections’, the most receptive clothing to fashion,
which is almost half of its manufacture and outsources those that are not capable of
seasonal variation (Meissner, 2012). According to the evaluation of all the three fashion
retailers, production cycle of the company begins with the stage of customers, which
mean that Zara takes the idea and preference or the feedback from their buyers through
their staff members who travel to them before designing their product, meanwhile H&M
and Gap Inc. follows some other theory for designing their products.
Success factors of Zara as per the evaluation:
◦ Short lead time that covers more fashionable clothes
◦ Lower quality that leads to scarce supply
◦ More Styles gives more choices, and more chances of hitting the market.
Competitive strategy of Gap Inc.: Gap Inc. is the world's biggest clothing retailer with
3,100 stores in 45 countries, including: Canada, United Kingdom, United States,
France and Japan. This company is an American clothing retailer which was founded
in 1969 by Donal Fisher and Doris who owns five other multi brands including
Banana Republic, Old Navy, Gap, Forth & Towne, Piper-lime and Athleta. During
Evaluation it was generated that Gap Inc. is a partial vertical retailer who has full
control over its design, distribution and sales which they had chosen to outsource all
its production from 1100 suppliers located in United States and in the overseas
market (Majaro, 2013). The functional process of internationalization in Gap Inc. is
being focused on few countries such as UK, Canada, France and Japan in comparison
to the other competitors. Gap Inc introduces participation of Special division with the
Outlet stores in order to determine the store mix in each market. But as compare to
Zara, this company spends around 3 to 3.5% of its earnings on advertisement which
is higher than the Zara's (Turnbull and Paliwoda, 2013). Also, Gap Inc. has expanded
in Asia and Middle East region as well, and its international sales accounted to be20
percent of the firm's total turnover in 2006.
Success factors of Gap Inc. as per the evaluation:
3

◦ Regular Organization's Competitive changes.
◦ Strong multinational brand portfolio.
◦ Advantage of Outsourcing the products and services.
 Competitive Strategy of H&M (Hennes & Mauritz): Hennes & Mauritz a fashion retailer
later abbreviated to H&M which was established in 1947 in Sweden by Erling Persson
who only used to sell woman's clothing in the beginning of his establishment and further
expanded it with menswear in 1968, which now owns more than 2200 stores in 55
countries. As per the evaluation, it was reported that the business concept of H&M offers
“fashion and quality at the best price” for men, women, teenagers and children (Burgess
and Bothma, 2011). Similar to Gap Inc, H&M also outsource its clothing product through
700 suppliers in the overseas market. H&M spends 4% of its total turnover on advertising
and promotion campaigns which is higher in comparison to the other two (Zara and Gap
Inc). The company turns out to almost 500 new design every year in the market that can
be purchased from its 1,193 retail outlets located across 22 countries. Expansion of this
company from clothing sector to cosmetics and women accessories provide great support
in generating income and reputation of the company in overseas market (Han, Nunes and
Drèze, 2010). While comparing the turnovers of Zara (Inditex) and Gap Inc, H&M is
much more established in international market with over 90 percent of its turnover
generating from overseas in 2006.
Success factors of Hennes & Mauritz as per the evaluation:
 Flexibility in Production
 Brand Name with Lower Prices
 Location of H&M stores
Question 3: The advantages and disadvantages of Zara's multi-brand store Strategies
Multi-brand strategy refers to the marketing of two or more competitive products of the
same company under different brand names. The decision of multi-branding strategy depends
upon the success of initial brand of the company. Although, “Zara” is a well-known fashion
retailer in the world, operates many brand such as “Pull & Bear”, ”Berksha”, “Oysho”and
“Stradivarius”. They create a multi-brand strategy by brand acquisitions such as Massimo Dutti
for quality and conventional clothing, Pull and Bear for casual clothing, Berksha for Avant -
grand clothing, Stradivarius for trendy wear, Oysho for lingerie,etc. This helps the company to
4

cover different section of clothing more effectively, initially which was made-up for the local
market and further set up for global markets (Luchs and et.al., 2010). The process of promoting
parallel products under different Brand names, helps the company to fill the price and quality
space of the target market.
Advantages of Multi-brand strategy for Zara (Inditex) Generation of internal competition at high degree – Multi-strategy creates pressure over
the managers of each brand under Inditex that bounds them to function efficiently in the
market. Due to this, high rate of internal competition is developed at the marketplace. Increase the market share of the parent brand – acquiring most of the brand by Inditex,
reduces the participation of other in the market which apparently rises the share of the
parent brand in the market turnover (Kemper, Engelen and Brettel, 2011). Easy acceptance in the new market by filling up the company's loyal customer base – as
per the image of the existing brands reduces the additional spending on advertising and
promotions by the parent brand company. Acquiring Customer trust and its attention – as the parent brand's position is strong in
the market, helps in promoting the new products as per the strategy of multi-branding and
reduces the burden of creating products awareness and it represents a commitment of
quality to the customer in the local as well as international market (Akaka, Vargo and
Lusch, 2013). More international opportunities – multi-branding strategy rises the opportunities of
serving overseas customers and overcome their demands which is beneficial for the
parent branding increasing turnover, its profitability and reputation in the international
market. Generating source of additional revenue – Although Zara is covering the international
market of overseas, which generates additional resources to the company, in the manner
of allocating sources of raw-material, rising suppliers, getting human power, generating
more capital and expands new ways for supply chain.
 Ability to serve and achieve different market section more effectively – with the benefit of
flagship chain, the company has the power to serve the new segments in the market and
generate the desired outcome from that segments.
Dis-advantages of Multi-brand strategy for Zara (Inditex)
5

 Risk of cannibalization – the process of reducing sales or market share of one of the
product/brand under Inditex and introducing another product/brand eventually
captures the company's current market position rather than covering and holding in a
market section and increase the market share (Barnes and et.al., 2010).
 Difficulty in managing – when many brands are owned by a parent brand (Zara) or a
group (Inditex), it becomes hard for the organization to manage all the products under
single name.
 High cost in maintaining several brands – it is the major drawback of this strategy
that Inditex pay high cost in maintaining the several brands under single parent brand
name.
 Customer's expectations for standard of quality and satisfaction of the new product
rises as compare to the existing products in the market (Douglas and Samuel, 2011).
 Reducing brand focus and its name – Inditex is maintaining several brands under
single name which results in, reducing its focus on a particular brand.
Question 4: 'Risk of Cannibalization' as a consequence of the multi-brand strategy
'Risk of Cannibalization' refers to the tendency of reducing sales or the market share of a
product when a company introduces new competitive product into the market on their own basis.
It is a state in which the newly introduced product captures the company's current market in spite
of attracting and snatching a new market section in order to attain higher market share (Cadogan,
2012). Zara (Inditex) experiences the same state of situation which results after their entry to the
multi-branding strategy in the early 90's. Although Zara has overcome the situation of 'Risk of
Cannibalization' through following ways:
 Focusing on particular section of the market – By introducing new products of different
brands with the motive to target the entire market based on age, gender, taste and event,
helped the company to enter into a new market and increase the customer base
(Schumann and et.al., 2010). By focusing the particular section in the market like :
▪ Zara (parent brand) – Fast Fashion clothing of men, women and children (age 0-
45)
▪ Zara Home – Any section of the market related to household clothing
▪ Pull & Bear – Casual clothing for women and men (ages 13-23)
▪ Oysho – Lingerie for Youth (women)
6

▪ Massimo Dutti – quality and conventional clothing for Men and women (ages 25-
45)
▪ Bershka – Avant-grade clothing for Women and men (ages 13-23)
▪ Stradivarius – Trendy clothing for Women (ages 15-25)
▪ Uterque – Accessories (handbags, footwear, leather goods and costume jewelry)
for Mainly women (ages 15-45)
 Distinguishing the new product from the existing product in the market: Inditex has
assembled a portfolio of brands through acquisition and controlling of eight stores of
several brands, including Pull & Bear, Berksha, etc. (Rugman, Verbeke and Nguyen,
2011). Zara uses the techniques to handle the risk of cannibalization of these products by
differentiating the brand products. As all the eight brands under Inditex covers the each
category of clothing in the market, such as:
▪ Zara – Fast Fashion clothing
▪ Pull & Bear – Casual clothing
▪ Bershka – Avant-grade clothing
▪ Massimo Dutti – quality and conventional clothing
▪ Stradivarius – Trendy clothing
▪ Uterque – Accessories
▪ Oysho – Lingerie clothing
▪ Zara Home - household clothing Differentiating the Store Display and retail image – to avoid the risk of cannibalization,
Zara technique of locating s its eight brand stores far away from each one which helped
the customers in differentiating the brand and their products (Tan and Sousa, 2013).
Sometimes, risk of cannibalization act as a growth strategy, it happens when a
company's new product encourages sales with the existing product of the parent brand
(Tuli, Bharadwaj and Kohli, 2010).
 Targeting the market – Zara strategy is to cover the market section through focusing its
aim on specific customers groups differentiated as per their ages and gender.
By analyzing the above study over risk of Cannibalization, it is concluded that Zara (Inditex) is
successful in meeting the risk of cannibalization.
7

Question 5: Advantages and Dis-advantages of going into a Joint Venture with Tata in India
According the Indian policy for Foreign Direct Investment (FDI), Zara teamed up with
Tata group, India, in order to form a joint enterprise in February, 2009. In joint venture, two
companies work together and carry out business in a particular market by providing resources
and expertise to each other and in return, sharing the profits as per the proportion of their
investments or by an agreed percentage (Terpstra, Foley and Sarathy, 2012). Inditex has a share
of 51% in its collaboration with Tata while Tata's subsidiary Trent ltd holds 49%. They opened
their stores at Delhi, Mumbai and other major cities in India. As per the policy of Zara, the
demography and cultural issues were the main concerns for entering the market of India. The Advantages for Zara to join hands with Tata are:
 Access to new Market: Tata has set up its business in Indian market and Tata is one of
the largest conglomerates in India with a corporate history of more than 140 years. It
has acquired the trust of the customers in the market which acts as a plus point to the
Zara (Inditex) in accessing the market (Smith and Zook, 2011).
 Increase Revenue and Growth Prospective: Expanding the business generates more
ways for the company to earn revenue. Similar to this, Zara (Inditex) also gets a new
way to generate more sales and profit from its new market in India.
 Allocating resources and Supply chain: Although, Tata is a foreign collaborator of
Zara which would give an easy access to the market in which they are already
engaged. It provides more routes to the supply chain and helps in allocating more
resources to Zara (Berthon and et.al., 2012). The Dis-advantages for Zara in setting up the business in India are:
 Cultural difference and slow adaption to new trend of fashion: the Indian culture is
very different from Spanish or any other the culture. Only the major cities of India
like Delhi, Mumbai, Kolkata, etc. supports Zara's fashion products and accessories
(Explore the strategy of International Marketing. 2012). To overcome this Zara could
adopt Indian clothing styles and design accordingly (Fletcher and Crawford, 2013).
 Rules and regulations of the Government: as per the policies of Indian government,
which imposes strict rules and regulations on overseas investments. It is a major
drawback for Zara's (Inditex's) business in India (Meissner, 2012.).
8

CONCLUSION
From the given report, it can be concluded that the theory of international marketing is
marked as an essential model/ to be followed by the company while expanding its business in
international market. It can be determined that the organization has to generate its strategies
according to its strengths and weaknesses and defining its opportunities and threats in the
proposed international market. Similarly, Zara (Inditex) has expanded its business in the
international market, in less than 30 years, by introducing a new unique business model theory of
apparel manufacturing and retail industry and by focusing and monitoring its business
performance in overseas market.
9

REFERENCES
Books and Journals
Akaka, M. A., Vargo, S. L. and Lusch, R. F., 2013. The complexity of context: a service
ecosystems approach for international marketing. Journal of Marketing Research.
21(4).pp.1-20.
Barnes, B. R., Leonidou, L. C., Siu, N. Y. and Leonidou, C. N., 2010. Opportunism as the
inhibiting trigger for developing long-term-oriented Western exporter-Hong Kong
importer relationships. Journal of International Marketing. 18(2). pp.35-63.
Berthon, P. R. and et.al., 2012. Marketing meets Web 2.0, social media, and creative consumers:
Burgess, S. M. and Bothma, N. eds., 2011. International marketing. Oxford University Press.
Cadogan, J. W., 2012. International marketing, strategic orientations and business success:
reflections on the path ahead. International Marketing Review. 29(4) pp.340-348.
Douglas, S. P. and Samuel Craig, C., 2011. The role of context in assessing international
marketing opportunities. International Marketing Review. 28(2). pp.150-162.
Fletcher, R. and Crawford, H., 2013. International marketing: an Asia-Pacific perspective.
Pearson Higher Education AU.
Gilligan, C. and Hird, M., 2012. International marketing: strategy and management (Vol. 17).
Routledge.
Han, Y. J., Nunes, J. C. and Drèze, X., 2010. Signaling status with luxury goods: The role of
brand prominence. Journal of Marketing. 74(4). pp.15-30.
Kemper, J., Engelen, A. and Brettel, M., 2011. How top management's social capital fosters the
development of specialized marketing capabilities: a cross-cultural comparison. Journal
of International Marketing. 19(3). pp.87-112.
Luchs, M. G., and et.al., 2010. The sustainability liability: Potential negative effects of ethicality
on product preference. Journal of Marketing. 74(5). pp.18-31.
Majaro, S., 2013. International Marketing (RLE International Business): A Strategic Approach
to World Markets. Routledge.
Meissner, H. G., 2012. Strategic international marketing. Springer Science & Business Media.
Paliwoda, S. and Thomas, M., 2013. International marketing. Routledge.
Rugman, A. M., Verbeke, A. and Nguyen, P. C. Q. T., 2011. Fifty years of international business
theory and beyond. Management International Review. 51(6). pp.755-786.
10