HI5013 - Managing Across Borders: Zara's International Strategy Report

This report provides an in-depth analysis of Zara's international expansion strategy, focusing on its approach to entering and succeeding in global markets, particularly in Asia. The report begins with an executive summary and introduction outlining the company's global presence and the importance of internationalization for business growth. It then explores Zara's internationalization approach, highlighting its strategic focus and pragmatic expansion process. The report delves into Zara's various strategies, including low pricing, differentiation, and fast supply chains, which have contributed to its success. Furthermore, the report identifies and discusses the challenges Zara faces in emerging markets, such as increasing competition, copyright issues, and cultural differences. The analysis includes Zara's expansion timeline, entry modes, and operational strategies. The report concludes with a review of the key findings and the implications of Zara's approach to internationalization.

MANAGING ACROSS
BORDERS

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Executive Summary
Zara is a very big brand name in the market and they are expanding in the new markets so as
to increase their growth and profit margins. This report highlights the expansion of Zara in
the international market along with the internationalisation strategy that this company has
selected to remain a market leader. It was found that strategic approach to internationalisation
is followed by Zara. Following this approach a pragmatic process is followed by the
company. Due to this they made many strategies that can help them in their endeavours in the
new regions. Process of expansion has been fast. In this report it was also illustrated that Zara
made many strategies such as low pricing strategies, differentiation, fast supply chain etc. It
was also seen that Zara is facing different types of challenges in the emerging market such as
increasing rivalry, copyright issues, lower purchasing power, supply chain issues,
bureaucracy and Cultural gap.

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Contents
INTRODUCTION.................................................................................................................................1
Zara and its expansion...........................................................................................................................1
Approach to Internationalisation...........................................................................................................2
Process of expansion.............................................................................................................................3
Strategies used in the process................................................................................................................4
Challenges faced by Zara in the emerging markets...............................................................................5
Conclusion.............................................................................................................................................6
References.............................................................................................................................................8

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INTRODUCTION
Companies are crossing borders in different parts of the world. These companies are finding
these new markets so as to make sure that revenue sources get expanded. This is essential for
any company so as to gain competitive advantage over the rivals. There are multiple factors
that are creating challenges for the company in their international expansion. The
international business environment is getting complex (Bhardwaj and Fairhurst, 2010). This
complexity in the international environment is not letting companies to do their work as per
their requirement. In the process of internationalisation there are several processes and
strategies that need to looked at before actually making the expansion. From entry mode
strategies to the strategies related to international human resource management there are
different set of strategies that a company needs to deal with. Zara is a global brand for fashion
and is known for its fast fashion and trends that it brings in the fashion industry. This report is
going to illustrate the expansion of global fashion across borders into Asia. It also discusses
and critiques Zara’s approaches to Internationalisation along with the strategies and processes
it has utilised in order to gain success in the Asian market. In the later section of the report,
the problems and the challenges that are faced by the business while expanding into Asian
market are illustrated.
Zara and its expansion
Zara with its competencies like strong supply chain network, they are able to enhance their
reach in the global markets. Zara with their resources and high quality products have been
able to make sure that their expansion process remains smooth. Global fashion companies
like Zara which is one of the biggest apparel companies in the Inditex group has lot of
competitive advantage that gives them the control in the market. They deal in the business of
accessories, swimwear, perfumes, shoes, beauty and clothing. Till 2017, this company
manages more than 20 clothing collections within a year (Byun, 2013).
Zara started its international expansion in the year 1988 from Portugal. In 1990 they
expanded in France and United States. In 1992 they expanded in Mexico, while in 1993 they
expanded in Belgium, Sweden and Greece. In the beginning of 2000s i.e. 2002, this company
marked its expansion within Singapore and Japan. In Malaysian and Russian market they
have expanded in the year 2003. Morocco, Romania, Hungary, Estonia and China were
reached by the company in the year 2004. In Costa Rica, Indonesia and Philippines, Zara

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went into the year 2005, South Korea in 2008, India in 2010, South Africa, Australia and
Taiwan in the year 2011 (Crofton and Dopico, 2012).
When compared with other global brands this company started its internationalisation late but
the pace of internationalisation is fast. This company also come into the online boutique in
the year 2010 from the nations like UK, Germany, Spain, France and Italy, Netherland,
Luxembourg, Austria, Belgium and Ireland. In United States they opened their online
boutique in the year 2011, Canada and Russia in 2013 as well as in Romania, South Korea
and Mexico in the year 2014. The latest was in India where its online platform started in 27
October 2017 (Shen and Mikschovsky, 2019).
Approach to Internationalisation
Every company has their own set of needs, demands and resources. The approach to
internationalisation that is selected by the firm should be on the basis of their sustainability
plans and the markets in which they want to enter. Selecting an approach to
internationalisation is also important because it ensures that in the new markets they will have
considerable growth and they can find stability (Cuc and Tripa, 2007). This company adopted
strategic approach to internationalisation. First they found the challenges that they might face
while dealing in the international markets then they find the resources that they can use to
enter into another markets. The pace of its expansion showed that this company uses highly
aggressive approach to enter into the different markets. Since culture differs from country to
country hence it has impact on the business of the firms when they make internationalisation.
In different countries they chose different set of entry mode strategies so as to expand in other
nations. This is totally dependent on the resources that a firm has and dynamics in the
markets in which they are making their expansions. For the global companies like Zara it was
relatively easier to make their expansion in other country due to the brand name they have.
The fast internationalisation approach helped them in gaining control over the larger market
share at the global levels (Matic and Vabale, 2015). Zara found strategic partnerships as one
of the most critical approaches to Internationalisation and due to which they have been able
to expand cross-borders without significant challenges due to cultures. This can be
understood in terms of the fact that every company with whom they are going into
partnerships has an understanding about the local market.

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Following the strategic approach to Internationalisation, company makes a series of strategies
to ensure that they do not fail in the international markets. Since International market is
dynamic hence from marketing to supply chain management, this firm needs to apply a series
of strategies that can help them in gaining competitive advantage over the rivals and reducing
the impact of the external factors on the internationalisation of the brand. Strategic appliances
done by the company helped them gain suppliers as well as distributors which was very much
essential for the fast growth in the market (Lopez and Fan, 2009). They understood the fact
that it was necessary to reduce the cost of internationalisation and due to this they opened
their manufacturing unit at China which was not only be able to improve their supply chain
management in China but they are also able to meet the demand and supply gap at the global
levels. Foreign Direct Investments in the Chinese market was also a justifiable approach as
the government supported manufacturing and for which they were making their strategies
accordingly. In the countries like India where 100% FDI in single brand retail was not
allowed they took the support of Joint Ventures where they made the strategic partnerships
with the Tata. However the approach to Internationalisation used by Zara was not only able
meet the requirements of the firms but also allowed them to enhance the skills of their
employees which was necessary for improving their overall strength in the international
markets. It also lacked in terms of the fact that this company has not been able to make
significant mark in any part of the world Zara (Preuss, 2017).
Process of expansion
The process of expansion adopted by Zara has been relatively fast and it was also possible
because of the fact that the process of expansion that is adopted by Zara is pragmatic. The
major advantage of this approach is that it aims to deal with different operational areas with
the help of strategies. They understand the dynamics in the market and on the basis of which
they are able to choose their market entry mode (Tokatli, 2008). The capabilities and
restrictions in the market is analysed by Zara so as to make fast expansion within the country.
The three major modes of entry that Zara followed are Joint Ventures, Wholly Owned
Subsidiaries and franchising. Business legislation within the country also plays a critical role
in selection of the expansion process or mode.
In the equity mode of selection which they have applied in China has given them more
control in the Chinese markets. This is because it allows them to open their manufacturing
unit and arrange raw materials from the neighbour nations like Bangladesh. Opening a

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manufacturing unit in China helped them to strengthen their supply chain in other parts of the
Asia like India as well which is necessary for their concept of fast fashion (Tungate, 2008). In
china they opened their flagship store which also helped them in doing their marketing.
In the emerging markets like India they have adopted a very different approach where they
made Joint venture with Tata Trent where the later company had the share of 49%. Trent had
so many years of experience and at the same time it is one of the biggest distributors in the
region. This helped them in raising their profit margins. This helped them in doing business
without breaching any of the laws (Viardot, 2014).
In the process of expansion they have also taken care of the fact that overall structure of the
organisation remains effecient. This is done by the company to make sure that they have
distributed the responsibilities in an effective manner. They also ensure that there is a clear
communicational pattern that allows them to enhance the coordination which is very much
necessary in the modern day business.
Strategies used in the process
In order to make expansions the strategies that are used by the firm is unique. This allowed
them to make their expansion process faster and also allows them to make sure that they have
better operational capacity. All the four international operations strategies including Global
strategy, transnational strategy, international strategy and multi-domestics strategy are being
used within the firm. Multi domestic model has been prominent in this as it allowed them to
enhance their strength in the local markets.
Cost leadership and differentiation are the two major strategies that this company has applied.
Low cost structure used by the company has helped them in attracting the customers
especially the target segment they have made for themselves in the emerging markets i.e.
upper middle class. Offshoring and outsourcing are the two major strategies that have helped
the company in working even in those countries where they do not have strong supply chain
network (Aftab, et al. 2018). This was mainly done to ensure that their support activities also
add value to their overall operations.
It is also the fact that Zara had not significantly contributed to the marketing campaigns but it
is seen that growth strategy is the major strategy that is used by the company for bringing
standardisation in the work process which helped them in improving the quality of their

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products. In terms of staffing needs they have utilised strategy known as Polycentric while
they have also adopted geocentric approach (SanMiguel, Sadaba and Guercini, 2019).
Polycentric approach has assisted them in minimising the challenges that occurred because of
the difference in the cultures. As a part of the distribution strategy they make partnerships
with local distributors so as to have more control in the local markets.
As a part of their operational strategy they have chosen fast fashion strategy. Following this
they change their inventory on the regular basis so as to attract people so that they can
regularly visit in their stores. This has helped them in creating a huge loyal consumer base
which is bigger than most of the firms. Zara also follows Sprinkler strategy which enhanced
their positioning in different markets.
Challenges faced by Zara in the emerging markets
After the expansion of Zara into emerging markets like India and China they have done good
business but at the same time they have also faced challenges and problems related to
operations and other aspects. The challenges and problems that they face in the Asian market
are:
 Increasing rivalry: It is seen that for most of the companies, India and China are the
two most attractive destinations for the global brands (Li, et al. 2018). This is because
of the big market size they have along with huge internal consumption capacity. Very
large part of the population was brought into the middle class in both these nations
hence it acted as an opportunity for the company.
 Copyright issues: In the Asian market there are many copyright issues that Zara had to
face. This included the fact that designs and the trademark of the company is highly
copied in these two nations. Due to this piracy there is a huge loss that Zara had to
face especially when it comes to managing image and increasing the profits in the
nation. China had many such small companies which copy the design of Zara and
from where it is supplied to other parts of the world (Binet, et al. 2019).
 Lower purchasing power: Companies like Zara wants that there are higher numbers of
people in the upper middle class so that their sales remain on the higher side but it is
seen that in India most of the people are not able to have a purchasing power that can
buy products of Zara. It will take time to bring most of the people on the higher
income slab and since both are developing nations hence it would be further difficult

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for the management to ensure that the growth rate in the market is fast (Rahman and
Kharb, 2018).
 Supply chain issues: There is constant increase in the cost of transportation in these
two countries hence there is extra burden on the profit margins of the company. There
is also lesser utilisation of technology at the ground level which is further making it
difficult for the company to reach deeper in the countries. In Asian region there is a
very big rural area where the infrastructure for effective supply chain management is
not adequate.
 Bureaucracy: In both the countries there is a problem of corruption which emerges
due to the complex bureaucratic structure. This increase in the bureaucratic structure
has not allowed them to make policies and ensure that they make fast expansions
within these countries. This is also because they have to make lot of investments in
lobbying which has created negativity in the business environment (Brenot, et al.
2019).
 Cultural gap: However this company had been able to make successful expansions in
different parts of the world but it is also the fact that cultural difference in India and
China when compared to the western world is very large hence it takes time for the
people in these countries to adopt a fashion as fast as it is in the western world. Due to
this, company will have to spend time in marketing so as to address the consequences
of this gap.
Due to these issues Zara had to make sure that they have innovative strategies to deal with all
these challenges. With the help of strategies such as global procurement they can ensure that
their standards of the products remain on the higher side. This is essential for managing the
progress of the company in the international markets.
Conclusion
From the above based report it can be concluded that Zara is global fashion brand that has
adopted the strategic approach to Internationalisation. Following the pragmatic approach in
the process they have made many strategies that can give them competitive advantage over
the rivals and helped them in facing strategic challenges faced by the company while making
its expansion. Joint Ventures, Wholly Owned Subsidiaries and franchising are the three
major strategies being used by the company to make its expansion in other parts of the world.
Along with this, they have used the strategies like low cost structure and differentiation so as

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to make their expansion in these countries fast. Some of the challenges that are faced by Zara
are increasing rivalry, copyright issues, lower purchasing power, supply chain issues,
bureaucracy and Cultural gap.

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References
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The Case of Spanish Fast Fashion Retailer Inditex-Zara. International Journal of Business
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Bhardwaj, V. and Fairhurst, A., (2010) Fast fashion: response to changes in the fashion
industry. The International Review of Retail, Distribution and Consumer Research, 20(1),
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Binet, F., Coste-Manière, I., Decombes, C., Grasselli, Y., Ouedermi, D. and Ramchandani,
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