HI5013 Managing Across Borders: Zara's Internationalization in Asia

This report critically analyzes Zara's internationalization strategies in Asian markets, focusing on the challenges and benefits the company encountered. It highlights the impact of globalization on the fashion industry in Asia and explores Zara's approach to market entry, including joint ventures and franchising. The analysis covers Zara's strategies in India and China, emphasizing cost leadership and differentiation. The report also discusses the advantages of internationalization, such as access to new markets and increased innovation. Ultimately, the report provides recommendations for Zara's future ventures, considering the evolving dynamics of the Asian fashion market. Desklib provides solved assignments for students.

HI5013
Managing Across Borders
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Contents
Executive Summary...................................................................................................................3
Section 1: Introduction...............................................................................................................4
Section 2: Essay.........................................................................................................................5
Section 3: Conclusion..............................................................................................................13
References................................................................................................................................14
Appendices...............................................................................................................................15
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Executive Summary
The report has been prepared in the context of Internationalization of the business. The
company Zara has been selected for the report which is an apparel brand famous in UK. The
report has been provided a critical analysis of the internationalization of Zara in Asian
markets. The challenges and benefits the company faced are the essences of the report which
describes the reality of internationalization. There are many aspects related to the company
and its products which have been discussed in the context of Asian markets and customers.
The report has been concluded with the part of the recommendation to Zara for further
ventures
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Section 1: Introduction
The evolvement of the fashion world in the Asia countries has a deep truth and a high impact
of globalization and internationalization on the countries. The fashion industry has revolved
completely with the emerging impact of internationalization of the brands. In the context of
above, this report is presented for understanding the internationalization, challenges, and
strategies which the companies faced at the time of entering the new market or especially in
Asian markets. The expansion in the Asian market is one of the greatest opportunities for the
brands as they get exposure and high opportunities for their growth. The fashion industry has
the major reversing line which has provided great opportunities to the market and economy of
Asian markets to improve. This is because of the internationalization of the brands and the
adaptability of the changes in the country. The report is presented for understanding one of
the popular fashion brand Zara which has steeped in Asian markets and achieved success.
The company get the expansion and growth of the strategies and process it followed. The
discussion on the strategies and processes of Zara and the challenges which the company had
faced is provided under this report. The detailed analysis of the issues faced in the expansion
of the company in the Asian market is done. The internationalization impacts on the economy
of the countries. The Asian market gets the opportunity for an immense growth as the new
and innovative products are on the way to attract the customers. The Zara offered innovative
and designer clothing, jewelry, and accessories which were the attraction to the customers.
The rapid changing industry of fashion has entered the Asian market through
internationalization. This report is also presented to provide an explanation and understanding
of the upcoming issues and strategies which the company will be facing. The different
benefits and challenges or issues with the company due to internationalization are also
discussed. Although internationalization has provided an opportunity to every company to
expand their markets in the different countries the expansion depends upon the effective
strategies and processes. The strategy which needs to attract the customer is considered by
the company Zara. The approach to marketing, planning and organizational management is
an important factor which helps in a complete expansion of the companies in new markets.
The strategies towards the effective working and quality products are near to customer
attraction and satisfaction.
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Section 2: Essay
Internationalization
Internationalization is the process in which the companies or organizations focus to involve
the trading and business into international markets. The international markets provide an
opportunity for growth which companies considered as expansion. This process helps in
establishing the companies to the international markets. Internationalization has different
theories which explain the process of getting involved in the international markets and in
international activities (Knight, 2015). The internationalization theories are based on the
covering the international markets. Some of the major theories are an Absolute cost
advantage, new trade theory, location theory, comparative cost advantage theory and market
imperfection theory. These theories help in understanding the internationalization and the
reasons or need for internationalization to the companies. With this, the internationalization
has taken place in the Asian countries and other parts of the world. The companies which
focus on internationalization gets an opportunity for understanding the different culture and
variety of products they use. There are various approaches and model which are used in
internationalization (Knight, 2015). Zara is basically UK Company which deals in designer
clothing, accessories, and jewelry. The company grabbed the Asian market to get a
competitive advantage and to aging the maximum customers. This is clearly an example of
the expansion of the brand.
Reason for internationalization
The expansion and growth is the requirement of every company. The company or a business
works for the high [profit and long-lasting brand image. For achieving this there is a need for
growth and expansion of an organization. The market improvement and their impact on the
quality of products is the part of internationalization. There are various reasons which can be
explained for internationalization (Vahlne and Johanson, 2017). These reasons to go
international have been the major objective of Zara.
The internationalization is required for increasing sales. This is a fact that internationalization
helps in improving the sales of an organization ratio depending on the quality of products and
customer satisfaction and benefits aspects. Zara has opted the sales increment for
internationalization because of attracting Asian market towards the new and fresh variety of
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fashion. The internationalization also helps in improving profits which is another reason for
the companies to go international as the companies strategize to make the new customer base
and attract hem with the various offers (Vahlne and Johanson, 2017). The internationalization
also increases innovation because of the market environment and getting the competitive
advantage the companies use the latest technologies and ideas to improve the productivity of
the company. The internationalization also increases the chances of getting exclusivity as
because of having the knowledge about foreign customer’s prospects and markets of the
country which could become a competitive advantage. The competitive advantage is also one
of the major reasons which could help in maintaining the international market as an important
market (Myhre, 2017). The entry to the international market helps in getting the competitive
strike which could bring out the motivation for the company to attract maximum customers
with the innovation and new ideas. With the internationalization, the companies get the
opportunities of greater economies of scale. The company gets the brand image with the
internationalization of the company because of an effective customer base. The
internationalization is an extreme expansion and growth aspect which helps the consumer in
opting an effective brand (Myhre, 2017). Zara has got some amazing reasons which are
mentioned above to the international. The company needs an expansion and a motivation to
earn maximum profit. The growth perspective of Zara in offering high quality and high-end
products to the Asian markets because of the customer's demand takes the company
internationally. The Asian markets provide it a new and different culture which forced the
company to get the motivation of innovation of the brand in a new form.
Strategies of Zara in Internationalization
Zara is a well recognized or popularly known brand for in the fashion industry to the world.
This is because it has emerged as one of the finest fashionable and justified Fashion
Company with the quality of its products. The company has offered the world a competitive
advantage over the big brands like Marks & Spencer or H&M. These brands are the part of
the same European market from which Zara has emerged as a popular brand of the Asian
market (Kim, et. al., 2017). There is a reason behind this competitive advantage. It is clear
that the customers are attracted towards the quality and price most. The strategies to make the
brand a success is one of the quality Zara occupied. With the internationalization in the Asian
market, the company has studied the market and consumers as well as competitors
effectively. The strategies are then prepared to grab the attention of customers. The different
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strategies of Zara for entering into Indian and Chinese market include various methods shown
below in the diagram of Zara strategies (Kim, et. al., 2017).
Figure- 1 Zara Strategies to enter into Asian Markets
Source- (Piercy, 2016)
The company Zara studied and planned the strategy for entering the markets of India. The
international expansion of Zara in India has been planned with three different entry strategies.
These strategies were Own subsidiaries, Joint ventures, and Franchising. The company
named Inditex Group which is behind the Zara Company has joint hands with the Trent
Limited which is a Tata group company in India. This is one of the major clothing lines of
India which produces and trade in the Asian market (Anwar, 2017). The Joint venture with
Tata Group was the strategy of the company to enter into international market India to get the
technical know-how of the manufacturing with the foreign expertise. This is because the Zara
was unknown to the market and also has a different culture and understanding. This is a big
challenge for the company to come and set their brand by acquiring the property on
international board.
The demographic and cultural concerns of Zara has been the issue for the company because
with an effective working the company knows that the 1.2 billion population of India would
be the one demanding for the quality and innovative fashion products which is possible with
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the slow growth (Anwar, 2017). The cultural concerns were the Indian social aspects which
are related to the cultural background of the country to offer the customers effective fashion.
Franchising is also one of the entry models for Zara in Indian markets for the same reason of
demographic and cultural concerns of the company. The effective range of branded clothing
under various malls and shopping centers are provided to make sure the complete look-out
place for the customers. This option rose for the easy access of the customers to the products
of Zara.
Figure- 2 Growth sales of Zara in retail (Asia)
Source- (Piercy, 2016)
The Zara chose the option of cost leadership and differentiate strategy in the market to attract
customers (Jain, 2017). The entering of the company is based on the same channel as of
Indian Markets and for the same reason of cultural and demographic concern of the company.
The Chinese market has already been exploited with the cheap and low quality of products
and it is very difficult for the company like Zara to offer the effective and quality product at
such a high cost. There was a need for the company to attract the customers on the basis of
cost leadership and differentiate strategy (Jain, 2017). In Cost leadership strategy is
establishing the competitive advantage by offering the lowest cost of the operation in the
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industry. It is basically to offer the products of Zara at the lowest cost. China has the low-cost
product with the low durability of its products. The company is focused to have the maximum
customer satisfaction with the effective quality and lowest price. This strategy of the
company is completed with the attempt of differentiation strategy (Piercy, 2016). This
strategy helped the company in grabbing the market with the distinctive attributes and unique
quality of products to get a competitive advantage and sets the company apart from the
competition. These two strategies assured an increase in the expansion and growth of the
increase in profits for the company from Chinese market for Zara.
Benefits of Internationalization
Internationalization is a strategy which brings out the expansion of the business in an
effective and productive manner. The internationalization provides the new markets and new
culture and countries which leads a fresh start and immense opportunities for growth. The
enhancement in the competition and growth in the new markets with the immense profit and
popularity is one of the aspects of internationalization (Benito, et, al., 2016). There are
various benefits of internationalization to the business which are discussed below.
New markets- The new markets are one of the major benefits which internationalization
provides to the companies. The business gets the opportunity for the growth and business
expansion in new and fresh markets. This increases the worldwide access to the customers
and increases the customer base of the companies. Zara found an opportunity in the new
markets of Asia, majorly India and China. These two markets have raised the bar of its
profitability.
Diversification- Internationalization also involves the opportunity for diversifying the
businesses the business diversification in relation to the product line, business context and
strategies (Benito, et, al., 2016). The diversification helps in the indirect expansion as well as
the growth of the company. The diversified products related to the talented captures are done
on the basis of different strategies of a company. Zara has diversified its business line by
adding up the line of cosmetics to the apparel industry.
Opportunities for talents- The employment opportunities increase with the
internationalization. The companies may help in offering the opportunities of employment of
the talents of other countries. This increases the economy of the world as a whole (Liang, et.
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al., 2014). Zara has provided the employment opportunities in the Indian as well as Chinese
markets by opening various stores to the places. This created a good hamper for the countries.
Competitive benefits- The competitive advantage increases as the use of business strategies
in an effective and unique manner is used by the companies. In Internationalization, the
companies get the competitive advantage with an effective strategy formulation and
innovative quality products offered. As in the case of Zara, the competitive advantage in the
Chinese market has attracted maximum customers because of high quality at low prices as
compared to the local brands of China.
Foreign investment- Foreign investment is a benefit which the companies get with
Internationalization. The international business gets the opportunity to invest in foreign and
get the returns in the foreign currency (Liang, et. al., 2014). This makes huge profits and
foreign currency attention. The foreign investment is a great benefit or advantage of
internationalization.
The above benefits are the part of internationalization which could be considered by the
company before going international. The business expansion and growth is fulfilled with the
help of internationalization to an extent (Liang, et. al., 2014). The internationalization
provides the new markets and new culture and countries which leads a fresh start and
immense opportunities for growth.
Challenges faced by Zara
Zara entered in the new culture and environment in Asian countries faced different challenges
the new environment and market opportunities were different for the company. These
challenges and issues which Zara faced made it possible for the company for formulating an
effective strategy and work in the environment full of challenges in an effective manner. The
challenges which affected the company and its operations were:
No advertisement channel available- The Company faced the issue in promoting and
advertising the brand as in Asian countries no high-end advertisement channel or mode was
available (Caprar, et. al., 2015). The company promoted the brand with the help of fashion
magazines and newspapers.
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High prices- the company also faced the high prices as a challenge because of the new
markets of the company which was majorly in the developing countries having fewer income
people. The maximum population avoids the brand because of its expensive products. The
company then formulated the strategy to provide the high-quality product with the low prices
or different offers and schemes were also launched with this to attract customers.
Lack of distributors- The Company also faced the problem of lack of distributors for its
products and services due to which the brand was not in the access of every customer as it is
not at every place and in easy access (Caprar, et. al., 2015).
Cultural and demographic challenge- The Company, Zara faced the challenge of a cultural
and demographic issue as the cultural background of the countries is unknown to the
company. This provided them with the issue of ineffective strategy planning and production
of products accordingly.
Overcoming issues and strategies
The company is dealing in the Asian market with some effective strategies. However, the
future issues and challenges which Zara may face the need to understand (Caprar, et. al.,
2015). The overcoming issues of the company are-
Competition- The competition is increasing and this is one of the major reasons which may
impact the company in future. The issue of competition is rising with the globalization. There
are various domestic brands in Asian countries which are offering quality products at low
prices (Zander, et. al., 2015). The population is getting the turn with some effective strategies
used by these domestic companies. The challenge comes hereunder for Zara.
Sustain success- With the increasing competition; it will become difficult for the company to
sustain its success in the international markets. The success of the company is becoming a
challenge because of effective companies have entered the market in the apparel industry in
Asian markets.
Loses domestic market- With the less focus towards the domestic market, Zara may face the
lost position in the domestic market (Zander, et. al., 2015). As the competition and market are
increasing at rapid speed, the domestic market could be lost by Zara.
Recommendations
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The recommendation from the above-provided information on the overcoming issues and
challenges to the company are provided to Zara-
 The company should consider different management styles such as using different
approaches to attract customers.
 The company should also consider changing the organizational style and make it more
attractive in working and reducing cost.
 Zara must follow the culture for designing products completely. The tradition must be
used for future ventures.
 Zara should also consider the decision-making style as an important and necessary
change.
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