Strategic Management of Zara, Australia: A Comprehensive Analysis

This report provides a comprehensive strategic management analysis of Zara, examining its business operations, market position, and internal capabilities. The analysis begins with an introduction to Zara, followed by a PESTLE analysis to assess the political, economic, social, technological, legal, and environmental factors influencing the company. The report then delves into industry analysis using Porter's five forces, evaluating competitive rivalry, the threat of new entrants, supplier power, buyer power, and the threat of substitutes. An internal analysis explores Zara's key resources, competencies, and capabilities, including its strengths and weaknesses. The report also examines Zara's business-level strategy, specifically its cost leadership approach. The report concludes by summarizing the key findings and insights into Zara's strategic management practices and their impact on its success in the global apparel market. The report is a valuable resource for students studying business and strategic management, offering a detailed case study of a leading global retailer.

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Strategic management of Zara, Australia
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Table of contents
Post 1..........................................................................................................................................2
Introduction............................................................................................................................2
Pestle analysis of ZARA........................................................................................................2
Conclusion..............................................................................................................................4
Post 2..........................................................................................................................................4
Industry analysis.....................................................................................................................4
Porter’s five forces analysis of Zara.......................................................................................4
Conclusion..............................................................................................................................6
Post 3..........................................................................................................................................6
Internal analysis.....................................................................................................................6
Key resources.........................................................................................................................6
Competencies.........................................................................................................................7
Capabilities.............................................................................................................................7
Strengths and weakness..........................................................................................................7
Post 4..........................................................................................................................................8
Business level strategy...........................................................................................................8
Cost leadership.......................................................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................11

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Bibliography.............................................................................................................................12

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Post 1
Introduction
Zara has achieved accolades and glory by emerging as the world’s largest apparel
retailer. With its headquarters in Spain, the brand has its outlet in 7475 locations worldwide
including Portugal, New York, France, Mexico, Athens, Belgium, Sweden, Malta, Nicosia,
Norway, Israel, UK, Turkey, Emirates, Kuwait, Lebanon, Japan, Argentina, Venezuela
among others. The brand operates under the parent company, Inditex (Zara.com, 2018). As a
matter of specification, the brand deals in clothing. According to the annual report of 2016,
the revenue earned by Zara has been recorded as US$9 billion annually.
Pestle analysis of ZARA
Political  Financial regulations
 Foreign direct investment
 Political instabilities
Economic  Cost cutting strategies
 Inflation
 Recession
Social  Cultural influences
Technological  Social media marketing
Legal  Employment legislations
Environmental  Sustainability
Table 1: PESTLE analysis of ZARA
(Source: Zara.com, 2018)

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The government plays an important role in Zara’s business operations. However,
different governmental agencies do not have the same outlook regarding the operations of
Zara. Most of these agencies lack the access to the foreign direct investment. Political
instabilities aggravate the complexities for Zara in terms of penetrating into the foreign
markets. These instabilities adversely affect the economy. However, limiting the supply chain
to the native areas of operation has enabled Zara to overcome these difficulties (Apenko,
2017).
Affordable pricing strategy is one of the integral steps of Zara’s business. This
strategic approach is assistance in terms of dealing with the economic instabilities. Reduction
in the value of dollar reduced the profits for the Zara outlets in US (Zara.com, 2018).
Decreasing power of the customers compelled the Zara personnel to cut operational costs,
creating heavy impact on the sales. As per the opinions of Bettis et al., (2014), rise in the
labor production costs aggravated the financial burden within the business operations.
Zara takes special care of preserving the workplace culture. One of the mentionable
points is execution of market research before making plans for entering into the foreign
markets. This research proves beneficial in terms of achieving proper placement for the
apparels. However, cultural influences from the foreign markets influences the purchasing
decisions of the customers. Zara needs to be applauded for exposing conscious approach
towards preserving the traditional culture (Zara.com, 2018).
Adopting social media has revolutionized the workplace operations of Zara.
Uploading the specific details of the apparel have increased the trafficking of the audience
towards the brand image. As a matter of specification, social media has enhanced the supply
chain network of Zara. Within this, use of security cookies and policies aligns with the legal
parameter avoiding encountering illegal instances. Engert et al., (2016) opines that rationality

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in the implementation of the legislations helps Zara in achieving loyalty, trust and
dependence from the clients and the customers.
Using high quality fibres results in the production of good quality apparels.
Consciousness towards this direction helps in sustaining the resources for the future
generation (Zara.com, 2018). Laboratory tests for the produced apparels helps in catering to
the health issues of the customers.
Conclusion
In spite of foreign influences, Zara conducts market research, which helps them in
gaining an insight into the culture, customs and traditions. Rationality in this approach is
assistance for achieving trust, loyalty and dependence from the clients and the customers.
Post 2
Industry analysis
Porter’s five forces analysis of Zara
Competitive rivalry
Zara receives intensive competition from brands like H&M, Benton and the Gap.
Reasonability in the prices of the apparels is assistance for Zara in terms of overpowering
Benton and Gap. H&M can be placed on equal pedestal with Zara. Wide supply chain
network helps in gaining the awareness about the altering trends of fashion and the needs of
the customers. Due to limited stock and limited time, Zara collects 80% of the price money
earned through the retails sales (Zara.com, 2018). This is more than the usual market ticket
sales collection of 60-70%. As a result of this, the sales margin of Inditex was accounted as
10.5% in 200. In comparison to this, the sales margin of Benton was mere 7%, which was
9.5% in case of H&M.

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Threat of new entrants
Reasonable pricing strategy proves advantageous for Zara in terms of dealing with the
financial crisis. Increase in the Euro rates is a threat, as it increases the selling price, making
it difficult for the customers to purchase their favourite apparels. This situation indicates
employee and customer turnover, which aggravates the complexities, as it adds vulnerability
into the brand image. According to Frynas and Mellahi, (2015), brand equity and shortest
sales cycle has enabled Zara to attain brand image within short time. Inauguration of 448
Inditex inaugurated 448 stores in 2005 while H$M opened 145 stores. Analysts were
concerned about rapid evolution, which led to sales growth (Zara.com, 2018). This compelled
Zara to invest in the emerging markets for sustaining the market position in the competitive
ambience. Investment in the real estate business within the local prime location makes the
competitive risk very low.
Power of suppliers
The supplier power is weak in case of Zara, due to low wages in the threshold of
China. Mention can be made of the licensed contracts within which Zara indulges. These
contracts leaves little or no space for bringing innovation within the designs of the apparel
(Goetsch & Davis, 2014). This aspect adds vulnerability into their control within the market.
Therefore, the bargaining power of the suppliers is high, as the switching cost is higher. Zara
tends to indulge in alliance with the brands, who have adequate knowledge about the
standards of safety and quality (Zara.com, 2018).
Power of the buyers
Advertising, word-of-mouth widens the customer base. Indulging in alliance with the
research and development team for gaining an insight into the needs, demands and
requirements of the customers. Hanson et al. (2016) states that strategic planning helps Zara

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in coping up with the altering demands of the clients and the customers. Hikes in the quality
and prices of the apparel compels the loyal customers to wait in line for getting their favourite
dresses.
Threat of substitute products
In terms of quality and affordability, H&M gives tough competition to Zara. Spending
quality time in advertising helps Zara in attracting large number of customers. This
advertising is advantageous in terms of dealing with the crisis. However, the supply chain
fails to reach to the standards of Inditex (Zara.com, 2018). This provides the H&M, Benton
and others an opportunity to enjoy competitive advantage, adding vulnerability in the market
position.
Conclusion
Capitalizing the strength is one of the effective means for Zara in terms of sustaining
the market position. Reviewing the current trends would help in developing strategies for
upgrading the standards and quality of the business operations.
Post 3
Internal analysis
Key resources
Zara’s resources can be divided into tangible and intangible. Tangible resources are
the financial parameter, which is strong and competitive, assisting in increasing the sales
revenue and profit margin. On the other hand, Hill et al. (2014) proposes that intangible
resources are customer loyalty, brand awareness of Zara, which results in strengthening the
customer base. Innovative designs of the production machines is an answer to the queries of
the customers regarding the current fashion trends (Zara.com, 2018). Rationality in the use of

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the resources helps the personnel in generating value for the business operations, which
differentiates the brand from others in the competitive ambience of the market.
Competencies
Skilled and qualified employees are an asset for Zara. This is in terms of imitating
certain portion of the capital. Strategic alliance with the research and development team
proves beneficial in terms of dealing with the crises. As per the propositions of Hill, (2017),
cooperation from the designer team helps in overpowering the contemporary brands like
H&M. Time compressed production process makes Zara a rare brand. This type of
production is efficient in terms of enhancing the organizational productivity.
Along with this, quick and rapid production process is assistance in terms of
completing the orders within the stipulated time (Zara.com, 2018). This improves the stability
in the relationship between the clients and the customers.
Capabilities
Exploitation of the market opportunities assist Zara in increasing the sales revenue
and the profit margin. As a matter of specification, Zara personnel are capable of designing,
making effective production, manufacturing and indulging in strategic partnerships. The
skills and qualification of the labours is effective in terms of manufacturing innovative design
apparels. These qualifications helps in maintaining the required speed and flexibility, which
is integral in the production process. Mention can be made of Lasserre, (2017), who states
that Zara has the capability of produce 12000 new apparels annually. This capability aligns
with the capability to attain the identified and the specified objectives for expanding the
scope and arena in the overseas markets (Zara.com, 2018). The skills, qualification and
expertise of the designers assists Zara to produce quality apparels.

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Strengths and weakness
Spontaneous approach of the design team helps in supplying the orders to the clients.
Flexibility in the application of the skills is beneficial in terms of reaching to the benchmark
level of performance. Ordering fresh and new products upgrades the stock of products for
Zara, which attracts the foreign clients. On the contrary, resistance towards outsourcing
increases the labour maintenance charges which results in employee and customer turnover.
Low in-store inventories is one of the other challenges in terms of tackling with the online
marketing issues. Rising production costs compel the personnel to satisfy the needs, demands
and requirements of the clients (Zara.com, 2018). Typical example of this is the increase in
the prices of the raw materials. As a result of this, profit margin has collapsed. In such a
scenario, cost leadership strategy seems difficult to survive.
Along with this, there are cultural issues within contracts with the stakeholders.
However, regulations makes it difficult for Zara to enter into the foreign markets.
Post 4
Business level strategy
Cost leadership
Consideration of the latest haute designs assist Zara to align with the latest fashion
trends in the market. Low cost of the apparels helps in attracting large mass of audience
across the world. Along with this, low cost of fabric is one of the other aspect, where strategic
approach helps in regulating the customers in terms of affordability. For every new design,
the strategy is to sell it in small portions. This is in terms of gaining an insight into the
approaches of the customers towards the design of the apparels (Zara.com, 2018). This
process helps in reducing the costs when a certain apparel does not gain popularity in the
market.

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Apart from this, one of the other strategies, which Zara develops is the production,
which can be completed within short time. Strategies towards decreasing the quantities for
saving on the inventory cost is a wise step, which Zara chooses. Along with this, the number
of choices available to the customers are adequate in terms of attracting them towards the
brand image (Michael, Storey & Thomas, 2017). The strategy of NO SALE act as a
preparation time for the ZARA personnel in terms of preparing effective strategies to enhance
the stock of a particular apparel.
Conscious approach towards the home furnishing aligns with the strategy of attracting
the customers towards the brand image. This approach reflects the adherence towards
upgrading the standards and quality of particular parameters for enhancing the organizational
efficiency (Zara.com, 2018). In terms of the transnational strategy, Zara plans to attain global
efficiency. For this, Zara seeks assistance from locals. Vertical integration provides more
flexibility to Zara in terms of overpowering the contemporary brands in terms of the process
of designing the apparels and storing them in the shelves (Morschett, Schramm-Klein &
Zentes, 2015).
Apart from this, feedbacks from the customers help Zara to assess the effectiveness,
feasibility and appropriateness of the planned strategies. Direct communication takes place
between the designer team and the managers for upgrading the knowledge on the latest
fashion trends. Information technology is effective in terms of altering the workplace
scenario. As a matter of specification, information technology is beneficial in terms of adding
automation into the business operations (Zara.com, 2018).
In order to maintain the balance between the low cost and the different apparels, Zara
adopts the strategy of cost leadership. This relates with the component of “product design” in
the primary activities, as mention in the value chain analysis. Here, leadership relates to the

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expression of rationality in maintaining the balance between supply and demand of the
apparels. Countering this, the strategy of cost leadership can be related with the procurement
option of the value chain analysis. Procurement is a supporting activity, which helps Zara to
acquire equipment and supplies (Rees & Smith, 2017). The personnel are aware of the
differentiation, which exists within the expenses of the department in the countries of
operation. Competitive bidding process helps Zara to indulge with the external prospective
sources, which enhances the scope and arena of the business. Offshore management is also
effective in terms of widening the supply chain network. Adhering to the legislative
requirements reflects the leadership skills of the personnel in terms of effective handling of
the business operations (Stead & Stead, 2014).
Conclusion
Zara emerges as one of the largest apparel retailers. Focusing on the quick and rapid
production means helps in completing the orders within the stipulated time. In spite of
external cultural influences, the brand exposes strategic planning in terms of luring the clients
and the customers towards the brand image. Social media marketing helps the brand to
increase the trafficking of the audience.

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References
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Engert, S., Rauter, R., & Baumgartner, R. J. (2016). Exploring the integration of corporate
sustainability into strategic management: a literature review. Journal of cleaner
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Frynas, J. G., & Mellahi, K. (2015). Global strategic management. Oxford University Press,
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Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence.
Upper Saddle River, NJ: pearson.
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Hill, T. (2017). Manufacturing strategy: the strategic management of the manufacturing
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Lasserre, P. (2017). Global strategic management. Macmillan International Higher
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Michael, S., Storey, D., & Thomas, H. (2017). Discovery and coordination in strategic
management and entrepreneurship. Strategic entrepreneurship: Creating a new
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Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international
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Zara.com (2018). About us. Retrieved 29th Nov 2018 from https://www.zara.com/au/

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Bibliography
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