Case Study: Zara's Global Business Strategy and Challenges

This case study examines Zara's international business operations, focusing on its expansion into global markets and its management philosophies. The analysis delves into Zara's centralized supply chain network, highlighting its efficiency and impact on the company's competitive advantages. It explores the political, economic, social, technological, legal, and environmental factors influencing Zara's global strategy. The study also assesses Zara's internal capabilities through a value chain analysis, identifying key activities that contribute to its success. Furthermore, it discusses Zara's management style and its impact on employee training and development. Finally, the case study addresses the challenges Zara faces in its future market expansion, providing insights into its strategic approach to maintain its position in the fashion retail industry.

Case study analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
Main Body.......................................................................................................................................1
Management Philosophies and Style of Zara...................................................................................5
Centralized supply chain of the Zara...............................................................................................6
Zara competitive advantages............................................................................................................7
Market Expansion strategy and challenges......................................................................................8
Future challenges of the Zara...........................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
International business environment is a process under which any business enterprise enter
into the new country in order to gain effective profitability and market share. In a simple word it
can be said that international business is a commercial transaction across the country border.
While any firm sale and purchase the good and services outside of the country then it is known
as the international business (Liu, 2015). The major aim of this report is to understand the
business expansion and management philosophy with respect of Zara company. It is a Spanish
clothing and accessories retailer which is based on the Arteixo and Galicia. In this report, a
systematic description has been included about how Zara maintained a centralised supply chain
network. Furthermore, future challenges which faced by the Zara company in its global business
has been also included in this assignment.
Main Body
In the present time, every business firm requires a sustainable growth and profitability in
the market by which it can gain large market share and profitability. In order to attain this
objective, various companies sues several kinds of the business tactics and strategies in the
market (Grünig and Kühn, 2015). There are very huge competition in the market so in order to
face competition and develop its own image in the market, companies uses strategic action such
as business expansion, product differentiation, customisation etc. Business expansion is very
impressive strategy in order to gain the huge sustainability and market share in the present time.
While any organisation sale and purchase the commodities out of the national boundary then it is
known as the international business. With assistance of this global strategy, form can easily
develop its competitive advantage and attract the large customers toward the company's product
and services. In a simple word it can be said that business expansion in the global market is a
strategy by increase the numbers of stores and open up the new stores in the different physical
location.
Zara is one of the famous clothing and fashion retailer which have value of 9.1 billion. It
is a flagship chain stores which contributed to 66% of the group's annual sales income in the
2012.The major objective of the Zara company is to deliver the high and impressive quality of
product and services to customer and meet their demand and requirement about the fashion
accessories and clothes (Anton, 2015). Its aim is to develop its competitive position in the
market and attract the large numbers of the customer toward the company. It wanted to become
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the number one clothing and fashion accessories in the market. In order to attain these all
objectives and aim, Zara has decided to enter in the global market such as France, united state,
Greece, Belgium, Sweden, Japan, Singapore, Russia, Malaysia, China, Morocco, India, Costa,
Rica, south Korea, south Africa, Australia etc. In the 2010 it has launched its own online
boutique by which it has able to sale its product and services in various countries. According to
its global journey, the market oriented business model of the Zara is based on the effective and
high integrated supply logistics chain network, a compressed production buyer cycle, rapid
fashion release etc. Zara have gain high success by operating both eco efficient concept store
and e-commerce shopping in the 86 countries (Grünig and Kühn, 2015). However, at the time of
global expansion of the business, Zara has faced several kinds of components of the international
business environment. These components are as follows-
Political factor- Political factor includes the governmental rules, regulation, code of conduct,
legislation, taxation policies, govern practices etc which every firm required to follow at the time
of business expansion. While Zara have entered ion the several countries like France, united
state, Greece, Belgium, Sweden, Japan, Singapore, Russia, Malaysia, China, Morocco, India,
Costa, Rica, south Korea, south Africa, Australia etc then it has to follow each countries political
and regulations. Political turmoil can also affect supply chain and provide various difficulties for
brands. In order to decrease this political difficulties, Zara have limiting its supply chain
operation to its home country and neighbouring nation (Bull and et.al., 2016).Moreover, Zara
can adopt various strategies in order to avoid influence of these factors on its business activities.
The company can adopt strategy to comply with various government rules in order to avoid
impact of these factors on business success and growth.
Economical factor- This factor includes the countries economic condition like inflation,
recession, interest rates, pricing policies etc. These factors have direct influence on consumer
behaviour as well as on income. These factor may have negative impact on the profitability as
revenue generation capacity of organisation. These factors have positive impact on the company
as decrease in exchange rate may provide transactional benefit to firm. In order to enter into the
different market, Zara have to understand the economic condition of the different countries. Zara
have great strategy that is of affordable pricing in every country. Affordable pricing strategy
helped to the Zara company for fight the low economic activities.
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Social and cultural factor- This factor has largely impacted to the Zara company in the different
nations. This component is related to the customer taste, preferences, choice, life style, culture,
region etc (Niederwieser and et.al., 2016). In the different country there is different customer
taste, preferences, culture and their life style to this thing has created very difficulties and issue
for the Zara company. In order to overcome this issue in the various nations, Zara has conducted
market research and identify different customer taste and requirement related to the clothing and
fashion accessories. This activity conducted by organisation has provided opportunity to develop
its product according to customer taste and preference. This has enables organisation to enhance
its productivity and cut down its various cost as well as reduce various risk associated with
production process. These factors have positive impact on enterprise as the increase in demand
of product may lead to increase in profitability. This factor provides an opportunity to firm to
increase its market share.
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Illustration 1: Pestle analysis
Source:PESTLE Analysis , 2017

Technological factor- Technology is another major challenge which faced by the Zraa in the
international business expansion. In the different country, there is different technological
infrastructure so company have to adopt the new technology and innovation according to the
nation (Adar and et.al.,2016). Zara is being known as the utmost disruptive new name in the
fashion industry. In the 2014 Zara has conducted partnership with Toyota in order to application
of the JIT and lean facilities across its production and manufacturing department.
Legal factor- Legal aspect includes countries legislation and law which developed by the
government in respect for the business, customer, employees, environment etc. Zara have
focused on the ethics and sustainability across its business and supply chain (Mor, Kaur and
Khaiwal, 2016). Zara have focused on the creating and developing its ethical image in the
market by focusing on the corporate social responsibility. In the different countries, Zara have
focused on the ethical aspect as well as all legislation which imposed by the government for the
employees, customers, and business.
Environmental factor- Zara has invested in the sustainability and green side of the business. Its
stores has consumed very less energy and water as compare to the other competitors in the
market. Its stores has equipped with energy efficient and better recycling features. Thus, it can
be said that in the different countries at the time of global expansion, Zara have meet its
environment contribution and deliver effective product and services to customers.
In order to analyse its internal competency and capability, its value chain analysis can
useful. Value chain is method to analyse business internal activities. Its major objective is to
recognise that which activities is more valuable for the company. In this section includes the
inbound logistics, operation, services, marketing , sales etc (Pavlou and Stewart, 2015). Majorly
in the value chain analysis includes the primary and support activities. In terms of the primary
activities includes the logistics, outbound logistics, operations, sales, services etc.
 Inbound logistics- It has effective inbound logistics under which it has maintained tight
control its logistics. It has handled the various things such as design, buying, making,
sampling in house etc. In order to maintain an effective control over its logistics, Zara
production facilities are depended in the small town in Galicia (Bahadir, Bharadwaj and
Srivastava, 2015).
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 Operation- Zara have used effective technologies and approach of the management and
operation through which it produces high quality of product and services. In addition to
this, it also adopted high quality of technologies by which it can improve the quality of
operation and reduce the wastage and cost.
 Marketing and sales- Zara have effective marketing and promotional strategies in the
various nations. It has used the online and offline platform in order to promote and
advertise the product and services in the market. In order to attract the large numbers of
customer toward the firm, company have used print media, electronic media etc.
 Services- Zara company have major aim is to deliver high quality of product and services
to its customers (Leitner, Meissner and Martyna-David, 2015). Zara stores are situated in
the commercial area and premium location in the major cities in the New York, Paris,
UK, US, China, India so as customer can easily go to the store for purchase the product
and services.
Management Philosophies and Style of Zara
Management philosophies is a set of belief which used by the individual and organisation
in order to take an effective decision about the subject. Zara is very famous retailer in the fashion
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Illustration 2: Value chain analysis
Source:Value Chain Analysis, 2017.

and accessory sector which have dealt with high quality of clothes and accessories in the market.
It has adopted effective management philosophies and style of management by which it can
easily acquire the large amount of customer and developed its impressive brand image in the
market. In the internal business environment, company have one effective management
philosophy is its high strength of operation and technology by which it has able to produce the
high quality of product and services. With help of the high and advance technology, company
has effectively improved the quality and efficiency of product and services. In addition to this it
have effective presence on the social media and internet by which it can get touch with customer
and identifying their requirement and need related to the product and services. With help of
social media, company can able to promote its services and product in the market and perform in
effective manner at the global market (Kernbach, Eppler and Bresciani, 2015). Another style and
philosophy of the Zara company is its effective market research and business analysis. Company
have conducted effective market research by which it can easily able to know the customer
demand of the product and services and meet their demand accordingly. In addition to this, with
help of business analysis, company have able to know the strategies of competitors in the
market. Management philosophies of the Zara company is related to training and development
program for its employees. Company have organise training program for its worker through
which it can effectively enhance the skill, ability and capability of the workforce which assist in
enhancing quality of product and services.
Centralized supply chain of the Zara
In the centralised supply chain network, the flow of communication can conduct on the
vertical manner. It has very slow decision making under which management does not take the
employee's participation in the decision making process. The major advantage of the centralised
supply chain network is that it have proper coordination and leadership among the members.
Zara have adopted the centralised supply chain network because with help of this supply chain
network it can effectively deliver the product and services to the customer and meet their
expectation related to the commodities. In addition to this centralised supply chain management
also helps to the cited venture in improving their relationship with customer in the market. With
help of this channel , company and suppliers can directly communicate with the end users
through which buyer can easily share their issue , queries and problem related to the existing
product and services (Amran, Ooi and Devi, 2015.). In addition to this, centralised supply chain
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network an enable the purchase of standardised items through standardised procedure in the
market. This will help to the Zara company in improving its existing standard and image of the
product and services in the market. This centralised supply chain network can help to receiving
of the large supply through consolidated order which help in overcome the transport cost per
unit. One another major advantage of the centralised supply chain is related to the effective
working environment and maintain healthy relationship between the customer and organisation.
The cost of order processing such as distribution, packaging, placing, receiving, account,
inspection etc are reduced substantially due to few orders of the large quantities.
Zara competitive advantages
Inditex is the biggest fashion group in the world which have 7200 stores in the 93
markets worldwide. Zara competitive advantage built on its deep rooted innovative business
model. Zara philosophy of creating centralized design , manufacturing and distribution model
has helped the firm in gaining competitive advantage. Zara supply chain management and
business model used has assist the organisation in becoming competent. Its flagship store is Zara
have major aim is to deliver high quality of product and services to the customer in the
affordable prices. According to the research it has been founded that Zara have major
competitive advantage about its continuous innovation and invention. Zara regularly develop
something new in the fashion and accessories sector. Another impressive competitive advantage
of the Inditex is to deliver high quality of product and services which meet the actual
requirement of the customer in the context of fashion and clothing sector. Inditex invests high
amount of cost and capital in the design and in house production. Its another competitive
advantage is related to the supply chain management as it have effectively delivered the product
and services with help of retailer, wholesaler, distributors etc (Staake, Thiesse and Fleisch,
2012). It another major competitive advantage of the Zara is that it have 90% of its stores in the
88 countries including the France, united state, Greece, Belgium, Sweden, Japan, Singapore,
Russia, Malaysia, China, Morocco, India, Costa, Rica, south Korea, south Africa, Australia etc.
Zara produces 10000 designs annually as opposed to only 2000 designs for its competitors.
Another effective competitive advantage of the Zara is its affordable prices. It offers the clothes
and accessories to the customer in the affordable prices so every income group of customer can
easily purchase. Zara company have developed its own website on the internet and shopping
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application through which customer can easily purchase the product and services. With help of
its online shopping application and online website, customer can place their comment, review
about the experience through which company can understand the actual requirement of the
customer about the clothing and fashion accessories (Doeksen and Symes 2015). Zara has
another major competitive advantage is that it used social media and modern method of the
promotion and advertisement through which every customer can able to know the product and
services about the cited venture. Its another significant competitive advantage is related to its
high skilled employees and staff member who have continuously given their best efforts to attain
the organisation objective. Its high skilled and talented staff member is another competitive
advantage of the cited venture by which it has meet the actual customer expectation.
Market Expansion strategy and challenges
Zara have global market penetration which have four major continents. It has used this
market expansion strategy in an effective manner under which Zara have sold the product and
services in the specific market. With help of this strategy, corporation has effectively understood
the needs and requirement of the customer in the international market and deliver product
accordingly. While zara have taken the decision of market expansion in the international market
then there are several kinds of the market entry modes which has considered by the Zara
Following are some market entry modes- Licensing- In this market entry strategy, organisation give the rights to use the product
and services to another firm. License can be for marketing and production. With help of
this strategy any company can enter in the new market where the said company have
already established. Franchising- Franchising is another significant strategy which can use by the company
in order to enter in the market and expand its existing business. In this strategy, company
copying and pasting a concept into the new market (Wesseling, Niesten and Hekkert,
2015). Direct exporting- This is another significant strategy of the market entry under which
company export its product and services.
 Joint venture-This is very significant strategy in the international business expansion
under which tow organisation involves in the partnership and create a third independent
company. In this strategy, risk and profit can normally shared in the equal manner.
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◦ The other Strategy adopted by Zara is competitive growth Strategy,.The Zara
company has decided to develop manufacturing base in US. But the organisation is
following the same model and product development strategy that was followed by
enterprise in Europe. This strategy may create the challenge for the organisation to
survive in high level of competition.
Future challenges of the Zara
As per the above discussion it has been analysed that Zara have impressive performance
in the market by which it has effectively sustained for long term in the market. It has dealt with
various countries across the world so it may face several challenges in the future which are as
follows-
 In the retail business sector, Zara will face the challenge related meeting customer
expectation because in this sector there is regularly changing the demand of customer
related to the product and services. So it is very difficult to meet the regularly changing
demand of the customer.
 In the retail business, Zara will face the issue related to the technologies. In the present
time, there is continuous changing technologies which have huge impact on the
company's product and services. Due to regular changing technology, Zara may face the
issue related to the technological changes through which it has to adopt and update the
technology at regular basis (Mathur, Mathur and Kenyon, 2012). This is very costly
challenge and task for the comoany because in order to update and purchase new
technology company have to invest large amount of capital.
 In the retail business, another major challenge for the Zara is related to maintain online
presence on the internet. Zara have developed its own website and used various channels
of the social media. In order to effectively perform at the online channel, company
required to maintain its online presence so it required to provide accurate information
about the product and services to customer and regular post the video, images,
information about the product, its prices, distribution, offers etc.
 It would not be easy for Zara to expand its business operations in different regions, as it
would be difficult for firm to address future fashion trends , sizes that would be
demanded by people in the future. It would not be possible for organisation to pull a new
fashion from one particular region.
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CONCLUSION
From this entire report it has been concluded that Zara have effective competitive
position in the market and it has used various market entry strategies in the different country for
enter in the international business. It has been also concluded that international business
expansion helps to the corporation in improving its current position and profitability. Zara have
effective online presence on the internet through which it effectively promotes and advertise its
product and services in the market and attract the large numbers of customers.
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