Business Organisations and Environments: Zara in Switzerland

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Business Organisations and
Environments in a Global Context
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Table of Contents
Introduction......................................................................................................................................3
Information on the selected business organisation..........................................................................4
Discussion of the allocated business environment..........................................................................5
Application of an appropriate analytical approach........................................................................11
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
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Introduction
The business environment plays an influential role in the functioning of an organisation in the
market industry. In other words, the business environment provides factors that determine the
efficiency of an organisation in the long run. Zara SA is a multinational retailing brand that
manufactures and designs clothes and apparels for men and women. This is a child company of
the Inditex Group, which is the widest clothing manufacturer and designer company across the
globe. This report will provide detailed information about the company. Further, Zara SA has
targeted at establishing its organisation in the Switzerland. The following report will discuss
about the different political, economic, social, technological, environmental, and legal factors of
the country. This will be analysed by using PESTEL analysis. Further, Porter’s Five Force
Theory evaluates the threats that Zara can face in Switzerland. Finally, the advantage and
disadvantages of Zara due to different factors of the country will be discussed along with further
recommendations for the company.
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Information on the selected business organisation
Zara SA is Spanish based retailing company, which deals with the production of clothing and
accessories. The company headquarter is in Arteixo, Galicia. The firm was started by the
collaboration of Amancio Ortega and Rosalia Mera in the year 1975. The parent company of
Zara SA is Inditiex group. The Inditex group is the world’s biggest clothing retailer. This brand
consists of several subsidiary franchises under its brand name. These franchises are Uterque,
Massimo Dutti, Zara Home, and Stradivarius. The company is also responsible for managing
many clothing product line and as of 2017, Zara manages almost 20-product line of clothing.
Amanico Ortega established the initial company in the central of A Coruna in 1975 (Zara.co,
2019). Further, in 1980s, the design and the manufacturing procedures were changed by Ortega
and invented the approach “instant fashions”. This new approach saw the introduction of new
technologies in the production techniques of the company. Moreover, the company introduced
the RIFD technology in their stores all across the globe. The company did this advancement in
2014. These security chips are attached to the products of the company. This are only removed
when the consumers buy the product. This helped the company to increase its efficiency in its
security measures.
In the Interband’s list of best global brands, Zara was ranked as the 30 biggest retailing
companies. The Company is famous for their high quality and rich designs of the men and
women clothing. Moreover, a separate product line has been introduced in the company by the
name of Zara Kids, which provides clothing for small children. The focus of the company has
been on the consumers trends. The marketing distribution of the company uses the efficient
supply chain management system, which delivers products two times every week. The
distribution is done through its central headquarter in Spain. This company manufactures almost
12,000 new designs every year. The production of the company’s materials is mostly done in
Portugal, Morocco, Spain, and Turkey. The company has over 10,000 stores across the globe.
The annual revenue of the company as of 2018 amounts to $18.9 billion.
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Discussion of the allocated business environment
Switzerland is placed in the convergence of southern, central, and Western Europe. This
sovereign state is enclosed by Germany on north, Italy on south, Austria and Liechtenstein in
east, and France in the west. This country consists of 26 states and the country’s federal authority
is located in Bern. The economic capital of the country is Zurich. The GDP of the country as
accounted in 2018 is $704 billion (Zhao, 2016).
PESTEL Analysis:
Political:
 The country’s government and parliament is divided into three tiers. They are Federal,
Cantonal, and Communal. The cantonal is referred to the 26 states in the country and the
communal are referred to the small villages.
 The federal level is responsible for managing the foreign affairs, country’s army,
different legislations, policies of the country, and the transportations and communications
of the country.
 The activities of the cantons are to mange and direct the armed forces, run the educational
institutes and hospital managements.
 The government of the country exercises executive power to ensure equal rights to all the
citizens.
 The government of the country consists of seven members. The federal Assembly elects
the president and vice president.
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Figure 1: PESTLE ANALYSIS
(Source: Schulze, 2015)
Economic:
 The country boasts of a generally stable and influential economy.
 As of 2018, the GDP of the country is $371 billion, which accounts to 1.04 percent of the
world economy and has a growth rate of 1.6%.
 The leading providers to the country’s economy are Industrial and Service Sector.
 Inflation rate in the country is -0.4%
 The unemployment rate of the country is considerably low and recorded to 2.9% (Tansey,
2014).
 The country has influential foreign affairs and stands on 28th rank according to business
terms with foreign countries.
 The Foreign Direct Investments in the Switzerland are highly volatile in nature. The
plastic and chemical industries in the country have attracted higher investments from the
foreign companies. The service sectors have faced a general downfall in the FDI of the
country. In 2018, the countries net exports are calculated to 375 billion and imports are
288.8 billion.
Figure 2: FDI data of Switzerland for the last three years.
(Source: Statista.com, 2019)
Social:
 The country is ranked second in terms of quality of life Index.
 Switzerland consists of many immigrants, mostly German, Italian, and French. Almost
23% of the population are foreigners in the country.
 There are 4 official language: Romansh, German, Italian, and French
 The population growth of the country is at a rate of 0.78%
 The country boasts of modern and rich educational system. In addition, the literacy rate is
almost 99%
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Technological:
 The R&D contributes up to 3% of the country’s economy.
 The country has efficient E-banking and E-market systems.
 The country consists of the most dense and efficient railway system in Europe.
 The technical industry of the country has an effective growth over the years and emerged
as an influential supplier across the globe
Legal:
 Each state in the country has its own taxes
 The health insurances are made compulsory for the citizens of the country
 High quality measures to stop corruption
 The intellectual property rights receive proper acknowledgement
 Switzerland is open to a positive FDI and the investment codes are administrated in
transparent and efficient manner
Environmental:
 Woodland territory is the main region in the country
 Huge Biodiversity
 Provides high quality natural resources like timber and salt
 The electricity generated in the country is mainly with the help of hydroelectricity and
nuclear power
 The country has a high recycling rate with 67% to 97% of the materials being recycled.
Porter’s Five Field Theory:
Threats of New Entrants (High):
The new and early entries in the retail clothing industries make way to new products, designs,
and pricing approaches in marketing. These pose a huge threat to the existing companies.
Switzerland attracts positive investments from the foreign investors, so there is a high chance of
these early companies involving in retail industry of the country.
Solutions:
 The main target should be to increase diversification in the range of products. New and
high quality materials tend to attract more people, which further enhances the selling of
the products.
 Reduction of the cost per unit should be considered as the main target (Takata, 2016)
 Proper focus should be laid on improving and developing the research and development
sector of the company.
Bargaining power of the suppliers (High):
The major retailing companies are highly dependent on the suppliers of raw materials. Often, the
suppliers try to extract more money from the companies. Higher bargaining rates of the suppliers
will create a direct setback on the profit margin.
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Solutions:
 The retailing companies must establish a proper supply chain with a particular supplier
 The companies should introduce new products frequently, thus allowing them to change
their basic raw materials need.
 The main target should be to develop a rich relationship and collaboration with a
dedicated third-party supplier. This will lead to reduction in the chances of supplier
bargaining (Schulze, 2015).
Figure 3: Porter’s Five Force Factors
(Source: E. Dobbs, 2014)
Bargaining power of Buyers (High):
Consumers in the market always aim at buying the best products in the lowest considerable rates.
This leads to the increase in bargaining of the consumers. This scenario leads to the company
facing lot of challenges and has a reduction on the productivity rate of the firm. The rate of
consumer bargain is high in smaller size customer bases.
Solutions:
 The companies should aim at developing larger bases of customer. This will lead to the
reduction of customer bargaining and help the company to increase its productivity.
 The existing products of a company are more viable to customer bargaining. Therefore,
the retailing companies should target at frequent production of new materials.
Threats of Substitute Products or Services (Low):
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Often a particular product satisfies customers with different demands. This has a severe effect on
the company’s productivity. The secondary materials, which deliver services same as the already
existing products are not preferred by the consumers in general (Cadle, 2014).
Solutions:
 The companies must target at being more service oriented
 The particular demands and trends in the consumer market should be identified properly
 The cost of the company’s target market should be changed frequently
Rivalry among the Existing Competitors (Moderate):
Severe company rivalries in the retailing industry lead to the general reduction of their
productivity and sales. The companies are unable to achieve their objectives and the size of the
target market is reduced (Dockalikova, 2014).
Solutions:
 All the companies must practice sustainable differentiation
 A proper scale and framework needs to be developed to ensure proper functioning
 The companies in the industry should develop efficient collaborations to increase their
target market and sales.
Application of an appropriate analytical approach
Switzerland is a country situated in the convergence of Central and Western Europe. The capital
of the country is Bern. The country has a net population of 8.6 million approximately. The
economic centres of the country are Zurich and Geneva.
Political:
The Switzerland has strong relationships with leading countries across the globe, such as United
Kingdom. This will help Zara to establish a proper trade and distribution system with different
countries.
The country has a stable and effective parliamentary system. This will help the company to
achieve a proper legal framework for property protection and contract enforcements. In addition,
the proper segmentation in the country’s political system and efficient tax distribution will help
the company to increase the profit rates in the long run.
The country follows a democratic leadership style and equal rights are served to every citizen in
the country. This scenario will help the company to acquire the important trade rights in the
country.
Economic:
Switzerland has a stable and developing economy and the GDP of the country is $371 billion and
the growth rate 1.04%. Zara will face less economical challenge in this country. In addition,
these factors will enhance the productivity and sales of the company.
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The industrial and service sectors are the most influential providers in the country. Therefore, the
employment rate is also high in these sectors. Zara will not face any difficulty to get the proper
amount of labours and workers. There will less employee turnover, which will further contribute
to a positive profit rate of the company.
The FDI rate is inconsistent in the country. However, the retailing industry has earned profitable
investments over the time. Therefore, investments of Zara in Switzerland market will have fewer
barriers.
Social:
The country boasts of a rich education system and the literacy rate is high in the country.
Therefore, Zara will get access to more number of skilled and innovative workers for their
industry. This will further help them to improve their productions and marketing strategies.
The country provides a stable economy and vast diversification in the population. This will
provide Zara with a large consumer base and many opportunities to experiment.
Switzerland consists of lot of cultures. The country has citizens belonging from Germany,
France, and Italy. Almost 23% of the citizens are immigrants. This huge difference in culture
will make it difficult for Zara to establish a mutual workplace culture. This will further affect the
rate of productivity.
Technological:
Almost 97% of the citizens in Switzerland are technologically sound. This will be a key factor
for the online marketing of Zara. Moreover, the country boasts of an effective Research
Development sector, which will help the company to explore new products and improve their
existing products.
The efficient E-banking and E-market systems of the country will help Zara in their operational
procedures and help them to store their data efficiently.
Switzerland has Europe’s most effective and technologically advanced railway system. This
system will enhance the delivery systems of the company and improve the quality of their trade.
Moreover, the technological advancement in the country will also provide Zara with proper
business framework and security systems.
Legal:
Switzerland has flexible taxation systems. This can be beneficial to the Zara.
The Switzerland Employment Act states that an individual working under an organisation can
provide notice for termination for any kind of reasons. If the termination was in an abusive
manner, then the individual will receive almost up to six months of salary. This law should be
properly followed by Zara to avoid unnecessary scenarios.
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The Anti-Discrimination Laws will prevent the employers of Zara to discriminate among the
employees of the organisation based on their personality traits. If not followed, Zara may face
severe penalties and cancellation of trade licence.
The transparency and efficiency in the foreign investment codes will also enable Zara to set up a
proper organisational structure in Switzerland.
Environmental:
The huge biodiversity and abundance of some major natural resources will help Zara to acquire
the influential raw materials for the production. The high recycling rate of the country will also
have a positive impact on the company’s production.
The major setback o the country is the threat that is posed due to pollution in the environment.
The water pollution is the prime threat to the country. The Federal Water Protection Act of 1991
aims at taking protective measures to safeguard the water resources. To avoid penalties, Zara
needs to maintain these laws and set proper boundaries in its production units.
Recommendations:
The general growth in the economy, the technological advancements, and the properly structured
legal system of Switzerland will serve benefits to any new company in the country’s retail
industry. Except for few challenges, it will be highly feasible for the company to have a
successful set up in Switzerland. The main requirements of the Zara, which are availability of
raw materials, efficient economic measures, and skilled labours, are satisfied by the factors of the
country. In addition, the vast diversification in culture will allow the company to explore in to
new regions and expand their product range.
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Conclusion
From the above report, we can observe that Zara SA has made up a plan to establish its
organisation in Switzerland. Further, this report provides detailed information about the company
and gives a brief overview of the company’s history. In addition, the different political,
economic, social, technological, environmental, and legal factors of the country have analysed
with the help of PESTEL analysis. Further, the threats that Zara may face in the retailing industry
of the country have been discussed with the prime use of Porter’s Five Force theory. Finally, the
impact of the factors of Switzerland on the approach of Zara has been discussed. The report ends
with a basic recommendation for the Zara SA on its decision of establishment in Switzerland.
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