Assessment Submission Form

Student Name Samarasinghe S M N P

UCD Student number 13206299

Assessment Title Zara : A Spanish Retailer Goes to the Top of World Fashion

Module Title International Marketing

Module CodeMKT3001L

Module Coordinator Dr. Markus Vanharanta

Tutor (if applicable)

Date Submitted 23-07-2014

OFFICE USE ONLYDate Received

OFFICE USE ONLY

Grade/Mark

Declaration of Authorship

I declare that all material in this assessment is my own work except where there is clear

acknowledgement and appropriate reference to the work of others.

Signed………………………………………. Date 23-07-2014

Introduction

Zara is a Spanish clothing and accessories retailer based in Arteixo, Galicia, and founded in 1975

by Amancio Ortega and Rosalía Mera.

It is the flagship chain store of the Inditex group; Inditex Corporation. Inditex is a the world's

largest fashion group to which other fashion brand names belong such as as Zara Kids, Pull &

Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, Lefties and Uterqüe. 

ZARA changes their designs 2 weeks per time ,where Marks and Spencer changes two

months a time.

Products of ZARA is very popular with young females (age of 24 -25)

Their product portfolio is comprises with men ,women and kids(ZARA KIDS)clothes,

shoes, cosmetics,and complements.

Company preferred to invest a percentage of revenue in opening new stores rather than

huge marketing campaigns.

There are 1671 stores around the world.ZARA is a "fashion imitator"company.

ZARA turns around more than 2000 designs per annually , and its revenue for 2012 is

over 7 billion pounds.

Infrastructure

Their factory is located in a city called La coruna ,Spain.It is the city which has the

cheapest labor in the country,but when compared to south Asian countries the cost of

labor is expensive in Spain.

It offers flexibility and agility to push new design to the final selling point fast.

Human Resource Management

ZARA recruits school leavers or fresh undergraduates.so most of the time job at ZARA's

is their first job.

ZARA's always liked fresh, energetic young individuals because they are free from

family commitments and they can focus more on their job.

Technological Development

ZARA has agents .

These agents are sent to night clubs ,high class social events to pick up latest designs so

within 6 hours using technology they sent the sketches to the factory with slight

differences in the design.

Operations

Factory in spain is equipped with flexible manufacturing systems. (FMS)for fast turn

around in designs and productions.

cost of labour is not cheap and focused on productivity and efficiency.

they do have 12 days lead time.

Marketing and Sales

Target customers are young females who are 24 years and 25 years.

ZARA dont advertise much on media.but once, they put up a large poster on a high wall

in a tall building. everyone surprised why did they put up a poster like that .reason was

next to that building there was a university located in a tall building as same as the

other.so when the young girls go to each floor the poster is visible.

Inventory

Stores place orders twice per week and the supply of finished goods is matched to store

demand.

Production is then increased or decreased in the flexible production facilities.

Demand based production means there is very little inventory in Zara’s supply chain,

which results in much lower working capital requirements.

Procurement /Inbound logistics

ZARA buys its raw materials from Italy, Spain, and Greece.Reason is final product can

be push to the final selling point quickly. Suppliers have agreed to supply material within

5 days to ZARA's facility in spain.due to this most of the inbound logistics are road

haulage.(mainly trucks)

Pricing

As production is carried out in Spain where average wages are higher than low cost Asian

countries so factory wage costs will be higher than competitors, which will affect

margins.

Delivery

Deliveries typically arrive one to two days after ordering with most deliveries arriving by

truck from the Spanish factories. Clothes are then put straight onto the sales floor and are

available to purchase.

Own railway infrastructure

01.Which theory is the best representative of Zara’s (Inditex’s) internationalization?

Uppsala Internationalization model could be considered as the best representative of Zara’s

internationalization. so far and they have followed up the steps in that model to reach the

international market. They didn't actually go to the foreign manufacturing plants but at least

they've outsourced some products on cost effective propose.

Following mentioned activities can be considered as the key factors of internationalization of

Zara.

Price is set based on market

Zara set its prices based on the demand and supply of the market and not based on the cost.

Based on the customer preference products will be manufactured and supply it to Zara’s outlets.

One product will be traded only for one week unless the customer buys it and the product will be

removed from the product line. Market trend will be identified and based on that price will be

decided. Product quality, availability of subsidiary products, income level can point as the

market factors in setting the prices. Therefore Zara would consider demand and supply of

international market and set the price where the customer can satisfy.

The revenue earned will be allocated for expansion, where to open outlets in overseas, and

logistics where to purchase raw materials and other inputs.

Use of flexible models

In order to reach international markets, Zara use different techniques based on the country rules

and regulations. Therefore Zara would open their own outlets in other countries, go for joint

ventures and franchises in order to reach international market.

Multiplication of stores and look for new opportunities

Zara do not invest on advertising, irrespective Zara invest its revenue on expanding outlets all

over the country and overseas. To discover new opportunities Zara will learn about local market,

customer trend, preferences and choices. Multiplication of stores would enhance the reputation

and easy access to customers all over the world.

Increasing number of outlets in overseas will easily capture international market and will

enhance the revenue of the company.

02.Please evaluate the competitive strategy of the three world market leaders. Which of the

three will be the future winner with regard to global retailing in the fashion world?

The three world market leaders are:

Zara

Gap Inc

H&M

The following are the competitive strategy used by each company.

Competitive strategy of Zara

Zara focus on offering the latest fashion in medium quality at affordable prices according to the

concept of the Amancio Ortega, founder of Inditex .Zara always tries to bring the new products

to the stores in a short time which is one particular factor that makes Zara more competitiveness

globally. Zara internally manufactures its ´live collections´, the most receptive garments to

fashion, which account for almost half of its production, and outsources those that are not subject

to seasonal variation

The production cycle of Zara starts with the customers, which mean that Zara takes the ideas and

preferences or rather the feedbacks of their customers through their staff members who travel to

the customers before design their clothing. The budget for the cost of the material, production

and suppliers is fixed according to the target price and the profit margin that the management

department wants to achieve with that item.

Key success factors of Zara

Short Lead Time = More fashionable clothes

Lower quantities = Scarce supply

More styles = More choice, and more chances of hitting it.

Competitive strategy of Gap Inc…..

Gap Inc is the world’s largest specialist clothing retailer with 3,053 stores in 5 countries: United

States, Canada, the United Kingdom, France and Japan which was established in 1969. Gap Inc

is a holding company that sells clothing, accessories and personal care products for the

categories of men, women and children. Just like the Index Gap Inc also operates with and under

several brand names such as `Gap´, `Banana Republic´, `Old Navy´ and ´`Forth & Towne´. Gap

Inc had chosen to outsource all of its production from 1100 suppliers located in United States

and abroad. The internationalization process of Gap Inc is being focused on few countries such

as UK, Canada, France and Japan. Another thing is Gap Inc has been also expanded in the Asia

and Middle east as well International sales accounted for 15 percent of the firm’s total turnover

in 2005. Own subsidiaries have always been the mode of entry adopted to operate in the host

markets

Competitive strategy of H&M…..

This fashion retailer has been established in the year of 1947 in Sweden which follows the

business concept of to offer “fashion and quality at the best price” for men, women, teenagers

and children. Just like Gap Inc H&M outsource the clothing from 700 suppliers. Following

factors can be identified as the key success of H&M. they are,

The location of its stores.

Flexibility of its production.

Low prices.

The firm churns out 500 new designs every year that can be purchased from its 1,193 retail

outlets located across 22 countries and also via mail order or through its website for the Nordic

countries. Along with the apparel line H&M move towards cosmetics and accessories as well.

Compared to Inditex and Gap, H&M is much more internationalized with over 90 percent of its

turnover coming from overseas in 2005.

03.What are the advantages and disadvantages of Zara’s (Inditex’s) multi-brand store

strategy?

Multi Brand Strategy refers to a marketing strategy under which two or more than two parallel

products of a firm are marketed under Different Brand names. The decision of a company in

adopting Multi Brand Strategy depends on the success of the initial brand.

“Zara” is a well known fashion retailer in the world. Lots of brands such as “Pull & Bear,

Bershka, Oysho, and Uterque” are operating under “Zara” main brand

By promoting parallel products under different Brand Names, a company can fill up the Price

Gap and Quality Gaps of the target market. In this way, the market can become saturated with

the similar products of the same company.

Through setting “Multi Brand Strategy”, company can increase the profitability of the company.

Since there are different sales managers for the different brands, there is an internal competition

to increase the sales under different brands. Altogether, this may cause to the increasing of

profitability of the company. The managers of the company are bound to operate efficiently as

internal competition is generated at a high degree.

Cost leadership strategy can be identified as strength of Zara which has led to achieve more

profits by lowering the cost of its products. Through efficient distribution Zara has reduced its

distribution cost and it has led to position the product on time. The main strategy could be the

information technology used by Zara which they communicate efficiently with its suppliers and

customers. Latest communication technology has enhanced the effectiveness of the company.

Having centralized distribution system could be a weakness of Zara. For an example if an

interruption occurred in the distribution system whole supply of products would be affected.

Also having one manufacturing center would be a risk.

As an opportunity Zara use Global market penetration as a pricing strategy which is a high price

strategy. Online market where Zara sells its products online could be identified as another

opportunity.

Rival from local and global competitors can be identified as a main threat to Zara in selling its

products.

04. How successful do you think Zara has been by meeting the “Risk of cannibalization” as

a consequence of the multi brand strategy?

Reduction in sales volume, sales revenue, or market share of one product as a result of the

introduction of a new product by the same producer as the cannibalization. This risk ahs been

overcome by Zrara  through multi brand strategy. brands were built within the domestic market

and then launched for international markets. To target different segments more effectively Zara

has been allowed by this multi-brand portfolio. Cannibalization by differentiating the brands

mainly through the product, target market, presentation and retail image has been tackled by

Zara. This creates a disadvantage to the Zara.

Use of latest technology is another method which has been used by Zara to overcome the risk of

cannibalization. As well as algorithms that combine the rate of sale of various products as

compared to similar products during same seasonal cycles could yield caveats enabling Zara to

adjust manufacturing before peak demand is reached

The following are the strategies used by Zara to overcome the risk of cannibalization

Differentiates Zara’s business model from that of its competitors is the turnaround time,

and the store as a source of information

A completely new piece of clothing can be designed, manufactured and delivered in less

than four weeks. Changes of an existing garment can be put on display within two weeks,

much faster than the competition

Zara’s vertical integration of design, just-in-time manufacturing, delivery and sales;

flexible structure; low inventory rule; quick response policy and advanced information

technology enable a quick response to customer’s changing demands

Democratize fashion by offering the latest fashion in medium quality at affordable prices

Zara operates eight brands. These eight brands are for different target groups from

income level to age and needs and wants. It has the strategy to identify customer needs

very quickly and modify the products and also novelty is a cardinal consideration. By

differentiating products, Zara has faced the risk of cannibalization well.

Zara has adopted to promote the product rather than the brand even though they have eight

brands. By targeting different markets and segments with product differentiation, they have

addressed the risk of cannibalization successfully

It is proven that Zara has overcome the risk of losing customers and gained a competitive

advantage by overcoming the risk of cannibalization. The multi brand strategy also led Zara to

create change in products and use the variation into keeping a constant supply.

05.What are the advantages and Disadvantages of Joint Venture with Tata India.

According to the Indian policy on foreign direct investment (FDI), Zara teamed up with the Tata

Group, India, to form a joint enterprise in February 2009. Inditex has a share of fifty one percent

of this collaboration while Tata’s subsidiary Trent Limited holds forty nine percent. Owing to

several issues the Corporation undergoes, their extension of the store will stay slow, with just

one additional store open Zara is the following Spanish Retailer to come into India, after Mango,

even though Mango adopted the contract route to enter in to the Indian market.

The main concerns that Zara had wile entering into the Indian market were Demography and

cultural concerns. Speaking of demography India has a population of about 1.2 billion people

and the target market would be no doubt wide than what is expected. As the income become

larger in India, there will be more demand in the quality and fashionable clothing. Cultural

Concerns: it is the major concern that has to be given tremendous attention when entering into a

foreign market. It must accept the perspectives and beliefs of the role of culture in influence and

as in India social security is given special attention.

In order to effectively achieve their goals, Zara pursued a strategy of selling a variety of its local

clothing lines and international clothing lines, but maintaining Zara as the primary brand in

India. Zara also targeted the larger positions including either the first or second positions in the

Indian market of clothing lines. Any of these positions would be sufficient enough for Zara to

create an outstanding level with regards to manufacturing, marketing and distribution. These

positions can set up a stage from which Zara can sell their clothing lines and other special

fashion products.

The advantages of going into a joint venture with Tata in India

1. TATA is a well-established brand in the Indian context, would help the market

penetrating for Zara.

2. Zara can get benefitted from the shared infrastructure and human capital of TATA

3. Population of the country

India is the 2nd most populated country in the world and it’s more than 1.1 billion. As well

as, ten areas have more than 3 million population including Kolkata, Mumbai, Delhi and

Bangalore. Higher population can increase the customers in market. It helps to increase

the sales.

4. Gross Domestic Product (GDP)

India is one of the most valuable countries in the world by considering the GDP, growing

by around 6 per cent per annum in recent years.GDP is the tool that most often represents

aggregate growth and contraction in an economy. So the advantages of GDP include the

ability for economists to compare one country’s figures to another. In addition its helps

economists understand whether an economy is growing, contracting, or remaining stable.

5. Reducing communication cost

Tata group joined information systems and communication industries. So, it helps to

communicate brand image for the people.

The disadvantages of going into a joint venture with Tata in India

1. Two cultures are so divers and values and ethics are different as they are from two

different part of the world. Because of this, working together will have a negative

dynamics making it a disadvantage.

2. TATA can dominate the business and Zara’s business and industry secrets may become

vulnerable

3. India is a country which has their own industry of clothes in a large scale

In India, they have a large scale of clothes industries. Most of Indians use to wear their

own products because of their culture. As well as most of Indians are poor people. Hence

only high level people use to buy these branded clothes.

4. India has a traditional culture

Large numbers of Indian people wear traditional dresses such as sari or salwar for women

and dhoti or lungi or panche or kurutha for men. Few people in India are following the

fashionable dresses. Zara Company manufactured fashionable cloths including current

trends. So these reasons reduce their sales when they are moving into such a cultural

country.

5. Rules and regulations of the government

They should obey the rules and regulations of the government such as malls and brands

must accept the “e” challenge as well as malls should bend the retail rules to woo global

luxury brands.