Zara’s Expansion in Asia
Disucuss about the Zara manages its operations across the globe.
Globalisation is generally considered as the process using which different types of firms develop international influences or begins to operate at international level (Emilie, 2014). There are several reasons that promoted globalisation like transportation, technology development, communication etc. Expanding across border shave been mainly done by understanding the dynamics of the market as well as the factors that could enhance the profit share of the firm. Since the issues in the market have increased at a much faster rate hence managing operations across borders seems to be a difficult task.
To make the business successful a whole lot of strategies needs to be properly implemented. Zara is one of the biggest fashion brands in all the in the global fashion industry especially having support of huge parent company Inditex have strengthened its position in the market. Its expansion in Asian market which is a highly populated was a great move. Like other organisations, Zara also used its available resource along with the brand name it has in the market for its expansion in Asian region. There are various approaches to international which Zara used at different stages. Challenges in the Asian market have increased over the years as number of companies has come up in the industry. They have utilised several kinds of strategies for the development of organisation and hence making their expansion plans smoother. In the implementation of strategies different departments have played a different role.
Fashion Industry has made their presence in different regions of the world and so is in Asia (Crofton and Dopico, 2012). Zara is a global leader in fashion industry which has also stretched its business in different parts of Asia This European fashion giant has lot of opportunities in the Asian regions due to the highly populated regions. For meeting the Asian audience they have opened their manufacturing unit in China as well as they are availing their raw materials from countries like Bangladesh and India. In the increasing competitiveness several new kinds of challenges have emerged in Asian market for Zara hence they need to confront all these with the help of different kinds of strategies. Having several operational units in various parts of the Asian region has made the management of business across border a bit difficult. With its brand name and strategies they have made for their business, managing business will not be a difficult task.
Internationalization Approaches
This report presents the various aspects of the Zara expansion into Asian region. It also depicts the approaches to Internationalisation which Zara have used for itself while managing their business operations across the borders. It also suggests about the problems and challenges that that is faced by the Zara while being operational in this region. It also depicts the processes which this company has followed for its expansion along with the strategies they have used for managing their business across borders.
Inditex the parent company of Zara extended its reach into Asian region with its manufacturing hub in China. They opened their first store in China. They wanted to become the major player in this highly dense region having potential to enhance the profit margins of the cited firm. Another major factor of choosing this region is the fact that it is the fastest emerging market in the global perspective.
With its efforts over a decade, they have been able to become one the leaders in the market. China being a technologically advanced economy has helped the firm in its research and development programs and hence they used it as the centre for meeting the product demands (Hansen, 2012). Inditex’s Chinese unit is capable of satisfying the global need of their consumer market. Since India and Bangladesh have high quality raw materials available at the lower prices hence they started to avail these resources from this region only. They have now stores in various countries of the Asian region and with their fast fashion strategy they have been able to capture the large part of the market. Growth of the Zara has been a bit slower due to different factors present in the business environment in this region.
In expanding across the border, Zara have used various approaches to Internationalisation. The process of expanding the business into new regions for ensuring that considerable growth and stability can be provided to their business is known as internationalisation (Hurley, 2017). It has been used by various players in and out of the industry.
Zara took use of the strategic approach to internationalisation for expanding their business into new areas. This is seen through the fact that they utilised a series of strategies for their expansion. These strategies were according to different units in the organisation (Lopez and Fan, 2009). From expanding into new region to marketing their products, they have utilised a whole lot of strategies. This has helped them in reducing their operational cost as well as expanding their profit margins. Zara’s internationalisation process has impacted their business and has changed its dynamic in the Asian fashion market. Their strategic approach has helped them in gaining competitive advantage which was crucial for the firm when it is entering into any new market. Along with this approach they have also taken use of holistic approach to internationalisation (Carugati, Liao and Smith, 2008). They have not only stressed on imports and exports but have also made a strategic alliance with the suppliers in Asia. They have pushed their holistic approach by opening their manufacturing centre in China.
Expansion Process
In the later stage of its expansion into this region, the adopted contingency approach in order to tackle all the challenges that are faced by the firm (Rao, 2014). It has assisted them in their country to country expansion. In the changing global business environment this approach has helped them in tackling their specific market related problems.
All these approaches have been used all together by the company so as to smoothen their process of expansion. In the cut throat business environment collective use of these approaches has helped them in establishing their market base which gave them edge in the market.
Zara planned to enter into the Asian market with the motive to capture larger market base. Their process of expansion seemed to be unique as they utilised pragmatic approach to select strategies or to carry out the approach to internationalisation (oboda and Elsner, 2011). Taking pragmatic approach as base, they have selected different entry modes to expand in different countries. Franchising, Joint ventures and Own subsidiaries are the three entry modes which they have most commonly chosen for expanding into new market.
Following their mode of strategies, they selected China to open their first flagship store. In opening of the store they have taken use of Equity mode of entry. By understanding the environment of China, they opened their first factory which has helped them in meeting up their demands of the consumers. They utilised cost leadership and differentiation strategy for expanding their base in Chinese market. With low cost labourers and easy availability of quality and cheap resources from neighbour market, they have been able to implement their strategies in this market (ToughNickel, 2018).
On the other hand, for their expansion in India they utilised several other strategies. This is because of the fact that in India no company can invest 100% through Foreign Direct Investment. In order to tackle this situation they utilised Joint Venture as their expansion strategy. They made strategic alliance with TATA group for opening their shop. In this alliance they hold approx. 49% share in Zara India. Their alliance with Trent Limited which is one of the biggest clothing line distributors in this region has helped them to maintain their supply chain management. Following cooperation strategy they utilised each other’s competencies for their development. Zara used its technological advancements along with the distribution channel of Trent Limited so as to satisfy the needs of the market on time. Zara used its brand name and the years of experience to penetrate deep into the market (Tokatli, 2008). Utilising this strategy they have been able to open their store with the similar brand as well as complying with all the norms regarding Investment.
The tie up between the two partners in the beginning was not smooth. This is because both of them have different operational culture. Managing the Asian workforce has been another problem for the company. When they opened their shop in China they had to face cross cultural hurdles while in India because of the help of TATA group, they did not have to face such problems. Huge amount of Cultural dissimilarity, language barrier and demography was a bigger challenge for Zara but with the help of big distributors like Trent these problems got significantly reduced.
Offshoring and outsourcing has been their crucial aspect of business. This is because they have relocated manufacturing centre in china while many other operations are done from other nations like India and Bangladesh. This has helped them in cost saving.
In a very less amount of time, they have been able to reach to larger part of the Asian market. Without the use of extensive promotional campaign, they have achieved their objectives because of the strategies that they have implemented (Viardot, 2014). To ensure higher sales in the Asian market, they have been using several types of strategies.
Internationalisation strategy was of the significant strategy which it has used for reaching across borders. Under internationalisation strategy, they have also utilised international strategy, growth strategy, multi domestic strategy as well as transactional strategy (Sull and Turconi, 2008). The choice of strategy differed from nation to nation. In most of nations they have utilised global strategy as it helped them in bringing standardisation in their work process which was necessary for producing standard products. Utilising this strategy they have been offering products to their target audience at lower prices. They rely on the products in which they have gained expertise as well as market their products based on low cost structure (Matic and Vabale, 2015). The standardisation procedure that they have used along with the quality that they maintain in their products has helped them in expansion plans. Another explanation to their adoption of Global strategy in Asian market is that this region has high cost pressure and low level of responsiveness.
Figure 1: Business Jargons: Expansion through Internationalisation
In some regions of Asia where 100% FDI in single brand retail is not possible, they have taken use of cooperation strategy where they took the help of strategic alliance in order to establish themselves in the market (Zott and Amit, 2010).
They adopted different strategies in their expansion so as to stabilise themselves as soon as possible. In the staffing also they have adopted different strategies from time to time. In the starting phase, they have been using polycentric and ethnocentric strategy while they utilised geocentric strategy for staffing. It has assisted them in tackling the unexpected problems that they were facing due to cross cultural differences (Bovel and Martha, 2000). It played a crucial role in the nations where they have wholly owned subsidiaries.
Apart from this they have also utilised fast fashion strategy which has helped them in attracting more number of targeted consumer towards their business. Using this strategy they have been able to capture larger market base. They also are taking use of the Sprinkler strategy which relies on diversification principle where Zara attempts to enter into the market in the shortest possible time (Fisher and Raman, 2010). Joint venture strategy has also helped them in this process. In the market level they have used diversification and new product development strategy for penetrating deep into the market. It has assisted them in gaining competitive position in the market.
It was never an easier job for any country to expend their business in Asian region. The same was the case with Zara as multiple factors are present in the business environment which restricts their scope. There are several problems and challenges that are present in the Asian market. Few problems and challenges are as follows:
- Over competition: There were several firms that are operational in Asian market before Zara came into Asia. It involved many international and small players. In such a huge competition, making their position in the market was a challenge for them (García-Álvarez, 2015). This problem got worse when the competitors present in the market are offering products at highly lower prices.
- Piracy: There are many smaller companies in the market who have imitated the fashion of Zara. These products are available at the lower prices. It is seen that in the local market the copy of the dresses with the same marks as Zara is available. It is a serious challenge and extremely hard to reduce it from the base level.
- Lower purchasing power: In Asian region most of the nations have per capita income on the lower side (Mazaira, Gonzalez and Avendaño, 2003). This has reduced the purchasing power of the people especially in terms of the fact that they prefer local clothes over branded products. This has forced the Zara to implement low cost structure in which ensuring higher profits could be a challenge. Lower purchasing power demotivates fashion industry.
- Market regulations: There are several regulations that have been made by different governments against fashion industry. Constraints like not allowing 100% FDI in retail has restricted them from becoming the major player in terms of profits. Such regulations make it difficult for the company to open new stores in these nations. It has also become more difficult because of the space complexity and hostile business acquiring property. This is a serious challenge as significant decrease in the growth of the firm is noticed because of it.
- Less technological use: In some regions of Asia excluding nations like China, Japan, there is poor utilisation of technological resources (Mihm, 2010). Zara which is highly dependent on the technology for their operations has to avail it from the nations which are highly advanced in the technology. This makes the operational procedure very costly. In European countries they have been more successful; one of the prime reasons of it is the technological advancements.
- Communication and cultural gap: There are several cultural barriers that are faced by Zara as the parent nation and Asian market have different type of cultures. Because of this there is always a language barrier among the staffs and the managers sitting at the top. This also made the adoption and implementation of the strategies more difficult. Countries have India and China which is their major market has a huge cultural diversity within the nation. Dealing with such a cultural variance is a very difficult task for any nation.
- Understanding demographic demands: Since the demographic division inside this region is very unique and hence understanding their demands and fulfilling them is a very difficult task (Preuss, 2017). Making of products as per the demand of the market requires a huge amount of research. Since there are large changes in the demands hence managing demand is not an easy task.
- Huge marketing competition: It has been seen that there is huge competition present in the market. Such a competition in the fashion industry in marketing is a challenge for the firm as Zara does not believes in promotional campaign. Because of this they can lose their market to other competitors like H & M, Marks and Spencer as they also offer the same range of products (Ghemawat, Nueno, and Dailey, 2003). This gives people with larger numbers of options available. In this market, there is lower consumption rate and lower market base.
- Bureaucracy: In most of the parts of the Asia, there is a problem of slower bureaucratic process. This slows down the decision making process of the nation which is not good for the development of business. Apart from this corruption has been major issue in this region. This has brought negativity in the business environment and companies have to invest a lot in the lobbying which is a costly affair.
- Developing countries: Most of the countries in this region are a developing nation hence there is less stability in the market. Any change in the economic condition of other nations is reflected back in this region also (Bhardwaj, Eickman and Runyan, 2011). Such instability in the market is not good for the growth of the industry.
- Government policies: There are many government policies made in different nations which are not very encouraging for the fashion industry. Higher taxation on the branded products has relatively lowered the sale of the products.
Conclusion
From the above based report it can be concluded that Zara is one of the global leader in the fashion industry. The have utilised various types of strategies for expanding their business across the borders. Along with this their approach to internationalisation has helped the firm to gain significant market share. In Asian region they are facing several types of challenges in their expansion process. Their Pragmatic approach towards adoption of strategy has helped them in confronting all these challenges. In Chinese market they have used own subsidiary to enter into the market while in Indian market, they have utilised cooperation strategy for penetrating into the market.
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