Discuss about the Managing International Business for Zara.
International business is the process to exchange the products and services among businesses and individuals in more than one nation. It is the activity where an international company or multi-national corporation engages in business processes among multiple nations. The term, international business includes all the commercial practices which take place to increase the transfer of products, services, people, ideas, technologies and resources across the national boundaries (Cavusgil et al, 2014). When a company plans to use the products from any foreign country, it needs to develop contractual agreements which enable the firm to use goods and services from other countries. Under international business expansion, a firm focuses development and operations of manufacturing, sales, R&D and distribution process in other markets.
The below report is focused on international business growth of the most popular fashion retailer i.e. Zara. Zara is translational organization that has successfully expanded its business in various nations like Mexico, India, China, Indonesia, Hungary, Japan, Singapore, South Korea, Ireland, UK, Australia, France, Germany etc. This report discusses about the international competitive strategy of the organization. It includes the discussion entry strategies of the company and its operation management processes. More, it consists of some issues which are confronted by organization in international environment. At the end, it includes the recommendations which can be used by Zara’s management team to improve its operations in international markets.
Zara is a Spanish fast fashion retailer that is based in Arteixo, Galicia (Spain). It is one of the most successful retailers all over the world that is using effective strategies for its international expansion and logistic system. The organization was founded in the year 1975 by Amancio Ortega and Rasalia Mera. It produces fashion products by using different fabrics. Zara is the major brand of Inditex group that is the largest apparel retailer across the world. Apart from this, it also owns some other brands as well like Massimo Dutti, Bershka, Oysho, Uterque, Zara Home etc. Zara is going ahead with the changing fashion and trends and providing excellent quality products to its potential customers. As of the year 2017, the company is able to manage up to 20 clothing collections a year (Zara, 2018).
After its establishment in the year 1975, Zara has started to expand its business operation in international markets such as Paris, Portugal, Malta, Sweden, Greece, UK, Australia, Israel, France, Russia etc. Today, there is hardly any developed nation without the store of Zara. Now, the company has more than 2250 retail stores which are strategically located in major cities across 96 nations. The current operating position of Zara can be understood by looking at the fact that in the year 2017, it was ranked 24th on the list of best international brands which is released by global brand consultancy interbrand (Zara, 2018). The company is operating its business with four core values like clarity, beauty, sustainability and functionality. Zara have a different market positioning and exclusive business model from its competitors like H&M, Myer, Burberry etc. which make it more successful in world fashion retail industry. The organization is positioned more fashionable and stylish than its competitions but with a comparatively low pricing behavior.
When an organization plans to operate its business operations in international markets, first it thinks about the competitive strategy that will assist it to compete with already existing brands and attain compete advantage. This is the ways through which the companies make the alternatives about using and purchasing the resources to attain international objectives. It includes various decisions which deal with all the processes and functions of firm. Each and every organization develops international competitive strategy with the goal to attain a valuable and unique position in global markets (Byun, 2013).
As a one of the largest fashion retailers, Zara is also using effective competitive strategies in international markets. One of the major international competitive strategies of Zara is its unique business model. The major concept of its business model is to offer the medium quality fashion cloths and accessories at mass population at reasonable prices. The key to this business model is quick response to customers’ demands and vertical integration. This business model of the company is featured by the higher degree of vertical integration. Time is the major factor beyond costs of production (Caniato, et al, 2014). This model enables the firm to attain great flexibility and cut the turnaround times. It has reduced the stock to minimum and declined the fashion risk.
In addition to this, Zara adopts effective intensive strategies so that it can stay competitive in international markets. It implements market develop strategy in which they are planning to enter into new market like India, China and Indonesia (Kotler, 2015). Additionally, in American and European markets, the company is enhancing its online stores and customer services so that it can compete with its direct competitors in international markets. By using these strategies, Zara is able to establish a strong brand image in foreign nations and gain sustainable competitive advantage against domestic and global competing firms.
The indtex Group is made of 8 retail sales formal including Zara. This brand operates its business with a fashion concept that fosters quality design and creativity together with quick response to demands and expectations of customers. Currently, Zara runs its business by developing a lean organizational structure that focuses on the high performance. At Zara, this type of organizational structure has reduced the managerial hierarchy levels and decentralized decision making process (Mihm, 2010). By using this structure, the company aims to limit the focus of business on additional administrative processes.
From product designing to delivery, the company takes only five weeks for a cloth and only two weeks for an existing garment design. This type of organizational design structure has shortened the product life cycle that enables for great success to meet the needs and wants of customers. The organization structure of the company is totally based on the customers of work of coordination and communication (Tungate, 2008). Customer satisfaction is very important to this company and purchases of customers shape most of the business decisions at Zara. The firm and its lean organization design structure prosper on the utilization of information technology. The stores of Zara use this technology sources to report directly to designers and production centers in Spain. Moreover, the managers at stores use the PDAs to check the latest fashion clothing which has been manufactured and place the orders on the basis of demand they look in the stores. The below given is the organizational structure of Zara which it is using currently:
About the control issues at Zara, it can be stated that company is using lean type of organizational structure that has reduced the hierarchy levels of management so there are less chances of control issues. If the span of control is wide, supervision of various subordinates is very stressful and difficult for the managers (Jacobs and Chase, 2013). The organizational structure of Zara focuses on managing the quality of fashion accessories and increasing customer satisfaction so company wants to stay away from these control issues.
Market entry mode strategy is one of the significant strategic choices. It affects the resource commitment, firm’s degree of control, share of profits and investment risks (Cuc, and Tripa, 2017). To enter into international markets, Zara has adopted effective entry strategies which are given below:
Greenfield Investment is the most preferred entry mode by Zara. It is a kind of foreign direct investment where a parent firm builds its operations in international market from the base. Zara thinks that it is the most advantageous entry mode as the major benefit of this entry strategy is control over the business processes (Cowe, 2010). However, this mode needs higher level of commitment and resources so Zara has implemented this strategy in high profiled nations with lower business risk and higher growth prospects.
Zara uses this mode in the nations where foreign direct investment is not possible. There are various markets which are risky and small. Zara has entered in many countries where foreign ownership ruled out its direct entry. So, company used this entry mode and it has opened company owned stores in the country. These franchises are among the well-settled and financial strong stores of Zara (Deresky, 2017).
In addition to above entry strategies, the largest fashion retailer Zara has adopted joint venture agreements. The company has used this entry mode in more competitive and larger markers where there are various barriers to direct entry. In these nations, Zara faced difficulties to obtain prime space for its retail stores in city centers. In Japan and Germany, Zara formed the joint ventures with Bigi and Otto Versand respectively. Otto Versand is one of the largest retailers in Germany and significantly a mall owner. Moreover, Bigi is a Japan based textile distributor with the knowledge of local market. These are the major reasons why Zara formed joint ventures with these firms (Gallien, et al, 2015).
In this way, currently Zara is using three major strategies to enter in international markets. The strategies are such as Greenfield Investment, Joint Venture and Franchising.
Different components of operations management play an important role in the growth and success of Zara in foreign markets. Under this, the major components are such as production and supply chain management. Operations management and supply chain are two major reasons behind Zara’s competitive advantage. The company is focused on the 3 major areas like reducing the inventory, increasing the resources and time overtaking (Forsgren, and Johanson, 2014). The operations of the company are totally controlled by company’s head in Spain. Under its production process, it can be stated that Zara has the capacity to maintain and cross the boundaries of fashion and trends. The business model of the company is totally focused on the customers and it produces the fashion products and accessories considering the demands of customers and changing fashion and trends (Çifci, et al, 2016). As Zara is only accountable for the designing process of its products, the method of designing includes all the designers, commercial teams, market specialists, staff and procurement team with frequently updated assessments from store management. The organization uses updated technology in its production and designing process that assists the company to stay competitive in the textile industry (Cortez, et al, 2014).
In its operations, Zara ignores to stock up the inventories from raw materials to end customers as it assists the company to reduce the unnecessary costs of material handling. As compared to its international competition, Benetton, H&M and Zara maintain the lowest inventory too reduce additional costs as % of yearly sales (Gorrepati, 2016).
Apart from above operations strategies, supply chain management processes are the most significant part of Zara’s key success factors. Zara uses vertical integration to manage its logistics and supply chain operations. It manufactures the apparel in bulk that customers buy from its retail stores. Vertical integration is the secret behind Zara’s retail success as it assists the organization to fast introduction of new products in international markets. Most of the production operations are centered in the manufacturing grounds in Spain. It has its own retailers and production facilities which are vertically integrated (Ayers and Odegaard, 2017). The success story of this brand shows the strengths of its operations strategies. Zara’s cross functional operation strategy that is coupled with vertical integrated supply chain allows the mass manufacturing under the push control, directing the company to lower markdowns, well-organized inventories and higher profitability.
Thus, the company has managed its operations effectively in both national and international markets so that it can maintain its brand image and gain sustainable competitive edge against its competitors.
Human resource management is major aspect for any company. When the company plans to expand its business across the borders it ensures that its employees have shared values and vision which are built on sustainability through equality, diversity, professional development and volunteering. To manage its human resources across borders, Zara provides effective training to the employees about the culture and language of foreign nation (Venkataraman and Pinto, 2017). The company recruits the people from young generation so that it can offer the products according to changing fashion and trends. Furthermore, senior management gives its store managers full freedom, control over the operations of their stores and performance with growth and profit targets with flexible and fixed compensation scheme. The organization uses various schemes in international markets to motivate the employees so that they can perform their roles and responsibilities effectively.
Internationalization of business operations has posed various challenges to both the Zara’s management and its human resource department. There are various issues which are faced by Zara in its international markets. Because of its business model, it was complex to be implemented the joint venture entry mode, specifically in the conditions where they have to join its criteria with their partner in terms of control and strategy. Due to this, sometimes Zara has bought back its shares after the dissolution of joint venture. In addition to this, the company is facing issue due to the higher prices of its products (Li, Ragu-Nathan and Subba, 2006). The company sets higher prices of its products and accessories as it cannot compromise on the customer service and product quality. One of the most important issues at Zara is its common and simple design of products. It products and designed can be copied by other players in textile industry. Moreover, in some of the international markets company is facing the issues related to inflation. If there will be increase in the inflation rate, it will directly affect the purchasing power of people towards fashion brands (Carbonara and Pellegrino, 2017). Thus, these are the major issues which can affect the growth and business of Zara in international markets.
By considering the above issues, it is hereby recommended to management that it should develop a flexible business model that can be altered according to different market entry strategies. Zara should implement effective marketing and advertising strategies so that it can increase its brand awareness among customers. It should use effective market entry modes so that it can establish its stores successfully and attain competitive advantage against its competitors. In addition to this, the management at Zara should make efforts to improve the management of its human resources as they are the major part of its operations. They should motivate the store managers to develop an excellent environment at stores. Under designing process, it should introduce new and innovative designs of its products. The staff should be customer friendly so that they can attract more customers in international markets.
Conclusion
From the above report, it can be concluded that Zara is a growing fashion retailer in international market. The company uses effective marketing and competitive strategies in these markets. The above report includes different aspects which are related to the international growth and expansion of Zara in global textile industry. However, the organization is successful in these markets but still it faces some issues. These issues may affect the growth and brand image of the company among a large population. The company should make efforts to improve its conditions in the market considering the above recommendations. These recommendations will assist the organization to stay competitive in global fashion retail industry.
References
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