Assignment Sample on Zara Management Consultancy Report
Part A: Business report
Introduction
Formulation of effective global strategy and sustainability can be widely beneficial from a corporate perspective to ensure competitive growth opportunities. The present report has paid attention to consider the case of a renowned multinational retail service provider Zara in order to ensure further growth opportunities for them by considering a strategy upgrade. In this regard, extended external and internal environment analysis is conducted in this report for the business of Zara along with their global invalid and corporate strategic interventions. Lastly, the report has also focused on elaborating the strategic purpose of Zara concerning the attributes of ethics and CSR.
Task 1 – The External and Internal Environment
PESTLE
It can be analysed that the external factors mostly provide a positive impact to the fashion industry. This can help in managing the growth of Zara in the external environment. The foreign-trade regulations are different in different countries across the globe (Kordos, 2019). This can help in managing the fashion business as per local requirements. Moreover, separate global trade agreements can help the fashion industry to expand globally as it can provide international sustainability. The differences in taxation policies also help in managing the business across the globe as per the local needs. The pandemic situation in the global sphere has affected the economy negatively. The downfall of GDP in the world has affected every industry. The loss in GDP has had an impact on the decrease of the income levels of the people. The global unemployment rate has decreased from 6.58% to 6.18% during the 2018-2020 (Statista, 2023). This has affected the business operations involved in the fashion industry of the world.
Figure 1: Global unemployment rate
(Source: Statista, 2023)
The high market demand of fashion apparels by the people across the globe has helped in maintaining business in this industry. Moreover, the demand has created chances for the fashion hub to manage innovations. The technological upliftment by usage of advanced technologies in the fashion industry has helped in maintaining the business sustainability. The innovation of displaying the product using AI has helped the fashion industry to manage its growth (Yeo et al. 2022). Moreover, the inclusion of global laws for the training of the products in the international market is followed by this industry. Even, global initiatives to manage the supply of products using green supply chains have helped in managing the growth of this industry appropriately. The implementation of green packaging of the products has helped the fashion industry to grow in the global sphere.
Porter’s five forces
Forces | Impact | Justification |
Threat of new entrant | Medium | Zara has its own brand recognition in the global market. It has a unique business model. However, the local organisations that are new in the market are copying the model, which can affect the business of this organisation and can create threat. |
Threat of substitute | Low | In the fashion industry, different organisations have different pricing and quality products (Duoyan, 2021). The substitution for clothes is negligible which cannot affect the business Zara. |
Bargaining powers of buyers | High | The operations of Zara are based on the satisfaction of the customers and fulfilling their needs. However, the introduction of low pricing products is affecting business development of this company. Therefore, the customer value is required to be at top in this organisation. |
Bargaining powers of suppliers | Low | There are many suppliers present in the industry. Zara as a brand can have different suppliers. Therefore, this threat is low. |
Competitive rivalry | High | Zara has tough competitors in the market such as H&M, UNIQLO and Mongo (Mahardika and WayanSantika, 2021). Therefore, this organisation is required to implement new trendy fashion for the customers at less time interval for managing this threat. |
Table 2: Porter’s 5 Forces for Zara
VRIO
Internal strategies of the company used to manage operations are taken into account when performing internal analysis. To do this, the internal environment of Zara is understood using the VRIO framework. This model helps in analysing the internal competencies of the company using four factors such as rarity, Imitability, value, and organisation.
VRIO analysis for Zara
It is clear from the internal analysis that the organisation has benefited from its core capabilities in terms of gaining competitive advantages. The high calibre of the goods that Zara offers to its customers has aided in the development of their distinct brand identities. Customers’ experiences have been enhanced because of the quality assurance of the products, which has contributed to maintaining market prospects in a cutthroat environment (Chen, 2022). However, the involvement of high pricing of the product in Zara has created competitive disadvantages, which has affected the sales of the organisation. The organisation’s mobility has been maintained thanks to organisational improvements using electric vehicles. This has made organisational attempts to improve market position more streamlined. The organisation’s market position ensures long-term competitive benefits because the operations are organised by which the global market can easily be maintained. The innovations in the organisation have helped in maintaining competitive advantages for the customer experience. This has involved proper environment sustainability to the organisation and managing the business statistics properly.
Current sources of competitive advantage
The involvement of the business advancement with plastic security tags with the RFID chips has helped in maintaining the garments appropriately. The inclusion of the RFID chip data has created a competitive advantage in the organisation. The technological advancement has introduced inventory management with real-time tracking operations. This has helped in maintaining the business sustainability by which the traditional fashion industry is getting tough competition. Moreover, trading in the international market requires innovations, which have been adopted by Zara to manage business empowerment (Mahardika and WayanSantika, 2021). Even, the offers and discounts provided to the customers have helped in maintaining the business processes by which customer integration towards the organisation has increased. The variety of garment for every human being has helped a family to select Zara as one stop solution for their fashion. These factors have increased the competitive advantages in the organisation. As Zara has a highly competitive rivalry therefore, the involvement of unique selling options is required to be incorporated.
Task 2 – Strategy in the Global Environment
In terms of highlighting the motive for Zara’s global expansion, the Yip’s model of internationalisation has been considered.
Competitive drivers
This element highlights opportunities created through globalisation where globalisation is an integrated initiative for enhancing the global networks. This aspect eventually enhances the pressure for global coordination as well as trade across the global markets based on which company’s ensure subsequent opportunity of enlarging competitive advantage (Chang et al. 2022). In the case of Zara, the company is observed to empower their network across the globe by maintaining adequate global coordination across countries and markets. According to the case study, Zara has been operating across the global market with around 2118 stores. This extended global presence has been highlighting the operational prospect of Zara for establishing an improved global network by boosting interdependence across their operations and respective markets (López et al. 2022). For example, the operations of Zara in India can be taken into account where the company has been operating with a clear focus on market competition as an integral part of obtaining subsequent competitive growth opportunities by focusing on the improvement of customer experience. This aspect had been highly beneficial from the perspective of Zara due to which the brand posted a revenue of INR 1815 Crore for the financial year 2022 in India (Business-standard, 2022).
Market drivers
Market drivers of globalisation usually highlights the standardisation of markets where globalisation increases the aspects of similar customer demands and taste in the market (Wach et al. 2022). The creation of transferable markets through globalisation can eventually improve financial feasibility for an organisation by increasing the number of customers. Implications of this attribute can also be highlighted from the perspective of Zara where the company has focused on considering market standardisation as a valuable element for improving their reach across global markets. As an example, the operations of Zara in the UK market can be considered where the company has focused on mitigating similar consumer needs as an integral part of extending their customer base. Standardisation of markets has been explicitly beneficial for Zara in this case to obtain increasing brand awareness in the UK. The company has obtained 86% brand awareness among the UK online fashion consumers (Kunst, 2022). As a result of this, Zara has been able to improve their financial status in the UK despite having a high level of competition. The full-year sales of Zara in the UK had grown up to £772.5 million (Halliday, 2019). The company was also certified a winner on the UK high street with their lucrative performance (Halliday, 2019).
As per the case study, Zara is noticed to emphasize on the improvement of customer experience as a core focus of their business strategy. In this regard, both competitive and market drivers have been extremely fruitful for Zara to signify their overall company strategy of increasing profitability by providing high quality products and services to the consumers.
Figure 2: Inditex net sales from 2013 to 2021
(Source: Smith, 2022)
With successful mitigation of market demands, Zara has been largely contributing to the financial revenue generation of their parent company, Inditex. The mentioned figure has been illustrating the contribution of Zara in the growth of Inditex where around 20 billion Euros sales are generated by them (Smith, 2022).
Recommendations for global entry strategies
With reference to the strategic motive of Zara and environmental analysis, three different strategies like joint venture, FDI and franchising are suggested for the brand.
The incorporation of joint venture strategy would be highly beneficial from the perspective of Zara. The company would be able to consider shared usage of knowledge and skills as well as financial funds and brand value by creating joint venture with other respective organisations in the foreign markets (Sadegh et al. 2020). The environmental analysis of Zara eventually highlighted high market demand of the fashion industry. In this regard, collaborated market presence would be highly beneficial for Zara to understand the market trends and consumer choices in order to achieve financial feasibility.
Zara can also look forward to consider FDI in the following markets. According to the environmental analysis, the attributes of foreign trade regulations as well as taxation policies are applicable within the global retail sector. Abiding by these aspects would be extremely supportive for Zara to ensure improved market presence by depending on FDI. Zara can also consider the option of franchising for global entry. In this case, Zara would be able to involve a franchisee organisation where Zara would obtain the royalty fees for allowing their trademark as well as services to the franchisee (Kim and Lee, 2020).
Task 3 – Corporate Strategy
Horizontal integration
The development of the business operations across the globe are managed with the inclusion of appropriate supply chain management processes. The implementation of horizontal integration can help in managing the supply chain across properly. Zara with its operational development needs to improve its supply chain in the global sphere. The implementation of horizontal integration in the supply chain process can help this organisation to increase the market share (Amrutha and Geetha, 2019). The adoption of horizontal integration in enterprises has been aided by the blending of technologies like AI, blockchain, and data analytics. Zara can include horizontal integration to implement AI in the marketing process. The business strategy of horizontal integration’s participation has aided in preserving positive connections with suppliers and clients. In maintaining the competition in the market and attaining proper supply chain there is a requirement to include a bigger base of the customers, which can help in maintaining the supply chain properly with the horizontal integration. Additionally, this integration process also manages the external stakeholders.
Vertical integration
Vertical integration is used to handle internal elements such organisational structures, relationships among personnel, and human resources. Zara’s adoption of vertical integration can help in controlling the technology layers through which the business development process may be controlled effectively. Fashion firms such as Zara may invest more on better designers and tools since they have control over the product’s development and manufacturing processes. Additionally, the corporation can regulate the sourcing of raw materials, which can limit the manufacturing rate, giving the company control over the business and the value chain (Rathnayake et al. 2020). Managing the distributors can support maximising a market’s sales rate in the global sphere. This can help in maintaining the proper supply chain in development of the organisation.
Outsourcing and Strategic alliances
Hiring seasoned service partners for a specific task, such inbound logistics or distribution to global markets, is known as outsourcing. Outsourcing of materials or human resources enables the production of superior goods that are not possible through direct local sourcing (Chen and Perez, 2018). This can be beneficial for Zara to manage the supply chain with the outsourcing process. H&M’s fashion brands employ outsourcing as one of their main business strategies to build out their supply chains. Moreover, strategic alliances in Zara can also be helpful for Zara to capture local markets so that quality products can be involved.
Recommendation to increase profitability
The implementation transaction cost model can be implemented for improving profitability in Zara. As Zara is a renowned global brand, there is a requirement to involve a proper costing model so that the business growth can be managed. A corporate governance framework called transaction cost uses vertical integration by which costs in an organisation increase when work is performed by other businesses. The costs are broken down into three categories: policy, negotiation, and search (Lin, 2019). Zara may manage and keep an eye on the costs of vertical integration in this way. Finding suppliers for the fashion industry is necessary since Zara uses Inditex to purchase materials from a variety of sources.
Figure 3: Transaction Cost Model
(Source: Lin, 2019)
Task 4 – Strategic Purpose
In order to describe the CSR strategy of Zara, Carroll’s CSR pyramid framework is considered. According to this theory, businesses should mitigate the ethical, legal, economic, and philanthropic expectations in order to be socially responsible (Kusyk, 2021).
In the context of Zara, extended emphasis can be highlighted from the company perspective towards ensuring ethical responsibilities. In this regard, Zara has decided to stop the usage of synthetic fibres in their products (Thacker, 2019). Elimination of plastic bags and others are also highlighted from the perspective of Zara as an integral part of progressing towards sustainable fashion (Thacker, 2019). Adequate commitment is also disclosed by the brand towards the adoption of net zero emissions target by the end of 2040 (Djunisic, 2021). Along with this, the case study highlighted Zara’s preference of mitigating market demands based on consumer requirements with a focus on customer experience. This aspect can also be certified by highlighting the achievement of around 11% market share of Zara across the worldwide apparel industry.
Zara has also focused on both legal and philanthropic responsibilities by contributing to the community. Across different countries and markets, Zara has focused on extending their contribution to the community as an integral part of supporting their CSR progress. For example, the focus of Zara in the Indian market can be highlighted where subsequent CSR activities are considered by the brand including eradication of poverty, hunger and malnutrition, contribution to the prime minister’s national relief fund for socio-economic development, maintenance of ecological balance by conserving natural resources and others (Zara, 2023).
Ethical issues faced by Zara
Different ethical issues are experienced by Zara across their global operations. The consequences of force deliver can be highlighted within the operations of Zara where numerous allegations are filed against the brand for forcing their employees within the “slave labour” conditions (Impact Policies, 2021). Thus, the triple bottom line theory can be taken into consideration, which highlights the focus of a business on three respective areas such as people, profit, and planet in order to ensure success (Farooq et al. 2021). In the case of Zara, the people aspect has come under stake due to the provision of harsh working conditions. Even, humiliating working conditions are also reported within the supply chain operations of Zara. Potential labours operating within the supply chain factories of Zara have experienced abusive incidents. The incidents of forced labour camps can also be highlighted from the perspective of Zara in China (Bnreport, 2021). Across their operations in Brazil, the workers are subjected to inadequate working conditions, where they operate within fenced plants with constant monitoring of their movements (Bnreport, 2021).
Recommendations for addressing the issues
Zara should formulate strict corporate guidelines as a valuable parameter of preventing poor working conditions in different countries. Strict supervision is also required from the company management across their supply chain working conditions. In this regard, a 360° feedback process can also be considered by them with their employees and workers from different countries through online.
Conclusion
The overall report has presented a clear understanding regarding the global strategic aspects of Zara where high demand for fashion industry and preference of advanced technologies are creating positive opportunities. Despite having intense market competition, Zara has disclosed their global expansion motive with regards to achieve competitive advantage by efficiently addressing market demands with a focus on the improvement of customer experience. The prevention of synthetic fibres, contribution to the community, nets zero carbon emission and others are disclosing their commitment towards CSR. However, the allegations of forced labour have been reflecting ethical issues within the company, which are likely to be addressed through strict corporate guidelines and rapid surveillance.
References
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