Assignment Sample on Global Strategy and Sustainability
Introduction
This particular report aims to analyse the business development growth of Zara. Zara is an accessories and clothing retailer organization that operates in 96 countries worldwide, and its net income was 1.1 billion euros in 2020. Zara is facing extreme problems to grow its market and Zara’s revenue has decreased from 3.6 billion euros to 1.1 billion euros. Therefore, this particular report has analysed the internal and external market, global market strategy, corporate strategy ethics and CSR activities that will help to understand the market Zara and to take effective steps to grow its revenue.
Task 1– Analysing the Internal and External environment
Zara is the third largest apparel brand worldwide and it has a market share of 3.1%, but in recent years due to not having proper management and the COVID-19 impact Zara is facing extreme problems to grow its business revenue. As per the onion of Ruan et al. (2022), effective analysing of the internal environment and external environment can help to analyse the problem effectively. Therefore, a SWOT and fashion analysis of Zara helps to identify its “strength”, “weakness”, “opportunity”, and “threat” to grow the business in the UK effectively.
SWOT analysis
| Strength | Weakness |
| ● Strong brand image
● Quick response time ● Fast fashion ● Diversified product range |
● Limited online presence
● High inventory costs ● Production limitations ● Dependence on Spain |
| Opportunity | Threat |
| ● Online market growth
● Increase in demand ● Sustainable fashion growth |
● Intense competition in the fashion industry
● Changes in consumer behaviour ● Global supply chain issues due to pandemic/crisis |
Table 1: SWOT analysis
(Source: Self-created)
The above table 1 depicts the SWOT analysis that helps to analyse the “strength”, “weaknesses”, “opportunities”, and “threats” of Zara. It has been analysed that Zar has some strengths such as a strong brand image, squeak response time, diversified product range and more than has helped to make it the third largest apple brand. Along with that, Zara has some weaknesses such as it has limited online presence, production limitations, and dependency on Spain and more than somewhere that opposes Zara to improve its business revenue. Moreover, it has some threats such as strong market competition in the fashion industry, changes in consumer behaviour, and global supply chain issues due to a pandemic situation that has reduced the business opportunity (Liu, 2021). Zara has some opportunities such as online market growth, sustainable fashion growth, an increase in fashion demand and more that can provide effective growth for the future development of the business.
PESTLE analysis
| PESTLE | Factors | Impact |
| Political factor | ● Political stability index is 0.54 (Theglobaleconomy. com, 2022)
● UK parliament follows constitutional monarchy and democracy ● UK corruption rate was expected to grow 73.00 points in 2022 (Tradingeconomics.com, 2022 |
Positive |
| Economical factor | ● GDP was 2.2 trillion dollars in 2022 (Statista.com, 2022)
● The growth rate of the UK economy was 7.6% in 2021. ● Tax-to-GDP rate was 33.5% in 2021. |
Positive |
| Social factor | ● High population growth is estimated to reach 72 million by 2045 (Migration Observatory.ox.ac.uk, 2023)
● UK people spend approximately $576.3 billion on apparel ● The employment rate is high around 75.7% (Ons.gov.uk, 2023) |
Positive |
| Technological factor | ● Technological development rate is 7% each year in the UK (Gov.uk, 2022)
● Advanced technological support available |
Positive |
| Environmental factor | ● UK air quality index is 22 (Uk-air.defra.gov.uk, 2022)
● Diverse atmosphere ● Unstable atmosphere change |
Negative |
| Legal factor | ● UK follows Employment Act 1996 (Gov.uk, 2023)
● Equal Act 2010 protect from discrimination in the UK |
Positive |
Table 2: PESTEL analysis of the UK
(Source: Self-created)
The above table 2 depicts the PESTEL analysis of the UK, which has helped to analyse the UK market for the business development of Zara. It has been analysed that the UK government is supportive and the GDP rate is also high around 2.2 trillion dollars in 2022 (Statista.com, 2022). Moreover, it has been analysed that the UK has advanced technical support that can help Zara to grow its online market which will increase the business growth of Zara effectively. It has been found that atmospheric change and environmental factors affect the supply chain of Zara and reduce its business opportunity and revenue. The effective use of the Employment Act 1996 and Equal Act 2010 helps to manage organisational difficulties properly in the UK (Gov.uk, 2023). Therefore, overall analysis shows that the UK is a better place to improve Zara’s business. But they need to implement advanced technology and business strategies such as proper planning, maintaining and controlling the organisation to get positive results in business development. As per the statement of Tőkés (2022), technological development within the business organization of Zara can create competitive advantages in the market by improving business productivity.
Task 2 – Global Environment Business Strategy
Zara is a well-known fashion retailer organization. In other words, most customers prefer to buy clothing from Zara. As per the opinion of Soroya et al. (2021), in recent years due to the COVID-19 pandemic situation, Zara is facing difficulties to grow its market revenue due to not using online platforms to sell products; it has reduced its revenue to 1.1 billion pounds from 3.2 billion pounds in the recent year (Statista.com, 2022). Therefore, to get effective business revenue and growth Zara wants to expand its business in a new foreign market, which requires effective analysis and knowledge about market entry strategy.
Figure 1: Market entry mode
(Source: Self-developed)
Effective market entry strategies have been described here that will help Zara to gain knowledge to choose the suitable market entry mode for starting a business in the new foreign market. As per the opinion of Zámborský (2021), there are different kinds of market entry modes available such as “exporting”, “licensing”, “Franchising”, “Joint Venture” and more.
Exporting is an effective and common market entry mode and it can be more effective when Zara wants to export their products directly or indirectly through intermediaries from the home country to the foreign market. As per the opinion of Kumar et al. (2021), exporting has the lowest risk, is cost-effective and is a well-known method for entering a new market. On the other hand, licensing involves granting the rights to use the Zara brand to a foreign company, while franchising involves granting the rights to use the Zara brand and business model to a local company in exchange for a fee. As per the opinion of Moktadir et al. (2021), licensing allows business organisations to use foreign property and it requires some amount that needs to be paid to the foreign Government. Compared to licensing franchising is more complex and has more risk.
In addition, joint ventures consist of two different companies. Among those one organisation is the local organization. Where Zara can collaborate with the foreign market local business organisation that helps to use the local property of the local vendor and advertise the brand in the target foreign market. As per the statement of Adomako et al. (2021), joint ventures also help to get foreign market data effectively and easily which helps to analyse the requirements of the customers in the foreign market. Conducting effective market analysis before starting the business in a foreign market helps to grow the business effectively in the foreign market. Zara needs to analyse the foreign market data properly and prepare to change the product according to the customer’s choice which will create competitive advantages to push the business effectively in the foreign market.
Before choosing the appropriate market entry mode there needs to be an analysis of the market conditions, the organization’s resources, regulations, and capabilities (Qi et al. 2020). One possible strategy would be to start with exporting, followed by franchising and wholly-owned subsidiaries. Zara can start by exporting its products to the foreign market to test the market and gather information on customer preferences, local competition, and regulations. Once the market potential is established, Zara can take advantage of franchising to expand its reach in the foreign market, leveraging local partners’ knowledge and expertise (Fuentelsaz et al. 2020). This process will be an effective strategy for Zara to expand its business growth in the foreign market to create an effective customer base in the foreign market. After the brand becomes established in the foreign market, Zara can consider setting up wholly-owned subsidiaries to gain more control over its operations, and foreign market and increase its market share.
Task 3 – Corporate Strategy
Zara has established itself as a leading fashion retailer globally, with a highly efficient supply chain that helps to provide the required products to customers in an efficient way. As per the opinion of Somkina et al. (2021), there need to develop the supply chain management system to create market competitiveness and business growth opportunity in the new market. In recent years due to the COVID-19 pandemic situation, Zrara has faced problems managing the supply chain and the global lockdown has fostered a reduction of the business revenue for Zara (Zara.com, 2019). Therefore, to overcome the loss due to supply chain disruption Zara can take use of different supply chain strategies such as “horizontal integration”, “vertical integration”, “strategic alliance” and “outsourcing”.
Figure 2: Corporate strategy
(Source: Self-created)
Horizontal integration involves partnering or acquiring different firms that operate at the same level of the supply chain. As per the statement of Anucha and Christian (2022), a horizontal integration strategy helps to boost business position within specific business industries and to create edge-to-edge competition in the market. It is a type of corporate strategy that helps to take the same strategies adopted by other sales organizations in a similar industry. For example, Zara can provide the same offer and discounts to customers that have already been adopted by other competitors in the market such as “Fast retailing”, “H&M and more (Amponsah and Adams, 2023). The primary goal of horizontal integration is to grow the business through the acquisition of one or more market competitors within a safe kind of industry. In the case of Zara, horizontal integration can involve partnering with suppliers, logistics providers, or retailers that can help to streamline its operations. Therefore, Zara can improve its supply chain by reducing the cost of supply chain management, improving product quality and increasing efficiency.
On the other hand, Vertical integration involves acquiring or partnering with firms that operate at different levels of the supply chain. As per the statement of Pinopoulos (2021), vertical integration is an effective corporate strategy that involves the growth of the business organisation through streamlined operations. Zara can take the benefits of vertical integration by acquiring a vendor, producer, distributor, supplier or other related organisations within the same business industry. Therefore, Zara can benefit from vertical integration by gaining more control over its supply chain, reducing lead times, and improving the quality of its products.
Outsourcing involves contracting out some or all of the supply chain activities to third-party firms. As per the opinion of Dumbrill and Wang (2021), the effective use of outsourcing helps to reduce the cost of supply chain management, and the leaders of the organization can get more time to focus on the core development of the organisation. It also provides more flexibility to the organisation’s leaders to think strategically by handling the organisational activities to any third-party forms. Therefore, Zara can benefit from outsourcing by reducing costs, increasing flexibility, and improving its responsiveness to changes in demand.
On the other hand, strategic alliance depends on faith, trust, and the relationship between simultaneous stages in the supply chain. As per the statement of He et al. (2020), a strategic alliance can be conducted between two or different organisations to achieve some beneficial goal for the development of the supply chain. However, the choice of strategy should depend on a thorough analysis of the benefits and drawbacks of each strategy, as well as the company’s resources, capabilities, and long-term objectives(Sadegh et al. 2020). Ultimately, it has been recommended to Zara that it needs to strike a balance between control, flexibility, cost-effectiveness, and responsiveness to changes in demand to succeed in today’s fast-paced fashion industry.
Task 4 – Strategic Purpose – Ethics and CSR
Zara, the third-big retail organisation, has implemented different kinds of corporate strategies that have helped to improve the observed business performance and to improve its impact on the environment and society. Zara always tries to ensure environmental sustainability, ecological balance, maintaining equality of air, water, and soil and conservation of natural resources. Zara contributes to the prime minister’s “national Relief Fund ” or any other funds operated by the Central Government for the development of the soviet and economic development (Zara.com, 2019). Zara tries to promote education, skill, livelihood projects among the students, vocational skills among the women and more by conducting different programs or activities. Moreover, Zra tries to promote gender equality, and inequality among the back work groups, empowering women and older citizens. As per the opinion of Tomaszewska (2021), there are different opportunities for performing CSR activities such as it attracts stakeholders, which helps to get the desired support to grow the organization to an effective level.
There are some theories Such as “Stakeholder theory”, “triple bottom line model”, and “corporate social performance theory” that can help Zara to understand the importance of implementing CSR activities and maintaining ethics within the organization. [Refer to appendix 1]
Effective use of the stakeholder theory helps to get proper knowledge about the stakeholders that can help to provide support and development of the business organization. As per the opinion of Cui and Fan (2021), the stakeholder theory suggests that a company should take into account the interests and needs of all stakeholders when making decisions. Zara has implemented different kinds of CSR activities that help to attract stakeholders. For example, Zra has committed to using 100% of sustainable cotton, which will help both the cotton farmers and the environment.
On the other hand, effective use of the “triple bottom line model” helps Zara to measure its success not only in terms of the environment but also in society. Moreover, by implementing the corporate social performance model Zara can meet its social responsibilities that need to be implemented to improve society and the environment.
Zara also faces different ethical issues related to labour rights, supply chain transparency, environmental sustainability and more. As per the onion of Jiang (2022), labour issue is one of the top ethical issues faced by Zara, In the past, Zara has faced labour exploitation in its supply chain, poor working conditions and child labour in different factories of Zara. To mitigate these types of labour rights issues Zra should conduct regular audits and need to ensure that the suppliers comp;y with the code of conduct. On the other hand, the issue related to supply chain transparency can be mitigated by publishing more information about its suppliers, and by collaborating with the local NGOs. Moreover, Zara also faces difficulties related to environmental sustainability. As per statement of Pinopoulos (2019), the fashion industry emits a high rate of carbon footprint and weather consumption. That affects the overall ethos and management of the organization. This particular issue can be mitigated by targeting to reduce the carbon footprint and water consumption rate. Moreover, Zara needs to work with the suppliers to reduce the environmental impact of its supply chain, such as by using sustainable materials and reducing waste (He et al. 2020). Therefore finally it can be analysed that Zara should conduct regular audits of its supply chain, set ambitious environmental targets, and increase supply chain transparency. Effectively taking these steps, Zara can improve its ethical performance and demonstrate its commitment to social responsibility.
Conclusion
The overall report has analysed the market growth opportunities of Zra by analysing internal, and external business markets, and by strategically using relevant theories to grow its market revenue. It has been analysed that for foreign market entry, Zara should start with exporting to test the waters, followed by franchising and wholly-owned subsidiaries, depending on the market conditions and the company’s capabilities. Zara can leverage different supply chain strategies to improve its operations globally, including horizontal integration, vertical integration, outsourcing, and strategic alliances. Zara should conduct regular audits of its supply chain, set ambitious environmental targets, and increase supply chain transparency to effectively mitigate the ethical issue related to the business development.
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