Assignment Sample on Global strategy and sustainability

PART A – BUSINESS REPORT

Introduction

In order to assure prospects for competitive growth, organisations can greatly benefit from the formulation of an effective global strategy and sustainability. In this assignment, a well-known international retailer and service provider, Zara, will be analysed to manage its future growth potential by considering new strategies. Thus, a thorough examination of Zara’s existing business environment, both internal and external has been done by using PESTLE and SWOT analysis respectively. Moreover, their strategies in the global spectrum have been provided in this study. The corporate strategy for improving its supply chain and recommendations for Zara for increasing profitability has been also depicted here.

Task 1-The External and Internal Environment

PESTLE

Table 1: PESTLE analysis for Zara at global context

Political

There are changes in trade regulations for the textile industry, which has created trading more costly. According to the trading rules of WTO, the “General Agreement on Tariffs and Trade” (GATT), got more complex which is becoming hard for the fashion industry to manage their trading operations successfully (WTO, 2023). Moreover, the tariff rates of the countries fell by 4%, which is affecting trading operations across the globe (WTO, 2023). Additionally, there are rises in taxes in developed countries, which have created a negative impact on the fashion industry to manage the services properly.

Economic

The fashion industry is impacted negatively with the fall of FDI by 12% in 2022 (UNCTAD, 2023). It is estimated that there was a loss of $1.3 trillion in foreign trade, which has caused development challenges for the fashion industry. However, there is a very slow economic growth in the world as the growth was 3.4% in 2022 and in 2023; it is 2.8%. This has created issues for the fashion industry to manage its services (IMF, 2023).

Social

In the global spectrum, there is an increase in the number of employees from 3.3 billion in 2020 to 3.19 billion in 2021 (Statista, 2023). This has helped the fashion industry to fulfil its labour shortage by which the productivity of this industry can increase. Moreover, there is an increase of 15% demands in the fashion industry as compared to 2022 in 2023 (Mahmood et al. 2023). This has helped in managing a positive impact of social factors to the fashion industry.

Technology

Fashion industries across the globe are providing interests on automating the manufacturing process by which the production process becomes easier and faster. It has been seen that developing countries such as the UK and US have already implemented automation in textile manufacturing (Ahmad et al. 2020). Moreover, almost 65% of the organisations in the fashion industry have adopted technological advances such as data analytics and AI in managing their net sales and predicting their sales (Forbes, 2023). This has helped in creating a positive impact on the industry for its enhancement.

Legal

Global fashion industry is required to follow the rules and regulations from IFA, which helps in providing the legal formats in managing textile trading across international borders. This has helped in creating strong legal prospects for the fashion industry to manage its global operations. Additionally, “International consumer protection network” is helping the fashion industry to manage consumer protection laws in every country (ICPEN, 2023). Therefore, these are creating a positive effect on the legal development of organisations.

Environmental

Globally, sustainable environment initiatives are included in managing the environment clean and developed. “Global environmental policies” are being implemented in managing the atmosphere (Aneja et al. 2023). However, the “Break Free from Plastic Pollution Act 2021” has been implemented globally in reducing the use of plastics in society (Adapetation, 2023). This has helped the fashion industry to manage sustainable packing for the products.

SWOT

Table 2: SWOT analysis for Zara at global context

From the above table, it is clear that the investment of Zara in online retailing has helped in maintaining the business operations successfully. It has been seen that Zara has invested $3billion in managing its e-commerce operations (CNN, 2023). This has helped in mitigating 44% of the sales drop from last year in the first quarter of 2022. Moreover, the implementation of technology has helped in creating a sustainability factor in the organisation. It has involved RFID technology to track the logistics of the products in 2,200 stores until it is being sold to the customers (Valladares, 2017). Even, Zara is more focused on physical stores, which is a weakness for them in the digital age. Moreover, there is supply chain disparity in Zara as due to insufficient gathering of raw materials has created tension and has affected stopping production in the US. However, Zara is focusing on sustainability, which has helped in implementing circular fashion in the organisation, which can be an opportunity in future (Zara, 2023). As per the case study, Zara is trying to adopt influencer marketing in social media for increasing awareness regarding their products to the customers. On the contrary, there is a threat of competition from other fashion brands such as H&M, Shein and Mango due to the high prices of the products.

Critical factors emerging from analysis

Innovation, technology, and environmental factors are helping Zara to manage its operations in emerging markets. From the internal and external analysis, it has been seen that these factors are creating awareness in the society as well as to this organisation to manage its operations successfully. Zara has committed that by 2025 there will be zero usage of plastics in its operations (Zara, 2023). This has helped in creating an environment sustainability initiative in the society. Moreover, in the case study it is mentioned that the AI technology and data analytics are being used in this company for predicting customer trends, which has helped in managing sales. The thought of innovating circular fashion in Zara can provide a huge opportunity in the global market to strengthen the businesses (Zara, 2023).

Current sources of competitive advantage

Based on both the external and internal analysis, it has been found that Zara is having a strong source of competitive advantages through technological and sustainability developments. The use of plastic security tags with RFID chips in this company has assisted in keeping a track of the products before it is being sold to customers (Valladares, 2017). The development of technology has made real-time tracking and inventory management possible, which has helped in creating connection to each store across the world. This has contributed to the business sustainability, which has increased competition for the traditional fashion industry. Additionally, to manage business empowerment, Zara has incorporated technologies such as data analytics, and AI technology for trading on the global market (Patsavellas et al. 2021). The inclusion of these sources has helped this company to manage competitive advantages from other organisations.

Task 2 – Strategy in the Global Environment

The motives for Zara’s expansion

The Yip model of internationalisation can be taken into consideration when outlining the driving force behind Zara’s global expansion. The framework identifies four major forces that are driving globalisation, including market, cost, government, and competitive forces (Jamil, 2023). However, in the instance of Zara, the effects of both market and competitive drives can be emphasised to support their justification for international expansion. Moroever, Zara placed a strong emphasis on international growth and has operations in several nations such as Bangladesh, Turkey, Morocco, Argentina, Brazil, China, India, Portugal, and others. There are 2118 stores across the globe from which this organisation is maintaining its global presence. Managing the competitive driver in Zara has been involved with the involvement of the quality of the products of Zara in the market. Even, market standardisation is managed through the customer needs and taste in the market, and is typically highlighted by market drivers of globalisation (Sen et al. 2023). The process of increasing the customer base of Zara, it has provided a strong emphasis on addressing similar consumer needs in their operations in the UK market. Among UK online fashion shoppers, the company has attained 86% brand awareness from the customers (Syah and Olivia, 2022). Moreover, according to case study, Zara has focused on development of customer experiences, which has helped in managing proper identity in the market. Therefore, this model is helpful for Zara for managing its motivation for globalisation.

Direction for the Entry Strategies

There are different types of international market entry strategies such as franchising, joint venture, FDI, direct and indirect exporting (Onyusheva, 2020). Among these strategies, franchising would help these clothing retail companies to manage the services needed to maintain corporate empowerment more effectively. With the help of a franchisor, Zara is able to comprehend local demands, which is beneficial in internationalisation (Niittymies, 2020). Moreover, a flexible commercial platform is offered by this kind of market entry strategy, assisting in service control across various geographies. Additionally, exporting strategy includes selling of the international products in the local marketplace by influencing the customers with its qualities (Fattouh, 2019). This strategy makes it simple to access overseas markets as the organisation and directly export the product without any third party. This strategy keeps the target market in mind when entering the market to allow for the development of the products.

On the other hand, joint ventures are a bit of a complex market entry strategy as there is a requirement of consent from both countries whenever managing any decisions (Fattouh, 2019). Moreover, FDI is another strategy of market entry. FDI helps in creating a channel between two countries with trading and creating a good bond (Onyusheva, 2020). FDI helps in creating a strong market presence of the organisation, which is beneficial.  However, it has been seen that there is a fall of FDI in the global market, which can affect organisations in maintaining the capital flow.

Justification of recommendations for the different entry strategies

From Zara’s perspective, incorporating a franchising strategy would be quite advantageous as only selecting a franchisor and providing products from the organisations in international marketplaces is the process of this technique. Moreover, the company would be able to increase the knowledge and skills of the market from the franchisor to manage the operations. The results of Zara’s environmental investigation eventually revealed that the fashion sector is in great demand. Therefore, the franchising process is the creation of an agreement between franchise owners so that qualified service providers may oversee the growth of the company (Bretas. and Alon, 2021). Additionally, this entry type effectively manages the business’s brand identification, operational support, and intellectual property. Therefore, the fashion retail organisation Zara can implement the franchising market entry strategy.

On the other hand, exporting would be quite helpful for Zara to comprehend consumer preferences and market trends and to attain financial viability. This strategy maintains the target market for entering the market so that product innovations can be effectively controlled (Fattouh, 2019). Moreover, Zara can export the products that are in need in that market by analysing the requirements. This can be beneficial in maintaining the development of the organisation internationally. From the justifications of these market entry strategies, it is clear that Zara adopted franchising and exporting will be helpful in managing the business. These strategies would create an opportunity to manage a leading position in the global spectrum.

Task 3 – Corporate Strategy

Improvement of supply chain globally

The implementation of integration, vertical integration, strategic alliances, and outsourcing strategies are important in managing the corporate operations in an organisation (Babu and Webe, 2019). In this section, these strategies are focused on finding the opportunities for Zara to improve its supply chain properly. Appropriate supply chain management procedures are used to control the growth of corporate activities around the world. The correct management of the supply chain can be assisted by the application of horizontal integration (Chari et al. 2022). With its operational expansion, Zara can strengthen its worldwide supply network by implementing horizontal integration. This business may grow its market share by this corporate strategy throughout the supply chain. Combining technologies such as AI, blockchain, and data analytics in supply chain can make it easier for businesses to adopt horizontal integration (Chiarini and Kumar, 2021). Therefore, it can be stated that the involvement of this strategy may help Zara to ensure technological developments in the supply chain. However, vertical integration helps in managing internal components, such as organisational structures, interpersonal interactions among employees, and human resources. Moreover, Zara has already adopted this strategy in managing the fast fashion technology layers, to successfully control the process of corporate growth (Berbiche et al. 2020). Since they have control over the process of product development and manufacturing, it may focus on superior designers and equipment.

On the other hand, the manufacturing of superior products is made possible by outsourcing of material resources, which is not possible with direct local sourcing (Charles and Ochieng, 2023). The usage of outsourcing strategy to manage the supply chain may be advantageous for Zara. Outsourcing is the practice of engaging skilled service providers for a particular task, such as inbound logistics or distribution to international markets (Ali and Essien, 2023). This can help in maintaining a strong corporate development in Zara by which the production can be increased in every country where it is located. This strategy may also create an opportunity in supply of the raw materials from which furnished products can be developed. For example, the main rival of Zara, H&M has involved 80% of its production through outsourcing (LinkedIn, 2023). This has helped this organisation to manage exclusive contracts with manufacturers and manage the operations successfully. Therefore, Zara also may use this strategy for strengthening its services and supply operations.

Zara in managing its international operations can include strategic alliances for maintaining the supply chain as local resources can be used in the production with this strategy. Collaborating with local suppliers can help in getting the raw materials properly on time. With the use of strategic alliances, the organisations involved improved delivery and logistic partners, this helps in managing the supply chain properly. Thus, Zara may significantly increase its supply chain globally, increasing both its client base and competitive advantage by using this strategy. It has been found that more than 50% of the organisation across global has used explicit strategies and strategic alliances in managing supply chain operations (Gartner, 2021). Moreover, many of the organisations are trying to adopt this strategy; however, due to proper goals and competitive hindrances this strategy is not being implemented correctly. This is one of the major drawbacks of this strategy (Babu and Webe, 2019). Thus, Zara needs to be more focused when implementing this strategy in managing its supply chain.

From the above findings, it is clear that Zara has already adopted vertical integration. Additionally, strategic alliances can be complicated for this organisation to manage the supply operations. Therefore, implementing outsourcing with horizontal integration may be helpful for this organisation to improve the supply chain challenges.

Recommendations for increasing the profitability of Zara

The integration of the “transaction cost model” can be included in Zara for enhancing its profitability. This model has the opportunity for organisations to manage global strategy so that proper growth is managed with “assets”, “transaction frequency”, “environmental uncertainty” and “behavioural uncertainty” (Bijman, 2020). Implementing this model can help in creating prior plans to the organisations to manage the circumstantial situations by which profitability gets increased (Ramírez de la Cruz et al. 2020). It has recommended for Zara to use this model for managing the environmental and behavioural uncertainties in the organisation. As Zara is facing challenges with its supply chain as the import and export cost is getting higher, this model would help in creating proper transactions in cost. This may help in creating a proper cost structure for the company, which would help in managing profitability in the organisation.

Implementation of this model can help in managing bargaining costs, opportunity costs, enforcement costs and search costs in the organisation (Ramírez de la Cruz et al. 2020). As Zara is a renowned fashion retail organisation, it is required to implement this model to develop the opportunity costs, which can provide pepper cost transactions in managing the profitability of the organisation. Therefore, it is suggested to manage opportunity costs in organisations for its growth and operating sustainability.

Conclusion

The entire report has provided a clear understanding of Zara’s global strategic elements, where strong demand for the fashion sector and inclusion technology is producing favourable chances. Moreover, environmental sustainability and innovation have been critical factors in managing Zara’s business environment. Zara has acknowledged its desire to expand globally to gain a competitive edge by effectively meeting market demands with a focus on enhancing the consumer experience even if the market is very competitive. Franchising and direct export have been recognised in this context as methods to enter the global environment with the help of the Yip’s international framework. Other than this, outsourcing with vertical integration has been suggested to enhance Zara’s business strategy by suggesting implementing transaction cost models in managing different costs in the company.

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