Assignment Sample on Global Strategy and Sustainability
Introduction
Sustainability is ability towards maintaining or supporting a production process of an organisation. Furthermore, a global strategy is considered a strategy that an organisation develops toward expanding its business market. Therefore, main purpose for developing a global strategy is towards uplifting sales figures across the world. The main reason for this study is to discuss sustainability and global strategy adopted by Zara for expanding its business on a global platform. Zara is one of the highly successful international fashion retailers. Therefore, Zara is a chief representative of “Inditex group’s brand portfolio”. This study has the purpose of evaluating Zara’s internationalisation process along with entry modes for strategic actions and decisions.
Task 1– The External and Internal Environment
External environment
| Factors | Effects on Industry | |
| Political | Political factors primarily in the UK get disturbed due to instability in a political factor.
Insurance, cost along with freight and Duty charges get increased by 20% (TRADE, 2023). |
Considerable increases in export and import taxes imposed by international and local governments thus impacting retail industries in the UK. |
| Economic
|
Inflation rate in UK averaged approximately 2.77 percent mainly from 1989 until 2023 (TRADINGECONOMICS, 2023).
The GDP in UK was reduced by approximately 4.8% due to impact of pandemic (TRADINGECONOMICS, 2023). |
Economical factors such as inflation rate can significantly affect clothing industry. Due to economic recession, purchasing rate of luxurious clothing decreased in UK thus impacted both international as well domestic market of clothing industry in UK. |
| Social | The rate of unemployment in United Kingdom was 4.52%, which is a 0.05 percent increase from 2020 (ONS.GOV, 2023).
67 million people residing in UK from 2020 (ONS.GOV, 2023)… In 2020, population UK of increases significantly by 0.43% and by 789 thousand, women in the UK outnumbered men (STATISTA, 2023). |
Aged people might need loose-fitting dresses and where as youngsters can significantly look for tight jeans and mini shorts. |
| Technological | UK is mainly a technologically blessed economy due to Artificial intelligence, IOT as well as other technologies. | Main success part in retailing industry is embedded in excellent technologies. Clothing industry is required to adapt certain advanced technologies primarily in their production line. |
| Environmental | Rank of UK is 21 in terms of global pollution. | Retail industries in the UK are required to comply with emission norms, to gain a strong competitive advantage in the international market. |
| Legal | “Children and Young Persons Act 1883” = | Due to legal factors, clothing company in the UK is required to comply with certain laws. |
Table 1: PESTEL analysis
(Source: TRADINGECONOMICS, 2023)
Internal Environment: SWOT analysis
| Strength | Weakness |
| ● Zara’s products provide unique designs and a diversified range of products.
● Company has a considerable amount of strength in terms of employees. ● Zara has a huge brand portfolio. ● Due to a higher brand portfolio, it is going to be quite feasible to adopt an internationalisation strategy. ● The brand is quite successful in Asia, Europe as well as in the USA (ZARA, 2023). ● The brand mainly focuses on manufacturing “toxic-free production units” |
● Company faces a stiff amount of pricing competition in both domestic and international markets.
● Due to certain changes in government initiatives such as increases in percentage of VAT on import and export, Zara can face product distribution issues.
|
| Opportunities | Threats |
| ● Zara can significantly design innovative forms of campaigns to provide an immersive experience to its customers.
● Zara can significantly expand its business by structuring its “online boutique”. |
● Due to currency fluctuations along with instability in UK’s economy, a company might fail to reach majority of customers.
● Availability of substitutes in both domestic and international market… ● Due to this, company might face serious threat. |
Table 2: SWOT analysis
(Source: ZARA, 2023)
Critical factors
The three critical factors that are identified from analysis both the internal as well as external environment are “stiff amount of competition, pricing strategy and changes in inflation rate”. Therefore, it is reported that company faces a stiff amount of competition in terms of price. Additionally, company faces competition from H&M in both domestic as well as international market. On another hand, due to certain changes in regulation norms from the UK government, Zara faces sustainability issues and for which the company target to reduce emission of carbon by the end of 2025. Due to changes in rate of inflation such as economic recession, purchasing rate of luxurious clothing decreased in the UK thus impacting both the international as well domestic markets of Zara in the UK.
Critical Evaluation of Competitive Advantage of Zara
Competitive advantage is all about gaining a majority of share in market. Therefore, these advantages are attributed by well-structured strategies of marketing. This might assist retailers in achieving great outcomes in terms of customer attraction, productivity, finance as well as loyalty (Mahardika and Santika, 2021). For instance, Zara mainly relies on stores, which is one of its chief promotional tools. Therefore, in both international as well as domestic markets, company advertising campaigns take place during the inauguration of new stores. Due to this, there remains a broad product diversification within a brand of Zara and its merchandise consists of both formal and casual garments.
Comparison with other companies
Strategic decisions primarily taken by Zara within the international fashion market have proved to be quite successful. Therefore, Zara mainly spends less than 1 % of its total revenue on product promotion and advertising. Therefore, the non-advertising strategy mainly seems to be quite a risky one, especially in contrast with certain advertising models by well-known retailers such as “H&M and Gap Inc” (HM, 2023). Zara significantly attempts towards minimising the risk factors, which are provoked by a lack of promotional activities by inaugurating new stores. Compared to H&M and Gap, this Inditex Group has significantly launched an effective number of stores in various regions such as 5,500 shops mainly in 85 countries.
Task 2 – Strategy in the Global Environment
Analysing way organizations enter a foreign market
Company has several Market entry strategies, which are its subsidiaries, franchises as well as joint ventures. A joint venture is primarily a business agreement, which is created between couples of parties towards achieving specific goals of the business. Therefore, Uppsala model assists companies in intensifying their investment along with competent activities in foreign markets (Hult et al. 2020). Zara has initiated its international expansion by entering markets through franchising mode. It is found that company has a franchise fee of approximately $30,000 with an initial investment of around $80,000 (ZARA, 2023). Franchising is an approach of marketing adhere the franchisor grants a licence primarily to an individual to sell Franchisor’s products by utilising “Franchisor’s business system”. For instance, due to internationalisation strategies such as, “franchising, joint venture, and licensing”, it is found that company has been able to increase its overall business productivity (Nyambuto, 2021). Company has been able to increase its overall revenue by 34% and its gross profit increases by 14%. Therefore, Zara organising its business in foreign countries, company makes utilisation of “generic strategy, intensive strategy as well as market penetration”.
Recommendation
The three global entry strategies are exporting, licensing as well joint ventures, which help an organisation expand its business in the global market.
Joint Venture
An international joint venture is all about joining together a couple of business partners towards exchanging resources as well as sharing risk. It is reported that Zara’s joint venture mainly Tata runs almost 21 stores in India (ZARA, 2023). On other hand, “Looper Textile Co.” is considered a standalone joint venture, which is owned almost 50% per cent by H&M group. Therefore, a joint venture is a significant global entry strategy where both companies like Zara and H&M have been able towards pooling resources. For instance, ultimate purpose of a Joint venture is towards taking advantage of resources to realise greater gains with the help of leveraged resources.
Licensing
Brand licensing, is important task to increases competiveness of business by differencing form competitors. Therefore, this will be a significant global entry strategy for Zara for gaining a competitive advantage (Hult et al. 2021). For instance, licensing will assist both H&M and Zara in reaching newer markets and will pave the way primarily for future investment. Apart from this, Zara’s licensing gains certain rights towards utilisng “patented intellectual property (IP) mainly for royalty (ZARA, 2023). H&M’s licensing gains rights towards utilising material, which are developed by licensor.
Exporting
In international trade, exporting is considered an approach by which an organisation from a country mainly sells services and goods to other organisations (Hult et al. 2020). Zara significantly expanded its business on an international basis along with entering new markets via franchising and owned stores.
Task 3 – Corporate Strategy
Improving supply chain
Utilising “Vertical integration or centralised logistics”, Zara can effectively provide consistent smaller-batches deliveries that mainly arrive within time. Therefore, ownership of this entire process significantly enables arrival of various items in store, which are already priced or labelled. For instance, horizontal integration mainly takes palace when same organisation merges in a similar stage of a “supply chain merges” (López et al. 2022). Other than vertical integration, horizontal integration assists Zara in solidifying its current supply chain along with its manufacturing process. Apart from it, both Zara and HRM are best example of these “vertically integrated fashion brands” (HM, 20230. Both the companies are able in increasing productivity of supply chain with the use of both vertical as well as agile supply chains. It is reported that product alliance and service alliance is one of the “strategic alliance of Zara.
Supporting arguments
Factories of Zara can rapidly decrease or increase its rate of production so that there remain fewer inventories in its supply chain. Therefore, improving its chain of supply companies significantly adopts a “super responsive supply chain” for expanding its business on an international basis. On another hand, H&M is determined as a largest retailer and is consistently striving towards strengthening its performance of supply chain in global market along with technological integration. Therefore, company makes utilisation of artificial intelligence, automated warehouse along with block chain technology to enrich their experience with a customer (Berbiche et al. 2020). On the other hand, Zara for improving its supply chain thus significantly makes utilisation of outsourcing, which is both agile as well as flexible. Apart from it, both Zara and HRM are best example of these “vertically integrated fashion brands” (HM, 2023). Most importantly, this enables company towards cutting various costs during product outsourcing.
Recommendation
Increasing the profitability of Zara
Zara is required in improving its overall distribution by introducing “regional distribution centres”. Therefore, this will help a company in achieving good online sales volume and it is to be done by establishing unique selling points. For instance, a company’s business strategies are required to get relied on multiple pillars such as flexibility of supply along with immediate absorption of demand of market. Supply chain of Zara is required to incorporate principles of Just-in-time manufacturing towards improving overall efficiency (ZARA, 2023). For increasing profitability, company is required to make effective utilisation of outsourcing, vertical integration along with horizontal integration. Concerning it, company is required to make them engaged in process of storage, design as well as logistics and distribution.
Task 4 – Strategic Purpose – Ethics and CSR
CSR strategy of Zara
Main objective of Zara’s business is for sustainable development of environment as well as society. Therefore, CSR goal of Zara is towards improving overall standard of living primarily for communities by increasing employment opportunities. Zara states that it has created new opportunities for employment along with livelihood opportunities mainly for million. For instance, this is done via direct employment along with “inclusive business opportunities” (Li, 2021). Therefore, with its CSR strategies, company aims in enhancing the well-being as well as health of communities. Zara significantly manufactures as well as distributes hygiene and health products to enhance overall well-being of its target audience. Companies reneged themselves with various communities for improving overall productivity of a business.
Concerning CSR strategies, company significantly works towards minimising its environmental footprint. Therefore, Zara functions competently regarding structuring of its operational process, intending to reduce land and water pollution. Every product of this company comes with a disposal approach towards reducing waste as well as increasing process of recycling. Company with its CSR strategies aims to generate a positive impact over 3 million people. Additionally, with its CSR strategies, company also aims in promoting a healthy as well as an “inclusive workplace culture” along with designing targets with a measurable impact (Bian et al. 2021). Therefore, Zara aligns its CSR strategies with business practices along with “community impact goals”.
Supporting arguments
H&M also focuses on enhancing standard of living along with empowerment of women. Therefore, the company aims to engage its multiple stakeholders such as Government, NGOs in the process of improving overall standard of living (HM, 2023). On other hand, Zara functions competently regarding the structuring of its operational process, intending to reduce land and water pollution. Every product of this company comes with a disposal approach towards reducing waste as well as increasing process of recycling. Apart for this, both Zara and H&M engaged themselves in several CSR activities since 2020. These companies strive towards shifting its production towards higher sustainable products along with maximising lifecycle of its clothing products. For H&M, its CSR strategies state that it has created new opportunities for employment along with livelihood opportunities mainly for million. For instance, this is done via direct employment along with “inclusive business opportunities”. Therefore, with its CSR strategies, the company aims in enhancing the well-being as well as health of communities.
Ethical issues
Owner of Zara, the Inditex Group, gets accused various times of exploitation, green washing as well as environmental distraction. Therefore, other ethical issues that Zara faces are extreme amount of lower wages along with unhealthy and unsafe working conditions. On other hand, Zara consist a code of conduct, which is designed primarily for its suppliers as well as manufacturer (ZARA, 2023). Therefore, theses standards significantly guarantee that brand is mainly against child labour along with proving support for fair wages as well as healthy working conditions.
Recommendation
Gaining a competitive advantage, company is required to design its code of conduct mainly for its suppliers as well as a manufacturer. Therefore, company is required to improve workplace environment to provide better conditions for its labour. Therefore, company makes utilisation of artificial intelligence, automated warehouse along with block chain technology to enrich their experience with a customer
Supporting arguments
H&M’s ethical standard is all about its “Higg Index scores”, which are often inflated or inaccurate (HM, 2023). Therefore, the company is transparent concerning its environmental impact. On other hand, Zara consists a code of conduct, which is designed primarily for its suppliers as well as a manufacturer.
Conclusion
It is concluded from this report is that Zara has significantly impacted by certain internal as well as external factors. Therefore, effective strategic management can significantly reduce overall impact of such factors. In 2022, company promises to make utilisation of 100 percent renewable sources of energy within their operational process. Additionally, in 2023, the company aims towards eliminating usage of plastic for its target audience. At the end 2025, the company also plans towards introducing more “sustainable 100% linen along with recycled polyester”.
Reference list
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