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Internationalization Strategy of Fashion Retailer ZARA

Term Paper 2017 19 Pages

Business economics - Offline Marketing and Online Marketing

Excerpt

TABLE OF CONTENT

1 Introduction
1.1 The Global Fashion and Retail Industry
1.2 ZARA: A short company overview

2 The Internationalization Process of ZARA
2.1 Chronological and Geographical Sequence
2.2 Role of Culture in the Internationalization Process
2.3 EPRG Scheme
2.4 Strategies
2.4.1 Market Entry Forms 6
2.4.2 Timing 6
2.4.3 Allocation 7
2.4.4 IMGT Model 8
2.5 Form of Organization

3 Current Situation and Evaluation

4 Conclusion

Attachment

List of Figures

List of Tables

List of Cited Literature

1 Introduction

This paper seeks to analyze the internationalization process of the Spanish fashion retailer “Zara”. It adopts an in-depth case approach based on extensive secondary research. Literatures published in both English and German have been reviewed, including company documents such as annual reports. The paper is organized into three parts: It begins with a brief overview of the global fashion and retail industry, as well as a short overview of the company itself. This is followed by the main part, which examines the key aspects in the internationalization of Zara, namely: chronological and geographical sequence, role of culture, EPRG scheme, entry strategies, timing and allocation, IMGT model and the form of organization. In the final section the current situation of Zara is discussed and the results of the case study are summarized and evaluated.

1.1 The Global Fashion and Retail Industry

The company Zara is one of the biggest fashion retailers worldwide. The management and development process of fashion and retail products is different to other management processes, as the focus is on characteristics of the fashion industry1. 1. Number of SKUs (Stock Keeping Units, meaning a product, or a particular size or model of a product, that a company has available for sale), considered as a single unit.2 Those companies need a range of sizes of their products, so the concept of economy of scale is less relevant. 2. Demand unpredictability, which makes stock and supply management in fashion industry, complex and challenging. 3. Symbolic meaning within fashion brands. The brand names are more relevant in fashion than in any other good according to that, the quality depends on the brand image.3 When a fashion company internationalizes it adds great complexity, because retailers need to understand other cultures and markets. Important is the implication of multi establishment retailing. Therefore the retailers need to secure the best location, because the store location and atmosphere conveys brand image. In addition, a high level of coordination is a big factor. Strong communication between head and regional office to local units is necessary for a smooth flow of processes in the company. Another component is the difference in language, time, currency and culture, what can cause a difference in price and promotion of the product assortment. In the end there still needs to be the same message send to consumers in order to maintain a consisting brand image. The last point that a company needs to take care of, is the needs of local people. The understanding of taste and local culture may differ to the homebased country, so the product assortment, style, size etc. may be customized to local needs.4

1.2 ZARA: A short company overview

Zara was founded in 1975, it became the flagship of Inditex. Inditex stands for Industria de Diseño Textil SA manufactures and sells clothing for men, women and children. Its brands include Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home. Zara was founded by Amancio Ortega Gaona in 1963 and is headquartered in A Coruna, Spain.5 Today Zara stores are located on every continent, with 2.213 stores in 93 countries.6 In addition to that Zara also sells their products in 39 online markets. In 2016 the firm opened 51 new stores, including new countries like Aruba, Nicaragua, Vietnam, New Zealand and Paraguay.7 The Brand created its image and success with the way it kept up with street fashion in the changing times and how they take a look at how fashion is changing every day. New designs can be placed into stores within a week or two as a result of a fast fashion concept and manufacturing in Europe. This is Zara’s competitive advantage bias its competitors like H&M or Mango. They would need up to six months until they get their new designs into market. In comparison Zara is the brand with the highest brand value, H&M has the highest revenue and Mango is distributing in most countries. They are all in direct competition because they have the same target group at a similar price for their products.

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Table 1 Competitors

2 The Internationalization Process of ZARA

2.1 Chronological and Geographical Sequence

It took Zara 13 years from the inception of the firm to the first foreign expansion. The company decided to first test their business model, acquire knowledge, built capacity and establish a competitive advantage before entering new markets. In Spain they started a, so called, long domestic market penetration, by opening 82 stores throughout the years.8

Zara’s pace of internationalization can be divided into two phases - The cautious expansion period and the aggressive expansion period. The first phase was from 1988 until 1996, which is a typical step for traditional companies that adopt traditional internationalization pattern. New stores were only opened in geographically and physically close markets, such as Portugal (1988), France (1990), Malta (1995) and Cyprus (1996). Within this period Zara only added one to two stores each year to its portfolio. Until 1998 Zara was represented in ten foreign markets and 107 stores total.9 The aggressive expansion period started in 1998 and its strategy is persuaded until today. After the company already experienced in international environment and gained knowledge about market expansion, the further market expansion was executed more rapidly to more distend countries and opening a larger number of stores.10 In 2017 stores Zara is considered #51 of Forbes most valuable brands11, with a total of 2740 stores, in 93 countries worldwide.12 (see figure 1)

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Figure 1: Number of Zara stores worldwide Calculation on a basis of several statistics on www.statista.de, see cited list of literature

2.2 Role of Culture in the Internationalization Process

Different cultures are of little importance in the process of Zara’s internationalization. As a result, 85-90% of the products are identical in every store worldwide. Only 10-15% of the collection is different in some countries. But not even those products, which differ from store to store, are specifically designed and produced for a culture or a country. The managers from those stores can only choose products from an expanded range of articles. The final allocation of goods is decided under consideration of local sales and product information in Zara’s headquarter. Zara is not designing and producing clothes and accessories for special demands of certain markets. Instead the designers try to create a collection of products which can be sold at different climatic time interval.13

While planning the internationalization of a company into markets overseas the cultural aspects seems to be the most important part to consider. Zara shows that it’s possible to create a global brand without trying to please every culture in every country. The company’s target is to sell global fashion for everybody, so the designers and managers try to keep up with the high fashion brands and trends and place them on the market as soon as possible at affordable prices, instead of creating collections based on stereotypes of certain cultures.

2.3 EPRG Scheme

The EPRG scheme is a leadership concept of the Perlmutter international venture. It describes four strategic orientations. E = ethnocentric, P = polycentric, R = regiocentric, G = geocentric: Ethnocentric companies pursue a far-reaching decentralization of decisions in the home country and try to realize concepts, strategies and practices, which have been successful in the home country as well as abroad14 Different to that polycentric means that there is a high autonomy of subsidiaries and a personal and social style of management to the local conditions. Only the management in the foreign subsidiaries can recognize and assess the peculiarities of the foreign business15. Regiocentric refers to the increasing regionalization of the world economy. The center of consideration are countries or regions characterized by internal homogeneity, e.g. similar level of purchasing power, comparable consumer structure. At the regiocentric orientation elements of polycentric and geocentric orientation are brought together16 Geocentric is the last strategic position, which indicates that the perfect allocation of resources is only possible through simultaneous use of standardization. The parent company and foreign subsidiaries are not considered as independent entities, but as integrative parts of a global corporate network. Furthermore, the parent company and its foreign subsidiaries use management techniques that maximize the company’s global efficiency17

It can be assumed that Zara is a geocentric orientated company because of the company’s complexity and high mutual dependence. Zara has a highly vertical integrated management system (see 2.5) in which every part of the supply chain is owned by the company, which adds greater complexity to the production and management process. A centralized decision-making process creates high mutual dependence - subsidiaries operate with the permission of the parent company. Furthermore, Zara has universal and local standards as performance and control indicators, for example the standardized collection of clothes and accessories. Local standards can be secured through production of products in the home market Spain and monitoring of the value chain. Another factor, that could prove geocentric orientation is the communication intensity and the flow of information within the company. At Zara, there is a constant communication flow between the managers of all stores worldwide and the headquarter in Spain. The manager reports customers suggestions and requests products based on their shopping behavior, which allow an instant reaction to changing consumer demands. In addition to that the geographical identification is important. The company is a world leading retailer but still assures that the production is based in Spain, or countries nearby and also makes sure that the prices remain the lowest on the local market. The last criteria of a geocentric orientated company can also be related to Zara management structure. The employment of management positions is beyond passport. This used to be different but the firm learned from its own experience that it is better to recruit employees locally to gain better understanding of local market preferences.

2.4 Strategies

2.4.1 Market Entry Forms

The company Zara decided on three different forms to enter the international market. Own subsidiaries, joint venture and franchise. Own subsidiary is a common stock which is owned 100% by the parent company and only operates with its permission.18 Own subsidiary was chosen for most European markets and South American countries that were perceived risk and is Zara’s most common entry form. A joint venture is a business agreement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. It is a common use to partner up with local business to enter a foreign market.19 This entry form was used for large, competitive markets. In some countries, it was difficult to acquire retail outlet property, in others there where obstacles with local companies. For example, Germany was entered in a joint venture with Otto Versand.20 Zara’s last form to enter a market is with a franchise store. Franchising is a type of license where a party acquires to allow them to have access to a franchisers proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the businesses' name. In exchange for gaining the franchise, the franchisee usually pays the franchisor initial start- up and annual licensing fees.21 Franchising was chosen for high-risk countries, that are culturally distant or have small markets with low sales forecast, such as Saudi Arabia or Kuwait.22

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Figure 2 Subdivision of market entry forms Source: Schmid, Strategien der Internationalisierung, 2013, P. 231

2.4.2 Timing

In terms of timing Zara is tamed a follower, because of its long period of domestic market penetration (as said in 2.1.).

[...]


1 Cf. Jin/Cedrola: Fashion Brand Internationalization, 2016 pp. 5.

2 Cf. N.N. stock-keeping-unit, n.d. www.dictionary.cambridge.org

3 Cf. Jin/Cedrola: Fashion Brand Internationalization, 2016 pp. 5.

4 Cf. Jin/Cedrola: Fashion Brand Internationalization, 2016 P. 5f.

5 Cf. N.N. Inditex, 2017, www.forbes.com

6 Cf. N.N. Zara, 2017, www.forbes.com

7 Cf. Inditex Corp. 2016, Annual Report P. 15.

8 Cf. Matic/Vabale: Understanding internationalization patterns of Zara P. 121

9 Cf. Matic/Vabale: Understanding internationalization patterns of Zara P. 121

10 Cf. Matic/Vabale: Understanding internationalization patterns of Zara P. 121

11 Cf. N.N. Zara, 2017, www.forbes.com

12 Calculation on a basis of several statistics from Inditex Corp. 2016, Annual Report P. 303f

13 Cf. Schmid, Strategien der Internationalisierung, 2013, P. 231

14 Cf. N.N. Ethnozentrisch, n.d. www.wirtschaftslexikon.gabler.de

15 Cf. N.N. Polyzentrisch, n.d. www.wirtschaftslexikon.gabler.de

16 Cf. N.N. Regiozentrisch, n.d. www.wirtschaftslexikon.gabler.de

17 Cf. N.N. Geozentrisch, n.d. www.wirtschaftslexikon.gabler.de

18 Cf. N.N. Wholly owned Subsidiary, n.d. www.investopia.com

19 Cf. N.N. Joint Venture, n.d. www.investopia.com

20 Cf. Jin/Cedrola: Fashion Brand Internationalization, 2016 P. 15.

21 Cf. N.N. Joint Venture, n.d. www.investopia.com

22 Cf. Jin/Cedrola: Fashion Brand Internationalization, 2016 P. 15.

Details

Pages
19
Year
2017
ISBN (eBook)
9783668646490
ISBN (Book)
9783668646506
File size
711 KB
Language
English
Catalog Number
v393049
Institution / College
University of Applied Sciences Köln RFH
Grade
1,7
Tags
Management Zara Fashion Internationalisierung Internationalisation Retail International BWL

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Title: Internationalization Strategy of Fashion Retailer ZARA