Strategic planning of the business organization of Zara - Essay Example

?Report on Zara Introduction and Key issues: Strategic planning of the business organizations is one of the key drivers of success. The paper evaluates the case of Zara, the leading fashion brand from Spain and evaluates the various strategies which the brand undertook which lead to its success in the international market of fashion. Zara fashion was established in the year 1975 under the Chain of Inditex groups. The success of Inditex was already evident and it was held among the top clothing retailers of the world. However the emergence of Zara further benefitted the cause of Inditex as Zara emerged to provide the best turnover among the other brands of the chain. With the passage of time, Zara fashion emerged to be a brand which is desired by the customers around the world. In the context of Zara, the strategic planning of the organization with respect to the international expansion has been considered. 2. Present Vision, Mission and Corporate Objectives The Luxury brand Zara aims at delivering the latest fashion to the consumers in an affordable cheap price. Other than the business goals, the organization aims at contributing towards the development of the overall society. The organization has a strong vision of maintaining corporate social responsibility for the uplift of the society. The commitment towards the environment has a strong impact both on the customer satisfaction. The organization dedicates to conserve energy by the maintenance of eco friendly shops and producing fewer wastes in the process of production. As the organization has to deal with products from the animal origin, the organization takes in to consideration that the raw materials does not come from the sacrifice of the animals and they only originate from animals which are raised in the food farms. In matters of corporate objective, Zara fashion aims at being the global leader in the fashion industry, among the stiff rising competition. 3. Situational analysis: Zara fashion tripled its size between the period of 1996 and 2000 and the overall profitability of the organization increased at a mammoth rate in between 2001 and 2007. The production process of the organization takes place at a fast pace and the organization launches almost 11,000 items each year. In the year 2010, the organization had accounted sales figure of 8,088 million dollars which speaks volume about the success. At present the organization has its presence in almost 77countries of the world and is efficiently catering to the needs of the fashion conscious people round the world. The company adheres to organizational policies and various strategies which have contributed to the overall success of Zara (Gallaugher, 2008). 3.1 Environmental Analysis In order to study the success factor and the strategies of Zara fashion, the study of the environmental analysis is undertaken to critically highlight the environmental conditions under which the organization operates and to identify the favorable factors and the obstacles which the organizations encounters in carrying out the day to day operations (Lynch, 2009). As the organization is based in Spain and operates largely in the European Union, so the PESTLE analysis is carried out with respect to Spain with a focus on the European Union. Political factors in Spain: The Spanish government maintains the flexible policies for the overall operation of the fashion industry. As the most of the fashion houses thrives on the export of their product, the government maintains policies so that the export of the fashion goods can take place without posing much hindrance to the fashion makers. Because of the leniency of the trade policies maintained by the Spanish government , the fashion makers Zara did not faced any difficult or restriction form the government in carrying out their day to day operations. The political stability within the country also has an influential role in the success of the organization dealing with the fashion products. The market of Zara was further influenced by the liberalization of the world clothing and textile market which occurred in the year 2005. Economic Factors: The change in the economic factor of the country has a serious impact on the operation of any organization. Zara was indeed hit badly the recession which took place in the year 2008 (Background Note: Spain, 2011). Zara had experienced a strong market in the country because of the stable economic condition. However the organization also faced the probability of a decrease in sales in the country and keeping that factor in mind it went for expansion outside Spain. The organization also faced the threat of the currency risk arising in the market. The currency risk involved the fluctuation of the dollars and the Euro. Zara was however benefitted with the gaining of the strength of the American dollars in comparison to the Euro as it purchased the raw materials in American Dollars and sold them to its customers in exchange of Euro. Social factors: The socio economic condition in Spain is almost stable and the country accounts for low span between the groups of rich and poor which makes the goods of Zara accessible to almost all the population of Spain. The overall purchasing power of the people living in the urban areas is on the higher side and the increase in number of the youth over the past decade has suited the cause of Zara. In recent years Zara has also penetrated various eastern European and the Asian countries where the implementation of Euro has taken place and the overall income level of the people has increased considerably. In the 21st century most of the developing nations has become fashion conscious and this had lead to the increase in sales of Zara. Technological factors: High level of expertise is not required in the fashion industry. The production process is less dependent on technology. However Zara has utilized the available technologies in the production process and in building up a strong communication chain between its entire store and the headquarters. It has used the help of information technology in attracting many of its customers and presently it provides the option of online selling of its product through its secure gate way in the web portal. The technology available in the countries of operation has been rich and Zara has taken the effective use of technology in its process of designing, distribution and the marketing of the products. 3.2 Industry Analysis: The overall analysis of the industry has been performed with the help of Porter’s five force framework. In the porters five force analyses, the factors which are considered are barriers to entry, substitutes, suppliers, competitors, and the buyers. Competitors: The fashion industry based in the Euro Zone and in particularly Spain has been overcrowded with various big brands like GAP and H&M. The big player in the market not only focuses on the clothing segment but also has various diversifications in the market. In order to develop the sales, the organizations have effective policy in their ecommerce section and all this contributes to the growth in the market share. Organizations like GAP and H&M has also a strong international presence but they primarily focuses on the market in Spain which results in the increase of competition. The organizations maintain the strong use of marketing in order to popularize their brand among consumers. Barriers to entry: The market condition in Spain is favorable for the entry of new players in the fashion sector. The overall market of Spain is also not saturated. The organizations entering in the sector also has no barriers in the process of distribution of the goods and the involvement of low initial money in comparison to other industry. However a barrier exists in the process of production in attaining economies of scale. Substitutes: The fashion sector deals with apparels and garments and there is availability of no substitutes as it is a necessity for the people to get dressed. However the substitute can arise in the form of the non branded clothes and apparels. Bargaining power of buyers The low purchase volume of each customer decreases the bargaining power considerably. The customers are also not well organized in defending their interest. The demand of the customers also varies considerably according to the change in lifestyle and the preference of the customers. Bargaining power of Suppliers The presence of innumerable suppliers decreases their power of negotiation with the organizations. As the supply of the goods does not occur in a regular basis, it also affects the bargaining power of the suppliers considerably. 3.3 Internal analysis: In the internal analysis of Zara, help of the 3 generic strategies is being undertaken to study about Zara. The three prime strategies which have been highlighted in the section are leadership in the cost, product differentiation and the focus. Zara maintains its profitability over other organizations by incorporating the technology enabled strategy of Zara. Zara maintains a vertical integration in the production process and it significantly carries out its production process in Spain itself, in a market condition where almost all the major competitors outsource its production process. The organization also does not spend a lot on the advertising and concentrates more on setting up the stores in the prime locations of the city. Zara also maintains a strategy of producing low volumes of items per design and also changes the products in the stores at a fast rate which prevents the organization in providing discount. These policies incorporated by the organization helps to lower the operational cost considerably. The prices of the products are fixed for the individual market and are set according to the profit expected from the product (Pirone, 2010). Product differentiation: Zara always maintained the quality of their products. The motive of the organization was to sell products which are not only high in quality but also aimed at selling the international reputation of the brand. The products were designed in such a way that they exhibited the difference from the products which are sold in high priced boutiques. Special efforts were also maintained by the organization in providing a distinct and a same look to its entire store across the globe. All the shops were splendidly decorated and the ambience made a special appeal to all the customers. Focus The organization has always kept its prime focus on the customers. In maintaining the focus on the customers, the organization has always looked to effectively control each units of the business. The organization has proved its efficiency in spotting the changes of the preference of the customers and reacting at a fast rate. Every store communicates with the headquarters on a regular basis and addresses the needs of the customers in details. The feedback from the customers also passes to the designers and the demands of the customers are met. Unlike other fashion brands, Zara designs product based on the customer choice and preference and avoid the forecast trend which is maintained by most of the other organizations. The web portal maintained by the organization also helps to provide information about its entire product to the customers and the customers are also provided the opportunity of interacting with the concerned persons. Competitive advantages of Zara: In comparison to the operation of Gap and H&M, Zara is in an advantageous position. The organization has incorporated a strategy for internationalization which occurs in a much faster rate than the strategy of expansion of GAP and H&M. Zara also maintains a high degree of vertical integration as a part of the business model which helps the organization to earn a considerable amount of profit. The presence of Zara is also much more in number in different parts of the world in comparison to the competitors (Lopez & Fan, 2009). Zara also maintains its own production facilities and it helps them to gain an edge over the competitors in the final product which they produce under their own supervision. Zara also incorporates the effective use of technology in the production process, to better their productivity and specializes in delivering a large number of designs to serve the fashion conscious people. The overall strategy maintained by the organization puts them a few paces in front of the competitors (Gallaugher, 2008). 3.4 Brief Summary of Current Situation Analysis: To analyze the overall situation of Zara, the SWOT analysis of the organization has been carried out. Strengths Vertical integration helps speeding up of the production process Presence of strong distribution channel. Inexpensive but fashionable product Focus on changing needs of the customers Weakness Online presence of the organization is weak The organization has a strong focus on the Euro centric models The stores are located only in posh areas. Opportunity Market expansion in the United States Expansion in the emerging markets Strengthening of the web portal of the organization. Threats The presence of competitors like GAP and H&M Oversaturation of the market based in Spain. 4. Strategic options and Choice: The operational policies of Zara have perfectly suited the cause of the organization. However in order to develop the overall business of the organization few of the strategic options are provided. Zara maintains a vertical integration process which often provides difficulty in attaining the economies of scale for the organization (Craig, et al, 2004). In order to maintain the cost leadership position, according to the generic model proposed by Porter, the organization needs to adopt some other policies like joint ventures and agreement with other franchisees. The opportunity of entering into the joint venture will allow them to cut their operational cost and attain the economies of scale. In matters of providing product differentiation, Zara should aim at providing specialized products for different locations within a particular city. The presence of similar product across the same city is concentrating the market of Zara to some extent. However the application of this strategy will further enhance the exclusivity of the product offered by Zara and will enable to gain a stronger customer base. In matters of focus, the organization can concentrate on their expansion to the different parts of the America, which is still left unconquered by the global brand. The market opportunity in America is huge and the organization should adhere to the strategy of the internet selling. This form of marketing strategy will enable the organization to reach to more number of customers in a fast pace an in an easier mode. Gaining a knowledge regarding the fashion trend will not be difficult as Zara has its distribution centre in some parts of the South America. The expansion in the vast market of USA will also help to mitigate threat which the organization suffers from the saturation of the market based in Spain. The organization can also look to take advantage of the dollar Euro price fluctuation if the expansion process is successfully implemented. So the strategy suggested for Zara for the overall growth of the business is entering through joint venture, differentiated product based on location and the expansion into US market. 5. Implementation issues: The strategies suggested for Zara in order to foster the business growth has also various challenges associated with it. The changes underlying in the suggested strategies will involve a massive change in the operation of Zara. Zara has been maintaining the process of vertical integration under the flagship of the Inditex group. The contributions of Zara in the overall profitability of the group have been significant and the group owners may not allow the disintegration of the profitable organization form its chain. Zara may also face problem in finding the right partner for entering into the proposed joint venture agreement and entering into joint venture may give to rise to a situation where Zara may have to sacrifice its own cause. However in order to mitigate the risk, the organization may carry out extensive search of the Joint venture party and decide the clause of the agreement in details and based on the feasibility, Zara should opt for entering into Joint venture. In matters of expansion of the business in the United States, the firm may have to concentrate on the option of the internet selling. However, Zara changes its product frequently and all the lines of the products may not be possibly displayed on the internet. In dealing with this matter, the organization may opt for a separate regional web portal, where the specific brands of clothes designed for the customers based in America will be displayed. In setting a product differentiation issues may arise in the meeting the customer’s needs on a regular basis. As different products have been suggested to sell in the different units of the same city, the designers may fail to deliver the supply accordingly. However if the designers are allocated task based on the region, then the overall task may prove to be lot easier for them. For the strategy suggested to be successful, the coordination among all the units of Zara and the employees is mandatory and the effective participation across all groups of management can only guide the strategy to provide it the desired outcome. 6. Conclusion: Zara has been a leading brand in the fashion industry. The analysis reveals the strategy opted by the brand in the overall operation of the business and further strategies are suggested to strengthen the position of the brand based on the limitations found in the certain areas. Overall the strategies maintained by the organization have proved capable in outweighing the position of the competitors. The success of the organization lies in delivering the quality products at affordable prices. The organization focuses on various needs of the customer and effectively provides them with apparels of latest designs. The prime strategies which the organization maintains are reducing the operational cost and increasing the overall profit and providing the customers with exclusive products which make them feel special. The products delivered to them are not only of high brand but the quality maintained is inexplicable. However in order to further strengthen the base of the customers, Zara has been suggested to expand in the vast market of USA and to improve the online selling options by providing the opportunity for the customers to view the maximum number of products. The adherence to these strategies will pave the success of the organization in the future days. References Background Note: Spain. (2011), state.gov, available at: http://www.state.gov/r/pa/ei/bgn/2878.htm(accessed on January 3, 2011) Craig, et al. (2004). ZARA: Fashion Follower, Industry Leader, philau, available at: http://www.philau.edu/sba/news/zarareport.pdf(accessed on January 3, 2011) Gallaugher, J, M. (2008), Zara Case: Fast Fashion from Savvy System, gallaugher, available at: http://www.gallaugher.com/Zara%20Case.pdf(accessed on January 3, 2011) Lopez, C & Fan,Y. (2009). Internationalization of the Spanish brand Zara. Lynch, R. (2009), Strategic Management, New Jersey: Financial Times Prentice Hal Pirone, C. (2010), Benetton and Zara information systems:a comparative analysis, upcommons, available at:http://upcommons.upc.edu/pfc/bitstream/2099.1/9456/1/67045.pdf(accessed on January 3, 2011) Read More