Zara's Global Market Expansion - Export to Taiwan - Research Paper Example

Zaras global market expansion - export to Taiwan Introduction Much information can be obtained from its international website (ZARA, 2009). ZARA is an international company operating worldwide with 71 offices around the world from Andorra to Venezuela. It is a company born and inspired to give fashion and style and these can be properly addressed through its capacity to provide volume, texture and color of fashion and style for men, women and kids from women fashion, men fashion down to kid fashion. ZARA can be considered a buyer-driven global apparel chain. According to Ghemawat and Nueno (2003), a buyer driven apparel chain combines the unique combination of high research, design, sales, marketing, and financial services that strengthen the link between broken overseas. This is a very wonderful strategy that indeed, makes ZARA a very effective company at present. Since it has almost saturated places around the globe, it might be of interest to take a look at one of the feasible countries for its export expansion, Taiwan. This is a written report that is suitable to present relevant information to key managers and consultants who will use this in their decision making and strategic management. This report includes an overview of trends impacting on the global industry and an action plan detailing entrepreneurial activities that could be implemented to combat the diverse challenges faced by companies and organizations. This is very timely to talk about considering that ZARA can truly try to expand its export in Taiwan. This report includes evidence of: primary research such as interviews with relevant professionals, qualitative and quantitative data to support the report, desk research or internet research, information sourced from relevant books, country specific reports for comparatives and case studies that show market leaders’ strategies. The largest foreign currency earner in Taiwan is the textile & apparel industry. The Industry however, is being tormented from the sluggish business. This means that generally, the Industry is trying to operate in the loose. In this regard, what can be attracting is the overcoming of stagnation through deregulation and reorganization. Generally, a good country as it is, Taiwan is still having anguish because of a general business fall. The actual gross national product growth rate in 2001 would likely be on an extraordinary negative value based on an annual setting as projected by many in the past. From the past, the unemployment rate was at the 5% level as of August 2001and rehabilitated the highest rate. Aside from the progressing structural change of the Taiwanese economy, the economic recession and slow down in the U.S. has fueled the economic chaos that resulted to the option of administration to go for democratic progressive party in 2000. The interval in the U.S. economy growth that was from the collapse of IT bubble has directly affected the IT related industries, which of course were very substantial in the growth of the economy in Taiwan. This report shows insights on how the apparel industry in Taiwan changes over time and in the years to come. It is clear that it would be difficult to exactly determine what will happen in the days to come, but the analysis can work with some leading executives in the industry to come up with insights over a short-term period, which also provide a realistic prediction as possible. It is important to consider the following issues as part of the study in the global apparel industry: 1. sourcing by market in the future 2. issues on sourcing 3. issues on ethics and corporate social responsibility 4. quality of clothing 5. development of materials 6. systems and technology 7. concerns on colouration/finishing 8. infrastructure 9. shipping However, there is still other important information other than these. It is important to consider the data and analysis of the status quo of today’s apparel market, as well as the current trends and how they will have an effect in the apparel industry’s future. The data must include values from the present and the years to come of textiles exports from key manufacturing countries to the European countries. The future outsourcing markets by a certain country shows how and why countries will end up or stop to be global key players in very dynamic markets. In addition, the buyer-supplier relationships and the impact on nations and specific product lines have considerable important information to be shared. Let us take a look at the case in Cambodia and China. Textiles created over 80% of the total exports in 2007 for nations like Cambodia. This simply looks at the major global trends such as the deceleration of China’s and India’s powerhouses and where their apparel and textile market shares from export has disappeared and soon will try to move. Coming from the insight of some executives in the industry, for instance, the Chinese companies are being affected by the following fears as stated by Ms. Zheng Luo, CEO and Chairperson of OmniaLuo. 1. increasing of labour costs 2. the intensification of RMB 3. increasing raw materials’ prices The OmniaLuo is a developer and manufacturers of very well women’s apparel in Shanghai. Perhaps, it is also important to consider various trends in the neighboring countries on the apparel industry just prior to understanding how expansion of export is going to work out in Taiwan. Moreover, it is important to consider the retailers’ points of view about outsourcing. Also, it is important to take a look at each major future outsourcing country, in terms of past years’ performances Not only that, it is important to consider the countries philosophies and approaches and picks case studies of apparel manufacturing in each country. It cannot be denied that the Global sourcing has become the main strategy for survival and growth for many organizations in the apparel market segment and the industry as a whole. It is important to discuss the key challenges faced in global sourcing, and points the factors in choice of sourcing locations according to its importance. Perhaps, one of the most effective strategies ZARA has done so far is to saturate the market by placing 71 offices and outlets around the world. This alone is part of its quality service to provide available volume for current and future demands of its products and services. The Corporate social responsibility (CSR) has also become a major consideration for the future of apparel industry. In the case of ZARA (2009), is showing policies on environmental welfare and animal welfare as part of its corporate social responsibility. This connects to the idea of international standards and CSR in outsourcing countries. Another important issue that is worth considering about is the production. It is important to take a look at the present production statistics of some major countries and the future’s productive techniques to identify the main drivers for real-time operations. Another thing which is also important is the issue of design innovations, rapid and continuous evolution of fashion styles, shorter runs for each model and improving the time to market of the apparel industry. Buyers are currently evolving to deal with global sourcing, managing a global supplier network and achieving higher quality cost-efficiencies from improving the number of diverse locations. Thus, it is important to review selected technologies that will be used more and more from the present and the years to come. The Interview All of the issues raised earlier can be summarized from an interview conducted from some executives and professionals in the apparel industry. The following questions were asked: 1. Please give a comment on the trend of global apparel industry today. 2. What challenges do you think are faced by the global apparel industry today? 3. What are some probable strategic actions that need to be done to combat the challenges faced by the apparel industry today? Please give a comment on the trend of global apparel industry today. The respondents’ replies are the following: “Due to the global recession, brands only develop under big financial group. Full collections are more competitive in global market, such as H&M, ZARA. Only with big investment, which can reduce cost, and ODM cooperation the company can survive. The traditional management will be discarded. The emerging of the new markets, China, India, Russia, and Brazil is the main market of the next 10 years. Design will start from the needs of customers and back to market. Uniqueness of design can be the selling point also the selling poison, only the market experience is the promise of sales.” This response so far shows the possibility of the future market of ZARA. Considering that it can highly finance its operation more than the new entrants can be, ZARA is having competitive advantage to adjust amidst changing global economic trends. Thus, ZARA has almost all the possibilities to access different market from different countries. In addition other respondent replied the following as the current trend of global apparel industry. 1. luxurious items for the customers on the top of the economic pyramid 2. disposable, wear only on season high-fashion items 3. big chain stores cooperate with designers 4. quick expansion of high-fashion stores 5. eco-friendly; functionality It can be noted that this responses emphasise product innovation, styles and options. Not only that, they emphasise design as one of the competitive advantages of a product in the global apparel market trend. What challenges do you think are faced by the global apparel industry today? The following are responses from the respondents: “Low-cost Chinese production will impact the market. Followed by emerging Chinese designers and investment, China will be a threat to other nearby Asian countries. Entering Chinese market at an early date and obtain the market share is the key point. Economic impact will change consumer buying habit. Product lines should contain not only high-price, but also low-price, high quality, and high-fashion, because clothes may not be essential commodities anymore”. This can highly affect other challenging market from different countries. In Taiwan for instance, this can pose relevant ideas on how can it be more competitive for its apparel industry considering that the other countries such as China has always the willingness to provide cheap labor at present condition. Furthermore, other replies were obtained: 1. clothes is the first things people stop buying in recession. 2. labor shortage leads to higher cost. 3. how to reduce lead time 4. climate changing – difficult to predict what and how much to order These responses are the most common observations that almost everyone can tell. One thing that will matter is perhaps the idea that market is subject to changes that at some point can be predictable based on trending. Thus, it matters a lot to take a look closely on trending. What are some probable strategic actions that need to be done to combat the challenges faced by the apparel industry today? The following are responses from the respondents: “Exploiting new suppliers (mainly in Asia) and ODM are essential. Design will be the selling point, generating sales with new inventory weekly. Market-oriented and systematized design team and marketing team are needed”. This response talks about global market entry and strategy in general. This is one of the basic approaches and it pays to execute the basic considering that almost every successful global company has done this from the past and certainly up to the present time. The other responses are as follow: 1. create needs. 2. out-source to cheaper labor countries, mass produce. 3. enhance mobility of produce line These responses are more market-oriented and thus, it pays to be market oriented considering that at present time, the products can no longer be sold by themselves considering further that every customer has varied possible choices. In a nutshell, it is important to consider that one of the most important considerations to look at is the global market entry strategy of ZARA. This is clear from the responses of the respondents. Understanding the global apparel industry and trend is one of the basic considerations especially in the case of ZARA, which at present time has the advantage of expanding its export business in Taiwan. However, it is also important to consider the economic condition in Taiwan so as to check the potential of possible exportation of ZARA’s products. Taiwan: Qualitative and quantitative information Significantly, it is very important and worthwhile to consider some economic indicators in Taiwan prior to possible exportation of products from ZARA as an international and operating world wide company. Table 1. Main Economic Indicators for Mainland China, Taiwan and Hong Kong (Yu, 2004).     1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Economic Growth rate in real terms (%) China 9.19 14.27 13.54 12.83 10.54 9.58 8.84 7.77 7.1 8.2 Taiwan 7.55 7.49 7.01 7.11 6.42 6.1 6.68 4.57 5.42 6.5 Hong Kong 5.06 6.26 6.13 5.4 3.89 4.49 4.97 -5.14 2.91 10 GDP (US $ billion) China 406 483 601 543 700 816 898 746 989 1,074 Taiwan 179 212 224 244 265 280 290 267 288 325 Hong Kong 86 101 116 131 139 154 171 164 159 167 Total 671 796 941 918 1,104 1,250 1,359 1,377 1,436 1,566 Average GDP Growth Rate (%)   19.3 209 21.5 17.1 29.9 26.6 31.5 34.9 31.9 33 Commodity exports (US $ billion) China 72 85 92 121 149 151 183 184 195 243 Taiwan 76 81 85 93 111 116 121 110 121 139 Hong Kong 99 120 135 151 174 181 188 175 174 205 Total 233 286 312 365 434 448 492 469 959 587 Commodity imports (US $ billion) China 64 81 104 116 132 139 142 140 166 194 Taiwan 63 72 77 85 104 103 114 105 111 140 Hong Kong 104 127 141 166 196 201 213 187 181 218 Total 231 280 322 367 432 443 469 432 458 552 Population China 1,151 1,165 1,178 1,192 1,205 1,218 1,230 1,242 1,255.00 1,267 Taiwan 20.6 20.8 20.9 21.1 21.3 21.5 21.7 21.9 22 22.2 Hong Kong 5.7 5.8 5.9 6 6.2 6.3 6.5 6.7 6.8 7 Total 1,177.30 1,191.60 1,204.80 1,219.10 1,232.40 1,246.10 1,258.20 1,270.60 1,283.80 1,296.20 Labour Force China 654 662 670 679 687 697 706 714 720   Taiwan 8.6 8.8 8.9 9.1 9.2 9.3 9.4 9.5 9.7 9.8 Hong Kong 2.8 2.8 2.9 2.9 3 3.1 3.2 3.4 3.5 3.4 Total 665.4 665.6 681.8 691 690.2 709.4 718.6 726.9 733.2   In Table 1, it is clear that Taiwan is next to China as a growing company by simply looking at the trend of quantitative information. Not only that, there is also a bilateral trade between mainland China and Taiwan. This information is further presented in Table 2. This means that the two companies are closely tied up that in the event one of them is saturated, there is a great potential to saturate the other one. The bilateral trade between China and Taiwan is a significant strategy to be closer in other neighboring countries of Taiwan, not only in China. Table 2. Bilateral Trade Between Mainland China and Taiwan (Yu, 2004). Year Indirect exports from Taiwan to mainland China   Indirect imports into mainland China from Taiwan   Trade Balance Amount (US $m) Rate of Change   Amount (US $m) Rate of Change     1991 6,928.30 66.1 1,126 47.1 5,802.30 1992 9,696.80 40 1,119 0.6 8,577.80 1993 12,727.80 31.3 1,015.50 9.3 11,712.30 1994 14,653 15.1 1,858.70 83 12,794.30 1995 17,898.20 22.1 3,091.30 66.3 14,806.90 1996 19,149.30 7 3,059.80 1 16,084.50 1997 20,518 7.2 3,915.30 28 16,602.70 1998 18,380.10 10.4 4,110.50 5 14,269.60 1999 21,221.30 15.5 4,526.30 10.1 16,695 2000 26,144 23.2   6,223.30 37.5   19,920.70 Table 3. Foreign Direct Investment in the Maquiladora Sector Textile and Apparel Industry, 1999 – 2002 (in thousands of dollars) (Ancelovici, M & McCaffrey, 2005). Country 1999 2000 2001 2002 1999-2002 % Share of Total (1999-2002) United States 249,725 301,193 117,196 124,541 794,655 79.4 South Korea 6,348 -13,396 7,937 2,002 2,891 0.3 China 626 971 97 231 1,925 0.2 Taiwan 16,755 4,459 8,883 2,947 33,045 3.3 Total 327,888 359,461 172,594 141,095 1,001,039 100 Table 4. Taiwanese FDI in Mexico, 1995-2002 (in US $ million) (Ancelovici, M & McCaffrey, 2005). 1995 1996 1997 1998 1999 2000 2001 2002 0.6 2.6 7.2 27.2 19.8 6.6 21.6 6.6 The information presented in Table 3 and Table 4 leads to the idea that Taiwan has been a major source of foreign direct investment in Mexico throughout the NAFTA period (Ancelovici, M & McCaffrey, 2005). This means that Taiwan has long been exposed enough to foreign investment. This implies further that it is now easy to penetrate the country when it comes to business activities such as exportation and market expansion. Table 5. Patterns of Entry to World Market and Apparel Concentration Ratios for Asia’s non-EU top Apparel Exporters. (1980-2001) (Gereffic & Memedovic, 2004). Region/Country Population (millions) GNI US $ billions GNI/Capita US $ billions Total National Exports (US $ billion) Apparel Exports to the world market (US $ billion) Apparel as % of total national exports (%) Hourly Apparel Labor Costs US $ 2001 2001 2001 1980 1990 2001 1980 1990 2001 1980 1990 2001 1998 Northeast Asia China 1,272 1,131 890 19.3 64.9 299 1.7 10.2 41.2 8.6 15.7 13.8 0.43 HongKong 6.7 170 25,330 20.8 83.8 196 5.3 15.7 24.2 25.4 18.7 12.3 5.2 South Korea 47 448 9,460 18.5 66.5 163 3.1 8.3 4.7 17 12.4 2.9 2.69 Taiwan 22 287 12,876 21.1 71.3 152 2.6 4.2 3 12.3 5.8 2 4.68 Southeast Asia Indonesia 209 145 690 23.6 28.1 61.3 0.6 2.9 5.1 2.4 10.3 8.3 0.16 Thailand 61 118 1,940 6.9 23.8 70.8 0.3 2.9 4 4.2 12.2 5.6 0.78 Philippines 78 81 1,030 6.1 8.4 35.3 0.3 0.7 2.7 4.9 8.4 7.6 0.76 Malaysia 24 79 3,330 13.8 30.5 96.6 0.2 1.4 2.3 1.2 4.5 2.4 1.3 Vietnam 80 33 410 0.2 1.4 14.9 0 0.1 1.6 7.3 5 10.6 0.22 South Asia India 1,032 477 460 8.1 18.5 47.8 0.6 2.6 5.6 7.9 14.2 11.7 0.39 Bangladesh 133 49 360 0.8 1.5 6.6 0 0.6 5.2 0.2 42 78.8 0.3 Sri Lanka 19 16 880 1.1 2 5.1 0.1 0.7 2.7 10.5 33.9 52.5 0.44 Pakistan 141 60 420 2.6 5.7 10 0.1 1.1 2.4 4.2 18.5 23.9 0.24 The idea presented in Table 5, shows that Taiwan has long been exposed enough to international market especially into apparel industry and thus, it is not difficult to open or apply basic strategic management to implement global network in the case of ZARA which can possibly make its way in Taiwan. This emphasizes the idea that Taiwan has been into rapid development of outward investment which includes establishing of production and export platforms in many of the Asian countries (Gereft and Plan, 1994). At some point, it can be a disadvantage. However, the fact that Taiwan is expanding, it might as well be an important strategy to go on with it. Overall, the information presented in Tables points out all to a promising future for ZARA that at some point, its objective to expand and go for exportation in Taiwan can be strongly possible. It is good to realize the fact that there is indeed potential for market expansion and exportation of ZARA products in Taiwan. The challenge however can be narrowed down to the acceptance and capacity of the country to carry products from ZARA. References Ancelovici, M and McCaffrey, S. J. (2005) ‘From NAFTA to China? Production Shift’, in S. Beyer and R. K. Lester (eds). Global Taiwan: Building Competitive Strengths in a new International Economy. USA: Industrial Performance Center. Gereffi, G and Memedovic, O. (2004) ‘The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries?’, in J. O. Loughlein, L. Staeheli and E. Greenberg (eds). Globalization and its Outcome. USA: The Guilford Press. Gereft, G. and Plan, M. (1994) ‘The Globalization of Taiwan’s Garment Industry’, in E. Bonacich, L. Cherry, N. Chinchilla, N. Hamilton, and P. Ong (eds). Global Production: The apparel Industry in the Pacific Rim. USA: Temple University. Ghemawat,, P & Nueno, J. L. (2003). ‘Zara: Fast Fashion’. [Online] Available at: http://wehner.tamu.edu/mgmt.www/v-buenger/466/zara.pdf (Accessed: 15 January 2010). Yu, T (2004) ‘Taiwan’s Responses to the Challenges of the Twenty-first Century’, in T, Chen and J. S. Lee (eds). The New Knowledge Economy of Taiwan. USA: Edwar Elgar Publishing Inc. ZARA (1999) “ZARA” [Online] http://www.zara.com/#/en_GB/THE%20COMPANY/Press/ (Accessed: 17 January 2010). Read More