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Zara case analysis

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Pradeep Kumar Tiwari
Pradeep Kumar Tiwari

1) Porter's five forces analysis finds the global apparel industry has medium threat of new entrants due to modest growth and low capital requirements, but high bargaining power of customers and suppliers who face few switching costs. Rivalry is also high due to frequent price changes and ease of switching brands. 2) Zara's value chain emphasizes rapid design, production, and distribution through internal suppliers and owned factories. New collections are delivered to stores every two weeks to quickly reflect changing fashion trends. Marketing relies on brand reputation and store displays rather than advertising. 3) Zara's infrastructure allows for fast global coordination between managers, designers, and suppliers. Over half of its 60,000 young, female workforce is based

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GLOBAL STRATEGY ASSIGNMENT ANALYSIS OF CASE: VALUE CREATION IN THE GLOBAL APPAREL INDUSTRY SUBMITTED TO: SUBMITTED BY: Dr. Hemraj Verma Pradeep Kumar Tiwari Enroll No.-1103102183
PORTER FIVE FORCES ANALYSIS Porter five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. FIVE FORCE HIGH/ MEDIUM/ LOW REMARK Threat of new entrants Medium 1) The global apparel retail industry has grown only modestly in value in recent years, which limits its attractiveness to new entrants. 2) Entry to the apparel retail industry does not require large capital outlay 3) Retaliation by existing big players, such as the launch of a price war. 4) Big players have economies of scale advantage in bargaining with suppliers which new entrants with limited capital do not have. 5) Setting up distribution network is biggest challenge.
Bargaining power of customers High 1) Buyers have negligible switching costs and do not face any restrictions in choosing whom to buy from. 2) Brand loyalty is more likely for designer wear while general apparel has poor brand loyalty. 3) Weak buyer negotiation power as it mostly consists of individuals. 4) Buyers are price sensitive. Bargaining power of suppliers High 1) As international trade liberalizes, supplier power in the global industry is decreased through competition from manufacturers in low-wage regions most notably China. 2) Switching costs for retailers are not very high. 3) Suppliers need to ensure expected quality. Threat of substitutes High 1) There are many other competitors and well branded manufacturers. 2) Customer now buying the product online rather than retail store. Degree of rivalry High 1) Price was common among the competitors. 2) Low cost switching between competitors.
PORTER’S VALUE CHAIN ANALYSIS PRIMARY ACTIVITIES Inbound logistics Zara sources from external suppliers with the help of purchasing officers in cities all over the world. Suppliers are linked with Zara’s network and coordinate with Zara’s projections. Half of the fabric purchased is” gray” to update designs quickly during the season. Operations Zara propounds “live collections”- that can be designed, manufactured, distributed and sold almost as quickly as the customer’s fleeting tastes. Their designers continuously track market events and preferences. It believes in standardization of fashion across the globe except some which cater to specific physical, cultural or climate differences. Zara takes advantage of the Cluster effects in La Coruna and to manufacture majority of its finished garments. Its factories are automated, specialize by garment type and focus on the capital intensive parts of
production process. Zara also has a network of workshops in Galicia that perform the labour intensive parts of production. Outbound logistics Zara’s distribution centre in La Coruna and satellite centres in Brazil and Mexico serve as hub of logistical operations. Mobile tracking systems and carousels equipped with high folding capacity ensure that inventory moves with minimum delay. Zara stores receive deliveries every two weeks triggered by real time data.3PL is used to transfer pre- programmed lots to the stores. Innovation in time to market is their strength i.e. two weeks v/s six month of industry average. Marketing and sales The company uses little advertising or promotion. It relies on word of mouth among its loyal shoppers. Management adjusts prices for the international markets; thereby making customers in foreign markets bear the cost of shipping from Spain. Service Shops are located at premier shopping streets. Window displays interior presentations bear the Zara signature touch. Store employees wear Zara clothes to work. Store managers play the most important role in ensuring proper services and information flow. SUPPORT ACTIVITIES Firm Infrastructure Managers play most important role. They understand the sense of customers and markets and coordinate the activities worldwide. Zara has very rapid product turnover. This brings in a sense of scarcity. They build attractive stores for customers. HUMAN RESOURCES ZARA has employs about 60,000 people, half of them in Spain and rest in the various countries where it operates. The group of workforce is young (the average age is 26) and female (besides representing more than 80 percent of employees, women hold more than half of the executive, technical, and managerial positions).
Zara case analysis

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Zara case analysis

  • 1. GLOBAL STRATEGY ASSIGNMENT ANALYSIS OF CASE: VALUE CREATION IN THE GLOBAL APPAREL INDUSTRY SUBMITTED TO: SUBMITTED BY: Dr. Hemraj Verma Pradeep Kumar Tiwari Enroll No.-1103102183
  • 2. PORTER FIVE FORCES ANALYSIS Porter five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. FIVE FORCE HIGH/ MEDIUM/ LOW REMARK Threat of new entrants Medium 1) The global apparel retail industry has grown only modestly in value in recent years, which limits its attractiveness to new entrants. 2) Entry to the apparel retail industry does not require large capital outlay 3) Retaliation by existing big players, such as the launch of a price war. 4) Big players have economies of scale advantage in bargaining with suppliers which new entrants with limited capital do not have. 5) Setting up distribution network is biggest challenge.
  • 3. Bargaining power of customers High 1) Buyers have negligible switching costs and do not face any restrictions in choosing whom to buy from. 2) Brand loyalty is more likely for designer wear while general apparel has poor brand loyalty. 3) Weak buyer negotiation power as it mostly consists of individuals. 4) Buyers are price sensitive. Bargaining power of suppliers High 1) As international trade liberalizes, supplier power in the global industry is decreased through competition from manufacturers in low-wage regions most notably China. 2) Switching costs for retailers are not very high. 3) Suppliers need to ensure expected quality. Threat of substitutes High 1) There are many other competitors and well branded manufacturers. 2) Customer now buying the product online rather than retail store. Degree of rivalry High 1) Price was common among the competitors. 2) Low cost switching between competitors.
  • 4. PORTER’S VALUE CHAIN ANALYSIS PRIMARY ACTIVITIES Inbound logistics Zara sources from external suppliers with the help of purchasing officers in cities all over the world. Suppliers are linked with Zara’s network and coordinate with Zara’s projections. Half of the fabric purchased is” gray” to update designs quickly during the season. Operations Zara propounds “live collections”- that can be designed, manufactured, distributed and sold almost as quickly as the customer’s fleeting tastes. Their designers continuously track market events and preferences. It believes in standardization of fashion across the globe except some which cater to specific physical, cultural or climate differences. Zara takes advantage of the Cluster effects in La Coruna and to manufacture majority of its finished garments. Its factories are automated, specialize by garment type and focus on the capital intensive parts of
  • 5. production process. Zara also has a network of workshops in Galicia that perform the labour intensive parts of production. Outbound logistics Zara’s distribution centre in La Coruna and satellite centres in Brazil and Mexico serve as hub of logistical operations. Mobile tracking systems and carousels equipped with high folding capacity ensure that inventory moves with minimum delay. Zara stores receive deliveries every two weeks triggered by real time data.3PL is used to transfer pre- programmed lots to the stores. Innovation in time to market is their strength i.e. two weeks v/s six month of industry average. Marketing and sales The company uses little advertising or promotion. It relies on word of mouth among its loyal shoppers. Management adjusts prices for the international markets; thereby making customers in foreign markets bear the cost of shipping from Spain. Service Shops are located at premier shopping streets. Window displays interior presentations bear the Zara signature touch. Store employees wear Zara clothes to work. Store managers play the most important role in ensuring proper services and information flow. SUPPORT ACTIVITIES Firm Infrastructure Managers play most important role. They understand the sense of customers and markets and coordinate the activities worldwide. Zara has very rapid product turnover. This brings in a sense of scarcity. They build attractive stores for customers. HUMAN RESOURCES ZARA has employs about 60,000 people, half of them in Spain and rest in the various countries where it operates. The group of workforce is young (the average age is 26) and female (besides representing more than 80 percent of employees, women hold more than half of the executive, technical, and managerial positions).