Zara is the largest clothing retailer in the world operating in 59 countries. It pioneered a business model focused on quick response to fashion trends through vertical integration and a unique supply chain allowing new designs from concept to stores in under two weeks. Zara began expanding internationally in 1988 and now has over 800 stores worldwide using different entry strategies like subsidiaries, joint ventures, and franchising depending on the market. Its competitive advantages of fast fashion, quality products at affordable prices, and minimal advertising have made it highly successful and the main competitor to H&M and Gap in global markets.
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Zara Mode Of Entry
1. MODE OF ENTRY
Group 3 | Section C
Akshay | Amit K. | David | Nishant | Sankalp | Sourav | Subhankar
(Zara Mode Of Entry)
3. Most Successful fashion retailer operating in 59 countries
Deregulation in the textile and clothing industry. Unrestricted access to allWTO members.
Changing textile industry:
Fragmented production with highly concentrated distribution channels.
Increasing internationalization, emerging competitors, consolidation with mergers & acquisitions
Subcontracting or delocalization of production to lower labor & transportation cost country
Revaluation of the business models to adapt to customers changing taste
Democratization: Offering latest products at attractive prices
4. CASE OF ZARA:
Flagship of Inditex; 2nd largest clothing retailer;
Zara accounted for 66% of the groups turnover
Inditex owns seven other clothing chains: Brand diversity
ZARA CONCEPT:
Aims to democratize fashion
Competitive Advantage:Turnaround time & Store as a source of information
Vertical Integration of design, JIT, low inventory, quick response, advanced IT
Overall quick response to consumers demand
“Live Collections”-most receptive garments in industry, half of Zara’s production
Store-Source of information.
Customer feedbackManagersHeadquartersDesignersRework-Stores
Small lot for every store,“Climate of scarcity & opportunity”
0.3% spending on advertisement, Store is the most effective communication tool
5. Business Model (Customer orientation)
Key factors in Zara’s model
Time Factor
The store
Strategy (Impact on other retailers)
Customer Service
Market based pricing
Brand Acquisition & Brand Development
Multi-Brand (Risk of cannibalization)
Product Line
(inditex brand Portfolio)
6. MOTIVES
FOR ZARA’S INTERNATIONALIZATION
Zara Stores
Oporto, Portugal: First international store,
1988
By the end of January 2006
59 countries, 852 stores worldwide
Europe: 664 (259 in Spain)
America: 112
Middle-East & Africa: 45
Asia: 31
America
7. MOTIVES
FOR ZARA’S INTERNATIONALIZATION
Push: People spending less on clothes and more in their leisure time on travelling and education
Pull: Spain's entry into European Union in 1986
Globalization and homogenization of consumption pattern across countries
Economies of scale
Enablers: NewYork (1989), Paris (1990) and Milan (2001) – Image and Status reasons
Learning by succeeding in competitive markets
8. MARKET SELECTION
FOR ZARA’S INTERNATIONALIZATION
Reluctance and
Trial
(1975-88)
Expansion in domestic
market
Geographical and cultural
proximity to Spain
First international store in
Oporto, Portugal (‘88)
Cautious
Expansion
(1989-1996)
-> Geographical or
Cultural proximity
-> 1 or 2 countries/year
France (‘90), Belgium and
Sweden (‘94),
Mexico (‘92)
Exception: NewYork (‘89)
Brand awareness and
Prestige
Aggressive
Expansion
(1997-2005)
Grow beyond geographical
and cultural barriers
Israel (‘97)
8 countries in Middle East –
Kuwait, UAE, etc. – (‘98)
Costa Rica, Monaco,
Philippines and Indonesia
(2005)
Stage 1 Stage II Stage III
9. MARKET ENTRY STRATEGIES
• Own Subsidiaries :
Involved direct investment
Most Expensive mode of entry
During exit of firm : High level of control and risk
Suitable for high growth potential and low business risk countries.
e.g. Spain, U.S., Europe, Brazil etc
• Joint ventures :
Co-operate strategies with local companies
Combination of manufacturing facilities & know how of local company
and expertise of foreign firm in market
Usually implemented in areas having large competitive markets
10. • Joint Ventures :
1999 – Benefit of ZARA in distribution sector from joint venture with
German firm Otto Versand and knowledge of European markets
1998 – Entered Japan by signing an agreement with Biti, a leading cloth co.
ZARA increased ownership to (78% : Germany, 80% : Italy, 100% : Japan)
– gained management control
• Franchising :
Suitable for High Risk countries having small markets with low sales
forecast or are culturally distant (Saudi Arabia, Kuwait)
Similar business model to subsidiaries regarding the product, store location,
interior design & human resources
Gave franchisees chance to return merchandize and exclusivity in their area
but kept right to open it’s own stores at the same location
15. Key factors behind GAP’s growth :
International expansion
Diversification into accessories and personal
care products
Creation of new brands
Development of electronic commerce channel
Huge number of suppliers
Internationalization :
First phase of expansion in countries with same
cultural diversity
Second phase expansion into German markets
Expanding in the Middle east, Singapore and Malaysia
in future
Franchising as a strategy to expand