1.

INTRODUCTION:

In this report I have analysed ZARA which is one of the largest international
fashion companies (ZARA, n.d.). ZARA was founded by Amancio Ortega, who is also
the founder of Spanish Inditex (Chunling, 2020). It is examined through internal and
external analyses, as well as globalisation and entry strategies. Yip's Internationalisation
Strategy, the Firm's Entry Model Strategy, and Porter's Generic Strategy were utilized to
investigate its competitive advantage. The primary goal of this research is to improve
ZARA's strategy by analysing the numerous aspects that lead to increased competitive
advantage and how the brand is worldwide grown.

2. THE EXTERNAL AND INTERNAL ENVIRONMENT:

2.1 External Analysis of ZARA:

ZARA's external factors are analysed in two different ways, factors within the
industry and factors inside the company. The PESTEL analysis is used to analyse the
macro-environment, and Porter's five forces are used to analyse the micro-
environment.

2.1.1 PESTEL ANALYSIS:

The factors that are considered in PESTEL analysis are Political,

Economic, Social, Technological, Environmental and Legal factors.

POLITICAL:
The changes in the political parties cause a big impact on every
retail industry (Ha, 2021). Zara, as a worldwide brand, is affected by trade
policies and tariffs in the countries in which it operates (Ha, 2021).
Changes in import/export restrictions can have an influence on the
company's supply chain and costs (Ha, 2021). High taxation and trade
barriers, on the other hand, can quickly disrupt supply chains and sales,
posing numerous obstacles in managing manufacturing and other abroad
activities (Ha, 2021). Variations in corporate and value-added tax rates can
have an impact on Zara's profitability.

ECONOMICAL:

The state of the economy can influence purchasing habits by either

driving or discouraging customer spending. Zara's performance is highly
dependent on economic cycles (Ha, 2021). Economic downturns can
lower consumer spending on fashion. During periods of rapid economic
expansion, the population's disposable income and consumer confidence

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 rise (Ha, 2021). People have more money to spend on fashion and
accessories, which boosts sales in the retail industry. Zara is sensitive to
currency exchange rate swings as a worldwide brand, which affects its
costs and prices. With less spare income, money is prioritized for essential
necessities such as food and shelter (Ha, 2021). Consumer expenditure on
fashion products is influenced by disposable income levels. Zara may find
higher-income areas that are profitable.

SOCIAL:

Zara's success is dependent on staying on top of fashion trends

and client preferences. The social-cultural and demographic sectors are
ever-changing and important variables influencing the retail industry.
Consumer demand for ecological and ethically made fashion is increasing,
which Zara must address in its approach (Ha, 2021). Customers benefit
from minimal switching costs; so, a negative perception and experience
with a brand can swiftly ruin their image. On the other side, providing
exceptional customer service and satisfying consumers can boost brand
loyalty, word-of-mouth, and income for the organization in the long run.
Population demographics, such as age, gender, and income distribution,
have an impact on Zara's target market and product offerings (Ha, 2021).
varied cultures have varied fashion preferences, which influences Zara's
product assortment in various locations. Thus, the relationship of ZARA
with its customer and their needs gives it a better growth in the
profitability.

TECHNOLOGICAL:

Technology has become a strong pillar in the retail industry. The

rise of online purchasing has encouraged Zara to invest in its e-commerce
platforms and digital presence. Radiofrequency identification technology
(RFID), which has been used in Zara for supply management in recent
years, has been expanded into more of the brand's stores and marketplaces
(Inditex, 2015). Interactive fitting rooms were first tested in 2015 at the
Zara store in the Mercado de San Martn shopping center (Inditex, 2015).
This approach was created to reduce the amount of time clients had to wait
to be handed other sizes, colors, and models while trying on garments,
avoiding the need for them to leave the fitting rooms to look for the
products themselves (Inditex, 2015). Zara employs technology to
effectively manage its fast-fashion supply chain (Ha, 2021). Zara uses data
analytics to better understand client preferences and manage inventory
(Ha, 2021).

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 ENVIRONMENTAL:

The optimal utilization of resources is critical to long-term

development and environmental conservation. ZARA was able to reduce
the relative power consumption per item of our logistics centers, offices,
and Inditex factories by 4% as a result of advancements in efficiency and
environmental sustainability (Inditex, 2015). Furthermore, as a
consequence of the consolidation of the methods outlined in the eco-
efficient store handbook, we have lowered the relative electricity usage per
item in stores by 12% (Inditex, 2015). To ensure that our products have the
smallest possible carbon footprint, we are constantly improving energy
efficiency and reducing emissions at ZARA's logistic centers, stores, and
offices (Inditex, 2015). ZARA encourages the purchase of green energy
and is committed to producing renewable energy at our sites. We
generated more than 47 million kWh of renewable energy at our logistics
centers in 2015 (Inditex, 2015).

LEGAL:

Every industry has been bound under a set of Legal laws and
regulations. Once this law is altered, the entire business term tends to
change. The fashion industry also possesses different Laws. Fashion law
encompasses more than just intellectual property rights; it also includes
labor and real estate law (Fashion Law, 2022). Child labor is prevalent in
the business due to activities that are perhaps more suited to youngsters
than adults (Fashion Law, 2022). The Copyright law is one of the scariest
laws for all fashion brands, especially for ZARA as the major business
plan of ZARA is to replicate the high standard models of a top brand in
cheap and affordable prize (Bush, 2019).

2.1.2 PORTER’S FIVE FORCE:

Porter's Five factors analysis is a methodology for assessing the competitive

factors that affect a company's profitability and competitive position within an
industry.

THREAT OF NEW ENTRANTS:

The fashion sector necessitates substantial resources for design,

manufacture, and distribution, creating a barrier to entrance (Alonzo, 2023).
However, online selling has eliminated some obstacles, allowing smaller firms

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 to enter the sector (Alonzo, 2023). However, as the number of new entrants is
less, the threat caused by them is very low.

THREAT OF SUBSTITUTES:

As ZARA quickly responds to the changing trend make it less susceptible

to substitutes (Alonzo, 2023).

BARGAINING POWER OF SUPPLIERS:

ZARA's size and global presence provide it significant bargaining power

with suppliers (Alonzo, 2023). Furthermore, ZARA keeps a lean inventory
and can easily switch vendors, limiting supplier control (Alonzo, 2023).

BARGAINING POWER OF BUYERS:

Consumers have many fashion options, but ZARA's unique selling

proposition of rapid fashion and limited inventory creates a sense of urgency
among purchasers (Alonzo, 2023). Customers' low switching costs, however,
plus the availability of rival brands, can provide purchasers with some
bargaining power (Alonzo, 2023).

COMPETITIVE RIVALRY:

The fashion industry is very competitive, with many fast-fashion and

established retailers vying for market share (Alonzo, 2023). H&M, Forever
21, and online players such as ASOS compete with ZARA (Alonzo, 2023).
The ongoing need to develop and adapt to changing fashion trends increased
the rivalry (Alonzo, 2023).

2.2 Internal Analysis of ZARA:

The internal environment is analysed using the VRIO model, which evaluates
a company's internal resources and competencies to see if they create a long-term
competitive advantage. VRIO evaluates resources based on the characteristics of
Value, Rare, Imitability and Organisation.

VALUE:

ZARA's extremely efficient and responsive supply chain allows it to

quickly bring new fashion products to stores, effectively fulfilling consumer
demand. ZARA's in-house design and merchandising teams are known for
developing fashionable and appealing collections that appeal to customers

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 (Alonzo, 2023). ZARA has established a strong global brand known for its fast-
fashion, affordable, and stylish designs, drawing a devoted following (Fern Fort
University, n.d.).

RARE:

ZARA's capacity to rapidly create, produce, and distribute fashion items is

unusual in the fashion industry (Fern Fort University, n.d.). Many competitors
find it difficult to match its speed and efficiency. ZARA owns and controls a large
portion of its production and supply chain, which is unusual in the sector and
enables greater control and agility (Inditex, 2015).
IMITABILITY:

ZARA's distribution model, which focuses on quick turnaround and

limited stock, is difficult for competitors to imitate due to its complexity and scale
(Alonzo, 2023). ZARA's expertise in supply chain management, including just-in-
time production and data analytics, provides a distinct competitive advantage
(Fern Fort University, n.d.).
ORGANISATION:

ZARA's culture of agility, creativity, and responsiveness is firmly

embedded in the business and adds to the company's capacity to quickly react to
shifting market trends (Inditex, 2022). The decentralized decision-making process
at ZARA enables local managers to respond quickly to market demands,
encouraging innovation and speed (Inditex, 2022).

3. STRATEGY IN THE GLOBAL ENVIRONMENT:

Zara has a placed their business all over the world (Zara's Page, 2022). In this section
we will be discussing some of the major strategies that ZARA used to develop their
business as a global business.

3.1 Competitive Advantage:

The Competitive Advantage of ZARA is evaluated using the Porter’s Generic

Strategy by three main factors Cost Leadership, Differentiation and Focus (Cost
Focus and Differentiation Focus).

COST LEADERSHIP:

ZARA's primary approach is not one of cost leadership. Rather, it

emphasizes uniqueness and adaptability to fashion trends (Inditex, 2022). Rather

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 than competing only on price, it invests in speedy design-to-shelf procedures and
prioritizes high-quality designs (Inditex, 2022).

DIFFERENTIATION:

ZARA's primary strategy is differentiation. It is well-known for its rapid

fashion and distinctive, frequently refreshed styles (Inditex, 2022). Its in-house
design teams develop modern and appealing clothes that sets the brand apart from
competitors (Inditex, 2022).

FOCUS:

ZARA's emphasis is on distinction through swift fashion response rather

than targeting a specific market niche. It caters to a diverse customer base by
providing stylish apparel swiftly (Inditex, 2022).
From the above analysis, it can be noted that the Cost Leadership is the major
factor that helps in the improvement of competitive advantage.

3.2 Yip’s Internationalisation Strategy:

According to George S. Yip there are four drivers of globalisation: government

drivers, cost drivers, competitive drivers and market drivers (Yip, 1992).

GOVERNMENT DRIVERS:

ZARA's ability to source abroad enables it to achieve favorable terms and

have access to a diverse range of suppliers, enhancing its competitiveness.

COST DRIVERS:

ZARA's effective supply chain and inventory management help to reduce

costs, allowing the company to offer competitive rates while maintaining product
quality.

COMPETITIVE DRIVERS:

ZARA focuses on its differentiation strategy and quick response to fashion

trends to preserve its competitive advantage and stay ahead of competitors.

MARKET DRIVERS:
The global expansion strategy of ZARA is centered on tailoring its items
to local tastes while maintaining a consistent brand image. This strategy enables
the organization to penetrate a wide range of consumer markets around the world.

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 3.3 Firm’s Entry Models:

The Entry Models that are used by ZARA to enter the globalised platform can be
analysed using the Firm’s Entry Models: Exporting, Licencing, Franchising, Joint
Venture, Strategic Alliance, and Wholly owned subsidiary. The Entry models that
are widely used by ZARA are as follows:

i. Wholly owned subsidiary:

Zara chose to set up its own subsidiary in most European

and South American nations due to the low business risks and
significant growth potential (Carlos Flavián, 1998). This enables
ZARA to own and control various phases of the supply chain, from
design to distribution.

ii. Joint-Venture:

ZARA can share the risks and costs of market entrance

through joint ventures, this helps ZARA to navigate cultural
nuances, legal requirements, and market dynamics (Luo, 2002).

iii. Franchising:

ZARA frequently enters new areas via franchise

agreements or partnerships with local businesses. These
collaborations allow it to harness local experience and resources
while maintaining brand and product quality control (Gabrovšek,
2022). This strategy is consistent with the Franchising Model,
which entails cooperating with local partners to develop into new
areas. It offers ZARA benefits such as access to local market
knowledge, regulatory compliance, and financial risk sharing.

4. CORPORATE STRATEGY:

The Corporate Strategy can be defined as the long-term direction and

scope of an organisation that, ideally, fits its resources to its changing
environment, particularly its markets, consumers, and clients in order to meet
stakeholder expectations (Neethling, n.d.). ZARA can be analysed in the
following ways to improve its supply chain globally.

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 i. Horizontal Integration:

Zara may want to investigate expanding its product

offerings in the fashion industry by acquiring or partnering with
relevant companies (Pankaj Ghemawat, 2006). It might, for
example, horizontally integrate by adding accessories or cosmetics
to its product lines (Pankaj Ghemawat, 2006). Zara can realize
economies of scale by expanding into comparable areas, thereby
lowering production and distribution costs (Pankaj Ghemawat,
2006). Too much diversification might expose Zara to new
dangers, especially if the new business areas are outside of its core
expertise (Pankaj Ghemawat, 2006). Horizontal integration
necessitates significant resources and management attention, which
may take attention away from Zara's key capabilities in rapid
fashion (Pankaj Ghemawat, 2006).

ii. Vertical Integration:

More vertical integration, particularly in raw material

production (e.g., textiles), can provide Zara more control over its
supply chain (Inditex, 2022). Zara may lessen reliance on external
suppliers and better manage supply disruptions by owning more
stages of the supply chain (Inditex, 2022). Vertical integration can
be costly and does not always result in cost benefits. It necessitates
significant investments in infrastructure and operations. As Zara
becomes more dependent on its internal capabilities, it may be
unable to adjust swiftly to shifting market conditions.

iii. Outsourcing:

Certain non-core activities, such as transportation or

storage, might be outsourced to minimize operational expenses
(PenMyPaper, 2023). Zara may focus on its core competencies,
such as design and retail, while delegating specialized duties to
competent outsourcing partners (PenMyPaper, 2023). Zara risks
losing some control over product quality and manufacturing
schedules when it outsources (PenMyPaper, 2023). Overreliance
on outsourcing partners might expose the supply chain to risk if
those partners face problems or disruptions.

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 iv. Strategic Alliance:

Zara can share resources, technology, and knowledge by

forming strategic alliances with suppliers or logistical
organizations (PenMyPaper, 2023). Alliances can assist to spread
risk by bringing together suppliers or partners from different
locations or industries (PenMyPaper, 2023). Managing alliances
can be difficult since it requires collaborating with external groups,
which can lead to communication and coordination issues
(PenMyPaper, 2023). Zara may have little influence over alliance
partners, which can have an impact on decision-making and
reactivity (PenMyPaper, 2023).

5. RECOMMENDATIONS:

Marketing Strategy:

ZARA must invest more on Digital Marketing as now social media is the
best way for promotion. Engage customers strongly on social media sites.
Respond to comments, questions, and feedback as soon as possible to develop a
devoted customer community. Also, ZARA must create its own place in the E-
Commerce, so that its products can reach almost everywhere. Given the increased
use of mobile devices for shopping, optimize Zara's website and app for mobile
consumers. Ensure an easy-to-use mobile purchasing experience. I suggest ZARA
to focus more on the sustainability side to keep up with the heavy competitors and
to satisfy the needs of their customers.

Corporate Strategy:

Zara should think about a balanced approach that incorporates horizontal

integration, vertical integration, outsourcing, and strategic collaborations. Zara
can preserve its key strengths while reducing risks and capitalizing on
opportunities with this approach. Zara should focus on consistently improving its
supply chain processes, employing data analytics and technology to optimize
inventory management, production, and distribution, regardless of the method
adopted. To limit the impact of disruptions, Zara should diversify its supplier
base and assess the robustness of its supply chain. Zara can also prioritize supply
chain sustainability by using eco-friendly materials and ethical sourcing
procedures.

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 6. CONCLUSION:

Since 1975, ZARA have focused on various factors making it one of the world’s
top brands. With its excellent vertical integration and cost advantage, the brand
leads the fast fashion market with its presence in nations globally and online. Still,
the business is rapidly expanding, and for Zara to continue its success, it must
strengthen its marketing approach, develop its online segment, and remain
devoted to environmental health.

7. REFERENCES:

Alonzo, T., 2023. Cascade. [Online]

Available at: https://www.cascade.app/blog/porters-5-forces
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Carlos Flavián, Y. P., 1998. Competitive strategies in Southern Europe: the case of
Spanish retailers. International Journal of Retail & Distribution Management.
Chunling, L., 2020. Analysis on the Marketing Strategy of Fast Fashion Brand
Zara Based on 4c. UK, Francis Academic Press.
Fashion Law, 2022. Legal Issues in Fashion Industry. Fashion Law Journal.
Fern Fort University, n.d. Zara VRIO / VRIN Analysis. [Online]
Available at: http://fernfortuniversity.com/term-papers/vrio/c/1094-zara.php
[Accessed 2023 August 2023].
Gabrovšek, K., 2022. Internationalisation Process and Entry strategies according
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Inditex, 2015. Annual Report, s.l.: s.n.
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 Luo, Y., 2002. Partnering with foreign businesses: Perspectives from Chinese
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Neethling, M., n.d. The Role of Marketing in Delivering Corporate Strategy.
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