zara mode of entry

INTR DUCTION

Most Successful fashion retailer operating in 59 countries

Deregulation in the textile and clothing industry. Unrestricted access to all WTO 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

CASE OF ZARA:Flagship of Inditex; 2nd largest clothing retailer;Zara accounted for 66% of the groups turnoverInditex owns seven other clothing chains: Brand diversity

ZARA CONCEPT:Aims to democratize fashionCompetitive Advantage: Turnaround time & Store as a source of informationVertical Integration of design, JIT, low inventory, quick response, advanced ITOverall quick response to consumers demand“Live Collections”-most receptive garments in industry, half of Zara’s productionStore-Source of information.

Customer feedbackManagersHeadquartersDesignersRework-StoresSmall lot for every store, “Climate of scarcity & opportunity”0.3% spending on advertisement, Store is the most effective communication tool

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)

MOTIVESFOR 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

MOTIVESFOR 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: New York (1989), Paris (1990) and Milan (2001) – Image and Status reasons Learning by succeeding in competitive markets

MARKET SELECTIONFOR 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 orCultural proximity

-> 1 or 2 countries/year

France (‘90), Belgium and Sweden (‘94),Mexico (‘92)

Exception: New York (‘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

MARKET ENTRY STRATEGIES

• Own Subsidiaries :

Involved direct investmentMost Expensive mode of entryDuring exit of firm : High level of control and riskSuitable for high growth potential and low business risk countries.

e.g. Spain, U.S., Europe, Brazil etc

• Joint ventures :

Co-operate strategies with local companiesCombination of manufacturing facilities & know how of local company

and expertise of foreign firm in marketUsually implemented in areas having large competitive markets

• Joint Ventures :

1999 – Benefit of ZARA in distribution sector from joint venture with German firm Otto Versand and knowledge of European markets1998 – 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

International Marketing Strategy1. Zara was ranked 73th in the list of worlds top 100 brands.2. Standardized Key strategic elements across all stores: Location, window

display, interior design, Store layout, Store display rotation, Customer service, and Logistics

3. Shift from ethnocentric Orientation to Geocentric orientation in 2004

4. Dualistic brand name strategy: Company uses the name of the firm and a unique brand name for the same product group. Like‐ ‘Zara Basic’, ‘Zara Trafaluc’

Promotion and Pricing

• Zara’s promotional strategy is same for domestic and international market

• Relies mostly on stores for its promotional campaigns. Advertisement campaign is carried out only during new store openings.

• International prices are higher due to longer distribution channels. Based on the prices Zara has positioned itself in different international market.

ZARA’S main Competitors‘ Fashion and quality at the best price’ Key factors behind H&M’s Success:Location of storesFlexibility of productionLow pricesE‐commerce for Nordic countries

‘A combination of market and entrepreneurial ambition’ Internationalization:First phase of expansion in neighboring countriesSecond phase expansion in ‘Anglo‐German’ countries

‘ When we expand, it is important to listen carefully to the local market. We need to adapt but not at the expense of loosing what makes us who we are.’Expansion: Franchise agreement helps to keep the management control across countriesOpening stores in best market locationsCustomized interior designing of stores according to the culture of the countryStrategy : Zara’s concept with local adaptation

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

zara mode of entry

Education