Zara: Expanding Overseas | SWOT, Porters Five and PEST

Zara Expanding Overseas SWOT, Porters Five and fellaZara is one of the much(prenominal) or less well cognise brands in the world and is besides one of the largest world-wide mould companies. They be the terzetto largest brand in the garment indus chasten and ar a unit of Inditex. It their flagship range of chain stores and argon headquartered in Spain. Zara unciviled its first show uplet in Spain in 1975. The headquarters of the comp some(prenominal) is base in Galicia. in that location atomic public figure 18 more than 2600 stores across 73 countries in the world. The Zara clothing line accounts for a ample bulk of its pa every last(predicate)ow groups revenues. There be saucily(prenominal) clothing brands owned by Inditex much(prenominal) as Kiddys Class (childrens sort), Pull and Bear (youth casual apparel), Massimo Dutti (quality and conventional fashion), Bershka (avant-garde clothing), Stradivarius (tr completiony garments for young woman), Oysho (u ndergarment chain) and Zara Home (household textiles). Inditex owns all(prenominal) Zara outlets besides for places where they are not al humiliateded ownership of stores (thats where Franchises step in).Zara is renowned for coming up with reapings on a dead periodscale instead of taking forever. They are known for taking around 2 weeks to develop products and affirm been known to come up with around 10,000 bleak designs every year (which is an industry record). They lose bucked the trend by making productions in Europe instead of shifting their entire production to Third World or Developing countries. notwithstanding roughly of their attire are manu occurrenceured in parts of Asia due to the event that they deal a consider adequateer shelf life. They chafe virtually of their own products inside Spain or opposite European Countries as they own a large add up of grammatical constituenties in both Spain and Portugal. They withal dont surrender to depend on anyone else as they croup get under ones skin everything done by themselves.Zara is unique in the coun dole outing that it does not spend property on trade and instead concentrates on opening new stores instead. Their abide experiments buzz off led them to be labeled as one of the most innovative retailers in the world.Zara started out with unkept priced products which were pale imitations of high end fashion products. This move led to Zara being a smashing success and sanctioned them to plump out by opening more stores in Spain. The company instruction also managed to narrow the time it took to cause new designs and came up with the term instant fashions which allowed them to capitalize on new trends real fast. Zara is known to use teams of designers instead of individuals.Zara has to aspect a lot of rivalry from HM, Gap and Bentton internationally. Fortunately Zara is considered to be more fashionable than the domiciliate of the brands despite the fact that its price is less than Benetton and Gap. HM is still cheaper than Zara just is equally fashionable as Zara. Gap and Benetton are less fashionable and more pricy.SWOT analysis(S)trengthsZaras biggest strength is the fact that it provides exist leadership strategy by aiming at efficiency and cost reduction on products. There is a lot of efficiency merely due to the fact that products are station on fast track and cost are kept really low. They dont counter a massive time to come up with new collections. Zara is able to come up with collections really fast (around 2 weeks to get a collection ready).Zara focuses on what its customers wish and thats wherefore they shed managed to do so well. They are able to get the opinions of its customers on a daily basis. The data is sent over to the headquarters where it is analyzed. This is a great air of saving time and helps them understand what sort of trends to follow. Since it does not retreat them a long time to come up with products they are able to cash in on the trends. They are also able to design, manufacture and organize out the new products in less than 2 weeks. They are also very efficient when it comes to delivery of the products.Zara employs a great team of designers who are able to design the robes they require. well-nigh of these designers are fresh out of Fashion schools and are able to do more for less. Most of the garment construct are made in Spain and there is no carry for outsourcing. Zara manufactures and go ons its clothes so it manages to cut out the middle man. This is one reason why they are able to get clothes out there so fast. They also make believe a great Information technology result in place which allows for decentralized decision making.(W)eaknessesZara does not spend any money on marketing or advertising. This is a enormous weakness for them as its competitors spend a lot of money on advertising. Zara relies on good depart and word of mouth so that people green goddess shop at their stores. This is a weakness which drive out be exploited in the future by its competitors.Another weakness is the fact that Zara all has one manufacturing and statistical statistical distribution rivet in the world. This is a double edged sword as it is both a weakness and strength. The fact that they arrive a huge distribution displace makes it an gain but and so if it is hit by some sort of natural disaster or some logistical worry then it laughingstock receive an adverse effect on its revenues.(O)pportunitiesThere are a lot of opportunities for Zara lying ahead. They need to stretch forth their presence in the USA where they face contestation from the likes of GAP. They completely have around 49 stores in the US which is not bad but then establish on the size of the US that is equivalent to around one store per state. In comparison there are more than 300 stores in Spain which is a fraction of the size of the US. They may have conquered Europe but they still need to expand into the US market so they abide eat Gap a run for its money. They can grow properly if they expand their presence in the US.Zara is only exit for markets where it is doing well such as Italy. However there is a huge opportunity for them to pink into the Indian market. The Indian Economy is doing really well and people over there love to acquire good quality brand chassiss at a reasonable price. Zara already has 2 outlets in India but then it wouldnt hurt to expand a bit more and form alliances with topical anaesthetic manufacturers. This bequeathing make it easier for them to slowly grow inside the Indian market.(T)hreatsThe biggest threat facing Zara is the fact that it is Europe Based. Zara is base in Spain and has a huge number of stores in Europe. Critics believe that there is an over saturation of stores in Europe and that having such a huge number of stores impart dent the revenues over the longer term. The other reason is the fact that the Euro ten ds to be stronger than the Dollar. This is one reason why merchandise from Zara tends to be more high-ticket(prenominal) in other countries. This can be a big turn off and can have an adverse effect on their revenues in the longer term.Porters Five ForcesPorters Five Forces allows us to look at the five forces which help us determine the competitive intensity and the attractiveness of a market. Some of these forces are link to disceptation from external sources while the rest are internal threats. These are basically all related to the macro environment. The various Forces are threat of substitute products, the threat of established rivals, the threat of new entrants, the bargaining power of providers and the bargaining power of customers.Porters Five Forces AnalysisThreat of CompetitorsZara faces a lot of competition in the market. There are a large number of competitors in the market such as HM, Benetton, Gap, etc. Fortunately The high level of competition makes it tough for ev eryone as they are all assay to get a piece of the pie . The biggest problem is that due to the large number of competitors the growth rate is low due to the number of manufacturers around. The clothing industry has peaked and it is very difficult for people to persist in the industry as the competition is cut throat. Customers are spoiled for choice due to the number of brands within the market. They are also very fickle minded and base their buying habits on the basis of new trends. They volition only buy based on price and brand recognition and this is why the manufacturers have to relieve changing what they do and come up with new ways of gaining customers. The costs of manufacturing new goods are quite high plus it is not aristocratical to procure raw material so thats why the ones who have the resources and the ability to do so are able to survive within the market.Threat of newfound EntrantsThere is always the threat of new entrants but then the risk is not so often a s Zara already has a huge presence in most parts of the world. The barriers for access for distribution are quite low in Spain ( where the bulk of their clothes come from.) New entrants go out have it easy as the cost of distribution is quite low as they only need to rent a shop and need a bit of capital to start out. However when it comes to manufacturing then the barriers of entry are really high master(prenominal)ly due to the fact that it requires a huge investment to get started within the market.SubstitutesThere is no threat of substitutes as it is a basic necessity for everyone.Customers Bargaining spotCustomers have transforming levels of bargaining power as they can decide what they want. Customers are quite fickle when it comes to buying clothes. However the good thing is that each customer has a love purchase vividness and that means that even if some tend to change their brand there exit still be some who will buy Zara. It is not an concomitant like a burger or a snack which is obtainable good anywhere for a low price. The good thing virtually the clothing occupancy is that there is no risk nonpayment because customers pay for clothes during purchase.Supplier Negotiation PowerThere are too many suppliers in the market which is one reason why the suppliers dont have ofttimes negotiating power. The fact that Zara procures or makes most of the stuff itself is also another factor which doesnt work in the suppliers favor. If the supplier decides to cut down the supplies the manufacturer can easily go to another manufacturer.PEST AnalysisThe PEST analysis is a mull over of the environment before a company begins its marketing process. It is a study of the external macro environment. It stands for Political, Economic, Social, and Technological analysis and is an environmental scanning component of strategic management(P)olitical The political factors affecting Zara are when the government activity intervenes into the economy and comes up with laws which change the way things are done in the country. The government can easily change its policy and change the ways a business can operate in the country. They can change the laws and do drastic things like changing the interest rate. Zara needs to know the entire system and to be active for any potential problems it can face from the government due to a change in policies.(E)conomical Economic factors come into play as they are related to factors such as interest rates, taxation changes, economic growth, inflation and exchange rates. These have the potential to fabricate many problems in the future. There are several(predicate) duties and levels of tariffs in dissimilar countries and this can cause the prices of products to vary in different countries. The price of goods will also vary based on the country of occupation and thats what Zara needs to handgrip in mind.(S)ocial If there are Changes in social trends it will have a huge impact on the demand for Zaras products and the availability and willingness of individuals to work. However that is not likely to happen as its not as if Zara makes niche products. They focus on a huge market and make different types of products so it is quite unlikely that there will be a social shift in this part. However the company still needs to work on trends and to make sure its updated with the times so that it can satisfy its customers and meet the demands of its demographics.(T)echnology Due to advances in technology companies have to make sure that they keep up. Zara has to make sure that they have the latest technology and that they are innovative in every way. The more advanced the technology the more it can bring about some quality. Zara has invested in technology and it has to keep improvising because if they dont then their competitors will get a head start on them.Part 2Zara is the biggest ratifier towards Inditexs profits. Its the most well known brand in the group and has played a huge ficti onal character in the growth of the group as well as bringing about huge gross sales and profits. Zaras success has brought about a large number of case studies and reports. It has consolidated its position in the fashion industry and has made a good name for itself.Zaras business model is basically based on the principle that it can sell medium quality fashion clothing at affordable prices. basically vertical integration and the ability to come up with a quick-response is a find out factor to Zaras winning business model otherwise they would be no where without it. The process for Zara has been designed in such a way that it has the various functions within the business system such as designing, sourcing and manufacturing, distribution and retail. They do all of these themselves and that is one reason why their growth is at a good rate. However what goes up moldiness come down and Zara is not immune to the problems in the world. The way they operate can also kindle to be their undoing due to the model they are currently utilizing. The fact that they have their own distribution centre and manufacturing unit is a very weak point. This can be discussed gain in this document.The management at Zara have come up four fundamental success factors short cycle time for creation of product, abject quantity per product (and not too much of the homogeneous stock) , extensive physique of product every season (so that users can choose easily) as well as a huge investment in information and communication technology to allow them to stay on track .Zara knows what its customers want by tracking their preferences on a year round basis. They have their own team of designers who have been recruited fresh out of fashion school. It is not a tough job to tell them what they want based on the input they receive. They make around a limited quantity of clothes based on the 11000 various items designed by its in-house staff. Zara does not make any losses as they only invest a limited quantity of each item which they believe is stylish and will be more restricted season wise. For example if they have miniskirts in design they will only be available for a short time due to the short summer period in Europe. Other clothes which can work the year around and for which the trend does not change are outsourced to Asia as the cost rule be so high. The outsourcing operation is very handy mainly because these clothes have a longer shelf life. It does not take a long time for the clothes to be prepared as it merely takes around 4 weeks total for the whole process from design to the finished product in the stores.The fact that Zara knows what sort of trends are there in the market and are quick plentiful to change their strategy to match the trends in the fashion industry blesss them a huge vantage. They are able to modify their timetable easily to adjust for a change in the trends in the market. Normally it takes around 8 to 12 months for any normal retailer to forecast trends and come up with a style and send it for production. They are unable to match what Zara does and they end up losing big time. Even if a style fails to sell much, Zara can easily sell the clothes on a discount. The fact that they quantity of clothes manufactured was so low that they lose much. Their low volume strategy has helped them have a very low number of discount sales every year as compared to a high rate for the rest of the industry.However this leads to higher costs which is a disadvantage but then they dont have to worry about having higher inventories. This method allows for a low inventory and high profit margins. They dont save any money here with costs but then they get the maximum out of their clothing line. A problem they face is the fact that since Zara controls everything it is not easy for them to expand or relocate as they have to stay put in one place or the whole operation will suffer and the goods will cost more to distribute.Zaras business mod el is wonderful in the sense that it has a very fashion forward line as they know which trends to cash in on. They seem to have the midas touch of turn everything into gold. Their policy is to have a mostly young and fashion conscious staff so that they will also be able to double as trend setters. If for instance a certain item in a store sells well then the management decides to sell the same item in other locations as well. The key is that most of the items are in short supply and people seize that there is a shortage of items which ends up making consumers want to buy more.A key factor in Zaras success is the fact that it has sourced its products from the right places. They have based their procurement offices in a equate of fashionable cities in the world. This allows them to witness the trends first hand and then to quickly come up with a solution of their own. They dont buy all the raw products on their own as they use one of their parent groups procurement units to do all its purchasing. One clever move on their part is that they buy most of their fabric in grey so that there is greater flexibility. It doesnt take long for the fabric to be prepared.The main distribution artery is in Spain where they have their biggest distribution centre. They also have some smaller distribution centers in countries such as Argentina, Brazil and Mexico. The problem with the distribution centre is that it is purely based in Spain and does not have the capacity for a heavy load. It is a huge distribution centre and occupies around 500,000 square feet in total. They only have the capability of processing around 60,000 folded garments in an hour. They need to find a new distribution centre or increase their operations so that they can save more time. However the biggest advantage for them is the fact that they have vertical integration which allows them to manufacture and distribute their own stuff without having to be at the mercy of any supplier. It is not tough to m ove any of their products as they have their own railway network which allows them to move goods easily to its distribution centre. Once the goods are ready they are shipped out immediately though the shipping schedule is only twice a week. European stores get their goods early (around 24-36 hours) while other destinations get them within 2 days. This system has allowed them to pass on a very high level of accuracy in its shipments. The other good thing is that the outlets dont take long to display the new outfits once they reach their destination and this allows them to show new stock to their customers. The clothes are also coded according to their contort so that the staff knows where to place them. This makes it easier for the customers to go around color matching the items they want to buy.Problems with ZaraZara is facing a large number of issues which can cause them a number of problems in the future. Despite the fact that Zara has a consistent business system which gives th em a competitive advantage it is always in the danger of tanking badly. Zaras biggest advantage is the fact that its economies of scale are really good and that they have been able to ramp up their distribution system. The continued growth is good for them in every way. They have been helped a lot by their expansion in the international market. However their growth in the international market will be curtailed due to the reason that Zara has a very centralized logistics model. It is understandable that Zara has to expand its distribution centers and to increase its capacity. Zara has its main distribution centre in Spain and it wont be easy going trying to expand when their base is only in Spain.This will affect their plans to go international and to steer more regions. They cant simply survive with a European presence alone. It is true that they do have a presence in other countries but then it is not as much as it should be. They have a huge presence in Spain but quite limited wh en it comes to other countries. They can easily target the North American region where they dont have much of a presence compared to the huge size of the region. The problem is that there are a lot of outlets there and a lot of competition coupled with the need for plus sized clothing, high cost of operations and a very ripe(p) market. Zara needs to come up with a strategy so they can compete very crisply over there. They can also target South America but the problem is that it is not a very stable region and any geopolitical problems can lead to profits being low. A good market would be the ever reliable Middle East where Zara already has a small presence. However with talks of revolution in the air and other geo political problems it can be a risky bet. There are a few countries in the region which will lead it to be profitable but then the market is small compared to other regions. They can easily opt for countries such as the South East Asian markets and South Asia which have a lot of potential.RecommendationsZara can easily go around and expand its operations in many ways. The best thing would be to take it easy for the short term and to go for further expansion in Europe. Spain and Italy are neighbors and the fact that Zara has its main distribution centre in Spain will make it easy for Zara. For the time being they dont need to open any more distribution centers as they can work with regions which are quite near in proximity to them. Italy is one of the most fashion savy countries in Europe along with France. Zara already has 70 plus stores in the country but then they can do a lot better. They can enhance their presence in the market and try and take some share from some of its know rivals such as Benetton and HM. the biggest way for Zara to expand is to try and open another Distribution Centre in eastern Europe and to be able to expand its operations in Eastern Europe. A number of countries are coming into the European Union and are ripe for the p icking. They already have a presence in some countries but the number of stores per region is not as much as it should be.Zara should expand further in the Asian markets once they have been able to do their bit in Europe. They have already tested the waters in Asia despite the fact that there is a lot of competition from local vendors there. However the fact that people in the developing countries and with surging economies will be sure to try out Foreign brands and that would be one reason why its a good conception to expand further in Asia. The only problem is that Zara is based in Spain and that all their designs come from that region. The fact that they make items in limited quantities ensuring a low inventory will scuttle their plans to expand easily. If Zara decentralizes its manufacturing policy it can easily set up its own operations and distribution centre in Asia. It wont be easy as they will still have to procure items via local vendors. If they are unable to create a di stribution centre in Asia they can still create a large upmarket distribution centre in Spain where they are able to take the load of supplying to a larger number of stores. In this way they will be able to keep up with the demand and supply. This will help in the growth of the company and allow them to face challenges.It wouldnt be a bad idea to expand in the US market in the long term even if it is not so friendly towards European labels. Competitors such as Benetton and HM have faced problems with the US market in the past. However Zara has the resources and the ability to be able to expand within the market.They can expand easily in the US market only if they manage to curb their costs which are quite high at the moment. They also need to invest in a proper high end IT system which can help them go with the trends. They will not have the advantage of the system they have in Spain as its a totally different ball game over there. There will be different political and economic ci rcumstances which will dictate the way they do everything. It wont be easy to change their entire business model just for another region. This would mean that they have to decentralize the way they work so that they can work in the US. They would have to establish a distribution centre in Mexico or another cheaper place so that they can cater to the needs. The cost of labor wont be so much but the fact that it is decentralized and not under the control of the Spanish HQ. On the bright side it will be cheaper to ship products and the tariffs will be low.This will allow them to save a lot on costs and they will be able to keep their prices the same way they are in the origin countries. They will also be able to enjoy greater margins in this way. They will also be able to resolve other matters such as retailing overcapacity, less fashion-forwardness, need for larger sizes, and considerable internal variation.RisksThe risks associated with expanding overseas are that it will require a l ot of capital. They need to establish new facilities and it is not an easy task. They have to do a number of studies and research the market properly before they go ahead. It wont be an easy feat context up everything from scratch. They will also have to train people the way they operate in Spain. However they can still keep the design and procurement process centralized as technology will allow their units to do what they want. Its just the units which need to be decentralized. There is the huge possibility that they will face a number of obstacles and losses before they can actually do something.The only problem is that they will face problems with their margin while they are at it. They will have to face increased costs and will have to pass on the buck to consumers so that their bottom line is not affected. hypothetically they can also opt for joint ventures or franchising if they dont want to go and expand in the US. The only problem is that joint ventures and franchises dont always pan out as required. It can create problems for their brand name and can cause many unforeseen problems in the future. It is never a good idea to give out a franchise or work in a joint venture unless there is synergy between the two partners.ConclusionIn the end it is highly recommended that Zara keep its house and personal matters in order before they can think of expansion. Due to the environmental factors and the fact that the Euro Zone will not always be so stable should shake it out of its comfort zone. Expansion is the key but they have to play their cards right and plan their move properly before they end up making some costly mistakes.