Business report on ZARA - Essay Example

 Business Report on Zara Introduction Zara is a world-renowned player in the clothing and fashion industry. The company came into existence in La Coruna, Spain, in 1975 through the actions of one prominent businessperson called Amancio Ortega who had a dream of taking over and revolutionising the fashion retail industry. Today, it can be safely stated that Zara is a market leader as it has expanded on a global scale with stores on high-end streets all over the world. The company has one main manufacturing plant in Spain and it handles its own distribution channels to its stores globally. Zara has been known to produce and deliver the latest trends in fashion internationally for both sexes and children. It currently operates 531 stores in 400 cities in the world. The success of Zara can be attributed to the new concepts and business models applied in their overall company strategies (Brennan, 2009, p. 27). Analysis Zara operates in a highly competitive industry. In analysing its external environment, this paper will use the PESTEL model, which details the various external factors that favour or affect the general performance of the company. The external factors in the analysis are political factors, economic factors, socio-cultural factors, Technological factors, Environmental factors and the legal factors in place (Brooks & Wilkinson, 2011, p.68). The PESTEL model generally measures the market of a company (Wetherly & Otter, 2011, p.10). Political factors The Governments and political parties in a country are key factors in the establishment of a political environment (Halbert & Ingulli, 2009, p.21). The Spanish government is relatively stable, and has provided measures that boost performance of businesses. Since the main production plant is in Spain, and its being centralised, this makes it the backbone of the company. The favourable political environment made possible by the political stability in the country and favourable government policies have been a key silent factor in the success of Zara’s production unit. In addition, the government tax policies and investment policies have been favourable for the past decade of its operation in Spain and can be attributed to influence the performance of Zara positively. Further, in its expansion into other countries of operation, the political support and stability was critically assessed before the decisions were made. Economic factors The company faces normal economic fluctuations like other companies such as movement in interest rates, changes in foreign exchange rates and a shift in inflation rates. However, Zara, for all its time of operation has only been dealing in a single currency. Though this had seemed to pose many transactional problems due to their large scale of operations, the company preferred to use a safer currency. This is believed to be the reason that Zara was not affected by the recession, which was caused by adverse movement in the dollar. Before its entry into new markets, the company evaluates the economic conditions of the country it wants to launch operations to ensure stability and relative predictability. Socio-cultural factors Social-cultural factors mainly include the cultural aspects in the region of operation including factors such as population trends, the attitudes of the populations (Collison, 2003, p.32). Trends in socio-cultural factors have a great impact on the demand of a firms products and the operational processes of the company (Cadle & Yeates, 2010, p.33). For Zara, their element of trend chasing has led to them studying the cultural trends in terms of fashion and their attitudes towards dressing in order to give their customers a specific customised experience according to the region of operation hence gaining more market share. In addition, the company is located in a country that has firm cultural roots that contributes to its performance. Technological factors Technology is a key factor in the efficiency and effectiveness of business operations today (Kew & Stredwick, 2005, p. 13). Many fashion and retailing companies took up the idea of implementing IT systems too late. Although most companies are currently undergoing technological improvements, ZARA undertook to revolutionise its operations by implementing the use of IT in all its levels of operation including production, supply chain management, and in its advertisement and sales. The production processes of the company have been made easier and more efficient by division of labour and employment of machines to the production line (Thompson & Martin, 2010, p.41). Its supply chain, which is vertically integrated, has played a huge role in the overall success of the company. Zara has used information technology to improve communication between the central production centre, designers and their stores to ensure an efficient flow of products to the market. It has also employed IT strategies in its advertisement. Environmental factors The environmental factors that may affect a business include any ecological and natural environment factors such as change in weather, climate and the impact of global warming (Cross et.al. 2012, p.27). The awareness of the environment may determine or affect how a firm is operating. Proper consideration of the environment might potentially lead to improved customer satisfaction and hence worth improved sales (Schiffer & Weder, 2001, p.34). In attempt to protect the environment, Zara engaged in talks with Greenpeace to place a ban on harmful toxins produced in the manufacture of clothing. In 2012, Zara was rated top as the worst polluter in the apparel industry in a publication by Greenpeace. To this effect, Zara was used as an example to raise awareness to other players in the industry. Protests were conducted outside Zara shops worldwide demanding the company to formulate strategies to detoxify its products and the value chain in general. After a lot of pressure, Zara shifted its scale of operations to toxic-free production and it vowed not to discharge any more toxins for its clothing line. Being an ambassador against pollution has influences the sales of the company positively as their consumers feel proud to be associated with their products. Legal factors The legal factors that can potentially affect how a company conducts its activities, its costs and hence worth demand for its products include consumer laws, workplace discrimination laws, employment statutes and the health and safety regulation (Cadle & Turner, 2010, p.17). The Spanish authorities have rules and regulations that support and boost industrial development in the country. The good operational ambience created by the regulatory bodies makes it easier for Zara to comply with the requirements hence favouring its operations and profitability. Further, in its endeavour to access new markets, Zara analyses the proper legal requirements of its operations in the new country to assess whether it fits with their objectives (Miller et.al. 2011, p.11) Conclusion and Recommendations From the above analysis, it can be observed rather clearly that the external uncontrollable factors to Zara have a positive impact on the overall company performance. In analysing its plan and projects, I shall use a SWOT analysis, which gives a detailed indicative of the company’s strengths, weaknesses, opportunities and threats (Cole, 1997, p.23). Zara has been seen to have well motivated and satisfied staff who have been given the liberty of making flat decisions. This is a strength that has been responsible for the successes of Zara and hence should be capitalised on in the long run. A possible weakness may be the lack of proper communication of its products to its customers. Zara puts less emphasis its promotional activities which is a necessity in attracting new customers. The company should hence invest more on promotional activities in order to expand its customer base further in the future. Opportunities currently open for Zara includes those to enter new markets in a geographical sense and diversification of its product range and also to access cheap labour. The company should therefore strategically weight the possibility of maximising the opportunities while taking calculated risks (Williams, 2002, p.67). Threats faced by the company include the possible threat of new entrants and competitor saturation in the currently available market. The company may also be threatened by adverse movement in exchange rates and natural calamities (Sadler & Craig, 2003, p.45). In conclusion, the external uncontrollable factors to Zara’s operation have a positive impact on the success of the company. Despite any possible threats, the company has still continued to perform exemplarily well and has attained market leadership. Bibliography Brennan, K. (2009). A guide to the Business analysis body of knowledge (BABOK guide). Toronto, International Institute of Business Analysis. Brooks, I., Weatherston, J., & Wilkinson, G. (2011). The international business environment: challenges and changes. Harlow, England, Financial Times/Prentice Hall. Cadle, J., Paul, D., & Turner, P. (2010). Business analysis techniques: 72 essential tools for success. London, British Computer Society. Cadle, J., Paul, D., & Yeates, D. (2010). Business analysis. London, British Computer Society. Cole, G. A. (1997). Strategic management: theory and practice. London, Thomson Learning. Collison, K. (2003). Exercise initiative in a business environment. BSBCMN301A BSBCMN301A. Chatswood, N.S.W., Software Publications. Cross, F. B., Miller, R. L., Cross, F. B., & cross, F. B. (2012). The legal environment of business: text and cases : ethical, regulatory, global, and corporate issues. Mason, OH, South-Western Cengage Learning. Halbert, T., & Ingulli, E. (2009). Law & ethics in the business environment. Mason, OH, South-Western Cengage Learning. Kew, J., & Stredwick, J. (2005). Business environment: managing in a strategic context. London, Chartered Institute of Personnel and Development. Miller, Frederic P., Vandome, Agnes F., & Mcbrewster, John. (2011). Pest Analysis. Gardners Books. Sadler, P., & Craig, J. C. (2003). Strategic management. London, Kogan Page. Schiffer, M., & Weder, B. (2001). Firm size and the business environment: worldwide survey results. Washington, DC, The World Bank. Thompson, J. L., & Martin, F. (2010). Strategic management. Andover, Cengage Learning. Wetherly, P., & otter, D. (2011). The business environment: themes and issues. Oxford, Oxford University Press. Williams, S. W. (2002). Making better business decisions: understanding and improving critical thinking and problem-solving skills. Thousand Oaks, Calif, Sage Publications. Read More