Strategies for International Expansion Zara - Essay Example

Outline and critically evaluate the strategies for international expansion that Zara has used in entering various markets around the world. Why did they believe it was necessary to adapt their approach from place to place?

Zara was established in Spain in 1975. Initially, the company developed its brand on the domestic market, adding new stores across Spain. Later, Zara’s management understood that the Spanish market was saturated and there was a necessity to expand business internationally. In 1988, Zara entered the international market, opening a store in Portugal. The company has chosen this market as its first international pilot project because it was geographically and culturally/psychologically close market (Ying Fan, 2009). However, the company realized that it was necessary “to adjust its business model to suit the new markets” (Ying Fan, 2009:285). Thus, the company has learned the Iron Rule of international business, whereas “in international business, the seller adapts to the buyer” (Gesteland, 2005: 17).

The company continued its business expansion across France, Northern Europe, Mexico, and Greece. Thus, Zara has utilized the benefits of cultural convergence – “the growing similarity between national cultures, including the beliefs, values, aspirations, and the preferences of consumers, partly driven by global brands, media, and common global icons” (Rugman and Collinson, 2011: 137). Also, Zara has opened a store in New York. Even though it was neither geographically nor culturally close market, it was a strategic decision enabling the company to build brand awareness and get close to international fashion brands (Ying Fan, 2009: 286). Thus, Zara has gained the knowledge, experience, and expertise necessary for successful business development in more distant markets. During the period from 1997 to 2005, Zara adopted aggressive business expansion and entered other markets despite the fact of geographical or cultural proximity (Ying Fan, 2009).  As of January 2006, the company was present in 59 countries across Europe, America, the Middle East, Asia, and Africa. In order to meet the needs of consumers from different countries, the company has adopted a localization strategy (Rugman and Collinson, 2011). It has adopted its products by modifying cloth size, style, and other elements to local tastes and cultures.

In order to enter foreign markets, Zara has adopted three entry modes: own subsidiaries, joint ventures, and franchising. Zara entered most European and South American countries through its own subsidiaries. However, in Germany, Zara has combined its efforts with a local company. Thus, it gained access to local know-how and knowledge of one of the largest European markets. In some countries, the company faced with administrative and legal barriers, and thus, was encouraged to enter these markets through joint ventures. For high-risk countries, Zara has decided to expand its business through franchising (Ying Fan, 2009). Thus, the company’s management has mitigated the risks and utilised opportunities for international expansion (Rugman and Collinson, 2011)