The Competitive Forces and Strategic Issues of Zara - Essay Example

? Project Table of Contents Table of Contents 2 In-depth analysis of competitive forces and strategic issues of Zara 3 Detailed analysis of the competitive forces 4 Strategic issues of Zara 6 2.Strategic Audit 7 3.Identification of External Stakeholder Issues faced by Zara 11 Issues of Copying of fashion trends 11 Supplier accused for slave labour 12 Case of Bangladesh Fire 12 Criticisms for short product life span 12 4.Strategic Recommendations for Zara 13 Recommendation for centralized logistic model 13 Recommendation for market expansion 14 Recommendation for Store Format 15 References 16 1. In-depth analysis of competitive forces and strategic issues of Zara The retail clothing brand Zara is the world most popular fashion brand. It is of considerable importance to highlight the fact that it is the flagship brand for the 2.5 billion pound holding group Inditex, which was founded by Amancio Ortega Ganoa, in the year 1963. It is interesting to mention that the basic retailing theme that is followed by the flagship brand is highly unique in nature. The brand of Zara largely focuses on the process of providing fashionable retail products of average quality at highly competitive prices to the consumers of the world (Morris, 2013). It needs to be mentioned that the brand of Zara is largely present in various markets around the world. Also, the company has attained tremendously high levels of efficiencies in regards to maintaining the distribution channels as well as managing the logistics and supply chain. It can be said that the efficiency of the supply chain attained by the flagship brand Zara helps in attaining significant advantages related to shorter product lifecycle, shorter turn around and reduced time for production. Thus, it can be said that the logistic and supply chain efficiency can be treated as a pillar of strong point and significant advantage for the company. Because of the large reach and extremely elongated and complicated nature of the company’s business operations which are spread in various markets around the world, it has to be said that the organization is subjective to large number of threats and challenges. In order to understand the challenges and issues faced, it can be said that the organization needs to focus on the process of conducting a detailed analysis of the various competitive forces as well as the strategic issues faced by Zara. Detailed analysis of the competitive forces It can be highlighted that the best way to undertake an analysis of the competitive forces that are affecting the business prospects of the retail company is to conduct an analysis of Porter’s competitive forces. It needs to be mentioned that Porter’s five forces strategy talks about the competitive issues that arises from the multiple factors like bargaining power of suppliers, bargaining power of consumers, power of substitutes, threat of new entrants as well as inter firm rivalry (HBR, 2008, p. 4). Source: HBR, 2008 p. 4 Now matching Porter’s five forces competitive strategy with regards to organizational issues of Zara, it can be said that several challenges and cases can be highlighted at the same time. Talking in regards to the bargaining power of the suppliers, it needs to be highlighted that more than 50% of the retail merchandise of Zara are produced in an in house fashion. It is important to highlight that because of this particular practice, the globally acclaimed retail organization has developed the advantage in regards to gaining momentum in various complex task based process, lower cycle time as well as minimization of error. However, talking in more details in regards to manufacturing practices, it can be said that the various processes involved in the manufacturing process of the firm’s end products are often outsourced to the network of local cooperatives, who work with the company only on the basis of long term good will. Hence, in this particular case, the negotiation power of the suppliers and local manufacturers are pretty low as compared to that of the organization. It, however, needs to be highlighted that the contract based manufacturers of the company are present in the regions of Turkey and Asia. However, since they are the manufacturers of the product lines which are less critical to the company’s main product offerings to the consumers, so, the bargaining power of these contract manufacturers are also pretty low. Talking in regards to the power of the consumers, it has to be mentioned that the company’s product lines in all the stores are tremendously fast moving in nature. Because of this rapid nature of merchandise movement, the consumers often demand a specific trend or line of fashion in a particular set of clothing at a very short span of time. Hence, because of this particular constraint on the time factor, it can be said that the power of the consumers is pretty high. The risk of new entrants’ talks about the issues related to the competition arising from the factor of entering of new players in the market (Hill and Jones, 2012, p. 50). While discussing the issues of the threat arising of new entrants, it can be highlighted that the retail market related to fashion clothing is being dominated by the four major players like H&M, Zara, Gap and Benetton. Hence, thus particular threat is comparatively low. While highlighting about the threat of alternative products, the competition arising from H&M needs to be given considerable amount of importance. It can be said that the focus of the rival company H&M is also to promote low priced fashionable clothes of average and moderate quality to the end consumers. Hence, the threat from substitute products is comparatively in the case of Zara. Finally, talking in regards to the inter firm rivalry, it need to restated that the fashion market has four key players like H&M, Gap, Benetton as well as Zara. While Zara has gained the highest levels of efficiency in regards to logistics as well as supply chain management, many other retailers is also trying to derive the same kind of competitive edge. This will significantly result in the rise of the competition level among the various players of the retail sector focusing on the fashion segment. Strategic issues of Zara In the recent times, the business prospects of Zara faces significant amount of issues of strategic nature. Firstly, it needs to be mentioned that the company focuses on achieving the economies of scale in its operations through the process of conducting its business process through a centralized distribution system However, because of attaining an increase in the foothold in the new markets, issues of diverse nature might crop on the lines of non sustainability as well as the loss of advantage related to the economies of scale. Another key strategic issue that is faced by the retail manufacturer of the fashion sector is on the lines of market expansion. While it has been identified that it is extremely critical to focus on the process of market expansion for the purpose of capitalizing on the significant opportunities of business arising in the new markets, confusion exists within the company in regards to the selection as well as targeting of the new markets. It increasingly needs to be mentioned that the various conflicting issues of the new markets have resulted in the emergence of this particular strategic issue. The last strategic issue faced by the retail giant Zara in regards to conducting its business operations is in regards to the business model. While the retail chain has experience in conducting its business operations in the franchising, joint ventures as well as company owned stores format, confusion exists in regards to deciding on choosing the right format while entering the new markets. 2. Strategic Audit It needs to be highlighted that the issue of strategic audit of an organization helps in gaining an insight of the organization. It also needs to be highlighted that it plays a very critical role in regards to the defining as well as measuring the effectiveness of various small and large scale plans of the organization (Srivastava and Verma, 2012, p. 401). In simpler terms, the strategic audit can be termed as the process related to performance analysis of the organization which also acts as a strong foundation and platform in regards to the strategic decision making of the organization (Koteen, 1997, p. 105). It can be said that the key purpose of conducting a strategic audit is to essentially recognize as well as analyze the major factors that have the potential to impact the present as well as the future performance of the organization. It is highly interesting to mention that while trying to analyze the performance of the retail organization Zara on the lines of an internal strategic audit, various key issues needs to be highlighted. The first thing that needs to be highlighted while talking about the internal strategic audit of Zara, is the model of business. It is an extremely vital factor to mention that the large majority of the global stores which are present in various markets around the world are owned by the company itself. By adopting this particular approach, it helps the company in providing a uniform appearance as well as shop layout to the various stores around the world. Needless to say, this goes a long way in adding up the convenience factor of the consumers around the world, as well as the prospect of generating in store sales. The factor of operating through the company owned stores formats has resulted in the process of providing fantastic results to the retail manufacturer, which has focused on providing fashionable clothing of affordable nature to the consumers in various markets around the world. It needs to be mentioned that in all the years of operations, the company has attained significant amount of success in having ownership of the stores in all the markets. This has also resulted in gaining significant amount of experience in regards to the operating of the centralized process of operations. However, in the recent times, considerable amount of challenges lies in regards to this particular format of company controlled operations. As the company wishes to capitalize on the business opportunities arising from the new markets, and starts to enter the new markets, it needs to be mentioned that the company might have to take a shift from the format of company owned stores to other formats like franchising or joint ventures. Engaging in the process of opting for the business operations through the other formats will lead to the introduction of significant amount of decentralization in the company’s well streamlined business processes. This process of inculcating of decentralized nature of operations in a business process that has been highly accustomed to the centralized nature of company specific operations might create significant challenge for the company in the upcoming times. It also has to be highlighted that the company for the purpose of attaining significant amount of strategic advantages has focused on the process of making strategic investments. So, rather than making significant amount of investment in regards to value communication through the process of marketing, the company has concentrated its focus on the various bottlenecks that often exist in the process of manufacturing. Talking in these lines, it can be said that the company has made significant investments in regards to addressing the issues related to dyeing and finishing, which is often recognized as a bottle neck for the manufacturing line-up for retail products. A key contributor in regards to the strategic audit of the retail organization Zara is the issue of high level of efficiency in the field of product distribution and logistics. It needs to be mentioned that the average product turnaround time is the least for Zara as compared to its competitors. While talking about the time taken to develop a product from a concept, the time taken by the special team of manufacturers which is maintained by Zara is around 15 days. It is extremely important to highlight that this time is exactly twelve times lesser as compared to the time needed by the competitors like Gap, H&M etc. It has to be brought into attention that the retail fashion organization’s tactic and conscious gamble to opt for in house production has greatly paid off. Along with it, the process of integration of technology has resulted in increasing the efficiency of logistic movement by reducing the time taken to accomplish complicated tasks. It needs to be mentioned that because of the high efficiency levels attained by the company in regards to the management of product distribution and logistics, it becomes possible for the company to deliver products to various stores around the world at a very short notice. Also, this enables the company to provide frequent deliveries to various stores that are located in various parts of the world. On a closer look, it can be highlighted that the process of faster and frequent product deliveries has resulted in the emergence of various benefits like the eradication of possibility of product stock outs, faster arrival of new stocks as well as reduction of events related to inventory holdup. While the highlighted factor provide significant amount of competitive edge to the fashion retail manufacturer, there is a large threat associated with it. It is of considerable importance to highlight the fact that the merchandises of Zara are shipped to various locations around the globe either through its central facility located in Spain or through the various satellite sites in the adjoining regions of Argentina, Brazil and Mexico. As a result, the entire process of distribution is largely centralized in nature. While this arrangement helps in the process of attaining the economies of scale in the recent times, yet it can be said that consequent expansion in the new markets will result in growing disruption in the process of product distribution. This will automatically hamper the economies of scale that the company attains through the centralized merchandise distribution system for the purpose of distributing the products to various corners of the world. The highly centralized mode of operations, ranging from distribution of products to various outlets around the world to the controlling of the multiple outlets through the mode of operating in the company owned stores format, provides the business with significant amount of macro level challenges. As per the recent trends of doing business, companies around the world prefer to diversify their portfolio of operations so as to hedge and minimize the risk associated with operating from one single place. In the case of emergence of any unforeseen and unfriendly business scenarios, the entire business operations of Zara remain extremely vulnerable to the market changes. Hence, because of the potential of this particular issue to disturb the company’s business prospects, this also needs to be identified as a very important issue in the company’s internal strategic audit. 3. Identification of External Stakeholder Issues faced by Zara It needs to be mentioned that the public relations issues of a company helps in the process of value communication to the consumer by the company. From the theoretical point of view, public relations can be defined as the process related to management of communication between the organization as well as the desired target audience, which largely comprises of the consumers as well as the stakeholders (Davis, 2003, p. 5). By the process of engaging in successful public relations activities, the companies around the world achieve the goal of gaining the attention of the target consumers (O’Mara, 2010, p. 1). Now, discussing the issues of PR in regards to the fashion retail company, Zara, it has to be focused in attention that the company has faced several challenges in the media in the recent times. The issues of public relations that have surfaced in the recent times are highly diversified in nature. For the purpose of having a proper assessment of the challenges posed by the public relations crisis of the company, a very in-depth analysis needs to be conducted. Issues of Copying of fashion trends The popular designer Tom Ford, who has been credited for turning around the creative prospects of Gucci Fashion house, has highly criticized the cheap fashion and retail company Zara for the copying the trends produced by various designers. The designer has claimed that the fashion retailer Zara takes runaway glimpses of various upcoming fashion trends produced by the multiple designers and present them in their company owned stores (London, 2013). This allegation by a highly popular designer has the potential to seriously disrupt the creditability of the company’s retail offerings. Supplier accused for slave labour Reports emerged in the media in the August of 2011, that the company has been using slave labour in the market of Brazil for sourcing its materials (Reuters, 2011). It was highlighted that the clothing retailer of the Spanish region was being investigated by the labour ministry of Brazil, in connection to a company’s supplier from the Brazilian market, who was charged with the maintenance of a slave labour force (Burgen, 2011). While the Spanish retail manufacturing company claims to be largely committed to its staff, which also includes the suppliers, the accusation by the Brazilian labour ministry will hurt the company’ clean image related to value communication in a great way. Case of Bangladesh Fire It needs to be mentioned that the low priced fashion retailer Zara has been in the spot light for the wrong reasons in the month of January in the current year. The fire at a clothing factory for a supplier in Bangladesh, who was associated with Zara, resulted in the death of seven employees (Reuters, 2013). This particular issue might lead to having a long term consequence in the process of value communication for the company’s products to the consumers around the globe. Criticisms for short product life span It needs to be highlighted that the Spain based fashion retailer focuses on manufacturing and distributing clothes to the consumers all over the world. However, the main theme of the company’s fashion based retail operation is to provide fashion items of based quality at a low price (Thompson, 2012). It is quite evident that because of this focus of the company, the quality factor is largely compromised. It has been highlighted in various news articles that like other fast fashion retailers which includes Gap, Forever 21 and H&M, Zara also focus on low quality downgraded fabrics as well as personnel skills (Maheshwari, 2012). Normally, these issues results in shorter product life cycle for the branded items. Though all the fast fashion retailers are falling prey to fast fashion fatigue and are starting to manufacture high quality clothing , yet the previous trend has hampered the consumer behaviour of the masses. It is to be noted that the low quality fashion garments has resulted in a consumer trend, where consumers buy more trendy clothes at various cheap prices and completely discard them after using them for a few times. This particular practice has been strongly criticized by the House of Lords Science Committee of UK in the year 2008, thereby exposing the opportunity of drawing consumer flak for the fashion retailer’s product quality (Wilson, 2008). Needless to say, that these challenging issues may seriously create a great negative impact in the process of company’s attempt to communicate the value of the product offerings to its large and widely spread target audience. 4. Strategic Recommendations for Zara It needs to be highlighted that in the process of conduction of business operations, Zara faces a lot many issues in the recent times. It has to be highlighted that the issues are highly diverse in nature and ranges from the nature and format of operating in various markets to the issue related to expansion in the new markets. For the purpose of providing highly effective recommendations for Zara, it needs to be highlighted that the multiple strategic issues has to be dealt in a separate and individual manner. Recommendation for centralized logistic model It needs to be mentioned that the company is facing a serious issue in regards to the model of operations followed for the process of distributing the merchandise of Zara to the outlets all over the world. Currently, the company’s choice to opt for a centralized form of distribution helps in achieving economies of scale. This can be viewed as strong competitive advantage for the company. However, with the company focusing on entering the new markets, this specific competitive is under considerable stress. Talking in more details, it can be said that with the emergence of outlets in far away locations, which are not easily accessible by the company’s currently designed distribution channel, the frequency of the company’s merchandise distribution which has provided it a significant edge in the market will be lost. Hence, it can be said that for the purpose of retaining the efficiency in the distribution and logistics management, the fashion retailer of Spain needs to set up a second distribution point. While setting up the second distribution point, attention should be given to the fact that the location of this new point of distribution extends the reach of the company to the new markets. It has to be said that the second distribution point will actually act as a mid point or stopover for the company’s movement of retail merchandises to far located markets. By opting for this particular point of distribution, it can be said that the vital centralized nature of company’s mode of operation can be retained. Recommendation for market expansion The Spanish retailer is also facing issues of strategic nature in regards to market expansion. While providing recommendation for this issue, it needs to be highlighted that in the recent times, the most common process of conducting international business operations is to enter the new markets that has the potential to provide sustainable organizational growth in the upcoming future. It has been identified through the conduction of various studies that the markets of Asia are providing significant growth to the organizations in the recent times as well as that of the future, because of their favourable influence on the basis of various macro economic factors. The company’s long experience in regards to efficient handling of logistic movement can signifincatly provides the company a lot of edge with regards to its competitors. Also, the setting up of a second point of distribution will provide the necessary leverage that is required by the company to venture into the Asian market, while harnessing strength from its long nurtured logistics and distribution based excellence. Recommendation for Store Format It is of considerable importance to draw focus to the fact that the Spanish retailer Zara prefers to conduct its business operations through a high degree of centralization. The degree of centralization is such that the company prefers to operate a large number of retail outlets spread all over the world in the company owned format. However, it is highly important to mention that with the expanding footprint of the company in the newer markets, it might become extremely difficult for the company to manage its store in this particular format. Hence, as an effective solution, it will be recommendable to advise the company toinduce some amount of decentralization in the store operations. It needs to be mentioned that the company can divide its outlets all over the world on the basis of geographical zones and can then allocate the degree of control. To be more specific, it can be said that the outlets that are located in the Western markets should be maintained in the form of company owned stores format, while the ones that are located in the newly entered Asian markets should be maintained on the basis of franchises. References HBR, 2008. On competition. USA: Harvard Business Press. Srivastava, R.M. and Verma, S., 2012. Strategic Management: Concepts, Skills and Practices. New Delhi: Phi Learning Pvt. Ltd. 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