How Zara Entry into International Market - Essay Example

ENTRY PLAN INTO INTERNATIONAL MARKET Company profile Zara refers to a Spanish company that deals with the retailing of apparel products within different regions of the world where the company has retailing outlets. Founded in 1975, the company has since continued to expand to the global market, and within the various countries where there are established stores. The company constitutes of a single manufacturing plant located in Spain, where all products are manufactured (McAfee, Dessain, & Sjöman, 2007). Using centralized manufacturing, the company has maintained standards within the global arena as products available anywhere exhibit no discrepancies in quality. This has contributed significantly to the high levels of customer satisfaction, leading to customer loyalty. The company continues to maintain customers through ensuring similar levels in product quality, hence assuring customers of quality in Zara products. High-quality products have in turn brought high sales placing the company in the global market leadership position. Products The company presents unique products to its customers through the development of fashion designed based on the market demands. The organisation is drawn in the manufacture of different apparel products trading in different names. The company owns brands like   Pull and Bear, Massimo Dutti, and Uterqüe among several others. The company offers clothing for all sexes, subdivided into different categories. The different categories available for Zara’s are upper and lower garments, which represent the parts of the body, shoes, cosmetics and complements. There is a division within the company that provides children clothing of various types and is named Zara kids Market position The company remains one of the global leaders in the apparel industry because of the efficiency with which it delivers products into the market. The company is the principal retailer in the apparel industry globally and has 5527 retailing outlets in 82 different countries. The customer profile for the company consists of largely women with 65% of the market, with men and children holding 25% and 15% respectively, of the company’s global market. The company has created a market for itself in the global arena through affordability and differentiation of the products delivered into the market (Sharp & Dawes, 2001). The company makes products for high-end individuals and has continuously avoided the common industry trend of taking fashion to the low-cost countries. Current global operating environments Zara began its international operations through Portugal, when it opened the first store abroad in the country. The company has a global presence in all continents of the world although within some regions there are some countries without Zara stores. Zara Company undertakes all manufacturing processes from a central location and distributes products into the different countries. This approach mainly enables the company to maintain high standards in products, and ensure global product standardization. This production method ensures global product uniformity in all countries. The company takes a trend chaser approach where it manufactures products based on customer requirements. Business approach immensely considers customer desires when introducing new products into the market (George & Bock, 2012). The company analyses the common trends, among customers, and capitalizes on creating uniqueness within the existing trends. Globalization of the company has resulted in impressive business results for the overall operations. The company has extensively grown it market share following g the expansion into the Asia/Pacific region. These regions have proved to present great sales for the company. The perception of the individuals in these regions has resulted in the business becoming a principal clothing retailer in the regions, despite there having been other retailers operating before Zara. New Zealand Country profile While Zara made entry into the Asia/Pacific region several years back, New Zealand remains one of the potential markets where the company lacks presence. As an island nation, it becomes immensely difficult for individuals residing in this country to receive Zara products from stores in the neighbouring country, which is Australia. There is a necessity for the company to open a store in the country beginning with Auckland, the largest urban hub in the country. The country’s economy has grown tremendously and enjoys a stability which is better than other countries in the region. This would be a good target for international business as there are limited restrictions to conducting business within New Zealand. With an estimated 4.6 million inhabitants, this can be a good target market for the company. Much of the population of the country consists of foreign individuals who are mainly Europeans. Conducting market to the Europeans would be relatively easy for the company compared to natives. The economic status of the country does not fall within the countries that the company has classified as low-cost countries, and business could perform relatively well. The demographics of the New Zealand population consist mainly of women who make up for the large portion of Zara’s customers. Much of the residents in this country reside in cities making them a vulnerable target for Zara products. The economy of New Zealand can be described as a modern developed market economy, with a GDP of US$ 40, 481. Extractive industries are the main contributor to the economic well-being of the country. The economy of the country remains heavily dependent of international trade, and this makes the country an easy target for global expansion. Much of the country’s internal trade depends on agricultural products, and these are also the major exports from New Zealand. The country’s major trading partners are Australia and china at the international stage. This is largely because of their closeness to New Zealand and existing economic similarities, especially with Australia. Despite these being the major trading partners, a large proportion of the population comprises of European immigrants, and considering the company is European, these might become the target market for the company products(Bertoli & Resciniti, 2012). Tourism also plays a fundamental role in the contributing close to 10% of the country’s GDP. The rising numbers of guests to the state are potential customers for Zara since these are international visitors. Feasibility There are numerous factors which the company must consider before entering into the New Zealand market in seeking to ensure success of the operations. Currency consideration The New Zealand dollar is the national currency within the country. The economy of the country has experienced immense stability making the currency to become relatively stable within the global market. The country remains one of the regions which might not be adversely affected by global economic inflation. Regional and global trade integration New Zealand has established international trade partnerships with many countries within the regions and many of the exports from the country head to china, japan, Australia and the united states of America. Entering into this market and establishing a manufacturing plant in the country could possibly increase business partnerships with these countries. Market structure analysis The market entry strategy into the New Zealand market should involve direct presentation of products to the target market. While outsourcing might be considered, only some functions of the retailing aspects should be outsourced since the environment is open to international trade, and there are limited barriers to the trade in the country. Zara has extensively utilised online trading in many European countries, the US and Japan. The application of a similar strategy in New Zealand can provide the company with a platform for understanding the client requirements in an aim to follow the trend chaser business model which the company has adopted globally (Wobben, 2006). Online trading can be essential in conducting a market analysis before setting up stores within the country. Many of the organisations within the apparel industry in New Zealand are local companies conducting manufacturing activities within the country. The marketing mix components Product – Zara produces a large volume of products annually, approximated at 11,000 different items. Such production capability is enough to satisfy the existing market in New Zealand. Pricing – the company conducts manufacturing from centralised locations but has shifted to emerging markets leading to low production costs. In New Zealand, wool is the largest export, and it is a raw product for the clothing industry. Zara can begin manufacturing in New Zealand in order to compete effectively and maintain the affordability element of its products in the new market (Bertoli & Resciniti, 2012). Promotion – the promotional costs for the company have been relatively limited by the zero advertising approach. The company depends heavily on word of mouth and sells through the quality and price of products. Place – the company depends heavily on the location of their stores and Auckland is one of the most populous cities where they can set up a store. The company seeks to always avoid utilising financial resources to attract customers to the store. Reasons for entering the market Potential customer base – the city of Auckland and New Zealand in general consist of a population with the capacity to purchase Zara products if available. Based on the GDP of the country, many of the residents have the purchasing power to buy Zara products. Minimal regulations – much of the country’s economic income is generated from international trade as exports account for 24% of the national income. Conducting international trade within the country has been established as relatively easy due to the minimal regulation existing within the country. International trade dependence – the entire economy of New Zealand depends on international trade. This has resulted in the country being identified as the most business-friendly country in the world. Potential risks for expanding into the market High prices – Zara conducts all manufacturing from a centralised location and exports finished products. The accessibility of raw materials in the state could make locally made products much cheaper than the imported ones. This makes it complicated for the company to penetrate the market Advertising – Zara depends heavily on word of mouth. Being a new market the company might be forced to undertake extensive marketing campaigns to popularise the brands within the market (Hooley, Piercy, & Nicoulaud, 2012). The company might lack sufficient strategies to conducts such campaigns. Delivery costs – the location of the country makes delivery logistics for finished products relatively difficult. This could be a major impediment for Zara, which manufactures all products from a centralised location and transports them to retailing outlets. Mitigating the potential risks The company should consider manufacturing from within the country in order to reduce both the delivery costs of products and the prices of products. The accessibility of raw materials could be highly advantageous in conducting manufacturing from New Zealand. The company should develop an advertising campaign to popularise the brand as the people of New Zealand are considered brand sensitive lot. Benefits for expanding to New Zealand Increased access to raw materials The country is mainly an agricultural country and wool is the leading export from the country. Zara can maximise on this to open a store and manufacturing plant in seeking to cut costs. The company should begin purchasing raw materials from within the country. Expanding the Asia/Pacific market Entering into New Zealand should expand the Asian market for the company. This market has been one of the most active since the company ventured into the region. The company can utilise a manufacturing plant in New Zealand to deliver products to this region Operational strategies In seeking to foster a competitive advantage within the country the company should consider the following Begin undertaking some manufacturing from within the country with the hope of expanding these processes in the future. This will effectively reduce the operating costs incurred in logistics for delivering finished products to New Zealand. Adopt advertising strategies for popularising the company brands within the region. Despite the company not utilising advertising extensively, there is need for change as entry into this market might benefit from such advertising, immensely. References Bertoli, G., & Resciniti, R. (2012). International Marketing and the Country of Origin Effect. Boston: Edward Elgar Publishing. George, G., & Bock, A. J. (2012). Models of opportunity: How entrepreneurs design firms to achieve the unexpected. Cambridge: Cambridge University Press. Hooley, G., Piercy, N. F., & Nicoulaud, B. (2012). Marketing Strategy & Competitive Positioning (5th ed.). Harlow: Prentice Hall. McAfee, A., Dessain, V., & Sjöman, A. (2007). Zara: IT for fast fashion. Boston: Harvard Business School Press. Sharp, B., & Dawes, J. (2001). What is Differentiation and How Does it Work? Journal of Marketing Management, 17, 739–759. Wobben, C. (2006). Success Factors of Brand Extension in International Marketing (p. 99). Berlin: GRIN Verlag.  Read More