International Expansion of ZARA in U.A.E - Case Study Example

International Expansion Plan: ZARA in U.A.E International Expansion Plan: ZARA in U.A.E Executive Summary ZARA is a Spanish clothing brand and known for its unique design textures and clothing styles all around the world. ZARA has its stores in most of the countries in world where it satisfies a large audience of branded clothing and style lovers. Recently, the clothing Giant has decided to expand its business size and open its first store in the lucrative markets of United Arab Emirates. The company has decided to open its first franchise in the world’s one of the most attractive tourist attraction and shoppers’ paradise, Dubai. In the coming pages, the focus will be on reviewing possible marketing strategies and adopting one of them to launch the business in Dubai and making this venture a success story. This expansion plan will also provide a brief overview of the business conditions, demand and opportunity for fashionable clothing in the competitive market of this Middle Eastern state. ZARA is currently operating at more than 100 locations with 1,516 stores running successfully. Amancio Ortega and Rosalia Mera formed the company in 1975. ZARA is the flagship clothing chain owned by Inditex group. Inditex also owns fashion-clothing brands Massimo Dutti, Pull and Bear, Oysho, Uterque, Stradivarius and Bershka. The clothing giant serves each market segment of the clothing business, including men, women and children (ZARA 2012). Macro Environment of UAE’s Fashion Industry Despite of the struggling economy and surges shown by luxury market in UAE, fashion industry has shown upward trend where major fashion labels expanding either within their national borders or internationally (Mesbah 2010). ZARA itself has penetrated its existence in other global markets by opening new outlets. Although market’s purchasing power has been limited due to financial crunch but ZARA and other fashion brands have shown great potential to survive this wave and attract more customers, which is evident from the soaring profits of ZARA and other fashion brands in UAE. Arab Emirates’ fashion industry is now worth around $ 21 billions a year in which ZARA’s expected contribution is around $ 100 million by 2015 (Asia Rooms 2012). PEST Analysis Political Environment The political environment of United Arab Emirates is considered to be one of the most stable in the world. The political structure is headed by the dynasty, which is handling the authoritarian powers from decades. The confederation consists of seven independent emirates. Dubai is the largest emirate and produces the largest share of revenues for the confederation. Dubai is a free port and considered to be practicing the most liberal trade policies. There are no duties or financial taxation requirements imposed on the business personals to conduct their business practices in the emirate. Barriers to export and ease of access of foreign markets into the local market is relatively easy due to the investor friendly policies of the government. Beside these financial benefits, Jebel Ali is also an investors’ heaven where furnished offices, warehouses, showrooms and stores can be found easily. Jebel Ali is a free economic zone located in the suburbs of Dubai. The legal framework for business in Dubai allows up to 100% ownership rights to professional companies and their subsidiaries (UAE Interact 2012). Economic Environment Dubai has a sound economic structure where the major contributing industries are tourism, real estate, financial services and oil and gas exploration. The economic structure of Dubai allows businesses to not to pay direct taxes on their profits and income. Custom duties are as low as 4% and the investors enjoy exemptions from trade barriers, foreign exchange controls and restriction of quotas on the trade of commodities (Gvernment of Dubai 2012). Social Environment The social lifestyle of Dubai is rich and diversified due to the presence of large numbers of expatriate and tourists. It is estimated that Dubai receives annually 20 million tourists and a phenomenal 10,000 people arrive in Dubai for finding a job. There are no restrictions on what people want to wear and what fashion trends they want to adopt. They are free to wear whatever they think looks good on them. The social environment of Dubai provides a huge room to clothing businesses to try their luck in the broad market of Dubai (Gvernment of Dubai 2012). Technological Environment U.A.E is considered to be the hub of technological developments in the Middle East and the companies producing technological equipments and machineries consider U.A.E as a safe heaven to create opportunities for their businesses in the competitive environment, by introducing their products in U.A.E’s market before they launch it in somewhere else. Particularly Dubai, have sufficient number of industrial sites, business parks and trade processing zones. The Dubai airport receives huge number of arriving travelers and cargo consignments efficiently. U.A.E has a vast and equipped with latest technologies network of highways that make travelling to other parts of the confederation facilitating and quick (UAE Interact 2012). Porter’s Five Competitive Forces Analysis Buyer’s Power Several fashion clothing brands offering fashion apparel that gives a chance to consumer to switch to other brands at lower cost, which compels fashion apparel manufacturer to implement a competitive pricing strategy that retains customers. Demand for fashion clothing in the UAE is increasing currently and it is expected that the demand will further increase in coming days, which will require ZARA to offer special price packages to the customers (Grail Research 2009). Suppliers’ Bargaining Power A large number of vendors and suppliers in the UAE offer their services to the fashion brands in the form of quality raw material. Therefore, it becomes difficult for brands to switch to other suppliers. Suppliers’ revenues depends upon the material that fashion clothing brands buy from them, which weakens their pricing and bargaining ability. Competitive Rivalry The fashion clothes manufacturing industry in the UAE mainly targets that segment of the market, which purchases fashion clothing for special events. One of the major threats that ZARA is going to face in the UAE is the size of business of competitors. It has been found that all the brands in fashion clothing industry have the same customer base and business size. Threat of Substitutes In the fashion clothing business of the UAE, there are suppliers who sell quality substitutes of fashion brands to the customers. These substitutes are cost effective for the customers, which helps them to mark a significant share in the market. These fake copies of ZARA’s products are available in the UAE, which are readily available at cheaper costs than the original ZARA products. Those who cannot afford to buy ZARA’s expensive clothing usually prefer to purchase fake copies of ZARA’s products. Threat of New Entrants Several companies already conducting business in other industries are also entering into the fashion clothing industry by undergoing a diversification strategy process. The high returns of fashion clothing industry attract new entrants to enter the industry. Market Entry Strategies Two of the most common market entry strategies are franchising and foreign direct investment. In franchised business, the producer of products and services gives permission to potential franchisees, which are interested to run business at a specific location. The producer or the franchisor assesses franchisee’s potential to maintain the standards and deliver same quality to the customers (Spinelli, Rosenberg and Birley 2004, Hoy and Stanworth 2003). On the other hand, in foreign direct investment, producer of products and services make personal investment in to a foreign geographic location to start the business from the scratch in that geographic location. The losses and gains are the responsibility of the investors and the investor alone is responsible for all operational activities of the business (Moosa 2002, Froot 1993). Proposed Strategy for Entering into UAE Before entering into the UAE’s fashion apparel market, ZARA will have to understand the environment of the fashion clothing industry in the Emirates, what pricing strategy will be suitable, how do people in the UAE like fashion brands to be packages and the strategies suitable strategies to sell the product. The market research would facilitate ZARA to outmatch the competitors in the market successfully and hire the services of the distribution channels available in the UAE. Critical importance will be of distribution systems of the company and it is required that ZARA adapts the best distributors and distribution channel available in the market (Champ 2010). Considering the fact that world’s leading fashion brands are present in the UAE, ZARA will have to utilize its resources to cut down costs and report higher return, in order to provide a healthy competition to the competitors. Providing customers with differentiated products and designing appealing marketing strategies will help ZARA to establish itself as one of the most preferred and loved fashion-clothing brand in the industry (Lynn 2005). Keeping the industry environment in view, entering into UAE as a foreign direct investor is a viable option that is available to ZARA (Onkvisit and Shaw 2009). Market for fashion clothing brands in UAE is mature and due to the growing demand for trendy clothes, it is expected that the deamdn for ZARA’s products will be higher right from the beginning. The domination of younger population in UAE also provides ZARA fair chances to dominate the fashion clothing industry, as most of its products are designed to appeal younger generation. Their love for glamour and beauty urges them to spend heavily on the purchasing of fashion clothing. The clothing line and accessories that ZARA is going to offer in Dubai are designed, stitched and manufactured in Dubai, whereas the company will import the raw material from homeland, Spain to ensure quality of fabric. The production plant will be designed, keeping in view the production mechanism in Spain and other countries of the world to ensure uniform quality and durability (Onkvisit and Shaw 2009). At the time when ZARA decides to introduce its products at the first store in Dubai, different marketing events such as road shows, fashion shows and social marketing events will be organized to get an idea how people see ZARA’s entrance into the market. The first store of ZARA will be opened at The Dubai Mall, known for convenient shopping in Dubai. Another reason that ZARA has selected The Dubai Mall as its first location is the presence of world famous fashion clothing and accessories brands in the mall. By opening up its first store in The Dubai Mall is that ZARA wants to establish itself as public’s brand and it is not focusing on the segment, which is wealthy, but also focusing on middle class that reflects a potential of being the biggest buyers of fashion clothing. In this way, ZARA will be successful in attracting the majority of the population, i.e. the middle class. Targeting Strategy In U.A.E, ZARA is going to offer the full strength of its clothing and footwear products, which will be focusing in attracting men, women and children from every age group. Reason for targeting majority of the market segment is that, people’s purchasing power is quite stable in Dubai and they spent huge amount of their earning on the shopping of branded clothing. From this, we can conclude that majority of shopaholics in Dubai are brand conscious and they are willing to premium price for purchasing a branded dress. Dubai is a tourist destination, so ZARA will offer clothing representing all cultures and people belonging to various countries of the world. ZARA’s special emphasis in U.A.E’s clothing market will be on female segment, as women in U.A.E are fashion conscious and they want to wear everything that is fashionable and trendy. ZARA’s targeting strategy also presses a need to locate its stores at high profile and posh locations. ZARA will open its first store in Dubai’s famous shopping mall, for example, Dubai Mall, Burjuman or Mall of the Emirates. ZARA will target those customers who want high fashion, equipped with speedy introduction of latest trends and designs in the clothing business. Positioning Strategy ZARA will position itself as a producer of trendy and fashionable clothing and the company labels its products as “democratized fashion wears”. This means that ZARA will sell its products at lower prices so as to capture majority of the market share in U.A.E by attracting new and current customers of its competitors. The reason for selling its products at lower prices is to ensure that every income class should have approach to fashionable and trendy clothing and footwear. ZARA’s store at high profile location with affordable price will build an image of “consumer friendly brand”. ZARA’s products are made from healthy and organic raw material, which will also build an image of ZARA as a nature friendly organization. Consumers in U.A.E are highly conscious about the protection of environment so this nature friendly image will help ZARA to succeed in this market. In other countries of the world, ZARA has already established itself as a powerful and successful brand, it is expected that the clothing giant will be warmly welcomed in U.A.E. Conclusion This is evident that U.A.E is a lucrative market for any business due to the reason that thousands of tourists visit U.A.E for spending their holidays and experiencing one of the most beautiful shopping experiences they can dream of. Dubai is a paradise for shopaholics so it will be a profitable decision for ZARA to launch its clothing lines in Dubai. Although, there are lucrative options available for ZARA in Dubai, but the company has to modify few of its strategies to fit itself in the market. It is recommended that the fashion brand should consider launching an online store as well, because this sector of the fashion market in Dubai is gaining strength day by day. Traditional stores have faced wild competition from those who also sell online. List of References Asia Rooms, 2012. Fashion and Lifestyle in UAE. [Online] Available at: [Accessed 26 February 2012]. Champ, G., 2010. UAEs multi-brand boutique shops are in fashion. [Online] Available at: [Accessed 26 February 2012]. Froot, K., 1993. Foreign direct investment. Chicago: University of Chicago Press. Grail Research, 2009. The Global Fashion Industry-Growth in Emerging Markets. Research Report. NY: Grail Research. Gvernment of Dubai, 2012. Dubai Intreract. [Online] Available at: [Accessed 25 February 2012]. Hoy, F. and Stanworth, J., 2003. Franchising: an international perspective. London: Routledge. Lynn, L.G., 2005. New fashion brand enters the UAE market; first store opens at Mega Mall, Sharjah. [Online] Available at: [Accessed 26 February 2012]. Mesbah, R., 2010. Middle East fashion industry set to grow 15% in 2010 - study. [Online] Available at: [Accessed 26 February 2012]. Moosa, I.A., 2002. Foreign direct investment: theory, evidence, and practice. London: Palgrave Macmillan. Onkvisit, S. and Shaw, J., 2009. International Marketing Strategy. New York: Taylor and Francis group. Spinelli, S., Rosenberg, R. and Birley, S., 2004. Franchising: pathway to wealth creation. NY: FT Press. UAE Interact, 2012. Government of U.A.E. [Online] Available at: [Accessed 25 February 2012]. ZARA, 2012. Company. [Online] Available at: [Accessed 25 February 2012]. Read More