Zara Internationalisation Plans to Vietnam - Case Study Example

Zara internationalisation plans to Vietnam Name: University: Date: Table of Contents Zara internationalisation plans to Vietnam 1 Table of Contents 2 Introduction 3 Part One 3 Zara overview and Expansion Strategy 3 Vietnam Attractiveness 5 Part Two 6 Part Three 6 Critical Success Factors 6 Entry Strategies Can Be Used By Zara to Enter Vietnam 8 Barriers in Vietnam Market 9 Conclusion 10 References 11 Zara internationalisation plans to Vietnam Introduction Nowadays, the alternative of conducting business overseas is not reserved only to the large corporations, but also the small enterprises. Expansion of the global market has been attributed to globalisation as well as growing interdependence of national economies. Internationalisation of the business because it results in increased revenues; higher sales volume, and makes the company learns how to cope with customers’ demands from different cultures. The business internationalisation according to Burdus and Alpopi (2010) offers the entrepreneur the capability to think globally, to understand, appreciate as well as respect different behaviours, values, beliefs, and management practices of individuals and companies from different countries ad cultures. The report focuses on Zara internationalisation plans to Vietnam by focussing on the country attractiveness/entry strategy. Part One Zara overview and Expansion Strategy Zara is a Spanish retailer that deal with clothing and accessories, and was founded by Amancio Ortega together with Rosalia Mera in 1975. Zara is an Inditex group’s flagship retail store, and it main aim is democratising fashion by providing latest fashion at cheap prices. According to Lopez and Fan (2009), Zara’s just-in-time (JIT) manufacturing and vertical integration of design; low inventory rule; flexible structure; fast response policy as well as cutting-edge IT allow the company to respond swiftly to the changing demands of the customers. Even though the products in all of its stores across the globe are classically the same, the company’s pricing strategy varies across the markets. Zara has been successful in its internationalisation; mainly because of they can adjust price positioning. Through price discrimination, the company charges the ideal prices for its products in various markets; in so doing, maximising the value sales. The company’s positioning strategy seems to focus more on the emerging markets and the prices in the Asia Pacific markets is exceedingly as compared to the EU market prices. This is a deliberate attempt according to Lahouasnia (2013) with the goal of positioning itself higher within the apparel retail market. In the last two decades, Dawei (2008) asserts that the fashion apparel industry has considerably evolved with the majority of the retailers globalising their operations. Internationalization has led to varying dynamics within the industry, like the decline of mass production, improved flexibility, and changed supply chain’s structural characteristics. For this reason, fashion retailers are using the concept of ‘Quick Response’ to maintain their completive advantage in a market that is increasingly dynamic. Quick strategy has enabled Zara to gain competitive advantage through reduction of time gaps between designing as well as consumption (Mo, 2015). Zara business concept is characterised by a number of capabilities: ‘quick response’ production capabilities (short lead times between production and delivery); improved product design capabilities; as well as cost control capabilities. More recently, Zara have initiated a plan to expand its business to Vietnam considering that the majority of the country’s population are young to middle age. The company has decided to enter Vietnam because of scores of the local brands have failed to offer modern clothing styles; therefore, Zara considers this untapped segment that need to be explored (Kapusta, 2016). Vietnam Attractiveness Vietnam as mentioned by PWC (2014) is quickly becoming a new focal point for economic growth in Southeast Asia. Vietnam has become a destination for international companies that are looking for business opportunities in both a low -cost manufacturing location and local market of more than 90 million potential customers (PWC, 2014). Vietnam has been facing rapid economic growth and this signifies a bigger marketplace for Zara. Furthermore, the country’s industries are anchored in labour-intensive manufacturing, especially in the furniture, footwear and garment industries. Vietnam is progressively attaining competitive advantage for processes of labour intensive production based on the low levels of wage (Thi, 2013). Certainly, workforce productivity is high and the Vietnamese workers are known for being ambitious and hard-working. Additionally, Vietnamese government intends to maximize the country’s competitive advantages by eliminating or reducing externally and self-imposed trade barriers and levied tariffs. Being a member of World Trade Organisation (WTO), Association of Southeast Asian Nations (ASEAN) as well as ASEAN Free Trade Area (AF TA), makes it easy for foreign companies to enter into its attractive marketplace. Besides, the young Vietnamese and the increasing middle-class are willing to explore the western style fashion. Vietnam market has a number of attributes that makes it attractive for investment: (i) Stability, Vietnam is a nation with social as well as political stability. (ii) Increased integration: The country has enacted a number of legal reforms and is also a member of the WTO and ASEAN. Therefore, this offers an all-inclusive roadmap towards economic success and offers improved alternatives for market entry. (iii) Unlimited benefit: the country has young, motivated and educated population of close to 87 million people who offer a gateway for both labour and market. (iv) Transparency: The Vietnamese government has been working hard with the goal of combating corruption as well as improving its reputation as a secure country for foreign investment (KPMG, 2014). Besides, the recent bureaucratic reforms intend to streamline the business processes and offer a more reliable interface between the Government and the market participants. Part Two 1. What are the critical success factors for Zara in Vietnam market? 2. What entry strategies can be used by Zara to enter Vietnam? 3. What are the barriers that Zara will face when doing business in Vietnam? Part Three Critical Success Factors According to Završnik (2007), selection of a suitable entry mode is the most crucial factor when planning to expand into international markets. Because it lessens the risk level and impacts the presence of the company in the international trade. Basically, there are different entry modes that can be used by Zara to enter the Vietnam market, but each of the modes has benefits and shortcomings, and the mode should be selected according to product portfolio, corporate confidence as well as brand image. Basically, fashion retailers can internationalise in various ways, but Zentes, Morschett, and Schramm-Klein (2012) suggest that internationalisation’s global standardisation approach is crucial for the success of the fashion retailers. In this case, Zara needs sufficient resources as well as competitive advantage and should have a number of ‘differential firm advantages’ that includes a commitment to create an attractive brand, with the aim of becoming successful internationally. Such advantages may include niche, image, lifestyle and product differentials as well as innovation abilities that bring about international success. Entry strategy as defined by Meyer and Hung (2003) is a multidimensional construct that has several sub-strategies or dimensions, which must ‘fit’ together. Therefore, any decision to any of the dimension must consider requirements enforced by decisions that have been made on the other dimensions, and take into account the adjustment implications on other dimensions. Therefore, the significance of various aspects in certain decisions is different across firms as well as between different purposes that underline the foreign entry. International business strategy that Zara use is the integration strategy, whereby all its branches across the globe are integrated with the headquarters in order that overall business performance is standardised. The contingency approach maintains that when an opportunity occurs, the firm should analyse and respond to that opportunity irrespective of whether the markets needs a complex entry mode. In view of this approach, the firm’s internal factors play a crucial role in the planning of the internationalisation strategy. Another critical success factor is the strategic orientation of the company, whereby companies are required to develop strategic orientations that depict the attitudes, values and experiences of their workers as well as business environment changes. Basically, strategic orientation can predispose a firm to less or more collaboration with their rivals; it also significantly influences the business internationalisation process. When a retailer internationalise, the new stores must share information successfully concerning the new market with the headquarters so that the practices are adapted effectively. Learning about the new culture can only happen when within that culture; therefore, by means of reverse knowledge flow the global retailer can get insight about the new market (Mo, 2015). Entry Strategies Can Be Used By Zara to Enter Vietnam Basically, there are a number of strategies that Zara can use to enter Vietnam; exporting, Direct Investment, Licensing, Joint Venture, partnership and others. Exporting according to Koch (2001) is the marketing as well as direct sale of goods to another country. Although conventional, exporting is a well-established entry mode into foreign markets and does not need goods to be produced in the targeted country. In this strategy, the company does not have to invest on foreign production facilities, and the main costs are in form of marketing expenses. In exporting strategy involves four key players; the exporter, government, importer and logistics provider. Another entry strategy that can be used by Zara is licensing, whereby the company allows another company in Vietnam to use the licensor’s intangible property such as production technique or patents. In this case, a fee is paid to the licensor in exchange for technical assistance and the rights of using the intangible property. Licensing can offer Zara a potential to offer a large Return on Investment (ROI, but since the product is produced and marketed by the licensee, the Zara’s potential returns from production and marketing could be lost. Another entry strategy is Joint Venture (JV), wherein risk/reward and technology are shared, and observance to government regulations is a must. JVs can benefit Zara in terms of access to distribution channel and political connections. JVs are considered favourable when the strategic goals of the partners converge, but their competitive objectives diverge; when the resources, market power and size of the partners are small than that of industry leaders; and when both partners can learn from each other. However, JVs are associated with challenges with regard to control, ownership, technology transfer, pricing, the resources and capabilities of the local firm, as well as government policies (Yan & Luo, 2001). The most favourable entry strategy that can be used by Zara is the Foreign Direct Investment, which is the direct ownership of facilities in Vietnam. The strategy involves the transfer of resources, which includes personnel, technology and capital. Direct ownership offers a high level of control the company’s operations as well as the ability to understand the competitive environment and consumers well. Barriers in Vietnam Market There are a number of barriers associated with doing business in there Vietnam; for instance, the bureaucracy and political system brings about some challenges. Being a single-party state, the country seems to be determined in maintaining its power monopoly; therefore, freedom of speech, particularly in the media is limited (Senauth, 2012). Besides that, corruption has become a persistent issue in Vietnam; the number of cases of government representatives getting bribes from foreign investors is tremendously high. Bureaucracy also presents some challenges, particularly paper work that needs a good advisor for implementation. Additionally, foreign exchange strict controls as well as issues associated with intellectual property protection is still challenging for firms expanding to Vietnam. In terms of infrastructure, Vietnam is considered to be hard market because of its poor infrastructure facilities. Although cities like Hanoi, Ho Chi Minh as well as Da Nang have massively enhanced infrastructure facilities, the development of infrastructure has remained unequal, particularly between rural and urban areas. Logistics is more challenging when operating in Vietnam because the roads are often heavily crowded and constructed inadequately. Besides that, the telecommunication system is very poor and cannot be accessed broadly (Thi, 2013). For an international business to succeed in an Asian cultural market, it has to build up long-term relationship with the local partners as well as create brand awareness. This needs a lot of effort and time. Another barrier is attributed to inequalities in wealth and income since majority of Vietnamese are living in total poverty and cannot access the needed utilities (Berliner, Thanh, & McCarty, 2013). Furthermore, higher education is expensive and many families cannot afford or access it. This can in the future result in shortage of employment skills and consequently, become a challenge for businesses that need well-trained and qualified employees. Conclusion In conclusion, the report has focused on Zara internationalisation plans to Vietnam by focussing on the country attractiveness/entry strategy. As mentioned in the report, unlimited benefit, stability, transparency and integration are some of the factors that make Vietnam an attractive market for foreign investors. Still, there are a number of barriers such as poor infrastructure, corruption, high poverty level, and inaccessibility of higher education. The best entry strategy for Zara in Vietnam as mentioned in the report is FDI. References Berliner, T., Thanh, D. K., & McCarty, A. (2013). Inequality, Poverty Reduction and the Middle-Income Trap in Vietnam. Brussels: European Union. Burdus, E., & Alpopi, C. (2010). The Internationalization Of Business As An Option In The Marketing Strategy Of The Entrepreneur. Management & Marketing Journal, 8(1), 49-56. Dawei, G. (2008). Internationalization And Entry Strategy Of Enterprises: A Case study of Chinese firm: Huawei. Dissertation, University of Halmstad, Halmstad, Sweden. Kapusta, M. (2016, March 15). Zara to open stores in Vietnam, New Zealand and other markets. Retrieved from Fashion Week: http://fashionweek.com/zara-open-stores-vietnam-new-zealand-markets/ Koch, A. J. (2001). Factors influencing market and entry mode selection: developing the MEMS model. Marketing Intelligence & Planning, 19(5), 351-361. KPMG. (2014). Vietnam Market Entry. Ho Chi Minh: KPMG. Lahouasnia, L. (2013). The Internationalisation of Retailing. London: Euromonitor. Lopez, C., & Fan, Y. (2009). Internationalisation Of Spanish Fashion Brand Zara. Case Study, Brunel University, Uxbridge, London. Meyer, K. E., & Hung, N. V. (2003). Foreign Investor’s Entry Strategies and Sub-national Institutions in Emerging Markets. Frederiksberg, Denmark.: DRC Working Papers. Mo, Z. (2015). Internationalization Process of Fast Fashion Retailers: Evidence of H&M and Zara. International Journal of Business and Management, 10(3), 217-236. PWC. (2014). Doing Business in Vietnam. Ho Chi Minh : PricewaterhouseCoopers . Senauth, F. (2012). The Making of Vietnam. Bloomington, IN : AuthorHouse. Thi, T. D. (2013). Doing Business in Vietnam: The New Zealand experience. Dissertation , Auckland University of Technology, Auckland. Yan, A., & Luo, Y. (2001). International Joint Ventures: Theory and Practice. Armonk, New York: M.E. Sharpe. Završnik, B. (2007). Critical success factors for international fashion retailers entering foreign markets. Fibres and Textiles in Eastern Europe, 15(4), 13-17. Zentes, J., Morschett, D., & Schramm-Klein, H. (2012). Strategic Retail Management: Text and International Cases. New York: Springer Science & Business Media. Read More