Internationalization of Zara - 4Cs Analysis, Porters Five Forces Analysis, Competitive Strength - Report Example

Internationalization of Zara

There are many companies, which expand their services to other countries. There are many strategies, which can be applied. However, almost all of them have positive and negative features, which allow companies using them only in specific cases, for instance, Uppsala model is not effective for companies, which offer services rather than products. Furthermore, there are models, which cannot be applied in specific countries. Thus, choice of the strategy is made on the environment and business conditions(Badía, 2009).

Uppsala internationalization theory

Thinking of one of the largest clothes company Zara, it uses mainly Uppsala and oil stain strategy. First strategy helps to maintain the market position through the gradual rise of the market commitment and psychical distance(Badía, 2009). Furthermore, company works more on the product differentiation and the brand awareness with more understanding of the market and its peculiarities. It is achieved through the oil stain strategy that predetermines the opening of one large (capital) store that is gathering information about the customers, their demands, etc. It helps to know the local environment and maintain the effective business strategy and products’ assortment to face the local requirements. Due to the fact that all countries have their specific expectations, it is vital to study the country and understand its major factors to consider(Badía, 2009).

Origins of Zara

The main source of experience is Spain. This company has managed to expand its activities through the Spain and its strategic regions, which could provide substantial profits. After that, Zara moved to Portugal. It was the very first country that Zara entered in the process of its international expansion strategy. Zara has chosen the Portugal to join, hence it has the familiar market. Portugal has cultural proximity to the former market and geographically located closer than other countries. Through the experience in Portugal and collection of the information in the main strategic regions in Portugal, Zara have adjusted business model to face more international markets(Dawson, Larke, & Mukoyama, 2006). It is vital to stay flexible in the terms of the internationalization, since all countries have their particular features, which should be addressed(Dawson, Larke, & Mukoyama, 2006). Furthermore, it is impossible to get the competitive strength without the developed business model that is oriented on specific countries. Most ineffective companies prefer to keep the price wars for many years with local competitors, while effective companies develop their business models on the basis of the main local expectations and provide better services and keep the same price that affects the customers’ behavior better than constant drops in the prices and application of the dumping. To avoid the unnecessary costs and the problem with excessive differentiation of products, Zara maintains the homogenous products offers to provide the brand awareness and better marketing strategy(Dawson, Larke, & Mukoyama, 2006).

Basics of theory

Working with countries with less psychical distance can help to use the experience from the starting point and to maintain better experience of influencing upcoming markets. Thus, local markets in other countries can be easily affected through the gradual conquering customers and studying the culture. It is the brightest example of the Uppsala internationalization strategy(Dawson, Larke, & Mukoyama, 2006).

4Ps analysis

Factors

Zara

H&M

Gap

Winner

Place

82 countries

53 countries

45 countries

Zara

Price

Middle price

Middle to low price

Intensively low price

H&M

Promotion

Shops

Advertising

Advertising

Zara

Product

Fashionable up-to-date clothes

Clothes

Clothes

Zara

4Cs comparison table

From the point of view of the 4ps analysis, one should underline that Zara is winning, due to the fact that it has good places to sell the products, furthermore, due to the wide application of the modern internationalization models, this company manages to produce substantial revenues in other countries(Dawson, Larke, & Mukoyama, 2006). Furthermore, it constantly studies the market, it makes the estimations of the customers’ demand to find out the best product to sell, and then all shops are showing advertising about this product, it is offered in all stores to attract more customers. However, the main shortcoming that company has is associated with the lack of advertising policy that could dramatically increase the profitability of the company. However considering the present situation, company can attract customers through the store advertising that is associated with internal advertising materials and constant renewal of the assortment that makes customers to go back.

4Cs analysis

Factors

Zara

H&M

Gap

Winner

Consumer needs

Need in quality, premium clothes

Quality and middle clothes

Cheap clothes

H&M

Communication

Shops and fashion shows

Advertising and web-site

Advertising and web-site

Zara

Convenience to buy

Multiple shops around the world, developed site

Multiple shops around the world

Lack of shops and affiliates

Zara

Cost to satisfy

Middle prices for premium and middle clothes

Low and middle prices to get fashionable and low cost clothes

Low prices for low-middle quality

Zara

4Cs comparison table

From the point of view of the 4Cs marketing analysis of these companies, one should underline that Zara is winning almost everywhere, due to its activities, good targeting on the middle and high-end customers, good communication strategy that reveals quality of its products and the wise application of stores as the communication mean(Doyle & Stern, 2006). However, company has significant shortcoming in the targeting since, there are many countries, where customers cannot afford even middle price products, thus, they will prefer better options like H&M. It lacks flexibility in price that can provide problems in long term, since, H&M can develop high-end products to get such customers and creation of the low-price products can be too long for Zara to do. Furthermore, there are many competitors, which works in the low-price sector, which are familiar to customers and new company can face problems entering this market(Doyle & Stern, 2006).

Porter’s five forces analysis

Factors

Zara

H&M

Gap

Winner

Supplier power

-

+

+

Zara

New entries

-

+

+

Zara

Buyer power

+

-

+

H&M

Substitutes

+

-

-

H&M

Rivalry

+

+

+

H&M or Gap

5 Porter’s forces comparison table

Thinking of the Porter’s forces, which can somehow influence the business of the clothes, one should underline that Zara cannot be influenced in the significant way by the suppliers, since does not outsource the production of their clothes and do not use other companies to produce them the clothes, while other countries outsource their activities in the Asian countries and Turkey. Thus, suppliers can seriously influence the prices and the overall competitive position of the company(Ghemawat & Siegel, 2011). Therefore, from this point of view, Zara has better position and will only improve it. From the point of view of new entries, Zara is winning, hence it is hard for new businesses to maintain the reliable production of high-end clothes, while production of cheap and middle price clothes does not require considerable resources(Ghemawat & Siegel, 2011). Thus influence from the new entries can encounter H&M and Gap. Buyer power is important for companies, which are listening to customers and those, which rely on customers(Dawson, Larke and Mukoyama, 2006). Due to the fact that Zara uses its shops as the main communication mean, customers can exert pressure on the company to make it increase quality or decrease prices, in case if they would find that products are bad. It is important to emphasize that middle and low-end customers are expecting quality products, but not premium, as it can be with Zara, thus, other companies have better position than Zara(Ghemawat and Siegel, 2011). Taking into consideration substitutes of the products of all these companies, one should underline that it is impossible to substitute middle end products with fashionable or low price ones, while customers can use middle price clothes instead of fashionable and expensive ones, which offer Zara. The same works with low-price clothes. Thus, H&M has better position from this point of view. Furthermore, they are much more flexible, due to the fact that they can react to decreasing of customer’s buying ability, while Zara cannot(Ghemawat and Siegel, 2011). Zara is influenced in the strongest way by the rivalry force, since, there are many established brands, which have their loyal customers, competition with them can be hard and will require some changes from the Zara. With introduction of new less important brands with more flexibility, Zara can lose its competitive position in the long perspective(Ghemawat and Siegel, 2011).

Competitive strength

There are many factors, which show that Zara has better activities than competitors, and they are mainly associated with its strategy and its implementation. The main factor that shows that Zara is leader in the fashion world is Zara’s growth rate, number of employees along with shops, number of brands is higher than other companies have. Zara has unprecedented advertising strategy that involves the shops in the brand awareness process. It means that customers get to know new products in the shops. Furthermore, Zara encourages customers to visit its stores, since it offers new products each 2-3 days. It means that customers want to visit Zara’s stores to find more products to purchase, through the use of interior advertising company can attract customers’ attention on necessary thing without investing high amount of resources on internet, TV advertising unlike other companies, which spend almost 3% of their overall incomes on advertising. Zara’s expansion rate is higher than both companies have(Guillén, 2005). Thus, it will reach customers much faster than competitors. To get more customers and increase their awareness, company has 8 brands, which work together, while target different groups of customers. Company offers great variety of products, thus customers can purchase different products from one company or even brand, since brands also have various products(Guillén, 2005).

Multi-branding

Advantages

Considering the multi-brand strategy, one should underline that it can produce multiple benefits along with disadvantages, which are not so strong, however, they can undermine the business activities in the long term. However, there are many strong advantages, which provide considerable results. First and the main advantage is associated with variety of options, which are offered to customers(Hansen and Solgaard, 2004). Customers like when there are many products and broad assortment, so they can easily choose something to buy, while other companies offer only narrow assortment of clothes, which cannot satisfy customers’ expectations(Hansen and Solgaard, 2004). Modern trends are constantly changing and customers should know that company will offer them something up-to-date and will help with choice. Zara has many brands, which are directed on many styles of clothes and many customers’ groups, so they can choose something good without any problems. Thus, Zara has so many customers and high performance(Tungate, 2012). One more reason why multi-branding provides opportunities is associated with the great varieties of products, which company offers. Many stores are specialized in some kind of clothes and produce only them(Wilson, 2011). For most customers such stores are best ones, since they are masters in production of some particular type of clothes(Hansen and Solgaard, 2004). However, having many brands, company can get customers, who prefer to use some specific style, it helps company to reach more customers and to maintain diversity of products. In such a way, offering good products, company can enter new market and overrun the competition; hence, they are directed on some particular products, while Zara can offer more products(Hansen and Solgaard, 2004).

Disadvantages

There are general disadvantages, which affect businesses with multiple brands, however, Zara maintained solutions, which almost eliminated these disadvantages. Firstly, there are products, which are not so effective, thus, they can make customers reluctant to see renewals in some particular store. This fact will undermine the sales of other products, which could be better(Hill and Hill, 2011). One more issues is associated with cannibalization of the brands, since there are stronger brands, which will attract more customers attention than others. It can make other brands ineffective. However, giving brands some specialty this problem can be solved, so all brands will get equal attention. The main measure that Zara undertaken. It created specialty of brands, so customers know that there are many brands, which are included to the Zara’s stores, however all of them have their special products. Thus, they can purchase all products they want from the special brand(Hill and Hill, 2011). The main issue that affects the overall company’s activities is flexibility. Company should be able to adapt to the changes in the environment, to adapt to certain trends, however, having multiple brands, company can face problems managing all brands and undertaking the successful activities. It is hard to track the current state of all brands and to innovate them, thus, company has special departments, which are aimed to innovate all brands and to add something new to assortment. It helps to ensure that all brands are flexible and can be changed to face customers’ requirements(Hill and Hill, 2011).

Cannibalization

Apart from the previous ideas towards the multi-branding strategy, there are special threats, which are associated with the cannibalization of the weaker brands by stronger ones(Hornell and Vahlne, 2013). That is the problem of the most successful companies, which have multiple brands. It happens, due to the fact that companies have many brands, which have non-equal market strength, that is why, brands, should represent the different products, so they can influence different customers. Otherwise, brands provide competition within the company, since customers will choose the best one and will use only desired brand instead of trying other brands, it can lead to devastating results for other brands(Hornell and Vahlne, 2013). Thinking of the activities of Zara, it differentiates its brands to make them inherent to special product categories, so competition within brands is eliminated. Furthermore, there are even brands within Zara, which are targeted on particular market(Sternquist, 2007). Thus, certain brand is specialized on certain product line to avoid cannibalization(Hornell and Vahlne, 2013). Furthermore, there are special stores, which are opened for special brand, therefore, there are no products from other brands. Thinking of their profitability and position on market, they all are developed, however, they target special customers, so the moment with one strong brand is eliminated. It means that the problem of the cannibalization is solved(Jolivot, 2008). However, company will design more brands, which can provide problems with their proper management and innovations, since, they all should be promoted in some special way, it can dramatically increase the costs for their advertising. Even though the company will use the store advertising, promotion and innovation ventures can be too expensive(Jolivot, 2008). Therefore, should either unite some brand into one, or create the franchisees, which will handle special brands. This will help to relieve the main managers from handling the brands and focus on general innovations for company. Otherwise it can lose its business opportunity, since it is better to have one developed brand that is up-to-date, has good advertising and promoted among the customers than multiple brands, which are weak and cannot compete with other companies and produce revenues(Jolivot, 2008). However, Zara manages so far to handle them and to avoid cannibalization that is expected by many analysts(Jolivot, 2008).

Joint-venture

Advantages

There are many advantages, which company can get from the joint venture with Tata. Tata has quite high market share around the world, so company will get the experience from the Tat about the working with high-end customers. Furthermore, through Tata Zara can enter Indian market that also has its own peculiarities(Levy and Weitz, 1996). Tata can tell how to work in Indian market and provide essential experience to work effectively in the India. There are many reasons why Zara should enter the India. There are many customers, from the high-end sector and middle, so company will get the new channel of profits(Levy and Weitz, 1996). However, Indian market is hard to enter, thus, Zara needs some assistance to get through all peculiar features, which can otherwise provide problems to Zara(Levy and Weitz, 1996). One more advantage is associated with the status of the Tata’s brand in the India. There are many customers, who know Tata, as the reliable supplier of good clothes and products, thus, Zara can use the joint-venture to avoid unnecessary advertising and promotion in the India and concentrate on the creation of stores in the India and their development. Joint-venture can even make customers trust Zara more than Tata. However, it needs the developed strategy of the entry and Tata can help in this venture. This help can be realized in the high-end equipment that Tata has, it can be used for production facilities and the sales. Furthermore, Tata has multiple human resources, so the entry in the new market can be instant for Zara, it will get substantial opportunities to maintain the brand in one of the largest markets. Investment in its own production facilities is not necessary, so the company can almost for free access the new market and dramatically increase sales and overall company’s state(Levy and Weitz, 1996).

Disadvantages

However there are certain disadvantages, which can provide the negative effect on the company’s activities. The main factor that can seriously influence company’s activities is associated with the joint actions of two companies, since all Tata actions will affect the brand image of the Zara(Runway to retail, 2008). Furthermore, making wrong decisions, Tata can seriously damage overall image of Zara, so global activities can be damaged(Sternquist, 2007). So whether it will be Zara or Tata, one of these companies should take care of the brand image, as it is quite important factor in sales, especially in sales of clothes(Runway to retail, 2008). There were many claims that Tata undertakes some disreputable actions, thus, repeating of such actions can seriously damage Zara. Customers know Tata, since they work with this brand and purchase products, which this company offers, however, they know nothing about the Zara, so certain promotion can be applied. Considering the size of market in India, company can face problems working with so great market and to influence it in the effective manner. Customers in India are used to purchase clothes from Tata, they can be reluctant to purchase products from new company(Runway to retail, 2008). Finally, one of the main disadvantages, which Zara should tackle is shared decisions and profits. It means that company cannot make decisions on their own, furthermore, profits are also shared, so it cannot distribute its own profits to invest in some activities, since these profits belong in the same way to the Tata. Thus, managers of Zara can face problems managing company’s activities and undertaking the policies, which are undertaken in other markets, since all decisions should be discussed with the board of directors of Tata that is long process(Ryans, Hulland and More, 1993).

Conclusion

Generally Zara has quite strong activities and it will have quite positive results in the long term perspective, however, there are many strategic decisions, which should be made, thus, it is the matter of right choice that will provide some more information about the future of the company(Ryans, Hulland and More, 1993). Results of managerial decisions, which Zara representatives is hard to predict, thus, time will show what results all these decisions will get(Ryans, Hulland and More, 1993).