Zara Grows as Retail Rivals Struggle
Published 26 Oct 2017
There are four types of international business strategies, namely; International Strategy, Multi-domestic Strategy, Global Strategy and Transnational Strategy. According to the article, the strategy that Zara Fashion follows is the Global Strategy.
When following the Global Business Strategy, the firm lets go of customization of products and follows a standard policy everywhere it is operating at. Its production, marketing and research & development are concentrated in a few key areas (most usually the centralized headquarters and centrally administered locations). The focus is on cost reduction as a tool for increasing profitability following the low-cost strategy and standardized products and production processes, in order to achieve economies of scale. There is, hence, a very strong pressure for cost reductions and sustainability. Also, there needs to be a lot of focus on the fluctuating demand patterns of the erratic world economy.
Such is the case at Zara Fashions where there is remarkable responsiveness to the fluctuating demand patterns. Their excellent logistics systems narrow down the process of materialization of their products from the core idea from a long period of about nine months to around just two weeks. They concentrate their core operations like productions and research & development to their central location, Spain, and maintain standardization in their products and production processes and strategies, hence following a Global business strategy.
There are three different market entry strategies that organizations may implement in order to enter any market, especially when entering an international market. These strategies are, Wave Strategy, Waterfall Strategy and Sprinkler Strategy.
Using wave strategy, a firm enters groups of similar markets, one group at a time. First the firm enters the group of markets which are similar to the home market. Once steady revenue starts being generated, it heads for the group of markets which are somewhat different from the home market. After sable revenue generation is reported from the second group, the third group of markets very different from the home market is entered. In a waterfall strategy, one market is entered at a time and all target markets are entered consecutively one by one. The sprinkler strategy is the one when all the targeted markets are entered at the same time with standardized processes and products.
Zara Fashion, according to the article, follows the sprinkler strategy as it plans to open around 350 to 450 new outlets during the year 2009 keeping its production and management centralized in Spain and operating at a standardized level everywhere it goes.
The average time taken for a normal clothing retail chain to materialize its products from the idea to the drawing board to the actual product ready to be sold in the stores is about nine months. For Zara Fashion, however, this time frame is exceptionally low, being less than just two weeks. This super-efficient logistics system has immense positive effects on the business of Inditex as compared to its competitors like Gap etc and is very evident from its progress and growth as compared to others. It provides it with a great competitive advantage to the firm and helps it respond very quickly to the ever-fluctuating market demands and fashion requirements.
Despite the critiques’ and analysts’ comments and concerns about Inditex’s Logistics system not being able enough to handle such a rapid growth and expansion, the management is very positive that the logistics are fully capable of handling the company’s growth and expansion at least till the year 2012.
Centralization is when the all processes, decisions and authority of a business is concentrated to a central business location and is only in the hands of the top authority. The decision making is limited to the higher management only and the lower management and staff is under a central control. Whereas, decentralization is when the authority and decision making is delegated to lower levels of management and every person in the organization is authorized at a certain level of management and operations according to the hierarchical level it belongs to.
According to the article, Zara fashion follows a centralized business strategy managing its processes, production, R&D, and all other procedures in Spain maintain a standardized policy in all areas and markets of operation with very low or no customization at all.
- Ellis J., Williams D. (1995). International Business Strategy. Pitman.