McKinsey’s seven Model
McKinsey’s Seven Elements Framework included the following factors –
- Strategic analysis: Zara had followed international expansion strategy, market-based pricing strategy and new product development strategy, social strategy involving dialogue with employees, suppliers, and others.
- Systems: Zara’s IT system played vital role to capture sales data, create new designs and develop customer relationship management; however, Zara’s design teams transcended design and it produced most fashion-sensitive products internally (Ghemawat and Nueno 10).
- Shared Values: It is the vital concern in this model; therefore, Zara assessed the markets to change vision to boost the participation levels within next 5 years.
- Skills: Human resources department of Zara organized comprehensive training program by the creative teams and specialized staff in order to develop the performance of the employees, sense of latent demand for new products, increase customer satisfaction rate, and introduce new products with creative designs; however, Zara arranged training program for the staff who selected for the promotion, and store managers.
- Style: Zara followed participative leadership style to increase sales volume, remove present barriers, face the future challenges, get new idea from the staff, and increase efficiency level of the employees and so on.
- Staffs: Inditex employed 26,724 people for its six business units; however, store managers are responsible to recruit staff for the stores, one-half of total operating costs used for the employees, and employees get a fixed salary as well as variable compensation considering the performance.
- Structure of Zara: According to Ghemawat and Nueno (8), Inditex operated six separate chains in 2002 and these chains’ retailing subsidiaries included around sixty companies; therefore, these six retailing chains were organized as separate business units, but all units share core-competencies, assets, technologies, human resources and so on. The management of Zara has already changed implementation plan in order to coordinate the structure with the global apparel chain; however, it has maintained complicated business structure to control 500 stores in 30 countries.
The Entry Modes and Zara’s Current International Strategy
From the given case, it has demonstrated that Zara for its market selection and the entry modes follows a three-tire approach while at the first tire the company conducts extensive market research providing a stable stream of macro and microeconomic analysis of the target market in regards to its product development process for that market. At the second stage, the company identifies the scope and opportunities of that market linking with its different business activities put up the shutters of closeness of its headquarters, possibly rigid governance system over the different functions, and organise to make joint-venture or franchise agreement within short time to enter new European or Asian market (Ghemawat and Nueno 15 -18).
To implementing the research outcomes, the company emphasis on the control over the initial investment along with direct or indirect decision-making process, ownership pattern along with production process and capacities, as a result the company enjoys an opportunity to respond very quickly at any unavoidable circumstances. At the third approach, the company enormously brings major management and controlling interface of its various functions at a single platform through adoption of the Information and Communication Technology that provides the huge opportunity for the new market to explore and develop product information at a cost from the headquarters.
The case study also demonstrated that the company Zara is most moderate to its international expansion strategy and never rigid to a single model, although, the company is most aggressive towards ‘company-owned and managed’ overseas stores, but it does not bother to adopt franchises and joint ventures at the entry stage. The current international strategy of Zara has aimed to consider that the company owned outlets in the developed countries are characteristically more growth prospects with low business risk and dedicated to the right use of time and both financial and physical resources that ensures a steady success in the international arena.
The management teams of Zara observed the international markets to enter new market by following different strategies like joint venture or franchise; however, Zara has expanded its business operations in Japan by joint venturing with Japanese textile distributor.
PESTLE analysis of Zara
Zara is one of the most popular brands all over the world; however, Zara had applied macro-environment analysis to enter Japanese market by following way –
- Political Factors: Zara had to concentrate on political factors as, such as, attitude of the government towards new entrant, tax exemption, and the opportunity for the foreign companies; however, political stability in Japan had encouraged the top management of Zara to expand operation in this country.
- Economic factors: The financial position or purchasing power of Japanese customer is higher than other countries; as a result, the market-based pricing strategy asked 100% higher price in Japan, which gives the opportunity to boost profit margin from this market.
- Socio-cultural factors: As multicultural industry, Zara had concentrated more on Socio-cultural factors, for example, World Co. served the comparatively depressed Japanese market because of bad design while Zara considered customer choice and produced smaller sizes dress for Japanese women.
- Technological factors: From design to distribution technology plays vital roles to compete with other companies, particularly information technology is most significant among other factors to operate business in Japan; however, introduction of just-in-time system at one of the factories enhanced production.
- Legal factors: In Japan, there were no quotas to restrict imports and no restrictions on foreign ownership; so, it became easy for Zara to secure this location to open new stores using joint venture strategy.
- Environmental factors: Zara concentrated on climate differences to design products for Japanese customers (Ghemawat and Nueno 18).
Key Success Factors of Zara
- Strong brand awareness and loyal customer base are the key success factor of Zara;
- Zara produced and designed products in accordance with customer choice, which is the main success factor;
- According to Ghemawat and Nueno (17), market-based pricing strategy helps the company to increase sales volume, for instance, price were 40% higher in Northern European countries while it was 70% higher in the Americas than in Spain;
- On the other hand, expending business in the oversees market, continuing in-season development, selecting the fabrics and product mix
- Proven ability to develop production processes;
- The operating structure of the company is very cost-effective;
- Supply chain management and distribution channels are another success factor. According to the report of Ghemawat and Nueno (9-11), Zara had its own centralized distribution system and products were shipped directly from the central distribution centre;
- Zara’s promotion policies and product offerings are the key success factors to develop its position in national and international market;
- At the same time, excellent working atmosphere with effectual communication system to connect headquarters and supply, production, and sales locations.
Value Discipline to achieve the Key Success Factors
According to the case of Zara and key features of value discipline, Zara had used product leadership and customer intimacy as value discipline to achieve the Key Success Factors –
|Product leadership||Customer intimacy||Operational excellence|
|offer of the best products||Understand and respond to customer needs||Produce at lowest cost|
|New product development||lasting relationships with customers and striving to satisfy their need||Manage with efficiency|
Ghemawat, Pankaj and J. L. Nueno. Zara: Fast Fashion. Harvard Business School Publishing, 2006. Print.