Zara brand can identified as a business, which has successfully managed to keep ahead of its competitors. Due to this, the textile chain retailer has reaped vast benefits and has managed to remain at the top of the industry. This is in respect to good revenue, high expansion rate and remaining relevant. This has been made possible by the fact the company has applied technology, good management practices among others. Strategic planning has also ensured that the brand remains top against it major competitors. This can be attributed to the fact that it is more efficient in fast production on new designs and its ability to keep give customers a sense of scarcity in their designs. This has kept the competitors far behind when it comes to the number that are received in their stores and hence more sales (Zara, 2013).
Despite this, market trends are very dynamic and there is need to remain focused to dominate the first position more so in the textile industry. This therefore calls for Zara to remain innovative especially in the handling of competition. To attain this, several factors cannot be overlooked. These are more so tied to the competitive forces and strategic issues. These two cannot be discussed without mentioning the macro-frame works, Porter's five forces and the industry theory. The following section of the paper will provide a well thought analysis of the same in connection to the Zara brand.
Competitive forces and strategic issues
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As seen earlier, Zara brand has remained competitive and relevant due to good and efficient systems, which are put in place to help dominate the textile market. When it comes to expansion, the brand is seen to have interest in expansion to other countries where market is conducive. However, this may be difficult to achieve without proper research. Zara have taken keen interests in analyzing which regions it can thrive. Factors such as political environment of the selected countries should be put into a broader perspective. In this case, economies of the nations which are likely to favor the company growth are considered (Acharya, Pederssen, Phillipon, & Richardson, 2010). This is in relation to the extent to which the politics play part in starting branches in the prospected and specific countries. To be considered are trade restrictions, tax policies tariffs and political stability. However, these are identified and the future calls for further assessment before venturing these territories. On the economic factors, the company has marked its niche by low pricing model and exotic designs. These should remain on focus. For exponential growth, nations in which the purchasing power of citizens is high should remain a major factor to consider while expansion is being thought of (Hanson, Kashyap, & Stein, 2011).
The social factors will also play a major role in prospecting the growth of the brand. Younger generations and the groups, which have disposable income, remain the most viable group to be the brand customers. This is because they are design and fashion conscious while at the same time they have the purchasing power. On the technological basis, innovation is identified as a key aspect in the growth of the industry (Bianchi, 2010). Dynamic teams provided with tools to enhance efficiency in design, production and monitoring are given priority. This allows the company to remain a step ahead of the competitors now and in the future years. It is clear that it becomes very hard to copy technology based ideas and innovations.
The observation that textile industry is lucrative is bound to attract new investors in the section. Zara has effectively worked on reducing the costs of their textile products. This is necessary to bar the possible entrants into their market. Through large scale of production, production cost is highly minimized. In addition the acquisition of dying and cutting of their materials is a capital extensive venture which will lock out potential threats to entry. This should be continued to ensure that the future will not be threatened with entry and hence reduced profits due to unhealthy competition. In fashion industry there are no serious threats arising from substitutes. However, the minimal that can be of negative consequences can be dealt with by the approach of ensuring that the customers are driven to shop due to the feeling of scarcity. In this case, designs should be continually moved out of shelves soon enough to give way for more trendy ones and hence reduce this effect (Porter, 2008).
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The future is marked by balanced bargaining power of the Zara's customers, however with innovation and feeling of scarcity customers may not have a lot of power since the competitors of the company are still required to work hard so as to match with the company strategy of keeping their customers. On the same note, the power of suppliers is managed to ensure that they are not very powerful to control the profitability of Zara's brand. In this case, differentiation is crucial. As noted earlier getting the supplies as raw as possible will help close this gap and hence allow continuity in the balance of healthy bargaining power of the suppliers. Lastly, innovation as it is given a priority should be upheld. Innovation process aims to give an edge over rivals. Basically the strategy to minimize cost through reduced advertisement is very healthy.
The approach to expand to any corner of the globe is a sharp focus of the management. This is shown in the ability of the company to identify possible markets where the brand can be targeted with effective returns and potential growth. This is the approach, which is taken by many multinationals with a bid to remain relevant and profitable. In the enabling environments, the franchises should be kept to a bare minimum. On the other hand in the less enabling environments there is need to get franchises with the aim of getting global recognition while at the same time getting revenue. The key issue in this regard should be continued research to prevent inefficient projection of the future possible outlets (Rainer & Turban, 2009).
Organizational and strategic models
Any business employs strategies to capture value in all its undertakings. This can be basically connected to the strategies that are put in place to ensure that day to day business is effective and meets the overall purpose of engagement in business. Among the key undertakings are purpose, offers, infrastructure, strategies, trade practices, organizational structures processes, and major policies. This section seeks to identify the models, which are basically employed by the successful brand Zara.
Being one of the largest international fashion companies, there are many issues that the company face. However using appropriate means both from organizational and strategic models the company is able to overcome most hurdles and hence the notable and remarkable growth. Success is majorly considered as the consequence of identifying issues and handling them appropriately to ensure that the organization runs effectively. Broadly Zara Company can be identified to undertake four main undertakings (Mckeown, 2012). All these are seen to revolve around the customers. The first is design, which is followed by production, distribution and finally sales. Sales are affected through an extensive retail network.
In the design process, the company is noted to have employed the minimum time in developing a new product when compared to others fashion companies. This is achieved by employment of young and enthusiastic designers who are fresh and training them to get the best results. Likewise, mistakes are not heavily condemned to ensure that motivation is retained in the staff. The motivation of staff has been identified with productivity in workers. As the design industry is dynamic, activities are ever changing since new designs are coming up every day. To ensure that staff is productive the mistakes are not heavily punished. New approaches should also be implemented to enhance reduction of errors (Gomez-Mejia, Balkin, & Cardy, 2008).
Once the products are designed and produced the major activity is getting them to the prospective customers. The retail is vertically integrated; in this case, there is a self contained production area. La Corunna serves this purpose. To ease the burden of high cost connected to production costs, the firm is keen to concentrate on mass production to ensure that it reaps big from the economies of scale. In this case, the cost of production is lowered thereby allowing for low final prices of their products (Meyer, 2008).
Another issue facing the company is the assumption that it is a fashion imitator. This is basically seen in the approach upon which it focuses on fashion designs that customers need and deliver them. This is a different approach since advertising and use of fashion shows for promotion for the items are kept to a bare minimum. However, this is an achievement since there is the possibility to make sure that low cost are maintained for the products which are otherwise trendy. This gives the company an edge over its major competitors.
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A pertinent issue facing the company is identified in production strategies. Due to production costs, most firms especially the one in the textile industries have opted to outsource their production activities. In this context the company in noted to have only produced only about 5% in Spain. 80% of the products are majorly outsourced from Asia, Africa and the rest of the globe. Fashionable items however are made in factories, which it owns in Portugal and Spain. In Portugal the labor is considered to be much cheaper. Basic items are mainly outsourced from Asia and this is crucial in maintaining low costs of the products, which they sell.
In management, the essence of retailing is necessary to ensure a shorter supply chain. This is very important in ensuring that the lower costs, which ensure more sales, are maintained. This therefore has seen the company work hard to ensure that the products are sold in their outlets, which have been established in many countries (Doob, 2013). In the countries, which the macro frameworks have discouraged foreign trade the company has applied the concept of franchises. In this context, the promotion agenda is pushed ahead while at the same time it still earns from such undertakings. In the friendly zones, the outlets are totally owned by the company. In some instances the zones are seen to exhaust transport as in the cases where shipment of finished products are taken and the return trip raw materials are carried to different production zones (Johnson, Scholes, & Whittington, 2008).
On management, the use of technology is intertwined to the process. This is the case in which communication and decision making process are subjected to rigorous discussion and use of available technology based applications. Generally, there is an assessment of availability of resources in identified locations. This is more in the areas where the company has set up outlets especially those in manufacturing. This can be broadly discussed as resource appraisal. There are also strategic plans to set up business in countries where there is political tranquility. This is also connected to areas with high projected profitability and less rigorous and restricting government policies.
Lastly the company has been strategic on other issues which are necessary in successful implementation of it vision and mission. Among this is the management process in which the command is from highest office to the junior employees. It is also important to note that rotation of staff especially the designers is seen as crucial in ensuring that there is sharing of skills and knowledge across all the working areas. This is also important in ensuring that the boredom is minimized among the staff. This is basically a basis for work motivation and is connected to productivity of the employees (Mulcaster, 2009). These are only few factors, which are highlighted to face the organization. There are others, which are less impacting on the success of the company. However, they should not be ignored as they are major determinants in how the company will fare in future and how it will remain strategic in handling competition, which is very threatening in this industry.
PR crisis facing the company
Two major crises are discussed in the following section.
In Brazil, a TV network was exposing the company in 2011. This was concerning the use of suppliers who run sweatshops for outsourcing. Following this, labor and employment unions in Sao Paulo closed a factory, which primarily made cloths for the company citing poor working conditions. The said company was alleged to have moved Bolivians illegally, locked them in small rooms and made to work for about 14 hours daily. To make the matters worse it was also alleged that they did not have food and were paid $1 per dress they made and yet the dresses traded at $70. This was seen as slavery. Following this, Inditex was made to intervene on all factories, which it outsourced from to make working conditions better (Ferdows, Lewis, & Machuca, 2009).
This is a negative crisis, which tainted the company image. The result of incidences like these is loss of confidence from the customers who had otherwise remained loyal to the outlet products. Globally unethical issues have seen company's loose customers (Kotter & Cohen, 2008). On the same note, there are inconveniences, which are often accompanied by such acts. In this case continuous supply was interrupted and hence loss of revenue. Lastly, incidences such as these are used by competitors to maliciously damage the reputation of the company. To avoid this instances the company should focus on the factories and companies from which it outsources. This is because despite the fact that the company was not to blame for the act, it was the entity, which suffered defamation and thus suffering economical as well as public judgment.
Shop staff abuse
Later in march 2012, an investigative TV program featured by Sveriges television also reported a rather devastating story of 25 Zara workers (Ferdows, Lewis, & Machuca, 2009). Among them were managers as well as general shop staff. There was testimonies of the abuse and terror of staff more so in Europe and Sweden. Following this, the Zara authorities indicated that they would handle the situation by investigating and solving the same. At this time, there was a notion which was directed to the company and was called management by fear.
Reputation is a consequence following a triggering event. In the business circles, reputation is of utmost importance. This is because as identified in a lot of literature it takes years to build a reputation but a day to lose one. There are the steps, which are followed when dealing with a crisis. These should be followed when any form of crises is experienced. This is the same case to damage of reputation (Mitroff, 2008). Though one can use the media to attract and increase brand visibility it is also necessary to note that the same channel is used to fast pass even negative messages to large base of customers.
All businesses have to be morally guided; this is mostly seen in the corporate social responsibility. This is normally giving back to the society in which they operate. Another issue, which is considered to be of good will is the environmental conservation. This is seen as a basis for caring for the employees and customers and all the citizens as well as their environment. The company is keen on using biodegradable packaging materials as well as employment of a certain percentage of biodiesel use. This is by the delivery trucks with the aim of combating carbon dioxide emissions into the environment (James, 2008).
The issues arising, which can threaten the working of the company can be described as a crisis. When it comes to the reputation the company should act immediately to minimize the effects and further spread which may be at times be devastating to the business process and thus affect the profitability. Zara should keep a straight and moral approach in all its undertakings to ensure that the customer loyalty is not hampered with. It is also healthy to conduct fair business to enhance sustainability.
Strategic options and recommendations
Completion remains one threat to any business in industries, which are considered lucrative. In this case, the Zara brand is in this industry. This section seeks to summarize the strategic options, which are taken and have ensured success.
First is expansion of the brand is seen to have interest in expansion to other countries where market is conducive. However, this may be difficult to deal with without proper research. Zara should take keen interests in analyzing which regions it can thrive on. Despite this, factors such as political environment of the selected countries should be put into a broader perspective. In this case, economies of the nations which are likely to favor the company growth are considered (Armstrong & Greene, 2008). This is in relation to the extent to which the politics play part in starting branches in the specific countries. To be considered are trade restrictions, tax policies tariffs and political stability. However, this are identified and the future calls for further assessment before venturing these territories.
Second is the analysis of Porter forces one critical factor in dealing with competition. Through large scale of production, production cost is highly minimized. In addition, the acquisition of dying and cutting of their materials is a capital extensive venture which will lock out potential threats to entry. This should be continued to ensure that the future will not be threatened with entry and hence reduced profits due to unhealthy competition. In fashion industry there are no serious threats arising from substitutes. However, the minimal which can be of negative consequences can be dealt with by the approach of ensuring that the customers are driven to shop due to the feeling of scarcity. In this case designs should be continually be put out of shelves soon enough to give way for more trendy ones and hence reduce this effect. The firm should also work hard to keep balanced bargaining power of suppliers as well as that of its buyers.
With an aim to remain relevant and profitable, in the enabling environments, the franchises should be kept to a bare minimum. On the other hand in the less enabling environments there is need to get franchises with the aim of getting global recognition while at the same time generating revenue (Reinhart & Rogoff, 2009). The key issue in this regard should be continued research to prevent inefficient projection of the future possible outlets. The company should also be innovative especially with adoption of technology and better management tools.
Based on strategic options the firm should adopt these choices.
The first should be increasing its customer base; these should be of existing products. The advantage is that the brand commands a huge market share and therefore increasing the base may not be very difficult, this is because many customers exist and little promotion may grow sales. This is also easier since there will be no differentiation and hence expansion can be easy and will definitely yield more returns for the brand.
Secondly, the firm may develop new products, which should be targeted to already existing customers. In this case, the company will be aiming at devising new lines of production. This may be capital consuming but returns are possible since the brand is big enough and there are already existing customer groups.
Third, the company should expand existing products into new markets. In this case there is need to research on other market segments and if need be open stores in other areas which have potential for existing products. For example, penetration to regions like Africa may prove worthwhile since customers know the products. Another advantage is the low cost of products at the shelves and thus gaining acceptance will be easy (Farris, Neil, Pfeifer, & Reibstein, 2010).
Last is developing new products for new market segments. However, this is the most difficult. The act of diversification often comes with it demerits. These are connected to establishment of newer channels, generation of demand, meeting customer demands and dealing with competitors in new market segments. There is also taking up of more resources but if effectively done it can pay back and allow the company generate more revenue in the long run (Porter & Kramer, 2011).
Other recommendations are
Value addition for example, provision of real benefits
Improving efficiency through staff training, operation style, and presentation
Measuring the productivity or reviewing progress and lastly
Being keen to knowing modern marketing activities as well as identifying the best time to implement them