International Growth of Zara

INDIVIDUAL CASE ANALYSIS ASSIGNMENT

Identify the key issues of the case.

From the case it is quite clear that from the early 1990’s, Zara had begun to expand into the international apparel market and by the end of 2001 operated five hundred stores in over thirty countries (Exhibit 10). But now that most of the major markets had been exploited Inditex must consider the geographic location of its future Zara store additions that would ultimately have a great impact on the Inditex groups long-term success.

Another key issue within this case is even while Zara are continuing to expand over different markets and regions can they create and contain a competitive advantage.

Within this report I will begin by carrying out an analysis on the External Environment and the Internal Environment, followed by an analysis of the firm’s corporate and business level strategies of the firm. I will then attempt to offer some recommendations that could benefit Zara and Inditex and its long term success.

Analysis of the external environment of the firm:

The apparel industry is considered as a buyer driven, highly profitable and fast moving industry. It is vital therefore that any firm operating within it understands the environment and what is going on around them. In order to fully capitalise on opportunities and extinguish any threats Zara need to be aware of its external environment.

One key element of the apparel industry is the importance of imports and exports in the production stages. As the market is heavily labour intensive despite continually advancing technology, labour costs are a major issue for any apparel manufacturer. Serious consideration needs to be taken when deciding whether to outsource labour intensive tasks to benefit from the cost advantages associated with it. Exhibit 3 demonstrates the huge difference in costs per hour from Zara’s home country of Spain ($ 7 per hour) and that of India or China ($0.4 per hour). Firms need to be aware of the different labour costs available in the developing world but also consider their proximity so as not to lose this cost advantage on excess shipping charges. For example it may not be feasible for Zara to start production in China, only to ship the goods back to the distribution centre in La Coruna causing them to lose any savings in labour costs.

Other macro environment issues within this industry include the gradual phasing out of the Multi-Fibre Arrangement which restricts imports into countries such as the USA and Canada. This is a factor Zara need to consider if they want to break into the American market as Tariffs will gradually be reduced meaning increased trade in these regions is likely to occur.

The global apparel market is worth approximately $900 billion worldwide with Europe taking up approximately 34% of the share. However spending on clothing within different countries is influenced by the average level of income for that country and obviously population levels. From the beginning of the globalisation of Inditex and Zara back in 1987 exhibit 14 shows that some of these largely populated and developed countries already contain numerous Zara stores for example France has 67, Great Britain 11 and Germany 15 meaning that the three highest populated countries with a reasonably average GNP per capita of around €27000 (See Exhibit 17) are being served.

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