Analysis and Evaluation of the International Business Strategy.

Question: Discuss About the International Business Strategy. Answer: PESTLE: identify the trends in the external business environment of the company Political Factors There are various political factors which are required to be considered such as the laws and policies of the Government, the intercontinental relations are the major part which affects the functioning of any organization. Economic Factors The economy is very fluctuating and also has faced a lot of recession. But threes factors have not impacted the performance mad sales of Zara. Zara basically deals in Dollars which is a safe currency. There are different prices quote in different nations. Thus it also impacts the sales of the company. Social Factors There are various choice s of size and variety available as per the cultural and demographical variations of the nations. There aresizes available from six to sixteen. As people are more facilitated by the discountsand offers thus Zara also promote its sales through various offers (Lloyd, Chugh and Portfolio, n.d.). Technological Factors There are several innovative factors and steps Zara has initiated to have responsiveness with the high tech systems. There are few innovative technologies of Zara such as Zara iPad app, interactive maps for searching for Zara stores and other mobile apps. Environmental Factors The sales and production get impacted because of the environmental factors such as the weather conditions in the Asian countries, variousenvironmental hazards such as earthquakes in Japan etc. all these issues impact the operations of the company. Legal Factors There are various legal issues which impact the performance of the company such as copyright issues, litigation etc. thus it is essential to follow all the rules and laws effectively (Lloyd and Chugh, n.d.). Porters Five Forces: To identify the potential for profitability Substitute Threat The threat of substitutes is moderate in this industry as the cost of switching to another brand is low and this gives selection opportunity to the customers. There are various brands such as Forever21, River Island etc. these brands gives substitute opportunities to the customers. New entrants threat The threat of new entrants is low in the industry as there requires huge amount of capital for any start up in the industry. The distribution costs are also very high which restrict the new players to be the part of this industry.One more thing which binds the entry of new playersis the importance of brand equity as customers are loyal to the well established brand only. Thus ZARA has no threat of new entrants (Mann and Byun, 2011). Industrial Rivalry There is high industrial rivalry present in the fashion industry as there is extensive competition. There arenumerous strong brands present in the industry which gives a striving competition to the company. There are various factors on the basis of which the difference takes place such as price, brand equity, quality or HM (Pirone, 2010). Bargaining power of the suppliers There is low bargaining power of the suppliers in this industry as the material is available in large quantity as well as there are extensive numbers of suppliers to choose from. Bargaining power of the buyers There is moderate bargaining power of the buyers as there are number of companies in the industry and customers can select from them as per their requirements. The cost of switching is also very less which give the customers strong bargaining power (Kavvadia, 2012). Wernerfelts Resource Based View model: To identify the capabilities resources Vertical integration is the highest valuable resource of the company as the organization manages its logistics, distribution, warehousing and design all by itself rather than dependingupon various other associations. The organizational values are again the precious resource of the company as they are effectively followed by the employees. The speed of delivery and the flexibility in the operations are another two major components which possess huge value (Taken from Bhardwaj, n.d.). Rareness The delivery time for the new products is very less of Zara in compare with other companies and this is one of the rare elements of Zara (Wang and Ahmed, 2007). Imitate The business model of Zara is imitable from future perspectives only. It is not easy for any start-up venture to have such an effective organizational structure, effective supply chain and vertical integration. These things are difficult to imitate for the new entrants (Bhardwaj, Eickman and Runyan, 2011) Organization The profits and the sales of the comp any are continuously up surging. The employees of every level are highly dedicated and efficient. The company has autonomy in making effective decisions. These organized processes provide competitive benefits to the company (XXXXXX, E). Value Chain Analysis Primary Activities Product Design: 3000 designers, extensive number of ideas from Zaras store managers Operations/Sourcing: Interconnected headquarters and the suppliers to achieve higher supply coordination, usage of pull strategy (Christopher, 2016). Production:Products manufactured are highly fashion and time sensitive, highly programmed and technology based factories. Use of JIT and effective labor practices (Ghemawat, Nueno and Dailey, 2003). Logistics:Effective distribution centers such as Spoke and Hub. Installation of mobile tracking system and interconnectivity of the distribution centers. Marketing:Decreased expenditure over marketing and take use of word of mouth publicity Store Operations:Provide global recognition to Zara, interconnectivity among stores and all the stores are well designed as well as placed in high profile slots (Saranga and Moser, 2010). Supporting Activities Equipment, Systems, HR and Firm infrastructure There are almost 14000 employees in the fully owned factories of Zara Highly designed and exclusive infrastructure Fast product turnover Prime locations Effective management (Mazaira, Gonzalez and Avendao, 2003) TOWS: Threats, Opportunities, Weaknesses and Strengths Threats There is increase threat of global competition as well as another tgreat which Zara encoun ters is of supply chain interruption Opportunities There are number of opportunities present for Zara to have success and growth such as to increaseits distribution centers for having extensive customer base and to develop its roots in the developing nations. The global expansion will result into higher sales and up surge revenues (Turker and Altuntas, 2014). Weaknesses There are few weaknesses also which are required to be control i.e. the centralized distribution which number of times creates difficulty in decision makingand logistics. Another weakness is the complicated organizational structure which is required to be simplified and effective. Strengths Zara possess a numb r of strengths such as the effective customer service which builds the loyal customers and help in retaining them for long run. The use of innovative technology is alsostrength as the company always operates on innovative and smart technologies. Zara has a recognized present across the globe which is one of the most efficient strengths of the company. The company is always been identified as a fast fashion as there is continuous production of innovative designs and textures. The integrated supply chain is also a major strength to the company which helps in fast production and delivery which provide extensive competitive advantages to the organization. OLI theory Dunning Ownership advantages Global brand name: the brand Zara is a globally recognized brand which has a greater customer has extensive brand awareness among the customers. Centralized supply chain management: The supply chain of the company is managed in a centralized way as all the operations and departments are interconnected (Woo and Jin, 2014). Location advantages The company possesses location advantages as there are low cost products at various places and the countries with developed economy provide greater returns because of various location benefits. Internalization advantages Entry modes: the company has gained a number of international benefits such as the entry strategy adopted by the company such as licensing and joint ventures. These global expansion strategies have provided Zara several positive outcomes. Boom of FDIs: Foreign Direct Investments are giving rise to MNCs to enter overseas markets. The rise of FDIs is the way to enter global markets and to attain huge profits and revenues (Matic and Vabale, 2015) Generic strategies Cost Leadership The company is well succeeding in implementing the cost leadership strategy. Zara has tremendously focused on decreasing its cost, using a low-cost product design as well as automated assembling so that there can be saving of costs. The company has attained huge profits andcompetitivebenefits through cost leadership strategy (Cortez, et al., 2014). Differentiation Strategy The quality, design and various other factors are different from the competitors products so that the company can attained huge differentiation benefits. The differentiation strategy of Zara is reflected in its designs, packaging and in the structuring and designing of the value chains (Pilarczyk and Stefanska, 2013). Focus Strategy The focus of the company is basically on the cost and differentiation. To have advantages of low cost the company is striving hard and taking use of innovative technologies. Zara can continue with its growth and customer based by using the differentiation and cost leadership strategies (Chi, 2015).Market Penetration Strategy The company facilitates its present customers to have more purchase. Zara keeps on introducing new and fresh products so that customers can make a frequent purchase to satisfy their changing needs. The fast delivery is the one which make the sales going as the customers get the products much faster in comparison with the competitors. Zara has most of its production at its own stores and factories. This reduces the additional need of warehouses and keeps Zara much recognized in the eyes of customers. Market Development Strategy Firstly there is identification of the potential customers among the already existing customers. Secondly there is identification of new locations and new markets for its products. The main focus of the company is over the developed fashion markets for its products and stores. Product Development Strategy The company keeps on developing new features in the products so that there can be increased sales. The target customers of Zara are the one who want different and unique products. there are various super business teams which take care of innovative features in the products so that there can be continuous product development. Diversification Strategy Zara has always been developing products with marketing and technological synergies so that there can be diversification in the existing products. There is taken use of computer-aided design systems so that there can be easy selection of textures and colors (Schmid, 2007).There are basically three dimension on which Zara excels i.e. sourcing design and mix. The company always remain ahead of time with its efficiency and firm IT systems. From the knowledge perspectives the company is keeps a strict watch over the performance and the demand trends. This reduces delays and enhances rapid decision making. From the responsiveness point, the store managers have the authority to take decisions regarding product restocking as well as the local markets for setting up of prices. Issues in existing strategies The company is facing some issue related to the warehouse as one centralized system many a times occur as a barricade for the long term success. There are issues related to warehouse as the company does not have an adequate space for storing the products. Thus it is advisable tp company to have a new warehouse. The company is required to have a more warehouse for making the operations and functioning much smooth and fast. There is a need of one additional warehouse and that too in the market of South East Asia so that the markets can be served effectively (Palladino, 2010). Conclusion From this report it can be concluded that Zara is a global brand which has renowned presence across the globe. There are various positive strengths of the company which gives huge recognition and benefits to Zara. These includes the integrated supply chain, in-house production, managerial effectiveness etc. as the company works on a centralized system there is a need of slight change as the company must open a warehouse in South East Asia and to achieve extensive growth the company can take use of ecommerce activities such as innovation, mobile apps and great online presence. Various loyalty programs can also be started is that the customers can be retained. The cost leadership strategy must be in continuation so that the company can maintain its competitive benefits. References Bhardwaj, V., Eickman, M., Runyan, R. C. (2011). A case study on the internationalization process of a born-globalfashion retailer.The International Review of Retail, Distribution and Consumer Research,21(3), 293-307. Chi, T. (2015). 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