ZARA FASSHION INDUSTRY IN CHINA
The main of focus if this paper was in an Asian country china, where Zara extended its operations back in 2001. upon running a PESTLE analysis of china, the factors that prevail in their business environment seems to have contributed greatly to the internationalization of Zara to china. To start with, china’s politics are stable and government works in favor of foreign investors ,the economy has been fast growing over time rating china as the country with the largest GDP in the world hence the purchasing power of the people in china is quite high and this was a good factor to start a business in china. After running a SWOT analysis of Zara fashion industry, it has managed to exploit all its opportunities like being the world best ranked fashion company to tap more customers and take advantage of its strengths to give it a competitive advantage.
The fact that they are able to spot the trend in the streets and give their customers exactly what they want within a very short time span compared to their competitors keeps them on the lead. The first country it expanded to was Portugal and with great success in Portugal it opened many more branches extending to French and American market. Zara is currently operating 1750 stores worldwide. it has opened branches in continents such as Africa, Asia and Europe. The company has its strategic controller at Inditext responsible for corporate strategy formulation whereas the strategy formulation is left to the individual chains to make independent decisions on their designs, manufacturing and distribution, image and personnel and end results of finances. The key international competitors of Zara include the H&M, gap and Benetton though Zara is still considered the flagship of Inditex due to its competitive brands One of the most fundamental factors that this company observe that enable them to stay competitive include: diminutive cycle time, minor consignments per merchandise, wide variety of items and hefty investment in technology especially information and communication technology (Hansen,2 012: pp 9).
The government has lost regulations for foreign investors in order to encourage foreign capital accumulation. Zara therefore foresaw a good ground for investment given the business potential in China. Economic factors in china These are factors that determine the state of the economy and the direct effect it has on businesses and industries. These factors could be the level of inflation or the overall interest rates. Over the past years china has been on the lead in terms of economic growth and gross domestic product (GDP). Given the high literacy level of the people in china, their production and distribution mechanisms are highly mechanized and developed. the use of internet and telecommunication is a major contribution to technology that works in favor of businesses.
however, the credit cards technology has not fully penetrate the china market and this makes it hard to make payments using plastic money it has also made many people to default payment after placing orders and receiving their deliveries(Wingley, 2007:pp 281-289). Zara opened their website to tap many customers and this has been achieved, however many of the customers they deliver designs end up not paying and makes the company to incur huge losses Legal factors in china These are factors that have to do with the laws regulations and policies that affect the industries in the country. They can be in terms of labor laws, consumer’s laws and safety standards. This analysis evaluates the intensity of the competition hence determining whether it is attractive or not in terms of the company’s profitability.
The forces measured under this framework includes, rivalry, threats of new entrants, supplier power, threat of substitute and lastly the buyer power. Rivalry Zara has a well-established brand name in the market. Its unique trends gives it a an advantage over the other fashion industries in the market and it is able to scope a large market share without advertising (Porter 2008: pp. Threat of entry There are high barriers to entry of the fashion industry due t the high fixed cost and the high administrative cost. These factors are determined in order to help the company respond accordingly to the changing environment. A company can make changes or change their whole strategy given their current stand and how near and far they are from their objectives and goals.
Strengths in the swot analysis of Zara The greatest strength that Zara has is their unique designs. Their footwear, women, men and children cloth designs and elegant high quality and well finished. According to MoColl (2011: pp 91-95), this gives them a good stand in the fashion market. Opportunities in the swot analysis of Zara The company should eye new markets where there is no saturation of designs ad where the customers are untapped, this enables them to create new markets and increase their investment. According to Lopez (2009: pp279-286), the fashion store can come up with a brand or a design that is only sold in their store to make more regular customers and have an identity in the eyes of the customers.
The growing ecommerce platforms a good ground that the company can take advantage of and tap more customers. The culture of the Chinese people of shopping online gives them a head start too. Threats in the swot analysis of Zara The low advertising that Zara make might eventually affect the business when the competitors become more aggressive. According to Lopez (2009: pp280-298), once they have penetrated the market their vertical integration supply chain, franchise and joint venture helped them to keep on the move. Use of franchise enable them to venture into risky culturally distant markets were foreign ownership rule out direct entry. The right that the franchised Inditex group is given allows Zara to open company owned stores globally. The use of joint ventures helps them to penetrate larger competitive markets where there are obstacles to direct entry due to difficulties of procurement of retail spaces in the centers (Burner, 2003: pp21-24).
To venture into japan and Germany, Zara used joint ventures and partnered with Bigi and Otto Versand respectively, after settling and gaining roots into the host country Zara buys back the remaining shares and dissolves the joint venture (Bhardwaj, 2011; pp. Lastly, they had to consider the macro and micro economic factors in china; these include the political factors economic factors and the legal factors. Evaluating these factors enabled them to determine the policies that the government has put in place for foreign investors the tariffs on import the intellectual property rights policies and the general condition of the market in terms of local competitors in the host country (Ho, 2014: pp 6485-6490). The pro and cons of Zara operating in China Advantages of operating in china The home market was becoming too competitive and saturated, extending to china opened up new markets with untapped customers.
With price leadership strategy, it was able to compete profitable with the companies in the host country. Another advantage was that, Asian countries like china do not have strict regulation on foreign investors hence the cost of entry is not as high as in other continents (Crofton, 2012:36-57). The company can try to open up shops on the streets and stop relying solely on the stores through this can meet all the customers demands. Lastly, the company can pick a brand specialize instead of dealing with generalized collection of wears. This makes the customers to settle for one store for specific design and they can avoid losing their customers to the competitors. Conclusion In conclusion, Zara has been the largest fashion industry in the market and still has potential to extend further, through the pestle and swot analysis ran on the company it is vivid that they have been using the advantage of being on the lead in terms of trendy fashion and high-quality product to stay competitive.
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