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Internationalization Theory of Fashion

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Introduction to the Internationalization Theory of Zara

To be a successful business enterprise in the international market it is necessary to adopt various strategies. The present report is based on the case study of ZARA which is a Spanish clothing and accessories retailer. ZARA is a fashion retail chain of the Inditex group, owned by a Spanish businessman. ZARA owns other brands as well such as Massimo Dutti, Pull & Bear, Oysho, Uterque, Stradivarius Beshka, etc. This report will help to understand the internationalization theory of ZARA and evaluate the competitive strategy of the three world market leaders which is essential for global retailing in the fashion world along with the advantages and disadvantages of Zara's multi-brand store strategy. Also, this report evaluates the success of Zara in meeting the risk of cannibalization as a consequence of a multi-brand strategy with the advantages and disadvantages of going into a joint venture in India.

1. The internationalization theory of Zara

Zara is a fashion retail chain of Inditex group and owns multiple brands such as Massimo Dutti, Pull & Bear, Oysho, etc. therefore, Zara has strong visibility in the international market as well. However, Zara has resisted the industry-wide trend for outsourcing fast fashion production in low-cost countries. Zara adopts internationalization theory based on the Uppsala model which explains how the cited firm can step by step increase its activities and visibility in foreign markets. With regards to this model Zara and Inditex group gained experience from the domestic market before they moved to the international market. According to this model, Zara can start operating the business in countries which is culturally and geographically close and move step by step to geographically and culturally distant countries. Thus, during the period of 1980, Zara was focused and expanding business within the domestic markets and opening stores in Spanish cities as well. With reference to the Uppsala model, Zara starts its international business operations by using traditional exports and the most demanding operation modes such as sales subsidiaries in the target country and organizational level. However, in the next steps of internationalization, Zara expanded business in international markets with a very minimum distance from Spain, and further, the cited firm was adding one or two countries more to its market portfolio every year. Thereby, Uppsala's theory can best represent Zara's internationalization.

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Furthermore, the Uppsala model states that the first sales objective of Zara should be physical product service, knowledge, and business operating system. This model of internationalization also assumes that the first expansion in the sales objective and market strategy concerns the expansion into new foreign markets. Moreover, in 1990 Zara started operating business in France which is a geographically connected country and a fashion capital as well as the opening point for business expansion in Europe. Later on, Zara was opened in Mexico in 1992, which is geographically long-distance but similar in culture to the home country Spain. The experience increased international environment is beneficial for Zara to make it determined and attentive to a fast international expansion, irrespective of culture and geographical closeness.

In the early stages of globalization, the management of Zara followed a partial orientation in which foreign stores were also replicas of the Spanish stores. However, due to this approach, Zara also encountered unpredictable difficulties in a few countries because of cultural variations. Thereby, the Uppsala model of internationalization specifies that the level of commitment can decrease and discontinue the business in the international market if performance and prospects are not met sufficiently. With regard to this, Zara decided to move towards a geocentric orientation by allowing the stores in the international market to adopt local solutions instead of replicating the home market stores. Thus, with regards to the case study of Zara, it is analyzed that the Uppsala model of international is the best representative theory of Zara's internationalization.

2. The competitive strategy of three world market leaders

The major global competitors of Zara in terms of market share are H&M and Gap Inc. Both competitors of Zara are market leaders due to their strong competitive strategy in global retailing. Gap Inc. is an American clothing and accessories retailer based in San Francisco. Gap also owns five primary brands such as the namesake Gap banner, Banana Republic, Old Navy, Piperlime, and Athleta, etc. which is similar to Zara in some ways. Zara is comparatively detected as a more fashionable brand than its competitors. The prices of Zara are less than Gap but higher than H&M. This company is a global fashion retail organization established in 1947 in Sweden. At that time H&M sold women's clothing but later on, H&M also included its inventory in selling men's clothing and expanded its business in menswear as well. The majority of customers of H&M are from Turkey and Bangladesh.

The competitive strategy of H&M can be identified from its mission statement. The mission of H&M depicts fashion and quality at the best prices. Moreover, on the basis of analyzing the given case, it is assessed that the competitive strategy of Zara is to use its own store as a tool to promote its brand in the respective market. In this context, it has been assessed that Zara will not spend any money on advertisement of its product. However, instead of promoting its brand, it uses its store with an aim to attract a large number of customers. By adopting the given method two-way benefits are being gained by the firms. Here, on the one hand, significant increment is being carried out by the firm in the market share. In addition to this, the firm is also saving its costs by not investing in advertisement and promotion type of activities. The money that Zara is saving is being invested in some other useful activity.

The tactic is effective but by using this firm can attract only those customers who are situated at the places where the Zara store has opened. In comparison to this, its competitors such as H&M and Gap are spending a sufficient amount of money on advertisement. The given competitive strategy being used by the firm is effective as it enables them with regard to spreading the information about the product which is being produced by the firm among a large number of buyers in an effective manner. Due to this, the firm is getting the benefits in the form of increased profits and sales.

In addition to this, multi-brand stores are being considered as one of the most effective tactics which is being practiced by Zara. Here, it is assessed that the firm has eight brand stores. In comparison to this, Gap has five brand stores, however, H&M works with only single-format stores. For the firm, it is very essential that it open different types of brand stores. This is because the given type of activity will enable the firm with regard to reducing the risk of failure in an effective way. Furthermore, the money that is being obtained by the firm through its strong brand can be used for the purpose of increasing the effectiveness of another brand that is not working well in the respective market. The given tactic will also provide an opportunity for the firm with regard to targeting the different types of buyers in an effective manner.

With regard to global retailing in the fashion world, firms such as Zara will be proven as more effective in comparison to others. This is because in the future there is intense competition will be seen in the given industry. However, the impact of given competition will be met by those firms that are targeting all types of buyers irrespective of their age and income. Furthermore, there is continuous changes are being seen in the tastes and preferences of buyers when it comes to fashion. Thus, in the future, that type of firm will establish its remarkable position in the market which carries out the production of goods and services as per the tastes and preferences of the buyers. These all given things are being effectively followed by Zara. Thus, in the future, it can win the competition prevailing in the global fashion retailing industry.

3. What are the advantages and disadvantages of Zara's multi-brand store strategy

Multi-brand store strategy is the type of tactic in which two or more two homogeneous products of the firm are marketed under different brand names. The given tactic is adopted by Zara. In this context, there are different brands of Zara identified such as Pull & Bear, Massimo Dutti, Bershka, Oysho, Stradivarius, etc. These given brands target varied types of customers. However, the multi-brand store tactic which is being used by the cited firm possesses several advantages and disadvantages whose detailed explanation is depicted below.

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Advantages for multi-brand store strategy for Zara

Increase in the market share of the firm

It is regarded as one of the most significant benefits that are being gained by the firm by using the multi-brand store tactic. This is because the given tactic will provide an opportunity to Zara with regard to targeting the different types of customers. For example, the Pull & Bear brand of Zara is targeting young customers. In the similar way, Stradivarious cited firm is targeting young women. Thus, with the help of the given tactic different types of buyers are being attracted by the firm. Due to this, the firm has carried out necessary improvements in its market share.

Can carter the customers who frequently switch on to the other brand

In this context, it has been seen that some buyers always prefer to switch to the other brand on a constant basis. This is because the given type of buyer always loves to experiment the new things. The need of given of buyers is also being fulfilled by Zara through the given tactic. Thus, it is by complying with the given type of activity that only the cited firm retains most of its customers in an effective manner and gains benefits in the form of increased profits and sales.

Obtaining a greater shelf space

It is another essential advantage of the given tactic which is being used by Zara. The given tactic will provide an opportunity to the firm with regard to establishing the monopoly of the firm in the market. In addition to this, with the help of the given approach, an effective presence will be marked by the cited firm in the competitive business environment.

Disadvantages of multi-brand store strategy for Zara

Besides this, there are some limitations or risks also associated with the given tactic which is being practiced by Zara.

Customers will perceive the profit-making image of the company

It is regarded as one of the most common risks which is associated with the given tactic. In this context, it has been seen that buyers have the general perception that the firm that operates multiple brands under its own name gives more importance to profits rather than maintaining the satisfaction of customers. Thus, the use of the given tactic by Zara will tend to create or develop a negative image in the minds of buyers. Due to this, the market share of the company will be impacted in a negative way.

Risk of cannibalization

This risk occurs when a manager introduces a new product in the market where its existing products are operating. Here, due to the introduction of a new product significant decrease will be faced by the manager in the sale of its existing products. This is because the given thing raises the chance with regard to switching on to the other brand of corporation. As a result of it sales of existing brand of firm will get reduced.

Difficulty in managing all the brand

The task of brand management will become a more tedious activity for Zara with the use of a given tactic. The given thing will also divert the concentration of the firm. As a result, for the firm, it became difficult with respect to achieving success from the different types of brands.

4. How successful is Zara in meeting the risk of cannibalization?

The risk of cannibalization and firm use of a multi-brand strategy are directly related to each other. This is because the risk of cannibalization occurs when firms tend to introduce multi-brand in the market. This leads to the confusion among the customers. Due to this, limitations will be incurred by the firm in the form of increased market share as well as sales. However, firms such as Zara are using different types of tactics with an aim of mitigating the risk of cannibalization. In this context, on the basis of analysis, it is assessed that Zara has been meeting the given risk by differentiating the brands through target markets and products. In this context, it is assessed that the given eight brands of Zara are targeting different types of customers as well as offering varied types of products to the customers. For instance, oysho Zara brand is fully dedicated to producing women's underwear and lingerie. However, the Massimo Dutti brand of the cited firm produces formal and elegant clothing for both men and women. Thus, it is by complying with the given type of activity only the firm is forming differentiation between different types of brands. Thus, targeting and persuading the varied types of buyers towards the product in an effective way.

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In addition to this, the firm is taking help from the research and development department with an aim to reduce the risk of cannibalization. For Zara, this department plays playing very crucial role. This is because, here with the help of the given department only the cited firm will be able to direct its efforts with regard to carrying out the production of product as per the needs and demands of the customers. Thus, through this way, only the firm is maintaining the satisfaction of its customers and getting the benefits in terms of increased profits and sales in an effectual way. Furthermore, Zara is using the latest technology with an aim to carry out the production of its product. Here, with the help of the latest technology firm will be able to carry out its efforts with regard to delivering the product in front of the buyers within the given specified time period. Overall, it can be said that the tactic that is being used by Zara with an aim to mitigate the risk of cannibalization is effective.

5. Advantages and disadvantages of a joint venture with Tata in India

When two or more companies undertake business activity jointly with equal contribution known as a joint venture. Joint ventures are largely accepted in corporate finance. Joint ventures enable a firm to serve new markets and new customers. The joint venture is based on a single business project which is operated by both companies. Zara and Tata joint venture and started its store in 2010 in India. There are some advantages and disadvantages also from the joint venture. Following are the advantages of a joint venture of Zara with Tata...

  • A joint venture helps both companies in sharing their infrastructure and workforce and reduces the level of risk for a firm to enter into a new market.
  • Tata is India's one of the largest companies that connect with the larger part of the population. So, this will company's penetration of the market.
  • Joint ventures allow companies to enter into new geographic markets and serve new customers.
  • Population of the country - India is the 2nd largest populated country in the world. It has a population of more than 1.25 billion. The higher population can result in to increase in sales of the company. Tata serves a larger population part of the country so people are ultimately customers of Zara as well.
  • This joint venture helps organizations in the utilization of Indian resources such as employees and technology.
  • It provides an opportunity for businesses to expand themselves in the Indian market.
  • Tata Group business in communication industries and information systems so this will help for firm to create its brand image in the Indian market.
  • India is a country with a large economic system and its GDP growing by 6% per annum. It benefits to company in growing itself with the growth of the country.
  • Joint ventures give a chance to the company for the market of new products in the current market.
  • These help the company reduce its costs associated with transportation.

Disadvantage of Zara's Joint Venture with Tata in India

The given joint venture will also tend to bring several disadvantages to the cited firm and a detailed explanation of the same is depicted below:

Rigid values of Indian buyers

In this context, it has been seen that many Indian buyers prefer to wear the clothes that are being manufactured by their Indian firms only. The given value of buyers might create hurdles in front of Zara's sales and profits.

Diversity in the culture

Both Zara and Tata belong to the diverse culture. In addition to this, their pattern of working and managing the operation of the firm is very different. The given thing might create a conflicting situation between both the given enterprises.

Conclusion

Articulating all the facts from the given study it can be stated that, the multi-brand tactic which is being used by the cited firm is effective as it is helping the firm with respect to achieving success in the competitive business environment. In addition to this, with the use of varied tactics cited firm is taking significant measures towards the risks of cannibalization which is being incurred by it by adopting the multi-brand tactic. Furthermore, for Zara, it is beneficial that it must adopt the joint venture tactic.

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References

  • Aaker, D. A. and Biel, A., 2013. Brand equity & advertising: advertising's role in building strong brands. Psychology Press.
  • Altuntas, C. and Turker, D., 2015. Local or global: Analyzing the internationalization of social responsibility of corporate foundations. International Marketing Review.
  • Brito, P. Q. and Pratas, J., 2015. Tourism brochures: Linking message strategies, tactics, and brand destination attributes. Tourism Management.
  • Brush, C. G., Edelman, L. F. and Manolova, T., 2015. The impact of resources on small firm internationalization. Journal of Small Business Strategy.
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