NEW VENTURE MANAGEMENT/BUSINESS GROWTH MANAGEMENT

ZARA Case Study By Kasra Ferdows

Rifki Hendriansyah (29113007) Gega Darmawan (29113118) Anggiea Putra Prawira (29113133)

1. Situasional Analysis
ZARA HAS become Spain's best-known fashion brand and the flagship brand of
2.5billion holding group Inditex. Amancio Ortea Gaona, the companys founder,
began retailing clothes in 1963. By 2005 Inditex emerged as one of the worlds fastest
growing manufacturers of affordable fashion clothing. Now with over 2000 stores and
promising to double that number by 2011, Inditex is one of the biggest business
success stories in Spanish history.
Zaras success offers us all some instructive lessons in how to create and sustain a
break through strategy. The striking thing is that Zara has found differences that
matter to customers and differentiated itself from its competitors by performing key
activities [in its supply chain] differently. It is this that sets challenges for competitors
because they will not find it easy to imitate or equal Zaras positioning and it is this
achievement that has given Zara sustainable competitive differentiation and
positioning.
Zara is a vertically integrated retailer. Unlike similar apparel retailers, Zara controls
most of the steps on the supply-chain: It designs, produces, and distributes itself. The
business system that had resulted was particularly distinctive in that Zara
manufactured its most fashion- sensitive products internally. Zara did not produce
"classics", clothes that would always be in style. In fact, the company intended its
clothes to have fairly short life spans, both within stores and in customers' closets.
Competitive Advantages
Zaras competitive advantages are highly sustainable and have boosted the
companys success in Europe. Zaras core competencies mainly revolves around the
high turnover rate of products, limited level of stock, highly efficient distribution
system, skillful management and employees, innovation, segmentation, all-inclusive
target market, quick adaptability to market needs, in-house production, vertical
integration, and quick response system.
Zara has also maintained low advertising cost than its competitors and the corporate
culture allows employees to work in teams is more horizontal than hierarchical. The
Divisional Structure that Zara follows allows a lot of information sharing and
suggestions to other divisions that might be located away from the stores. Other
apparel retailers found it difficult to imitate Zaras business model as it would need
them to change their entire model and make it as close to Zara as possible. Zara
chose Quick Response (QR) over being the cost leader and admitted to selling
clothes that are to be worn ten times. Zaras QR was also not easy to imitate as
other company would have to incur large costs to acquire such systems.
2. Diagnosis Problems

Zaras inability to develop a strong supply chain in the Americas. The U.S
apparel market covers 29% of the worlds market. Their current strategy in
Europe has given them success and ability to grow. Outside Europe however,
Zara lacks the essence of strong internal production and distribution facility,
producing in small batches and delivering in short-lead times in international
markets. To add to that, changes in foreign currency market can also be a

possible threat. Production costs may increase if Euro becomes stronger

against Dollar, leading higher costs of apparels to final consumer.

Another threat to Zara is direct competition. H&M, The Gap, Benetton are all
looking at international markets to enhance their growth opportunities. H&M
comes closest to Zara in terms of price and fashion sense. It is also
commendable to note H&Ms strategy of entering one international market at
a time and designing clothes based on international tastes. H&M has also is in
the process of building distribution centers in their international locations to
save on lead time, transportation costs, and logistics costs. Zaras centralized
logistics model may hinder its movement and growth in international markets.
Also, Zara is not sure about which market to enter. This may be a possible
barrier for Zara since the markets are diversified, have different tastes and
requirements, the industry structure is different, and it may be difficult for Zara
to impose its existing structure in foreign countries unless it understands the
markets.

In all of the cases, there is a real bottleneck on volumes for these medium
term suppliers, which results automatically from the fact of working on the
most readily available goods

3. Alternatives

Zara should be expand its market operations by following a short term and
long term strategy. In the short term Zara should aggressively pursue European
markets especially Italy to begin with. However, since all major European
markets would have heavy presence of competitors, it would be beneficial
for Zara to seek help from an experienced player to set its foot in the market.
Hence, Zara can either outsource its retail stores to interested franchisees
or to maintain greater control can form joint ventures. Zara can continue to
own its flagship stores and franchise other stores with the intention of buying
them out when they increase their market share.
Supply chain efficiency, which is directed at improving a companys financial
performance, is different from supply chain resilience, whose goal is risk
reduction. Although both require dealing with risks, recurrent risks (such as
demand fluctuations that managers must deal with in supply chains) require
companies to focus on efficiency in improving the way they match supply
and demand, while disruptive risks require companies to build resilience
despite additional cost.
Disruptive risks tend to have a domino effect on the supply chain: An impact
in one area for example, a fire in a supply plant ripples into other areas.
Such a risk cant be addressed by holding additional parts inventory without a
substantial loss in cost efficiency. By contrast, recurrent risks such as demand
fluctuations or supply delays tend to be independent. They can normally be
covered by good supply chain management practices, such as having the
right inventory in the right place

4. Recommendation
Our recommendation for zara is combine all alternatives to make it better solution.
Either Zara expand its market operations by following a short term and long term
strategy, Zara should be implement supply chain efficiency with goal is risk reduction.