International Business Strategy of Zara Case Study

International Business Strategy of Zara - Case Study Example The firm that is analyzed in the paper is Zara. This Spanish fashion retailer is the leader in Europe, followed by the Swedish, H&M and UK’s Marks & Spencers. Headquartered in the industrial estate of Sabon-Artexio, outside A Caruna in Spain, Zara has over 2700 stores round the world, the latest having opened in China, Serbia, Sweden and Tunisia in 2006 and in Poland, Romania and Russia in 2008. Inditex SA, the holding company, clocked revenues of $8.5 billion in 2007, of which Zara contributed 66 percent. The expansion strategy positively contributed to the increase of Inditex’s share value. The other fashion brands in Inditex’s stable, Pull & Bear, Massimo Dutti, Bershka, Stradivarius and Oysho, though having the potential of cannibalizing some of Zara’s advantage, are really no competition to Zara. Zara has stores in over 60 countries in Europe, America and Asia. However, the retailer has not gone whole hog in international expansion, particularly in th e United States and Asia, because it has not expanded its supply chain wide enough to sell in these markets without holding high inventories. Instead, the company focuses on consolidation in the European markets, entering recently into Ireland, Iceland, the Czech Republic, Luxembourg, Finland and Italy and is expanding in England and Germany. Zara’s business strategy is in contrast to most other apparel and other consumer product retailers in the world. Zara produces as many as 12,000 new items of clothing every year, which is nearly four times the average of the apparel industry. Besides, it replaces stock in 3 weeks, which is also 12 times faster than the industry average (Diaz, 2005). Zara's distinctive competence is consisted of vertical integration of design, just-in-time manufacturing system, delivery and sales; flexibility structures, low inventory, quick customization response and specific human capital (Castellano 1993; 2002). Amancio Ortega, founder of Inditex , claimed the aim of Zara is to " democratize fashion by offering the latest fashion in medium quality at affordable prices" This paper will discuss Zara's business model, particularly in relation to its supply chain and customization system, to understand whether its transnational business strategy is flexible, efficient and adapt to a learning process, which, according to Ghoshal's (1987) model, are the goals of a global firm. Theoretical Background The strategic tools that a global company has in order to gain competitive advantage are through exploitation of differences in input and output markets that exist in different markets. Besides, benefiting from economies of scale of operating in different markets and activities, global firms can gain competitive advantage that optimizes risks, efficiency and absorption of learning in different markets (Ghoshal, 1987) For some companies, global integration may result in competitive advantage through economies of scale. For some others, global expansion may not result in competitive advantage when the corporate hierarchy thrusts such a strategy on the company because of difficulties managing large organizations that blur centralized and decentralized policy decisions (Ghoshal, 1987). Since the second half of the 20th century, transnational companies have been the main agents of globalization in all industries, whether through investments, trade and the internet (Gereffi, 2001). In times of globalization, a firm's competitive strength in