Entry Mode Of Zara Into The Indian And Chinese Market

Introduction

Zara is an extremely renowned brand, known for its latest designs and is among the top 100 best global brands in 2010 .It uses the unusual strategy of zero advertising and instead invests the revenue in opening new stores across the world. Zara is popular amongst old and young generations too because it is affordable fashion. It is crystal Clear that Zara is successfully living upto the standard of its two winning retail trends firstly, it is fashionable and secondly it is low in price thus resulting in a very effective mixture out of it.

The first store of Zara was opened in a central street in Spain in 1977 by Amancio Ortega who also owns, other brands such as Massimo Dutti, Pull and Bear and many others. Spain is the headquarter of Zara. Zara have opened 95 stores around the world in quarter 1 of year 2009 alone, bringing the total to 4359 stores in 73 countries worldwide.

The Louis Vuitton fashion director Daniel Piette also described Zara as “possibly the most innovative and devastating retailer in the world.” They control most of the steps in the supply chain and also it designs, produces and supplies itself.

Taking into consideration the amount of competition and the need for sustainability in the human race, running a business or a brand is not an easy task. With existing big brands and busy markets around the world, it takes more than what is required to make a name for oneself and to succeed in it. Proper management and marketing strategies are required along with the detailed knowledge of the economy and the earning and spending of the locality or the country’s GDP (Gross Domestic Product) which measures the country’s economy and their ability to spend and grow should be known before taking a leap and spreading the arms around the world. This essay discusses about which mode of entry strategy Zara adapted to entered into the Indian and Chinese market and whether the strategy proved to be beneficial for the company and the benefits / disadvantage sit is going tackling and lastly it also analyses in which country it is doing better and why.

Zara adopts a ‘Fast Fashion’ supply chain model. The latest fashions are supplied from design to delivery in just 2 weeks, compared to the 6‐month industry average. They operate a vertical supply chain, so they themselves undertake everything from design, manufacture, sourcing and distribution. This allows them total control over the business, and leaves them less vulnerable to accusations of unethical practices such as sweatshop labor.

Entry strategy of Zara in India

While Zara owns a majority of its stores in Spain, the international expansion has adopted three different entry modes: Own subsidiaries, Joint ventures and Franchising.

According to the Indian policy on foreign direct investment (FDI), Zara teamed up with the Tata Group, India, to form a joint enterprise in February 2009. Inditex has a share of fifty one percent of this collaboration while Tata’s subsidiary Trent Limited holds forty nine percent. Owing to several issues the Corporation undergoes, their extension of the store will stay slow, with just one additional store open Zara is the following Spanish Retailer to come into India, after Mango, even though Mango adopted the contract route to enter into the Indian market.

Jesus Echevarria Hernandez, Chief Communication Officer at Inditex Group. Says that “The entry in the Indian market has a significant strategic importance for Inditex. India is one of the top priorities in the Asia region when our retail offering has been very well received,” .

To enter the market in India, Inditex (the company behind Zara) used the strategy of pursuing a joint venture with Trent Limited, a Tata Group company, a highly recognized clothing line distributor. Zara took up joint ventures as its mode of entry in India because this is a co-operative strategy in which the manufacturing facilities and know-how of the local company are combined with the expertise of the foreign firm in the market, especially in large, competitive markets where it is difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require co-operation with a local company to which Zara regards its stores as one of the related elements in its business sculpt. The shop is regarded as the boundary among the buyer and the motor of the whole business – mode design, development, logistics and finally retail.

The main concerns that Zara had wile entering into the Indian market were Demography and cultural concerns. Speaking of demography India has a population of about 1.2 billion people and the target market would be no doubt wide than what is expected. As the income become larger in India, there will be more demand in the quality and fashionable clothing. Cultural Concerns: it is the major concern that has to be given tremendous attention when entering into a foreign market. It must accept the perspectives and beliefs of the role of culture in influence and as in India social security is given special attention.

In order to effectively achieve their goals, Zara pursued a strategy of selling a variety of its local clothing lines and international clothing lines, but maintaining Zara as the primary brand in India. Zara also targeted the larger positions including either the first or second positions in the Indian market of clothing lines. Any of these positions would be sufficient enough for Zara to create an outstanding level with regards to manufacturing, marketing and distribution. These positions can set up a stage from which Zara can sell their clothing lines and other special fashion products.

To promote the organization and its clothing lines, Zara utilized video advertisements, print ads and the idea of e-marketing which fulfilled the varying needs of consumers from India and beyond; particularly those priority Indian markets or the consumers in the urban India areas. For this promotion campaign, the perfect information that Zara Company utilizes is “Providing quality and fashionable clothing lines that fulfills your needs. Zara has been able to set up its reputation as one of Spain’s primary clothing line companies for several years now. It is able to rise up to the challenges in most of its markets directly (year ’99). This is made possible through the efficient promotional and positional strategies established in order to maintain not only large profits, but also on establishing the foundations of Zara’s clothes and fashion trends. The promotional strategies of Zara in India are easily implemented by the local employees themselves which enables the organization to vastly improve without the burden of implementing costly technologies. These initiatives can also lead in improved financial profit for the organization and will enable the foundation of [email protected] networks for Zara clothing lines in India.

Target Market

Zara has maintained a reputation for targeting the teenagers, those in their twenties and even the individuals considered young at heart. This is a customer sector that other clothing companies have previously ignored in place of the adult consumers. Zara Company also has the unique strategy of portraying the generations in their campaigns. These campaigns in India will tell that Zara Company is not a mere simple clothing line for the next generation; its users are also a generation ahead of their competitors. Zara Company can establish an image for itself in India as the clothing line for the present generation. It has discovered that the purchasing power of the youth and the marketing power of celebrities were similar (1998). They have garnered significant profit gains out of this strategy, and there is no reason why this won’t also work in India.

Nevertheless Zara undergoes quite a few hurdles like the existing rules on FDI in India require that foreign single-brand suppliers are obliged to surpass a 49% stake to a resident associate. This includes the vendor to share its organizations information and data it would usually not reveal. Moreover, franchising stores means that the merchant loses certain jurisdiction over how these are operated, which numerous businesses worry that it might harm their brand name. As a result, single-brand retailers are regularly cautious of entering the Indian market. For a apparel seller akin to Zara, further considerations contain the relative need of seasonal modification and the separate, consolidated manner of dress amongst Indian females that differs significantly to Zara’s offered ranges.

Entry strategy of Zara in China

Spain’s Zara, a division of Inditex SA, will start its flagship China store at Shanghai’s Hua Huai Road. International strategy at Zara is defined by the combination generic strategy of cost leadership and differentiation strategy. Teher are considerations, however, such as when selecting the Chinese market, labor cost and productivity, distribution cost and shipment cost of raw materials are considered other considerations are characters or behaviors of consumer and income per capita. In terms of marketing approach, the considerations include the 4Ps inherit to the Chinese consumers and business environment. Market entry considerations include economics both macro factors which include tax, political conditions and export tariff and micro eco factors including local competitors, demand, location os stores. Regulation from government and local producers’ protection issues are other considerations

Zara presents a straightforward explanation for its triumph: It offers fresh stock to its stores two times a week and new supplies at all times contain novel models. Zara creates more than 19,000 distinctive designs every year. In order to achieve this, Zara’s mother company Inditex has to breach the conventional business model, which goes from sketch toward sourcing to stores, to clients. Zara’s model as an alternative begins with customers and after that goes to stores, creation and sourcing.

“In this trendy world, we find it to be crucial to learn from customers and quickly respond to their requirements,” said Echevarria.

Inditex cooperates along with around 900 separate suppliers and factories, together with twelve directly possessed factories in Spain. These 12 heart factories fabricate the most essential and fashionable outfits, that will be presented on stores presentation shelves.

Slightly more than half of Zara’s goods are prepared in its production bases in Spain, Monaco and Portugal. Thirty percent are sourced from Asia and twenty pct are sourced from Eastern Europe and the Americas. China makes about 13 percent of the merchandise.

Market results in The Republic of China

Success factors include the cost leadership strategy, differentiation of strategy, efficient distribution. Information and technology, fast delivery of new products, designs and trends. However ones of the failure factors is Zara’s centralized distribution system which may not be inappropriate in entering a specific market of diverse nature like that of China (market entry strategy: case study Zara internationalism in China 3 November 2009).

Conclusion

The clothing retail expenditure of Zara inside India is forecast to raise at a higher speed than bordering China along with a CAGR of 6.7% within the episode 2009-13, in comparison to China’s 5.3%, matching to Verdict’s Global Retail Database.

Within India there is a extremely trivial segment of very style, fashion aware people, to impart a honest support for an organized quick in-fashion retailer. The global income standard of the middle class in India is 1-5 million consumers that is still a tiny division in India even by purchasing power parity.

Zara victory is as much a consequence of its history and position a sit counter intuitive business strategies. While it may not be possible for another company to exactly duplicate the conditions under which Zara grew and flourished, without doubt we can attempt and learn from its knowledge, its procedures and its company structures. The Asian market is enormous and hungry. It appears that Zara might be leading those that nourish it.