ZARA in Indian and Chinese Markets

Zara is a very renowned brand for its latest designs and is among the top 100 best global brands in 2010 and its unusual strategy of zero advertising and instead invests the revenue in opening new stores across the world. The middle-aged mother buys clothes at Zara chain because they are cheap, while her daughter aged in the mid 20’s buys Zara clothing because it is fashionable. Clearly Zara is riding two of the winning retail trends firstly, being in fashion and secondly being low in price making a very effective combination out of it.

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

The Louis Vuitton fashion director Daniel Piette also described it as “possibly the most innovative and devastating retailer in the world.” It controls 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.

In accordance with Indian regulations on foreign direct investment (FDI), the Spanish fast-fashion retailer partnered with the Tata Group, India, to form a joint venture in February 2009. Inditex owns fifty one percent of this partnership while Tata’s subsidiary Trent Limited holds forty nine percent Due to various challenges the company faces, store expansion will remain slow, with only one further store op Zara is the second Spanish Retailer to enter India, after Mango. Although Mango expanded in India, by the franchise route. Ending planned for 2010.

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,” it took up joint ventures 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 that Zara regards its stores as one of the relevant factors in its business model. The shop is regarded as the interface between the customer and the engine of the entire business – fashion design, manufacturing, logistics and ultimately, retail.

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. Inditex controls 51 per cent of the joint venture, while Trent Limited owns 49 per cent.

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 distribution 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.

However, the company faces several hurdles. Current regulations on FDI in India stipulate that foreign single-brand retailers must pass a 49% stake to a local partner. This involves the retailer sharing company details and data it would not normally divulge. Furthermore, franchising stores means that the retailer loses some control over how these are operated, which many companies fear may damage their brand. Consequently, single-brand retailers are often wary of entering the Indian market. For a clothing retailer like Zara, additional concerns include the relative lack of seasonal variation and the distinct, consolidated style of dress among Indian women which differs greatly to Zara’s existing ranges.

Entry strategy of Zara in China

Spain’s Zara, a subsidiary of Inditex SA, will open 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 offers a simple explanation for its success: It delivers new stock to its stores twice a week, and new stocks always include new designs. Zara produces more than 19,000 different designs a year. In order to do this, Zara’s parent company Inditex must break the traditional business mode, which goes from design to sourcing to stores to customers. Zara’s model instead starts with customers and then goes to stores, designs and sourcing.

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

Inditex works with about 900 different suppliers and factories, including 12 directly owned factories in Spain. These 12 core factories produce the most important and fashionable clothes, which will be presented on stores’ display shelves.

More than half of Zara’s products are made in its production bases in Spain, Portugal and Monaca; 30 percent are sourced from Asia and 20 percent are sourced from Eastern Europe and the Americas. China produces about 13 percent of the commodities

Market results in 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

In India, its clothing retail expenditure is forecast to grow at a faster rate than neighboring China with a CAGR of 6.7% in the period 2009-13, compared to China’s 5.3%, according to Verdict’s Global Retail Database.

Zara success is as much a result of its history and location 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, we can certainly try and learn from its experience, its processes and its business structures. The Asian market is huge and hungry.

It seems that Zara could be leading those that feed it.