MODE OF ENTRY Group 3 | Section C Akshay | Amit K. | David | Nishant | Sankalp | Sourav | Subhankar (Zara Mode Of Entry)
MODE OF ENTRY Group 3 | Section CAkshay | Amit K. | David | Nishant | Sankalp | Sourav | Subhankar
(Zara Mode Of Entry)
INTR DUCTION
Most Successful fashion retailer operating in 59 countries
Deregulation in the textile and clothing industry. Unrestricted access to all WTO members.
Changing textile industry:
Fragmented production with highly concentrated distribution channels.
Increasing internationalization, emerging competitors, consolidation with mergers & acquisitions
Subcontracting or delocalization of production to lower labor & transportation cost country
Revaluation of the business models to adapt to customers changing taste
Democratization: Offering latest products at attractive prices
CASE OF ZARA:Flagship of Inditex; 2nd largest clothing retailer;Zara accounted for 66% of the groups turnoverInditex owns seven other clothing chains: Brand diversity
ZARA CONCEPT:Aims to democratize fashionCompetitive Advantage: Turnaround time & Store as a source of informationVertical Integration of design, JIT, low inventory, quick response, advanced ITOverall quick response to consumers demand“Live Collections”-most receptive garments in industry, half of Zara’s productionStore-Source of information.
Customer feedbackManagersHeadquartersDesignersRework-StoresSmall lot for every store, “Climate of scarcity & opportunity”0.3% spending on advertisement, Store is the most effective communication tool
Business Model (Customer orientation)
Key factors in Zara’s model
Time Factor
The store
Strategy (Impact on other retailers) Customer Service Market based pricing Brand Acquisition & Brand Development Multi-Brand (Risk of cannibalization)
Product Line (inditex brand Portfolio)
MOTIVESFOR ZARA’S INTERNATIONALIZATION
Zara Stores
Oporto, Portugal: First international store, 1988
By the end of January 2006
59 countries, 852 stores worldwide
Europe: 664 (259 in Spain)
America: 112
Middle-East & Africa: 45
Asia: 31
America
MOTIVESFOR ZARA’S INTERNATIONALIZATION
Push: People spending less on clothes and more in their leisure time on travelling and education
Pull: Spain's entry into European Union in 1986 Globalization and homogenization of consumption pattern across countries Economies of scale
Enablers: New York (1989), Paris (1990) and Milan (2001) – Image and Status reasons Learning by succeeding in competitive markets
MARKET SELECTIONFOR ZARA’S INTERNATIONALIZATION
Reluctance and Trial
(1975-88)
Expansion in domestic market
Geographical and cultural proximity to Spain
First international store in Oporto, Portugal (‘88)
Cautious Expansion
(1989-1996)
-> Geographical orCultural proximity
-> 1 or 2 countries/year
France (‘90), Belgium and Sweden (‘94),Mexico (‘92)
Exception: New York (‘89)Brand awareness and
Prestige
Aggressive Expansion
(1997-2005)
Grow beyond geographical and cultural barriers
Israel (‘97)8 countries in Middle East –
Kuwait, UAE, etc. – (‘98)Costa Rica, Monaco,
Philippines and Indonesia (2005)
Stage 1 Stage II Stage III
MARKET ENTRY STRATEGIES
• Own Subsidiaries :
Involved direct investmentMost Expensive mode of entryDuring exit of firm : High level of control and riskSuitable for high growth potential and low business risk countries.
e.g. Spain, U.S., Europe, Brazil etc
• Joint ventures :
Co-operate strategies with local companiesCombination of manufacturing facilities & know how of local company
and expertise of foreign firm in marketUsually implemented in areas having large competitive markets
• Joint Ventures :
1999 – Benefit of ZARA in distribution sector from joint venture with German firm Otto Versand and knowledge of European markets1998 – Entered Japan by signing an agreement with Biti, a leading cloth co.ZARA increased ownership to (78% : Germany, 80% : Italy, 100% : Japan)
– gained management control
• Franchising :
Suitable for High Risk countries having small markets with low sales forecast or are culturally distant (Saudi Arabia, Kuwait)
Similar business model to subsidiaries regarding the product, store location, interior design & human resources
Gave franchisees chance to return merchandize and exclusivity in their area but kept right to open it’s own stores at the same location
International Marketing Strategy1. Zara was ranked 73th in the list of worlds top 100 brands.2. Standardized Key strategic elements across all stores: Location, window
display, interior design, Store layout, Store display rotation, Customer service, and Logistics
3. Shift from ethnocentric Orientation to Geocentric orientation in 2004
4. Dualistic brand name strategy: Company uses the name of the firm and a unique brand name for the same product group. Like‐ ‘Zara Basic’, ‘Zara Trafaluc’
Promotion and Pricing
• Zara’s promotional strategy is same for domestic and international market
• Relies mostly on stores for its promotional campaigns. Advertisement campaign is carried out only during new store openings.
• International prices are higher due to longer distribution channels. Based on the prices Zara has positioned itself in different international market.
ZARA’S main Competitors‘ Fashion and quality at the best price’ Key factors behind H&M’s Success:Location of storesFlexibility of productionLow pricesE‐commerce for Nordic countries
‘A combination of market and entrepreneurial ambition’ Internationalization:First phase of expansion in neighboring countriesSecond phase expansion in ‘Anglo‐German’ countries
‘ When we expand, it is important to listen carefully to the local market. We need to adapt but not at the expense of loosing what makes us who we are.’Expansion: Franchise agreement helps to keep the management control across countriesOpening stores in best market locationsCustomized interior designing of stores according to the culture of the countryStrategy : Zara’s concept with local adaptation
Key factors behind GAP’s growth :
International expansion
Diversification into accessories and personal
care products
Creation of new brands
Development of electronic commerce channel
Huge number of suppliers
Internationalization :
First phase of expansion in countries with same
cultural diversity
Second phase expansion into German markets
Expanding in the Middle east, Singapore and Malaysia
in future
Franchising as a strategy to expand