Strategies That Make Firms Stay on Top - Essay Example

A COMPARATIVE ANALYSIS OF TWO COMPANIES (Zara and Ikea) by: ID Number Presented of the School Location Due on: December 07, 2014 Introduction Most firms are started small by people who are entrepreneurial and willing to take a risk that other people will most likely avoid. Entrepreneurs are a different breed of people because in many cases they see something or an opportunity to serve an existing consumer need that is not met or not being served well by existing industry players. In other words, they see a gap in the current market structure through which they can craft an entry strategy. However, that is only one part of the problem. Other issues can challenge even the most stout-hearted man or woman but these people with an entrepreneurial spirit are guided by their mission in life. Moreover, entrepreneurs do not give up easily and when they encounter a difficulty, they see it differently as a challenge for them to overcome when ordinary people would likely give up their dreams of making their venture a success over the long term. In other words, the people who venture their capital to start a business are willing to make sacrifices and in many ways their success are made over many years; it cannot be said they are an overnight success. The world would be a much poorer and perhaps boring place if not for the entrepreneurs who follow through on their dreams despite the many obstacles they face when starting the firm. In most instances, what people envy as their success was actually the product of hard work, persistence, perseverance, intuition, intelligence, and a vision to make the world a better place for everyone. Ironically, many entrepreneurs do not consider themselves a success even if by any standard or measure, they had already attained a resounding success in their careers. Put differently, entrepreneurs continue to be driven by the same intense desire to succeed as when they first started out as virtual unknowns in the world of business. This paper discusses and examines two such firms which today are dominant players in their respective industries due to the entrepreneurs behind them. They pursued strategies that made their firms stay on top despite the presence of a tough competitive situation and made the best of the situation. Discussion The two firms chosen for this paper are the Zara line of casual but chic clothing manufacturer and the other is Ikea which is a furniture maker known for its quality but low-prices strategy. Both of these firms are famous global brands in their own right and had achieved success in their respective industries through a combination of good business strategy and hard work. It can be rightly said both Zara and Ikea are not overnight successes but have persisted over the years to attain the top position in their respective industries. These two firms did not rest on their previous success but continued to search for new ways to maintain their momentum in their field of operations. Their stories are quite instructive and there are lessons to be learned. The history of the Zara Brand – this is today the worlds largest fashion retail group with its presence in about 88 countries in all five continents. The Zara brand is part of the Spanish group called Inditex which is the parent or holding company of Zara. It has headquarters in Arteixo located in the Galicia region of Spain. It was started by couple of Amancio Ortega Gaona and Rosalia Mera. Their vision was to offer affordable fashion clothing but not necessarily cheap so as not to turn off upscale buyers. This pricing strategy was to offset the usually expensive fashion designer brands and made possible by an efficient kind of materials management (Hill et al., 2014:92). The same basic strategy of low-cost affordable clothing lines is still being pursued today but with many new enhancements with regards to its overall global corporate strategy. Zara is just one of the many brands carried by the Inditex Group although Zara is its most famous brand among its product portfolio. Other brands include Massimo, Dutti, Pull and Bear, Uterque, Bershka, Oysho, and Stradivarious. From its simple and very humble beginnings, the Zara brand is one of the more recognizable brands in the world today by using a global branding strategy adapted to each country (Dahlen et al., 2010:123). It is an iconic Spanish international success story in the world of business. Its first store opened in the downtown section of La Coruña in Galicia and its first offerings were actually cheap imitations or knock-offs of the leading fashion brands back then. This had a strong appeal to the local people of Galicia who can now afford the cheap look-alike apparel products of the more expensive higher-end clothing fashion brands at that time. The first store was a big success which encouraged the couple to open similar stores in other areas of Spain using the same basic concept implemented in their first store in La Coruna. Its first-ever foreign store was opened in the neighbouring country of Portugal in Porto in 1980. Its second foreign store was in the United States (1989), then in France (1990), then Mexico (1992), and followed by Greece, Belgium, and Sweden (1994) until now it is present in 88 countries all over the world in all five continents which is a truly remarkable achievement. The current situation – Zara is the leading brand of the Inditex Group which had a good year with outstanding financial results of its impressive performance as of 2011 (latest figures that are available) with revenues of around 7 billion euros and net profit of about 1.7 billion euros because of a 12% increase from the previous year. Zara is the flagship retain chain of Inditex with about 5,527 stores in 2,000 locations worldwide. It currently employs about 109,500 people of whom about 1,000 of them are designers devoted solely to making new creations. It did better than most competitors during the financial crisis of 2008 which affected apparel sales worldwide. Zara became immensely successful by expanding into the commercial areas of countries where it operates. Its sales strategy has been to sell at full price and rarely gives discounts (Peng, 2008:64). Zara today has outsold and overtaken long-established fashion brands with a meteoric rise unprecedented by being vertically integrated (Barrow, 2011:113). Zara is a trendsetter in the industry in the sense it transformed the fashion business from its former ready-to-wear (RTW) concept to the new paradigm of “fast and affordable fashion” with flexible strategies using small-batch production (Grant, 2010:360). Key success factors (KSF) – the KSF of Zara can be seen in its innovative corporate strategy of avoiding franchising (Badia, 2009:178). Majority of Zara stores are company-owned unlike its competitors which franchise their outlets. This enabled Zara to maintain a tight control of its retail operations. Two other innovations it had adopted are using computer technologies that allowed it to change fashion lines in just two weeks instead of the usual two to three months lead time in the industry (Harvard Business Review, 2011:93) and the second is it does not outsource its production; fully 75% of all total production is done either in Spain or Portugal (Rangan, 2006:136). It can make twice-weekly deliveries to all its stores worldwide which its closest competitors cannot hope to duplicate (Turconi, 2010:21). Brief history of IKEA – the firm was started back in 1943 by Ingvar Kamprad in the town of Smaland located in southern Sweden. The harsh environment of Smaland convinced Ingvar of his philosophy of selling quality furniture items at affordable prices (IKEA, 2010:1). He was convinced he could still make a profit if he keeps his manufacturing costs down and he believes healthy sales will eventually earn him a profit and validate his business theory. This company is now on its seventh decade of providing quality furniture by keeping operations very efficient like pioneering the idea of self-assembly to keep its costs down by passing on the process of assembly to the customer. Its first store outside Sweden was in Oslo, Norway back in 1963. It uses functional designs by introducing certain themes to its furniture lines. This strategy gives its products an image of modernity that fits well with customer desires. IKEA surprisingly does not use formal corporate planning to implement its strategy but will rather deal with each situation in sort of an ad hoc manner. Employees hired are not given a formal training but are expected to learn while on the job and learn fast. Its approach can be described as improvisation as it goes along without any need for formal planning methods. It had worked before but maybe not for long as the industry changes (The Economist, 2011:63). The current situation – the furniture industry is largely fragmented with many players and no single dominant player. The strategy of IKEA is to sell directly to customers and bypass the large retails chains like Wal-Mart and Tesco. It operates big warehouses where it can stock its furniture products that include other home furnishing items such as curtains, beds, mattresses, lighting fixtures, carpets, kitchen utensils, and bathroom products. Its own core strategy is to outsource all production but closely monitors its suppliers and sub-contractors to maintain a high quality. In many instances, it chose to buy-out suppliers to ensure its quality whenever warranted. IKEA is fully aware of its big environment impact as it uses large amounts of wood, timber, and other forest products and shifted some of its requirements to plastics and metal. Its sales philosophy is sell at low cost but also reduced its customer service as buyers in its stores are the ones to search what they want, carry these out to their vehicles, and then assemble what they had bought themselves. This core philosophy has turned a low-margin industry into huge profits for IKEA despite stiff competition from competitors like La-Z-Boy and Ethan Allen. New market entrants from China, Italy, and Mexico has further intensified the competition and IKEA needs to adopt a more formal strategy (Sherman et al., 2007:163). Key success factors – IKEA developed a unique system of supplier collaboration that is quite similar to the Japanese kanban system of just-in-time deliveries. It makes investments in its suppliers if necessary such as financing their capital equipment acquisition costs. This helps to ensure supplier loyalty and with an renewed sense of commitment to high quality. It has a very complex supplier network using pre-packed unassembled furniture items delivered to its huge warehouse stores using an efficient logistics system unmatched in the industry. Its entire system looks unwieldy but surprisingly works well. The logistics chain involves 2,300 plus suppliers from fifty countries but only 20% of them supply 80% of its total requirements. Its policy of outsourcing is the ideal set-up for this industry because furniture is labour intensive. Evaluation Zara is best positioned to continue its leadership in the retail fashion industry because it was able to change the parameters of competition with its fast and flexible manufacturing skills. In many ways, Zara had altered the competitive environment and leaving its competition behind because it is very agile despite its huge size and created new opportunities for itself (Kim & Mauborgne, 2005:47). IKEA on the other hand had remained largely entrepreneurial in its business approach with regards to corporate planning although it is now a global firm. What it needs to do to remain successful in the future and beyond is to formalize its strategic planning formulation because it cannot hope to survive with its haphazard approach using a technique of improvisation to solving its problems and challenges. IKEA needs to do this so it can ensure its own success by predicting future trends in the furniture industry and to stretch itself beyond its core buyers of young couples (Winfield, Bishop & Porter, 2004:335). Conclusion Although Zara and IKEA are in two vastly different industries, there are some commonalities between them and these are the need to innovate constantly, predict future trends as they are both in the fashion industry (Zara in clothes and IKEA in furnitures) and the necessity of maintaining a global branding strategy that will continue to distinguish them from their many competitors which all want to grab even a portion of their respective large market share. The one thing unique about Zara is it does not advertise aggressively because it is able to predict the wants of its customers and so what the customers want they are already wearing. IKEA is of the same mentality in that it advertises itself but only very sparingly because it has a strong brand image of low-cost but quality furnitures as its philosophy (Barnes, 2001:14). Estimated word count: 2118 (of text only) References Badia, E. (2009) Zara and her sisters: the story of the worlds largest clothing retailer. 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