Zara Chic and Fast Fashion - Strategic Issues - Case Study Example

sе Аnаlysis: ZАRА СHIС and Fаst Fashion Name Institution: Date: Introduction Zara Company is a global cloth fashion designer with a mission of providing trendy and affordable wears for all society members’ men, women and children alike. The company operates in the vastly dynamic fashion industry. Currently, as evidenced by the increased rate of growth and increasing profits, the industry is currently at its growth stage yet to achieve maturity making it extremely attractive for existing and new entrants. Over the years, Zara Company has evolved and developed its niche in the competitive global world. In this regard, the company adopted a range of strategic measures to proactively anticipate market preference needs and subsequently mitigate against them. As such, the company developed and established a wide range of outlets and retail stores to allow for increased accessibility by its customer base. Further, the organization sought to establish its unique selling point in the market. As such, it adopted a technology dependent design process, a step none of its competitors had taken. Thus, the company adopted its slogan that for it to enhance success, it relied not on the development of a new product, but on the development of a new production process. Consequently, through this approach, Zara Company established a unique production process that earned it an increased customer base. Consequently, the organization’s performance has been on the rise. In this case, an analysis of the organizations 2011 financial statements revealed an increased profitability margin by 12% as well as sales increase of 10%. These improvements were in contrast to its market competitors such as H&M and the Gap who in turn registered sales changes of 1% and -1%, in addition to reducing profitability margins. Further, Inditex expanded its stores outlets by opening an additional 483 stores. Thus based on this background analysis, it is evident that Zara Company is a globally competitive company with increased influence in the clothing fashion industry. In order to succeed in the fashion industry, technology flexibility and sustainable production systems form part of the critical success factors that need be realized. As such, this essay reviews the Company case study revealing its major strategic issue as well as offering an external industry analysis to establish its achievement of the identified key success factors. . Strategic Issue As evidenced in its background analysis, Zara Company has over the years evolved into a globally competitive enterprise. In this case, the company has resulted into increased use of global fitting strategies and strategic approach. Among such strategies, include the adoption of an efficient global oriented management approach with respect to the management of its human resource, supply chain as well as other internal functions such as global marketing. The global market is highly competitive with increase suppliers and a relatively stable market population. As such, increased supply base translates into a reduced market, thus necessitating the development of competitive market approaches. In this regard, Zara Company, even after its adoption of a cost leadership strategy, that had significantly increased its market competitiveness and performance, requires management structure change to enhance increased performance. The company future competitiveness is apparent. The Company faces the need to establish a global strategic management structure. In this case, in its product development approach, the company faces strategic options in product development with respect to geographical, target and brand distinctions. In this regard, the organization, in order to establish sustained market competitiveness should ensure that it succeeds in developing the products in the three different fronts. On one hand, such a structure ought to incorporate the concepts of international human resource management as well as flexibility of such policies to allow for cultural diversity. On the other hand, the structure should establish a sustainable supply chain management approach. Such a sustainability structure should incorporate a monitoring and evaluation system to validate conformance to sustainability requirements. A company’s Strength, weakness, opportunity and threats (SWOT) analysis reveals that the organization has its strength in its wide and global presence. Moreover, it reveals that the organization faces increased global expansion due to its established channels of distribution. However, internal weaknesses in human resource management and the threat of new entrants take over, necessitates the development and establishment of a sustainable organizational competitiveness for Zara Company. In addition, the ideal Zara Company competitive structure in the highly competitive fashion industry is one that incorporates the concept of internal functions management on a global perspective. Such a structure is one that allows functions such as global and international marketing. The major strategic issue necessitating the development of these strategies is the need to increase market efficiency. The question remains, will the industry continue with its current growth into the future? Moreover, an additional question is, Does Zara Company have the potential to achieve the key success factors on technology flexibility and sustainable production? External Analysis: Political, Economic, Social and Technological (PEST) Analysis The fashion industry is a fast growing global industry. In this regard, investors have channeled resource in a bid to reap the expected high returns. Consequently, it is imperative to conduct an environmental analysis to establish the industry’s growth potential. This essay adopts the PEST environmental analysis tool. Political Analysis Despite efficient organizational marketing and operational strategies, organizations rely on political systems and regulations to exert influence and impact on foreign markets. In this case, industrial performance is hedged on political goodwill across the foreign markets. One such scenario in the fashion industry is the taxation and tariffs imposed on imports and exports. In this case, such reduce on profitability and reduce industry expansion. The fashion industry faces a favorable political climate. In this case, major input sources such as China and India have embraced the free market concept. As such, the nations have removed imports and export quotas that previously restricted quantity traded. Moreover, global nations and regions have embraced both the free and fair trade concepts. Consequently, through free and fair trade principles, the fashion industry players are able to trade freely at no extra costs of production. In addition, supply chain management is enhanced through political regulations. As such, the industry, through political regulations such as environmental conservation regulations, has increasingly achieved sustainable production throughout the supply chain. In this case, increased political goodwill and enactment of policies to enhance sustainability present the industry with increased growth potential. Economic Analysis The fashion industry is a highly dynamic industry. In this case, the industry is highly influenced by global economic changes. The industry relies on a global supply chain to acquire inputs, production technology and to facilitate distribution of its finished products onto its global supply base. Thus, economic changes are bound to impact on the industries performance. Such impacts include inflation and currency fluctuations. On one hand, an economic analysis on the industry reveals a positive forecast. In this regard, the economic situation in Europe is easing up. Over the recent past, Europe experienced an increased economic tension because of the 2008 financial crisis. As a result, the market shifted and changed its spending pattern. Due to economic constraints, the market reduced its spending on fashion products. Consequently, Fashion clothes sales in the European at best stagnated in the economy while it even decreased in others. For instance, a historical review of the industry performance illustrated in the case study reveals that all the companies listed increased their performance between 2010 and 2011 because of stabilized European market economy. Further, an economic analysis of the industry is hedged on the Greece improving debt nature. Due to its rescheduled debt payment dates, the Greece economy has stabilized and is expected to improve thus improving the industry customer base as well as its inputs source. On the other hand, an industry analysis reveals forecasted economic challenges. The analysis acknowledges the eminent inflation rates increase as well as continued currency fluctuation that makes profitability forecasting a challenge. Moreover, the analysis reveals an expected economic growth in the United States of America. As such, due to the slow-paced expected growth, the fashion industry firms forecast minimum sales increase in this market, which is a major customer base due to its economic stability. Moreover, the analysis establishes that the expected slow paced economic growth is not limited to the USA but to a majority other world economies due to increased inflation and increased costs of living. Consequently, with increased costs of living, purchasing and spending patterns change, where it is anticipated that a majority of the customers will eventually their spending on fashion products, thus reducing overall expected sales. Thus in respect to the forecasted challenges, the industry anticipates an economic crisis with reduced increased profitability. In this regard, increased economic development will eventually increase economic rivalry in the industry. Due to the increased demand, organizations will increase their market supply. Consequently, organizations will earn increased revenues. Nevertheless, the analysis evaluates the relationship between the merits and economic challenges and the extent of each on profitability and industry performance. Conclusively, despite the anticipated challenges it is forecasted that the industry will increase earnings form 2011, 700 billion Euros to a forecasted 1.1 trillion Euros by 2020. Social Analysis Organizational performance is hedged on the nature and social structures on its consumer base. In this regard, an environmental analysis seeks to establish social structures and expected changes that either support or hinder organizational growth in the future. A social analysis on the global market establishes changing market relations and the development of virtual online communities. In this case, as the case study establishes, the market has increasingly resulted into social media in an effort to nurture the online virtual communities. Consequently, this changed social relation creates an increased business opportunity for the fashion industry. Due to its ability to integrate customers from diverse backgrounds, organizations can use these social platforms to reach out to wider customer base increasing growth probabilities. In addition, globalization has enhanced cultural integration. As such, the global market is increasingly receptive to new fashions as opposed to traditional perceptions, where clothing, a secondary cultural value, was restricted to culturally acceptable standards that were rigid and hardly transformed thus restraining the industry growth. However, the drastic social changes in consumer behaviors pose a forecasting and strategic management challenge in the industry. In this case, production forecasting may be affected by drastic market taste and preference changes in the fashion industry. Consequently, in the event that organizations produce in bulk and the preference change, the losses incurred would be huge, making the industry a risky investment. Technological Analysis An industry’s performance is hedged on the technological performance and flexibility nature in its operations. While as some industries have low technological flexibility, others have high flexibility rates. The fashion industry is one that is highly reliant and subjected to high technological evolutions. Consequently, these developments have resulted into both business opportunities as well as challenges. A technology environment analysis on the fashion clothing industry reveals that the industry is bound to grow and expand in the future. In this regard, the analysis reveals that technology development supports research and development. In this case, the analysis reveals that the fashion industry has its core competency on research. As such, new design development, market preferences and production process innovation are hedged on research. Technology plays a significant role in enhancing research. In this case, technology allows for ease collection of research data, as well as reducing on costs. As such, technological developments enhance increased probability of growth in the fashion industry. Consequently, the industry is expected to grow as technology develops. A current technological analysis reveals that arrange of technological developments have facilitated increased growth in the clothes fashion industry. One among such developments is internet. The internet has resulted into increased growth on two fronts, both as an aid to trade and as a trading platform. On one hand, corporations post their advertisements online. Due to technological development, that allows internet access even on mobile devices; such online marketing approach reaches out to an increased target consumer base unlike the traditional print media marketing. Additionally, internet expansion created an online trading platform. In this regard, fashion companies have opened up online retail stores. In such stores, customers select their preferred products and either book or buy them. Upon booking, the products are reserved in the respective stores awaiting the customers’ physical purchase. On the other hand, upon purchase, customers pay through online payment procedures and organizations arrange for shipment of the products to the customers destination. Therefore, based on this technological analysis, it is apparent that the fashion industry is bound to grow. Porters Five Forces Model Reference Matherly, L., (2012). Zara: Chic and Fast Fashion. Abu Dhabi, UAE: Zayed University. Read More