External analysis

Introduction

Strategic management aims to the formulation and the establishment of the business goal of any organization. The entire direction of an organization is ruled by the strategic management and this department also involves the introduction of new policies and the procedures. This study deals with the different aspects of strategic management in the context of ZARA, which is a well known retail sector of Australia situated in Sydney. In the year 1988 such organization has started its international expansion. Men’s and women’s fashionable clothing and children clothing are their main products. Such organization is famous for its quick innovation of products. They introduce new products very early in comparison to other organization (zara.com 2017). Various business strategies and analysis of strength and weakness of ZARA will be addressed in this study.

Porter’s five force model and PESTLE analysis are vital to executing the external component of an organization.

Porter five force models include five elements as for example competitive rivalry, buyer power, supplier power, substitution threat and the threat of new market entry, which are useful to understand the external environment of an organization (Wheelen and Hunger 2017). Competitive rivalry focuses on the strength of the competitors. In the context of Zara Prada, Herms International is the strongest competitors of such organization. However, H&M is the main competitors of Zara regarding the number of customers. Fast copying of the design in the fashion market is a big strength of Zara besides it, they offer high quality with the best price, which can be a good opportunity for their competitors to affect their business. Hence, the competitor can offer the quality product with the low price that may be harmful to Zara for their current business.

Supplier power focuses on the strength of the suppliers of an organization (Wee 2017). In the context of Zara, they can produce 450 million items in a year that is a big strength of them. However, this is possible for the good relationship with their suppliers.

  Buyer power is another positive aspect of Zara their fashionable products for the all genders is the good approach for them. Buyers from different countries preferred the products of Zara that is a positive aspect of their business (Kharub et al. 2017). On the other hand, premium price of Zara cannot be always accessible for the customers of all classes, which is a threat for their business.   

Substitution threat is another vital element of Porter five force models. According to Kanakulya and Jinzhao (2017), customers always try to search a substitution of any product or service, which is cheaper. However, Zara follows premium price thus, customers try to get similar quality products at low price from another organization that is a big threat for Zara’s position in the global market and their profitability.     

  Entry of the new similar business in the market is a threat to any existing organization that is unavoidable (Ulubeyli 2017). Hence, for Zara, they need to provide their concern to hold their position in the market to avoid the threat of new competitors in the market.

Internal analysis

Figure 1: Porter five force model

(Source: Ulubeyli 2017)

Political factor

Australia serves as the safe place for investment in the business. The government of such country is stable progressive and open, which provides high degree of certainty and confidence to the investors in their business (Fozer et al. 2017). Hence, for Zara expansion of the business is Australia is the golden opportunity as it will be positive in increasing the profitability.

Prices of the property are high in the Australia, certain areas of Australia offers the great opportunity for the investment of the business (Kew and Stredwick 2017). Brisbane and Perth are the vital areas, which offer good returns against the investment. Zara has their business in Sydney; hence, expansion of the market share in such places will be profitable for them. Therefore, the economic position of Australia is high as well as their GDP is high, which is the big opportunity for Zara to invest in such country.

Upper class, middle class, and working class are the main three social classes of Australia. People earn more who are associated with the trade rather than personal service in Australia (Kharub et al. 2017). On the other hand, the lifestyle of the upper-class people is addressed through the expensive clothes, vehicles, and house. Therefore, the high-quality lifestyle of the people brings opportunity for Zara to enhance their revenue generation in this country.

Australia is enriched with high technology experts since 1998. New technology is associated with creating new products, improving quality and reducing operation cost (Kew and Stredwick 2017). However, often issues take place regarding the technology and science policy of the Australia, which often affects the business as it is not always possible for the organization to maintain the policies regarding the technology during their operation. Despite this Australia plays a role for collaboration of international technology and science that will be beneficial for Zara to facilitate their business operation easily in this country.

Investors should be kept in mind that each business has to comply with government rules and regulation as United Nation Security Council is maintained by Australia. Specific imported and exported restrictions need to be maintained under sanctions (Hong and Li 2017). Zara needs to check the credentials of the overseas buyers and the partners during their business in order to comply with legal requirements.

The manufacturer needs to protect the environment by using hygienic operation process in their manufacturing.  Therefore, taking CSR activities are vital to reducing the global warming (Wee 2017). Providing more tax to the air travel is necessary to protect the environment. Zara needs to follow the rules under Environment Protection Act 1974 during their operation otherwise the company will be forced to change their operation structure.

  The internal analysis focuses on the operation procedures, infrastructure and logistic of an organization.  

Primary Activities

Inbound logistic

Relationship with the suppliers is the basic element of inbound logistic (Koc and Bozdag 2017). Hong Kong and China is the main source of Zara in order to increase their fabric quality while the price is staying down. However, dyed and finished fabrics are obtained by Zara using vertical integration.

Part B: Strategy evaluation, Problems/Challenges and Recommendation

Smooth operation process is needed for any business to lead their organization towards the profitability (Simatupang, Piboonrungroj and Williams 2017). In the context of Zara, their employees are advanced in utilizing the telecommunication system in order to make a communication between the headquarters, production house, supplier and the sales location. They manufacture the fashionable items internally and items those are sensitive to price are outsourced. They’re in house production ranges up to 85% and their factories are highly automated connecting with 450 sewing workshop.

Ways to deliver the completed product is termed as outbound logistic and it is also associated with the competitive advantages (Prajogo, Oke, and Olhager 2016). In the context of Zara, their global supply chain is their big strength that enables them to get the entry in the global market. Proper management of the resources allows Zara to offer the quality product at reasonable price, which makes them competent.

Demographic, psychographic and geographic mix marketing strategies are followed by Zara to understand the current needs of the consumers (Koc and Bozdag 2017).  Zara has limited stores all over the world thus they use specific targeting strategy. However, this can be a barrier for their business expansion in the competitive market and it is a major weakness of their organization. In order to cover the changing needs of the consumer Zara use urge based strategies, this allows them to fulfill the needs of the target customers as well as the demand of younger generation.

Zara’s innovative product and quick copying of the design makes them popular in the fashion market and strengthen their business. Hence, they focus on the growing demand and offer the high quality product to the customers. Their fabric quality is good that makes an easy way for them in getting entry in the new market (zara.com 2017)

Support activities is another element of such model includes human resource management (HRM), infrastructure, procurement and technological development (Prajogo, Oke, and Olhager 2016). However, Zara’s resources are properly managed and their HRM system focuses on the training program that is a valuable aspect for their employees as well as for their profitability. Zara provides their concern on the telecommunication process to connect the store manager about their production, which is a positive aspect of advanced technology. Therefore, they use website through the internet to make a face to face communication with the designer, which lead them to catch the opportunity of fast fashion. (zara.com 2017).

Figure 2: Porter value chain analysis

(Source: Koc and Bozdag 2017)

SWOT analysis of Zara

S-Strength · Unique design · Fast copying capacity · Effective supply chain	W-Weakness · Limited number of stores in global market · Lack of proper advertising process
O-Opportunity · Online marketing · Market expansion for fast copying of design	T-Threat · New competitor in the market · Use of selective strategy for limited stores · High quality with the best price

 Table 1: SWOT analysis of Zara

(Source: smh.com.au 2017)

Strength

The external and internal analysis identifies the strength, weakness, threat, and opportunity of the Zara in the context of the Australian market. According to the above table, the unique design is one of the big strengths of Zara. Zara’s clothes are well designed with high-quality fabric and fantastic finishing. Therefore, Zara has the ability to copy any design and produce innovative product quickly that enables them to be popular in the global market (smh.com.au 2017)

  A limited number of stores in the globe is a major weakness of Zara. Therefore, due to less number of stores customers from all geographical regions are not able to purchase the product from the physical stores (smh.com.au 2017). On the other hand, lack of advertising is another weakness of Zara as this brand can get double profit and turnover through the advertising process.

Consumers spend a long time in internet shopping in the current years and it is more acceptable to them rather than traditional shopping as it is cost and time effective (smh.com.au 2017). Hence, online buying trend will offer the opportunity to Zara to maximize their sales. Therefore, fast copying of the new design will lead Zara to gate competitive advantage in the global market.

Entry of the new competitor in the market and existence of the strong competitors is an undeniable threat for Zara. Therefore, they use selective business strategy to introduce their products in the market as they have limited stores, which can develop barrier in their market expansion. Moreover, Zara offers the high-quality product with the best price that is not accessible for consumers of all classes. As a result, competitors may offer alternative products with the low price that can affect Zara’s business in coming future (smh.com.au 2017).

Diversification, business level strategy, acquisition, international and cooperative strategies are the vital current business strategies used by the different organizations to gain competitive advantages.

Coordination and utilizing the human resource management is one of the most important business level strategies. According to Drnevich and Croson (2013), unit activities of the individuals in the business are crucial to achieving the business goal. Unit activities or collaborative work in a business enhance the team work and efficiency of the team member within the team. On the other hand, it is important for the business to utilize properly the available resources in their organization in terms of human labor to fulfill the business objectives. In the context of Zara such business level strategy helps them to get assurance about the enough employees in order give proper service.

Concentric diversification strategy is an effective strategy among the various diversification strategies. However, the introduction of the new products in the existing market and maximizing the investment by reducing risk is the aim of such strategy (Purce 2014). In the context of Zara, they have a tendency to introduce the new design in the market. Hence, by using concentric diversification strategy such organization will be able to diversify their product that will enable them to maximize their market share and to fulfill the growing demand.

Business organizations are going to be global in the recent years. Adoption of global strategy is useful for the organization to expand their business in the global market as this strategy covers international, global and multinational strategies (Wee 2017). Strategic management has an immense connection with the global strategy. Strategic management focuses on the internal environment of the organization and global strategy focuses on the existing resources of the outside of an organization. Zara has their brand in many countries, however; they have limited stores, hence, by following such global strategy Zara will be able to increase their stores in the global market.

Cooperative strategy refers to a mutual strategic understanding between the two organizations or firms (Drnevich and Croson 2013). The joint venture is a useful example of the cooperative strategy that is followed by many business owners. Joint venture enables the organizations to enrich their resources and to expand their business. In the case of Zara by following such strategy they can maximize their store numbers and will be able to strengthen their financial resources that are the basic resource for a business.

Four major strategies are identified in the above section including business level strategy, diversification strategy, international strategy and cooperative strategy.

The business level strategy focuses on the coordination and the utilization of the human resource management strategy. As argued by Vogel and Güttel (2013), coordination strategy often fails to get success as it is broken down by the department. In the case of Zara, their coordination strategy can be affected due to the irresponsibility of the managers of any department. This is big threat to such strategy. Therefore, poor communication occurs between the manager and the staffs that are the major weakness of coordination strategy. On the other hand, without collaborative support, it is risky to establish the coordination strategy as it hampers the business.

Concentric diversification strategy reduces the flexibility of the business that is the weakness of such strategy (Jenkins et al. 2015). Therefore, this strategy focuses on the resource diversification besides the product diversification. As a result, other areas of the business of Zara gets the lack of concentration, which is a threat related to such strategy. Moreover, Zara may face risk while opening new business regarding such strategy as it often hampers managing of the new business.

  The global strategy includes macroeconomic risk as the same approach is not applicable in all market (Verbeke and Asmussen 2016). However, different markets have specific test thus, by using global strategy Zara will not be always successful in penetrating all markets that is the weakness of such strategy. On the other hand, global strategy possesses operational threat as changes in the laws regarding the corporation and employment would ruin the success of such strategy in the context of the manufacturer.

  The joint venture that is the vital aspect of cooperative strategy leads the business organization to lose their unique branding approach that is the major weakness of such strategy (Shibin et al. 2016). Therefore, Zara will not able to maintain their unique brand identity through such strategy and misleading of the information regarding the financial resource management and profitability is the risk of using such strategy. Mismatching in the perspectives of different partners in the joint venture strategy can be a big threat for Zara that might affect their business.

• Using proper advertising strategy can be useful for Zara to cover a large number of customers in the global market.
• Use of proper market research and effective communication can be effective for Zara to minimize the weakness, risk, and threat of using global and cooperative strategy. This will enable them to maximize their store numbers as a limited number of stores is their major weakness.
• Establishment of unity between the employees within the organization will improve the business level strategy in Zara. Hence, this can be beneficial for them to gain competitive advantages in the new and existing market.

Internal Factors
External Factors		Strength (S) Fast copying nature	Weakness (W) Limited number of stores and strategies
Opportunities (O) Scope for more investment in global market	Strength/ Opportunities Fast copying nature/scope for market expansion	Weakness/Opportunities Decreases in the customer number/Maximizing the number of stores
Threat (T) Increased number of competitors due to application of limited strategy	Strengths/Threat Innovative design/huge competition	Weakness/Threat Limited strategy/challenges by the competitor

Table 2: TOWS analysis of Zara

(Source: zara.com 2017)

The above tabular format focuses on the TOWS analysis in the context of Zara. However, they have first copying capacity of any innovative design that brings opportunity to expand their market share. On the Other hand, Zara has limited number of stores in the globe that is weakness and leads them to catch the opportunity of expanding their stores in worldwide. Their innovative designing nature is the major strength of them that may cause huge competition for them and their limited strategy may bring more competitors for them in the international market (zara.com 2017).

Conclusion

  The entire study reveals the different aspects of strategic management in the context of Zara. Their product varieties allow them to attract the consumer attention easily. However, it is crucial for the all business organization to expand their stores in the global market that provides assurance about the increment in their sales revenue generation. Hence, limited stores of Zara prohibit them from getting such opportunity. On the other hand, by following business level strategy, cooperative strategy, global and diversification strategy Zara can improve their business management and enhance profitability.

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