We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

See Pricing

What's Your Topic?

Hire a Professional Writer Now

The input space is limited by 250 symbols

What's Your Deadline?

Choose 3 Hours or More.
2/4 steps

How Many Pages?

3/4 steps

Sign Up and See Pricing

"You must agree to out terms of services and privacy policy"
Get Offer

Internalisation of Spanish Fashion Brand Zara

Hire a Professional Writer Now

The input space is limited by 250 symbols

Deadline:2 days left
"You must agree to out terms of services and privacy policy"
Write my paper

INTERNATIONALISATION OF SPANISH FASHION BRAND ZARA Carmen Lopez Ying Fan Brunel Business School Brunel University Uxbridge UB8 3PH England +44-1895-267239 Key Words Internationalisation, fashion retailing, market entry, branding, international marketing, Zara 1 INTERNATIONALISATION OF SPANISH FASHION BRAND ZARA ABSTRACT Purpose Research on the internationalisation of retailing has been mainly focused on market entry issues. This paper attempts to examine the internationalisation process from a branding perspective using Spanish fashion retailer Zara as a case.

Methodology/Approach An in-depth case approach was adopted based on extensive secondary research, which include literature published in English and Spanish as well as company internal documents.

Don't use plagiarized sources. Get Your Custom Essay on
Internalisation of Spanish Fashion Brand Zara
Just from $13,9/Page
Get custom paper

Findings The internationalisation of Zara seems to follow the classic “stage model” by firstly entering geographically or culturally close markets before taking opportunities in more distant markets. This global expansion was triggered by both push and pull factors.

Compared with the competition, Zara has three distinctions: a) vertical integration to achieve a faster turnaround time; b) using franchise and joint ventures for rapid expansion; c) using store as the main tool for promotion with little spend on advertising.

In terms of branding, the firm gives no information about its country of origin, instead aims to make the consumer to believe Zara as a local brand. Research limitations/ implications The main drawback in case studies is that of limited validity and representativeness that constrain the potential for making generalisations.

However, this case is deemed sufficient to provide valuable insights and improve the understanding in this area. Originality/value Little attention has been devoted to the internationalisation process from the branding perspective. Aiming to fill in this gap in the literature this study provides important insights into Zara’s internationalisation process. Key Words Internationalisation, fashion retailing, branding, market entry, Zara Paper Type Case Study 2

INTERNATIONALISATION OF SPANISH FASHION BRAND ZARA INTRODUCTION Despite the increased volume of research on the internationalisation of retailing since the end of the 1980s (Burt and Carralero-Encinas, 2000), attention has been devoted to the internationalisation process from the branding perspective (Moore et al. , 2000). As Brown and Burt (1992) stated, “one view of internationalisation is that based on the transfer of a retail brand, with its associated image for consumers across national borders”.

Alexander (1997) added that “the image has become an important tool in the internationalisation of a retailer”. Therefore this paper seeks to address this gap in the literature by examining the internationalisation process of the Spanish fashion retailer Zara. This study adopts an in-depth case approach based on extensive secondary research. Literatures published in both English and Spanish have been reviewed, including company documents such as annual reports.

The paper is organised into four parts. It begins with a brief overview of the global textile and clothing industry. This is followed by the case study of Zara. The main part of the case examines the key aspects in the internationalisation of Zara, namely: motivations for internationalisation, market selection, entry strategies, and international marketing strategies. In the final section, two of Zara’s main competitors H&M and Gap are also discussed and comparison with Zara made.

The global textile and clothing industry The removal of all import quotas in the textile and clothing industry from January 2005, involving the unrestricted access of all members of the World Trade Organization (WTO) to the European, American and Canadian markets is considered a key driving force in the development of the clothing sector (Keenan, et al. , 2004). 3 This new scenario has created opportunities for largest exporters like China and India that are considerably increasing their market share while at the same time creating challenges for the European Union member states in order to remain competitive internationally.

The major trends that are restructuring and characterising the textile and clothing sector are as follows: • The European textile and clothing industry is characterised by fragmented production with a large number of small and medium-sized companies mainly located in Italy, Great Britain, France, Germany and Spain (Nordas, 2004), while distribution channels are highly concentrated (Stengg, 2001). • Increasing internationalisation in the textile and apparel sector and the emergence of international competitors (Cervino, 1998). Consolidation of the sector through mergers, acquisitions and strategic alliances (Dunford, 2004). Sub-contracting or delocalisation of textile and clothing production to countries with lower labour and transportation costs and reduced lead-time (Berkeley and Steuer, 2000). • Re-evaluation of the business models to adapt to the customers? changing taste (KPMG, 2005). Fashion companies are becoming more flexible and vertically organised, limited vertical integration being more frequent than complete integration (Samiee, 1995). Adoption of new technology to expand productivity and increase competitiveness (Berkeley and Steuer, 2000). Democratisation of the fashion sector over the last decades (Mazaira, et al. , 2003). Zara has contributed greatly to this shift by offering the latest design at attractive prices. 4 ZARA: THE BACKGROUND Established in 1975, Zara is the flagship of Inditex (Industria del Diseno Textil SA), a holding company located in Galicia (north-west Spain). In a relatively short time frame Zara has become the world’s second largest clothing retailer with 2,692 stores spread across 62 countries worldwide by the end of January 2006.

In addition to Zara which accounted for 66percent of the group’s turnover in 2005, Inditex owns seven other clothing chains: Kiddy? s Class (children’s fashion), Pull and Bear (youth casual clothes), Massimo Dutti (quality and conventional fashion), Bershka (avant-garde clothing), Stradivarius (trendy garments for young woman), Oysho (undergarment chain) and Zara Home (household textiles). The Zara Concept Zara? s aim, according to Amancio Ortega, founder of Inditex, is to democratise fashion by offering the latest fashion in medium quality at affordable prices.

What differentiates Zara? s business model from that of its competitors is the turnaround time and the store as a source of information. Zara’s vertical integration of design, just-in-time manufacturing system, delivery and sales; flexible structure, low inventory rule; quick response policy and advanced information technology all combined to enable quick response to customer’s changing demands (Castellano, 1993; 2002). A completely new piece of clothing can be designed, manufactured and delivered in less than four weeks.

Changes of an existing garment can be put on display within two weeks, much faster than the competition (The Economist, 2005). Zara internally manufactures its ? live collections? , the most receptive garments to fashion, which account for almost half of its production, internally and outsourcers 5 those that are not subject to seasonal variation. About 11,000 new items are launched every year (Ghemawat and Nueno, 2003). The store acts not only as a point of sale but also influences the design and speed of production. It is the end and starting point of the business system. Zara? production cycle starts with customers? judgements on the new designs of clothes and the information collected by staff members who travel to fashion cities, observing people on the streets, publications and visiting the venues that are frequented by their potential customers (Fabrega, 2004). What distinguishes Zara from its competitors is the feedback that Zara? s managers get from the customers at the point of sales about new garments or new products that they are interested in. Store managers report the demands of customers and the sales trends to the headquarters on a daily basis.

The design group will use the feedback to create new articles or modifications to the existing goods and then deliver the items to the stores (Martinez, 1997). Every store receives small batches of products twice a week, avoiding large inventory and creating a “climate of scarcity and opportunity” (Crawford, 2000). Around 60 percent of its products are permanent and the remaining 40percent varies continually. The company estimates that customers visit a Zara store 17 times a year on an average, as compared to merely four visits for other fashion firms (Castro, 2003).

The outlets are situated in main commercial areas, the interiors are designed to create a unique atmosphere and with attractive window displays. The firm spends only 0. 3 percent of its annual turnover on advertising (Ghemawat and Nueno, 2003), normally at the beginning of sales season or the occasions of new store opening. The store is considered its most effective communication tool. 6 The two key factors in the Zara? s business model, the time factor and the store as a source of information, demonstrate the company’s customer-orientation.

Zara continuously adapts to market demands, aiming to deliver a unique service to the customer. The quality of customer service and other variables like the music, temperature and layout are evaluated by using the mystery shopper (Monllor, 2001). . Zara follows a market-based pricing strategy which determines the target prices that the buyer is willing to pay. The budget for the cost of the material, production and suppliers is fixed according to the target price and the profit margin that the management department wants to achieve with that item (Bonache and Cervino, 1996; Mazaira, et al. 2003). Over the past 30 years, Inditex has built a brand portfolio (see Table III for details) through brand acquisition -`Massimo Dutti? in 1991 and `Stradivarius? in the year 1999-; and brand development by using a multi-brand strategy and an extension strategy. In line with the multi-brand strategy `Zara? was created in 1975, `Pull & Bear? in 1991, `Kiddy? s Class? in 1993, `Bershka? in 1998 and `Oysho? in the year 2001. The extension strategy was applied to `Zara Home?. Inditex used the name of the existing brand `Zara? o take advantage of the transfer of associations between the flagship product and the extended one, `Zara Home?. (Insert Table III here). All these brands were built within the domestic market and then launched to international markets. This multi-brand portfolio has allowed Inditex to target at different segments more effectively. However, the cost of maintaining several brands and the hazard of cannibalisation are the major drawbacks of this strategy. Inditex has 7 tackled cannibalisation by differentiating the brands mainly through the product, target market, presentation and retail image (Fabrega, 2004).

The success of the Zara concept is also reflected in the impact that the company has created in the fashion industry that brought changes in the organisational methods of other clothing retailers, namely Benetton and Mango (Cinco Dias, 2003), and has even obliged luxury fashion brands like Gucci and Burberry to increase the rotation of their goods and develop sister brands to expand their customer base (Fernie, et al. , 1997; Foroohar, 2005). INTERNATIONALISATION OF ZARA Zara, the most internationalised chain of Inditex, opened its first store in 1975 in La Coruna, north-west Spain.

During the 1980s, Zara expanded within the domestic market, opening stores in all Spanish cities with population greater than 100,000 inhabitants (Ghemawat and Nueno, 2003). The second involved the international expansion of Zara with the opening of a store in Oporto (Portugal) in 1988. By the end of January 2006, Zara was operating in 59 countries with 852 stores: 664 stores were located in Europe (259 in Spain), 112 in America, 45 in Middle-East and Africa and 31 in Asia. International sales accounted for 69 percent of its total turnover in 2005, with Europe being its largest market by far.

This section will discuss the internationalisation process of Zara focusing on three issues: motivation, market selection and entry options. (Insert Figure I here) Motivations For Internationalisation 8 Jose Maria Castellano, former CEO of Inditex, recalls in an interview that the main reason why the company decided to launch an international expansion was the saturation in the domestic market, “Of course before opening the first store in the host market, we had the feeling and then we knew for certain that the Spanish fashion and design market was on the verge of saturation”. Martinez, 1997) Therefore, the limited market growth opportunities R home was the key influence on Zara? s decision to expand internationally. Most of the previous literature has classified the motives for retail internationalisation into push and pull factors. Push factors are those that encourage the organization to search for international opportunities. Pull factors involve attractive conditions in the host market. (Alexander, 1995b). Hence the internationalisation of Zara is a reactive response to the domestic market maturity.

According to Castellano, there were other push factors related to economic conditions behind the internationalisation: “At the end of the 1980s, the Spanish economy pointed toward a decrease in consumption in general terms. In our sector -fashion clothes in a good quality at affordable pricesthe consumption showed a slow pace of growth” (Martinez, 1997). Furthermore, a change in the Spanish consumer behaviour was taking place during that time; they started to spend more on spare time, travelling and education, and less on clothes.

The key pull factors that explain the internationalisation of Zara include Spain’s entry into the European Union in 1986, the globalisation of the economy and thus potential economies of scale, the homogenisation of consumption patterns across countries -Zara? s belief is that “national frontiers are no impediment to sharing a single fashion 9 culture”-, the abolition of barriers to export and the development of the information technology.

McGoldrick (1995, 2002) provides a third group of factors related to the organisation, the facilitators or enabling factors. The expansion of Zara in New York (1989), Paris (1990) and Milan (2001) was justified by image and status reasons (Castellano, 2002; Ortega and Blanco, 2004) as mentioned earlier. These three cities are considered fashion capitals that are highly competitive. The USA offered Zara the opportunity to learn first hand about its American competitor Gap and consumers in a large market with an interest in fashion.

The USA was perceived to be a high risk market and it was proven correct (Martinez, 1997). Ortega wrote in his 1998 annual report regarding the learning experience: “International expansion is the objective that cannot be delayed and will allow us to enrich our culture and vision of the market”. Last but not least, the internationalisation involved the spreading of cost and risk into different markets. Table II summarizes the factors influencing the decision to internationalise.

Adopting Alexander’s (1995a) classification of different locations of retailers in the international market (autochthonic, reactive, expansive and proactive), since 1988 Zara has moved smoothly from a reactive position at the beginning of internationalisation, where the maturity of the domestic market was behind of its decision to internationalise and the inhibitors were hampering the process, to a proactive position where the pull factors are more significant and the company has large growth opportunities internationally. (Insert Table II here) Market Selection 10 Zara’s internationalisation has passed through several phases.

The `stages? notion has been supported by Johanson and Wiedersheim-Paul (1975), Bilkey and Tesar (1977), Cavusgil (1980) and Treadgold (1990) whose model identifies three stages of international development. Zara has moved through a learning curve during these phases (Treadgold, 1990). With the firm’s experience gained in similar markets, the perceived risk, associated with the internationalisation process (Burt, 1993), was reduced. These phases, applied to Zara, are as follows: • Reluctance and trial: Between 1975 and 1988 Zara focused its expansion in the domestic market. The maturity of the

Spanish market led Zara to search for international opportunities in 1988. Portugal was an attractive and familiar market due to its geographical and cultural proximity to Spain. By opening a store in Oporto, Zara acquired experience and knowledge and realised that it had to adjust its business model to suit the new markets (Bonache and Cervino, 1996; Fabrega, 2004). • Cautious expansion (1989-1996): During this stage Zara expanded into markets geographically and/or psychologically proximate and with a minimum level of socio-economic development, adding one or two countries per year to its market portfolio.

In 1990 Zara started operating in France (Paris) a geographically contiguous country, a fashion capital and a starting point for the later expansion in Northern Europe -Belgium and Sweden, in 1994 (Bonache and Cervino, 1996). Mexico was added in 1992. This market, though geographically distant, is culturally close to the home country Spain, and provided with a reference of the South American market. Greece was the next in 1993, and followed by Malta and Cyprus in 1995 and 1996 respectively. The exception of this stage is the opening of a store in 1989 in 1 New York, a distant and very competitive market. It was a strategic decision by Zara to build brand awareness and international prestige and to get close to the fashion trends (Bonache and Cervino, 1996; Martinez, 1997). • Aggressive expansion (1997-2004):. The experience gained in the international environment made Zara more determined and intended on a rapid global expansion, regardless of cultural or geographical proximity. Zara started this stage by opening a store in Israel in 1997.

One year later, 1998, Zara entered eight countries, consolidating its presence in Middle East (Argentina, Venezuela, Great Britain, Japan, Turkey, Kuwait, Lebanon, United Arab Emirates) and nine countries in 1999 (Germany, The Netherlands, Poland, Canada, Chile, Brazil, Uruguay, Saudi Arabia, Bahrain). Between 2000 and 2003 Zara reinforced its situation in the European market rather than adding more countries. The enlargement of the European Union in 2004 justifies the considerable number of European countries that were incorporated that year. Costa Rica, Monaco, Philippines and Indonesia were added to the market portfolio in 2005.

At the beginning of 2006 Zara was operating in 59 countries with 852 stores with plans for more stores in the existing markets in Europe (France, Italy, Germany and Great Britain) and Asia as the centrepieces of its international operation (Fabrega, 2004). Market Entry Strategies While Zara owns a majority of its stores in Spain, the investment in stores in the international markets has been undertaken through three entry modes: • Own subsidiaries: This direct investment strategy is the most expensive mode of entry and involves high levels of control and risk in case the firm exits the 12 market.

Zara has adopted this strategy for most European and South American countries that were perceived to have high growth potential and low business risk (Flavian and Polo, 2000). It. • Joint ventures: 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, major and competitive markets where it is difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require the co-operation with a local company (Camunas, 2003).

In 1999 Zara entered into a joint venture with the German firm Otto Versand and benefited from the latter’s experience in the distribution sector and knowledge of one of the largest markets in Europe. The administrative barriers in Italy wherein local traders decided whether an international brand can operate in a specific city and the astronomical amounts of money required for the transfer of the stores (Expansion, 2001) led Zara to link with Gruppo Percassi, a successful firm in the property sector, in 2001.

The experience of Biti in the clothing sector together with its knowledge of the property market encouraged Zara to sign an agreement with this company to enter Japan in 1998 (Castro, 2003). In Germany and Japan the deal was on a 50-50 joint venture. In Italy Inditex held a 51percent investment in Zara. However, Zara has recently increased its ownership to 78percent in Germany, 80percent in Italy and 100percent in Japan. • Franchising: This strategy is chosen for high-risk countries which are culturally distant or have small markets with low sales forecast like Saudi Arabia, Kuwait, Andorra or Malaysia (Flavian and Polo, 2000).

Zara? s franchisees follow the same business model as the own subsidiaries regarding 13 the product, store location, interior design, logistic, human resources, etc. However, they are responsible for investing in fixed assets and recruiting the staff. Zara gives franchisees the chance of returning merchandise and exclusivity in their geographic area, although Zara has the right to open its own stores in the same location (Castellano, 2002). Table I presents details of the market entry strategy in each country. Zara owns 90percent of its stores.

Since Zara gained the management control of the stores located in Japan, Germany and Italy, such sites have been incorporated in the group of own stores (Ghemawat and Nueno, 2003). (Insert Table I here) After selecting a market entry strategy for a particular country, Zara follows a pattern of expansion known in the company as “oil stain” (Castellano, 2002): Zara opens its first store, the so-called flagship store, in a strategic area with the purpose of getting information about the market and acquiring expertise. The experience guides Zara in the following phases of expansion in that country (Blanco and Salgado, 2004).

International Marketing Strategies At the early stages of internationalisation, the management at Zara was following an ethnocentric orientation Alexander and Myers (2000) whereby the “subsidiary companies had to be a replication of the Spanish stores” (Bonache and Cervino, 1996). However, this approach encountered unexpected difficulties in some countries due to the cultural differences. Therefore, Zara decided to move towards a geocentric orientation, allowing the company to adopt in some cases local solutions rather than merely replicate the home market.

Zara sells a largely homogeneous product for a 14 global market (Flavian and Polo, 2000). However, there are some adjustments in its marketing mix because of the customer’s size differences in Asian countries (Monllor, 2001), laws issued that require for example the availability of garments for youths in all sizes in Buenos Aires (La Opinion de La Coruna, 2006), cultural differences in Arab countries where some garments cannot be sold (Nash, 2006) and the different season in the southern hemisphere (Euromonitor, 2002a).

The information gathered by the store guide the decisions of the design department that finally produces those garments that can be sold in all the markets where Zara operates (Bonache and Cervino, 1996). Each store manager, based on the customer’s remarks on the products, decides the specific garments that will put on display in the store to meet the customer’s taste in that area. Thus it is unlikely to find the same items in all the outlets (Fabrega, 2004). Zara? s promotion strategy is the same in the domestic and foreign markets. Advertisement campaigns are carried out only at the start of sales or a new store opening.

Zara relies on the store as its main promotional tool. The prices of Zara? s garments differ between countries with the Spanish market being offered the lowest prices (D? Andrea and Arnold, 2003). Prices are set centrally following a marketoriented strategy. Prices in international markets are generally higher due to longer distribution channels (Ghemawat and Nueno, 2003). As in the domestic market, the store location is a critical factor in the international markets. All Zara? s shops are situated at prime locations. This decision is based on an analysis of the local market environment that identifies the niche opportunities for Zara? products in those markets, the price of competitors’ products and the 15 recommended price to achieve a maximum level of profitability (Bonache and Cervino, 1996). The shop window display and interior design are prototyped centrally and then replicated in all the international shops by professional store decorators. Hence Zara standardises the key strategic elements, namely the location, window display, interior design, store layout, store display rotation, customer service, information systems and logistics. The rest of the elements are customised to the market to suit local preferences (Fabrega, 2004).

Once the location for the store is identified, the next stage is the recruitment and selection of the company personnel. Initially Zara was sending Spanish managers to replicate the management procedure used in Spain (Fabrega, 2004). Difficulties arose in countries like Mexico and France (Bonache and Cervino, 1996) which made Zara to change to a practice of recruiting employees locally to get a better understanding of the local market preferences (Martinez, 1997). Zara makes a great effort to transfer the know-how in order to share the same corporate values. The Head Office in Spain controls the subsidiaries to maintain Zara? concept across its international markets (Bonache and Cervino, 1996). Branding Considerations Zara, Inditex? s bastion brand, has transformed itself from a local brand, to a global brand in less than 20 years time. Its image and positioning strategy are global but adapted to the conditions of each country (Fabrega, 2004) since consumers perceive fashion products as culture-bond. Zara brand was ranked 77th in the list of the world’s 100 best known brands created every year by Interbrand and has overtaken fashion brands like Hermes, Prada and Armani. All Zara? s products are labelled following a 6 dualithic brand-name strategy (Riezebos, 2003). The company uses the name of the firm and a unique brand name for the same product group. Examples of these subbrands are `Zara Woman? , `Zara Basic? and `Zara Trafaluc?. Zara aims to target a broad market, a young segment sensitive to fashion. Amancio Ortega wrote in his 1999 Annual Report that the aim of Zara was to democratise fashion. In line with the objective, Zara filled a niche in the Spanish market that was neglected by the department stores (Martinez, 1997) by offering the latest fashion in a medium quality at attractive prices.

This segment had been already identified in the USA with Gap, in Germany with C & A and in the UK with Next (Bonache and Cervino, 1996). Zara? s positioning strategy is based upon design, quality and price. In order to communicate its benefits, in some cases Zara has had to educate the market and influence consumers shopping habits (Blanco and Salgado, 2004). The fact that the prices of Zara? s garments are higher in the international market affects its positioning in those countries and therefore its brand image (Ghemawat and Nueno, 2003).

Country-Of-Origin Effect The country-of-origin effect is considered an attribute associated to the brand’s image that provides value to the company (Keegan and Green, 2005) and generates secondary associations (Keller, 1998). According to the Fashion Global Plan, a report done by the Spanish Treasury Department (2006), the Spanish fashion sector shows several weaknesses that have an adverse effect on its image. It includes a lack of knowledge of the country-of-origin of many Spanish brands that are operating internationally.

The Bozell/Gallup international survey 1995 (cited in Noya, 2002, page 189) indicated that around 40percent of consumers did not recognize Spanish 17 products. The Fashion Global Plan also mentions the weak image of Spain as an international reference point in the fashion sector and an absence of an international strategic positioning. The fact that Italy is identified with fashion and design has led some Spanish brands to adopt Italian names in order to benefit from the positive attributes of the “made in Italy effect” (Foro de Marcas Renombradas Espanolas, 2003).

This is the case of the acquired Inditex? s brand, Massimo Dutti. IUOG-96 survey (cited in Noya, 2002, page 191) concluded that the Spanish production was linked with food products. However, a most recent survey carried out between 2002 and 2003 by the Foro de Marcas Renombradas Espanolas (2003) (Forum of Spain’s top brand) showed that the image of the Spanish fashion sector is improving at a steady pace over the last few years. Spain is linked with fashion and design products and not only with food products.

The country is also playing a more significant role internationally which is helping the “made in Spain effect” become more positive. In the same study the results indicated that Zara is a very well-recognized brand although it is not associated with its country-of-origin. Another survey undertaken by the fashion magazine Vogue showed that French consumers regarded Zara as being of French origin (Blanco and Salgado, 2004). This is the aim of Zara: the consumer should consider Zara to be a retailer whose origin is of the same country where the consumer is buying the garment (Fabrega, 2004).

The firm declines to use any kind of identification with its origin (Ghemawat and Nueno, 2003; Monllor, 2001). Hence the COO effect is played down to convey a broader image. ZARA? S MAIN COMPETITORS Zara? s major international competitors in terms of market share are H&M and Gap Inc 18 The section will first present background of the two firms before offering some comparison with Zara. H&M Established in 1947 in Sweden, H&M’s business concept is to offer “fashion and quality at the best price” for men, women, teenagers and children.

H&M outsources its production from 700 suppliers of clothes. The location of its stores, flexibility of its production and low prices can be identified as the key factors behind H&M? s success. H&M hires celebrity designers like Karl Lagerfeld and Stella McCartney to democratise fashion and catch consumer’s attention. The firm churns out 500 new designs every year that can be purchased from its 1193 retail outlets located across 22 countries and also via mail order or through its website for the Nordic countries. Insert Figure 2 here) The growth of H&M has been marked by the addition of cosmetics and accessories to the apparel line in 1975, the incorporation of new countries to its market portfolio and the development of the catalogue and e-commerce, available in the Nordic countries. Compared to Inditex and Gap, H&M is much more internationalised with over 90 percent of its turnover coming from overseas in 2005, Germany being its largest market with 27 percent of the company total revenue. Its expansion has been at a moderate pace articularly during the early stages. H&M has been able to consolidate its position in each of the international markets. Having operated in the domestic market for 17 years, H&M followed the same expansion pattern as Zara and Gap Inc by selecting international markets based first on physical and cultural distance to the domestic market and then on economic indicators such as purchasing power, employment rate and purchasing behaviour. Local information about competitors, demand and accessibility is also considered. 19 A combination of market saturation and entrepreneurial ambition” what led the company to emback on the internationalistion which had two distinctive phases in the early stages Laulajainen (1991): the first one focused in Scandinavia and the second one aimed at Germanic Europe. H&M launched its international expansion first into neighbouring countries, Norway in 1964 and Denmark in 1967. Both of them together with Sweden are markets belonging to the zone of cultural similarities labelled as `Nordic Europe?. The second phase was initiated in 1976 with the opening of a store in the UK and later on in Switzerland, 1978 and Germany, 1980.

These three markets share cultural affinities and are grouped in the `Anglo-German? cluster by Kasper and Bloemer (1995). The mix of cultures in Switzerland (German, French and Italian cultures) made this market a reference point for its further expansion in those adjoining countries (Laulajainen, 1991). During the end of the 1980s and the early 1990s other Germanic countries such as The Netherlands, Belgium, Austria and Luxembourg were entered. The experience gained over the first stage drove H&M to embark on a second phase of international expansion.

This period has been marked by the quick expansion into distant and different markets like the USA, Canada, Southern (France, Spain, Portugal, Italy) and Eastern Europe (Poland, Czech Republic, Slovenia, Hungary) at the beginning of the 21st century, adding at least two more countries per year. H&M? s expansion has been mainly through its own subsidiaries. Its plan of opening stores in Dubai and Kuwait in the near future has led H&M to sign a franchise agreement, giving the management control to the Swedish company to keep H&M concept across countries.

The store location is a key factor in H&M? s business model regardless of the market, establishing new outlets only in the best shopping areas. The 20 interior design is prototyped allowing some customized solutions. In 1997 the former Managing Director of H&M, Stefan Persson, stated in his Annual Report that “When we expand, it is important to listen carefully to the local market. We need to adapt but not at the expense of losing what makes us who we are”. Hence H&M? s strategy resembles that of Zara: replication of the same concept with some local adaptations.

Gap Inc Created in San Francisco in 1969, Gap Inc is the world’s largest specialist clothing retailer with 3,053 stores in 5 countries: United States, Canada, the United Kingdom, France and Japan. This holding company sells clothing, accessories and personal care products for men, women and children. Like Inditex, Gap Inc operates several clothing brands: `Gap? , `Banana Republic? , `Old Navy? and ? `Forth & Towne?. Gap Inc outsources all its production from 1,100 suppliers located in the United States and abroad. Gap Inc? market growth was based on four strategies: International expansion, diversification into accessories and personal care articles, creation of new brands and development of other channel of sales like electronic commerce, launched in 1997 to increase its market share and reach a broader consumer base in the US. Gap Inc internationalisation process has been steady and focused on a few countries. After operating in the home market for almost twenty years, Gap Inc opened its first store in the UK and Canada in 1987 and 1989 respectively.

They are both close markets given their cultural proximity and Canada is an adjoining country to the US. During the second phase of its internationalisation Gap Inc expanded into France, 1993 and Japan, 1995 despite their geographical and cultural distance. The experience acquired earlier and the attractiveness of these two markets were the main driving forces. After operating in the German market for ten years, the unsatisfactory results 21 in sales led Gap Inc to withdraw from that market in August 2004 (Wells and Raabe, 2005). Gap? future expansion markets have been identified in Asia and the Middle East. International sales accounted for 15 percent of the firm’s total turnover in 2005. The own subsidiaries has always been the mode of entry adopted to operate in the host markets. However, its willingness to establish itself in five markets in the Middle East (United Arab Emirates, Kuwait, Qatar, Bahrain and Oman) and in Singapore and Malaysia in the near future, has led Gap Inc to consider franchising as the strategy to expand into these smaller, culturally distant and high business risk countries.

Comparisons between Zara and its competitors Table IV presents detailed comparisons between Zara and its two competitors. The main distinctions are as follows: • While Zara controls its entire production chain, Gap Inc and H&M outsource all their production. Zara? s vertical integration enables the firm to have a faster turnaround than its competitors. • Product and geographic diversification has been used by the three clothing brands as their main directions for growth. Gap Inc and H&M have also developed new channels of sale.

The development of electronic commerce sets Gap Inc and H&M apart from Zara which does not offer its products online. • Gap Inc has focused mainly on the home market, international sales accounting for merely 15percent of its turnover in 2005. H&M? s expansion strategy is characterized by developing and reinforcing its business system in each country entered. Zara has a wider international presence in comparison to both Gap and H&M, becoming a global company in a short period of time. 22 • The international expansion of the American and the Swedish firm has been organic.

However, Zara has also used franchising and joint venture as entry strategies. The expansion pattern of all three brands is marked by the physical and cultural proximity of the international markets. • Advertising is a strong communication tool for both Gap Inc and H&M, while Zara hardly advertises. All three make some adjustments to their product offerings to satisfy the needs of local consumers. The location of the store is a key principle of H&M and Zara business model (See Table VI for these and other key facts of the three clothing retailers). Insert Table IV here) CONCLUSIONS This paper seeks to improve our understanding of the internationalisation of the fashion brand Zara. Based on secondary data, this study has provided some background information about the Spanish brand. The direction of its international expansion, the entry strategies and the reasons to internationalise were presented first, followed by the role of branding in the internationalisation process. In a relatively short period of time, Zara has moved from being a small company to become a global fashion retailer operating in 54 countries.

The main drawback that arises in single case studies is that of limited validity and representativeness that constrains the potential for making generalisations (Creswell, 1998). The fact that this paper is based on secondary data also limits the strength of the findings. However, this case is deemed adequate to provide some insights, improve our understanding in this area of research and establish the avenue for future studies. Further research may involve carrying out empirical research by interviewing 23 Zara? managers, suppliers and buyers; developing a theoretical framework; going deeper into the market entry strategies and the degree of standardisation in Zara? s internationalisation and finally analysing the relationship between its marketing strategy at home and abroad. 24 Table I Zara: Mode entry and number of stores by country, January 2006 Country Spain Portugal USA France Mexico Greece Belgium Sweden Malta Cyprus Israel Argentina Great Britain Japan Kuwait Lebanon Turkey United Arab Emirates Venezuela Bahrain Brazil Canada Chile Germany Netherlands Poland Saudi Arabia Uruguay Andorra Austria Denmark Qatar Czech Rep.

Iceland Ireland Italy Jordan Luxembourg Puerto Rico Dominican Republic El Salvador Finland Singapore Switzerland Malaysia Russia Slovenia Estonia Hong Kong Hungary Latvia Lithuania Morocco Panama Romania Costa Rica Indonesia Monaco Philippines Total Source: Compiled from Annual reports; press releases; Camunas (2003); D? Andrea and Arnold (2003); Ghewara and Nueno (2003). ? Zara started operating in Turkey and Russia through franchising. In 1999 and 2006 respectively Inditex has purchased Zara? s franchises in both countries. Inditex has increased its ownership of Zara Japan, Zara Germany and Zara Italy Year established 1975 1988 1989 1990 1992 1993 1994 1994 1995 1996 1997 1998 1998 1998 1998 1998 1998 1998 1998 1999 1999 1999 1999 1999 1999 1999 1999 1999 2000 2000 2000 2000 2001 2001 2001 2001 2001 2001 2001 2002 2002 2002 2002 2002 2003 2003 2003 2004 2004 2004 2004 2004 2004 2004 2004 2005 2005 2005 2005 Mode entry Own stores Own stores Own stores Own stores Own stores Own stores Own stores Own stores Franchising Franchising Franchising Own stores Own stores Joint venture?

Franchising Franchising Franchising? Franchising Own stores Franchising Own stores Own stores Own stores Joint venture? Own stores Franchising Franchising Own stores Franchising Own stores Own stores Franchising Own stores Franchising Own stores Joint venture? Franchising Own stores Franchising Franchising Franchising Franchising Franchising Own stores Franchising Franchising?

Franchising Franchising Own stores Own stores Franchising Franchising Franchising Franchising Franchising Franchising Franchising Own stores Franchising Number of stores 259 46 18 90 39 38 18 4 1 3 14 6 45 18 4 2 13 5 9 1 14 14 5 41 6 11 16 2 1 8 4 1 3 1 5 36 1 2 1 1 1 4 3 8 3 6 3 1 4 2 1 2 1 1 1 1 2 1 1 852 25 Table II Factors behind Zara? s internationalisation Push factors Inhibitors Facilitators International status Learning process Spreading cost and risk Pull factors Spain joined the EU Economies of scale Globalization Abolition of economic barriers Growth chances Cultural affinities Information Technologies

Saturation Administrative barriers Low growth opportunities Geographic distance Changes in consumer behavior Low economic development Different seasonality Cultural distance Lack of experience Risk perception Source: Adapted from McGoldrick (2002) Table III Inditex? s brand portfolio, January 2006 No of stores % of Inditex Year of foundation/ acquisition Target Zara 852 65,9 1975 Pull & Bear 427 6,6 1991 Massimo Dutti 369 7,9 1991 Kiddy? s Class 149 2,3 1993 Bershka 368 9,5 1998 Stradivarius 263 5,1 1999 Oysho 154 1,6 2001 Youths Zara Home 110 1,2 2003 N. A. Product Price Quality

Women, men Women and men, Women and men, Children, ages 0and children, ages 14-28 ages 25-45 16 ages 0-45 Fast-fashion Casual clothes Quality and Children? s clothing conventional fashion fashion Medium-low Medium-low Medium-high Medium-low Medium Medium Medium-high Medium Women and Women, ages men, ages 1315-25 23 Avant-garde Trendy clothing clothing Medium-low Medium Medium-low Medium Lingerie Hosehold clothing Medium-low Medium Medium-low Medium Source: Compiled from Annual reports; press dossiers; Blanco and Salgado (2004); Fabrega (2004); Monllor (2001); Ghemawat and Nueno (2003) 6 Table V Inditex-Zara and competitor data, 2005 GAP INC € 12,700 million 15% 3,053 stores in 5 countries Slow and focused internationalisation Partial vertical integration. Control over design, distribution and sales. Production is outsourced On-line shopping facility for U. S. customers 3%-3. 5% of its turnover on advertising Clothing, accessories and personal care INDITEX-ZARA € 6,741 million (Inditex) 57% Inditex; 69% Zara H&M € 6,562 million 91% Net sales* International sales* Global reach* Internationalisation Business model Electronic commerce Promotion Business areas

Inditex: 2,692 stores in 62 countries; Zara: 852 1,193 stores in 22 countries stores in 59 countries Extensive and quick international expansion Consolidated expansion and at a moderate pace strategy Partial vertical integration. Control over design, distribution and sales. Production is High degree of vertical integration outsourced On-line shopping facility and via mail order in No on-line shopping facility the Nordic countries Lack of advertising, only 0. 3% of its turnover. 4% of its turnover on advertising. The store is The store is its main promotional tool its main information tool Clothing, accessories and cosmetics Single format N.

A. Clothing, accessories and cosmetics Zara, Kiddy? s Class, Pull&Bear, Massimo Brand portfolio of the Gap, Banana Republic, Old Navy and Forth & Dutti, Stradivarius, Bershka, Oysho, Zara parent company Towne Home Branding strategy of Brand development and brand acquisition Brand development and brand acquisition the parent company Bastion brand Gap, GapKids, babyGap and GapBody Zara Woman, Zara Basic, Zara Trafaluc portfolio Branding strategy Line extension Line extension L. O. G. G. , H&M Young, H&M, L. O. G. G. Sport, BiB, Mama Multi-brand strategy and extension strategy

Source: Compiled from Annual Reports; Alonso (2000); Ghemawat and Nueno (2003). * Data refer to 2005. The Gap Inc financial year is a 52 or 53 week period ending on the Saturday closest to January 31; The Inditex fiscal year is from 1st February to 31st January of the following year; The H&M financial year is from 1st December to 30th November of the following year. 27 Figure I International presence of Zara 1975 1988 1989 1990 Europe Spain Portugal France Greece Belgium Sweden Malta Cyprus Great Britain Turkey Germany Netherlands Poland Andorra Austria Denmark Czech Rep.

Iceland Ireland Italy Luxembourg Finland Switzerland Slovenia Russia Estonia Latvia Romania Hungary Lithuania Monaco Subtotal Americas USA Mexico Argentina Venezuela Canada Chile Brazil Uruguay Puerto Rico El Salvador Dominican Republic Panama Costa Rica Subtotal Asia-Pacific Japan Singapore Malaysia Hong Kong Indonesia Philippines Subtotal Middle East/Africa Israel Lebanon Kuwait United Arab Emirates Saudi Arabia Bahrain Qatar Jordan Morocco Subtotal Number of countries 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 No. f stores Jan 2006 259 46 90 38 18 4 1 3 45 13 41 6 11 1 8 4 3 1 5 36 2 4 8 3 6 1 1 1 2 2 1 664 18 39 6 9 14 5 14 2 1 1 1 1 1 112 18 3 3 4 2 1 31 14 2 4 5 16 1 1 1 1 45 852 1 2 3 4 4 5 6 8 9 10 11 19 28 32 39 44 47 55 59 Source: Adapted from Ghemawat and Nueno (2003) 28 Figure II International presence of H&M 1947 Sweden Norway Denmark UK Switzerland Germany Netherlands Belgium Austria Luxembourg Finland France USA Spain Poland Czech Rep. Portugal Italy Canada Slovenia Ireland Hungary Number of countries 1 2 3 4 5 6 7 8 9 10 11 12 14 18 20 22 1964 1967 1976 1978 1980 1989 1992 1994 1996 1997 1998 2000 2003 2004 2005 No. f stores Nov 2005 124 78 56 102 52 288 73 48 52 7 27 71 91 50 27 12 7 10 11 2 4 1 1,193 Source: Compiled from H&M, 2005 Annual Report, p. 31. REFERENCES Alexander, N. (1995a), “Expansion within the single European market”, The International Review of Retail, Distribution and Consumer Research, Vol 5 No 4, pp. 472-487. Alexander, N. (1995b), “Internationalisation: interpreting the motives”, in McGoldrick, P. and Davies, P. , International retailing: trends and strategies, Pitman Publishing, London, pp. 77-98. Alexander, N. (1997), International Retailing, Blackwell Publishers, Oxford. Alexander, N. nd Myers, H. (2000), “The retail internationalisation process”, International Marketing Review, Vol 17 No 4/5, pp. 334-353. Alonso, L. (2000), “Vistiendo a tres continentes: La ventaja competitiva del grupo Inditex-Zara, 1963-1999”, Revista de Historia Industrial, No 18, pp. 157-181. Berkeley, N. and Steuer, N. (2000), “Comparative analysis of EU and national trends in the textile and clothing industry”, available from . Retrieved April 2006. Bilkey, W. and Tesar, G. (1977), “The export behaviour of smaller–sized Wisconsin manufacturing firms”, Journal of International Business Studies, Vol 8, pp. 3-98. Blanco, X. R. and Salgado, J. (2004), Amancio Ortega. De cero a Zara, La esfera de los libros, Madrid. Bombin, V. (2001), “Caso: el Grupo Inditex”, Harvard Deusto Finanzas & Contabilidad, No 44, pp. 42-53. Bonache, J. and Cervino, J. (1996), “Caso Zara: el tejido internacional”, in Duran, J. J. , Multinacionales espanolas I. Algunos casos relevantes, Piramide, Madrid, pp. 5186. 29 Brown, S. and Burt, S. (1992), “Conclusion – retail internationalisation: past imperfect, future imperative”, European Journal of Marketing, Vol 26 No 8/9, pp. 084. Burt, S. (1993), “Temporal trends in the internationalisation of British retailing”, The International Review of Retail, Distribution and Consumer Research, Vol 3 No 4, pp. 391-410. Burt, S. and Carralero-Encinas, J. (2000), “The role of store image in retail internationalisation”, International Marketing Review, Vol 17 No 4/5, pp. 433-453. Camunas, A. (2003), “Zara en Italia: la consagracion de un modelo empresarial”, Economia Exterior, No 25, pp. 57-66. Castellano, J. M. (1993), “Una ventaja competitiva: El factor tiempo.

El caso InditexZara”, Papeles de Economia Espanola, No 56, pp. 402-404. Castellano, J. M. (2002), “El proceso de internacionalizacion de Inditex”, Informacion Comercial Espanola, No 799, pp. 209-217. Castro, I. (2003), “Zara Japan Corporation”, Boletin Economico de ICE, No 2770, pp. 95-98. Cavusgil, S. (1980), “On the internationalisation process of the firm”, European Research, Vol 8 No 6, pp. 273-281. Cervino, J. (1998), “Las empresas de distribucion de productos de confeccion. Un caso de proyeccion internacional”, Distribucion y Consumo, Vol 8 No 38, pp. 50-67.

Cinco Dias (2003), “Benetton aplicara el modelo Zara para impulsar las ventas”. December 10, 2003. Crawford, L. (2000), “Management fashion retailing”, Financial Times, September 26, 2000. Creswell, J. W. (1998), Qualitative inquiry and research design: choosing among five traditions, Sage Publications, London. D? Andrea, G. and Arnold, D. (2003), “Zara”, Harvard Business School Press. Dunford, M. (2004), “The changing profile and map of the EU textile and clothing industry”, available from . Retrieved May 2006. Euromonitor (2002a), “Inditex”, Retail Monitor International, Vol XIII, pp. 1-72. Euromonitor (2002b), “The Gap Inc”, Retail Monitor International, Vol XIII, pp. 3962. Euromonitor (2005), “Clothing and footwear in Sweden”, Euromonitor, London. Expansion (2001), “Mango sera la primera cadena de moda internacional que entre en Italia”. February 14, 2001. Fabrega, F. (2004), Zara. El modelo de negocio de Inditex, Claves de gestion, Madrid. Fernie, J. , Moore, C. , Lawrie, A. and Hallsworth, A. (1997), “The internationalisation of the high fashion brand: the case of central London”, Journal of Product & Brand Management, Vol 6 No 3, pp. 51-162. Flavian, C. and Polo, Y. (2000), “Inditex (1994-1999)”, in Munuera, J. L. and Rodriguez, A. I. , Estrategias de marketing para un crecimiento rentable. Casos practicos, ESIC, Madrid, pp. 133-161. Foro de Marcas Renombradas Espanolas (2003), Made in Spain. Hecho en Espana. La imagen de Espana y sus marcas en el mundo, ICEX. Foroohar, R. (2005), “Fabulous Fashion”, available from . Retrieved May 2006. Gap Inc (2000-2005), Annual Reports, San Francisco-California. 30 Ghemawar, P. and Nueno, J. L. (2003), “Zara: Fast Fashion”, Harvard Business School Press.

Case No. 703-497. Hennes & Mauritz (1997-2005), Annual Reports, Stockolm. Inditex (1998-2005), Annual Reports, Arteixo. Jobber, D. (2004), Principles and practice of Marketing, 4th edition, McGraw-Hill, Berkshire. Johanson, J. and Wiedersheim-Paul, F. (1975),“The internationalisation of the firm – four Swedish case studies“, Journal of Management Studies, Vol 12, pp. 305-322. Kasper, H. and Bloemer, J. (1995), “Cultural closeness and its impact on internationalisation strategies”, Proceedings 26th EMAC Conference, Budapest, pp. 1805-15. Keegan, W. J. and Green, M. C. 2005), Global Marketing, 4th edition, Pearson Education, New Jersey. Keenan, M. , Saritas, O. and Kroener, I. (2004), “A dying industry–or not? The future of the European textiles and clothing industry”, Foresight, Vol 6 No 5, pp. 313-322. Keller, K. L. (1998), Strategic Brand Management. Building, measuring and managing brand equity, Prentice-Hall, New Jersey. KPMG (2005), “Trends in retailing 2005. An outlook for the food, fashion and footwear sectors”, available from . Retrieved January 2006. La Opinion de La Coruna (2006), “Zara para todas las cinturas”. January 21, 2006. Laulajainen, R. 1991), “International expansion of an apparel retailer – Hennes & Mauritz of Sweden”, Zeitschrift Fur Wittschaftgeographie, Vol 35 No 1, pp. 1-15. Martinez, J. A. (1997), “Jose Maria Castellano”, Economistas, No 73, pp. 118-126. Mazaira, A. , Gonzalez, E. and Avendano, R. (2003), “The role of market orientation on company performance through the development of sustainable competitive advantage: The Inditex-Zara case”, Marketing Intelligence & Planning, Vol 21 No 4, pp. 220-229. McGoldrick, P. and Davies, G. (1995), International retailing: trends and strategies, Pitman Publishing, London.

McGoldrick, P. (2002), Retail Marketing, 2nd edition, McGraw-Hill, Berkshire. Monllor, C. (2001), Zarapolis. La historia secreta de un imperio de la moda, Ediciones del Bronce, Barcelona. Moore, C. M. , Fernie, J. and Burt, S. (2000), “Brands without boundaries. The internationalisation of the designer retailer’s brand”, European Journal of Marketing, Vol 34 No 8, pp. 919-937. Muhlbacher, H. , Leihs, H. and Dahringer, L. (2006), International Marketing. A global perspective, 3dr edition, Thomson Learning, London. Nash, E. (2006), “Dressed for success”, The Independent , March 31, 2006.

Nordas, H. K. (22004), “The global textile and clothing industry post the agreement on textiles and clothing”, available from . Retrieved April 2006. Noya, J. (2002), “La imagen de Espana en el exterior. Estado de la cuestion”, available from . Retrieved March 2006. 31 Pellegrini, L. (1994), “Alternatives for growth and internationalisation in retailing”, The International Review of Retail, Distribution and Consumer Research, Vol 4 No 2, pp. 121-148 Riezebos, R. (2003), Brand management. A theoretical and practical approach, Prentice Hall, London. Salmon, W. J. and Tordjman, A. 1989), “The internationalisation of retailing”, International Journal of Retailing, Vol 4 No 2, pp. 3-16. Samiee, S. (1995), “Strategic considerations in European retailing”, Journal of International Marketing, Vol 3 No 3, pp. 49-76. Stengg, W. (2001), “The textile and clothing industry in the EU. A survey”, Enterprise papers, No 2. Spanish Treasury Department, “Plan Global de la Moda”, available from . Retrieved March 2006. The Economist (2005), “The future of fast fashion”, available from http://www. economist. com/business/displaystory. cfm? story_id=4086117. Retrieved May 2006.

Treadgold, A. (1988), “Retailing without frontiers”, Retail & Distribution Management, November/December, pp. 8-12. Treadgold, A. (1990), “The emerging internationalisation of retailing: present status and future challenges”, Irish Marketing Review, Vol 5 No 2, pp. 11-27. Usunier, J. C. and Lee, J. L. (2005), Marketing across cultures, 4 th edition, Prentice Hall, Essex. Wells, J. R. and Raabe, E. A. (2005), “Gap Inc. ”, Harvard Business School Press. Case No. 706-402. Yin, R. K. (2003), Case study research. Design and methods, 3rd edition, Sage Publications, London. 32

Cite this Internalisation of Spanish Fashion Brand Zara

Internalisation of Spanish Fashion Brand Zara. (2018, Jan 25). Retrieved from https://graduateway.com/internalisation-of-spanish-fashion-brand-zara/

Show less
  • Use multiple resourses when assembling your essay
  • Get help form professional writers when not sure you can do it yourself
  • Use Plagiarism Checker to double check your essay
  • Do not copy and paste free to download essays
Get plagiarism free essay

Search for essay samples now

Haven't found the Essay You Want?

Get my paper now

For Only $13.90/page