SECTION A

Answer ALL questions

Read the article on Zara below and answer ALL questions in Question 1 Zara Uses IT to Change the World of Fashion Well-known fashion houses like Chanel, Dior, Gucci and Armani charge thousands of dollars for the fashionable suits and dresses that they introduce twice yearly in the fall and spring. Because only the very rich can afford such differentiated and expensive clothing, to expand demand for its products, most luxury designers produce less expensive lines of clothing and accessories that are sold in upscale fashion retailers such as Neiman Marcus, Nordstrom and Saks Fifth Avenue. In the 2000s, however, these luxury designers which pursue focused differentiation, have come under increasing pressure from small, agile fashion designers, such as Englands Jaeger and Laura Ashley and Spains Zara, that have developed capabilities in using IT that allow them to pursue a focused differentiation strategy but at a much lower cost than the luxury fashion houses. This has allowed them to circumvent barriers to entry into the high fashion segment and develop well-received brand names that still command a premium price. Zara in particular, has achieved significant success. Its sales have soared because it created innovative information and materials management systems that keep its cost structure low while reducing time to market. The result is that Zara can produce fashionable clothes at lower prices and turn them over quickly by selling them in its own chain of clothing stores. Major fashion houses like Dior and Gucci can take six or more months to design their collections and then three to six more before their moderately priced lines become available in upscale retailers. Zaras designers closely watch the trends in the high fashion industry and the kinds of innovations that the major houses are introducing. Then, using sophisticated IT that link Zaras designers to its suppliers and clothing manufacturers abroad, the company can create a new collection in only five weeks and these clothes can then be made in a week and delivered to its stores soon after. This short time to market makes Zara very flexible and allows it to compete effectively in the rapidly changing fashion market, where customer tastes evolve quickly. Because of the quick manufacturing-to-sales cycle and just-in-time fashion, Zara has been able to offer its collections at comparatively low prices and still make profits that are the envy of the fashion clothing industry.

Section A: Answer ALL questions Question 1 a. Identify the elements from the case above that made Zara successful. (LO1) (4 marks) b) Zaras success in using IT is one of many examples of how low-technology industries are becoming more high tech, especially with the advancement of technology. Hence, technology is becoming ever more important and technology firms have huge benefits when it comes to cost structures. One of the benefits is that the law of diminishing returns does not apply to many high tech firms. Using a graph, explain how the cost structure of high technology firms is strategically important. (LO 2 & 4) (12 marks)

c) Like many firms, Zara has expanded internationally with many retail outlets in foreign countries. Describe the circumstances that make it advantageous for a firm competing in foreign markets to disperse certain value chain activities across many countries.!(LO2)! (12 marks) (Total: 28 marks) SECTION B: ANSWER ONE (1) QUESTION ONLY Question 2 Describe how a strategist determines whether diversification into a new business is likely to build shareholder value. (LO2) (12 marks) Question 3 What does a company racing to stake out a strong position in an industry of the future need strategic alliances for? (LO 2) (12 marks)

Question 4 Identify and describe the two basic cost-reducing approaches a company can take to become a low-cost provider in its industry. (LO 1 & 2) (12 marks) Question 5 Write as if you were an outside management consultant and advise a firm attempting to win a format war with a powerful and capable competitor. Give several options. (LO 3 & 4). (12 marks)
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