MODE OF ENTRY (Zara Mode Of Entry)

Group 3 | Section C
Akshay | Amit K. | David | Nishant | Sankalp | Sourav | Subhankar
INTR DUCTION
 Most Successful fashion retailer operating in 59 countries

 Deregulation in the textile and clothing industry. Unrestricted access to all WTO members.

 Changing textile industry:

Fragmented production with highly concentrated distribution channels.

Increasing internationalization, emerging competitors, consolidation with mergers & acquisitions

Subcontracting or delocalization of production to lower labor & transportation cost country

Revaluation of the business models to adapt to customers changing taste

Democratization: Offering latest products at attractive prices

CASE OF ZARA:
Flagship of Inditex; 2nd largest clothing retailer;
Zara accounted for 66% of the groups turnover
Inditex owns seven other clothing chains: Brand diversity

ZARA CONCEPT:
Aims to democratize fashion
Competitive Advantage: Turnaround time & Store as a source of information
Vertical Integration of design, JIT, low inventory, quick response, advanced IT
Overall quick response to consumers demand
“Live Collections”-most receptive garments in industry, half of Zara’s production
Store-Source of information.
Customer feedbackManagersHeadquartersDesignersRework-Stores
Small lot for every store, “Climate of scarcity & opportunity”
0.3% spending on advertisement, Store is the most effective communication tool
 Business Model (Customer orientation)
Key factors in Zara’s model
 Time Factor
 The store
Product Line
(inditex brand Portfolio)
Strategy (Impact on other retailers)
 Customer Service
 Market based pricing
 Brand Acquisition & Brand Development
 Multi-Brand (Risk of cannibalization)
 MOTIVES
FOR ZARA’S INTERNATIONALIZATION

Zara Stores
Oporto, Portugal: First international store,
1988
By the end of January 2006
 59 countries, 852 stores worldwide
 Europe: 664 (259 in Spain)
 America: 112
 Middle-East & Africa: 45
 Asia: 31

 America
 MOTIVES
FOR ZARA’S INTERNATIONALIZATION

 Push: People spending less on clothes and more in their leisure time on travelling and education

 Pull: Spain's entry into European Union in 1986

 Globalization and homogenization of consumption pattern across countries
 Economies of scale

 Enablers: New York (1989), Paris (1990) and Milan (2001) – Image and Status reasons
 Learning by succeeding in competitive markets
 MARKET SELECTION
FOR ZARA’S INTERNATIONALIZATION
Stage 1 Stage II
Reluctance and Cautious
Trial Expansion
(1975-88) (1989-1996)
Expansion in domestic -> Geographical or
market Cultural proximity
-> 1 or 2 countries/year
Geographical and cultural France (‘90), Belgium and
proximity to Spain Sweden (‘94),
Mexico (‘92)
Exception: New York (‘89)
First international store in
Oporto, Portugal (‘88) Brand awareness and
Prestige
Stage III
Aggressive
Expansion
(1997-2005)
Grow beyond geographical
and cultural barriers
Israel (‘97)
8 countries in Middle East –
Kuwait, UAE, etc. – (‘98)
Costa Rica, Monaco,
Philippines and Indonesia
(2005)
 MARKET ENTRY STRATEGIES

• Own Subsidiaries :

Involved direct investment

Most Expensive mode of entry
During exit of firm : High level of control and risk
Suitable for high growth potential and low business risk countries.
e.g. Spain, U.S., Europe, Brazil etc

• Joint ventures :

Co-operate strategies with local companies

Combination of manufacturing facilities & know how of local company
and expertise of foreign firm in market
Usually implemented in areas having large competitive markets
• Joint Ventures :

1999 – Benefit of ZARA in distribution sector from joint venture with

German firm Otto Versand and knowledge of European markets
1998 – Entered Japan by signing an agreement with Biti, a leading cloth co.
ZARA increased ownership to (78% : Germany, 80% : Italy, 100% : Japan)
– gained management control

• Franchising :

 Suitable for High Risk countries having small markets with low sales
forecast or are culturally distant (Saudi Arabia, Kuwait)
 Similar business model to subsidiaries regarding the product, store location,
interior design & human resources
 Gave franchisees chance to return merchandize and exclusivity in their area
but kept right to open it’s own stores at the same location
International Marketing Strategy
1. Zara was ranked 73th in the list of worlds top 100 brands.
2. Standardized Key strategic elements across all stores: Location, window 
display, interior design, Store layout, Store display rotation, Customer service, 
and Logistics 
3. Shift from ethnocentric Orientation to Geocentric orientation in 2004

4. Dualistic brand name strategy: Company uses the name of the firm and a 
unique brand name for the same product group. Like‐ ‘Zara Basic’, ‘Zara 
Trafaluc’
Promotion and Pricing
• Zara’s promotional strategy is same for domestic and international 
market
• Relies mostly on stores for its promotional campaigns. Advertisement 
campaign is carried out only during new store openings.
• International prices are higher due to longer distribution channels. 
Based on the prices Zara has positioned itself in different 
international market. 
ZARA’S main Competitors
‘ Fashion and quality at the best price’
 Key factors behind H&M’s Success:
Location of stores
Flexibility of production
Low prices
E‐commerce for Nordic countries
‘A combination of market and entrepreneurial ambition’
 Internationalization:
First phase of expansion in neighboring countries
Second phase expansion in ‘Anglo‐German’ countries
‘ When we expand, it is important to listen carefully to the local market. 
We need to adapt but not at the expense of loosing what makes us who 
we are.’
Expansion:
 Franchise agreement helps to keep the management control across countries
Opening stores in best market locations
Customized interior designing of stores according to the culture of the 
country
Strategy : Zara’s concept with local adaptation 
Key factors behind GAP’s growth : Internationalization :
 First phase of expansion in countries with same
 International expansion
cultural diversity
 Diversification into accessories and personal
 Second phase expansion into German markets
care products
 Expanding in the Middle east, Singapore and Malaysia
 Creation of new brands
in future
 Development of electronic commerce channel
 Franchising as a strategy to expand
 Huge number of suppliers