Higher Education Essay

2303 words - 10 pages

Abstract
Zara is one of the largest international fashion brands of Inditex. The company first opened in La Coruna in 1975, still lives by the simple idea of Amancio Ortega to link customer demand to manufacturing, and link manufacturing to distribution. The customer is at the heart of the business model. In 1985, Inditex became the holding company Zara and other retail chains, and Jose Maria Castellano Rios joined the company. Castellano and Ortega shared the same beliefs that quick response to customers, use of computers, and disintegrated decision-making were important to build the business. Inditex operates 1,558 stores in 45 countries out of which 550 stores are a part of Zara chain. ...view middle of the document...

For example, “Zara’s having trouble breaking into the U.S. because they don’t participate in ‘vanity sizing,’ or labeling bigger clothes with a smaller size. Zara clothes are true to size.” (Lutz, 2014) This weakness that faces the company when it enters international markets can cause Zara to yield in face of stiff competitors and its alleged diseconomies of scale. In order to enter international markets, Zara needs to deliver its products in time, at competitive prices, customized for local market, and short-lead time.
Additionally, Zara is well-known throughout Spain and most of Western Europe as an upscale apparel company geared towards middle to upper class consumers. The primary strength of the company is its incredibly fast supply chain management, which is anchored by a large distribution center in Arteixo, where nearly all orders are processed from Zara stores across the world. Some of these very traits that have made Zara such a successful company, however, may prove to be major barriers to their continued growth. Zara is set apart by the stability in its production organization. Their success has come from cutting costs across the value chain and controlling performance down to the local store level. For example, “Zara’s factories in Spain and those it uses in Portugal, Morocco, and Turkey produce its trendiest clothes, often riffs on the latest fashion trends. They account for about half of Zara’s inventory, according to the company. Its more basic T-shirts, sweaters, and the like are ordered on a traditional schedule, about six months in advance, from factories in Asia, where labor costs are often cheaper, then sent by ship to Spain.” (Berfield, 2014) Thus in order to enlarge its operations internationally while maintaining its tradition of speedy deliveries and inventory turnover, Zara will have to increase its number of large distribution centers. Otherwise, it is a possibility of increasing of high shipping costs, slower delivery, and loss of its reputation as one of the most efficient apparel manufacturers and retailers in the industry. Moreover, its current reliance on internal manufacturing may become too costly to continue and Zara may have no choice but to begin outsourcing their inventory.
Moreover, changes in foreign currency market can also be a possible risk to Zara. Production costs might increase if Euro becomes stronger against Dollar, leading higher costs of apparels to end-users. Another risk to Zara is direct competition, such as H&M, The Gap, and Benetton are always looking at international markets to enhance their growth opportunities. H&M is similar to Zara in terms of price and fashion trend. H&M has also is in the process of building distribution centers in their international destinations to save the lead time and shipping costs. Zara’s centralized logistics model may hinder its movement and growth in international markets.
Zara’s competitive advantages are highly sustainable and have boosted...

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