Business Strategic Analysis Report of Zara

MAIN BODY

External Analysis to identify a set of Opportunities and Threats

For keeping an organisation into a dominating position it is important for them to analyse various factors that has ability to influence them. Organisations need to determine the impact of various external factors that have direct impact on the operations of the organisation. To determine the opportunities and threats that are present in the business environment various analysis tools are used by the organisation. It can be done by way of PESTLE analysis, Porter's five force analysis as they both gives a significant view of the market factors (Hadaya and Gagnon, 2017). With this the level of the competition can be analysed along with this various attractions can be identified. The PESTLE analysis for Zara is done which is given below:

PESTLE Analysis is a framework with the help of which various macro environmental factors are analysed that has profound impact on the organisation. With the help of this performance of the organisation can be improved. The analysis is given below:

Political Factors: Zara is a Spanish brand which was born out from European Union and expanded their business worldwide. They have a strong network with the help of which they ensure effective trade which facilitate them in importing raw material and exporting finished goods. The market of Europe is one of the biggest market for clothing and textile. The customer base of Zara is broad in all the European countries due to which they do not have to pay extra tariffs. The financial regulations which are imposed by the government has impact on the smooth functioning of the organisation (Irfan and et. al., 2019). This has positive impact on Zara as with the help of this they can easily expand their market by expanding in their business in untapped market.

Economic Factors: The economic environment of UK is growing which has positive impact on the sales of Zara and thus has impact on the overall sales of industry. Because of high unemployment and high population, the wages to the employees decreases and it reduces overall cost of the company due to which they can focus upon enhancing the quality of the products on reduced prices. This is an opportunity for the business as with this they can increase their market share easily in the existing market.

Social Factors: With the increasing use of internet the preference of the customers are changing as now they like to purchase through online medium. This has advantage for the customers as they can purchase any time from any place along with this the customers can compare prices with others. Due to this the pressure on Zara increased for going online due to this they opened multiple stores online. But this is an opportunity for them in near future as with this they can increase the demand for their products significantly (Engert and Baumgartner, 2016). 

Technological Factors: For being competitive it is important for the companies to adopt various technologies that are prevailing in the market. This facilitates them in improving the satisfaction level of the customers. Zara has recently adopted RFID technology which will facilitate them to reduce the timing of determining the location of the product as with this they can determine the location of the goods which are demanded by the customers. This is an opportunity for Zara as with this they can improve the satisfaction level of the customers. But due to fast growing business environment and changing technology the requirement of adopting such technology increases for managing the competition and this is a threat for Zara.

Legal Factors: To protect the interest of the consumers various implications are imposed by the government whose implications are to be fulfilled by the organisation. The organisation such as Zara uses copyright laws for protecting themselves. This provides them opportunity to carry out their operation in other countries and to launch new products effectively as by enforcing copyright laws they can protect their products from being copied by others.

Environmental Factors: The businesses need to consider the impact of their business on environment and for this the businesses need to manage various implications which are imposed by the government. Zara's campaigns of join life facilitate the customers to contribute to the society by taking part in various activities organised by them. Along with this various eco-stores they aim to improve the experience of the customers and to focus upon sustainability of the organisation.

Industry Analysis: After analysing the impact of various macro factors it is important for the organisation to determine the impact of various forces of the industry. This enables the organisation in formulating various policies, strategies and actions with the help of which they can deal with such influence effectively (Cohen, 2017).

Michael Porter’s five force analysis can be use as this facilitates the companies in determining degree of competitiveness within the industry. This enables the management of the companies to formulate various strategies. The five force model in context of Zara is given below:

Barriers to entry: When we look at this industry then it can be analysed that there are no entry barriers for the organisation due to which any existing or new company can easily enter into this segment. This factor can be analysed on the basis of investment required to enter into the business ethics and in case of this industry such requirement is not that much, due to this the impact of this force on Zara is high. But for dealing with the impact of this force Zara focuses upon improving their logistics by investing more on this and minimum level of advertisement as with this they can improve their services.

Impact of Substitute: This facilitates to understand the propensity of the buyers to switch to other similar products and in case of Zara the customers has wider option such as H&M, MANGO etc. The impact of this force can be understood on the basis of the switching cost to the customers but Zara has gained significant customer loyalty due to which they have more visits of the customers than their competitors. This leads to moderate impact of this force on Zara (Cascio and Boudreau, 2016).

Powers of the Buyers: The buyers generally have high powers of bargaining but with increasing demand for the trendy goods and services the customers powers are declining. Due to this the customers prefers to adopt products of better quality rather than prices. In European market the products of Zara are considered to be of low-end due to which they can be preferred by the people easily. This leads to moderate impact of force on the organisation as the customers get better quality products on comparatively lower prices.

Powers of the Suppliers: This force determine the extent to which the suppliers of the organisation can influence their operations and decision making. For analysing the impact of this force the availability of the suppliers must be determined. In textile industry contract based manufacturer and stitching facility are easily available due to which the impact of this force is low. Also the prices of the fabric are low so it is easier for Zara to switch easily to other suppliers.

Impact of rivalry: This force plays crucial role in determining the strategy by the organisation as it important for each and every organisation to consider the competitive factors. The impact of this factor can be analysed on the basis of exit barriers which are high as fixed investment are high in this industry. Du to this the competitors adopt aggressive strategies for attracting more of customers. This leads to high impact on the organisation as Zara need to consistently focus upon the changes made by the competitors so that they can adjust their strategies accordingly customers (Pillai and et. al., 2017 ).

Resources and key competences of the organisation

For an organisation it is important to analyse their internal market as well because with the help of this they can analyse their resources and capabilities that can help them in grabbing the opportunities that are present in the business environment by minimising the impact of threats. This can be done by SWOT analysis, VRIO framework, Resource based view etc.

For determining the strengths and weaknesses of Zara SWOT analysis is undertaken with the help of which strengths and weaknesses are identified.

STRENGTHS:

Global outreach: Zara has been operating in various countries due to which they can easily be recognised on different platforms. They have more than 1700 stores in almost 86 countries and this make them international brand. This will enable them to easily expand their market share by introducing more products (Papulova and Gazova, 2016).

Strategic Location: They location of the stores are decided by them carefully so that they can effectively and directly communicate with their customers to promote products. They uniquely decide the location such as they have their stores in shopping malls because people visit there with the aim of making purchases and this enable them to persuade them.

Distribution strategy: The entire supply chain and distribution of Zara is managed from the headquarters which brings efficiency in their strategies. They have their manufacturing in three different places and from there to the destination location all the channel and medium are directly managed. Due to this they have efficiency in this process. 

Store Image: The stores of Zara are trendy as they keep on improving the in-store services to the customers which make their customers loyal towards the company. In this competitive market situation the loyal of the customer plays crucial role in becoming successful.

Fast changing collection: This is one the strongest strength of Zara as they keep on changing their products in their stores. In every 2 weeks they brings in new fashion clothes which make their customers curious to know what’s new has been launched and this enable them to attract more of (Rothaermel, 2016).

Brand Image: The brand image of Zara is very strong which is their backbone as with this they can attract more of customers and can make them loyal towards the brand. This is because nowadays customers prefer to use branded products which offer better quality along with medium prices. This provides them competitive advantage over others.

WEAKNESSES:

Limited stock: The stock in the stores of Zara is limited due to which their customers many times find various products out of stock which ahs adverse impact on them. They do so with the aim of introducing new items in their stores frequently.

Prices: Prices that are charged by them varies from country to country as in some countries they are considered to offer low end products provider while in some they are considered to be the high-end products. This leads to price discrimination which can have impact on their brand image.

Brand image closely tagged to competitors: In fashion industry the most important issues which is being faced by the companies is that of the design being copied by others. This is one of the toughest weaknesses to be dealt with for Zara.

Lack of marketing: Zara do not spend much on their marketing and promotional activities due to which they faces issues to unawareness among their customers about the changes that they have introduced (Lu, Shi and Huang, 2018).

VRIO Framework is the framework which that determine valuable, rare, imitable and organised and brand is. With the help of which the internal capabilities of the organisation can be analysed as with the help of this the competitive advantages can be determined for Zara. With this various stages can be identified that facilitate them identification the area of improvement. Analysis of various such factors of this framework is:

• Valuable: With the help of this it can be analysed that the financial resources of the company are valuable as with the help of this they invest in diverse segments easily. The food products which are offered by them are also valuable but only in local market and this is because they are differentiated than others. The employees of the organisation are highly valuable for them as they facilitate them in rendering better services to the customers. The most valuable resource for Zara is their distribution strategy as they manage their entire distribution from their headquarters (Sullivan, Thomas and Rosano, 2018).
• Rare: The resources which are valuable need to be rare so that they can offer better services to their customers by creating differentiation. The financial resources are considered to be the rare resources as they are not possessed by each and every organisation so very easily. The food products are not rare as they can easily be provided by others with better quality and differentiation. While the employees and distribution system of Zara are highly rare as this offers them competitive advantage. This is because with effective distribution system they can save their cost and with better employees they can improve the quality of services to the customers.
• Imitable: It is important for the organisation to determine the imitability of the resources for the organisation as with this they can work upon them. The financial resources and the distribution system of Zara cannot easily be imitated by others as it increases the cost for the company (Jervis, 2017). While the employees food products can be imitated this is because with effective training employees can be made capable of and with procuring new people imitation of food products can be done by the competitors. 
• Organisation: With the help of this it can be analysed that the resources can efficiently be managed by the organisation. The financial resources and distribution channel of Zara can efficiently be managed as they need effective strategies which they have to manage them. But for employees strategies are formulated but according to them they cannot be managed for long as they may switch to other.

On the basis of this VRIO framework it is analysed that the financial resources and the distribution system of Zara offers them the sustainable competitive advantage while the employees offers them competitive advantage as at time it may become difficult to manage them while the food products of the company offers them temporary advantage (Wilkinson, 2017). 

Strategy that the company implemented recently

Zara has adopted various strategies time to time so that they can make their operations significantly important for the organisation. They have better distribution system due to which they adopted the strategy of forward integration with the help of which they manage their operation worldwide. Along with this thy have adopted the strategy of diversification as with the help of this they can expand the market and their market share. For analysing these strategies SAFe criteria will be taken into consideration. This will facilitate them in determining the effectiveness of the strategy that they must implement. It suggests various tests that include:

• Suitability: Zara has various opportunities as most of the external factors are in their favour due to which they can easily expand their business in different countries with new products along with existing one. In addition to this they forward integration will facilitate them in making their distribution system more strong and efficient.
• Acceptability: As both of these strategies are favourable for the company than the stakeholders will also agree to them. This is because of the fact that with the increased market share the profits of the shareholders will increase and they will contribute to the society as well. Also the satisfaction level of the customer will also improve this will enable them with unique products. So the risk associated with these two strategies is not much (Alden and Aran, 2016).
• Feasibility: For analysing the effectiveness of any strategy it is important to analyse their feasibility. These two strategies of Zara are feasible for these strategy they have sufficient funds along with this they have opportunity to expand their market. Their existing distribution system is strong and forward integration will make it stronger and thus this will make their strategy of diversification an appropriate one.

CONCLUSION

It is concluded from above report that the organisation must taken into consideration various aspects so that they can formulate effective strategies for them. for this they must consider the analysis of external environment through PESTLE and Porter’s five force model as both these facilitate them to determine various opportunities and threats. Along with this they can analyse various influence of various industry forces. The internal analysis by the organisation will facilitate them in analysing various strengths and weaknesses along with their resources and capabilities so that they can garb various opportunities prevailing in the market. 

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