Individual Assignment

Subject:
International Business Administration

Professor : Dr. ANTHONY TSANICHARA

Class : AUMBA.C0216

Student name :Nguyen Thi Thu Giang

Submitted Date : October 2017

ZARA

Case:
Chapter 12_Strategies for International Business
ZARA: Zara Strategies for value creation in the global apparel industry.
(International Business Environments and Operations, PEARSON, 15TH Edition,
Page 476)

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 TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................................

A. INTRODUCTION ....................................................................................................... 4
B. ANALYSIS ................................................................................................................. 4
I. Zara Administration in Human Resources ............................................................... 4
II. Zara International Business Administration Strategy .............................................. 6
1. Design Strategy .................................................................................................... 6
2. Sourcing ............................................................................................................... 8
3. Production. ........................................................................................................... 8
4. Zara Administration Strategy in Logistics ........................................................... 9
5. Zara Administration Strategy in Store Operation .............................................. 10
6. Best way to connect each activities at Zara........................................................ 10
C. CONCLUSION ......................................................................................................... 14
D. REFERENCES .......................................................................................................... 15

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EXECUTIVE SUMMARY
Whenever talking about apparel industry, shopper always mentioned Zara and H&M.
They are two aggressive contesters MNE in the world apparels retailer market. However,
Zara are always ranked at top 1 apparel MNC. What makes Zara different, and struggle
against its competitors, those are laid at its international business strategy.

1. Human resources strategy:

Its standout performance highlight the idea that great managers make great
strategies that make great companies that outperform their rival over the long haul.
INDITEX recruits and train young talented candidate via their powerful training course
and system. Furthermore, INDITEX also have profit-sharing policy to their employee,
starting from 2015 to encourage the team to stay longer and continuously contribute to
INDITEX group development.

2. Design strategy:
In the case of Zara, interactions between store managers around the world and
designers stationed in Spain helps localize what otherwise would be standardized global
products. Retail input on particular colors or fabrics that sell better in certain locales
versus others makes for easy product adaptations. At Zara, there is only clothing
collection in favor of “live collection”, however no style lasts more than four weeks.

3. INDITEX sourcing, production strategy

In 2016, the INDITEX Group worked with 1,805 suppliers in 53 countries; these
suppliers used 6,959 factories for production. However with the strategy “do what you do
best and outsource the rest”, the finishing phrase are still based on the operation “The
Cub” in Spain. Zara makes its most time- and fashion sensitive products in its 20
factories clustered in La Coruña. INDITEX outsources about a third of its remaining
manufacturing to China, Bangladesh, Vietnam, and Brazil, and 15 percent or so to
factories in Portugal, Morocco, and Turkey. INDITEX’s factories are highly automated,
specialize by garment type, and focus on the capital-intensive parts of the production
process—i.e., pattern design and cutting—as well as finishing and inspection.

4. Marketing strategy
Zara strategy to set it shops at high profile. Its bare-bones marketing department
avoids flashy campaigns, relying instead on word of mouth among its legions of loyal
shoppers. Like its founder, it does not promote itself; it leaves that to satisfied customers
like what Luis Blanc shared “We invest in prime locations. We place care in the
presentation of our store fronts. That is how we project our images. We want client to
enter the beautiful store where we offer the latest fashion. But most important we want
customer to understand if they like something, they must buy it now.”

Among these strategies, using talented people is the key driving INDITEX (Zara) current
sustainable development. The context below shall provide you more detail about
INDITEX international business strategy.

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 A. INTRODUCTION
INDITEX Group, Spanish apparel MNE, which own Zara global retail chain, is
ranked as top one leading fashion retailer in the world. Its current position is ranked
based on its long age and its value chain contribution to fashion industry. INDITEX
Group headquartered is in La Coruna, Spain. The company was started in 1963 by
Armani Ortega, 78 years old, who holds about 60% of the stock and is today Spain’s
richest man. By the year 2016 it had 7292 stores in 93 countries ( Inditex Financial
Report, 2016, page 12). In this context, we shall focus to analyze INDITEX Group, Zara
shop strategy in international business administration, and developed the
recommendation on how is the most effective way to manage the relationship among the
design, sourcing production, logistics and store operation of the INDITEX Group.

B. ANALYSIS
I. Zara Administration in Human Resources

Zara believes that finding store managers capable of effectively running its retail
properties is the main constraint on Zara’s expansion. Zara managers develop a repertory
of competencies Spanish design, production, logistics and retailing that converted its
innovative strategy into action. On the recruitment webpage at indeed.com, Zara was
seeking candidates who own below capability:

Required skills for Store Sub Director Position (sourced: Zara San francisco CA
recruitment requirement, 2017)

 Ability to multi-task in a fast paced setting

 Interest in fashion and current season trends as they apply to the market

 Excellent communication skills

 Detail oriented and organized nature

 Prioritizes tasks to maximize efficiency of team

 Takes initiative to accomplish all set goals

 Great customer service skills

 Leads and motivates team by setting the example

 Desire for career growth within the company

 Minimum of 3-5 years retail management experience

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These skills are to cover below responsibility for the store sale and expansive strategy
below

Customer Service: Provides highest level of care to customers.

Visual Merchandising: Consistently ensures the floor is fully stocked with merchandise.
Merchandise the store with the support of the visual merchandising team.

Sales & Stock Management: Opens and closes register with cashiers at the start and/or
end of the day within their department Oversee the receiving of new shipments
(stockroom layout, garment sensors, display). Controls all returns/damages/store transfers
for department consistently meet sales goals set by upper management while striving to
exceed expectations.

Loss Prevention: Works closely with Store Manager to meet shrinkage goals within their
department Oversees store inventories for department and ensures the highest level of
accuracy when doing so.

Human Resources: Ensures the proper training for all staff and recognizes potential
candidates for promotion Recruits, interviews, develops and maintains a strong
department team members Ensures that all HR procedures are followed (payroll, store
coverage, budgeted hours, training).

Operations: Organize all issues relating to general services (maintenance, store orders,
heating/cooling). Follow all Zara company policies and procedures focusing on the Zara
management principles.

Actually, to meet all the requirements above, the candidates should have a very strong
profile not only in finance, marketing, supply chain, human resource but also in operation.
And it is quite not easy to source in the management labor market. However, Zara can
think of selecting the candidate who can meet about 80/100 their requirements, and offer
the candidate internal training for those skills he/ she is missing. That shall be the best
way to compromise the labor market scarcity with their demand for management
candidates (Question 12-1 answer). Actually, since it started in 2012, Zara has the e-
Fashion program that allowed 702 students in Spain, the United Kingdom, France and
Italy to train in the integrated management of the fashion business. Designed by
INDITEX in collaboration with the Instituto Europeo de Diseño de Madrid (IED), e-
Fashion offers store teams online training lasting 220 hours structured into three blocks
of contents – product, business and image and communication – seeking to improve
professional skills and competencies among employees. Meanwhile, since 2016 store
management in eight countries (Italy, France, the United Kingdom, the United States,
Russia, Austria, Germany and Switzerland) can make use of the Manager Toolkit. This is
a tool installed in the app INet, the mobile app INDITEX makes available to its
employees which gives them access to training materials on store operations, staff
recruitment techniques, identification and development of internal talent and staff
management skills, all specifically tailored to their role. (Inditex Annual Report, 2016,
Page 49).

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 II. Zara International Business Administration Strategy

From the beginning, Zara’s business model differed from the norm. Today its
strategy depends on managing the connections between its various activities, notably
design, sourcing production, logistics, and store operations. To provide best performance,
beside the manager should have organized and management skills, company should have
two soft wares separately. One is recruitment and training software, where stores all
necessary training data and pictures so that visible to the staff. Another system is
enterprise supply chain management system which has full enough function to link with
all of other department for clothing style picture, future forecast and physical real
operation. Let’s have a look at Zara strategy at each activity, and its market stand.

1. Design Strategy

At Zara, there is no fall or spring traditional season clothing, but only live
collection, and no style lasts more than 4 week. With this aggressive/creative strategy,
Zara designs about 11,000 items per year. Its main idea is come from store manager
advice, Television, Internet, Publication, and Film. With this particular concept, Zara
brings the messages to customer that if the shopper wants to buy something, he or she
feels the need to buy it to guarantee it won't be sold out. Designer develops new model
daily, it can bring new design in Paris in Zara stores within a very short time of appearing
on the runway. (John D. Daniels• Lee H. Radebaugh • Daniel P.Sullivan, Strategies for
Internation Business, 2015, page 478,). This helps Inditex always is at top sale in the
world fashion industry. Table 1 is sale revenue figure, Inditex always on top with the
excess percentage from 3% up to 13% in compared with its main competitor H&M. For
more information, please refer to Picture 1: Inditex Consolidated Income Statement ,
Picture 2: H&M Income Statement for more information. Exchange rate used is 1
SEK=0.10 EUR

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 Picture 1: Inditex Annual Report, Page 240

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 Picture 2: H&M income statement

Sale Revenue UOM Y2016 Y2015 Y2014 Y2013 Y2012

Inditex MEUR 23,311 20,900 18,117 16,724 15,946
H&M MEUR 22,287 20,992 17,662 15,009 14,095
% exceed 5% 0% 3% 11% 13%

Table 1: Inditex and H&M Revenue comparision. Own developed from Inditex, and H&M financal report

2. Sourcing

Zara’s headquarters staff and purchasing offices in Barcelona, Beijing, and Hong
Kong acquire fabric, components, and finished products from suppliers in Spain, Portugal,
India, Turkey, Morocco, and China. Until the year 2016, INDITEX has total about 1805
suppliers (Inditex financial report, 2016, page 6) with purchase during the year while its
main competitors H&M only has 790 independent suppliers (H&M financial report, 2016,
page 6)

3. Production.

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 Zara strategy is designing and launching products very quickly in short time. This
creates the feeling of unique and scarcity to their customers stimulates customer buying
desire when he or she found their interested style. Until the year 2016, Zara employed
about 162,450 head count. Its manufacturing man power in 2016 is about 910 peoples.

Table 2. Workforce distribution by activities. Sourced from Inditex financial

report 2016, page 38.

4. Zara Administration Strategy in Logistics

Most Zara’s garments are distributed through the flow from their massive
distribution center in La Coruna-about the size of 90 football field, or from smaller
satellite centers. Table 2 picture shows that logistics workforce of INDITEX is about 5%
of the total employees. These employees shall work at INDITEX several warehouse to
operate inbound, outbound process, store their products efficiency. They can sort product
in carousel about 45,000 folded garments per hour, and ship out 2.5 million items per
week to store world wild. They contract 3PL to provide delivery service 24 hours for
stores in Europe, Middle East, US, and 48 hours for Asia and Latin America. The
Group’s logistics system is based on continuous deliveries to stores, throughout each
season, from the distribution centers of the various commercial formats. This system
essentially operates through centralized logistics facilities for each of the concepts, at
which inventory is stored and from which it is distributed to all the stores worldwide.
This helps their inventory only occupied at 13% of their total asset while its main rival
H&M is 30%. For more information, please refer to INDITEX financial report, page 242;
and H&M financial report, page 80.

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 5. Zara Administration Strategy in Store Operation

Until Jan 2017, INDITEX has total 7,292 stores at 93 countries (INDITEX
financial report, 2016, page 6). They use very little promotion and advertising but
emphasize on its product reasonable quality and high fashion. Zara spends just 0.3
percent of sales on advertising, compared with 3 to 4 percent for most fashion retailers.
,
(John D. Daniels • Lee H. Radebaugh • Daniel P. Sullivan International Business
Environments and Operations, page 480). With the belief that “ the key driver in stores is
the right fashion. Price is important, but it comes second”, Zara’s bare-bones marketing is
replying on word of mouth among its loyal shoppers. Zara store present for company face
to the world, hence its store always locates at high-profile real estate, and its window
displays convey the message.

6. Best way to connect each activities at Zara

1s step: Staff recruitment and training.

As the store manager, he/she must have acumen in business, and draft out the
overview of the store operation and how it impacts the supply chain of the company.
And the 1st priority one of the operation is how to recruit and attract young, talented
work force to contribute to company growth. With the InditexGo was created in 2013
as a way to identify, select and develop promising young talent in Zara in order to
maximize promotion from stores to other areas of the company. The program has
become a way of training future management staff. Go! currently allows to employ
144 people in different teams, all working under a personalized development plan.
The plan includes an initial training period of six months in the range of business
areas, from product to distribution center, central services and country subsidiaries,
with training in store as the main focus. Besides that, the manager must train his store
staff all necessary communication and technical skills for daily operation, so that they
can perform well on how to communicate and get effectively response from customer,
how to decorate store layout, how to fold, hang, attached the chip to the apparel, or
even 5S, so that the store can meet daily target fresh to attract customer for its luxury
and fresh appearance. The entire training data source available in the INDITEX Go
system.

2nd Steps: Staff allocation, management and payment

INDITEX is committed to guaranteeing its employees safe and healthy

working environments where equal opportunity, work life balance and
professional. (INDITEX financial report, 2016, page 52). Depend on the occasion
and characteristic of weekend or holidays, the sale volume shall be impacted because
of consumer demand. Therefore, as a store manager, he/she should have a proper plan
for these days on how to allocate man power to provide best service to customer but
ensure security and safety for customers at store. He or she also would have a proper
plan on decoration as well as suggest any promotion campaign to attract customer on
these days. He or She can make use of the Manager Toolkit to apply. Meanwhile,

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 since 2016 store management in eight countries (Italy, France, the United Kingdom,
the United States, Russia, Austria, Germany and Switzerland) can make use of the
Manager Toolkit. This is a tool installed in the app INet, which is available in 50
countries where INDITEX operates, covering 95% of the Group’s employees. The
mobile app INDITEX makes available to its employees which gives them access to
training materials on store operations, staff recruitment techniques, identification and
development of internal talent and staff management skills, all specifically tailored to
their role. Furthermore, with the human resource policy “Employee Profit-Sharing
Plan”, INDITEX is encouraging talented resources to stay longer in their corporation.
The company achieved exceptionally positive results in 2015 and 2016, which made
it possible for the Group to share out more than 79 million euros among more than
84,000 people in 50 countries.

3nd step: Data collection, stock status update, sale forecast booking, style
design feedback, bold link creation in sustainable activities for value chain

The store staff closely contact with customer, gather all buying history data as
well as customer comments, she shall input to the supply chain management system daily.
Those data shall be used as forecast tool and she would remark which type of model
customers currently is looking for, and what type of model are the best sell of the period.
Those inventories shall be shared to the merchandise, designer, accountant as well as the
logistics manager for their support. Headquarters coordinates reports from salespeople
who, acting as grassroots market researchers, interpret buying trends, capture customers’
comments, and propose improvements. Indeed, Zara coaches its sales staff to solicit input
from customers. Real-time data on customer preferences is uploaded to headquarters
where managers take the “fashion pulse of the world.” Explained INDITEX, “The store
manager share ‘My customers are asking for red trousers,’ and if it’s the same demand in
Istanbul, New York and Tokyo, that means it’s a global trend, so they know to produce
more red pants.” (M. Tahvanainen, D. Welch, and V. Worm, “Implications of Short-
Term International Assignments,” European Management Journal, 2005) Fed fresh data,
the machine responds; product designers, materials managers, production
Supervisors and logistics controllers go into action. In a matter of days, new designs turn
Into new clothes that are sent worldwide—essentially, some say, creating custom orders
for global, mass-made products
To Design department:
Through the picture and sale volume, the designer knows which are the best-
selling styles in that store or local. From that, they would develop and integrate more
style to suitable with target customer hobbies and the world fashion style.
To Merchandiser:
Based on the selling data, merchandiser shall know what type of style trend or
clothing that they should need to book more volume at the warehouse (logistics
department) if it is available, if not, they shall proceed sourcing and purchasing.
To Operation/ Production team:
Based on sale, merchandiser and design data, Operation team know how to
action and produce and follow up until the orders get to the final finishing phase.
To Logistics Department:

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 Logistics department shall base on merchandise booking volume, and sale
volume that store sell out to supplement the order for the store.

7. Challenges and Change

Despite its aura of strategic excellence, not all is picture-perfect in the land of
Zara, Zara also faces some challenges

a. How long Zara can charge different prices in different countries.

With current technology development, and online shopping, pricing of

each clothing easily seen on Zara webpage. Although pricing is different in
each countries, it is still acceptable because of the logistics cost, the real estate
rental, the living cost- the salaries of employees in each countries are different.
Please refer to table 12-2 the cost of labor across the world.

Sourced from: Internation Business Environment and Operation, John D. Daniels • Lee
H. Radebaugh • Daniel P. Sullivan, 2016

b. How much longer it can continue running global operations from its
centralized base in Spain—especially given the rise of the U.S. and
Chinese markets, which accounted for a third of total sales in 2012 despite

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 few stores (China has about 400, the U.S. 50 or so). Does it still make
sense to keep product design, manufacturing, and logistics activities in
Spain with Asian sales set to soar?
With the huge “The Cub” Center productivity 2.5 million units/ week
shipping out , and the strategy that finishing step only be proceeded in
Spain. Below are the figures of factories around the world of Zara

Sourced from INDITEX Financial report, 2016

In its concentrated value chain, some clothes that Zara makes in China are
shipped to Spain for finishing and, amazingly enough, and then sent to
stores in China. This is Zara Strategy to keep it finishing industry
confidential, and this also to create value of production items. Ultimately,
Zara’s adept coordination of the overlapping activities among its designers,
and salespeople testifies to the power of its strategy. No other company
can design, make, ship, and sell fashion as speedily as Zara. Its business
design leaves rivals with less time to figure out how to configure and
coordinate operations better.
However for long time, if it would like to compete in Asia market where
pricing is most concentration, it should disper some value activities to its
fastest-growing markets in Asia, thereby adapting activities to optimize
local effectiveness for time response in production and cost. Changing
industry trends pressure it to change its configuration strategy.

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 Below picture show you INDITEX and their sustainable development
goals they set to link the relationship for all activities in the year 2017.

C. CONCLUSION

Shared by Pablo Isla, Chairman of INDITEX, at INDITEX financial report 2016.

“The key factor enabling the sustained and sustainable development of this model is the
people who populate our company: a diverse universe of professionals who have in
common creative talent, modesty, a passion for fashion, the ability to work hard as a team
and in a responsible manner, an entrepreneurial spirit and a tireless quest to innovate.
With the strategy to have great managers to make company outperform their rival over
the long haul, Zara has expanded 279 stores in the year 2016 (page 293, INDITEX
Annual Report). INDITEX‘s (Zara) growth is sustained by 162,450 people in total. Their
concrete business strategy shall continue to be a bold link for all the relationship between
various activities human resource management, notably design, sourcing production,
logistics and store operation to create the great value chain to their sustainable supply
chain for global operation in 50 countries or even more in the future.

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 D. REFERENCES
Inditex Group. (2016, 12). Inditex Annual Report. Page 12. Retrieved 10 2017, from
www.inditex.com:
https://www.inditex.com/documents/10279/319575/Inditex+Annual+Report+201
6/6f8a6f55-ed5b-41f4-b043-6c104a305035

John D. Daniels• Lee H. Radebaugh • Daniel P.Sullivan. (2015). Strategy for internation
business -designing. In J. D. P.Sullivan, International Business Environment and
Operation (p. 478). Pearson.

M. Tahvanainen, D. W. (2005). Implications of Short-Term International Assignment.

European Management Journa.

Walter Loeb. (2015, Mar 30). Zara Leads In Fast Fashion. Retrieved 10 1, 2017, from
Forbes News: https://www.forbes.com/sites/walterloeb/2015/03/30/zara-leads-in-
fast-fashion/#2ec0009a5944

Zara San francisco CA. (2017). Job recruitment. Retrieved 2017, from www.indeed.com:
https://www.indeed.com/cmp/ZARA/jobs/Retail-Manager-
983ec5fda4970279?q=Store+Manager+in+Zara

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