University of Chicago
Type of paper: Thesis/Dissertation Chapter
An insight into Zara as a Born Global
Zara was first established just outside of Spain in1988, in 1994 Zara expanded into France and Mexico (Bhardwaj et al, 2010). Zara is owned by the INIDEX group in which it contributes to 64.8 per cent of total company sales (Inidex annual report, 2011) which was a 10 per cent growth on the previous fiscal year. Zara now has over 1830 stores worldwide across 82 markets in 64 countries, with plans to move into Korea, Egypt, Ukraine and Montenegro and a further 80 store to open in Russia. This research paper identifies Zara as a born-global company and a global leader in fast fashion by firstly differentiating between a born global and gradual global company. Secondly we investigate three main internationalisation theories which will help us gain greater understanding into the success of Zara and finally importance in which the marco-environmental factors and marketing mix play in creating a company which is unique, controlled and adaptable to new markets.
Zara as a born global
Understanding the difference between a gradual-global versus a born global fashion retailer is key to identifying Zara as a born global. Traditionally, firms gain knowledge over time about the marco-environmental factors and the level of investment in which they should commit to (Galvan-Sanchez, et al., 2010). Examples of companies that use the ‘gradual global process’ include Mark & Spencer and the GAP. Born-global’s, according to Bhardwaj et al, 2010 focus on early and rapid internationalization. Therefore we identify that the difference between a born global and a gradual global lies in the international process and three main theories; knowledge-sharing and entry mode, resource based, and physic distance. Let’s look at these internationalisation theories in more detail by first identify the difference between a born global and a gradual global approach.
A Born global is assertive and perceives the world as one market place with utilising the local market as the core of the internationalisation process (Bhardwaj et al, 2010) whereas gradual global firms believe that domestic market is the core support and aversion and lack of knowledge results in slow learning process. Born-global maintain long-term relationships with intermediaries, are fully integrated and consider the marketplace as homogenous whereas gradual global are partially integrated and consider the marketplace as heterogeneous (Basu, et al., 2011).. Lastly a born-global believes psychic distance is irrelevant in the internationalisation process whereas gradual global assume that the firms entry into a new market is a function of psychic distance from prior experience (Bhardwaj et al, 2010).
Knowledge sharing and entry mode
Knowledge sharing is the flow of information sharing within a company and is consider a major competitive advantage (Basu, et al., 2011). When a company expands into a foreign market forward knowledge flow is important (Galvan-Sanchez ,et al., 2010) as managerial experience and business structure can be communicated to newer stores from head-office. More importantly to this report lateral knowledge flow commutates vital marco-environmental information from the foreign market location back to headquarters for example Zara has three stores in Dubai in which they sell clothes predominately covering the shoulders and offer more conservative style to respect local culture (Bhardwaj et al, 2010). Communicating and integrating culture which include shared values and norms is vital in the strategy development process (Galvan-Sanchez, et al., 2010).
According to Indiex 2011 annual report environmental factors also play a vital part in the success of their line limnetic difference with the stores located in the Northern Hemisphere, Zara has a team of designers who create specific fashion proposals for women, men and children. The latest trends are thus reflected in garments and textiles that are suitable for both hemispheres, in options which are continually renewed. Knowledge sharing is also crucial in selecting the appropriate entry mode into a new market which includes licensing, joint venture/subsidiaries to name a few (Bhardwaj et al, 2010). Zara is identified as selecting a licensing entry mode into new market which lowers risk on investment but increases communication and management overtime.
Resource based theory
Resource based theory is focused on asset exploiting foreign investment and suggests that ownership-specific advantages provide Zara with a resource based framework which is valuable, rare, imperfectly imitable and not substitutable (Bhardwaj et al., 2011). Zara is a vertically integrated company and is not hierarchal which helps create pseudo-backward integration (Basu, et al. 2011). Zara’s success also comes from training and employing local workers in new stores which provides relevant feedback and creates job growth (Rennie, 1993) which in turn can provide valuable information for future marketing strategy and promotion (Galvan-Sanchez, et al., 2010). The Zara brand is also known for being up-to-the-minute and affordable due to its highly developed technological communication which feeds POS and store information directly back to headquarters to be analysed (Inidex annual report, 2011) and adjusted to ensure succession in the local market which ensures that price, placement, product and type of promotion are remaining relevant and unique in the local market. These advantages have created strong positive response from foreign markets making its resource-based advantages and high-control strategy difficult to replicate (Bhardwaj et al., 2011).
This theory deals with the relationship between the differing cultures in which a company deals with and is important in the understanding of the effects that the marco-environment have on the marketing mix. The key to Zara’s acceleration into foreign markets lies in competing in niche markets, which are flexible and move fast (Rennie, 1993) and is successful due to its knowledge gathering and sharing strategies implemented at the store level (Bhardwaj et al., 2011) in each market it enters. Understanding and respecting local political and legal powers, for example local taxes and governing powers that can effect price and product helps align the companies goals and objectives with the localised market without causing conflict of interest (Galvan-Sanchez, et al., 2010).
In conclusion, this article identifies Zara as a born global retailer which demonstrates that the companies knowledge sharing capability, unique strategy, high-risk, high-reward model based on its unique resource based advantages and psychic distance is paramount to the success of its internationalisation expansion and becoming a global leader in fast fashion.
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