Introduction
As a management consultant for the company, I will first focus on the external environment analysis of Zara and then later on the global market strategy analysis. The analysis is aimed at helping the company management to realize most of the opportunities for the company and also help the company to be able to realize its performance gap to fill for better service and operation in the market. To analyze the external environment for the company (Zara), we will have to look at different strategic analysis models, which include:
PESTEL Analysis
This is a model which is used to major on the political factors, economic factors, social factors, technological factors, environmental factors, and legal factors.
Political factors
Zara Company has substituents in different areas or regions, which have to comply with different laws in those regions to operate on the services like importing and exporting products and also comply with the tax paying regulations in these different locations. The political instability in the areas where this company is located may affect the company’s performance because the company might not be able to export or sell its products freely to the market, a factor that can lead to its underperformance.
Economic factors
Zara has been very sensitive to economic changes by considering what most of its customers like or prefer to satisfy the customer with what they need. It has also been in a position to consider the trends in the economy because this affects the consumers purchasing power, which also leads to low sales for the company (Yüksel, 2018). This company faces fluctuations like any other company in the market to ensure it flexes to suit its customers during harsh economic situations by lowering prices.
Social factors
The company has gained social interest in the market because of its brand name and its well-known ability to produce high-quality clothes known by many customers (Gregoric, 2020). This has helped the company to be able to familiarize itself well with its customers due to customers’ interest and also helped the company to know the strategy to which will satisfy its customers in order to obtain a large volume of sales in the market.
Technological factors
Zara has done many investments in modern technology, like venturing modern advertisement tools in the media and using social media to enhance sales, and also using modern tools to evaluate and do data statistics analysis, including the use of artificial intelligence in the course of the evaluation, to ensure that there is the improvement of the quality of the output which will be necessary to sustain its workers and also customers (Strzelczyk & Chłąd, 2017). This has led to the company performing well in the market and being able to compete well with other players.
Environment factors
Zara company has received much criticism due to poor environmental practices, which can lead to this company being taken through trials due to violation of regulations on the environmental ethics practices, such as garbage and waste disposal practices, which will make the company have low performance (Nurmi & Niemelä, 2018). The company needs to focus on environmental and ethical issues to avoid future troubles which may arise due to violation of environmental laws concerning waste disposal in order for this company to be in the right direction of customer service.
Legal factors
The company operates on the set laws and regulations concerning the labor laws and the product quality and safety laws which must be followed letter, where failure to operate under these laws and regulations may affect the company’s existence in the market. The company also operates under laws concerning intellectual property rights and litigations, which must also be taken into account to enhance productivity.
Another model, Porter’s Five Force Analysis, focuses on the threat of new entrants, the bargaining power of buyers, the threat of substitutes, and the intensity of competitive rivalry.
Porter’s Five Forces Analysis
The threat of new entrants
There is the probability of the entrance of new companies into the market, but the company brand name hinders the impact of these new entrants In the market because it has a large customer base.
Bargaining power of suppliers
The company has been able to reduce the bargaining power of the suppliers because it controls all factors of production.
Bargaining power of buyers
Zara Company has been able to shift fast towards customer preferences to try to curb and counteract the customer bargaining power, as its customers are susceptible to the prices of the products.
Threat of substitutes
There is the threat of second-hand’s clothes being sold by other players as substitutes for fashion clothes, but the brand name Zara has helped curb this problem.
The intensity of the competition
The company has many competitors in the market, like H&M, Forever 12, and Uniqlo. These other companies compete with Zara, but its fast fashion capabilities and the brand name have served it as a competitive advantage in the market.
Rather than the external environment analysis, we will also look at the company’s internal analysis by looking at an analysis model tool, SWOT analysis (Ghazinoory, 2019). SWOT analysis is a tool that deals with and focuses on the strengths, weaknesses, opportunities, and threats.
SWOT Analysis
Strengths
The company has many strengths in that it has a well-known brand name that will give the company an advantage in making more sales in the market and also having financial security, which can help the company acquire loans for development from financial institutions.
Weaknesses
The company needs to practice better on environmental issues, which has led to criticism for not following the environmental waste disposal guidelines (Valentin, 2021). It has also yet to be able to diversify in terms of its product, which has led it to depend on one product under all economic situations and circumstances.
Opportunities
The company has expansion and diversification abilities due to its well-known brand name and technological capabilities, which can help it have a larger market to serve and high-quality products (GURL, 2020). This company will take little time to adapt to the new product market because the existing customers will also have to purchase an interest in the company.
Threats
Significant competition from textile players in the market and currency fluctuations in the economy exists.
Strategy in the global environment
Focusing on how Zara can enter a foreign market, we can look at the Uppsala internalization model, which suggests that companies should focus on the domestic market before entering the international or foreign market. This is very important because it helps the company to be able to adapt well to the market factors, which will help it operate in a foreign market. The company can consider building its brand name in the local and domestic markets by ensuring efficient customer satisfaction, which will also help the company have a competitive edge in the market. This helps the company to be able to solve problems and learn how to avoid risks in the market.
This model can help this company enter a foreign market by ensuring that it satisfies its domestic customers and continues to build its brand name in the market gradually. Therefore, it can consider having more branches for the company in countries like Germany, Spain, France, Italy, and others (Teoli, 2019). There are similarities in the cultures of these countries, which will help this company to adopt the culture more easily.
Another relevant model that the company can consider is the PESTEL model, where it should consider political stability, economic factors and how to cope with the economy, social factors, and technology by adopting emerging technologies to serve global customers, environmental factors, and ways to avoid banns due to violations of environmental laws and also legal compliance. This will also help the company to expand well to serve the foreign market.
The motives, which are there for Zara to expand internationally, are;
- It has the potential to diversify the market instead of depending only on the Spanish market to help the company solve risks brought about by economic factors.
- The growth provides more revenue for the company and leads to international recognition.
- Competitive advantage will help the company withstand the competition from other companies in the market.
Conclusion
The company will need to consider building relationships with customers in all markets to enhance its expansion at the international level and consider the cultural aspects because they also influence the performance in the market. From the above analysis, I recommend that this company needs to consider compliance with the legal factors at the international level and also ensure that it follows all guidelines in the production of its products in order to acquire a competitive edge in the market (Luo, 2020). The company should also consider following the set guidelines on waste disposal to prevent competitors from taking advantage of the company’s inability to dispose of waste under the ethical guidelines and use it to outweigh it in the market.
References
GURL, E. (2020). SWOT analysis: a theoretical review.
Valentin, E. K. (2021). SWOT analysis from a resource-based view. Journal of marketing theory and Practice, 9(2), 54–69.
Teoli, D., Sanvictores, T., & An, J. (2019). SWOT analysis.
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Piercy, N., & Giles, W. (2020). Making SWOT analysis work. Marketing Intelligence & Planning, 7(5/6), 5–7.
Luo, Y. (2020). Dynamic capabilities in international expansion. Journal of world business, 35(4), 355–378.
Ghazinoory, S., Abdi, M., & Azadegan-Mehr, M. (2019). SWOT methodology: a state-of-the-art review of the past, a framework for the future. Journal of business economics and Management, 12(1), 24–48.
Gregoric, M. (2020). PESTEL analysis of tourism destinations from a business tourism (MICE) perspective. In Faculty of Tourism and Hospitality Management in Opatija. Biennial International Congress. Tourism & Hospitality Industry (p. 551). The University of Rijeka, Faculty of Tourism & Hospitality Management.
Nurmi, J., & Niemelä, M. S. (2018). PESTEL analysis of hacktivism campaign motivations. In Secure IT Systems: 23rd Nordic Conference, NordSec 2018, Oslo, Norway, November 28-30, 2018, Proceedings 23 (pp. 323-335). Springer International Publishing.
Strzelczyk, M., & Chłąd, M. (2017). Use Of PESTEL Analysis For Assessing The Situation Of Polish Transport Enterprises (Part I). Zeszyty Naukowe Politechniki Częstochowskiej Zarządzanie, 27(2), 161-168.
Yüksel, I. (2018). Developing a multi-criteria decision-making model for PESTEL analysis. International Journal of Business and Management, 7(24), 52.
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