A Report On The Operations Of Zara In Foreign Countries
Executive summary
This report was commissioned to examine how Zara operates in foreign countries and their use of intercultural communication abilities in multicultural situations. For a better understanding of what type of challenges Zara faces, we would like to do a SWOT analysis with the focus of Zara’s internal and external factors that could have an impact in the global market. Furthermore, we would also like to do country comparison analysis using Hofstede cultural dimensions. This would help us to understand the reason behind the challenges Zara faces in the global market. The key findings from the SWOT analysis show that Zara has a lack of advertisement, which could be a problem in the international market where people may not be aware of the brand. However, they still have a strong global position due to Inditex. Another key finding, we can lead from our Hofstede analysis is the importance of understanding the culture/country when entering the market. When Zara entered the Scandinavian market, they had to change their organizational structure from a more hierarchal to a flatter organization due to the power distance in the country that is reflected in the firms. Also, they had to face challenges with Uncertainty avoidance in UAE, when entering the market. Due to strict rules, Zara could only enter the market with partnering with a local firm. We can recommend for Zara to definitely continue with understanding the need of the customers no matter where they are located. However, it would be a good idea for Zara to start focusing more on the advertisement, as we see countries where they are used to strong an advertisement, or simply just because some of the population is unaware of Zara’s existence and then increase their sales.
Zara – Worldwide Fashion Retailer
Zara is known for being one of the world’s most successful clothing retailers in the world. It operates in 96 countries with 2200 stores in total. The biggest market is located in the home location of Zara, namely Spain. With its 563 stores in Spain, we see different departments as Zara Men, Zara Kids, Zara Home etc. Moreover, Zara is also known for its online store where they also gain lots of their consumers from. What made Zara so popular is their use of the concept “fast fashion”. It is a term that is used in the fashion world, where retailers quickly copy what they see in the catwalk and within the shortest period of time deliver it to the customers.
Background
Zara’s first store opened in 1975 by the founders Amancio Ortego and Rosalia Mera. However, they have been in the industry before. Ortego established a dress-making factory in 1963, named Cofecciones GOA. After ten years he decided to start off a small store in Spain named Zorba with only having 30 Euros in his budget. Afterward, he changed the name to Zara and that’s where it all started for the worldwide fashion retailer.
SWOT
For a better insight view of the company, I would like to do a SWOT analysis. The SWOT analysis focuses on the internal and external factors of the company. The internal factors are seen with the strengths and weakness, and the external is then the opportunities and threats. If we take a look at the internal factors, we can say that Zara is especially lucky to be in Inditex. Inditex runs 8 other international companies, which give them a strong global connection that Zara can take advantage of. However, Zara doesn’t spend any money on the advertisement which might become a problem in foreign countries. If we take a look at the external factors, we see that Zara has some good opportunities for e-commerce due to a higher demand for net shopping in the most part of the world. Zara might face some threats with competitors also creates fast-fashion with maybe even a better advertisement strategy. We have now looked at the external and internal factors that have an influence on Zara’s appearance in Spain as well in foreign countries. The SWOT-analysis may now help us to understand which cultural differences that appear in foreign countries.
Cultural issues for Zara in foreign countries
When being such a well-known brand as Zara, who operators in so many different parts of the world, you have to face some cultural differences. We will now have a look at how Zara operates in several parts of the world.
European market
The European market is probably the most important market for Zara since it’s the home market. Inditex has a sale share on 45% only for the European countries, so we can, therefore, for sure say that the European market is quite necessary for Zara. The reason behind this would probably be that the European countries have the same taste in fashion and it is, therefore, easier for Zara to match these countries. Another important factor is the trading policy of EU. This will diminish any restrictions or other problems within Europe.
American market
Zara has expanded to respectively North America and South America, with a total sale share about 16%. Due to the American market is so different, we will focus on which problem they went through in North America and South America.
a) North America
The next market Zara entered after the European market was in North America in 1989. However, Zara had to face some issues regarding sizes and style in the US. Most fashionistas from the US live in the East and West coast, where they try to keep up with the European fashion. European fashion is very known for being fashion forward. Moreover, Zara also had to deal with the sizes in the US. The average American is a bit bigger than an average European, which made it a bit more difficult for Zara to take advantage of the full market. As we found out in the SWOT analysis, Zara has a lack of advertisement. This could also be a problem in the US because the American are used to strong an advertisement for their brands. If Zara focused more on the promotion of their brand, the American would try to fit more into their style and then Zara would increase brand awareness.
b) South America
The first country within South America Zara reached was Mexico. If we disregard the geographical difference between Spain and Mexico, these two countries actually have a lot in common. We see similarities in culture, language, and religion. This made it a bit easier for Zara to enter the South American market due to their pre-knowledge of the culture. However, Zara had to face some challenges when they wanted to operate in other South American countries like Brazil. Retailers from the northern hemisphere have to face obstacles with the seasons in the south. Both want specially-tailored winter lines and they, therefore, have to produce both collections twice a year, so that everyone can keep up with the newest trends.
Asia
When expanding to a market like Asia, we can say they are located very distantly from the home market as well as the culture is very distant from what Zara else is used to. This comes with a lot of challenges for Zara.
India
When looking into how Zara operates in India, we see some clashes with the law that have prevented Zara from a higher success. Zara entered the Indian market with a joint venture that required 49% for the partner and 51% to Inditex due to the government restrictions. However, Zara still reached out to the market but in a different way. Even though Zara usually doesn’t spend money on advertising, they had to do a video-campaign and printed ads in India. Another factor that Zara had to have in mind when operating in India is again the seasonable changes. Some parts India doesn’t ever experience winter and Zara, therefore, need to have more summer collections. Furthermore, most of the Indian is strongly attached to their own traditional clothes and therefore might have some struggles to switch to a modern European style, which is also a challenge for Zara. Nevertheless, Zara tries to understand the consumers’ need and create new designs that will combine modern clothing and local clothing.
Saudi Arabia
Another interesting country that Zara operates in is Saudi Arabia. Saudi Arabia is a country that doesn’t look like Spain at all when looking at culture, language, and fashion. Religion has a big impact in the fashion industry in Saudi Arabia, which is seen in the higher demand of long skirts, covered shoulders, and jeans. This is something Zara tries to live up to and therefore change their supply of clothes. Moreover, Zara also has to the weather into consideration. The weather in Saudi is very humid and when population demand for longer sleeves, skirt etc. they have to change the fabric of it as well. The Saudis prefer lighter colors and fabric that is close to cotton. Furthermore, stores in Saudi Arabia also closes during the praying time and the working hours would also be regulated during religious periods. This is also some cultural factors that Zara needs to fit into.
Hofstede Cultural Dimensions Analysis
For a better understanding of why Zara needs to behave in a certain way in foreign countries, we will use Hofstede’s framework for a comparison of cross-cultural communication. Hofstede’s framework depicts the impacts of a society’s culture based on what the members’ value. Hofstede’s framework is divided into 6 different dimensions: Power distance, Individualism/Collectivism, Masculinity/Femininity, Uncertainty avoidance, Long-term orientation, and indulgence. In this analysis, I want to compare how Zara operates in Spain vs how it operates in foreign countries using the most relevant dimensions. The index is on a scale from 1-120.
Power Distance
This dimension deals with the consequences of power inequality hierarchy in the society. Countries with a high score on power distance index mean that they accept their position in the society, and we see a high inequality in the hierarchy. Countries that score low on power distance means that they have a more shared society where everyone is equal and doesn’t accept a strong hierarchy. If we take a look at Zara’s country of origin, Spain, we can see that they score high on power distance. From a business view this means that we see more centralized organizations in Spain whereas in a country like Denmark, what scores low on power distance, we see flatter organizational structure. This means that when doing business with a country like Denmark, you need to have in mind that every member of an organization is equal and employees don’t like to be dominated by the boss. When only looking at power distance, we can say that a country that would be quite optimal for Zara to work with would be the Czech Republic due to they have the same index in Power Distance. However, we can also link this dimension to understand why it was more difficult for Zara to enter the Indian market. India has a high power distance which means that we see a hierarchy that even firms have to follow up with. The restrictions from the government made it more difficult for Zara to enter the market because they are under and need to follow up on the strict rules from the government.
Individualism/Collectivism
This dimension is described as “the degree of interdependence a society maintains among its members”. It depicts your relation towards others and if society refers to you as “I” or “we”. For instance, in countries that score high on individualism, you tend to focus more on yourself instead of taking care of others in a “group”. When looking at Spain, they score 51 in this dimension, which means that they appear as collective in Europe, but quite individualistic in a global view. When comparing to the US, we see that they are extremely high on individualism. As earlier mentioned, the Americans need strong advertisement to get influenced. This might be because the community is build up very individualistic and that everyone has their own opinion, which might also include fashion
Long-Term Orientation
When talking about long-term orientation, we look at how a society is still linked to the past while dealing with future opportunities and challenges. Countries with a low score on long term orientation, tend to focus a lot on the past and value traditions as well as religion. Countries are also most likely to focus on the present and want to achieve results quickly. Countries that score high on long-term orientation tend to focus on the future and strong market position becomes important. When comparing to Saudi Arabia, they score low in this dimension. This is very much seen when Zara had to enter the market. They had to adapt to the Saudi culture and challenge with the religion that they had to accept and adapt to. For instance, this was seen when they had to adjust their working hours in the religious period and during prayer time.
Masculinity vs Femininity
This dimension refers to the distribution of the genders (Mindtools, no date). Countries that score high on masculinity indicates that there must be a lot of competition and a high focus on success in the country. People would be very task oriented and focus on having problems solved. In contrary to the masculine society we also have feminine ones. Here we see more relationship oriented companies and that success is mostly achieved through negotiating and collaborations. If we compare Spain to other European countries, they score quite high on masculinity. This means that when entering markets, as for instance Denmark, Zara has to be way more relationships oriented and adapt to the Danish organization structure.
Uncertainty Avoidance
Uncertainty avoidance is described as “’The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these”. Countries with a high score on this dimension are known for being very conservative and structured. When compared to Spain, we see a quite a high score on this dimension. People like to stick to the rules and doesn’t like when something is uncertain. However, Zara still operates in many countries with low uncertainty avoidance, as for instance the Scandinavian countries. When looking at the Danes workplace, they don’t prefer rules and are very open towards changes. This was an advantage when Zara had to enter the market. They had to face less government rules and other special way of entering the market as we see in UAE, for instance. The only way for Zara to enter the market in UAE was with a local partner. The local partner will have a strong say with developing the company, distribution, and advertisement etc. which made it a bit more complicated for Zara. However, Zara still succeeded in the UAE with now 10 stores in the country.
Conclusion
On this basis, we conclude that Zara had to face several challenges when operating in foreign countries. We found out from our SWOT analysis that Zara had a lack of advertisement, which could be a problem for some countries. This was for instance seen in the US, where they usually are used to strong an advertisement and therefore Zara didn’t have the full advantage from the market. Moreover, Zara also had to deal with climate challenges across the world. Countries like Brazil and India have areas with summer all year round, and Zara, therefore, had to do more collections so that everyone would keep up with the newest trends. Other factors that could have an influence on how Zara could enter the market is seen in our Hofstede analysis. As earlier mentioned, Zara would have to adapt to the rules and structure in the country they want to operate in, which could be very different from Spain. We see that all dimensions have an impact on how a company should operate in another country.
Reflection
This report made me reflect on how to enter a foreign country and what to have in considering according to the culture. Zara had to adapt to a certain culture in many ways, as for instance looking at the power distance in the country. To see how society is build up can be very essential for a firm’s success in foreign countries. If Zara just behaved as they would in Spain, they probably wouldn’t have reached out to so many customers and maybe not even entered the market. If Zara didn’t accept that they had to have a local partner in UAE, who needed an influence in the company, they couldn’t reach the Arabian market. However, Zara successfully adapted to the cultures and is now seen in 96 countries.
