Zara PESTLE Analysis and VRIO: Zara Competitive Management Strategies

The Zara PESTLE analysis highlights how external factors like politics, technology, and social trends shape the brand’s global strategies. As a leader in fast fashion, Zara leverages tools like PESTLE and VRIO frameworks to maintain its competitive edge. This report explores the company’s management practices, CSR strategies, and innovative approaches to global expansion.

Zara Management Strategies: A Comprehensive Consultancy Report

Executive Summary

Zara is a well-known fashion brand that operates in different countries of the world. The premium quality of the products of this organisation and fast fashion trends are the most attractive things for customers. Understanding the internal and external environmental forces in the business can help to follow the appropriate strategies of marketing. In order to take entry in a new market the organisation needs to follow direct selling, franchising and partnership strategies. The strategy which are use for improving the supply chain of Zara is horizontal integration, vertical horizontal, outsourcing and strategy alliances. The recommendation which are given is based on Ansoff Matrix. Corall’s pyramid of CSR has being used for evaluating and analysing the CSR strategy of Zara.  

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Introduction

A consultancy report of an organisation describes the corporate strategies of the business in order to operate in a large market. The aim of this report is to analyse the external and internal environment of Zara and the reasons for getting competitive advantages in business. Along with that the market expansion strategies that can be followed by this organisation will also be explained by using some theories and models.

Task 1 – The External and Internal Environment

External environment:

PESTLE analysis of Zara Company

Political factor

The trade regulations in the UK are supportive to all the international organisations that help in expanding the business in worldwide areas (Pennycook et al. 2022). Along with that the taxation policies and tariffs are also well developed in the country which allows organisations in different industries to operate all the business activities in a positive way. The current political condition of the country is stable and provides an opportunity to all the organisations from different industries.

Economic factor

According to the recent reports the British economy received 0.2% growth in the second quarter of 2023 and 0.1% growth in quarter 1 of this year. The services in the nation grew by 0.1% by TV program production, food and beverages videos, motion pictures and many other businesses. In addition to this the production sector of the country Rose by 0.7 percent along with 1.6% growth in the manufacturing sector (TRADING ECONOMICS, 2023). Hence the economic condition of the country is well developed that is beneficial for organisations in the country. 

Figure 1: GDP Growth Rate of the UK

(Source: TRADING ECONOMICS, 2023)

The GDP growth rate of the country enhanced which impacted on the purchasing behaviour of customers. The animal GDP growth rate has increased by 0.4% which is positively impactful on the purchasing pattern of citizens in the country. Therefore the economic condition of the country is stable and that can be an opportunity for all the organisations.

Social factor

The present population of the UK is 67,736,802 in 2023 that has increased by 0.34% from the previous year. In the year 2021 the population of the UK increased by 0.33% (Macrotrends, 2023). 

Figure 2: U.K. Population Growth Rate

(Source: Macrotrends, 2023)

Hence the country is having a huge population growth rate that offers a lot of organisations to increase the profitability rate. Apart from that, the UK is a large consumer market and people from different cultures and social classes can be seen in this market. Therefore the social factors of the country are positively impactful on the performance of multiple organisations.

Technological factor

The advanced technology used in multiple sectors in the UK is providing a lot of benefits to customers. The advanced technology infrastructure of the country is providing a better experience to the citizens as well as companies belonging to different industries (Sun et al. 2021). The access of internet and online services are fulfilling the requirements of the customers in the UK. People in the UK are using social media channels and different other online platforms which help the companies to digitally connect with the target audience by using better technologies.

Legal factor

The legal infrastructure of the UK is well established and provides a lot of opportunities to the employees, businesses as well as customers in the country (Chouaibi et al. 2022). The advanced labour laws and regulations, the code of conduct and other business trade regulations are well developed that helps in doing the business functions in an ethical way. 

Environmental factor

The environment and condition of the country is poor due to the increased carbon footprint and pollution. Nowadays a lot of companies are adopting sustainable approaches in order to protect the environment and therefore the government of the country has also taken a lot of approaches to improve the environmental condition and protect it (Upadhyay et al. 2021). Due to the natural beauty of the country a lot of tourists visit different locations of the UK which helps in developing the economic condition as well.

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Internal environment: VRIO Analysis for Zara Company

The VRIO analysis of an organisation helps in determining the resources of the company that can provide competitive advantages in the target market (Sudjatnika and Riwayati, 2023). All the resources of the organisation can be categorised into valuable, rare, difficult to imitate and organisation processes. Moreover in order to analyse the internal capabilities of Zara the VRIO analysis is done in the following section.

Table 1: VRIO Analysis

(Source: Self-developed)

Sources of competitive advantages for Zara

According to the above internal and external business analysis it has been identified that technology plays an important role to provide competitive advantages to a business. Apart from technology, skilled labour and the corporate strategies of an organisation are also impactful on the performance of the business. In the opinion of Sun et al. (2021), technology has become an integral part of every business in the Modern era. Technology is used in different kinds of business operations like marketing operation management accounting supply chain management communication information system and many others. Even the recruitment process of an organisation is now done by using some advanced technology. Therefore Zara is using the advanced technologies in the UK that are helpful to reach the target audience effectively and analyse the market trends that can be followed by the organisation for successfully satisfying the requirements of the customers. The skilled labourers in the organisation are capable of changing the fashion trends of the target market. The unique designs of the products in the target market is the main attraction of a lot of customers. Zara is a fast fashion brand which can change the market trends effectively by producing new designs of clothes and accessories. The corporal strategies followed by this organisation are beneficial to provide a lot of opportunities to the business.

Maintain and build on the competitive advantages

The company is maintaining competitive advantages in the target market by advancement of the technologies in production and distribution process. As for the reviews of Machado et al. (2020), the sustainable approaches of product manufacturing and marketing process is beneficial for creating a positive reputation of the brand in the operating areas. Zara is using the strategy in order to connect with the customers and share all the sustainable approaches followed by the company to all their customers. The loyalty program arranged by this organisation has also helped to retain all the loyal customers in the target market by providing them specific offers and discount coupons. The recycling approaches followed by Zara are beneficial to reduce the waste generated from the production process and also create a positive reputation in the target market.

Task 2 – Strategy in the Global Environment

YIPs model

According to the YIPs model of internationalisation there are four types of drivers that can impact a business for market expansion in international regions. The first driver is the market driver in which the organisation needs to analyse the market opportunities effectively. In this case Zara needs to analyse the diversity of culture and values of people in the Asian market. According to the requirements of the customers in the new countries of Asia the company should change the designs and material quality. The next driver of this model is the cost driver in which the company must institute to provide the products at an affordable price to get maximum sales rate in the operating market (Liu and Bai, 2023). According to the GDP growth of the country and the bar changing behaviour of customers the prices of the products should be settled. The competitive diver of this model helps in identifying the competitive advantages and all the related factors of it (Ruan et al. 2022). The unique operational network of Zara is helpful for getting competitive advantages in a new target market. The company is able to analyse the current trend of the operating market and have skilled labourers to produce the products. The last driver of this model is the government driver. In Europe, the company is getting advantages due to the trade policies and the support of the government for import and export practices. The taxes in the country are also in favour of the organisation. The regulation of the country is beneficial for reducing the cross-border trade barriers that helps in achieving high chances of achieving success in the international market.

Recommendations for three entry strategies

Internationalisation of Zara can be followed by selecting some proper market entry strategies. According to the reviews of Qi et al. (2020) there are multiple market entry strategies that can be followed by an international brand like wholly owned subsidiaries, direct selling, exporting, partnership, franchising, joint venture and many others. Some market entry strategies along with their benefits for Zara are mentioned below.

• Direct sales: Direct sell allows the organisation to directly communicate with the customers of the target market and create a distribution channel or stores in the operating area. Along with that a huge investment is required for following this market entry strategy in order to operate in a new target market. Along with that, customer relationship management can also be done in an effective way by following direct selling methods.
• Franchising: franchising strategy of market entry creates brand recognition as well as loyalty in the target market. According to the opinion of Agnihotri et al. (2022) franchising strategy in a business helps in enhancing the buying power of customers and also provide higher profits. Therefore Zara can use this market entry method in order to reduce the risk of failure and also get better chances of finance management in the target market. Higher profitability from the target market can be expected by following this strategy.
• Partnership: the partnership type of market entry in a business helps to get more capital for opening the retail stores and other types of business activities in the target market. Along with that the inventory of the company can also be increased by the following partnership strategy. The main disadvantage of this strategy is the risk of disc agreement and conflicts among the partners (Blackburne and Buckley, 2019). Moreover the company can access the talented people from the partner company by following this market entry strategy.

Task 3 – Corporate Strategy

Improving the supply chain of Zara in the global market

Horizontal integration

An organisational strategy which has a company grow its operation at the same level within an industry please known as horizontal integration. As per Tey and Arsil (2021), it involves the acquisition of different companies within the same industry to increase the market share and decrease costs. Implementing a horizontal integration strategy can help Zara increase and expand its marketing reach. It will provide an opportunity for Zara to collaborate with or acquire other fashion retailing companies. Through this procedure, Zara can improve its presence in the market.

Vertical integration

Vertical integration refers to an arrangement process of a business in which an organisation can control various stages along the supply chain. Zara’s vertical integration model provides an allowance for the company to control all the stages and components of production. As per the opinion of Tey and Arsil (2021), it allows the company to control its manufacturing aspects from sourcing raw materials to producing the final product. Through this business strategy, Zara can provide a quick response time to understand the new trends in the market. It also helps in understanding the needs of the customers.

Outsourcing 

Outsourcing is one of the business practices which hires parties outside the company to perform the services. According to Anderson and McKenzie (2022), it also produces goods that are generally performed in the house of a company by its members and staff. With the help of outsourcing, Zara can enhance their supply chain across Asian countries. This will help the company in reducing the overall cost of production. It can help the company to get a competitive advantage as business strategy can help in offering people the products they wish to wear.

Strategic alliances

An arrangement in which two organisations take on mutually beneficial projects while each keeping its independence. As per He et al. (2020), strategy alliance helps in acquring other fashion retailers can help Zara to increase and improve their market presence. Through this strategy, Zara can spread awareness about their brand. This will allow Zara to increase its customer base across the globe.

Recommendation

Ansoff Matrix

Ansoff Matrix is a two by two framework which is used by a company management team and the community who are involved in analytics. It helps the management teams of a company to plan and assess growth initiatives. In the opinion of Khajezadeh et al. (2019), the Ansoff Matrix contains four different strategies which involve market penetration, product development, market development and diversification. Zara can use market development strategies which can help in enhancing their supply chain in Asian countries. This strategy of Ansoff Matrix provides an allowance to the management team of Zara to provide support to their existing products while shifting them to different markets. It involves three different approaches while entering into different markets. The approach involves a target demographic, entering a new domestic market considered regional expansion and entering a foreign market which is considered international expansion.

Using a marketing development strategy will help Zara to acquire new customers towards the company. As per Kethan and Basha (2022), this can increase the sales of their product which can have a positive impact on the profitability rate of the company. It also helps in the quality of the product which can help in retaining and acquiring more customers. Understanding the needs and requirements along with the market trends will become easy for Zara while using a market development strategy. Through this Zara can fulfil the demands of the customers which will increase and improve the experience as well as the satisfaction level of the customers. Thus, the company can increase their profit margin by using the market development strategy of Ansoff Matrix. 

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Task 4 – Strategic Purpose

Zara CSR’s strategy

Carol’s pyramid 

Carroll’s pyramid involves four different parts which involve social responsibility which states that an organisation should meet economic, legal, ethical and philanthropic expectations which are produced by the society in a particular time. As per the opinion of Streimikiene and Ahmed (2021), this pyramid states that every organisation should make a profit margin and meet all the legal responsibilities. Thus, different stages of Caroll’s pyramid can be used to identify the CSR strategy of Zara. 

Economic responsibilities 

The economic responsibilities of Zara are fulfilled by providing more focus on the practices which helps in growing the business in the long term. Several initiatives have been taken by Zara to fulfil its economic responsibilities. As per Gheorghe  and Matefi (2021), Zara minimises its cost of production by implementing automated technologies in their company. This helps in decreasing the labour cost which has a direct impact on the cost of production. Zara has also taken the initiative towards decreasing waste materials. Recycling the products helps Zara to decrease the cost of new manufacturing products.

Legal responsibility 

The strategies which are taken by Zara to fulfil its legal responsibility involve contract fulfilment. Zara tries to fulfil all the contracts which are conducted with their internal and external stakeholders. As per Jiang (2022), it helps them to protect their rights as per each agreement. Privacy and information protection is another corporate social responsibility strategy which was used by Zara. This assures that all the element information and data of their customers are safe and secure. It helps them to prevent theft. 

Ethical responsibility

The requirement of ethical responsibility of Zara is essential to ensure that the operations are operated ethically and fairly. To fulfil the ethical responsibility Zara provides a high wage rate to its employees. They make sure that every employee gates the competitive phase which will help in justifying the effort. As per Jha and Veeramani (2021), Zara assured that the raw materials which were used are ethically sourced.

Philanthropic responsibility 

The main aim of Zara is to make the world a better place to live and to fulfil its philanthropic responsibility. The steps which were taken by Zara to fulfil their philanthropic responsibility involve various programs. Firstly, the company provides training to their employees for spending a particular hour every month in the society. In this specific period, the employees need to work as a volunteer for the society. Zara also provides free products and services to people who can not afford it. As per the opinion of Zara (2022), they also respond to education and healthcare initiatives to make a better society.

Recommendation for Zara Company

An ethical issue which was faced by Zara in 2011. As per Jha and Veeramani (2021), It was stated that the Brazilian contractor in charge of Zara’s production has subcontracted a few companies which use the workers who have migrated in the conditions of sweatshops. Some of these migrated labourers are children which became a major ethical challenge for Zara because it comes under slavery. To mitigate this issue, Zara can develop their agreements according to the laws and rules which are provided by the government. Another ethical challenge which was faced by Zara is using harmful and dangerous chemicals in their business. Zara has joined eco-friendly lines and started using eco-friendly and sustainable products to mitigate this issue.

Conclusion 

In order to conclude the study it can be suggested that using sustainable strategies in business activities can provide a lot of new opportunities to Zara in a new target market. The cultural values of the new customers should be analysed effectively and the product needs to be designed in a unique way that can satisfy the requirements of the target population. Advancement of technologies in the supply chain of Zara can provide a lot of new opportunities to this business. Therefore future opportunities can be achieved by the organisation through exploring the details regarding market trends and dynamics.

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