Group 1@Raleigh: Zara, success or failure?

Zara is a Spanish clothing retail group. It is hold by Inditex SA and is one of the most profitable company of this group. The headquarters of Zara are based in La Coruña, Spain, where the first store were opened in 1975. Since this date, they have been expanded operations into 45 countries with more than 2000 stores located in more than 400 cities in Europe, Americas, Asia and Africa.

The business model of Zara can be divided in 3 basics components: concept, capabilities, and value drivers. The main strategy of Zara is to maintain design, production, and distribution processes. It allows the company to respond quickly to customers’ demands.

Indeed, Zara is making its high-fashion clothes in Spain and in nearby Portugal and Morocco. This is obviously more expensive than if it was done cost in China, but a short, flexible supply chain allows the firm to respond quickly to changes in customer taste. Also they sell the vast majority of its outfits at full price rather than at a discount. Its decision to stay close to home has become its main source of competitive advantage.

The video cannot be shown at the moment. Please try again later.

This firm is an exemple of a firm illustrating the paradoxical effect of new technologies on offshoring. Indeed, Zara was a pioneers of the use of new technologies in the textile sector. It allows Zara to have a rotation of its stock much more rapidly; and this stock is renewed every two weeks. This strategy allows Zara to play with the customer: they will have to buy clothes immediately otherwise they might not find it again.

Globally the offshoring strategy of Zara is quite limited, but this limitation is the strategy itself. There is no need for companies to go full offshoring, they have to manage their ressources with their political strategies and find an equilibrium between these two, as Zara did.

Nevertheless, the success story of Zara offshoring strategy has to be questioned. Indeed, the spanish firm has faced some huge scandals: one of the biggest is the “labor slave” in Brazil. In 30 of its factories in Brazil, Zara has been found to exploit its workers. The investigation TV show “A Liga” has highlighted Bolivian laborers working in inhuman conditions. The security requirements were not met at all (for instance, an extinguisher was found outdated, and potentially not operational at all). They only earned $569 per month, for long workings days of 12 hours.

The video cannot be shown at the moment. Please try again later.

Zara opted for an ostrich-like approach, and declared they were not aware of these problems. They argue the factories’ behavior was totally in contradiction to the Inditex criteria. Saying themselves not responsible, they asked publicly the factories to conform to the rules. Finally, they informed that they were going to set up an auditing department to be sure it won’t happen again in the future.

Sources:

http://www.123helpme.com/view.asp?id=97642

http://daniellock.com/strategy/outsourcing-at-home-or-abroad/

Offshoring Information Technology: Sourcing and Outsourcing to a Global workforce, By Erran Carmel, Paul Tjia

http://www.forbes.com/sites/andersonantunes/2011/08/17/zara-accused-of-alleged-slave-labor-in-brazil/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>