ZARA & H&M

The multinational companies operate in various market by establishing foreign subsidiaries. Zara is the foreign subsidiary of Inditex which is Spanish based company and providing clothing to customers of different age group. Zara has gained competitive edge over its main rival brand named ‘H&M’ due to its rare, valuable as well as difficult to imitate resources and competencies. Both of the subsidiaries are successful but Zara has outperformed.

Introduction

The business world has become highly competitive and intense because of internationalization of brands. There are different multinational companies that are operating at global level by opening subsidiaries in various international markets. The foreign subsidiaries have to compete with the international brands and organizations but become successful and get competitive edge over them by efficiently using the resources as well as capabilities and effective strategies (Bradley, 2005). In this essay, the comparison of two foreign subsidiaries will be done on the basis of VRIO analysis. It will be critically examined that how the foreign subsidiary of one international brand can get success as compared with its competitor brand.

Company background

For this comparative study, the foreign subsidiary of Inditex is selected named ‘Zara’. Zara is the foreign subsidiary of Inditex which is the Spanish based international clothing retail stores, operating in more than ninety one countries with the help of 7 thousand stores. Zara was established in 1975 and it has 650 stores in more than 88 countries around the globe (Lopez and Fan, 2009). It provides clothing and accessories for males, females as well as children along with home products. One of the main rival brands of Zara is H&M which operates under H&M Group which is a Sweden company, operating in 64 countries via 3962 stores (H&M, 2017).  It provides clothing for all age group, all genders as well as home products.

 

Empirical evidence

It was mentioned by Phau and Chao (2008) that resource based view is highly useful in understanding the business’s competencies as well as resources and these factors help the companies to get competitive edge over rival brands. In addition, the VRIO analysis can be conducted for analyzing the factors that enabled the company to get competitive edge. As per VRIO framework is an important tool that helps in evaluating the resources as well as capabilities of firms and focuses on value, rarity, imitability as well as organization. It explains that to what extent the resources and capabilities of companies are valuable, organized as well as rare and difficult to copy. The VRIO framework is useful in identifying the resources that are rare, valuable as well as difficult to be copied by the competitors and lead towards competitive edge. Moreover, the rarity, inimitability as well as value of all resources are identified through VRIO framework and companies can make strategies to make them better.  The VRIO framework for both H&M and Zara can be used to analyze the rarity, imitability, value as well as organization of their resources and competencies. The VRIO framework explains that whether the competencies and resources of companies are useful in getting the sustainable competitive advantage or not. The VRIO framework for Zara is given in the table below:

 

 

Table: VRIO framework for Zara

Available resources

Valuable

Rare

Imitability

Organized to exploit resources

3000 designers

Yes

Yes

Yes

Yes. The designers are organized and managed to support the highly fast moving fashion retailing

More than 650 stores

Yes. Because the company can get economies of scale for decreasing its cost

Yes

Yes

Yes. Zara is a global brand and is capable of decreasing operational costs and has huge bargaining power

Excellent brand image around the globe

Yes, highly valuable

Yes

Yes. Highly costly to imitate

Yes. Because Zara is continuously expanding its operations in different countries around the globe to increase its global share and presence and to meet the needs of huge customers base.

Highly efficient supply chain system

Yes. It is highly valuable and enables the company to produce the products very quickly

Yes

Yes

Yes. The efficient and unique supply chain of Zara enables the company to produce customized products to meet the demands of customers in various countries around the globe.

Buyer-driven supply chain

Yes

Yes

Yes

Yes. Because of this system, Zara is capable to support its retailing model.

 

(Source: Cortez et al., 2014)

 

 

 

 

 

 

 

 

 

 

Table: VRIO framework for H&M

(Source: Pahl and Mohring, 2008)

 

 

The above VRIO framework for both companies indicates that there are different useful resources that are enabling the Zara to get competitive edge over rival brands. The supply chain system of Zara is quite unique and the company is able to produce customized products for different regions of world (Zhou and Luo, 2013). It has the capability to meet the continuously changing demands of customers due to buyer-driven supply chain. Moreover, the products are offered at relatively low prices but the products are of high quality. The management of Zara is managing the resources as well as capabilities in an efficient manner and has got competitive edge over rival brands. However, the VRIO framework for H&M indicates that there are different resources that are not rare and can be copied easily. For example, the designs of H&M can be copied by different rival brands. Likewise, the supply chain of H&M along with financial resources is not rare and unique. On the other hand, the supply chain system of Zara is unique and it has the capacity to introduce new products in the market in less than one month time period. The resources and competencies of Zara have enabled it to get the competitive advantage. This competitive edge has enabled Zara to penetrate in the global market efficiently and meet the needs of customers by providing customized items.

Managerial implications and theoretical relevance

 

It was mentioned by Baker and Hart (2008) that there are different factors that play an important role in making the companies successful in international markets. In addition, the main factors are the resources as well as capabilities of companies. According to Cateora (2008) both internal and external business environments have an impact on the company’s operations and success, and if the internal environment is managed effectively then the impact of factors in external environment can also be minimized. In addition, with the help of internal strengths of companies, effective strategies can be made to cope with the external business environment. It was mentioned by Albaum et al., (2008) and Craig and Douglas (2005) that companies can perform better than their competitive rivals by taking maximum advantage out of available resources and core competencies. There are different resources available to Zara which lead towards competitive edge. The major resources of Zara include 3000 designers, excellent brand image in the international market, outstanding global presence, flexible as well as efficient value chain, adoption of dispersed production system, buyer-driven supply chain as well as more than 650 outlets in various countries around the globe (Caro et al., 2010; Ghemawat and Nueno, 2006). All of these resources are highly useful for Zara for excellent performance and high productivity. Zara has its own designers that design unique as well as excellent clothing for males, females as well as children. One of the main distinct resources of Zara is that it has efficient supply chain as well as made to order system. Moreover, the new designs of Zara are available to the customers in every 20 days because the company focuses on just in time (Parsad and Jha, 2012). Zara is able to produce quality products because it uses advanced technology. The designs and quality of products are unique and these cannot be copied by the competitors. It is highly important to understand that there are different resources available to H&M, on the basis of which, the company is operating successfully and is the major rival of Zara. The main resources of H&M include physical resources, human capital as well as financial and intangible resources. The company has strong brand recognition around the globe, efficient and huge number of workforce (132,000 employees), more than 3900 stores in 64 different countries, huge revenues, high brand worth as well as presence at prime locations around the world and its ethical concerns (Zhelyazkov, 2011). However, the designs of H&M are not unique as compared with that of Zara’s. It was mentioned by Khan et al., (2012) that the supply chain of H&M is not efficient along with the production systems and lead towards late delivery of products. In addition, the new designs are not frequently introduced by H&M as compared with Zara. Zara’s designers are highly skilled and large in number as compared with that of H&M’s. Other than resources, core competencies and capabilities of companies are helpful for them in getting competitive edge over rival brands (Bhardwaj and Fairhurst, 2010). The competencies of Zara include capability to deliver high fashioned clothing products at relatively low prices as compared with rivals brand including H&M.  In addition, Zara is capable to bring in new designs to market at very fast speed due to efficient production system and put emphasis on market preferences as well as continuously changing fashion trends and styles. The core competencies of H&M include high responsiveness to the market trends, centralized supply chains systems, innovative infrastructure for production and selling of products, collaboration with various designers, attractive advertisement campaigns, social media presence as well as purchasing flexibility (Bruce and Daly, 2006). This indicates that there is no personal designers’ team for H&M like Zara but it collaborates with different big designers. On the other hand, the designers’ team of Zara is highly efficient and able to produce highly innovative clothing designs but collaboration of H&M with designers is for short time period, thus, dedication and devotion is low. Zara has gained competitive edge over rival brands because of minimal production and delivery time. It was mentioned by Tokatli (2008) that the resources and competencies were not present to Zara at the initial stages and these were created by the management. In addition, Zara is highly customer oriented and focuses on fulfilling the needs of customers, continuously focuses on the market changes, has built integrated global information system and is focusing on continuous improvement in products and operations. According to Cortez et al., (2014) the technology used by Zara is highly advanced that enables the company to produce high quality products to meet the changing needs of customers. In addition, there is strong network of Zara’s suppliers in various countries around the globe that help the company to produce high quality products.

Conclusion

It can be concluded that different resources as well as capabilities and competencies of business concerns are highly useful in getting success and competitive edge over rival brands. The resources and competencies of Zara are unique, difficult to be copied, rare as well as valuable and organized in an efficient manner. This has enabled the company to get edge over rival brands. It is also concluded that the resources and capabilities were not available to Zara at the initial stages and these were created by the management. In addition, Zara is highly customer oriented and focuses on fulfilling the needs of customers, continuously focuses on the market changes, has built integrated global information system and is focusing on continuous improvement in products and operations. On the other hand, the resources and capabilities of H&M are also useful but are not quite rare and valuable as compared with that of Zara’s. The resources of H&M can be easily copied but that of Zara are highly costly and impossible to be copied. Thus, it is concluded that useful resources and capabilities enable the companies to get competitive edge.

References

Albaum, G.S., Albaum, G. and Duerr, E., 2008. International marketing and export management. Pearson Education.

Bhardwaj, V. and Fairhurst, A., 2010. Fast fashion: response to changes in the fashion industry. The International Review of Retail, Distribution and Consumer Research, 20(1), pp.165-173.

Bruce, M. and Daly, L., 2006. Buyer behaviour for fast fashion. Journal of Fashion Marketing and Management: An International Journal, 10(3), pp.329-344.

Baker, M. and Hart, S., 2008. The marketing book. Routledge.

Caro, F., Gallien, J., Díaz, M., García, J., Corredoira, J.M., Montes, M., Ramos, J.A. and Correa, J., 2010. Zara uses operations research to reengineer its global distribution process. Interfaces, 40(1), pp.71-84.

Craig, C.S. and Douglas, S.P., 2005. International marketing research. Chichester: John Wiley & Sons.

Cortez, M.A., Tu, N.T., Van Anh, D., Ng, B.Z. and Vegafria, E., 2014. Fast fashion quadrangle: An analysis. Academy of Marketing Studies Journal, 18(1), p.1.

Cateora, P.R., 2008. International Marketing. Tata McGraw-Hill Education.

Ghemawat, P., Nueno, J.L. and Dailey, M., 2003. ZARA: Fast fashion. Boston, MA: Harvard Business School.

H&M. 2017. About us. [Online]. Available at: https://about.hm.com/en/brands/hm.html [Accessed: 16 March 2017]

Khan, O., Christopher, M. and Creazza, A., 2012. Aligning product design with the supply chain: a case study. Supply Chain Management: An International Journal, 17(3), pp.323-336.

Lopez, C. and Fan, Y., 2009. Internationalisation of the Spanish fashion brand Zara. Journal of Fashion Marketing and Management: An International Journal, 13(2), pp.279-296.

Phau, I. and Chao, P., 2008. Country-of-origin: state of the art review for international marketing strategy and practice. International Marketing Review, 25(4), pp. 90-108.

Pahl, N. and Mohring, W., 2008. Successful Business Models in the Fashion Retail Industry. Strategic Audit of H&M compared to ZARA. International Journal of Marketing, 12(2), pp. 45-67.

Parsad, C., & Jha, M. N. (2012). Growth trajectory of Zara. Journal of Management Studies, 7(1), pp. 2-10

Tokatli, N., 2008. Global sourcing: insights from the global clothing industry—the case of Zara, a fast fashion retailer. Journal of Economic Geography, 8(1), pp.21-38.

Zhou, X.J., LI, S. and Luo, X., 2013. Comparative Analysis of Supply Chain? for Wuhan Garment Enterprises and ZARA/H&M. Journal of Wuhan Textile University, 2(1), p.005.

Zhelyazkov, G., 2011. Agile Supply Chain: Zara's case study analysis. Design, Manufacture & Engineering Management, Strathclyde University Glasgow, Velika Britanija, 10(1). pp.2-11.

Zara. 2017. About us. [Online]. Available at: http://www.zara.com/ [Accessed: 16 March 2017]

 

 

 

 

 


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