How does the intensity of competition differ across these strategic groups? Q5 In what stage of its life cycle is the industry in which your company is based? What are the implications of this for the intensity of competition now?
Its primary industry is the one in which it has the most sales. How does this exercise help you understand the performance of your company relative to its competitors? Q5 Evaluate the competitive position of your company with regard to your answers to questions Explain what, if anything, the company must do to improve its competition position. Q3 How is your company executing its business-level strategy through actions at the functional level, and through organizational arrangements?
How well is it doing? Are there things it could do differently? Module 9 Q1 Has your company ever pursued a horizontal integration strategy? This deregulation of the textile industry, from a quota point of view, has encouraged greater price competition which has, to a large extent, permeated through the large organisations such as Zara, which are able to enjoy economies of scale, when it comes to large-scale production Lopez and Fan, Furthermore, there has been the legal removal of import quotas, which has enabled the Spanish retailer to gain greater access to international markets and can therefore generate more sales and enjoy even greater economies of scale Acur and Bititci Economically, there are huge impacts on the fashion industry, as the world is currently facing a global recession and, as such, consumers are facing difficult choices in terms of how they spend their disposable income.
In this context, consumers are reducing the amount of expenditure on items such as clothing and, in particular, fashion items, thus putting pressure on retailers to provide cutting edge fashion at a budget price, something which Zara has become particularly good at and is using this to gain success during difficult economic times.
There is no denying that when it comes to fashion and choices regarding fashion purchases, social factors play a huge role.
Typically, individuals will prefer specific clothes that have a distinct image, when choosing fashion items. Having a strong brand identity that is widely recognised has enabled Zara to retain social popularity; therefore, while looking at economic drivers, it is also important to ensure that social acceptance of the brand is high and that the brand is seen as a desirable option De Toni and Tonchia Improvements in technology have also had an impact on the fashion industry, particularly during the difficult economic times where consumers are looking for the latest technologies for design.
Furthermore, and of particular relevance to Zara, is the use of new technologies, in order to produce a more efficient supply chain and to ensure that products can be in the high street, at a much quicker rate than where technology is not being fully embraced.
Given the higher level of competition that is now being experienced within the fashion industry and when combined with greater legal protection, particularly where the protection of intellectual property is concerned, the individual designers are becoming very protective of their own ideas from the threat that the competition will seek to copy.
Zara has overcome this threat by reducing the time frame within its supply chain. This means that it will always have a first mover advantage, where there are two or more designers looking to create a similar product.
Any additional legal requirements, in terms of intellectual property protection, will not only be beneficial to the original design protection but may have the opposite effect and may limit opportunities for new product developments, as imitation and development is often an inherent part of fashion design. Finally, environmental factors are also relevant to anyone looking towards transporting textiles across the globe and the amount of energy that is likely to be consumed in doing so.
This new approach to fast fashion also creates environmental concerns as cheap items are often viewed as disposable by the consumer and simply thrown away, rather than recycled or treated in an environmentally friendly manner. This places an additional burden on companies such as Zara which are looking towards making themselves more environmentally friendly, while still retaining the basic position within the market.
Firstly, when looking at the threat of entry, it can be seen that there are relatively no entry barriers for those looking to enter the industry. However, although it is not necessary, at a low level, to invest large amounts of capital, the issue of economies of scale is playing an increasingly important role, with consumers constantly demanding cheaper prices.
This makes it hard for the smaller new entrant to compete, from a price point of view, but still allows them to offer unique designs, which may then give them access to a market that which would otherwise be closed. Substitution across the whole industry is extremely high, as individual consumers can choose alternative providers for their fashion needs. When looking at taking the mass-market competitive approach, substitution may simply be down to price issues, whereas designer boutiques may be able to offer a different type of product, which again will offer a competitive substitution for the consumer Moran and Riesenberger Linked to this point of substitution is the large power that buyers have within this industry.
Customers now have wide access to a broad range of retailers, with internet purchases extending this even further. The recent price war has also increased availability of fashion items to the general public and this allows buyers to have a huge influence on the market, by selecting new products, on a regular basis.
Buyers demand continuous change, particularly within the fashion industry; therefore, it is necessary to continuously provide new and innovative fashions, on an on-going basis.
Failure to do so is likely to result in customers turning away from a particular brand, until they renew their product ranges. At the other end of the scale is the fact that the power of the suppliers within the fashion industry is low, with many organisations outsourcing their production to developing countries, in order to keep costs at a critically low level.
Organisations such as Zara have a substantial opportunity, when it comes to changing suppliers, and this enables the company to drive down costs. Although this offers opportunities for reducing costs, it can also potentially create difficulties where there are concerns over the ethical behaviours of these third party providers.
Drawing on the four forces above, it can be argued that, finally, there is a large amount of competitive rivalry within the industry the fifth and final force. This suggests that the competitive rivalry is increasing rapidly within an organisation such as Zara need to look towards establishing themselves with a competitive advantage during these difficult times, with particular reference to the fact that the buyers have a large amount of power, yet costs are critical to the situation, as there are economic pressures on the industry, as a whole, in the wake of the global international crisis.
Having identified the key issues which are impacting on the external fashion industry, the next step is to consider how these issues are impacting on the internal operations of the company. In order to do this, a SWOT strengths, weaknesses, opportunities and threats analysis will be undertaken, before going on to look at the value chain and the resource based view which has emerged within the company Porter, One of the key strengths that Zara has as an organisation is its highly developed supply chain, which enables it to get new products to the market, at a very rapid rate.
It also has a large international presence, with more than stores across the globe, allowing it to build a very strongly recognised brand. Furthermore, it has been identified that the ability to bring new products to the market, on a regular basis, encourages greater consumer acceptance and willingness to purchase cutting-edge fashion design. Therefore, this reduced timeframe for bringing new designs onto the market is a real strength of the organisation and keeps the ideas fresh in its stores, to such an extent that consumers will be regularly revisiting and restocking their fashion items.
However, there are weaknesses associated with the internal operations of the company. Having established itself as a large international fashion company, Zara is now required to produce a large amount of products, on a regular basis, which has somewhat removed the opportunities for producing new and innovative design, at the top end of the market.
Zara has become recognised as a high-street fashion brand; therefore, any items which are believed to be at the luxury end of the pricing range are unlikely to be accepted by the customer base. Moreover, with increasing competition emerging throughout the industry, buyers are looking for cheaper prices, continuously, and any attempt at raising the price is simply unlikely to retain the favour of the existing customer base. As a result, the organisation has to produce a relatively large number of products, in order to enjoy economies of scale and therefore it simply cannot produce bespoke or unique items which would allow for a higher price tag Kumar and Linguri, Opportunities are continuously presenting themselves within the fashion industry.
Consumers require regular updates, particularly at the high street end of fashion, where items are perceived to be somewhat disposable, in order to keep up with the latest trends.
This means that an organisation such as Zara can retain a large customer base, by continuously improving its range and developing new products, on an ongoing basis.
As noted in the case study, customers will tend to visit Zara stores considerably more frequently than competitor stores, due to the fact that new products are continuously being launched. This is a strong strategy and needs to be developed, as it offers substantial opportunities to gather greater customer support, on a regular basis Mittal, The other threats are the larger organisations and those that are able to reduce their prices below those which Zara can achieve.
Applying this in the context of the resource based view and the value chain, which Zara has established, it can be seen that the main reasons for this are its supply chain and ability to bring new products to market, on a regular basis, with the product then being made available, on an international basis, at a very rapid rate.
Zara not only has access to product designers that enable it to produce desirable high-street fashion, at low prices, but it also has a strong supply chain in place which enables it to bring new products to the shop floor, within a time frame which is four months quicker than its competitors can achieve.
Although Zara has managed to retain itself is a well recognised, well-respected brand within the fashion industry, it has also suffered from PR difficulties, over the years. Concerns were also raised that the efficient supply chain which it had established was having a dramatically negative impact on the environment.
As a result of this report, the organisation has had to review its supply chain and look at methods of reducing the amount of toxins that are seen to be contained in its clothes. Back in August a television programme in Brazil accused the organisation of using sweatshops in order to produce its products through outsourced services.
Following this statement, Zara acted quickly to mitigate the damage that had been done in the public face, by stating that it viewed the use of sweatshops by its outsourced suppliers as being entirely unacceptable and put in place a variety of different procedures, to ensure that production was monitored much more carefully.
Zara also works with various different government agencies, in order to ensure that this is happening. Further difficulties emerged, in early , when a journalist published a report looking at the treatment of shop staff, across the company, and found several instances of abuse. Again, Zara acted quickly to put in place an internal investigation and stated that abuse of this nature would not be tolerated.
Although the company seems to be working with unions, in order to improve the position, the report clearly had an impact on the way in which the company was viewed, with concerns now being shown over the treatment of staff, as well as the treatment of individuals in developing countries who are producing the products, in the first place Balchin It is, however, noted that other organisations operating in a similar way to Zara have also suffered similar problems, with Primark being the main example of concerns over conditions for suppliers and the workers in the developing countries.
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