inditex assignment

Module name: Sustainable Strategy - from Planning to

Implementation

Title of the assignment: Strategic Analysis of Inditex

Student name :

Submission date :

Executive Summary

Irrespective of the amount of resource that a company has if the company is not able to adopt

a suitable strategy to carry out its operations. Further such strategies need to address the

objectives of key stakeholders such as share holders and other main stake holders. Corporate

strategy of the Inditex was evaluated in the light of its goals and objectives. A brief introduction

of company was produced in the introduction part highlighting key aspects of the company.

Strategic position of the company was analysed using PESTLE analysis, five forces, SWOT

analysis. Further industry life cycle was analysed using Industry life cycle. The results from

such analysis were discussed further in this report. BCG matrix was used to analyse the

strategic direction of Inditex. Further Ansoff’s growth matrix also used for this purpose. Further

Suitability, Feasibility, Acceptability and Sustainability of the strategy of Inditex was discussed

in this report. Finally conclusions and recommendations were made for the Inditex to achieve

its corporate objectives.

.

Sustainable strategy Inditex

ContentsIntroduction.................................................................................................................................................3

Strategic position.........................................................................................................................................3

PESTEL analysis........................................................................................................................................4

Michel Porter’s five forces.......................................................................................................................5

SWOT Analysis.........................................................................................................................................7

Strategic Directions.....................................................................................................................................7

Suitability, Acceptability, Feasibility and Sustainability.............................................................................10

Suitability...............................................................................................................................................10

Acceptability..........................................................................................................................................10

Feasibility...............................................................................................................................................11

Sustainability.........................................................................................................................................11

Conclusion and recommendation..............................................................................................................11

Conclusions............................................................................................................................................11

Recommendations.................................................................................................................................11

References.................................................................................................................................................12

Appendix 1.................................................................................................................................................13


Introduction

Started in 1975 in Spain with one shop, in 2011 Inditex has become one of the world’s largest fashion retail group. Currently it operates 5527 fashion stores in 82 countries across the globe. It offers its products through eight types of stores those are,

Zara Uterque Massimo Dutti Oysho Bershka Zara Home Pull & Bear Stradivarius

(Source, http://www.inditex.com/en/who_we_are/our_group)

The headquarters of the company is still located in the same town where it started its operations in 1975. Among other countries Inditex stores can be found in Europe, America and Asia.The co- founders of the company were Amancio Ortega and Rosalia Mera. In 2010 the revenue of the company was amounted to € 12.5 billion while the net profit recorded was € 1.7 billion.In the early days most of all the products were manufactured in spain however currently the production activities were shifted to countries where there is low labor cost such as china and morocco.

Strategic position

Strategic position concerns about the possible impact on the strategy of the company from external environment, resources and competencies exist internally and influence and expectation of key stake holders. (Johnson & Scholes, 2005).


http://www.inditex.com/en/who_we_are/our_group

Strategic position is a part of the strategic management process which gives an idea as to the strategic choices that should be made and implemented subsequently.

The external environment that influence to the strategy of Inditex can be analysed using following models.

PESTEL analysis

Political factors

Reduce of restrictions of import quotas to Europe and USA It is noted that imports from china increased from 17% to 30% in Europe and 16% to 50% in USA after the relaxation of restrictions.

The civil unrest in the middle east regionSince the company is speeded in Middle East the civil unrest in this area affect to the operations of the company.

Free trade policy in European union Import tariff are four times high when goods are imported from developing countries to

developed countries.

Economic Factors

The higher borrowing cost and the financial crisis exist in the European region.The economic crisis spreading across the Europe and other countries may affect the operations of the Inditex as it is highly depend from the European region. With increase in the interest rates the inflation will increase and buying power of the customer will decrease.

Increase of fuel prices due to the civil unrest in Middle East may increase the transport cost and affect to the margins of the company.

Exchange rates With the crisis in the Europe Euro may be weaker than the currency in china and Inditex may have to bear exchange losses.

Social Factors New trend among younger generation in Europe and USA for fashion.

This has a positive impact on the Inditex strategy as they can easily promote their new designs among the younger generation in Europe.

Low growth in the population in Europe.This may affects adversely to Inditex. Accordingly the population growth in Europe in 2010 was 0.09%.

Technological factors


Latest technology in manufacturing such as Auto CAD (Computer Aided Design) and Auto CAM (Computer Aided Manufacturing).

High technology used in transportation activities New ideas in online shopping

Environmental Factors High demand for environmental friendly garments Effect of global climate to organic cotton production Attention of areas such as sustainable development Carbon footprint of the company

Legal Factors Laws and regulations relating to fashion and clothing Child labour and rules and regulations relating to labours.

Michel Porter’s five forces

(Source, www.hbr.org)

1. Threat of new entrants

Since the fashion industry is a dynamic industry the threat of new entrants is high as there are lots of parties with innovative and creative ideas. Such threats can be eliminated by

Increasing entry cost by investing latest technology


http://www.hbr.org/

Introducing customer loyalty programs Increasing economies of scales

2. Bargaining powers of suppliers

When considered the bargaining powers Inditex has taken measures to reduce the bargaining powers of its suppliers those are

Enhanced supply chain with 1337 suppliers who participate actively to the supply chain.

The company has take steps to produce 50% of its products by on its own manufacturing facilities.

By these actions Inditex was able to decrease bargaining power of suppliers.

3. Bargaining powers of Customers

Since the company offers new and fashionable products the bargaining power of the customer is low. Further due to the brand loyalty of customers Inditex was able to reduce the bargaining power of customers.

4. Threat of substitutes

Threats from substitutes such as new fashion designs are controlled through offering all range of clothing and customer loyalty. Further when considering online trading it is noted that the competition is low than in other industries.

5. Competitive rivalry within the industry

Company faces severe competition from competitors such as M&E, GAP. Due to the low growth in the fashion industry in Europe this competition has become more severe.

It can be noted that the company is operating in a oligopoly marker as there are few companies who engaged in this industry. Further company has lots of market opportunities as they have lots of patent rights which they can use for growth of their operations.


SWOT AnalysisWe can notify the Strengths, weaknesses, opportunities and threats and how we can convert

those threats to strengths weaknesses to opportunities.

Strategic Directions

The strategy of the company is considering of multi format global growth. Accordingly company

has taken steps to grow its store location around the world. According to the annual report of the

company in the financial year 2010 company has opened stores in 45 countries across the

globe.

(Inditex annual report 2010, page 15).

Further following key performance indicators of the company shows positive signs,

Number of store opened during the year

Turnover

Net profit After tax

Earnings Before Interest & Tax

Return on Capital Employed (ROCE)

Leverage

(Inditex annual report 2010, page 17)

Inditex’s strategic direction can be identified by Ansoff’s growth matrix.

Products/Services

Existing New

Existing MARKET PENETRATION

Expand the operations in

Europe and other

PRODUCT DEVELOPMENT

Offer new fashionable

cloths to existing market


Markets

continents where the

company currently carrying

out operations.

including Europe.

Expand in to new

businesses such as other

consumer goods using

existing market

operations.

New MARKET DEVELOPMENT

Expand operations to new

countries or areas where

company sees more

potential..

DIVERSIFICATION

Moving to new markets

with new designs of

cloths. .

When analysing the strategy of the Inditex it can be noted that the company mainly focus market development strategy. That is expanding operations in to new markets with its existing brands. Such as, ZaraUterqueMassimo DuttiOyshoBershkaZara HomePull & BearStradivarius

Further company also adopt market penetration strategy concentrating mainly markets such as

America and Asia.

BCG matrix can be used to identify the life stage of the company


(Source, www.bcg.com)

When analysing the life cycle of the company it can be concluded that the company is in the

cash cow stage as its existing operations generate sufficient cash flows to expand operations in

to new markets.

The industry life cycle of the Inditex can be analysed as follows,


http://www.bcg.com/

Development Growth Shake-out Maturity

Mar

ket s

ize

It can be concluded that the industry is in the maturity stage as the growth of the industry

is low.

Suitability, Acceptability, Feasibility and Sustainability

SuitabilityThe strategy of the Inditex is suitable in the light of its goals and objectives. It can evidence that

the operations of the company is directed towards achieving its goals and objectives.

AcceptabilityStrategy of Inditex can be accepted in terms of shareholder point of views. That is, strategy

implemented by Inditex is focussed in achieving it’s shareholders objectives.

FeasibilityThe strategy of the company is feasible as over the past period the company has achieved its

key performance indicators. Further it has the required resources both financial and non

financial to execute such strategies.


SustainabilityThe strategies adopted by Inditex can be identified as sustainable since those strategies are fair

in the light of countries, environment and economies it currently operates.

Conclusion and recommendation

It can be noted that from the inception Inditex came a successful journey through its life time. Further it has a high growth potential in other continents.

Conclusions1. Inditex existing market operations seems to be create sufficient amount of cash flow2. Market operations in the region can be expand further by introducing new brand to the market3. The company is having a strong brand portfolio4. The company has a strong supply chain compared to its competitors

Recommendations1. Expand market operations to other parts of the world using funds from existing business.2. Introduce new brands to existing Europe market to increase the customer base3. Us e the company’s brands to expand in to new countries.4. Use its strong supply chain to increase operational efficiencies and profitability.

References European Union (March 2012) Trade / Committed to free and fair trade [online] available

at: http ://europa.eu/pol/comm/ index_en.htm . Last accessed [31 March 2012]


http://europa.eu/pol/comm/index_en.htm



Ethical Fashion Forum (n. d.) Trade Tariffs and barriers [online] available

at:http ://www.ethicalfashionforum.com/the-issues/trade-tariffs-and- barriers . Last

accessed [31 March 2012].

Annual report Inditex 2010,<

http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports>

BCG Matrix, Available (online) http://www.bcg.com/about_bcg/history/history_1968.aspx

[Accessed on: 15/3/2012]

Chisnall, Peter: Strategic Business Marketing, 1995

Johnson G, Scholes K, Whittington R. (2005): The Environment: Exploring Corporate

Strategy, Pearson Education

Porter, M.E. (2008) "The Five Competitive Forces That Shape Strategy", Harvard

Business Review, January 2008, pp. 79-93

Appendix 1Strengths Weaknesses

1. Vertical integration-

The company has integrated its

operations vertically in an efficient

1. High reliance on Europe market –

The company’s 2/3 of profit is

generated from retail shop, ZARA


http://www.bcg.com/about_bcg/history/history_1968.aspx

http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports

http://www.ethicalfashionforum.com/the-issues/trade-tariffs-and-barriers



manner so that they can have a

strong supply chain.

2. Diversified products-

Company offer diversified products

range to customers customer base.

which is located in European

market.

2. Low advertising-

Especially company does not carry

out visual advertisements to

promote its products.

Opportunities Threats

1. Foreign markets

Company can expand its operations in

to more foreign markets such as USA

and Asia where there is a high demand

for new fashion.

2. Growth in online sales

Company can penetrate online sales as

there is more potential to develop online

sales.

3. More opportunities in Asia region

Company can access in to larger markets

such as India and china as there is a

positive outlook for fashion industry in

those countries.

1. Competition

The competition faces by the company

from M&E and GAP etc may affect to the

profitability of the company adversely.

2. Slow growth and economic downturn

in Europe region may affect the

company’s operations adversary.
