Zara’s Strategic Direction & Competitive Challenges in the 21st Century
Company’s Response: The Strategic Direction
Concept of Strategy
There are multiple definitions of strategy, but its formulation is based on five basic ideas:
- Strategy is an ongoing relationship between the company and its environment.
- Strategy is a response to the expectations of stakeholders, which are specified in the definition of a mission and long-term goals.
- Strategy is a decision model that establishes policies, short-term objectives, actions, and allocation of resources needed to fulfill the mission.
- Strategy is a system for resolving strategic problems of the company, or a combination of the negative (threats) and positive (opportunities) aspects of the environment with the positive (strengths) and negative (weaknesses) aspects of the organization.
- Strategy may be regarded as a pattern of behavior of the company over a period of time.
The Strategic Direction
The strategic direction is “the management function that aims primarily to develop a strategy and implement it,” or as “the set of analysis, decisions, and actions that an organization performs to create and maintain competitive advantages.”
Zara Planet
Zara, a Spanish company, is highly successful in the commercial market. On May 15, 1975, the first Zara store opened in La Coruña. Created by Amancio Ortega Gaona, Inditex chairman and partner, Zara has extended its presence to major world capitals. While maintaining a discrete image, Zara grows unabated. It sells in 36 countries, and its net profit for 2001 was raised to €340.4 million. Everything comes from a modest textile workshop in La Coruña created 27 years ago, and Zara is now the third-leading global apparel seller. Zara respects all cultures of the world and makes available to the customer all the fashion trends of the season. A new Zara store is opened every 2 days. Zara also has highly skilled workers who are trained to facilitate and brighten the purchase for customers. This report seeks to understand how the company operates and to inform the public in an “attractive and digestible” way.
Porter’s Five Forces
Porter’s Five Forces model is used to define strategies in many industries. The nature of a firm’s competitiveness is seen as a set of five forces:
- Rivalry Between Competitors: This is the most important force. It gets stronger depending on the number of rivals and if demand decreases.
- The Threat of New Entrants: Potential new competitors can enter the market.
- Development of Substitute Products: New products, especially cheaper ones, create more competitive pressures.
- Bargaining Power of Suppliers: This is affected when there are many suppliers or when the cost of raw materials is high.
- Bargaining Power of Consumers: This is affected when customers are concentrated in one place or when they purchase in large volumes.
The Challenge of Competitiveness in the Twenty-First Century: Strategic Challenges
The current global economic climate requires businesses to confront a series of challenges at all levels in order to remain competitive. At the strategic level, transformations such as economic globalization, brought about by the liberalization of markets and the development of information technology, can create opportunities but also more instability if companies are unable to meet the new challenges successfully.
In this context, the internationalization of the company is particularly relevant as a key to interpreting the new reality of a global economy, integrating with other global markets (national and regional) in an irreversible process. Another phenomenon that is transforming organizations is the knowledge society. The development of information technology is shaping knowledge as a resource for organizations and their main source of competitive advantage. The use of knowledge and innovation is a key element in today’s society that is required to meet the demands of an increasingly global market.
Currently, the idea that any business organization, whatever its nature, cannot be indifferent to the human and social context in which it operates is gaining strength. Businesses that respond to social demands can gain a competitive advantage and create value for stakeholders. Today, organizations have an obligation to incorporate values to harmonize and balance the interests of different stakeholders.
Entrepreneurship is now a major area of study and contributes to society’s growth and productivity. The level of entrepreneurship in a society depends on economic factors (supply and availability of capital) and non-economic factors (cultural and social differences).
The trends and processes that are underway in current globalization have contributed to the need for organizations’ internal processes to adapt to the new situation. Thus, new organizational forms are emerging that seek to achieve flexibility and efficiency. These new forms are characterized by decentralized objective setting, managers who are concerned with providing guidance and resolving conflicts, and an emphasis on the creation of teams and working groups. Furthermore, all these processes must be supplemented by or be in accordance with a coherent HR strategy that enables the company to attract, motivate, and retain the human capital necessary to meet the new competitive requirements.