National Institute of Fashion

Technology, Bangalore

Strategic Management assignment

Guided by: Dr. Sanjeev Malage

Submitted by:
Wondwossen Shiferaw
(BEN13MM35)

14 September, 2014

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External analysis of ZARA & value chain analysis of Tesco

Table of content
1. External analysis.1
1.1 Introduction ...1
1.2 Key external forces ..2
1.2.1 Economic forces ..3
1.2.2 Social, cultural, demographic and natural environment forces..4
1.2.3 Political, governmental and legal forces .4
1.2.4 Technological forces ..5
1.2.5 Competitive forces ..7
1.2.5.1 Competitive intelligence programs 7
1.2.5.2 Market commonality and resources similarity .7
1.3 Competitive analysis: Porters five forces model .8
1.4 How to conduct external strategic management analysis ..9
2 External analysis of ZARA ..10
2.1 Overview of Zara 10
2.2 Economic forces ....11
2.3 Social, cultural, demographic and natural environment forces .12
2.4 Political, governmental and legal forces .13
2.5 Technological forces ..13
2.6 Competitor analysis ..14
2.7 Michael Porters five forces model .15
2.7.1 Entry barriers 15
2.7.2 New entrants .16
2.7.3 Threat of substitutes ..16
2.7.4 Customers bargaining power ..16
2.7.5 Suppliers negotiation power 17
2.7.6 Rivalry among the competitor .17
2.8 External factor evaluation (EFE) matrix .17
2.9 The competitive profile matrix (CPM) ..19
2.10 Conclusion 20
3 Value chain analysis of Tesco ..21
3.1 Introduction .21
3.2 Definition of value chain ....21
3.3 Porters value chain ..22
3.3.1 Primary activities .23
3.3.2 Support activities of the value chain analysis 24
3.4 Steps in value chain analysis 26
3.5 Value chain analysis of Tesco 27
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3.5.1 Introduction ..27

3.5.2 Primary activities .28
3.5.2.1 Inbound logistic 29
3.5.2.2 Operations management 29
3.5.2.3 Outbound logistics ..30
3.5.2.4 Marketing & sales 31
3.5.2.5 Service .31
3.5.3 Support activities .32
3.5.3.1 Technology development 32
3.5.3.2 Human resource management 32
3.5.3.3 Infrastructure 33
3.5.3.4 Conclusion .33
4 Reference ..34

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1. External analysis of ZARA

1.1 Introduction
The external environment of the company is made up of several economic, social,
demographical, management and ecologic factors. It can directly or indirectly influence the
activity and the evolution of a tourism company. The analysis of the external environment
can lead to the possible identification of future trends. The evolution analysis is based at a
company or geographical level as it can become a strategic opportunity; it can prove to boost
cost efficiency and can increase income.
Taking advantage of such opportunities can consist in a better efficiency and productivity
whilst the identification of opportunities depends on both, a close research of the environment
and the capacity of the company to give a correct meaning to the collected information ahead
of competition.
The purpose of an external audit is to develop a finite list of opportunities that could benefit a
firm and threats that should be avoided. As the term finite suggests, the external audit is not
aimed at developing an exhaustive list of every possible factor that could influence the
business; rather, it is aimed at identifying key variables that offer actionable responses. Firms
should be able to respond either offensively or defensively to the factors by formulating
strategies that take advantage of external opportunities or that minimize the impact of
potential threats.
An external strategic management analysis is part of SWOT analysis, referring to a
companys strengths, weaknesses, opportunities and threats. The first two parts of the SWOT
analysis, strengths and weaknesses, refer to internal strategic analysis; the last two parts,
opportunities and threats, refer to conducting an external strategic management analysis. All
elements of the SWOT analysis work together. Ideally, a company tries to match its strengths
to its external opportunities. It also tries to change weaknesses into strengths and threats into
opportunities.

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1.2 Key External Forces

External forces can be divided into five broad categories:
1. Economic forces
2. Social, cultural, demographic, and natural environment forces
3. Political, governmental, and legal forces
4. Technological forces; and
5. Competitive forces.
Relationships among these forces and an organization are depicted in the below Figure
External trends and events significantly affect all products, services, markets, and
organizations in the world.

Changes in external forces translate into changes in consumer demand for both industrial and
consumer products and services. External forces affect the types of products developed, the
nature of positioning and market segmentation strategies, the types of services offered, and
the choice of businesses to acquire or sell.
External forces directly affect both suppliers and distributors. Identifying and evaluating
external opportunities and threats enables organizations to develop a clear mission, to design
strategies to achieve long-term objectives, and to develop policies to achieve annual
objectives.

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1.2.1 Economic forces

Economic factors have a direct impact on the potential attractiveness of various strategies.
For example, as interest rates rise, then funds needed for capital expansion become more
costly or unavailable. Also, as interest rates rise, discretionary income declines, and the
demand for discretionary goods falls. As stock prices increase, the desirability of equity as a
source of capital for market development increases. Also, as the market rises, consumer and
business wealth expands.
A summary of economic variables that often represent opportunities and threats for
organizations is provided in Table given below.
Key Economic Variables to Be Monitored
Shift to a service economy in the
country
Availability of credit
Level of disposable income

Import/export factors
Demand shifts for different categories of goods and
services
Income differences by region and
consumer groups

Propensity of people to spend

Price fluctuations

Interest rates
Export of labor and capital from the specific country
Inflation rates
Money market rates
Federal government budget deficits
Gross domestic product trend

Monetary policies
Fiscal policies
Tax rates
Consumption patterns

Unemployment trends
Worker productivity levels
Value of the dollar in world markets
Stock market trends
Foreign countries economic conditions

It is important to monitor key economic factors such as: Foreign countries' economic
conditions, Import/export factors, Demand shifts for goods/services, Income differences by
region/customer, Price fluctuations Exportation of labor & capital, monetary policies, Fiscal
policies, Tax rates and etc.
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1.2.2 Social, Cultural, Demographic, and Natural Environment Forces

Social, cultural, demographic, and environmental changes have a major impact on virtually
all products, services, markets, and customers. Small, large, for-profit, and nonprofit
organizations in all industries are being staggered and challenged by the opportunities and
threats arising from changes in social, cultural, demographic, and environmental variables.
1.2.3 Political, Governmental, and Legal Forces
Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers,
employers, and customers of organizations. Political, governmental, and legal factors,
therefore, can represent key opportunities or threats for both small and large organizations.
For industries and firms that depend heavily on government contracts or subsidies, political
forecasts can be the most important part of an external audit. Changes in patent laws, antitrust
legislation, tax rates, and lobbying activities can affect firms significantly.
The increasing global interdependence among economies, markets, governments, and
organizations makes it imperative that firms consider the possible impact of political
variables on the formulation and implementation of competitive strategies.
Impact of political variables

Formulation of Strategies

Implementation of Strategies

Strategists in a global economy

Forecast political climates

Legalistic skills

Diverse world cultures

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Some Political, Governmental, and Legal Variables

Government regulations or deregulations
Changes in tax laws
Special tariffs

Political action committees

Voter participation rates

Importexport regulations

Number, severity, and location of

government protests

Government fiscal and monetary policy

changes

Number of patents

Political conditions in foreign countries

Changes in patent laws

Special local, state, and federal laws

Environmental protection laws

Level of defense expenditures

Lobbying activities

Size of government budgets

Level of government subsidies

Location and severity of terrorist activities

Antitrust legislation

Location and severity of terrorist activities

1.2.4 Technological Forces

Revolutionary technological forces:
Profound impact on organizations

Internet

Semiconductors

XML (extensible markup lang.) technologies

UWB (ultra wideband wireless) communications

Revolutionary technological changes and discoveries such as superconductivity, computer

engineering, thinking computers, robotics, unemployed factories, miracle drugs, space
communications, space manufacturing, lasers, cloning, satellite networks, fiber optics,
biometrics, and electronic funds transfer are having a dramatic impact on organizations.
Superconductivity advancements alone, which increase the power of electrical products by

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lowering resistance to current, are revolutionizing business operations, especially in the

transportation, utility, health care, electrical, and computer industries.
The Internet is acting as a national and even global economic engine that is spurring
productivity, a critical factor in a country's ability to improve living standards. The Internet is
saving companies billions of dollars in distribution and transaction costs from direct sales to
self-service systems. For example, the familiar Hypertext Markup Language (HTML) is
being replaced by Extensible Markup Language (XML). XML is a programming language
based on "tags" whereby a number represents a price, an invoice, a date, a zip code, or
whatever. XML is forcing companies to make a major strategic decision in terms of whether
to open their information to the world in the form of catalogs, inventories, prices and
specifications, or attempt to hold their data closely to preserve some perceived advantage.
XML is reshaping industries, reducing prices, accelerating global trade, and revolutionizing
all commerce. Microsoft has reoriented most of its software development around XML,
replacing HTML.
Technological forces represent major opportunities and threats that must be considered in
formulating strategies. Technological advancements can dramatically affect organizations
products, services, markets, suppliers, distributors, competitors, customers, manufacturing
processes, marketing practices, and competitive position. Technological advancements can
create new markets; result in a proliferation of new and improved products, change the
relative competitive cost positions in an industry, and render existing products and services
obsolete. Technological changes can reduce or eliminate cost barriers between businesses,
create shorter production runs, create shortages in technical skills, and result in changing
values and expectations of employees, managers, and customers.
Technological advancements can create new competitive advantages that are more powerful
than existing advantages. No company or industry today is insulated against emerging
technological developments. In high-tech industries, identification and evaluation of key
technological opportunities and threats can be the most important part of the external
strategic-management audit.

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1.2.5 Competitive Forces

Collection and evaluation of information on competitors is essential for successful strategy
formulation. Competition in virtually all industries can be described as intense.
Identifying rival firms:

Strengths

Weaknesses

Capabilities

Opportunities

Threats

Objectives

Strategies

1.2.5.1 Competitive Intelligence Programs

Competitive intelligence (CI), as formally defined by the Society of Competitive Intelligence
Professionals (SCIP), is a systematic and ethical process for gathering and analyzing
information about the competitions activities and general business trends to further a
businesss own goals.
Good competitive intelligence in business, as in the military, is one of the keys to success.
The more information and knowledge a firm can obtain about its competitors, the more likely
it is that it can formulate and implement effective strategies. Major competitors weaknesses
can represent external opportunities; major competitors strengths may represent key threats.
1.2.5.2 Market Commonality and Resource Similarity
By definition, competitors are firms that offer similar products and services in the same
market. Markets can be geographic or product areas or segments. For example, in the
insurance industry the markets are broken down into commercial/consumer, health/life, or
Europe/Asia. Researchers use the terms market commonality and resource similarity to study
rivalry among competitors. Market commonality can be defined as the number and
significance of markets that a firm competes in with rivals. Resource similarity is the extent
to which the type and amount of a firms internal resources are comparable to a rival. One
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way to analyze competitiveness between two or among several firms is to investigate market
commonality and resource similarity issues while looking for areas of potential competitive
advantage along each firms value chain.
1.3 Competitive Analysis: Porters Five-Forces Model
Porters Five-Forces Model of competitive analysis is a widely used approach for developing
strategies in many industries. The intensity of competition among firms varies widely across
industries.
Intensity of competition is highest in lower return industries. The collective impact of
competitive forces is so brutal in some industries that the market is clearly unattractive
from a profit-making standpoint. Rivalry among existing firms is severe, new rivals can enter
the industry with relative ease, and both suppliers and customers can exercise considerable
bargaining leverage.
According to Porter, the nature of competitiveness in a given industry can be viewed as a
composite of five forces:
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers

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The following three steps for using Porters Five-Forces Model can indicate whether
competition in a given industry is such that the firm can make an acceptable profit:
1. Identify key aspects or elements of each competitive force that impact the firm.
2. Evaluate how strong and important each element is for the firm.
3. Decide whether the collective strength of the elements is worth the firm entering
or staying in the industry.
1.4 How to Conduct External Strategic Management Analysis
1. Collect information. Performing an external strategic management analysis is part of
conducting a strategic management audit, which begins by collecting information.
Using the SWOT analysis for an external audit, only the opportunities and threats to
the environment are investigated. The information collected refers to political, social,
cultural, technological and environmental trends. Demographic information is also
collected. This information is collected by investigating competitors and local
information sources.
2. Analyze the information collected. All of the information collected is analyzed and
categorized.
3. Identify opportunities that exist externally. Opportunities are conditions that exist in
the environment that could benefit the company if the company accepts the
opportunities appropriately and properly. Opportunities can be many things, such as
meeting customers' unmet needs and segments in the environment that have not been
reached.
4. Identify the threats that exist in the environment. External threats are threats that exist
without regard to the business. They are conditions that could potentially harm the
company if the company does not react properly. Threats are any negative or harmful
barriers that could keep the company from reaching its goals. They could include
entry barriers and technological advances the company has not investigated.
5. Develop action plans. Strategic analyses are conducted to identify opportunities and
threats. The purpose is to turn opportunities into strengths and to turn threats into
business opportunities. Plans should be developed with time lines and delegated to
departments within the organization.
6. Continue to monitor the environment. After action plans are created, a company
continuously monitors how the plans are working and whether any additional plans
must be implemented or if any current plans must be changed.
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2. External analysis of ZARA

2.1 Overview of Zara

Zara, a Spanish clothing and accessories retailer, was founded in 1975 by Amancio Ortega
and Rosalia Mera. It is the flagship retail store of the Inditex group, a fashion group that owns
other brands such as Massimo Dutti, Pull and Bear, Uterque, Stradivarius, and Bershka.
Amancio Ortega opened the first Zara store in a central street in Galicia, Spain under the
name Zorba. Although another store a few blocks away was also named Zorba, the molds of
the letters for the sign was already created and it was rearranged, thus coming up with the
name Zara. In 1980, the company started its international expansion in Portugal. In 1989,
they penetrated the US market and in 1990, they entered the French market.
Zara is a vertically integrated retailer, controlling the supply chain, design, manufacturing
and distribution of all its products worldwide.

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Zara currently has 1,751 stores worldwide. They incur annual revenue of over $9 Billion
dollars (2009).
Zara's Mission Statement aims to contribute to "the sustainable development of society and
that of the environment with which we interact." In stores, Zara saves energy and is ecofriendly. They also create less waste and they continue to recycle. Each and every employee
is aware of the environmental commitment of Zara. In their product, Zara uses ecological
fabrics and organic cotton. They also manufacture PVC-free footwear. In transporting
product, Zara uses biodiesel fuel, which reduces Co2 emissions by 500 tons per year.
Zara is the flagship chain store of Spanish company Inditex Group which incorporates other
brands such as Zara Home, Massimo Dutti, Pull and Bear, Oysho, Uterqe, Stradivarius and
Bershka. Zara is present in 86 countries with a network of 1.751 stores on the premium
locations in the world's largest cities (Inditex website).
There are three key pillars Zara is running its business on. First of all, time between new
collections deliveries is very small. Stores are supplied every two weeks with new
fashionable garments and in small batches in order to achieve an effect of scarcity, which is a
second key element of the Zara business model. The third one is delivering many different
styles in all forms and shapes so that there are more chances customers will like the clothes
(Inditex website). Analysis of the Zara business model along with external and internal
factors affecting its operations is given further.
2.2 Economic forces
Economic factors can have a significant effect on companys operations since apparel
industry is very price sensitive and in times of crisis customers will be choosing to spend less
on expensive clothes. Since Zara operates world-widely effects of regional economic crisis
could be avoided at some level. However, currency risk is the risk that will always be present
and depending on the dollar/euro rate operational costs for Zara will be increasing or
decreasing. Due to the current euro crisis the American dollar is becoming stronger compared
to euro and as a result costs of raw materials that Inditex is buying mostly in American
dollars will go up.
Zara has been dealing in a single currency since its origin. The economical conditions of
overall world have been fluctuating in last few years but Zara is successful in getting market
share and has not been affected by the recession. The main reason behind was that Zara is not
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currently dealing in dollars and is using a relatively safer currency for its dealings. Before
entering new markets, the currency rates and the economical condition of that country is
evaluated. Spain has a stable market and predictable demands in market.

2.3 Social, cultural, demographic & natural environment forces

Socio-demographic factors are important for analysis due to the specific aging structure of
customers of Zara clothes since it is mostly worn by young people looking for fashionable
garment. Cultural differences between regions Zara clothes are sold also matter as well as the
purchasing power of customers. For instance US market has a high purchasing power. On the
other hand slim designs of Zara do not match with the demand on that market.
Furthermore, Inditex is now supporting eight brands and Zara is regarded to be a growth
engine as it makes up one-third of groups sales (Murphy, 2008). The strategy of Inditex is
based on the openness to the society: Inditex makes a solid commitment to transparency and
develops different initiatives to guarantee fluid access to its different groups of stakeholders
to information on the performance of its activity. (Inditex annual Report, 2012).
Zara is currently operating in a single county and thats why faced a social influence that was
already coped by Inditex group for its other brands. Zara luckily got a country based on
independent cultural roots. Spain has a long history, with fabulous contributions in artistic
and designing domain. This country has a calm social environment, attracting tourists on
large scales, having lots of bright cultural events. Strong tourism exchanges enables retailers
like Zara to get obtain customers and then retaining of customers is done by quality satisfying
customers needs. Zaras strategy of higher turnover encourages sale of items in a single visit
and thus tourists become customers. Fashion at lower prices makes it easy to purchase for
shoppers.
Environmental factors play a significant role nowadays. Apparel industry uses water, energy
and other resources thus making it important to wisely utilize them and in line with the
environmentally friendly policies that Zara has been implementing. Business environment is
a combination of customers, competitors and internal corporate factors. Overall business
growth is favorable for new businesses but for Zara its time to invent new domains and to
cross boundaries.

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2.4 Political, governmental and legal forces

Government and political parties in a country are responsible for developing political
environment. Government is the major and silent factor in a business; in form of policies they
may support an industry. Zara has been in Spain till now and only one more major
distribution centre for Europe. For expansion of business in more countries, political support
provided should be evaluated critically. Zara has options to expand its business in European
countries because of their safe and predicable economic circumstances.
Legal factors may have an impact on the companys performance in a number of cases. Since
Zara is present globally, changes in regulations of countries it performs its operations in may
influence or cause additional costs. This is related especially to health, safety and
employment laws, which will be discussed further.
Spanish government has rules that support and promote industrial development in country.
Logistics of country provide generic supportive and productive rules for safer business
transactions.
2.5 Technological forces
Technological factors are not usually crucial when it comes to the apparel industry; however
Zara due to its specific business model is an exception. High technology is essential for the
communication platform used in order to achieve fast delivery of required clothes based on
the responses received from customers. According to Carugati et al (2008), Zara is using the
advancements in technology to the great extent, since all information flow go through the
central server at La Coruna in Spain on daily basis, so managers are able to get information
on the new designs by using handheld computers or so called PDAs. In this manner, all store
managers are notified 24 hours before order deadline for the new designs. However, there is
no device in store which can be used for tracking inventories.
Spanish retailing companies have often gone through technological improvements. Many of
the competitors of Zara have brought new technological concepts in market in sales point
atmosphere and manufacturing processes. Zara has launched its technological growth in form
of eco friendly stores openings. Moreover, manufacturing processes have been made easy and
simple by breaking process into simpler tasks and then done by machines and final assembly
is done by workers.

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2.6 Competitor analysis

Three main competitors of Zara pose the biggest threats. These are Mango, the Gap and
H&M. Almost any retailer can be a threat to Zara due to its wide range of merchandise
categories. The Gap is one of Zaras main competitors as it also sells the same merchandise
as Zara does at more affordable prices and less trendy styles. The company also has a worldwide presence. H&M (Hennes and Mauritz) is one of Zaras most threatening competitors.
H&M also has been quick to internationalize which allows it to gain sales in countries outside
its native Sweden. H&M also is more attentive when entering new markets and tends to enter
one country at a time, as opposed to Zara who multitasks globally. H&M builds distribution
centers in their international locations in order to cut down lead times and potential logistics
costs. Another threat to Zara is that H&M carries trendy clothing choices that they have
designed based on the melding of international apparel tastes. Mango, also a Spanish fashion
retailer is also known for its excellent business model and supply chain management. Mango
has a history comparable to Zaras being a Spanish company with approximately the same
number of stores in the same number of countries worldwide, and a recent history of great
success. Like Zara, all the Mango stores are located in prime positions, whether in the main
shopping centers or premises located in city centers. Stores are of sufficient size to display its
collections. The products of Mango are also similar to Zaras in style, pricing and quality.
However, Mango is very different from Zara in organizational strategy as Mango is based on
a franchising system, and in marketing strategy, relying heavily on advertising campaigns.
After PESTEL analysis Porters 5 forces framework is used in order to analyze competitive
advantage of the company.

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2.7 Michael Porters Five-Forces Model

The model identifies and analyzes 5 competitive forces that shape and help companies to
determine their industrys degree of competitiveness and therefore helping the companies to
develop their strategies.
The following is the Five-Forces Model for Fast-Fashion with further analysis relevant to
Zara:

HIGH

LOW

HIGH

MEDIUM

LOW

We can take a look at each one more specifically of their measurement:

2.7.1 Entry Barriers
Since the apparel industry is quite mature, the average growth rate is quite low due to
relatively high saturation of market participant. Entry and exit barriers are relatively law for
distributors; however manufacturers are experiencing quite high cost of entry and exit, since
huge capital investments have to be made. Since apparel does not require any special
conditions for storage due to its physical attributes, storage costs are low in comparison to
other industries e.g. food production. When it comes to quality of products, one could argue
that it does not vary too much, but it is rather brand which makes it worth, therefore high
promotion costs might deny potential participants. In addition, the fashion is changing fast,
therefore lower quantities should be produced which in turn leads to diseconomies of scale.

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2.7.2 New Entrants

Since the local market is still not saturated and there are almost no barriers for distribution,
since only storage and store should be rented, no administrative restrictions, in addition low
initial capital is required to start operations, one could argue that there is high probability of
new entrants. However, in production, there are barriers for the existence of economies of
scale, since the initial capital required is considerably high.
2.7.3 Threat of Substitutes (high)
Consumers are always on the lookout for more quality trendy products at more affordable
prices. The threat that other companies can offer the same quality or better quality products at
lower prices is high.
The main Zara competitors are H&M and Gap, though there are some differences between
their products. Zara is dedicated on development of trendy and at the same time low-cost
fashion, which meets the requirements of their customer. However, the low-cost does not
necessarily mean low quality and it is shown by their sales. Zara has the highest sales per
square meter of any of its competitors, as well as online, having only 10% of stock is unsold.
H&M has very competitive pricing strategy, but in terms of quality their low-priced products
suffer and way below Zaras quality. On the other hand, Gap is competitive in terms of
quality, but not in terms of prices.
2.7.4 Customers Bargaining Power
The consumer is the focal point of Zaras business model. In spite of this, Zara has
conditioned the minds of the consumers by offering limited stocks and by quickly
replenishing its products.
In terms of bargaining power of customers, one could argue that it is very low, since
customers are individuals and there are many of them. Therefore, as non-unified body they
are not able to defend their interests, since the discounts are given only after certain period of
time, customer are rarely able to find exactly what they want on sales. Because of changes in
the lifestyle, demographic changes, cultural changes or technological changes, the demand
can easily vary and therefore be unpredictable, which leads to an inability to form correct
expectations regarding the discount sales, which ultimately forces customers to buy in
advance.
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2.7.5 Suppliers Negotiation Power

Comditel, a wholly-owned subsidiary of Inditex is in charge of suppliers relations and it has
portfolio of more than 200 external suppliers of raw materials, such as fabrics. Furthermore,
Comditel deals with the dyeing, patterning, and finishing of gray fabrics for all of Inditexs
chains, including Zara, and supplies finished fabrics to external as well as internal
manufacturers. There are too many suppliers, thus they have no negotiation power.
2.7.6 Rivalry among the competitor
Competition among existing firms (High) the competition among existing firms in the
clothing industry is very fierce. Zara does not only compete with local Spanish brands such as
Mango or Springfield, it also competes with other European brands such as H&M, Topshop
and United Colors of Benetton. Zara also competes with international brands like Gap.
2.8 External Factor Evaluation (EFE) Matrix
KEY EXTERNAL FACTORS
OPPORTUNITIES
1. Expansion plans
2. Growing apparel retail market in China,
India, Malaysia, Taiwan and Indonesia
3. Growing online sales
4. International Expansion Especially In
Emerging Markets
5. International Recognition
THREATS
1. Vertically integrated model
2. Joint ventures dissolving
3. Difficult to manage the vertically
integrated model
4. Local retailers
TOTAL

Weights
0.0 to 1.0

Rating
1 to 4

Weighted
Score

0.10

0.3

0.05

0.05

0.10

0.3

0.05

0.2

0.20

0.8

0.2
0.05

4
2

0.8
0.1

0.05

0.1

0.2
1.00

0.8 +
3.45

Threats to Zara
Following are the threats to Zara's success:
1. Zara's vertically integrated model is a threat to Zara's success in long run. The model
will not work once Zara scales its operation. Currently, Zara's designing, production,
distribution and retails stores are tightly coupled together and operate very closely.
Expanding operations in different regions (America, Asia, Europe etc.), requires
addressing different fashion trends at a time. Also, given different sizes/ trends in
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different regions, it would not be easy to pull a new fashion cloth or appeal from one
region and put it in other region.
2. Also, scaling its operation may require joint-ventures and acquiring some smaller
chains also. In a 50:50 joint venture, it is very difficult for Zara to impose its business
model to the other partner. In this case, we have already seen Zara's joint ventures
dissolving on a couple of occasions.
3. While Zara may find it difficult to manage the vertically integrated model for its large
scales of operation, local retailers may follow Zara's formula to success and can
emerge as big threat to its success.
4. It is not easy to beat the local retailers in their home market. For example, the Local
apparel market in Italy is still owned 61% by the independent stores, 45% in Spain
(Note that this is Zara's local market too) and 15-30% in other three major European
markets. Specially, in a country with very cheap labor (mostly in Asia), it will be very
difficult for Zara to keep up its production in Spain.
5. Zara's business model is based on ever changing fashion. For countries like US, where
people are less fashion forward, it may be a challenge for Zara to sustain its presence.
6. With changing time, Advertisement is becoming an important part of the business
and it reflects directly to the sales. Zara's in-store advertisement model may not work
going forward.
Opportunities:
1. Foreign Direct Investment As Zara continues its global expansion, strategic
business agreements will enable Zara to find greater presence abroad. Zara can pr
ovide opportunities for foreign investors and enable greater communications ad rel
ationships with foreign markets. As other companies recognize the success of the
fast fashion model, they may be more apt to adopt the practice offering potential
partnership or acquisitions for Zara.
2. Strategic Locations

Finding ideal locations in new countries provides the

opportunity to gain valuable real estate. By introducing stores in the most fashion
forward locations, Zara may be able to increase its assets.
3. Meeting Unfulfilled Customer Needs Zara must continue its market research to provide the products that its customers
want and need in the most fruitful locations.

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2.9 The Competitive Profile Matrix (CPM)

The Competitive Profile Matrix (CPM) identifies a firms major competitors and its particular
strengths and weaknesses in relation to a sample firms strategic position. The weights and
total weighted scores in both a CPM and an EFE have the same meaning. However, critical
success factors in a CPM include both internal and external issues; therefore, the ratings refer
to strengths and weaknesses, where 4 = major strength, 3 = minor strength, 2 = minor
weakness, and 1 = major weakness. The critical success factors in a CPM are not grouped
into opportunities and threats as they are in an EFE. In a CPM, the ratings and total weighted
scores for rival firms can be compared to the sample firm. This comparative analysis provides
important internal strategic information.
Critical Success Factors

Weight

Rating

Score

Rating

Score

Rating

Score

Advertising

0.20

0.20

0.80

0.60

Product quality

0.10

0.40

0.30

0.20

Price competitiveness

0.10

0.30

0.20

0.40

Management

0.10

0.40

0.20

0.30

Financial position

0.15

0.60

0.30

0.45

Customer loyalty

0.10

0.40

0.30

0.20

Global expansion

0.20

0.80

0.20

0.40

Market share

0.05

0.05

0.20

0.15

Total

1.00

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3.15

2.5

2.70

2.10

Conclusion

Zara is currently enjoying competitive leadership in fast fashions. It has made its founder, the
richest man in Spain. So far, strategies implemented by Zara provided a firm base to
organization. The changing or introducing change in strategies is a difficult process to
conduct, but to excel in business and cope with current expanding markets Zara has to
introduce some new objectives and strategies. No single strategy can serve the purpose. Like
before, Zara has to decide an implementable combination for future. It is recommended that,
not to implement all the decisions in a single step, rather act and wait for response and then
decide for further actions to be taken. Detailed assessment of scenarios is to be done before
finalizing any decision because fashion market changes frequently that rough estimates may
lead to undesired results.

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3. Value Chain Analysis of Tesco

3.1 Introduction
One of the primary goals of any business is to gain an edge on their competition. One way to
do so is to conduct a value chain analysis, which examines what organizations can do to
create a competitive advantage, while at the same time provide the greatest value to their
consumers.
The value chain analysis involves identifying each part of the value chain and seeing where
improvements can be made either from a production standpoint or a cost perspective to
ensure consumers are getting the most bang for their buck. When consumers are getting the
most out of a product for the cheapest cost, businesses will benefit in the long run.
The value chain analysis looks at each of the activities in the value chain to determine what
steps are necessary and which are not in an attempt to boost the company's bottom line.
VCA is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which
activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the
firm and which ones could be improved to provide competitive advantage. In other words, by
looking into internal activities, the analysis reveals where a firms competitive advantages or
disadvantages are. The firm that competes through differentiation advantage will try to
perform its activities better than competitors would do. If it competes through cost advantage,
it will try to perform internal activities at lower costs than competitors would do. When a
company is capable of producing goods at lower costs than the market price or to provide
superior products, it earns profits.
M. Porter introduced the generic value chain model in 1985. Value chain represents all the
internal activities a firm engages in to produce goods and services. VC is formed of primary
activities that add value to the final product directly and support activities that add value
indirectly. Below you can see the Porters VC model.
3.2 Definition of value chain
To understand how to conduct a value chain analysis, a business must first know what their
value chain is. A value chain is the full range of activities such as design, production,
marketing and distribution businesses go through to bring a product or service from
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conception to their customers. For companies that produce goods, the value chain starts with
the raw materials used to make their products and consists of everything that is added to it
before it ends up being sold to consumers.
The process of actually organizing all of these activities so they can be properly analyzed is
called value chain management. The goal of value chain management is to ensure that those
in charge of each stage of the value chain are communicating with each other to help make
sure the product is getting in the hands of customers as seamlessly and quickly as possible.
3.3 Porter's value chain
Harvard Business School's Michael E. Porter was the first to introduce the concept of a value
chain. Porter, who also developed the five forces model that many businesses and companies
use to figure out how well they can compete in the current marketplace, first discussed the
value chain concept in his 1985 book "Competitive Advantage."
Competitive advantage cannot be understood by looking at a firm as a whole," Porter wrote
in the book. "It stems from the many discrete activities a firm performs in designing,
producing, marketing, delivering and supporting its product. Each of these activities can
contribute to a firm's relative cost position and create a basis for differentiation
According to Learning Market, Porter suggests in the book that activities within an
organization add value to the service and products that the company produces, and that all
these activities should be run at optimum level if the organization is to gain any real
competitive advantage.
The strength of the Value is its approach. This value chain analysis focuses on the systems
and activities with customers as the central principle rather than on departments and
accounting expense categories. This system links systems and activities to each other and
demonstrates what effect this has on costs and profit. Consequently, it (value chain analysis)
makes clear where the sources of value and loss amounts can be found in the organization.

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In his book, Porter said a business's activities could be split into two categories:

Primary activities and

Support activities.

3.3.1 Primary activities include:

Primary activities have an immediate effect on the production, maintenance, sales and
support of the products or services to be supplied. These activities consist of the following
elements:

Inbound Logistics. These are all processes that are involved in the receiving, storing,
and internal distribution of the raw materials or basic ingredients of a product or
service. The relationship with the suppliers is essential to the creation of value in this
matter.

Production. These are all the activities (for example production floor or production
line) that convert inputs of products or services into semi-finished or finished
products. Operational systems are the guiding principle for the creation of value.

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Outbound logistics. These are all activities that are related to delivering the products
and services to the customer. These include, for instance, storage, distribution
(systems) and transport.

Marketing & sales. These are all processes related to putting the products and
services in the markets including managing and generating customer relationships.
The guiding principles are setting oneself apart from the competition and creating
advantages for the customer.

Service. This includes all activities that maintain the value of the products or service
to customers as soon as a relationship has developed based on the procurement of
services and products.

Primary Activity
Inbound logistics

Description
All those activities concerned with receiving and storing externally
sourced materials

Operations

The manufacture of products and services - the way in which resource

inputs (e.g. materials) are converted to outputs (e.g. products)

Outbound logistics All those activities associated with getting finished goods and services
to buyers
Marketing

and Essentially an information activity - informing buyers and consumers

sales

about products and services (benefits, use, price etc.)

Service

All those activities associated with maintaining product performance

after the product has been sold

3.3.2 Support activities of the value chain analysis

Support activities assist the primary activities and they form the basis of any organization. In
the figure dotted lines represent linkages between a support activity and a primary activity. A
support activity such as human resource management for example is of importance within the
primary activity operation but also supports other activities such as service and outbound
logistics.

Firm infrastructure. This concerns the support activities within the organization that
enable the organization to maintain its daily operations. Line management,
administrative handling, financial management are examples of activities that create
value for the organization.

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Human resource management. This includes the support activities in which the
development of the workforce within an organization is the key element. Examples of
activities are recruiting staff, training and coaching of staff and compensating and
retaining staff.

Technology development. These activities relate to the development of the products

and services of the organization, both internally and externally. Examples are IT,
technological innovations and improvements and the development of new products
based on new technologies. These activities create value using innovation and
optimization.

Procurement. These are all the support activities related to procurement to service the
customer from the organization. Examples of activities are entering into and
managing relationships with suppliers, negotiating to arrive at the best prices, making
product purchase agreements with suppliers and outsourcing agreements.

Organizations use primary and support activities as building blocks to create valuable
products, services and distinctiveness.
Firms VC is a part of a larger industry VC. The more activities a company undertakes
compared to industry VC, the more vertically integrated it is. Below you can find an industry
value chain and its relation to a firm level VC.

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3.4 Steps in Value Chain Analysis

Value chain analysis: There are four basic steps that have to be followed if you wish to use
the Value Chain as an analysis model. By following these basic steps the organization can be
analyzed using the Value Chain.
Step 1: identify sub activities for each primary activity
For each primary activity, sub-activities can be determined that create a specific value for an
organization. There are three categories of sub activities, namely:

Direct activities (for instance online sales from Marketing& sales)

Indirect activities (for instance keeping the het CRM up-to-date from Marketing&
sales or organizing a golf tournament for customers)
Quality assurance (Proofreading and editing advertisements from Marketing& sales).

Step 2: identify sub activities for each support activity

Here it concerns the idea how value support activities such as firm infrastructure, human
resource management, technology development and procurement can create value within the
primary activities. Use the same distinction as in step 1 for direct and indirect activities and
quality assurance. For example, consider how human resource management can create value
to inbound logistics, marketing & sales and service. This will also have to be done for the
other support activities.
Step 3: identify links
This is a crucial and time-consuming step because this is about finding the links between the
added value you have identified. This part is of importance for an organization when it
concerns increasing competitive advantage from the value chain. For example, a development
within a CRM solution can have a link with increasing production and sales volumes through
certain investments. Another example is the link between the complaints that have been
recorded within the primary activity and the increase of unfilled vacancies (human resource
management) within the primary activity outbound logistics.
Step 4: look for opportunities/ solutions to optimize and create value
After you have completed the value chain analysis it is important to determine what activities
are to be optimized in order to create added value. This is about quantitative and qualitative
investments that can eventually contribute to increasing your customer base, competitive
advantage and profitability. Creating business cases will help you give priority and return on
investment (ROI) to the possibly required added value creation of a primary or support
activity.

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3.5 Value Chain Analysis of Tesco

3.5.1 Introduction
Tesco was founded in 1919 by Jack Cohen from a market stall in Londons East End. Over
the years our business has grown and we now operate in 12 countries around the world,
employ over 530,000 people and serve tens of millions of customers every week. We have
always been committed to providing the best shopping experience. Today we continue to
focus on doing the right thing for our customers, colleagues and the communities we serve.
Tesco Corporation is a global leader in the design, manufacture and service of technologybased solutions for the upstream energy industry. With a strong commitment to an in-house
research and development program, TESCO is able to take innovative solutions from concept
to commerciality. TESCO delivers solutions that add real value by reducing the cost of
drilling for and producing oil and gas.
TESCO operates around the world, with experience in every major petroleum-producing
region. As the largest supplier of rental Top Drive Drilling Systems, TESCO also provides
top drive sales and after-market sales for parts and services. TESCO is the acknowledged

30 | P a g e

leader in Casing Running services. Additionally, TESCO designs and manufactures a variety
of drilling rigs, drilling machinery and related equipment.
TESCO's mandate is to change the way people drill wells, making operations safer and more
efficient. With a history of technical innovation, a track record of superior customer service
and a future of leading-edge solutions, TESCO will continue to set new standards and
demonstrate leadership in the upstream petroleum industry.
Tescos general cost leadership strategic management is evident in its both lean and agile
inbound logistics activity. Drawing upon Walker (2012), Tesco deploys its economies of
scope and its leading market position as the major bargaining powers in order to attain low
costs from its raw material suppliers. Silverthorne (2010) and Walker (2012), in their
analysis, have mentioned that Tesco regularly upgrades its ordering system, and approves its
vendor lists and in-store activities in order to induce efficiency and effectiveness into its
inbound logistic operations.
3.5.2 Primary activities
According to Lynch (2003), value chain is defined as the links between key value adding
activities and their interface with the support activities. Value chain has been implied as a
strategic evaluation tool used for distinguishing the strengths and weaknesses in value adding
processes (Audrestsch, 1995). The value chain of Tesco has been demonstrated in the
following diagram:

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3.5.2.1 Inbound logistics:

Inbound logistics is one of the most importance activities in Tescos value chain. According
to Abeysinghe (2012), Tesco used its leading market position to gain low price and cost from
suppliers. Also, Tesco need to make sure all the product is delivered at the right time, right
place and right price. Because of balance of these elements, buyers can get what they want at
the end. Hence, inbound logistics is the key for Tesco to gain the competitive advantage and
deals with reception of product, staff, stock and storing.
This mainly referred to strong bond between Tesco and suppliers, after negation suppliers are
capable of providing high quality products, suitable amounts and lowest costs, and then
Tesco enables to put goods in right stores in time. Therefore Tesco can meet customers
demands greatly. The inbound logistics is one of Tescos competitive advantages and deals
with selection of products, staff scheduling, and facilities planning to keep leading market
position.
The overall cost leadership strategic management of Tesco is exhibited in its lean and agile
inbound logistics function. Drawing upon Abeysinghe (2012), the company uses its leading
market position and economies of scope as key bargaining powers to achieve low costs from
its suppliers. The analysts have also highlighted the constant upgrading of their ordering
system, approved vendor lists, and in-store processes to induce effectiveness and efficiency
into the companys inbound logistics operations.
3.5.2.2 Operations Management
The operation within Tesco before 8 April 2013 was in fact only had one way that products
sent to local stores and customers buy it in store, however after that day, Tesco has launched
its online grocery shopping service for all customers in Bangkok (Tesco2013). With our
wide product range and great service proposition we are confident that Tesco Lotus online
shopping will receive an overwhelming response from customers, said Tesco Lotus CEO
John Christie. By increasing another shopping approach, increase the supply to meet demand;
what's more, Tesco can achieve economic-scale in the future, which can lower the costs.
Keeping the price unchanged, lower costs can get higher profit margin, which is a
competitive advantage. In order to obtain more future competitive advantage, Tesco has an
attempt to grow by exploring outside Britain. For instance, Tesco had eyes on China as
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world's biggest grocery market, by acquisition and investment that make Tesco paid less
attention to food, and thus had a huge failure in expansion in China.
In order to gain the competitive advantage of economies of scale, Tesco buy a large amount
of product such as food, clothes, electronics, groceries etc and placed in the store. After the
process of testing, machining, packing; they will sell those products to the market with higher
price to achieve positive margin.
Tesco has been praised by a number of supply chain management critics for its effective use
of IT systems that facilitate the companys low cost leadership strategy. According to Tesco
(2010), the company has invested over 76 million in streamlining its operations through
their Tesco Digital program, which is a third generation ERP solution for the company. The
company has achieved 550 million in increased profitability during 2009 alone due to the
introduction of this system. This company -wide ERP system has also facilitated the
minimization of stock holdings within the company.
3.5.2.3 Outbound Logistics
For Tesco on-line service, customers can purchase necessaries on line so that the goods can
be distributed directly from warehouse, dont need to distribute to local store, customer buy it
from store, which saved al lot of time and money of distribution. Not only provide
convenience for customers but also improve efficiency of updating stock.
Outbound Logistics is a small area in the organization because Tesco do not have to send
things out of their stores; customers come to Tesco to buy products, pay the price and go out
again. However, manager the queue when customer checks out is very important, so
customers do not have to wait in a long queue and get out quickly. Moreover, location of
store and car park are important factor as well. Tescos car parks are always in the centre
outside of the store and linked closely to the entrance. Customer management is essential
because the company will need all the information of customer to develop the strategy to
satisfy them.
Tesco holds leadership position in online and offline food retail segments, which is due to its
efficient and effective outbound logistics. Drawing upon Mintel (2010), the company has
developed a range of store formats and types, which are strategically placed to achieve

33 | P a g e

maximum customer exposure. These formats include Express, Metro, Superstores, Extra and
Homeplus, which are segmented according to the target population.
3.5.2.4 Marketing & sales:
Tesco focus on proving lowest price and same quality goods that attract customers, therefore
Tesco had launched several price campaign to boost demands. For example, Tesco
conveyed the new message about a value for money in 1993. At the same year, Tesco
introduced the price is dropping on your weekly shopping campaign (Tesco 1993).
Customers got price-oriented message at once, by launching this campaign; Tesco had an
image for lower price supermarkets, and became a competitive retailer. In 1998, Tesco
replaced the Unbeatable Value campaign with its Unbeatable offer and Low Price
campaigns (Tesco 1998). It represented that customers were really interested in those kind of
campaign and also indicated that Tesco was capable of proving lower price groceries. Whats
more, in order to reduce costs of living, Tesco is committed to helping families in these tough
times and the Big Price Drop into 2012 in September (Tesco 2012), but this time, all the
attention went on them being about price, which accentuated the negative perceptions of the
quality of products, whereas Tesco didn't convince people it was cheaper but drummed in a
message that it was not about quality but about cheapness. By using price campaign this
approach to catch customers attention, in fact, Tesco accomplished not successful this time
compared with past.
3.5.2.5 Service:
Tesco is the first retail in the UK to start on-line shopping service (Tesco 2013), where
people can buy groceries, clothes and electronics online that are a timesaving and
environmental method to develop domestic markets.
Tesco has been pursuing a dual strategy of cost leadership and differentiation, which has led
to an increased importance placed on customer service. Drawing upon Keynote (2010), this
dual strategy is exhibited through the development of self-service kiosks, financial services,
focused direct marketing and promotions.

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3.5.3 Support Activities:

3.5.3.1 Technology development:
Technology development plays an essential role in an organizations development. Firstly, it
can be used at launching new produces and improving services to satisfy customers and keep
the leader position in retail industry. For instance, Tesco has opened online shopping channel,
customers can order at home then products are delivered to them. Secondly it can hence
relationship between company and suppliers, with the rapid development of technology,
Tesco is capable of selling more products, as a result, suppliers need to provide more goods,
they can lower costs, and build a strong relationship.
Technology development can have a great effect on an organization. The ability to new
product and service that satisfy customer needs remains a key competitive advantage. For
instance, Tesco provides an online service and deliver products. Technology developments
can also strengthen the relationship between supplier and organization, for instance, Tesco
adopts some advanced computer systems to manager its ordering channel so that it builds a
close relationship with suppliers. Tesco brings a new solution with the exact and fast supply
network. Finally technology developments are resolving many delivering and supplying
issues. For instance, online service is eventually accessed from homes. The delivery time is
shortened by the stores computer system. The systems enhance Tescos competitive
advantage.
3.5.3.2 Human resource management:
Tesco is aware that if company wants a huge process, cannot without excellent staff, as result,
company paid a lot of attention to attracting talents people to join in and training them to be a
qualified staff. They know their roles in management level and operational level in a wide
range of departments.
Human resource management is regarded as a very important role. It covers recruitment,
training, management development and the reward structures. When Tesco faces the rapid
international business development, its one of the main task is management of human
resources. Tesco realizes attracting excellent staff and retaining them is a key success factor.
To achieve the goal, Tesco had replaced its dependence on expatriate staffs with training
local managers in international business.
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3.5.3.3 Infrastructure:
Tesco has introduced single vehicle and warehouse system and changed distribution centers
into just-in-time system, which contribute to a time-saving and cost-saving situation. In
addition, Tesco has developed many stores as warehouses; customers can order online and
collect at nearest store, which means that the infrastructure cost has been reduced
dramatically. During the development Tesco, a lot of stores are viewed as warehouse to
distribute the products which ordered by the customers. Such infrastructure saves a lot of
cost.
3.5.4 Conclusion
Value chain refers to the relationship between major value-adding activities and their
interface with the support activities. The primary competitive advantages of Tesco include
inbound logistics, operations, outbound logistics, marketing and sales, and service. Tesco
deploys its economies of scope and its leading market position as the major bargaining
powers in order to attain low costs from its raw material suppliers.
The companys leadership position is due to its effective and efficient outbound logistics. In
relation to marketing and sales processes, loyalty programs such as Tesco Clubcard are being
integrated into the company operations via advances in information technology. Tesco, like
other successful international companies, enjoys leadership from one of the best leaders in the
retail world. The companys good strategy presents another competency that seems to drive
the organization to international heights.

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at