An assignment in the subject of Transnational Startegic Management (Semester III)

1. VALUE CHAIN ANALYSIS
TRANSNATIONA L STRATEGIC MANAGEMENT
Submitted By Submitted To
Meenakshi Upadhayay Gaur Dr. H.P. Mathur
Student, MBA (IB) Professor
FMS BHU FMS BHU

2. Proposed by M.E.Porter in 1980 the value chain analysis simply put is a series or chain of activities in an organization that creates & builds
value. It is, in other words a systematic approach to identify & promote the development of competitive advantage that adds to the total
customer value delivered by an organization.
According to this model, every firm is a synthesis of activities performed to design, produce, market, deliver & support its product. Michael
Porter suggests nine strategically relevant activities grouped under primary and support activities that create value and cost in a specific
business.
Primary Activities i.e. activities directly concerned with creating and delivering a product.
Primary Activity Description
Inbound Logistics Activities Concerned With Receiving And Storing Externally Sourced Materials
The Manufacture Or Assembly Of Products And Services ;Inputs i.e. Resource Conversion To Output i.e.
Operations
Products
Outbound Logistics Activities Associated With Getting Finished Goods And Services To Wholesalers, Retailers & Buyers
Marketing And Sales Informing Consumers About Products And Services Through Marketing Communications & Promotion Mix
Service Activities Associated With Providing Service Maintaining Product Performance
Support Activities i.e. activities indirectly involved in production, that results in increase of effectiveness or efficiency .
Secondary Activity Description
Procurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials
suppliers)
Human Resource Activities concerned with recruiting, developing, training, motivating and rewarding the organization’s
Management workforce.
Technology Development Activities concerned with managing information processing and the development and protection of
"knowledge" in a business
Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and
general senior management

3. Zara is the flagship brand for Europe's fastest-growing apparel retailer Industria de Diseo Textil (commonly known as Inditex). Zara, the
cheap-chic subsidiary of the Spanish fashion giant, runs about 1,520 stores, including some 230 Zara Kids shops, in more than 75 countries
worldwide. Zara has about 40 shops in the US and 60 in Mexico. The chain sells women's, men's, and children's apparel and also offers plus-
size and maternity lines to clothe its larger customers. Zara Home, which sells home fashions, has about 250 stores, in about 25 countries. Zara
is Inditex principal chain and accounts for about two-thirds of its parent company's sales.
INB OUND LOGIS TIC S Zara manufacture approximately 50 percent of its products in its own network of 22 Spanish factories but use
subcontractors for all sewing operations. These factories generally work a single shift and are managed as independent profit centres. The
other half of its products are procured from 400 outside suppliers, 70 percent of which are in Europe and most of the rest in Asia. Many of the
European suppliers are based in Spain and Portugal, and Zara exploit this geographical proximity in order to ensure quick response to Zara
orders which is critical for fashion products. From Asia, Zara procure “basic” products and those for which the region has a clear cost or quality
advantage. With its relatively large and stable base of orders, Zara is a preferred customer for almost all its suppliers. 80% of Zara‟s apparel is
manufactured in Europe, mainly in Spain and Portugal.
For its in-house production, Zara obtain 40 percent of its fabric supply from another Inditex-owned subsidiary, Comditel (Zara account for
almost 90 percent of their total sales). Over half of these fabrics are purchased undyed to allow faster response to mid-season colour changes.
To facilitate quick changes in printing and dyeing, Zara also work closely with Fibracolor, a dyestuff producer part owned by Inditex. The rest
of the fabrics come from a range of 260 other suppliers, none account for more than 4 percent of Zara‟s total production in order to minimize
dependency on single suppliers and encourage maximum responsiveness form them.
The make or buy decisions are made by the procurement and production planners. The key criteria for making this decision are required levels
of speed and expertise, cost-effectiveness, and availability of sufficient capacity. If the buyers cannot obtain desired prices, delivery terms, and
quality from Zara factories, they are free to look outside.
OP ER ATI ONS Zara design the organization, operational procedures, performance measures and even office configurations to make
information and product transfer easy. The design and order administration at Zara is very effective and efficient. The company ensure
product quality by designing its own products. The strategy at Zara is that only those operations which enhance cost efficiency through
economies of scale are conducted in-house (such as dyeing, cutting, labelling and packaging). All other manufacturing activities, including the
labour intensive finishing stages, are completed by networks of more than 300 small subcontractors, each specializing in one particular part of
the production process or garment type. These subcontractors work exclusively for Zara‟s parent, Inditex. In return, they receive the necessary
technological, financial and logistical support required to achieve stringent time and quality targets. The system is flexible enough to cope

4. with sudden changes in demand. In other words capital-intensive steps are executed in factories owned by Zara, while labour intensive
operations are outsourced to small shops and manufacturers with whom Zara have collaborative partnerships that include providing them
with the necessary technology and logistics capabilities.
Zara‟s workforce includes designers, market specialists and buyers. Together they crank out an astonishing 30,000 items a year versus 2,000-
4,000 items offered up at big chains like H&M (the world‟s third largest fashion retailer) and Gap. Unlike their industry peers, these teams work
both on next season‟s designs and, simultaneously and continuously, also update the current season‟s designs. Extensive feedback from the
store network also forms an integral part of the design process.
Based on information and inspirations gathered from different resources such as trade fairs, fashion shows, magazines and more importantly
customer feedbacks, the designers draw out design sketches by hand and then discuss them with colleagues – including market specialists,
planning and procurement people. This process helps to retain an overall „Zara Style‟. The sketches are redrawn using a CAD system where
further changes and adjustments, for better matching of weaves, textures, and colours are made. Before moving further through the process,
it is necessary to determine whether the design can be produced and sold at a profit. The next step is to make a sample, often completed
manually by skilled workers located in the small sample making shop in one corner located in the small sample making shop in one corner of
each hall. If there are any specific questions or problems, they can just walk over to the designers and discuss and resolve them on the spot.
The market specialist has responsibility for dealing with specific stores. They work in close contact with store managers, especially by phone,
discussing sales orders, new lines and other matters. Stores rely heavily on discussions with Market Specialists before finalizing orders. Finally
buyers take decisions concerning what products to make, when, and in what volumes are normally made collectively by the relevant groups of
designers, market specialists, and buyers and after the decision is taken, the buyers take charge of the total order fulfilment process. The
buyers are responsible in planning procurement and production requirements, monitoring warehouse inventories, allocating production to
various factories and third party suppliers and keeping track of shortages and oversupplies.
OU TB OUND LOGIS TIC S Zara moves from design to in-store availability in a matter of two weeks to satisfy its young, hip, clientele with
fashion for the masses as a result of closely connected highly synchronized arrangements with out-sourced suppliers. It would plan a core
collection, composing nearly 50% of its forecast requirements. The rest 50% would be sourced opportunistically according to demand trends
during the season, and delivered right there.
All products pass through Zara‟s main distribution centre based near Arteixo in La Coruna in Spain from where merchandise is shipped to
stores several times a week. The 5-storey, 50,000 square meter distribution center employs some of the most sophisticated and up-to-date
automated systems. With a workforce of 1200, the distribution center normally operates four days per week with the precise number of shifts

5. depending on the volume of products that have to be distributed. Orders for each store are packed into separate boxes and racks (for
hanging items) and are typically ready for shipment 8 hours after they have been received.
Zara has achieved high levels of customer responsiveness by its flexible arrangements and wide supply chain base. Stores usually place their
orders and receive shipments twice per week. Orders have to be placed at pre-designated times. Store employees regularly tour urban hot
spots looking for new trends and reporting back to designers. Knowing what‟s in today may be out next month is the secret of the success of
the Spanish retailer as is the ability to apply operations strategy that puts new fashion concepts on the shelf twelve to fifteen days. Customers
seem to relish the results of this high velocity operation and are often seen queuing outside stores on designated delivery days – a
phenomenon dubbed as „Zaramania‟.
M AR KE TI NG & S ALE S Most companies exploit the advantages of advertising their products and services in various media and their
marketing strategy is linked with various advertising techniques. However, Zara deviates to this standard strategy.The company have
established a policy of zero advertising and they preferred to invest percentage revenues in opening new retail outlets worldwide. Also,
Because Zara‟s merchandise is produced in small quantities, provided on predictable schedules, and displayed in the stores for only a short
amount of time; customers visit Zara stores more frequently. This has an added advantage of helping Zara avoid the cost of advertising. In
terms of promotion too, Zara is caviar to the general. Comparing with other rivals, Zara only advertises twice a year and no advertising is when
they open new store. However, due to its clear-cut brand image and prominent location, Zara can always catch consumer‟s eye. In terms of its
communication tools, Zara maintains an updated, innovative, and inclusive corporate website (www.zara.com), where essential facts about the
company, product catalogue, collection, store outlets, and other information are posted. This is considered as their major communication
tools provided that they take advantage of the benefits of electronic technologies in marketing their products. Zara has a strong IT System
that allows almost immediate communication of sales and inventory information across enterprise.
Zara produces clothes that resemble the latest couture creations, but they beat the designers to market. Because they use less expensive
fabrics, they can also provide the product at a lower price. To achieve this type of competitive advantage, Zara controls most of its supply
chain, by managing all design, warehousing, distribution, and logistics functions.
Zara‟s products including casual, occasional, lingerie, underwear and swimwear are not only fashionable but also affordable in the range of
mid-low price with mid-high quality. This is due to the vertical integration of the organization from fabric purchase to distribution. However,
as an international retailer, Zara‟s price is different in each country because of the differences in rates of exchange, tax and transport. Zara‟s
strategy of refund guarantee assures Customer of purchases refund in any store but within the same country, and credit will be given for
returned items according to the prices marked in the original tags, disregarding any later sales promotions.

6. Zara‟s stores are located in prominent city center sites. However it resists the business-wide trend of transferring production to low-cost
nations.
SER VIC ES The Company‟s instant fashion model, completely rotates its retail stock every two weeks. Shoppers addicted to the Zara brand
know exactly when the deliveries will be arriving at their local shop and some even turn up before opening time on delivery days to be the
first to pick up the latest lines, with delivery day becoming known as "Z-day" and „Zaramania‟ in some markets.
The knowledge that clothing items would not be available for very long i.e. released limitedly also encouraged shoppers to regularly visit the
store to see if a new stock has arrived and make their purchases more quickly , shortening the product life cycle and leading to greater
success in meeting consumer preferences. If a design doesn't sell well within a week, it is withdrawn from shops, further orders are cancelled
and a new design is pursued. No design stays on the shop floor for more than four weeks. Through this strategy, Zara reacts quickly to
changing fashion trends and customers' tastes, providing a "newness" to fashion followers.
The store is Zara‟s main image vehicle. The overall experience of the customer in the store in considered. Apart from the fashion supply, the
interior design of the store, coordination of collections, maximum care over window displays and customer care are some of the elements that
guar experience. Window display is changed per month and decoration is changed every two years. Clear lighting, white walls and ceiling, and
few photographs in every shop, are aimed at creating an elegant atmosphere while spotlighting the clothesThe stores where Zara
concentrates the majority of its investment are the essence of the group‟s chains, for which reason the location in the main commercial areas
of cities and care over interior design take on vital importance for the company.
Customer care is one of the most intangible value that Inditex takes most care of. Each store has different customers segments. These
segments have different values in terms of their product choice .Inditex establishments are thought out so that the encounter between the
customer and fashion can take place in a pleasant environment. Store personnel with supervisors as the main drivers of quality of service,
encourage freedom and comfort of the visitor by taking an active role in the shopping process exclusively when the customer requests and
receive training designed specifically to serve this purpose.

7. Vertically Integrated In-House 5 Million Square Broad & Fast Fashion System ;
& Capital Intensive Production : Foot Distribution Undefined Quick Response System
50%; 85% Center; Ceiling- Target Market
Firm Infrastructure
Production Mounted Racks
Through Out And Customized
Season Sorting Machines
Procurement And Young & Fresh Work Force Of Market Managers & Sales Associates
Production Planners; Design Staff; 1200 Specialists; Transmit Sales Analysis; PLC
Buyers Team Rotation; Dept. For & Store Trends To Designers
Human Resource
Autonomous & Acquiring Global
Management
SECONDARY ACTIVITY
Flexible Culture Prime Real Estate
Locations; Store
Refurbishing
Technology Strong It Centralized Updated, Intelligent Feedback
Orchestrated System ; Cost Distribution Innovative , Gathering Through Personal
Technology
Development Coordination Of Efficient; Quick System ; Inclusive Digital Assistants (Pda);
Suppliers Response Minimized Lead Corporate Instant Inputs From Point Of
Communication Time Website Sale( Pos) System
50% Production Just-In Time; Limited Runs; Advertising Exclusive & Updated Products
From 400 Outside Centrally 50% Sourced Twice A Year For Every Two Weeks
Procurement Suppliers, 70 % In Managed According To New Stores ;
Europe Inventory Demand Trends Zero Advertising
System
Outbound Marketing And
Inbound Logistics Operations Services
Logistics Sales
PRIMARY ACTIVITY

8. Pizza Hut, the unit of YUM! Brands operate the world's Number One pizza chain with more than 13,200 outlets in about 90 countries
worldwide. The chain serves a variety of pizza styles, including its flagship Pan Pizza, as well as Thin n' Crispy, Stuffed Crust, Hand Tossed, and
Sicilian. Other menu items include pasta, salads, and sandwiches. Pizza Hut offers dine-in service at its characteristic red-roofed restaurants, as
well as carry-out and delivery service. About 15% of the restaurants are company-operated, while the rest are franchised. The world's largest
fast food company, YUM! Brands runs KFC and Taco Bell in addition to Pizza Hut.
INB OUND LOGIS TIC S The local supply chain for Pizza Hut was developed by Yum! And currently 95 per cent of the ingredients they use
are locally produced. Pizza Hut imports very few specialty items like pepperoni. It has reduced costs through indigenous sourcing of raw
material. It has tied up with a local company Dynamix Dairy Industries Ltd (DDIL) for sourcing mozzarella cheese. The landed cost of imported
mozzarella comes to US$ 3.3 - 3.5 per kilogram. The domestic price, however, works out to US$ 2.99 - 3.1 per kilogram. Pizza Hut is adding to
the bottom line by localising equipment as well as by paying attention to inventory replenishment, which has been reduced from 60 to 30
days.
OP ER ATI ONS Pizza Hut operations are based on what the company called CHAMPS which define the very core of customer expectations.
Champ stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product, and Speed. This system of measure has been the company‟s tool
to ensure consistency of service and product quality and is align with „customer mania‟ program.
Generally, Pizza Hut operates in different concepts. The first is the Full Service Restaurants Based Concept which offers dine-in, takeaway and
delivery services to customers and Home Service concept which offers home delivery and take-out. There are specific menu to these concept
and delivery if offered to customers living within the designated trade zones. The newest concept being developed by Pizza Hut is the Express:
Eat-in and Takeaway. The concept is to establish Pizza Hut within food halls and leisure parks across the UK offering informal, quick services
with a reduced menu .With these concepts, Pizza Hut basically operates in two units - dine and delivery. They cannot be categorized as fast
food because their service is not as speedy as McDonald‟s. It is more of a casual dining but not as classy as fine-dining restaurants, with a
better ambiance and atmosphere than fast-food restaurants.
Pizza Hut invests on skills, knowledge, training and development of employee for different positions. The company has program which
includes annual performance appraisals designed to let Team members know exactly what the expectations are and what opportunities exist
for improvement. Information and skills are well-communicated internally among employees; the company allows open communication all the
way to the top .At Pizza Hut, they treat each other as customers themselves so they exactly know what the customer wants and discuss them
in every internal meeting wherein every idea of employee counts. Pizza Hut management gives importance to the ideas and opinions of the
staff because they know that these staff are the frontliners of the company who have direct contact with the external customers. The company
also do not allow bureaucracy instead maintain its culture which is a recognition culture- motivating employees through recognition. Pizza

9. Hut also created a coaching management system that is managers become restaurant coaches, teaching employees and providing them
information rather than just giving commands to the staff thereby giving the staff chance for improvement. Internal competition is eliminated
to promote commitment and creativity.
OU TB OUND LOGIS TIC S Pizza Hut offers its customers variety of choices on its menu as a strategy of targeting a wider market segment,
establishing itself as a family restaurant. Pizza Hut categorizes its menu as Dine-in Restaurant menu and Delivery menu. It also has Kids Menu
which is menu for children with free toys at selected meal and Collection Menu which features selection of Pizza Hut‟s brands of pizzas such as
the Big New Yorker, Stuffed Crust Pizza and The Italian.
Pizza Hut restaurants offer starters and side orders, pasta and salads, desserts, ice cream and pizza. It also serves drinks such as coffee, sodas,
juices, tea and alcoholic beverages. It came up with the concept of the ice cream factory wherein for one payment, one can take as much ice
cream as he wishes which appeals more to children. Some Pizza Hut in UK also features a salad bar and a buffet lunch that gives value to
customer‟s money.
It also offers healthy choices with its salad and its menu indicates which items are suitable for vegetarians. Pizza Hut continuously reviews their
products so its menu change from time to time in an effort to meet evolving customers needs and taste preferences. International food chains
typically offer only a few localised products in other parts of the world. However, Pizza Hut‟s local menu is as large as the international one.
According to Pizza Hut, the Indian food heritage is very rich, and hence Indians like local flavours. The Tandoori range of pizzas, which was
developed locally, has a menu mix of over 20 per cent.
M AR KE TI NG & S ALE S According to Pizza Hut, the role of its marketing is to ensure that the needs of the customers are met; it is what
makes the business makes money. The company invest resources for research on customers‟ needs and analysing customers‟ feedback about
what people think about pizzas; what do they like or dislike about pizzas; and what do they want from pizzas The feedbacks and research are
the basis of the company for innovation and development of new products.
Pizza Hut has gained its name through heavy media and TV promotions which inform the customers of what Pizza Hut can provide them.
Pizza hut makes sure that the customers are well-informed and aware on new products, offerings and services it provides.
Pizza Hut has increased its visibility by launching a well-received TV campaign aimed at the young crowd. It has formed partnerships with
recognised brands such as Nestle and Pepsi. It also holds regular promotional campaigns targeted at children and uses these alliances to offer
packages during these campaigns.
Most Pizza Hut restaurants are located in the metros and smaller metros. In taking long strides across the country, Pizza Hut is consolidating
its position by opening more restaurants in the metros where it already has a presence as well as opening outlets in new markets to increase
market penetration.

10. SER VIC ES The Company uses the term „customer mania‟ to describe the importance that customer satisfaction impacts on the success of
the company. Customer Mania is basically a program which is based on three principles: operational excellence, great marketing and real „sit
up and take notice‟ standards of customer service. The program aims to instil the basics of customer service to every team member of Pizza
Hut emphasizing four critical steps. The first step is to set sight on the right target by taking care of customers and creating a motivating
environment for staff; the second is to treat customers the right way by determining the kind of experience Pizza Hut wants its customers to
have as they interact with every part of the company; the third is to treat employees the right way by using strategies ranging from smart
hiring, to training and development, to managing performance and creating a recognition culture; and the fourth is to build the right kind of
leadership by letting staff decides and think with the support of the manager. It include basics such as smiling and greeting the customer,
presentation, good service and dealing with service problems themselves without looking for a manager
All over the world, Pizza Hut holds a quarterly customer mania mindset session for its team members who include all the crews, managers
and Restaurant Support Centre Team to reiterate and motivate employees on the importance of providing consistent product quality, service,
ambiance and value for money to the customers. In this session, recognitions are given to employees who are outstanding in their service to
the customers.In 1995, Pizza Hut launched two customer satisfaction programs: the 1-800 Customer Satisfaction Hotline and the Customer
Call-Back Program, which takes the pulse of 50,000 customers per week. A mystery shopping program gathers information every month on
how each restaurant is performing against customer expectations. The results of this survey are fed back to the restaurant within five days of
the visit .
As part of its customer service, most Pizza Hut restaurants provide facilities for people with disabilities. On its website, Pizza Hut provides a
Disability Discrimination Act statement in compliance with the Disability Discrimination Act 1995. The statement stated that the company has
improved its physical environment with more easily accessible facilities and has trained its employees to better understand and meet the
needs of customers with disabilities.
The delivery guarantee concept is also classified as one of the strengths of the company with regards to customer service. The delivery
guarantee concept ensures the Pizza Hut delivers products on the time promised and if it fails to deliver on time the customer will get his next
pizza for free. Pizza Hut newest concept of „Hot Dot‟ ensures that the pizza is hot or else the order is treated as free.
In dealing with customers‟ complaints, Pizza Hut provides telephone numbers customers can call to when they encountered problems
regarding the services the company provided them. Feedback forms are provided at each table of Pizza Hut restaurants. The website of Pizza
Hut also provides telephone numbers and address to be contacted with for customer complaints. As already mentioned, Pizza Hut‟s Delivery
guarantee offers compensation for failure to deliver products on time. Once a customer complains about a product, the staff will try to rectify
the situation by replacing the product if the order is wrong or the quality of pizza or any product is not satisfactory. However, if the customer
is still unhappy, Pizza Hut will refund the customers money. The restaurant is also known for its innovation, differentiation and product
creativity with its highly successful Italian- a thin crust pizza and Stuffed Crust Pizza and Tandoori Pizza Range as an effort in providing
customers value to their money.

12. Firm Restaurant Based Metro’s & Smaller Innovation;
Infrastructure C.H.A.M.P.S Delivery: Dine In, Metro’s Penetration Compliance With
Cleanliness, Take Away & Disability
Hospitality, Accuracy, Delivery Services. ; Discrimination Act
Maintenance, Product, The Express: Eat In 1995; All-Vegetarian
And Speed & Take Away Restaurant For Jain
Community; Ice Cream
Factory
Human Resource Recognition Culture Customer Mania ; Coaching Delivery Guarantee
SECONDARY ACTIV ITY
Management Employee Ideas Counts Treat Each Others Management Else Second Pizza Free;
As Customers System- Manager Customer Mania
Become Coaches Program
Technology Integrated System to Maintain Online Orders; Hot Dot
Development Communication Temperature of Customer Care
System; Teradata Pizzas Hotline
Warehouse Minerto
Procurement Indigenous 95% Ingredients Vegetarian & Non Aggressive Italian Thin Crust
Sources; Locally Produced; Vegetarian; Crust Marketing & Tie Ups Pizza; Stuffed Crust
Mozzarella Import Few Specialty Variety ;Local & With Popular Brands Pizza
Cheese Sourced Items ; International Like Pepsi; Targets:
From DDIL Flavors; Healthy Children’s & Young
Salads Choice Crowd
Inbound Operations Outbound Marketing And Services
Logistics Logistics Sales
PRIMARY ACTIVITY