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Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
Inditex assignment
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Inditex assignment

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  • 1. Module name: Sustainable Strategy - from Planning to ImplementationTitle of the assignment: Strategic Analysis of Inditex Student name : Submission date :
  • 2. Executive Summary Irrespective of the amount of resource that a company has if the company is not able to adopt a suitable strategy to carry out its operations. Further such strategies need to address the objectives of key stakeholders such as share holders and other main stake holders. Corporate strategy of the Inditex was evaluated in the light of its goals and objectives. A brief introduction of company was produced in the introduction part highlighting key aspects of the company. Strategic position of the company was analysed using PESTLE analysis, five forces, SWOT analysis. Further industry life cycle was analysed using Industry life cycle. The results from such analysis were discussed further in this report. BCG matrix was used to analyse the strategic direction of Inditex. Further Ansoff’s growth matrix also used for this purpose. Further Suitability, Feasibility, Acceptability and Sustainability of the strategy of Inditex was discussed in this report. Finally conclusions and recommendations were made for the Inditex to achieve its corporate objectives. .Sustainable strategy Inditex Page 2
  • 3. ContentsIntroduction .................................................................................................................................................. 4Strategic position .......................................................................................................................................... 4 PESTEL analysis ......................................................................................................................................... 5 Michel Porter’s five forces ........................................................................................................................ 6 SWOT Analysis........................................................................................................................................... 8Strategic Directions ....................................................................................................................................... 8Suitability, Acceptability, Feasibility and Sustainability .............................................................................. 11 Suitability ................................................................................................................................................ 11 Acceptability ........................................................................................................................................... 11 Feasibility ................................................................................................................................................ 11 Sustainability ........................................................................................................................................... 12Conclusion and recommendation ............................................................................................................... 12 Conclusions ............................................................................................................................................. 12 Recommendations .................................................................................................................................. 12References .................................................................................................................................................. 12Appendix 1 .................................................................................................................................................. 13Sustainable strategy Inditex Page 3
  • 4. IntroductionStarted in 1975 in Spain with one shop, in 2011 Inditex has become one of the world’s largestfashion retail group. Currently it operates 5527 fashion stores in 82 countries across the globe.It offers its products through eight types of stores those are, Zara Uterque Massimo Dutti Oysho Bershka Zara Home Pull & Bear Stradivarius (Source, http://www.inditex.com/en/who_we_are/our_group)The headquarters of the company is still located in the same town where it started its operationsin 1975. Among other countries Inditex stores can be found in Europe, America and Asia.The co- founders of the company were Amancio Ortega and Rosalia Mera. In 2010 the revenueof the company was amounted to € 12.5 billion while the net profit recorded was € 1.7 billion.In the early days most of all the products were manufactured in spain however currently theproduction activities were shifted to countries where there is low labor cost such as china andmorocco.Strategic positionStrategic position concerns about the possible impact on the strategy of the company fromexternal environment, resources and competencies exist internally and influence andexpectation of key stake holders.(Johnson & Scholes, 2005).Sustainable strategy Inditex Page 4
  • 5. Strategic position is a part of the strategic management process which gives an idea as to thestrategic choices that should be made and implemented subsequently.The external environment that influence to the strategy of Inditex can be analysed usingfollowing models.PESTEL analysisPolitical factors Reduce of restrictions of import quotas to Europe and USA It is noted that imports from china increased from 17% to 30% in Europe and 16% to 50% in USA after the relaxation of restrictions. The civil unrest in the middle east region Since the company is speeded in Middle East the civil unrest in this area affect to the operations of the company. Free trade policy in European union Import tariff are four times high when goods are imported from developing countries to developed countries.Economic Factors The higher borrowing cost and the financial crisis exist in the European region. The economic crisis spreading across the Europe and other countries may affect the operations of the Inditex as it is highly depend from the European region. With increase in the interest rates the inflation will increase and buying power of the customer will decrease. Increase of fuel prices due to the civil unrest in Middle East may increase the transport cost and affect to the margins of the company. Exchange rates With the crisis in the Europe Euro may be weaker than the currency in china and Inditex may have to bear exchange losses.Social Factors New trend among younger generation in Europe and USA for fashion. This has a positive impact on the Inditex strategy as they can easily promote their new designs among the younger generation in Europe. Low growth in the population in Europe. This may affects adversely to Inditex. Accordingly the population growth in Europe in 2010 was 0.09%.Sustainable strategy Inditex Page 5
  • 6. Technological factors Latest technology in manufacturing such as Auto CAD (Computer Aided Design) and Auto CAM (Computer Aided Manufacturing). High technology used in transportation activities New ideas in online shoppingEnvironmental Factors High demand for environmental friendly garments Effect of global climate to organic cotton production Attention of areas such as sustainable development Carbon footprint of the companyLegal Factors Laws and regulations relating to fashion and clothing Child labour and rules and regulations relating to labours.Michel Porter’s five forces (Source, www.hbr.org) 1. Threat of new entrantsSince the fashion industry is a dynamic industry the threat of new entrants is high as there arelots of parties with innovative and creative ideas. Such threats can be eliminated bySustainable strategy Inditex Page 6
  • 7. Increasing entry cost by investing latest technology Introducing customer loyalty programs Increasing economies of scales 2. Bargaining powers of suppliers When considered the bargaining powers Inditex has taken measures to reduce the bargaining powers of its suppliers those are Enhanced supply chain with 1337 suppliers who participate actively to the supply chain. The company has take steps to produce 50% of its products by on its own manufacturing facilities.By these actions Inditex was able to decrease bargaining power of suppliers. 3. Bargaining powers of CustomersSince the company offers new and fashionable products the bargaining power of the customeris low. Further due to the brand loyalty of customers Inditex was able to reduce the bargainingpower of customers. 4. Threat of substitutesThreats from substitutes such as new fashion designs are controlled through offering all rangeof clothing and customer loyalty. Further when considering online trading it is noted that thecompetition is low than in other industries. 5. Competitive rivalry within the industryCompany faces severe competition from competitors such as M&E, GAP. Due to the low growthin the fashion industry in Europe this competition has become more severe.It can be noted that the company is operating in a oligopoly marker as there are few companieswho engaged in this industry. Further company has lots of market opportunities as they havelots of patent rights which they can use for growth of their operations.Sustainable strategy Inditex Page 7
  • 8. SWOT AnalysisWe can notify the Strengths, weaknesses, opportunities and threats and how we can convertthose threats to strengths weaknesses to opportunities.Strategic DirectionsThe strategy of the company is considering of multi format global growth. Accordingly companyhas taken steps to grow its store location around the world. According to the annual report of thecompany in the financial year 2010 company has opened stores in 45 countries across theglobe.(Inditex annual report 2010, page 15).Further following key performance indicators of the company shows positive signs, Number of store opened during the year Turnover Net profit After tax Earnings Before Interest & Tax Return on Capital Employed (ROCE) Leverage(Inditex annual report 2010, page 17)Inditex’s strategic direction can be identified by Ansoff’s growth matrix. Products/Services Existing New Existing MARKET PENETRATION PRODUCT DEVELOPMENT  Expand the operations in  Offer new fashionableSustainable strategy Inditex Page 8
  • 9. Europe and other cloths to existing market continents where the including Europe. company currently carrying  Expand in to new out operations. businesses such as otherMarkets consumer goods using existing market operations. New MARKET DEVELOPMENT DIVERSIFICATION  Expand operations to new  Moving to new markets countries or areas where with new designs of company sees more cloths. . potential.. When analysing the strategy of the Inditex it can be noted that the company mainly focus market development strategy. That is expanding operations in to new markets with its existing brands. Such as, Zara Uterque Massimo Dutti Oysho Bershka Zara Home Pull & Bear StradivariusFurther company also adopt market penetration strategy concentrating mainly markets such asAmerica and Asia.BCG matrix can be used to identify the life stage of the companySustainable strategy Inditex Page 9
  • 10. (Source, www.bcg.com)When analysing the life cycle of the company it can be concluded that the company is in thecash cow stage as its existing operations generate sufficient cash flows to expand operations into new markets.The industry life cycle of the Inditex can be analysed as follows,Sustainable strategy Inditex Page 10
  • 11. Market size Development Growth Shake-out Maturity It can be concluded that the industry is in the maturity stage as the growth of the industry is low.Suitability, Acceptability, Feasibility and SustainabilitySuitabilityThe strategy of the Inditex is suitable in the light of its goals and objectives. It can evidence thatthe operations of the company is directed towards achieving its goals and objectives.AcceptabilityStrategy of Inditex can be accepted in terms of shareholder point of views. That is, strategyimplemented by Inditex is focussed in achieving it’s shareholders objectives.FeasibilityThe strategy of the company is feasible as over the past period the company has achieved itskey performance indicators. Further it has the required resources both financial and nonfinancial to execute such strategies.Sustainable strategy Inditex Page 11
  • 12. SustainabilityThe strategies adopted by Inditex can be identified as sustainable since those strategies are fairin the light of countries, environment and economies it currently operates.Conclusion and recommendationIt can be noted that from the inception Inditex came a successful journey through its life time. Further ithas a high growth potential in other continents.Conclusions 1. Inditex existing market operations seems to be create sufficient amount of cash flow 2. Market operations in the region can be expand further by introducing new brand to the market 3. The company is having a strong brand portfolio 4. The company has a strong supply chain compared to its competitorsRecommendations 1. Expand market operations to other parts of the world using funds from existing business. 2. Introduce new brands to existing Europe market to increase the customer base 3. Us e the company’s brands to expand in to new countries. 4. Use its strong supply chain to increase operational efficiencies and profitability.References  European Union (March 2012) Trade / Committed to free and fair trade [online] available at: http://europa.eu/pol/comm/index_en.htm. Last accessed [31 March 2012]Sustainable strategy Inditex Page 12
  • 13.  Ethical Fashion Forum (n. d.) Trade Tariffs and barriers [online] available at:http://www.ethicalfashionforum.com/the-issues/trade-tariffs-and-barriers. Last accessed [31 March 2012].  Annual report Inditex 2010,< http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports>  BCG Matrix, Available (online) http://www.bcg.com/about_bcg/history/history_1968.aspx [Accessed on: 15/3/2012]  Chisnall, Peter: Strategic Business Marketing, 1995  Johnson G, Scholes K, Whittington R. (2005): The Environment: Exploring Corporate Strategy, Pearson Education  Porter, M.E. (2008) "The Five Competitive Forces That Shape Strategy", Harvard Business Review, January 2008, pp. 79-93Appendix 1 Strengths Weaknesses 1. Vertical integration- 1. High reliance on Europe market – The company has integrated its The company’s 2/3 of profit is operations vertically in an efficient generated from retail shop, ZARASustainable strategy Inditex Page 13
  • 14. manner so that they can have a which is located in European strong supply chain. market. 2. Diversified products- 2. Low advertising- Company offer diversified products Especially company does not carry range to customers customer base. out visual advertisements to promote its products. Opportunities Threats 1. Foreign markets 1. Competition Company can expand its operations in The competition faces by the company to more foreign markets such as USA from M&E and GAP etc may affect to the and Asia where there is a high demand profitability of the company adversely. for new fashion. 2. Slow growth and economic downturn 2. Growth in online sales in Europe region may affect the Company can penetrate online sales as company’s operations adversary. there is more potential to develop online sales. 3. More opportunities in Asia region Company can access in to larger markets such as India and china as there is a positive outlook for fashion industry in those countries.Sustainable strategy Inditex Page 14

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