Wednesday 08/03/2023 Inditex Practice

DEPE II Group 6
ADE-RIGHT

1. What are the main essential capabilities or competencies of Zara that

Do they explain their success? Are these capabilities consistent with the competitive strategy?
what's next?
The first ability that I observe in Zara is that it is capable of offering clothing
similar to other stores that are more expensive at a lower price. This makes it
thanks to the internalization of the activities of its value chain and to a production
proximity where thanks to its manufacturing process or design among others it can
prepare your clothes in less time than your competitors.
The second capability is creativity along with quick adaptation to demand,
because the industrial world changes as quickly as the needs do
consumers and this makes Zara have to anticipate to create new garments
of the season.
Another ability I observe is that it takes advantage of the famous summer or winter sales.
to get rid of your leftover garments or those that suffer from defects
planning.
- Finally, it can also be observed that it uses the media and the
social media as a means of advertising its brand, this makes Zara
internationalized in many parts of the world.
I believe that these capabilities are generally consistent with the strategy of
vertical integration that the Zara group follows because Zara belongs to the Group
Inditex and this has other textile stores known worldwide, but its processes of
Design, manufacturing, and distribution are the same in all stores and moreover their
logistics and suppliers do not subcontract to external companies, so they
focuses on the proximity production of Spain and Portugal.

2. Analyze the reasons that have led Inditex to adopt a strategy of

vertical integration, as well as the potential drawbacks of this strategy.

To explain the vertical integration strategy that the Inditex group has pursued,
we will start by defining what this strategy consists of.
Vertical integration is the grouping of several processes within the same company.
consecutive productive processes, although technologically separable, necessary for the
production of a good.
Backward vertical integration: Performing activities from previous vertical stages
to the essential or main activity of the company.
Forward vertical integration: carrying out activities in the vertical chain
subsequent to the main activity of the company.
Now we will analyze this strategy in the Inditex group.
Inditex's business model is characterized by a high degree of vertical integration.
where the different phases of the fashion process can be integrated: design,
manufacturing, logistics, and distribution in own stores. It has a structure that
is characterized by flexibility and a customer-oriented strength.
Among the advantages, vertical integration has allowed it to take advantage of economies of
scale, eliminate transaction costs, strengthen the differentiation strategy and
increase the power of the company. Zara has bet on cutting-edge technology
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generation applied at all levels of management, design, manufacturing, logistics... that
has allowed him to vertically integrate the business.

Among the disadvantages we can encounter, the global risk that may be faced
a company that chooses vertical integration is much higher than it would be if only
chosen in a phase of the product cycle. Also, with the integration of the different
phases of the process also leads to a high lack of flexibility and a greater exposure to
the fluctuations. The capacity for innovation is affected, and this can be a
fatal inconvenience in sectors in an environment where change is a constant.
On the other hand, organizational complexity produces bureaucratic overhead costs, and in
In certain moments, it may happen that the subsidiary works with production costs.
higher than those of external suppliers. In this way, what is initially a
advantage can end up becoming a disadvantage.

3. Identify the rest of the development directions followed by Inditex.

Explain the main reasons that justify these decisions and the risks that
they entail. Justify whether the development methods followed are consistent with the
adopted development directions.

To explain the development directions of Inditex, we must emphasize that this is

composed of brands: Zara, Pull&Bear, Zara Home, Massimo Dutti, Uterqüe,
Oysho, Bershka, and Stradivarius.
The Inditex group carries out a development direction based on expansion that
It is supposed to maintain a certain relationship with the current situation of the company, either with its
traditional markets or with their products, within which we find:

Market penetration that consists of increasing and l vsales volume

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We can find it in Inditex in that each of the eight brands focuses on a
public and in a quality that attracts its audience from each brand with stores
welcoming and collections designed exclusively for them, this represents an increase
of clients, so they will increase the number of sales

The advantages of this will increase the growth expectations of demand for
the industry but will risk losing the opportunity to generate synergies in
new products.

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In the case of Inditex, we can be jealous of the seasonal novelties for each one of
its brands, offering its customers unique collections designed for them, each
season improving its product, another example would be being able to find one's own
customer the desired product with the mobile in the store.

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The advantages of this strategy for Inditex offer a constant image of innovation
to its audience and market renewal, as well as creating synergies by sharing structures
commercial and distribution. But we found the risk that the technology they use
it becomes obsolete so it will need to make constant adaptations.

Market development consists of the company trying to introduce its

traditional products in new markets. The company leverages technology and the
existing or new production capabilities to sell their products in areas
different from the current ones

Inditex carries it out through expansion into new geographical areas around the
world or opening brands targeted at other audiences like when I launched the Oysho brand
focused on the lingerie market

One of the advantages of this development is that new distribution channels emerge.
being able to enter markets that are not yet saturated to better take advantage of their
capabilities, but it will run the risk with this strategy of the need for adaptation
of your product or even encountering situations of difficulties when entering a
the most difficult market to enter due to strong competitors

Secondly, Inditex carries out diversification, specifically it is identified as

related diversification strategy based on the creation of new products
for new markets demanding a relationship with the resources that are already available.
We can identify this strategy at Zara Home as being a
brand centered on the home developing new modern products and new in the
market.
This has the advantage of generating synergies, sharing competencies.
essentials, transferring the knowledge and skills of its executives as well
achieving the possibility of strengthening its competitive position. But it also assumes
some risks such as assuming costs associated with achieving synergies
mentioned or will have to face assessing the difficulty that these may generate.

Finally, we find that the restructuring of activities is based on the modification or

redefinition of the company's field of activity with possible abandonment
(disinvestment) of at least one of the businesses.

In the case of Inditex, we see it reflected, for example, in the crisis that it caused.
COVID pandemic Inditex had to restructure by having to close some
stores, relocating their employees

One of the advantages of restructuring is that important competitors emerge.

that threaten their competitive position, as well as agency issues and the
proliferation of forms of cooperation. It also faces different risks such as the
possibility of a decrease that the value of the company Inditex may suffer in general.

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4. Analyze each of the reasons for vertical integration studied in class.
applied to the Inditex case.
Vertical integration focuses on a set of activities that until now
they had been carried out by another external company to the main company.
One of the reasons for vertical integration is the reduction of costs, this it
we can see thanks to the fact that the Inditex group uses the same design processes,
manufacturing and distribution, this way it will create synergies in the company, which will
It will translate into a greater value for the company. We can see this, for example, in that
it has no transaction costs because it handles its own logistics or it does not have
intermediaries in the processes mentioned above, so it can be said
has internalized the production chain.
Another reason is to gain a presence in the market thanks to Inditex having the
necessary power over its resources to be able to negotiate with other companies in the same field
sector or even diversifying their businesses and thus having more sources of income.

Bibliography
DIEZ, I., & ALVAREZ, E. (n.d.). INDITEX, A GLOBAL FASHION GIANT.
ESIC. (JULY 2022).Invalid URL or content to translate.think/commercial-and-sales/what-is-the
vertical-integration-strategy-c. Obtained from esic:
hthttps://www.esic.edu/rethink/commercial-and-sales/what-is-strategy-of-
vertical integration
GUERRAS, L. A., & NAVAS, J. (2022). THE STRATEGIC MANAGEMENT OF THE COMPANY (Vol.
six). SPAIN: CIvitas.