Introduction
Zara is amongst the successful companies in the fashion industry. Clothing by Zara is sold in boutiques. The company does everything from designing to sampling to in-house production. They primarily use silks in production, which involves printing on silk georgette, crepe de chine, silk satin, and silk jersey. However, the company faces competition from rival firms in the industry. This is because it deals with the production of clothing, which is a necessity, and therefore many firms have been established to merchandise in the sector. These firms produce brands that compete with those of Zara in the industry.
Fashion clothing is known to have a short product life span given market segmentation and product differentiation, which means that firms such as Zara have to constantly reassess the brand’s strengths, product life cycles, and revenues to sell its products and to recover losses in the event of a change in fashion. It is thus appropriate for Zara to always take into account the market life of new products and to attempt to optimize life cycle revenue and profits. In making such strategies, brand consumers will have enhanced learning about the brand, while Zara would be able to fill the identified gaps.
Background analysis
The fashion industry is one of the major sectors of the economy. It is usually engaged in the production of designer products at a large scale, which has expanded its business significantly. Increased level of business activity in the industry is necessitated by the fact that clothing is usually a necessity and therefore people need clothes at all times. However, the weather is a principle determinant in demand for fashion design products in the fashion industry (Yuanyuan, Holland, Shengfeng, and Weicheng, 2008).
There is a wide range of factors that facilitate an increased level of business activity in the fashion industry of Sudan. These factors are the driving forces since they increase the willingness of firms to engage in production activities. People with less income also purchase luxury products since they are usually pressured by conformity needs. This is a driving force in the industry since it implies that demand for fashion design products is significantly high in Sudan.
High level of demand in any industry increases the willingness of investors both locally, internationally, and therefore more firms are likely to be established with primary objectives of profit maximization. This is a driving force in the industry since it increases the demand for fashion products significantly. The other driving force in the industry is the need for people to remain stylish and classy. Moreover, the frequency of shopping increases the level of business activity in the industry (Barlett, 2001).
It has been found that 24.8% of people buy luxury products once a month while 4.3% do it weekly. This is a driving force in the industry since it guarantees business entities, a continuous flow of customers. Firms in the industry have already formulated policies that imply adherence to the driving forces. Also, strategies have been laid down to facilitate the implementation of the policies.
Since it has been found that people prefer to do their shopping in well-established department stores, this explains why there exists a large number of such stores in the main cities of Sudan that merchandize in fashion design products. Also, this is the reason why well known departmental stores have established different branches in the main cities of Sudan. The need for people to buy luxurious products has increased the development of different brands of products that increase the utility of consumers (Montaña, Guzmán, and Moll, 2007).
Different firms have also increased their investments in innovation and technology to improve the quality of clothing, brand reputation, trendy and stylish aspects, impulsiveness and brand loyalty. This is because these are other driving forces in the industry since they play a significant role in the determination of product demand (Burkhardt, 2008).
The industry is significantly large and competitive since it is characterized by the existence of many firms. This means that it has the features of a perfect competition market structure. Porter’s analysis of the industry will be based on five aspects. These include; threats of new firms’ entrance, bargaining power of suppliers, rivalry among existing firms, bargaining power of buyers and threats of product substitutes (Cai, 2008).
Cost of entering the industry is not high as the case is in other sectors, for example, the telecommunication industry that requires a large capital base. This means that new firms can easily join the industry since barriers to entry are significantly minimized. This increases competition, which further reduces profit for individual firms (Humphry, 2010).
However, this is beneficial to the customers since they are entitled to a wide range of products, which facilitates the maximization of their utility subject to their incomes. Also, they can access a large number of luxurious fashion design products at reduced costs. An increased number of firms further implies an increase in product substitutes, which increases competition in the industry. This increases bargaining power among suppliers and consumers to determine the equilibrium price and quantity in the industry through the forces of demand and supply (Dwivedi 2002, p 51).
PEST analysis
PEST analysis defines an outline of macro-environmental aspects that are employed in the environmental scrutiny of tactical management. The clothing industry in Sudan has and is facing several issues in its business environment such as political, social, economic, and technological issues.
With increased economic growth, the demand for clothing also augments a case, which makes big clothing firms to put efforts to surpass the demand to make considerable profits. The manufacture, as well as the production of clothing in Sudan, has serious effects on people’s health, traditions, and economic as well as social compositions of the local communities. As a result, the clothing industry is put in a tough situation where it has to meet the interests of the stakeholders, the government, and citizens as well (Daniels, Radebaugh and Sullivan, 2009).
Political aspects
Cloth is a very precious commodity in human life. One of the main political factors that have affected the clothing industry is tax policy. Just the other day, the government increased payable corporation tax. This led to a profound criticism geared towards firms saying that the revised tax policy, which was publicized, would cause long-lasting damage to the business. The division of Sudan into north and south has also brought in new challenges. The warrant of arrest issued against Sudan president will also affect operations of a fashion firm from the western world operating in Sudan.
Economic aspects
The Sudan economy depends on the oil and gas sector to finance the budget and cessation of Sudan, which is oil-rich, puts the north in economics limbo. Conversely, the oil reserves in Sudan are reducing and oil production is expected to decline by 70% by the end of 2012. Future supplies to counter the production decline are expected to be mainly from Libya, the Middle East, and Malaysia.
The clothing sector offers employment opportunities to people both directly and indirectly. Employment laws are changing about minimum wage and employment benefits. The cost of living in Sudan is going up and thus the clothing companies are expected to raise their employees’ compensation to match their living standards. Such laws have led to an increase in the cost of operation for the industry through an increase in salary overheads. More so, banks and other lending institutions have raised their lending rates, which have led to high costs of capital as well as non-availability of funds for firms, especially for expansion purposes. The sluggish growth rate of the industry has augmented the decline in production problems.
Social Aspects
The country is not yet ready for the accompanying cultural and political aspects of globalization, which is seen as an unwanted threat to its social values. Many social issues such as obesity, consumer-driven attitudes, westernization of culture, increase in the gap between the rich and the poor are some of the drawbacks attributed to the entry of new western companies. privatization and free-market ideas flourish in Sudan as a result of globalization leading to healthy economic growth.
Globalization has the power to pollute unique cultures, religions and the mentality of people. In Sudan, there is a general fear that globalization can corrupt Islamic beliefs and practices in the country. However, a country can’t win businesses, especially in the tourism sector if it is a strict follower of its culture and religion. The Sudan traditional life will be affected to a certain extent by modernization and westernization brought about by globalization. Globalization in Sudan has brought about a mixture of challenges some of which are due to the infiltration of Western culture into the traditional Islamic culture. Other concerns relate to the distribution of the nation’s wealth and high levels of personal income.
The social setting aspect is becoming progressively more crucial to firms in Sudan because it has a direct impact on the firm’s external undertakings especially in interactions with the public. This setting deals with the attitude and viewpoints that are generated by the public as well as the insinuations that may apply to the expansion and improvement of the industry.
Technological aspects
Technological advancements influence the industry’s modes of communication. Globalization has ushered in an era of technological advances within Sudan. With its capital surplus, the country has swiftly embraced the information technology sector and has opted for computerization, wireless, and the internet. Sudan has in particular taken many initiatives in this direction by allocating necessary funds for the development of the e-commerce market).
All across the city of Khartoum, one can see the imprints of globalization – international brand names, events, issues, and companies. The impact of such an international presence has helped Khartoum adopt a very liberal social lifestyle with infrastructures such as shopping malls, cinemas, hotels, leisure facilities and resorts of world standards. Khartoum has become the preferred center for many international consulting and legal firms, news agencies, advertising houses, and television networks.
A PEST analysis of the oil and gas industry in Sudan reveals several environmental factors that have and are currently influencing the industry. These factors are grouped into four categories, which are political, economic, social, and technological factors.
SWOT analysis about your preferred entry strategy (20%)
The SWOT analysis considers Strengths, Weaknesses, Opportunities, and Threats that are faced by different industries in their daily operations (Richter & Pahl 2009, P 6). The efficiency of operations in the clothing industry is enhanced by various strengths. These include the existence of designers who are experts in the field and the existence of different brands of products that diversify the market. However, some weaknesses act as disincentives to business operations in the region. Examples include increased competition between different firms, which demoralizes motivations of individual firm managers towards production. Besides, the demand for fashion products depends on weather conditions and therefore unfavorable conditions reduce the level of business activity significantly.
There exist a wide range of business opportunities in different regions of the world especially in Sudan in which firms in the clothing industry can diversify their portfolios. Also, different brands can be traded in overseas countries to increase market capitalization in the industry. This is because different nations are faced with different seasons in specific parts of the year. This means that varied brands will be demanded differently in various regions covered by the industry. Available opportunities, therefore, increase chances of success for the benefit of the clothing Industry. This is analyzed as follows;
Strengths
Reputation is one of the most important aspects of the business since people tend to pass that information to others. A good reputation would do more for a business and thus an organization must ensure that it creates a reputable name and relationship with the community. A company entering the Sudan market has to create a brand for itself through corporate responsibility. The organization can rely on the popularity of the parade to continue with its business responsibly.
A large number of outlets enables it to reach more consumers and thus is more likely to have a larger consumer base than its competitors are. Also, as a firm with a large consumer base, the organization can be able to bargain for the purchase of its goods. This means that its size can enable it to provide consumers with better prices resulting from its bargaining power as a seller (Pride, Hughes, & Kapoor, 2008). Apart from the bargaining advantage, the organization can also benefit from discounts arising from bulk purchases. This means that the organization can have a massive financial ability to manipulate prices in favor of the consumers, an advantage smaller firms do not enjoy.
The net income realized by the company enables it to rearrange its marketing strategies and improve consumer as well as investor confidence in the organization. The organization has capitalized on the growth of technology and has been able to utilize this avenue to grow its sales. With changing consumer dynamics, the organization has done well in keeping up with consumer growth and needs. This means that the organization is also able to tap other markets outside its physical locations (de Mozota, 2008).
The costs and the quality of the product being provided by the organization coupled with the various partnerships that the organization has evolved to provide the customer with the quality product set it apart from other organizations providing the same products (Keller and Kotler 2007; Kearns, 2003).
Weaknesses
Despite the advantages of decentralization to the operations of the business, it is important to note that the top-level management, which is charged with the development of strategies of growth for the organization, may lose touch with the people on the ground (Garrison, Noreen, & Brewer, 2009). An important part of any business is to recognize the needs of the consumers and make sure that products from the organization fulfill this need.
Since the branch managers are only responsible for responding to consumer queries and not organizational decisions, strategies developed by the top management may prove to be ineffective for the organization. The use of middle-level managers to assess consumer needs may lead to the reduced provision of adequate services and goods from the organization. This scenario is most likely to develop with the decentralization strategy adopted by the organization (Holston, 2011; Halton, 1999).
Zara has merged with several fashion firms and these mergers have led to the re-branding of the fashion firm. Consumers rely on a brand name to buy their products. The consolidation and subsequent marketing of the organization have not been able to achieve the goals of the organization. Despite the successful mergers, the organization has been unable to retain the same trust that consumers had given the previous fashion firm. This can explain the decline in sales for the organization.
To be able to overcome this setback, the organization must come up with a marketing plan that will enable it to gain trust from customers. Although this is a tall order, its recent rise in sales can be a useful tool to display that the organization can be able to fulfill the needs of the people. The organization can also create awareness of its business in these areas and this will lead to improved sales for the firm (de Mozota, 2003.
Opportunities
Zara’s has a potential influence on the suppliers of the various products in which it trades in as well as other new products which it can decide
to introduce to its customers. At present, several fashion firms tend to sell outdated products that do not match the current needs of customers a situation that has a substantial problem to this fashion firm, especially when dealing with customers. With the advent of edge-cutting technology, customers are interested in products that move hand in hand with technology and are not only able to save them time but also energy as well. For quite some time now, most firms have not been in a position to present their customers with such kinds of cloths and thus some of the customers’ needs have been left unsatisfied.
Zara is a well-established firm, a feature that gives it a competitive advantage over its rivals and thus it is possible for it to persuade the suppliers or even manufacturers of certain products to supply it with the latest products in the market. This is a business opportunity which if Zara’s capitalizes on early in advance before its rivals discover it, can lead to the enhancement of its customer base hence its sales. This is so because for customers who are not loyal to their sellers will not hesitate to look for a seller who trades in products that fully satisfy their needs hence in the process of looking for such a supplier, they may end up and remain at Zara’s(Hill, 2005).
Zara has an opportunity to strengthen its financial standing. Through its acquisition of the regional fashion firms and merging them into a single business, Zara’s should be able to enhance its financial stability since the various finances from the mini fashion firm will all be accumulated into one account. The acquisitions also offer an opportunity for Zara to increase its sales since its sales will be somehow an aggregate of the various regional fashion firm’ sales. Sales volume directly corresponds to profits hence increased sales will mean increased profits for the business which further will boost the financial health of the firm (Garrison, Noreen, & Brewer, 2009).
Threats – Zara is facing very stiff competition from several other businesses which range from specialty outlets, online merchants to middle-sized businesses. Such rivals pose a threat to Zara’s national scheme since they are also targeting the same customers that Zara’s is targeting. One of its main competitors is luxury fashion firms through the creation of a satisfactory experience and presents its customers with fashionable products (Lockwood, 2009).
The economy is experiencing a very slow growth rate which presents a threat to Zara’s business activities. The poor economy has led to high-interest rates which may affect Zara’s financial position. This is because high-interest rates imply high costs of capital especially from bank loans and thus the firm may end up lacking financial resources to take up new business opportunities which may slow down its business growth(Dunning, and Lundan, 2008).
SWOT Matrix
Recommendations for preferred consequent entry strategy (10%)
Entering Sudan’s clothing should be strategically managed to avoid unnecessary losses. A company has to consistently review its marketing strategies to suit the market changes and demands. This is only possible when the company carries out self-analysis and that of other relevant companies and competitors. A company may use the Strength, Weakness, Opportunity and Threat Analysis (SWOT) or the Political, Economical, Social and Technological analysis (PEST) before choosing the mode of entering a new market and or entering the respective market (Pati, Park, & Augenbroe 2010).
A SWOT analysis may be helpful in strategic management because it concentrates on potential issues that affect an organization the most. This analysis is also useful in addressing strategic situations that are complex in case time is limited. It also allows an organization to understand its position in the market. Moreover, it also enables an organization to understand the position of other companies in the market; hence may determine the best company to acquire or merge with (Pati, Park, & Augenbroe 2010).
On the other hand, Political, Economical, Social and Technological (PEST) analysis, analyses the macro-environment affecting firms. These factors are external, and firms have no direct influence over them hence may turn out to be threats to firms. Since the management does not influence these factors, they may pose to be threats since the business has to operate despite the changes. Expected changes in these factors are difficult to determine; therefore, organizations have to monitor them and prioritize those that affect or influence their operations. Therefore, firms should strategically plan to deal with these uncertainties (Pati, Park, & Augenbroe 2010).
The management also has to analyze the competitors. A business has to know the capabilities and weaknesses of its competitors hence work on gaining a competitive advantage through the weak points while majoring on the strengths of the organization. This will help it obtain information concerning close competitors and hence use the information to predict the behaviors of competitors. This analysis helps an organization to understand a competitor’s plans and objectives, the reaction of competitors towards their actions, and how to influence behaviors of competitors to the advantage of the firm. The analysis should also assist the firm to determine the strategies, objectives, capabilities, and assumptions of competitors (Pati, Park, & Augenbroe 2010).
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