How MNC Created Value Through Its Operation Assessment Answer

Executive Summary

This report has discussed an analysis of how the Zara Company creates value via its operations. This encompassed the use of two topics named global integration and global supply chain to establish links between these theories and the real-life implementation at Zara. Moreover, it identified likely issues by ways of definite examples and recommended ways to manage such issues. It was found that the global integration strategy benefits consumers since they might get higher standard quality goods at a lower price. Moreover, it suggested the brand adopt a transnational strategy to internationalize its operations.

Introduction

There is no doubt that MNCs (multinational companies) have the capability to generate not just in their nation of origin but also overseas. Moreover, these can develop foreign affiliates via FDI (foreign direct investment) and establish their value chains around diverse nations. Besides, they incline to possess better technology or businesses, offering them a benefit over local businesses (Fuchs et al. 2021). Zara is deemed as one of the large global fashion businesses which belong to the Inditex Group. This organization is having about 3000 retail stores entailing its kids and home outlets. It specializes in fast fashion and provides clothes, shoes, beauty items, and more (Anand 2020).

Global Integration

As per Boter and Holmquist (2019), Global integration means the business’s local existence in the international market and the extent to which it can utilize identical goods and services in other nations. In this approach, the managerial power in the MNC is mainly centralized at the headquarter of the MNC. There is no doubt that when companies internationalize, they need to face pressure of the global integration and local responsiveness, and similar is the issue faced by the Zara brand. In view of the same, the brand has adopted the global integrated approach to internationalization. One example can be that Zara asserts that each client seeking modern fashion trends in the international market has a similar demand for clothing so it has adopted this internationalization strategy so as to provide similar products internationally. This brand develops standardized goods which can be sold in diverse nations. It adopts the global integration of exploring and making products. Moreover, it targets the identical market segment in all nations. Just the segment’s sizes change from nation to nation, relying on demography, social forces, and more. However, entire items self by Zara carry a global price tag, reflecting the diverse prices in their pertinent currencies (Pucik et al. 2023). Besides, the prices are globalized considering the variances in local market situations, the issues of potential imports, and a uniform product positioning. As price and product policies are entirely centralized for an international marketplace, the Zara brand could run the threat of not being capable to adjust it to local responsiveness. There is no doubt that Zara’s focus on global integration has enabled it to establish economies of scale and develop similar brand images internationally (Su 2020). The global integration can assist the Zara brand to work efficiently. The global integration strategy benefits consumers since they might get higher standard quality goods at a lower price. Besides, standardization can bring forth competitive advantages for Zara in the way that the brand can realize efficiency from mass production, decline costs, and regulate the quality of goods. Nevertheless, this strategy is aimed at not meeting native clients by adapting exclusive needs in individual nations (Le and Liao 2017).

Global Value Chain

The global value chains indicate international production exchange, an event segmented into actions conducted in diverse nations. In this theory, the investments and trade are progressively managed in the Global Supply Chains in which diverse stages of the production procedure are situated around diverse nations (Benito et al. 2019). The Zara Company also follows this theory of GVC (global value chain). With respect to the design stage in the value chain, the process at Zara is typically activated by nearly 800 stylists who are deemed as the creative power making the brand diverse from others. It can be said that continuous contact amongst the brand’s virtual teams, offline outlets, and its designers with a quest for responsiveness, enabled the brand to explore and react promptly to clients’ tastes as they vary. In the area of manufacturing and supply, the Zara brand enjoys the benefit of flexibility that is required to adjust production procedures to client needs since the products are manufactured mainly neat the design outlets of the brand. The logistics phase needs continuous adjustments to accommodate choices for sales (dos Santos et al. 2022). The central logistics run by itself, receive and store inventory twice a week for distribution to outlets involving virtual stores across the globe. Such an effectual integration of the brand’s outlets, and online run together with its shipping and storage is because of the professional inventory management system named as RFID (radio frequency identification) technique to track every garment stuff. It has enabled the company’s guests to consume without limits and facilitates them to experience an integrated manner of shopping which is featured by continuous technical innovations to fulfill their demands. The global value chain model assists the Zara Company to manage operations in imaginative manners that provide higher value to their clients via declined costs and enhanced product and service quality. Owning production assets has surged the brand’s entire corporate flexibility and offers momentous control over capabilities and schedules which might not be possible to attain when the brand was entirely dependent on external suppliers (Atkins et al. 2021).

Recommendations to Manage Issues in Zara

It is hereby suggested to the Zara brand adopt the transnational strategy to internationalize its operations. This strategy will combine multi-domestic as well as global strategies. This will allow the brand to deal with cost pressures from global rivals and to provide goods that fulfill local client needs. Also, this strategy will be effective for Zara since the brand can take benefit from the standardization of expensive components that the client does not see however; might add tailored components to meet national legislations, can personalize marketing to native standards, and can offer exclusive goods to meet local preferences (Nambisan et al. 2019). In view of issues facing Zara in the area of the global value chain, it is suggested that the brand should open physical outlets at prime localities in cities which can assist it to internationalize effectively. This will enable the company to make stores adjacent to the luxury fashion companies so that these can form images about higher excellence, luxury, and fashion at the same time (Hazen et al. 2021). Also, the brand is suggested to own numerous DCs (distribution centers) in diverse regions (Shen and Sun 2021).

Conclusion

From the above, it can be concluded that the Zara brand rejoices in the benefit of flexibility that is needed to adjust production procedures to client needs since the products are manufactured mainly neat the design outlets of the brand. Moreover, it is suggested that the company should use a transnational strategy to internationalize its functions. Moreover, it is recommended that the brand should have a central logistics center at its headquarter and various DCs in different locations in nations.

References

Anand, S., 2020. Fashion Brands and Social Media Marketing. Available at SSRN 3765317.

Atkins, R., Sener, A. and Russo, J., 2021. A simulation for managing retail inventory flow using RFID and bar code technology. Decision Sciences Journal of Innovative Education, 19(3), pp.214-223.

Benito, G.R., Petersen, B. and Welch, L.S., 2019. The global value chain and internalization theory. Journal of International Business Studies, 50, pp.1414-1423.

Boter, H. and Holmquist, C., 2019. The impact of size, industry, and nation on internationalisation in small and medium-sized enterprises. In Entrepreneurship and SME Research: On its way to the next millennium (pp. 163-183). Routledge.

dos Santos, M.J.N., da Graça Jacques, C. and Orchard, M.S.E., 2022. Decent Employment Opportunities in Global Value Chains: The Case of the Textile and Clothing Sector. In Management for Sustainable Development (pp. 125-147). River Publishers.

Fuchs, M., Westermeyer, J., Finken, L. and Pilz, M., 2021. Training activities in subsidiaries of foreign multinational companies: Local embeddedness in Germany?. International Journal of Training and Development, 25(4), pp.414-432.

Hazen, B.T., Russo, I., Confente, I. and Pellathy, D., 2021. Supply chain management for circular economy: conceptual framework and research agenda. The International Journal of Logistics Management, 32(2), pp.510-537.

Le, U.M. and Liao, T.S., 2017. A Dynamic View of Global Integration and Local Responsiveness Framework.

Nambisan, S., Zahra, S.A. and Luo, Y., 2019. Global platforms and ecosystems: Implications for international business theories. Journal of International Business Studies, 50, pp.1464-1486.

Pucik, V., Björkman, I., Evans, P. and Stahl, G., 2023. Enhancing global integration. In The Global Challenge (pp. 71-105). Edward Elgar Publishing.

Shen, Z.M. and Sun, Y., 2021. Strengthening supply chain resilience during COVID‐19: A case study of JD. com. Journal of Operations Management.

Su, Y.Z., 2020. The Internationalization Strategies of Fast Fashion Clothing Retailer Brands: A Cases Study of ZARA, H&M, UNIQLO, and Gap.   

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