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Zara's Global Operations

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Zara is the flagship brand of Europe's fastest growing fashion clothing retailer, Inditex. Amancio Ortego founded Zara in 1975 in a small, ship-building town of Spain, La Coruna. Zara's stores now have men's, women's and children's clothing line with a range for plus-size women and maternity wear. The brand has also diversified itself into shoes, cosmetics, accessories and home products.

In about 35 years of existence the company has expanded its base to 78 countries with about 1,540 stores. The company now plans to start its stores in South Africa, Peru and Taiwan by the end of 2011. The secret behind this "Spanish success story" has been its 'fast-fashion' approach and a tightly controlled factory and distribution network. Described by Daniel Piette as "possibly the most innovative and devastating retailer in the world", Zara reported a 33% increase in profits at the end of its financial year on 31st January, 2011, with Asia being its fastest growing revenue center.

While the global apparel industry including chief competitors like H&M, The Gap and Benetton, rely on a unique combination of high-value research and design, production outsourcing and brand building through huge investments in advertising (sometimes as high as 3-4% of their revenues), Zara has taken up an unconventional strategy that has surprisingly worked in its favor. The company overtook H&M, Gap and all others to become the largest apparel brand in the world.

Zara's unusual business strategy includes:
- Just-in-time manufacturing and fine-tuned logistics to respond rapidly to mid-season fashion shifts, minimize the cost of inventory and failure rates
- Cranking out a phenomenal 12,000 designs each year, in comparison to its competitors who offer about 2000-4000 items every year
- Limited production runs to deliver something new each time a customer visit's the store and encourage them to buy right away at full price
- Zero expenditure on direct advertising. Instead, the company uses strategic store locations, trendy store layouts and short product life cycles as its marketing tools ,Minimal outsourcing. 80% of Zara's products are manufactured in Europe. Though this increases the cost of production, it also provides Zara the competitive edge of timely delivery and service.

The company has been successful in staying ahead with its counter intuitive approach so far, but the question is, can its Spain-centric production model backfire? Will it be able to hedge its risks if there is a disruption in the Spanish region? What if the strengthening Euro starts eating up its profit margins or a faltering world economy forces consumers to opt for less stylish, low-cost apparel? How long will it be before Zara's competitors replicate its business model? And, most importantly, can the company shun outsourcing indefinitely, especially now when the real growth opportunity lies in Asia?

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