http://www.carlospitta.com/courses/negocios%20internacionales%20y%20ebusiness/readings%20and%20papers/parte%209/zara%20(harvard%20case).

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http://www.ifm.eng.cam.ac.uk/sustainability/projects/mass/uk_textiles.pdf

Inditex (Industria de Diseo Textil) of Spain, the owner of Zara and five other apparel retailing chains, continued a trajectory of rapid, profitable growth by posting net income of 340 million on evenues of 3,250 million in its fiscal year 2001 (ending January 31, 2002). Inditex had had a heavily oversubscribed Initial Public Offering in May 2001. Over the next 12 months, its stock price ncreased by nearly 50%despite bearish stock market conditionsto push its market valuation to 13.4 billion. The high stock price made Inditexs founder, Amancio Ortega, who had begun to work in the apparel trade as an errand boy half a century earlier, Spains richest man. However, it also implied a significant growth challenge. Based on one set of calculations, for example, 76% of the equity value implicit in Inditexs stock price was based on expectations of future growthhigher than an estimated 69% for Wal-Mart or, for that matter, other high-performing retailers.

The next section of this case briefly describes the structure of the global apparel chain, from producers to final customers. The section that follows profiles three of Inditexs leading international competitors in apparel retailing: The Gap (U.S.), Hennes & Mauritz (Sweden), and Benetton (Italy). The rest of the case focuses on Inditex, particularly the business system and international expansion of the Zara chain that dominated its results.

Zara first used franchising to enter Cyprus in 1996 and, at the end of 2001, had 31 franchised stores in 12 countries. Zara tended to use franchises in countries that were small, risky, or subject to significant cultural differences or administrative barriers that encouraged this mode of market participation: examples included Andorra, Iceland, Poland, and the Middle Eastern countries that the chain had entered (where restrictions on foreign ownership ruled out direct entry).

Franchise contracts typically ran for five years, and franchisees were generally wellestablished, financially strong players in complementary businesses. Franchisees were usually given exclusive, countrywide franchises that might also encompass other Inditex chains, but Zara always retained the right toopen company-owned stores as well. In return for selling its products to franchisees and charging them a franchise fee that typically varied between 5% and 10% of their sales, Zara offered franchisees full access to corporate services, such as human resources, training,

and logistics, at no extra cost. It also allowed them to return up to 10% of purchased merchandise a higher level than many other franchisers permitted.

Zara used joint ventures in larger, more important markets where there were barriers to direct entry, most often ones related to the difficulty of obtaining prime retail space in city centers. At the end of 2001, 20 Zara stores in Germany and Japan were managed through joint ventures, one in each country. Interests in both ventures were split 50:50 between Zara and its partners: Otto Versand, the largest German catalog retailer and a major mall owner, and Bigi, a Japanese textile distributor.

The agreements with these partners gave Zara management control, so that it grouped stores in both countries with its owned stores as company-managed. Nevertheless, the split ownership did create some potential complexities: thus, the agreement with Otto Versand contained put and call options under which Zara might be required to buy out its partners interest or elect to do so.

Tariffs to prevent dumping Tariffs are a strategic means to control the imports of goods into a country. They have been used in the past (1820s) by industrialised countries like the UK to promote growth of domestic manufacturers. In 1932 the UK reintroduced tariffs because of competition from Germany and the USA. More recently, Vietnam and China have used tariffs as a development strategy. China had average tariff rates of about 40% until they were dropped and Vietnam continues to apply this rateK22. Since 1996 USA, European, Japanese and many other countries clothing and textiles import prices have fallen as trade barriers have been removed and producers with excess capacity have competed for market share. Anti-dumping rules are set to prevent countries from exporting products at less than the price at which they are sold domestically. Manufacturers in the USA and Europe are keen on such anti-dumping safeguards as protection for their own markets from what they claim is unreasonable competition.