Inditex International Expansion

How Inditex became global: from local to global

Established in 1975 in A CoruÐ"±a (North вЂ" Eastern Spain) by Amancio Ortega, Inditex has grown rapidly to become one of the largest fashion retailers in the whole world competing with the American Gap and the Swedish Hennes & Maurizt (H&M). “In addition to Zara, the largest of its retail chains, Inditex has another seven commercial formats: Bershka, Stradivarius, Massimo Dutti, Oysho, Pull and Bear, Skhuaban and Zara Home (all of the targeting different age and disposable income segments). The group also includes more than a hundred companies associated with different textile, manufacturer, infrastructure and distribution businesses” (Inditex 2006 p.2). Inditex is listed since 23 May 2001 in the Spanish Stock Exchange with a market value around the 25,000 million Euros (Inditex 2006).

Until 1990 InditexÐ'Ò's operations were confined in its domestic market Spain, there it established a competitive advantage: just in time fashion taken directly from the street, nightclubs or fashion weeks which 15 days after is ready to satisfy costumer’s desires (Blanco and Salgado 2004). In addition, “Zara has flourished on the principle of being responsible for its products all the way from initial conception to the customer” (Emerald Group Publishing Limited 2005). By 1990, however, Zara realised that the Spanish market was far too saturated; they had to change their growth strategy. For that reason, they started its global expansion by entering Spanish natural export exit: Portugal. Shortly after, Inditex started its outer expansion in France, the US and the rest of the world. But let’s focus on which entry strategies Inditex had to pursue to become global.

Inditex choose a localization strategy which meant: 1) increasing profitability by customizing their outlets providing a good match to tastes and preferences in different national markets (Hill 2007) and by 2) choosing the perfect location for their stores which will only be located in the fashion districts of cities over 100.000 inhabitants plus the store minimum area must be 1500 square metres (Blanco and Salgado 2004).

Entry Strategies:”Think global, act local”. Advantages and disadvantages

Inditex has followed very different entry strategies according to: 1) Trade characteristics of each country. China and Japan are the best cases to illustrate this issue. Both pursue severe protectionist policies which forced Inditex to make an agreement with local firms, after a long “Guanxi”, to entry the market. The rational was to have the help of a local partner and win the governments favour. 2) On the other hand, the introduction of textiles and clothing into the GATTs (Dicken 2004) undoubtedly benefited InditexÐ'Ò's expansion in the non European market, and lastly 3) their own objectives in which, InditexÐ'Ò's prevailing strategy is the wholly owned subsidiary formula. Establishing a wholly owned subsidiary can be done in two ways. The firm can acquire an established firm or as Inditex did, set up a new operation in that country: Greenfield Venture (Hill 2007). One of the barriers Inditex had to face pursuing this strategy was to bear with the full capital costs. Besides, doing business with a new culture could also be a major problem. One of the examples of this strategy was the entry in Argentina. The reason being was Argentineans’ European taste for clothing would guarantee the success (Blanco and Salgado 2004). The Greenfield Venture was a success which permitted the entrance to the Latin American market.

“In a complex, uncertain world filled with dangerous opponents, it is best not to go it alone” (Ohmae, K 1990 p.141). Following OhmaeÐ'Ò's principles Inditex pursues Joint Venture strategies as another way to enter difficult markets such as the Italian, widely known for their exquisite fashion taste and part of the European expansion strategy. The first attempt was a joint venture with Benetton Group; it was the first time that Inditex was willing to share its foreign expansion armÐ'Ò's length with another company. Soon after the joint venture failed, Benetton wanted to take over Zara and have the control on the companyÐ'Ò's decision. Both competitors couldnÐ'Ò't grow together in such a competitive market, hence it would have affected to BenettonÐ'Ò's market share. Besides, no suitable premises (more than 1500 square meters) were found (Blanco and Salgado 2004). Amancio Ortega decided to pull back and wait for the precise moment. That happened in 2001, when Zara opened its first store in the main fashion district of Milan as a result of a venture with the local firm Gruppo Percassi. However, Inditex decided to hold 51% ownership stake with the objective of buying the whole stake in a future as they have done with the Japanese partner Bigi (Blanco and Salgado 2004). Other remarkable venture Inditex has developed has been with the German retailer Otto Versand to expand in northern Europe and specially Germany and overseas, Reitman’s has been the partner company to enter the Canadian market. The reason being for these ventures is that Inditex needed to succeed local partnerÐ'Ò's knowledge of the host countryÐ'Ò's competitive conditions as well as culture, knowhow and relations with the government (Hill 2007). However, there are always major disadvantages such as the Benetton venture that led to conflicts and battles for the control between both firms. Moreover, Inditex risks giving control of its technology to its partner.

Franchising has been the ultimate strategy to enter into markets which did not present any other possibility due to the lack of support of local firms, government’s protectionist policies, or simply high risky cost investments Inditex did not want to assume. In Inditex case like McDonaldÐ'Ò's the franchisees operate the store although they will provide them with strict rules regarding the customer services and knowhow (Hill 2007). Nevertheless, this entry mode has caused some problems regarding image perception in some franchisees like Israel, where they had to face some cultural-religious approach issues with ultraorthodox Jewish when trying to introduce, by mistake, mixed cotton line clothing. Franchising may inhibit InditexÐ'Ò's ability to take the profit out of one country to support competitive attacks in another (Hill 2007).

How Inditex remains global: strategic key factors

Inditex