Investigating the opportunities and risks that Zara would encounter when expanding into the Pakistani market in the near future and providing recommendations
Literature Review
This chapter will encompass various research which has been conducted by multiple types of research on the field of this study. The chapter will focus on the critical issues surrounding the Fashion market, based on Zara Corporation and other fashion-based companies which have had an opportunity to enter into the Pakistan Market, other Muslim based Markets and around the globe. Therefore, the chapter will typically give an insight of some of the opportunities and risks which the Zara Corporation will likely face or encounter when expanding its market into Pakistan market.
2.1. Market Expansion
Expansion of a market is vital and essential for any business since it is part of the marketing strategy for the company. According to Luo and Tung, 2007 p. 12, market expansion is described as the process in which a firm offers services or products to a vast or broader section of a new market or an existing demographic or geographic market. The urge or goal for every retailer or business is to increase or grow their sales year over a year, and for them to achieve such, Luo (2000), states that, one of the best strategies is embracing market expansion. This is because the firm will be able to capture a new and more significant market share, as well as enabling the company to learn and determine the best measures or ways of offering its products to a more significant number of population.
When expanding your market, there are some aspects which the form should always consider, for effective transition and expansion. According to Daniels, Radebaugh, Sullivan, and Salwan (1983), two fundamental factors should be considered while considering market expansion, which includes the elements surrounding the market entry and the company's marketing mix.
Reasons for Market Expansion
There are many factors which motivates an organization to expand it’s business to the international market. Globalization has been a critical motivation towards internationalization because it has made the world to be considered a village market. Currently, it is easy to transact business across the globe due to the effects of globalization and technology improvement which has made communication and marketing easy task for businesses (Wigley, Moore, and Birtwistle, 2005). Whitelock, (2002), records that firms are motivated to expand their business due to economic factors were, they desire to increase their profits and at the same time find ways to save on their expenses, because when they expand, the cost of production, due to mass production will be reduced.
The author also outlines that, through market expansion, a firm can expand its size and at the same time reduce the potential risks of operating in one location. There is a high risk of working in one location because there are some external factors which affect business. Therefore, if the firm is centered in one location, which is only affected by such external forces, it will be easy to call off all its business, leading to high level of losses, thus encouraging market expansion to reduce potential risks of losses.
The company through expansion, it has a high chance of gaining competitive advantage. This is because, it will have access to a broader range of market share, which in turn will increase its level of revenue and profits at large. This means that the business will stay ahead of their competitors. Through the market expansion, the firm will make its products and services accessible to its customers regardless of where they are, and this will help the company sell all seasons long. For example, a fashion brand company, known as Mia’s Winter Clothing Company, which will base its market in the United States, has expanded its markets to South Africa and other markets across the globe. This is to primarily, increase its profits, as well as enhancing customer loyalty because its products are made accessible to all its customers across the world (Salmon, and Tordjman 2002).
Target Market
Zara Fashion Corporation targets to expand its market to Pakistan. In the near future. According to Hussain, Figueiredo, and Ferreira, (2009), there has been a massive rise in the Pakistan fashion industry in the recent years, which has attracted and created a space for both local and global brands which needs to satisfy the high rate of demand for the fashions within all the classes. One of the most brands which have been on the market is the women apparel, which entails offering printed lawns and pret wears throughout the year. Also, in Pakistan, there have been another opportunity which is currently looming, which forms should embrace, which entails fashion-savvy ladies.
Kotler, (2009) urges that there is another brand which is new in the Pakistan market which comprises of long shirts, colorful hijabs and other such ready to wear apparels which are considered to be preferred by the Pakistan women.
To capture the opportunity looming in the new Pakistan Market, and perceiving the high demand, one of the company’s known as Rabia Z, which is a global pioneer firm in the field of modest fashion category, has considered entering into the new Pakistan market which is considered to be lucrative. Rabia Z, the target is to capture and dominate the entire Middle East, Europe and also the United States (Hussain, Figueiredo, and Ferreira, 2009).
Similar Fashion Brands
The emergence of global fashion has completely transformed and changed the perception of people towards fashion in the contemporary world (Aspers, & Skov, 2006). Currently, there are many fashion brands across the globe which have brought high competition, as well as improving the quality of fashions. This has, in turn, forced such companies to embrace competitive edge strategies which will make them emerge the leaders in the marketplace, please customers to increase their loyalty as well as enlarging their market share through internationalization or market expansion.
Therefore, to increase their revenues, create a competitive edge, reach more customers, many companies within the fashion brands industry have opted to expand overseas, thus contributing to the globalization process (Alexander and Silva, 2002).
According to Bang and Joshi (2008), the idea of expanding the business to the global market has been a standard option contributing to the growth of organizations, hence being a crucial aspect of any industry. The author also, states that, due to the high levels of competition, companies should adopt such strategies to increase their market share and revenue collection through increased sales from new markets.
There are five fashion companies which are well established and which have adopted the market expansion strategies for creating competitive edge as well as boosting their growth through increased revenues. Such companies include Asos, H&M clothing company, Uniqlo, Rabia Z and Inditex, among others. H&M clothing company has been considered to be one of the largest fashion companies across the globe. Based in Sweden, the company has expanded its market, and currently, it has more than 3,450 stores across the world. Having been established in Sweden, the company has been able to grow its market in various regions such as Brazil, U.S, Britain, and Spain and in the Asian market. Such market include Saudi Arabia, Dubai, Pakistan, Thailand, Taiwan and China (Copeland, Hodges, Karpova, and Watchravesringkan, 2010).
Through such experiences, the company offers one of the high quality products, in which it invests highly in its market research strategies, to collect crucial information regarding the customers taste and preferences, the rate of demand in the market, and the preferred price the customers are willing to buy in the market (Copeland, Hodges, Karpova, and Watchravesringkan, 2010). The company also emerges to be a leader, through which it builds its reputation by partnering with various valuable and well-known figures within the fashion world, in which it is capable of offering its customers with additional lines for purchase.
Inditex is another company which offers high competition to Zara fashion because it is also considered to be one of the world's largest fashion retailers, in which it aims at creating a fashion which is right to wear, based on the origin, taste, and preferences of the consumers. Uniqlo is another company which has expanded its market into the United States which currently has more than 42 stores across the US. Asos is another platform which has developed its market globally. It is an online platform which is primarily engaged in the retail of fashion among other beauty products for men and women. It effectively considers the market to operate through active research and considerations of the cost of operation, and this has contributed to its success in efficiently entering to the Thailand and Egypt market, which are considered to be Muslim dominated.
Lastly, Rabia Z is a significant competitor to the Zara Company. The company has grown into different markets, and recently, it considered expanding its market into the Pakistan market (Lu, Karpova, and Fiore, 2011). Although Muslims dominate the market, the company was able to capture the market.
2.2. Porter Diamond Model
One of the perfect models which can be used to analyze the theoretical aspect or the framework for the Pakistan fashion designs and demands is through Porter’s diamond model. This model which was created by Michael Porter is described through four paramount points which resemble a diamond. These factors are considered essential for companies because they facilitate efficient decision-making processes. They include the related supporting industries, demand conditions, factor conditions, as well as the firm’s strategy, structure, and rivalry.
2.2.1. Firm's Strategy, structure, and rivalry
According to Porter, this is one of the factors which evaluate the level of competition within the home market which will aid in facilitating and enhancing high levels of innovation and contribute to high-quality products and services. This means that, with an increased level of competition and rivalry, companies will adopt strategies which will keep them relevant and competent amidst the high levels of rivalry, and this is through the development of more innovative products which are of high quality.
Based on the Pakistan Market, this strategy will play a key role in evaluating and understanding the rivalry and the level of competition within the fashion market at Pakistan. With such information, the foreign brands such as Zara will be in a better position to understand what they expect in the market as well as outlining the appropriate strategies which will boost its success in the market regardless of the high levels of competition in the fashion market.
2.2.2. Factor conditions
According to Porter, the factor conditions are considered to the elements within the home country which plays a critical role in supporting the country's economy by themselves. This includes aspects such as the skilled labor, technological innovations, capital and well-established infrastructure. Through this factors, the home country is capable of producing products of high quality, have adequate transportation, and supply chain systems as well as being capable of innovating products through practical technological aspects. Based on the target market, which is Pakistan fashion market, the country has been well established and developed, with an efficient workforce.
Through its learning institutions, the company trains its workforce on the practical ways of production and majors in the textile industry. This makes them produce high-quality skilled workforce thus creating a high competition regarding the quality of products. The company has embraced technological aspects, which have contributed to the high growth and development of the country. This means that the company adopts innovation which gives its home companies an upper hand regarding competition.
With such information, foreign companies such as Zara, which have plans to expand to the Pakistan market will be able to understand where they are planning to set their new market base, ascertain its strengths and where to improve to be successful in the new market.
2.2.3. Demand conditions
Porters describe this type of condition as the situation which refers to the nature and the size of the customers for specific products, which are primarily driven by product quality and innovation. This factor describes the willingness of consumers based on particular products and services. Such demands are based on the social norms, the religion for the consumers, tastes and preferences, seasons, as well as the quality of the products. The distribution channels will also play a pivotal role in determining the demand levels.
Hussain, Figueiredo, and Ferreira, (2009) explain that demand factor plays a crucial role the success of the business, and therefore, before a company starts to sell its products or services, they should conduct thorough market research. The reaserch will aid in understanding the tastes and preferences of the customers, their social norms, religion, their preferred distribution channels, and what they are willing to pay for various products in the marketplace. Based on such information, it is essential to understand that, Pakistan is dominated by Muslims and therefore, the product preference is different from other countries such as in Spain and the United States.
Having thorough information the consumer demands will help industries and companies willing to invest in Pakistan on the best brands to have and sell to the customers, hence improving their planning process for the market expansion.
2.2.4. Related and Supporting Industries
Porter describes this aspect as the inputs within a country, which play a pivotal role in driving the success of the country. For example, in Italy, its own fabric suppliers for raw materials helps to drive the success of the Milan Fashion industry. When there are some related and supporting industries within a specific industry will help in reducing the costs of operation, through reduction of importing raw materials which could be costly. Considering the Pakistan market, the availability of cotton companies and other related industries a such as effective transport and logistics companies which provides fashion collection stores, and local marketing firms play a pivotal role in ensuring the fashion companies succeed. With such information, any company such as ZARA will be able to understand the areas to strengthen and the opportunities to seize for the success of the company in the Pakistan Market.
2.3. Hofstede Dimension
This is a theory which was created by Hofstede, in which it is used to cultural aspects for a specific country. Based on the target country, Pakistan, this section will review the cultural differences and aspects within the country which will contribute to the success of establishing a business in Pakistan.
Cultural Dimension of Pakistan (Hofstede, 1984)
This model by Hofstede is critical in analyzing the cultural aspects in Pakistan which will help companies such as Zara, to make appropriate decisions regarding market expansion. According to Kim, and Karpova, (2010), Pakistan is one of the countries which has a unique and different culture form many of the established markets across the globe like in Europe, and American markets. Therefore, for Zara to expand its business to PAKISTAN, there will be need to conduct a thorough research based on the culture of the country. This will help in understanding the taste, demands and preferences for the consumer, for the company to offer the best products which pleases and attracts the consumers.
According to Hofstedes six factors analyzing the Pakistan’s hofstede cultural dimension, Pakistan is considered to intermediate score of 55 on its power distance aspect. This aspects suggest that individuals are not equal and power is unequally distributed, but in Pakistan, it is hard to determine preference in power distance dimension since it seems to have equality. Individualism is another aspect which measures the degree of interdependence between members of the society. Pakistan is considered to be Collectivism country, meaning that individuals care for one another, and the society fosters strong relationship by taking responsibility for other members of the society.
Masculinity is another dimension, and based on Pakistan, it is evident that, both males and females power is equal thus there is no significant difference on the gender. Uncertainty avoidance is the situation on how the Pakistan people feel threatened by the unknown situations. Based on the score of 70, Pakistan people have high preference of avoiding uncertainty. Based on the score 50, for Pakistan on Long term orientation, it is difficult to ascertain their preference how they maintain some links of the past while dealing with the present or the future (Hofstede, 1984). Lastly, indulgence indicates that a country has strict norms and restrictions. Therefore, Pakistan is considered to be a very restrained society. Thus based on the analysis, Zara should understand the culture of the country before doing business with the country to enhance its success.
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