Fashion brands internalization refers to the steps taken by a fashion brand to expand its operations in a foreign country. Internationalization is one of the essential growth strategies that the fashion brands can adopt (Harris 2018). By joining the global market, the fashion entrepreneurs can benefit from the many advantages of having a broad demand for their goods. However, there are also various challenges that the fashion entrepreneurs might face in the international market if they do not have right strategies. This chapter will critically review the relevant literature and the main frameworks that the study will use.
Reasons for Expansion
The benefits from global markets are numerous, but fashion entrepreneurs must have right strategies that will make them successful in the competitive global fashion industry (Harris 2018). The number of new entrants in the fashion industry is high but so is the number of brands that are closing down. Therefore, it is crucial for entrepreneurs to determine whether the global market is right for their products (Chris 2018). In addition to that, fashion entrepreneurs should understand the needs of the consumers in a market if they are to meet or exceed the consumer expectations. One of the reasons why many fashion brands join the global markets is because the domestic market is saturated with their products (Chris 2018). The consumers are interested in buying global products since they have a different outlook compared to the domestic ones. To increase their sales, the entrepreneurs expand their business operations to the global markets (Harris 2018).
In addition to that, the fashion brands can also benefit from expanding to countries with untapped markets (Rossum 2017). For instance, the Muslim countries have an untapped market for western fashion products. The western fashion brands have the opportunity to sell their products in the developing market. The expansion of business also helps entrepreneurs in building a reputation for their brands (Burton 2017). The global outlook benefits the fashion brands in the future when expanding to new markets. Expansions also change the perspective of the domestic markets, as they begin to appreciate the reputable brands (Rossum 2017). The appreciation of the brand leads to an increase in the local sales. According to Iris communications (2018), the Pakistani appreciates the western fashion trends, a factor that has led to the development of the western fashion industry in Pakistan. Various western fashion brands have joined the Pakistan fashion industry such as Levi’s (Branded Girls 2018).
Expansion to Pakistan and other Muslim Countries
The western fashion industry is developing in various Muslim countries such as Pakistan (Iris communications 2018). The growth is mainly steered by the youth (Iris communications 2018). The fashion brands strive to establish large customer bases in the untapped markets. For instance, Mango has built operations in Iran. According to Paiver and Sadeghzadeh (2015), Iranians have a taste for luxurious products. The imported clothes are quite expensive when compared to the domestic products, but that does not stop the Iranians from purchasing (E-Haider 2017).
To succeed in the fashion industries of emerging countries, it is crucial to understand the culture of the people in the market and the type of products that might interest them. The fashion brands succeed in the Muslim countries because they understand the social and economic welfare of the consumers. The brands offer the right type of fashion products to the clients by observing the religious and cultural requirements that exist in the communities (Claessens 2016). For instance, Zara's success in Muslim countries such as Afghanistan, Iran, and India is attributed to the fact that the company understands the communities (Zara 2018).
Porter’s Diamond Model
The model analyses the fashion industry in Pakistan. The elements of this model aid entrepreneurs in making policies and strategizing about the future of their brands.
Factor Conditions
Factor Condition describes the production factors available in a country that are necessary for the development of a particular industry (Claessens 2016). The element analyses the availability of the relevant factors that make a country or industry more competitive. The production factors are grouped into Basic and Advanced (Mulder 2016). Basic Factors are the natural resources and labour like land and minerals the Advanced Factors are more sophisticated (Claessens 2016). The advanced factors include elements such as the Basic Factors like skilled workers and infrastructure (Mulder 2016). The competitiveness of a country in the global market is determined by the availability of both the basic and the advanced factors. The factors can be grouped into human resources, physical resources, capital, knowledge, and infrastructure (Economic Discussion 2018). The resources will determine the competitiveness of the fashion industry in the global market. The factor will help in determining whether international brands like Zara will benefit from joining the industry.
Demand Conditions
Demand conditions analyse the interest for industry products in the home market. High domestic demand positively influences that of the international consumers (Claessens 2016). High domestic demand results in high levels of innovation as the local companies put more efforts to improve the quality of the products (Mulder 2016). Understanding the domestic market conditions helps the global and domestic producers in comprehending the global trends of the fashion industry. Global fashion brands will be able to use this information when strategizing on how to expand their businesses into Pakistan.
Related and Supporting Industries
The success of a domestic supporting industry is advantageous to firms in the industry (Mulder 2016). For instance, when the suppliers are competitive, the companies in the fashion industry will benefit from innovative products that come at low costs (Claessens 2016). The growth and development of the suppliers will lead to the expansion of the related industries. If the supporting industries are international competitors, their effect on the domestic market is strengthened. In the fashion sector, some of the supporting industries are the transport industry and the textile industries. By analysing this element, the author will be able to understand how the supporting and related sectors affect the fashion industry in Pakistan. The information will be useful to global fashion brands that intend to expand their businesses into Pakistan.
Organizational Strategy, Structure, and Rivalry
The structures, strategy, and rivalry depend on the local conditions that exist in a country. Various countries, regions, or even industries have different strategies, structures, and rivalry. The structure and strategy describe the formation, organization, and ownership of firms in a particular sector. Rivalry represents the level of competition in a country. Large market shares associated with low levels of rivalry attracts many investors (Claessens 2016). However, in the long run, high levels of competition are advantageous as they encourage creativity and innovation in production (Mulder 2016). Innovative products increase the chances of success in the global market. Organizational Strategy, Structure, and Rivalry will help global fashion brands to identify the strategies, structures, and rivalry that exist in Pakistan (Claessens 2016).
Government
According to Value-Based Management (2016), the state determines the competitiveness of a firm in the global markets. The government sets the policies and procedures that guide the operations in a country (Value-based management 2016). For instance, the government can encourage or restrict importing and exporting. Some industries will suffer when the government regulates imports, as they will not able to get raw materials. The state also influences the demand for the local products by the domestic consumers. Understanding the government will help potential investors to make appropriate plans for the expansion into Pakistan.
OLI Framework
The OLI framework helps companies that would like to expand their operations into the global markets. According to Dunning (2001), the OLI framework is used evaluate the factors that affect international production (p. 175). The framework explains how multinational entrepreneurs use the resources available to them to grow their operations in foreign nations (Dunning 2001, p. 176). Business expansion tends to be very costly because the foreign companies incur higher costs than the local companies (Dunning 2001, p. 176). Some of the expenses that a multinational entrepreneur can incur include the costs of expatriate personnel, research, and development costs. The multinational entrepreneurs have various benefits that offset the higher costs they incur in production (Dunning 2001, p. 176). The OLI framework describes the benefits gained by a company from investing in a foreign country.
Ownership Advantage
Ownership Advantage is the specific investment made by a multinational corporation that gives the company an advantage in the foreign market (Business-to-you 2017). Such an investment is usually something unique that the company such as patent and copyrights (Dunning 2001, p. 176). The advantage enables the companies to generate higher profits that will be able to offset the additional costs of operating in a foreign land. Zara has various assets that it can use to protect its earnings including patents, copyrights, brand name, and many more (Bailey 2015). These assets will ensure that the company’s products are not counterfeited. The brand is known to produce the most stylish fashion products (Shah 2014). The reputational status will ensure that Zara gets part of the market share in the new markets.
Location Advantage
Firms need to establish the best locations for the sale of their products (Business-to-you 2017). The location must be of specific advantage to the company if it wants to succeed in the industry. Zara has chosen Lahore as the best location to expand its business. The right location is determined by the ability of the target market to access the location (Zafar 2018). The other factor that the fashion brand should consider is the availability of labour (Times 2017). Zara needs to choose a location that offers both skilled and semi-skilled labour. The consumers in that location should be able to pay the prices provided by Zara (Zafar 2018).
Internalization Advantage
Companies that intend to expand their business operations to other countries should determine whether it is advantageous to produce a particular product or to outsource the services. Zara usually outsources part of its production process (Lu 2014). Outsourcing has helped the company in ensuring that its products that appear on the runway reach the customers within 2.5 months (Shah 2014). The company intends to continue outsourcing part of its production process (Lu 2014). By doing so, the consumers will be able to get the stylish products faster, which will lead to customer satisfaction and eventually an increase in its clients (Shah 2014).
Limitation of OLI framework
The OLI framework has been criticized for being vast and loose. One of the limitations of the OLI framework is the omission of the managements’ contribution in the expansion process (Batalla 201, p.616). The management controls and operates the organizations (Burton 2017). Without the management, Zara will not be able to succeed in the new market.
In addition to that, the OLI does not discuss the other players in an industry that affect the performance of a multinational corporation (Business-to-you 2017). The framework does not mention the impact of such organizations on the success of the company planning to enter a new market (Batalla 201, p.616). The organizations include competitors, suppliers, regulatory agencies, and other organizations. These organizations will affect Zara’s business operations in the new country.
Hofstede's Cultural Dimensions
The theory describes the cultural similarities and differences between individuals from different countries (Gill 2017). Hofstede's Cultural Dimensions shows the relationship between different people through their behaviours and the values they uphold. The theory helps organizations that would like to expand their businesses into foreign countries to understand the cultures that exist in those countries (Cleverism 2015). Understanding the culture enables businesses to grow the relationship between themselves and the suppliers, consumers, authorities, and potential investors (Peleckis, 2013). Below is an analysis of the cultural dimensions;
Firstly, the Power-Distance Dimension determines whether people in the society admit that power is distributed unequally (Leibensperger 2015). High power distance countries have differentiated classes in the society (Peleckis, 2013). Understanding the power distance in a particular nation determines the organizational structure of the fashion brands in different countries (Foster, 2015). For instance, companies in high power distance companies will have a hierarchical structure. The businesses will also be able to identify their target markets and the classes they belong to in the society (Peleckis, 2013). The classes will determine the target markets ability to purchase the brand’s products.
Secondly, the Individualism Dimension determines how interdependent the people in the country are (Leibensperger 2015). Individualism in business context shows whether employees in a particular nation prefer working alone or as a group (Foster, 2015). The dimension will guide Zara on how to allocate duties amongst employees in the new market. Individualists prefer working alone while collectivists prefer working in a group (Peleckis, 2013). Therefore, understanding the employees will enable Zara to enhance efficiency its operations.
Thirdly, the Masculinity Dimension determines whether the people in a country are competitive and success-oriented (Leibensperger 2015). The people in high musicality nations are risk takers while the ones in low masculinity nations value the quality of life (Gill 2017). The masculinity levels of a nation determine the relationship between Zara and the consumers, employees, investors, and suppliers (Peleckis, 2013).
Fourthly, the Uncertainty Avoidance dimension describes how the people handle uncertainties about the future (Gill 2017). People from countries with high uncertainty avoidance tendencies are not risk takers (Peleckis, 2013). The people tend to resist change, and it may be hard for the fashion brands to enter the market. However, in low uncertainty nations, the people are risk takers, and they like unstructured situations (Foster, 2015). The fashion brands entry-mode strategies depend on the uncertainty levels of a market (Leibensperger 2015).
Lastly, the long-term orientation dimension determines whether people like to keep the links of their pasts when handling the current and future challenges (Cleverism 2015). The people in short-term oriented nations value their traditions (Leibensperger 2015). Social norms guide the operations of the people in short-term oriented communities (Foster, 2015). Therefore, fashion brands that intend to expand their business operations to other countries should consider the orientation of the nations. The types of fashion products that people will purchase will be guided by social norms and culture (Gill 2017). Therefore, the fashion brands should come up with products that align with the cultural requirements of the people.
Limitations
The Hofstede dimension theory has various limitations. Firstly, the theory assumes that all the population groups in a particular country share the same culture (Schmitz and Weber 2014, 15). In most cases, the populations in a country have different cultural backgrounds (Shaibu-Musa 2013). Therefore, the Hofstede dimensions can mislead the fashion brands that need to expand their operations in the global market. The dimensions do not determine the cultural practices of every group in the country (Shaibu-Musa 2013). Multinational entrepreneurs should not rely solely rely on the Hofstede dimension because they will not be able to understand all the people in the country and their needs (Schmitz and Weber 2014, 15).
Secondly, culture keeps on changing. Globalization has resulted in rapid cultural changes over the years (Schmitz and Weber 2014, 15). People from all different countries and continents are interconnected thus sharing some of their cultural values (Shaibu-Musa 2013). The global connections have eroded some of the cultural values while making others stronger. Therefore, multinational entrepreneurs should take into consideration the changing cultures in the world (Shaibu-Musa 2013). Depending solely on the Hofstede dimensions can be misleading because the cultures that exist in a particular country keep on changing (Schmitz and Weber 2014, 15).
Why Foreign Brands Fail In Muslim Countries
All the companies that intend to expand their businesses to the Muslim countries need to understand the Muslim culture that exists in the nations (Lewis 2016). The cultural practices that exist in the markets are associated with religion (Elasrag 2016, p.10). A business that takes into consideration the religious practices in the Muslim countries has a higher chance of succeeding than the one that does not consider religion (Ndeloa 2014). Islam determines how business is done in the countries. For instance, it determines the types of products that can be sold, the meeting hours, and negotiation techniques (Ndeloa 2014).
The other challenge that foreign brands operating in Muslim nations face is the language barrier. Communication styles differ from country to country (Lewis 2016). Some of the Muslim communities rely more on body language as communication style while others use non-verbal cues to communicate (Ndeloa 2014). Brands that do not research on the languages and communications styles used in different countries tend to fail (Lewis 2016). Communication is one of the important aspects that determine the success of a business (Elasrag 2016, p.10).
Similarly, the Power Distance affects how the foreign brands operate. The success of the businesses is also dependent on the understanding of a nations’ Power Distance (Lewis 2016). The high Power Distance countries are divided into classes (Peleckis 2013). On the other hand, low Power Distance nations have a broader middle-class population (Peleckis 2013). Understanding the Power Distance of a nation will help a business in identifying its target market (Foster 2015). Brands that fail to recognize the structure of the society find it hard to identify their target markets. Businesses cannot succeed without identifying their target markets and the needs of the markets (Foster 2015).
Impact of Literature Review to the Survey
The literature review will guide the survey that will be sent to Muslim women in various ways. Firstly, it will direct the study to incorporate questions that relate to the Pakistani culture. The questions should cover all the cultural activities that the Pakistan women might be practicing. For instance, it should ask if they would prefer to purchase modest clothing or not. The survey should also ask questions that will determine whether the Pakistani think Zara designs modest clothing. Secondly, the literature review will guide the survey to incorporate questions regarding the demand conditions in the market. The study should ask about the number of times the Pakistani women shop for clothes and the amount that they spend. The research should also show how much the people are willing to pay for the stylish and high-quality product. Lastly, it will guide the survey to add questions about Zara’s reputation.
Summary
Companies expand their operations into the global markets to get part of the international market share. The success of the brands depends on their understanding of the markets they are venturing into. Thorough due diligence on the target market's culture, competition, laws and regulations, and opportunities among others is very vital to make sure that the business succeeds in the new foreign market. Various models enable the businesses to understand the markets. Such frameworks are the OLI, Porter’s diamond model, and the Hofstede dimensions. They provide measurable statistical data that is used to assess the viability of the company’s products in the new country. They also provide the guidelines that will lead to the success of a business brand in the international market. The chapter has discussed how these frameworks can be applied to Zara's brand entry into Pakistan with the accompanying limitations.
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