Inditex Internationalization Strategies 2024-2025 PDF

Internationalization of Businesses: Management and Strategies (EUS) 2024-2025 The internationalization process of Inditex (entry modes)1 Inditex's internationalization process has been one of the fundamental pillars that has led the Spanish company to become one of the main global giants in th...

Internationalization of Businesses: Management and Strategies (EUS) 2024-2025 The internationalization process of Inditex (entry modes)1 Inditex's internationalization process has been one of the fundamental pillars that has led the Spanish company to become one of the main global giants in the textile sector. Founded in 1985, Inditex, whose flagship brand is Zara, began its international expansion in 1988 with the opening of its first store outside Spain, in Oporto, Portugal. Since then, it has followed a carefully designed strategy of choosing markets. The company started in close markets to and relatively similar to Spain, such as Portugal and France. Then it expanded to other European countries such as Italy and the United Kingdom in the 1990s. Once consolidated in Europe, Inditex focused on faster-growing markets, such as the United States and Asia (mainly China), where demand for fast fashion began to increase exponentially. As for emerging countries, its strategy has been a combination of physical stores in key locations and a strong commitment to e-commerce, especially in those countries where physical infrastructures might not be as developed or where consumers prefer to buy online. In the early stages of its internationalization, Inditex focused primarily on export modes. In some markets, especially in its early stages of expansion, Inditex used local agents and distributors to handle the sale of products. This allowed the company to quickly enter new territories without assuming the cost and risk of establishing its own physical stores. As the company expanded its global presence, Inditex implemented contractual modes to facilitate its access to certain markets, especially those with higher barriers to entry or where a significant direct investment was not justified at the start. For example, through franchising, it has been possible to enter markets with regulatory or commercial difficulties (i.e. higher risk due to their cultural distance, smaller market size, or administrative barriers), such as countries in the Middle East or territories with specific economic characteristics. Franchising allowed Inditex to open stores with local partners, who take care of operational management while the company maintained control over the brand, designs, and collections. The franchise contracts average around five years, with franchisees being well-established, financially strong players in local businesses (Ghemawat, 2006). In some cases, Inditex starts with one mode of market participation and then shifts to another. For example, it entered the Turkish market with a franchising strategy in 1998, but by the following year had changed to a subsidiary strategy. In all of these strategies, Inditex begins with a small number of stores which allows the team to explore the possibilities of the new foreign market and then expand further. In this way, it has minimized risk by relying on local knowledge and operators who already understand the market. Inditex has also resorted to outsourcing manufacturing in some markets. This allowed Inditex to produce in 1 Adapted from Stooksbury, Anna (2021). Inditex: A Case Study in Transferring Fast Fashion to International Markets 1 Internationalization of Businesses: Management and Strategies (EUS) 2024-2025 countries with cost advantages without establishing its own factories, but guaranteeing the quality and standards of its products. The company currently collaborates with hundreds of suppliers and manufactures part of its clothing near its main distribution centers to ensure speed in the supply chain, a clear competitive advantage over other competing companies. As the company consolidated its presence in international markets, Inditex increased its use of direct investment modes, based on greater financial investment and risk, but offering more direct control over operations and, in the long term, greater benefits. The two main modes that Inditex has used are joint ventures and wholly-owned subsidiaries. Not all of Inditex’s foreign ventures were successful at the beginning; in markets where regulatory complexity or business culture demands collaboration with a local partner, Inditex has chosen to establish joint ventures. A prominent example was its entry into India and some Southeast Asian countries, where the company needed to partner with local companies to comply with local regulations and reduce the risk of operating in unknown markets. These alliances have enabled Inditex to combine local market knowledge with operational efficiency and Inditex's global business model. When the first Zara store opened in India in 2010, there were strict policies that were put in place by the government to restrict the number of foreign companies entering the market; Zara was asked to enter the Indian market in a joint venture with a local company. There was also a lack of seasonal variation and a challenge to keep up with the cultural needs. In order to combat this, managers at Zara worked alongside the local company to reach out to consumers in India to incorporate designs that align with local traditions. Moreover, in South Korea in 2008 Inditex created a joint venture with the Lotte Group, one of South Korea’s largest conglomerates with annual sales of over $10 billion. In this joint venture, Inditex gained access to local knowledge and influence that was important to their expansion in South Korea. The Lotte Group was granted 20% ownership in Inditex Korea along with an international partner with a proven track record and high-demand products. On the other hand, in strategic markets, such as Western Europe, China, the United States, and Japan, Inditex has opted to create wholly-owned subsidiaries. This mode of entry has given it maximum control over all operations, from logistics to store management and strategic decision-making. By opening its own stores in these markets, Inditex can ensure that its business model and brand image are maintained in coherence. Furthermore, this approach allows for faster adaptation to local market demands and better coordination of its "just in time" production and distribution system. Inditex's ability to adjust its internationalization strategies to local circumstances has been one of the most important points for its global success in the textile sector. Inditex aims for all customers to have the same experience in the physical stores. Zara storefronts around the world all have large mirrors, white walls, and spacious floor plans. The centralization of store layouts and interior store window displays is to promote its same market image worldwide. While designers plan for similar designs to be reproduced in all storefronts, there are often subtle differences to reflect the culture of each city. Another component that can differ according to the specific market is the price of goods offered by Inditex brands. As previously discussed, pricing can vary country by country, because there are differences in costs due to customs, transportation, and other taxes and regulations. With its continued physical expansion out of Europe, Inditex is moving farther away from its hub of suppliers along with its design, logistics, and distribution centers. 2