Aalborg University BSc Economics and Business Administration Administration
2012 October 24BSc Economics and Business Administration
Mini Project !e "A#A $ase Study in Economics and !e Organisation o% Economic Activity
!e re&ort !as been &re&ared by'
Inga Dragunaite
_______________________ ___________________________________ ____________
Justina Justin a Vaidziulyte
_________________________ _____________ ______________________ __________
Kristina Kirilova
_______________________ __________________________________ ____________ _
Aleksandar Aleksan dar Varbanov Nebojsa Abadzic Abadzic
________________________ ____________ _______________________ ___________ ______________________ __________________________________ ______________ __
Delivery date !"#$%#!%$! Number o& 'ords o& t(e re)ort *+!*
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$ontents Introduction,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,+ Describe t(e Value -(ain o& Indite.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,* /rom Agency 0(eory vie'1 describe t(e incentives structure &or t(e store managers,,,,,,,,,,,,,,,,,,$% /rom 0ransaction -osts Economics vie'1 discuss i& it ma2es sense to outsource 'or2 to 3ca)tive4 su))liers, 5(at 'ould be t(e alternatives1 and (o' do you evaluate t(em6,,,,,,,,,,,,,,,,$! In relation to t(e &as(ion sector in Euro)e1 does Indite. )osses a com)etitive advantage6 7se t(e V8I9 &rame'or2 as t(e basis o& your discussion,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,$" :ist o& sources,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,$;
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(ntroduction
Indite. is an eig(t#brand grou) o& t(e 'orldablo Isla Alvarez de 0ejera, Indite.
em)loyees, 0oday
com)any
(as
more
t(an
$%%,%%%
em)loyees
'orld'ide,
0(e largest brand o& Indite. is ?ara1 '(ic( runs t(ree inde)endent )roduct lines &or 'omen1 men and c(ildren '(ere most o& t(e accent is stressed on 'omen
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)escribe t!e *alue $!ain o% (ndite+ *alue $!ain (ndite+
>rimary Value -(ain Activities •
Inbound Logistics
Indite. Crou) is a vertically integrated grou)1 '(ic( controls most o& its su))ly c(ain, About *% o& its )roducts are manu&actured in S)ain1 !* comes &rom Euro)e1 and t(e remaining &raction is )roduced in locations in Asia and A&rica $, A&ter t(at1 t(e '(ole )roduction is received and 'are(oused in t(e logistics centers in S)ain be&ore being sent to t(e stores, It does not matter '(ere t(ey (ave been )roduced1 t(e main categorization is (a))ening in S)ain, aterials and &abrics are 2e)t in 'are(ouses 'it(out e.act colors or )rints1 due to be able to react =uic2ly to mar2et c(anges,
I& it turns out t(at t(e
demand is (ig(er &or t(e )articular )roduct1 t(e com)any is able to react =uic2ly and )roduce additional items 'it( a )articular design or color !, Sometimes1 trans)ortation o& merc(andise is by )laneF &or e.am)le clot(es1 '(ic( are )roduced in Asia1 (ave to be trans)orted in logistics centres in S)ain1 t(ere categorized and again trans)orted to t(e Asia, /urt(ermore1 many countries (ave small 'are(ouses '(ere t(ey 2ee) e.tra or returned goods G,
•
Operations
Indite. country o&&ices re)resent (ead=uarters at t(e country level1 su)ervising and coordinating t(e o)erations o& t(e various Indite. brands +, ?araHs (ead=uarter in S)ain
1 Notes on ?ara case 2 Notes on ?ara case 3 ?ara managing stores &or &ast &as(ion 4 ?ara managing stores &or &ast &as(ion 5
consists o& t(ree s)acious (alls &or eac( o& t(ese centers, 0(ere designers 'or2 toget(er 'it( mar2et s)ecialists and )lanners &or )rocurement and )roduction, Also1 (ere designers can =uic2ly c(ec2 initial dra&ts 'it( t(eir colleagues and discuss about ne' styles, 0(ere&ore1 )rototy)es can be e.amined on site, 0(at 2ind o& teams can 'or2 very e&&icientlyF discuss about ne' &as(ion trends and ta2e decisions 'it(in a &e' (ours, ar2et s)ecialists are intermediaries bet'een designers and store managers1 '(o can =uic2ly )rovide &eedbac2 to t(eir colleagues in design and )rocurement, * 5(at di&&ers ?ara &rom com)etitors is more ca)ital intensive industry, Eac( brand &rom Indite. Crou) (as (is o'n autonomy, 0(ey can =uic2ly react to mar2et re=uirements1 act in a &le.ible 'ay by ma2ing c(anges 'it(out as2ing )ermission o& t(ird )arties, /or e.am)le1 ?ara (as )o'er on o)erations1 suc( as dying1 labeling and )ac2aging1 all ot(er manu&acturing )rocesses are made by Indite. em)loyees, ?ara (as t(ree )roduct lines one &or c(ildren1 'omen and men, All )roduct lines go )arallel 'it( eac( ot(er1 but in an o)erational di&&erent 'ay, >rocurement1 sales1 design and mar2eting o)erations e.ist &or eac( o& t(ese linesF just t(ey are di&&erent and se)arated, •
Outbound Logistics
At t(e beginning o& eac( season1 t(e '(ole merc(andise is being distributed to t(e stores1 in t(e =uantities decided by t(e commercials, o'ever1 '(en t(e )roduction reac(es t(e stores1 managers are res)onsible &or t(e order re)lenis(ments, It is t(eir res)onsibility to decide (o' many units o& eac( item to order and to do t(at1 t(ey are ta2ing into consideration various data @&orecasts o& customer demand1 (o' many o& t(at )roduct t(e store (ad and already sold and etc, Euro)ean stores are receiving t(eir deliveries 'it(in !+ (oursF in Asia and America receiving deliveries ta2e +% (ours ", 7sually deliveries are done by truc2s or )lanes, Eac( 'ee21 stores are receiving about $!1%%% units, o'ever1 sometimes it (a))ens t(at t(ey
5 Notes on ?ara case 6 ?ara managing stores &or &ast &as(ion 6
did not receive t(e '(ole order1 because inventory at t(e logistics centers are limited, Also1 t(ere 'ere some im)rovements in time saving )rocess, In t(e beginning '(en t(e ne' merc(andise 'as delivered1 em)loyees (ad to )ut tags on t(e )roducts be&ore t(ey could reac( store s(elves1 no' tags are )ut by manu&actory 'or2ers, 0(is im)rovement )uts some value on &aster delivery o& t(e )roduction to t(e customer,
•
Marketing& Sales
?ara is using very uni=ue mar2eting strategy, Due to t(e &act1 t(at t(ey are not outsourcing t(eir manu&acturing1 com)any can =uic2ly res)ond to t(e customers demand in &as(ion trends, ?araeo)le are more or less &orced to buy t(e )roduct1 '(ic( t(ey li2e due to t(e &ear t(at ne.t 'ee2 it can be sold out, >roducts1 '(ic( are not sold out are a&ter'ards discounted, ?ara (as a))ro.imately eig(teen )ercent o& unsold merc(andise1 '(ic( is one o& t(e lo'est in t(e industry, -om)aring 'it( ot(er similar com)anies1 ?ara does not s)end muc( money on )romotion, o'ever1 it does not mean t(at t(e com)any is doing not(ing, ?ara t(in2s t(at t(e store 'indo's and t(e content is t(e most necessary advertising &or t(em, :ast1 but not least interesting t(ing about ?ara is t(at it o'ns t(e majority o& its stores1 but also does joint venturing and &ranc(ising in mar2ets '(ic( are (ig( ris2 and culturally distant,
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Service
7 ?ara managing stores &or &ast &as(ion 7
?ara
Su))ort Activities •
Procurement ?ara sources &abric1 ot(er in)uts and &inis(ed )roducts &rom e.ternal su))liers '(o are usually in lo' cost source mar2ets, A&ter certain designs are c(osen &or )roduction1 material is dra'n &rom stoc21 cut1 manu&actured and delivered to com)any stores around t(e 'orld, ?ara also o'ns !% ot(er &actories &or internal manu&acturing t(at a))ly just in time, Indite. is )urc(asing ra' materials t(roug( t(e com)any
•
Technology Development
-om)any )uts t(e value on in&ormation trans&er, 0(e '(ole ?araDA @>ersonal Digital Assistance in stores1 '(ic( ensures a =uic2
8 (tt)''',slides(are,netbinotris(azara#)rocurement#strategy 9 Notes on ?ara case 8
in&ormation &lo' 'it(in t(e com)any and creates value &or t(e customers, $% Also1 t(is system (el)s &or t(e com)any to &ind out about ne' mar2et trends as &ast as )ossible and )ossibility to react =uic2ly,
•
Human esource Management
All brands o& Indite. Crou) (ave 8 directors1 '(o are su))orting t(e stores on all 8 issues1 '(ic( are not lin2ed to t(e o)erations and are organized by t(e geogra)(ical area, 8 de)artment is 'ell develo)ed in t(is com)any, -om)any )uts a lot o& em)(asize on training o& t(eir em)loyees1 so usually sales associates be&ore starting to 'or2 (ave at least one 'ee2 training, ?ara
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!irm In"rastructure
?ara develo)ed business model '(ere s)eed and decentralized decision ma2ing 'as essential, 0(is business )ractice1 in turn1 led to s(orter lead times and introduction o& more &as(ion styles, 0(e im)lementation o& t(e in&ormation and communications
10 Notes on ?ara case 11 ?ara managing stores &or &ast &as(ion 9
tec(nology (el)ed augment t(e business )rocesses at ?ara, At t(e (eart o& in&rastructure is t(e I0 tec(nology, 0(e organizational structure su))orts I0 tec(nology, 0(e com)any
,rom Agency !eory vie-. describe t!e incentives structure %or t!e store managers
In today
12 ?ara managing stores &or &ast &as(ion 10
o& your em)loyees all t(e time to insure yoursel& t(at t(e job is done6 any managers today decide t(at besides t(e salary1 t(e 'or2ers s(ould receive also a )ercentage o& t(e sales or t(e '(ole salary could be de)ending on t(eir contribution in t(e com)any, Eac( individual (as di&&erent 'ay to measure (is o'n contribution and t(e contribution o& t(e )eo)le around (im, I& 'e loo2 at ?ara
by overall sales1 so all o& t(em s(ould (ave an incentive to )ut more e&&ort, Anot(er interesting &actor t(at 'e &ound is t(e ris2 t(at store managers &ace '(en t(ey are ordering re)lenis(ments, 0(ey need to use t(eir )revious e.)erience toget(er 'it( t(eir ability to &orecast ne' orders, 5e see t(e ris2 due to t(e &act t(at store managers aren
,rom ransaction $osts Economics vie-. discuss i% it ma/es sense to outsource -or/ to ca&tive su&&liers 3!at -ould be t!e alternatives. and !o- do you evaluate t!em
9utsourcing is becoming more demanding no'adays, 0(e biggest international com)anies )ay more attention to it in sense o& trying to reduce t(eir transaction costs, 0ransaction costs consist o& searc( costs1 bargaining costs and )olicingen&orcement costs, /irstly1 'e 'ill assume t(at a com)any o& t(e rang o& ?ara 'ill not (ave &inancial )roblems concerning ma2ing a researc( about outsourcing else'(ere, Also1 t(e com)any (as enoug( (uman resources '(ic( could be 'or2ing on t(at &ield,
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Secondly1 in our case t(e most im)ortant )art o& t(e transaction costs o& economics are t(e bargaining costs, About *% o& t(e )roduction is manu&actured in S)ain @or in its )ro.imity, Also countries in Asia1 Euro)e and even :atin America contribute to t(e su))ly c(ain o& t(is 'ell 2no'n brand, About G* o& t(e )roduction comes &rom Asia1 $+ &rom Euro)e and only ! &rom America, 8a' materials come mainly &rom 7K1 olland1 -(ina and some ot(er destinations, $G ere 'e s(ould underline t(at as &ar as t(e good comes &romF it is more (arder to control t(e su))ly )rocess, 0(e small manu&acturers in S)ain )rovide t(e com)any 'it( signi&icant number o& )roduction, Besides ?araortugal
$G ?ara anaging Stores &or /ast /as(ion L arvard Business Sc(ool
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because o& t(e su))liers< ability to accom)lis( &ast c(anges, o'ever1 t(at re&lects on t(e transaction costs because )roducing in Euro)e is ty)ically $*#!% more e.)ensive,
$+
0(e relations(i) bet'een ?ara com)any and t(e 3ca)tive4 su))liers in S)ain can be also binded to ot(er small su))liers else'(ere, Small su))liers in -(ina or India &or e.am)le may (ave t(e same sensitiveness regarding )rice negotiation i& t(ey sell most o& its )roduction to ?ara, 5e can easily see t(at !% su))liers accounted &or % o& all e.ternal )urc(ases,
$*
0(e bigger su))liers
(ave long term relations(i)s 'it( Indite., 0(is allo's ?ara to minimize &ormal contractual commitments 'it( t(em, 8egarding t(e o))ortunities &or outsourcing1 )er(a)s in t(e &uture in order to remain com)etitive and control costs1 ?ara mig(t (ave to move manu&acturing mainly to -(ina and India, 0(is can be a good advantage in vie' o& transaction costs economics because t(e air&reig(t cost is about only $ o& t(e selling )rice, 0(e ot(er advantage is t(e s(ort time &or delivery, Euro)ean stores received t(eir deliveries 'it(in !+ (ours and t(ose in Asia and America received deliveries 'it(in +% (ours, Also t(e average cost on a )roduced ite m is su))osed to be lo'er in com)arison 'it( t(e &actories in S)ain, $" 0(e c(ea)er labour cost 'ill contribute to t(at, 0(is idea s(ould be good considered even earlier1 because t(e o))ortunity cost o& not (aving more )roduction in Asia because o& &ast c(anging orders1 could be signi&icant, 9n t(e ot(er (and1 t(e com)any
14 Zara: Fast Fashion !arvard "#siness $%hool 15 ?ara /ast /as(ion L arvard Business Sc(ool 16 ?ara anaging Stores &or /ast /as(ion L arvard Business S c(ool 14
t(ird#)arty logistics com)anies6 At least t'ice )er 'ee21 ?ara stores receive early morning delivery t(at t(ey (ave to move &rom t(e selling &loor and remove t(e )lastic covers &rom items and get ready &or s(elving, 0(e bo.es and (angers (eld mi.ed )roducts, I& 'e loo2 at t(e situation in /rance t(ey 'ere encouraged to )rocess at least * units )er )erson, 0(e =uestion t(at arises (ere is (o' to im)rove t(e '(ole )rocess, ?ara
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o& t(e &act t(at stores receive at least t'ice )er 'ee2 orders but t(ere is no guaranty &or t(at, ere comes t(e ris2 &or ?ara i& t(ere 'ill be enoug( 'or2ers '(en t(e delivery ta2es )lace, 0o ensure t(at1 t(e logistic com)any may increase t(eir demand and so t(e cost &or ?ara 'ill increase, 0(e second &actor t(at 'e (ave to consider is t(e )ossibility t(at every time '(en a delivery ta2es )lace t(ere 'ill be di&&erent team o& 'or2ers so t(ey 'on
(n relation to t!e %as!ion sector in Euro&e. does (ndite+ &osses a com&etitive advantage Use t!e *#(O %rame-or/ as t!e basis o% your discussion
-om)etitive advantage is de&ined as su)eriority o& an organization 'it( regard to at least one )roduct attribute over relevant com)etitors, 5(en a &irm sustains )ro&its t(at e.ceed t(e average o& its industry1 t(e &irm is said to )ossess a com)etitive advantage over its rivals, 0(e goal o& business strategy is to ac(ieve a sustainable com)etitive advantage1 '(ic( is very di&&icult tas2, 5e 'ill use t(e V8I9 /rame'or2 to analyze t(e internal environment o& t(e Indite. @?ara '(ic( 'ill (el) us to determine '(et(er ?ara (as resourcesca)abilities to e.)loit it
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/as(ion industry is very com)etitive and subject to ra)idly evolving &as(ion trends, Based on t(e V8I9 /rame'or2 and analysis o& com)etitive advantage1 'e &ound t(at Indite. @?ara (as com)etitive advantage, Inside a business model 'e can see a strong vertical integration and 'ell organized su))ly c(ain1 '(ic( combined 'it( organizational structure gives to ?ara &le.ibility to res)ond1 ada)t and deliver merc(andise &aster t(an its com)etitors, 7nli2e t(eir com)etitors suc( as 1 ango1 7nited -olors o& Benetton in Euro)e1 ?ara (as disintegrated decision#ma2ing model, And above all1 t(e )rice o& merc(andise is a&&ordable, No' 'e 'ill analyze eac( =uestion in detail regarding V8I9 /rame'or2, $ Value L does a resource enable a &irm to e.)loit an environmental o))ortunity and or neutralize an environmental treat6 5e see Indite. rat(er as a combination o& resources1 so t(e most valuable resource 'e 'ould )ut is t(e vertical integration, Instead o& relying on t(ird )arties1 t(e com)any manages all design1 'are(ousing1 distribution and logistics &unction itsel&, Doing t(at t(ey are more &le.ible and &aster t(an com)etitors and 'e 2no' '(at t(ese t'o 'ords mean in a))arel industry, Along 'it( t(e vertical integration '(ic( also reduces o)erating costs it (as e.cellent conceived organizational structure and values t(at all em)loyees must res)ect, 0(e re'ard is great autonomy t(at store managers (ave, Some s2e)tic )ersons could as2 '(et(er t(is value could be used in &uture6 9ur ans'er is )robably yes1 as ?ara care&ully &ollo's c(anges in consumer tastes and due to &le.ibility and s)eed it can ada)t, Second justi&ication could be t(at it &ollo's 'orld trends and it mig(t outsource more &rom Asian mar2ets to reduce its costs, ! 8areness L (o' many com)eting &irms already )osses )articular valuable resources and ca)abilities6 I& 'e analyze com)etitors 'e
17 Alt(oug( Indite. combines it also 'it( labor L intensive industry @ doing t(at t(ey are more &le.ible and &aster in )roducing garment
18 ?ara anaging Stores &or /ast /as(ion L arvard Business S c(ool 17
G Imitability L do &irms 'it(out a resource or ca)abilities &ace a costly disadvantage in obtaining it com)ared to &irms t(at already )osses it6
No'adays almost everyt(ing is imitable, 0(e
=uestion is (o' long it ta2es to imitate, In t(e case o& Indite. 'e &reely assume t(at i& com)etitors 'ere to co)y ?ara business model1 t(ey could1 but only in a long run, It 'ould ta2e a &e' years to establis( vertical integration model 'it( t(at 2ind o& su))ly c(ain and even more to create organizational structure @culture t(at ?ara (as, 5e s(ould also ta2e into consideration enormous costs t(at t(ose &irms 'ould incur in order to co)y t(e model1 '(ic( are o&ten im)ossible &or &irms to incur, Alt(oug( i& t(is is su))osed to (a))en1 'e t(in2 t(at in mean'(ile ?ara 'ould )robably )rogress more in ot(er segments1 because as 'e sa' t(ey ma2e small c(anges very o&ten, 0o cite t(e Indite.ablo Isla '(o is -E9 39nce a mont(1 come (ere t(in2ing t(at 'e are near ban2ru)tcy, Oou 'ill &ind a lot o& t(ings to c(ange,4 + 9rganization L is a &irm organized to e.)loit t(e &ull com)etitive )otential o& its resources and ca)abilities6 5e can see t(at it is, I& 'e loo2 at t(e annual re)orts 'e can see t(at t(ey are constantly increasing sales and )ro&its, erit &or t(is goes to to) management1 but also to every individual engaged in every )rocess o& Indite., 5e s(ouldnossibility o& coordinating all t(ose )eo)le des)ite t(e &act1 t(at t(ey (ave some 2ind o& autonomy in decision#ma2ing )rocess,4 $;
0(e V8I9 &rame'or2
19 ?ara anaging Stores &or /ast /as(ion L arvard Business S c(ool 18
Is a resource or ca)ability P
Valuable6
8are6
-ostly imitate6
to E.)loited by -om)etitive t(e
Economic
im)lications
>er&ormance
-om)etitive
Belo'
organization6
No
#
#
No
disadvantage Normal
Oes
No
#
-om)etitive
Normal
)arity Q Oes
Oes
No
R
0em)orary
Above
com)etitive
normal@at
advantage
least in t(e s(ort run
6es
6es
6es
6es
Sustained
Above
com&etitive
normal
advantage
5ist o% sources
?ara anaging Stores &or /ast /as(ion L arvard Business Sc(ool Notes on ?ara case
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Indite. Crou) Annual re)ort !%$$ 0(e EconomistIndite. # /as(ion /or'ard 0(e Economist Clobal Streac( # 5(en 'ill ?ara (it its limits6 0(e Economist Cood Darning Vietnam 0(e /orbes 0(e Strategic 8etail Cenius Be(ind ?ara 0(e /orbes 0(e /uture o& /as(ion 8etailing # 0(e ?ara A))roac(
(tt)''',gallaug(er,com?ara!%-ase,)d& (tt)(bs'2,(bs,eduarc(ive+"*!,(tml (tt)researc(ingsustainability,&iles,'ord)ress,com!%$!%$zara#(arvard#case,)d& (tt)''',slides(are,netbinotris(azara#)rocurement#strategy
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