2. PORTER FIVE FORCES ANALYSIS
Porter five forces analysis is a framework for industry analysis and business strategy
development formed by Michael E. Porter of Harvard Business School in 1979. It draws
upon industrial organization (IO) economics to derive five forces that determine the
competitive intensity and therefore attractiveness of a market.
FIVE FORCE HIGH/ MEDIUM/
Threat of new entrants Medium
1) The global apparel retail industry has
grown only modestly in value in recent
years, which limits its attractiveness to
2) Entry to the apparel retail industry
does not require large capital outlay
3) Retaliation by existing big players,
such as the launch of a price war.
4) Big players have economies of scale
advantage in bargaining with suppliers
which new entrants with limited capital
do not have.
5) Setting up distribution network is
3. Bargaining power of
1) Buyers have negligible switching
costs and do not face any restrictions in
choosing whom to buy from.
2) Brand loyalty is more likely for
designer wear while general apparel has
poor brand loyalty.
3) Weak buyer negotiation power as it
mostly consists of individuals.
4) Buyers are price sensitive.
Bargaining power of
1) As international trade liberalizes,
supplier power in the global industry is
decreased through competition from
manufacturers in low-wage regions most
2) Switching costs for retailers are not
3) Suppliers need to ensure expected
Threat of substitutes High 1) There are many other competitors
and well branded manufacturers.
2) Customer now buying the product
online rather than retail store.
Degree of rivalry High 1) Price was common among the
2) Low cost switching between
4. PORTER’S VALUE CHAIN ANALYSIS
Zara sources from external suppliers with the help of purchasing officers in cities all over the
world. Suppliers are linked with Zara’s network and coordinate with Zara’s projections. Half
of the fabric purchased is” gray” to update designs quickly during the season.
Zara propounds “live collections”- that can be designed, manufactured, distributed and sold
almost as quickly as the customer’s fleeting tastes. Their designers continuously track market
events and preferences. It believes in standardization of fashion across the globe except some
which cater to specific physical, cultural or climate differences. Zara takes advantage of the
Cluster effects in La Coruna and to manufacture majority of its finished garments. Its
factories are automated, specialize by garment type and focus on the capital intensive parts of
5. production process. Zara also has a network of workshops in Galicia that perform the labour
intensive parts of production.
Zara’s distribution centre in La Coruna and satellite centres in Brazil and Mexico serve as
hub of logistical operations. Mobile tracking systems and carousels equipped with high
folding capacity ensure that inventory moves with minimum delay. Zara stores receive
deliveries every two weeks triggered by real time data.3PL is used to transfer pre-
programmed lots to the stores. Innovation in time to market is their strength i.e. two weeks
v/s six month of industry average.
Marketing and sales
The company uses little advertising or promotion. It relies on word of mouth among its loyal
shoppers. Management adjusts prices for the international markets; thereby making
customers in foreign markets bear the cost of shipping from Spain.
Shops are located at premier shopping streets. Window displays interior presentations bear
the Zara signature touch. Store employees wear Zara clothes to work. Store managers play
the most important role in ensuring proper services and information flow.
Managers play most important role. They understand the sense of customers and markets and
coordinate the activities worldwide. Zara has very rapid product turnover. This brings in a
sense of scarcity. They build attractive stores for customers.
ZARA has employs about 60,000 people, half of them in Spain and rest in the various
countries where it operates. The group of workforce is young (the average age is 26) and
female (besides representing more than 80 percent of employees, women hold more than half
of the executive, technical, and managerial positions).