The Inditex Group| Spain’s Global Competitiveness| | | | 10/15/2011| | Company Overview Inditex Group, headquartered in Al Coruna, Spain, is one of the world’s largest fashion retail companies. Amancio Ortega Gaona found Inditex in 1963. The group is made up of over 100 companies operating in textile design, manufacturing and distribution. It owns eight retail fashion stores including Zara, Zara Homes, Pull & Bear, Msssimo Dutti, Bershka, Stradivarius, Oysho and Uterque.
According to its website the company attributes its success to a “unique business model based on innovation and flexibility” and an approach to fashion that embraces “creativity, quality design and rapid turnaround to adjust to changing market demands. ” This business strategy has lead to the international success of its flagship store, Zara, which is its most profitable retail store, accounting for over 60% of Inditex’s sales. Inditex also uses a cross border strategy of acquisitions and joint venture for international expansion.
The company’s website states that for the 2010 fiscal year, Inditex has seen an increase of 437 stores, expansion into 3 additional countries (Bulgaria, India, Kazakhstan) and an increase in employees from 92,301 for fiscal year 2009 to 100,138 employees for the 2010 fiscal year. Even in the current world economic downturn, for the 2010 fiscal year Inditex has seen a 13% increase in net sales and 32% increase in net profits over its 2009 fiscal year. Furthermore, there net sales increased 12% to 6,209 million Euros in the first half of 2011, according to the website. Vision & Strategy
Inditex’s vision is creativity and quality design in fashion at reasonable prices with a rapid response to market demands, resulting in fast international expansion and an excellent performance of its commercial formats. “Agility and speed-to-market are vital elements of the Inditex vision of the fashion business,” points out General Manager, Juan Carlos Rodriguez Cebrian in an interview with Business Week Magazine. Cebrian also states “logistics is a basic component of our business model and allows us to move quickly when it comes to giving our customers what they want, and accounts for a sizeable chunk of our investments. The group designs and manufactures almost everything by itself, and new designs are dispatched twice a week to Zara stores. The group’s success and its unique business model, based on innovation and flexibility, have made Inditex one of the biggest fashion retailers in the world. Their approach to fashion creativity, quality design and rapid turnaround to adjust to changing market demands — has allowed them to expand internationally at a fast pace and has generated an excellent public response to their retailers’ collections Competitive Advantage
By acquisition of Gap in 2008, Inditex has become the largest retailer of clothing and footwear even though H;M is also expanding its stores and scope globally, and Inditex’s amount of retail stores are absolutely overwhelming. At the same time, Inditex operates manufacture and production not only in China, but also in Europe, mostly in Spain. So it can always keep its products fresh to the customers. High efficiency of organization and designing also contribute a lot to its profit margin.
Inditex’s supply chain response for Zara is 2 ? months in comparison to the 5-7 months industry standard. Furthermore, Inditex plays a significant role controlling the dyeing process which is essential to the supply chain cycle. For example, Zara purchases a dye and finishing plant to gain control over its dyeing process which is essential to the timeliness of the supply chain process. Does bulk of cutting itself, few subcontracting; 60% of manufacturing is outsourced in countries close to the headquarters in Spain for quick turnaround.
Typically, Zara pre-commits to 50%- 60% of its production in advance of the season, whereas other clothing retailers commit to 80%- 90%. Hence, Zara reserves mill capacities to ensure production facilities are available when needed. Design collections are developed by creative teams rather than groups of designers. Creative teams consist of designers, sourcing specialists and product development personnel. The teams work simultaneously on different products, building on styles that were previously successful. Inditex uses Zara’s approach in its supply chain operations across its stores.
Structure As one of the largest fashion retailers, Inditex has eight store forms, including Zara, its most famous brand, Pull;Bear, Massimo Dutti, Bershaka, Stradivarius, Oysho, Zara Home and Uterque. Its organizational structure is geographic division structure. Each division has its own function divisions, and is responsible for regional marketing, sales, and so on. However, Inditex runs designing segment mainly in its headquarters in Spain because it wants to control the designing aspect, which is a core part of this company.
In each region, the regional manager manages his or her own region with autonomy to some extent. However, the regional manager reports directly to the Inditex CEO in Spain. Also, Inditex follows a global organizational structure where the head office in Spain controls the management of the Inditex subsidiaries around the world in regards to operations that provide a competitive advantage. This includes designing, distributing and logistics, which are still controlled by headquarter in Spain, especially in logistics.
Inditex is famous for its accuracy and timing logistics all over the world so that every customer can get what he or she want without a loss. The majority of stores are corporate-owned; Franchises are only conceded in countries where corporate properties cannot be foreign-owned. Location Inditex Group has 5,221 fashion retail stores across 78 locations around the world. Its strongest presence is in Europe where 4116 stores are located, followed by 399 stores in America and 706 in Asia and the rest of the world.
The below chart is a breakdown of the cross border locations of nine Inditex owned retail stores. Around the world| Brand| Quantity| Zara| 1. 557| Zara Kids| 202| Pull ; Bear| 704| Massimo Dutti| 545| Bershka| 751| Stradivarius| 633| Oysho| 449| Zara Home| 293| Uterque| 87| TOTAL| 5. 221| Company Culture According to its website, Inditex fosters a corporate culture where teamwork, open communication, and high performance are valued. The group also prioritizes job stability, investing in the training and development of its employees toward promotion.
The company also has a strong commitment to corporate social responsibility. To this end, Inditex established an internal ethical code of conduct for its employees and an external code of conduct for its suppliers and contractors based on the agreement and principles of the International Labor Organizations (ILO), OECD, the Global Compact of the United Nations, the Universal Declaration of Human Rights of the United Nations as well as the local employment laws.
For example, forced and child labor is prohibited, employees are allowed free association and safe working environment, etc. There is an internal ethics committee that monitors compliance to the codes of conduct. Spain’s Environment Based on the 12 Pillars of Competitiveness The “12 pillars” are a framework to determine the wealth of nations and is often used by multinational companies to assess a country’s suitability for international business operation. Below is an assessment of Spain’s business environment based on the twelve pillars.
Institution: From the data in the “Global Competitiveness Report”, we can see that the protection of property rights (including financial assets) and intellectual property protection (including anti-counterfeiting measures) is somehow just above the average a little bit; and private businesses have inefficient legal framework for settling disputes and challenging the legality action of government. This might lead to unwillingness to invest in the improvement and upkeep of their property if companies’ rights as owners are insecure.
In addition, public has low trust in the ethical standards of politicians in Spain due to the not-lower rate of corruption, judicial independency, favoritism to well-connected firms and individuals upon policy-making, inefficient composition of public spending, etc. All this together, the big institution environment in Spain needs to be improved. Infrastructure: One of Inditex’s competitive advantages is its logistics, which depends heavily on its infrastructure. From the Global Competitiveness Report data we can see that Spain has a well developed infrastructure, including transport, telephony, and energy.
The well-developed infrastructure reduces the effect of distance between regions, with the result of truly integrating the national market and connecting it at low cost to markets in other countries and regions. Stability of Macro economy: The stability of the macroeconomic environment indirectly influences a country’s economy. During an “assessment of national competitiveness prospects”, the recession is expected to be particularly harmful for the competitiveness of Iceland and Spain, the two countries receiving the lowest average scores in the sample, both of which also drop in the GCI ranking.
And right now Spain is doing at the middle level among all those countries, which means it hasn’t harmed the economy at least right now. Health and Primary Education: From the data, we can see that the diseases in Spain, once happens, will have huge impact on business; but luckily, right now the incidence of malaria, tuberculosis and HIV is very low. In addition, Spain is actually doing pretty good on the health care, since it has a low infant mortality and high life expectancy. However, the quality of the primary schools is below the average.
Higher Education and Training: In general, this segment contains two parts: nurturing pools of well-educated workers, and training on-the-job workers. Spain has a long history of higher education. In this country, there are more than 70 universities, most of which are sponsored by government, meaning higher education is highlighted by the public. Within the higher education, there are four different types: university schools, university colleges, faculties, and higher technical schools of engineering and architecture according to different needs.
However, Spain’s higher education system is to some extent rigid because the students have to take fixed courses if they want to get a degree or certificate. At the same time, training in the job is very popular in Spain and many European countries. As Spain wants to play a more important part in international business and European Union, more and more people participate into training schools and programs to learn English and some basic knowledge of business. Goods Market Efficiency: A country should be well positioned to produce the right amount of products to ensure it can serve its market.
According to the Global Competitiveness Report, Spain drops 9 positions, and is out of the top 30 rankings. So, Spain doesn’t do well in keep its previous advantages due to the global financial crisis from 2008 to current. Additionally, infrastructure construction, national companies and technology development support most of its economy. Labor Market Efficiency: Labor market efficiency reflects the market’s ability to switch workers from one economic activity to another effectively and efficiently.
Meanwhile, the low cost issue and social disruption caused by wage fluctuations must be taken into consideration. By studying the data, Spain’s working market doesn’t work very well largely because the unemployment rate is high as a result of the financial recession. Compared with other European countries, Spain has more collective bargaining during the year, government has to pay high severance payment to permanent workers and female workers, immigrants, and older workers are needed to be paid attention.
What’s more, according to the working paper published by IMF, Spain’s government should keep the share of temporary workers, reform the collective bargaining system and reduce the protection of permanent workers so that more labor rights could be guaranteed. Financial Market Sophistication: In terms of financial market sophistication, its original meaning is to save resources and make the best of them with biggest rate of return at the meantime to maintain the risk as low as possible.
Spain is a traditional finance leading country, but it has suffered in the financial crisis, especially in real estate loans and major companies, which followed by the severest unemployment rate, nearly 13. 9%, in 2009. However, Spain’s banking system is strict and conservative so that the whole country can recover from this recession. Banks in Spain are required to have high capital provisions and demand many proofs and securities from loans borrowers. On the other hand, Spain lacks basic resources such as fossil fuels, so it has to import resources from other countries, which Spain is more connected to the international market.
Technological Readiness: The Global Competitiveness Report (the report) indicates that Spain has a high level of technological readiness evidenced by its overall rank of twenty ninth out of 133 countries. This high level of technological readiness reflects that broadband internet service, personal computers, mobile phone usage, etc. are readily available to facilitate business. Additionally, there are strong laws regulating the use of technology which will assuage security concerns.
Market Size: The report also ranked Spain thirteenth out of 133 nations in terms of market size, demonstrating that Spain’s market size is probably its best attribute for a strong business climate. It States Spain’s GDP per capita as $35,331. 50 million (U. S dollars). GDP per capita is perhaps the best measure of a countries wealth because it is a proxy for wages. This is a huge advantage for Spain since this represents a large market for companies to distribute products and services to a population with good buying power.
Business Sophistication: Spain ranked just above average in terms of business sophistication including marketing, control of international distribution and local supplier quality and quantity. Innovation Index: Spain is below average in terms of innovation. Although Spain has a good number of patents for innovative ideas, there is a weakness in the area of research and development and industry collaboration. Although Spain ranks above average in most aspects of the twelve pillars, there is room for improvement in some important areas that would improve its prospects for multinational enterprises to do business in Spain.
For example, the government could provide incentives, perhaps a reduction in tax rates, for private companies that collaborate with universities which could increase the level of research and development in the country resulting in more innovation. Hofstede’s Cultural Values Model Hofstede’s research allows business person to better understand a country’s culture by examining four major aspects: Power Distance, Individualism, Masculinity, and Uncertainty Avoidance. ( Briscoe, Schuler, and Claus) Power Distance refers to the extent that an organization is hierarchical.
For example, does great power distance exist between managers and direct reports? In addition, how much respect does an employee / individual have for such power? And, do formal relationships and titles represent power? Or, conversely, are informal leaders granted powers as well? Individualism refers to the extent that an organization (or country) values self expression versus consensus of a greater collective whole. Masculinity addresses a company’s value on typical representations of power, aggressiveness, and characteristics often associated with manliness.
And, finally, a company (or country’s) ability to cope with not knowing the unknown or the ambiguity of decision-making is categorized as Uncertainty Avoidance. Power Distance Spain has relatively moderate approach to power distances. While the workplace is not egalitarian, it is not highly hierarchical either. It is most likely normal that a Spanish company will have various levels of management within an organization. However, informal leaders and individual contributors most likely have a voice and say as well. Also, subordinates most likely feel comfortable with supervisors and managers.
Cohesion most likely exists among the various levels of the organization. Individualism Similar to power distance indicators, Spain has relatively moderate levels of individualism. The individual is valued as well as self expression. However, the Spanish culture is very family oriented, so the country has collectivist tendencies. In some situations, the value of the collective whole will take precedence over the value of the individual. Masculinity As compared to other Western cultures, Spain has a relatively low level of masculinity. The country values the feminine presence in the workplace.
The low masculinity may due to the female’s very prominent role in the family. The “female of the household” often carries the most power and is the most dominant role in the family. And, because Spain values the family incredibly, the power of the female transfers to the workplace. Surprisingly, Spain differs in this respect when compared to other Latin countries that have a high level of machissimo Uncertainty Avoidance Spain has a relatively high level of uncertainty avoidance. The country can tolerate the lack of direction and regulation.
Ambiguous situations do not make the country feel uncomfortable. Clear direction may not be valued as much as other western nations. As Spain is part of the European Union, perhaps, the country feels safe in the fact that their fate is tide closely in the fate of other more aggressive and prominent nations. The chart below depicts Spain’s Hofstede scores more clearly. As you can see from the picture, Spain scores relatively moderately on all Hofstede indicators except for Uncertainty Avoidance. (http://www. geert-hofstede. com/hofstede_spain. shtml, 10/6) .
Gestelands’ Cultural Patterns of Business Behavior Deal Focus vs. Relationship Focus Deal focused cultures are task-oriented and relationship focused cultures are people-oriented. Spain is a little different from some western countries. Spaniards prefer to do business with familiar companies or people, and usually before a contract is settled, they will spend a long time getting to know each other very well. For example, they are inclined to use face-to-face communications instead of emails or video conferencing so they can make better judgments about the person or persons they are doing business with.
Among Spanish people themselves, once a relationship is established, it is hard to change even if people move to remote areas. So, they emphasize a person’s personality or a company’s characteristic when they are doing business. Thus, Spaniards are relationship focused. Informal vs. Formal Cultures Spain is a typical formal culture country. Based on a study of clothing, Spanish people dress more formal than many other European people, and people often show modesty when they communicate with each other.
To take the greetings as an example, in Spain you will shake hands when you meet for the first time, while hugs only exist when two men are very close to each other, and even close female friends will use small kisses. Formal protocols exist and formality is expected between supervisors and staff. And they hardly use the word ”you” in a business situation, and almost all of people will use polite titles. Some other inappropriate words are the same in that everyone has to respect for each other. Rigid-time (monochronic) versus fluid-time (polychronic) cultures Spain largely belongs to the latter since punctuality epends on different situations. For example, in Spain when people meet for formal events like theaters, cinemas, concerts, trips, etc. , they are generally quite punctual; however, things may be quite different when people are just meeting up with friends and there always will be someone who turns up late to some extent. From the website resources, we can see the time in Spain is quite fluid and flexible. Expressive versus Reserved Cultures Spain is considered to be an expressive culture, where people are very warm and open to others.
Spaniards do not like to hold their emotions in check, preferring to do business on the basis of trust and knowing each other. Also, when talking Spaniards tend to touch each other a lot, using body language such as a hand on the arm, a pat on the back, etc. They like to express themselves both verbally and nonverbally. Communication Style Spain uses a high context communication style. In this style of communication people do not expressly or directly state what they mean when speaking to others, the meaning is deeply embedded in their words and actions.
Hence, one must examine their behaviors to get the correct meaning. As such, face to face communication is preferred in Spain. Additionally, in high context communication cultures such as Spain, it is essential to develop long term relationships with Spaniards to decipher meaning from their communication. Religion In a 2010 study, the Spanish Center of Sociological Research reports that roughly 73% of Spaniards indentified as Roman Catholics, about 22% have no religious affiliation and another 2. 2% identified as other faith.
Prior to 1978 Roman Catholicism was Spain’s’ official religion until the constitution was revised to include religious freedom and separation of church and state. Although Catholicism is the major religion the nation is very secular in terms of traditional Catholic morality issue such as sexual orientation. For example, Spain is the 3rd country in the European Union to allow same sex marriage. Islam is the second largest religion with about 1 million followers. Judaism, Protestantism, Hinduism and Buddhism are also practiced on a smaller scale. Language
Spanish is the national language that is universally understood across the country. However, other languages are also spoken in some specific geographical areas. Specifically, Catalan in Catalonia: Galician in Galacia; Euskara or Basque in the Basque country and valencian in the Valencia area. References Survey of experts results and GCI variation (2009–2010), Klaus Schwab, World Economic Forum http://content. healthaffairs. org/content/10/3/216. full. pdf www. inditex. com www. uniquebusinessstrategies. co. uk/pdfs/case%20studies/zarathespeedingbullet. pdf www. businessweek. om/adsections/2004/pdf/0423_inditex. pdf Inditex Corporate Responsibilities downloaded 28/09/2011 from: http://www. inditex. com/en JG Mora, J Garcia, 2000; Journal of Education; Higher Education and Graduate Employment in Spain; Wiley Online Library Susan E. Jackson, Randall S. Schuler, 2004; Cross-Cultural Management: Foundations and Future; Cultural Diversity in Cross-Border Alliances; Hampshire, UK: Ashgate. Klaus Schwab, World Economic Forum 2009; The Global Competitive Report 12 Pillars; World Economic Forum, Geneva, Switzerland. Spanish Business Etiquette, Vital Manners downloaded 28/09/2011 from: www. yborlink. com/besite/spain. htm http://html. rincondelvago. com/inditex-group. html http://www. nationsencyclopedia. com/Europe/Spain-RELIGIONS. html http://www. nationsencyclopedia. com/Europe/Spain-RELIGIONS. html http://spanish. about. com/od/spanishlanguageculture/a/spainlanguages. htm Geert-Hofstede Website, October 7, 2011, http://www. geert-hofstede. com/hofstede_spain. shtml Briscoe, Dennis R. ; Schuler, Randall S. ; and Claus, Lisbeth. International Human Resource Management: Policies and practices for multinational enterprises. Routledge. 2009.