Faculty of Economics and Business
MSc International Business and Management
Master Thesis
“Coevolution of the Fast Fashion Company-Case of ZARA, and
China’s Fashion Industry”
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TABLE OF CONTENTS
ABSTRACT……….………...5
CHPATER 1 INTRODUCTION……….…………..6
CHAPTER 2 THEORY BACKGROUND……….……….10
2.1 The coevolution theory………..…...…………..10
2.2 Coevolving dynamics: from the economic and institutional perspectives……….14
2.2.1 The economic dynamics……….………...15
2.2.2 The institutional dynamics: social and political environment……….…..16
CHAPTER 3 RESEARCH METHODOLOGY………...……..19
3.1 Research method: case study……….………....19
3.2 The research populations……….………..20
3.2.1 Population 1: fast fashion company-case of ZARA……….……….20
3.2.2 Population 2: China’s fashion industry……….……….…………21
3.3 Data collection……….……….…...24
3.4 Data analysis strategy……….……….…...25
CHAPTER 4 RESEARCH FINDINGS……….………….………....27
4.1 Coevolutionary dynamics: from the economic perspective……….…………...27
4.1.1 Market size……….……….………...27
4.1.2 Competition……….……….……….32
4.1.3 Manufacturing……….………….…...38
4.2 Coevolutionary dynamics: from the institutional perspective……….…………...41
4.2.1 Social environment: city distribution and internal structure……….….41
4.2.2 Social environment: network for promotion………...43
4.2.3 Social environment: individual values and consumer orientation……….46
4.2.4 Political environment:government rules and regulations……….…49
4.3 Causal map between two populations……….……….……….……51
CHAPTER 5 DISCUSSION…………...……….……….…………...53
5.1 Discussion on the VSR processes of two populations………..53
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5.1.2 Coevolutionary dynamics: from the institutional perspective……….…..56
5.2 Discussion on an unbalanced coevolving effect……….…….…………..56
CHAPTER 6 CONCLUSION……….………..….….……...61
5 ABSTRACT
Coevolution theory is a new research area in organization science. It is gaining more attention as it links the individual organizations with different environments within which they are developing. Fast fashion is currently the most influential evolution in the fashion industry. This research is based on the variation, selection and retention (VSR) model of the coevolution theory, combining with institutional theory, to explore the coevolutionary effects between the fast fashion company-case of ZARA and China’s fashion industry, which are the two research populations. The case study suggests that the economic dynamics have influences on all coevolutionary variation, selection and retention processes of the two populations; and the institutional dynamics only influence the coevolutionary selection process of the two populations. In addition, an unbalanced coevolving effect between ZARA and China’s domestic fashion companies is observed and the two propositions are given out for more future research to test.
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CHAPTER 1: INTRODUCTION
The coevolution theory originally comes from biology theory. Biologist Van Valen (1973) states the coevolution model as continuing development needed to maintain its fitness relative to the systems it is coevolving with. From this coevolution model, we can speculate that coevolutionary effects are not limited to biology. These bidirectional and mutual effects can be supplied to many areas, which include our economics.
In the field of economics, Lewin and Volberda (1999) define coevolution “as the joint outcome of managerial intentionality, environment, and institutional effects” (p. 526). Murmann (2003) defines coevolution as “the bidirectional causality linking the two parties in the relationship” (p. 23). Because of different historical, political, economic and social development, industry revolutions differ greatly in national background. In economics, coevolutionary research aims at studying factors that contribute to these differences. From the coevolutionary perspective, researchers are trying to explain the reciprocal relationship between the evolution of individual organizations, the evolution of their organizational background within which they are operating, and in a broader view, their national environment.
The coevolution framework could “inform any research in organization studies, which spans levels of analysis and involves adaptation over time” (Lewin and Volberda, 1999, p. 520). Coevolutionary dynamics have become more important as organizational environments are more turbulent in recent decades (Murmann, 2013). In the field of international business studies, the coevolutionary research considers internationalization paths as “the joint outcome of managerial intentionality, path dependencies and institutional and selection forces” (Hutzschenreuter, Pedersen and Volberda, 2007, p. 1057). These characteristics make coevolutionary research a challenging and relative new area in organization science.
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Homburg (2001)’s research about the synthetic dye industry from 1857 to 1914 implies that the interaction between firms and competitively relevant features of the social environment should be modeled as a coevolutionary process. Besides mainly based on the coevolution theory, this research focuses on the fashion industry retail revolution—the fast fashion company.
Fast fashion is a contemporary term in the fashion industry. It is developed from a product-driven concept based on a manufacturing model referred to as "quick response" developed in the U.S. in the 1980s (Lowson, King and Hunter, 1999). It further developed into a market-based model of "fast fashion" in the late 1990s and the first part of the 21st century. The Spanish brand ZARA is at the forefront of this fashion retail revolution, and has almost become a synonym for the term fast fashion.
Fast fashion clothing collections are based on the most recent fashion trends presented at the Fashion Week in both spring and autumn every year (Muran, 2007). It is famous for its “quick response” to fashion demand from the industry and consumers. These fashion trends are designed and manufactured quickly and cheaply, which allows consumers to take advantage of current clothing styles and catch the fashion at a lower price. The similar fashion style and reasonable price make those former luxury fashion collections available to the mainstream consumer. This philosophy of quick manufacturing at an affordable price is used among large retailers such as ZARA from Spain, Hennes & Mauritz AB (H&M) from Sweden and Forever 21 from the United States.
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Impressed by fast fashion’s achievement in the international business, even luxury brands like Prada and Armani have begun their fashion evolution and brought out their relatively younger and cheaper brands Miumiu and Armani Exchange. The main characteristics of fast fashion, their special manufacturing and marketing strategies and their remarkable achievement in the international business made me have the aspiration to do research about it. Especially in the coevolutionary perspective to study the evolutionary dynamics and strategy changes, research could lead to more understanding of the fast fashion industry and show implications not only for the fashion industry, but also for other industries of international business.
China is the largest emerging economy with a comparatively rapid developing speed all over the world. Previously, China was mainly a manufacturer for international business. With its rapid development and huge potential market, more and more multinational enterprises are entering this market. Fast fashion companies are no doubt one of them.
The fashion industry in China is not very well developed. China was previously the “world factory” for international enterprises, and still is, although China is trying to change its developing model to the high value-added mode. The coevolution study of fast fashion companies in China is about how successful multinational companies set their strategies facing the Chinese market and how these companies influence China’s fashion industry.There are also China’s own fashion companies, such as Metersbonwe and La Chapelle, which are learning business models from fast fashion companies.
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the coevolution between fast fashion companies (case of ZARA) and China’s fashion industry, and what role has ZARA played in this coevolution?”.
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CHAPTER 2: THEORY BACKGROUND
Introduction
This chapter mainly introduces the two theories related to this research, namely coevolution theory and institutional theory. Coevolutionary dynamics are analyzed in the second part of this chapter.
2.1 The coevolution theory
Lewin and Volberda (1999) assume that coevolution may make changes occur in all interacting populations of organizations which result in new organization forms, and these changes are the joint outcome of managerial intentionality and environmental effects (e.g., the competitiveness of the environment and the institutions) under conditions of stochastic or chaotic environmental uncertainty.
From a coevolutionary perspective, to some extent, human agents can shape their environment, which differs from the standard evolutionary perspective that environments are typically treated as givens and beyond the causal reach of the agents (Murmann, 2013). Scholars in recent years have realized that what sets coevolutionary theory apart from standard evolutionary explanations is that causality does not only run from the environment to the evolving entity but also runs from the entity to the environment (Murmann 2003). McKelvey (1997) argues that evolution of organizations cannot be understood independently from the simultaneous evolution of the environment, and different levels of social organization—groups, subunits, organizations, industries, institutions, and economies—often change together (McKelvey 1997; Murmann 2003). In institutional theory, organizations are comprised of many institutional elements, some rules, norms, or beliefs being formed during the on-going interaction and others being borrowed from their environments (Scott, 2008).
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unifying framework, incorporating multiple levels of analyses and contingent effects, and leading to new insights, new theories, new empirical methods, and new understanding” (Lewin and Volberda, 1999, p. 520).
Murmann (2013) mentions that in order to provide a coevolutionary explanation for the evolution of an industry and features of its environment, the research should involve two steps. In a first step it needs to show that the industry and the important feature of the environment can both be conceptualized as populations that undergo changes through the variation, selection, and retention processes. The second one is that the analysis needs to show that reciprocal (bidirectional) causal mechanisms exist that link the evolution of the two populations by causally affecting at least one of the three-component VSR (variation, selection, and retention) processes that constitute evolutionary change in each arena (Murmann, 2013). Although there is an emerging consensus that firms, industries, technologies, and institutions coevolve in high-tech sectors (Nelson 1995; Murmann 2003), there still lacks a detailed explanation and reasoning for how these coevolutionary processes take place and how they influence the basic VSR processes that underlie the evolution of the two partners within the coevolutionary relationship (Murmann, 2013). Murmann (2013, p. 59) points out that “as long as many different entities (variation) are created, whether these entities are simple actions of individuals or entire organizations, as long as consistent selection pressures eliminate ill-adapted entities (selection), and as long as the entities have stability across time (retention), the surviving entities will be well-adapted to their environments”.
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When we study China’s environmental influences on the manufacturing and marketing strategy choice and evolution of fast fashion companies, and how these strategies have changed China’s fashion industry, we can learn more about what a company (especially a fashion company) needs to learn, how to choose and give up in order to achieve effective management in an emerging economy.
Volberda and Lewin (2003) summarized three critical elements of coevolutionary empirical research: (1) actors in terms of replicators (e.g., industry capabilities, routines) and interactors (e.g., organizations, individuals); (2) processes in terms of variation, selection, and retention; and (3)
outcomes which result in change of the emergent composition of a collectivity over time. These three
elements provide a basic structure for my research.
The actors. As scholars have a different understanding of the replicators and interactors, there are no strict definitions for these two concepts. In Lampel and Shamsie (2003)’s related research on the movie industry, they define replicators as industry capabilities (e.g., mobilizing and transforming capabilities) and interactors as organizational forms (e.g., integrated hierarchy). Rodrigues and Child (2003) analyze replicators and interactors from multiple levels. They regard replicators as industry capabilities, organizational processes and sector dynamics, and interactors as organizational transformation, organizational identity and form, sector business model and institutional regime. In my research, I conceive the replicators as manufacturing and marketing strategies of fashion companies. The interactors are organizations, namely the fast fashion company, and China’s original fashion companies which have different organizational forms and strategies compared with fast fashion companies. The targeted fashion companies will be introduced more detailed in the methodology part.
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process in evolutionary theory is regarded as the progression, such as the order and sequence, of events in an organizational entity's existence over time (Van de Ven and Poole, 1995). Consequently, event progression is the recurrent, cumulative and probabilistic sequence of variation, selection and retention events. Generating forces in evolutionary theory include population scarcity, competition and commensalism.
In a more restrictive sense, evolution focuses on cumulative changes in structural forms of populations. These populations are of organizational entities across communities, industries, or society at large (Hannan and Freeman, 1977). As in biological evolution, change in organizational populations of the economic world proceeds through a continuous cycle of variation, selection, and retention (Van de Ven and Poole, 1995). Variation refers to the creation of novel forms of organizations, and is often viewed as emerging by blind or random chance (Campbell, 1969). Selection of organization principally results from the competition for scarce resources, and the environment selects entities which fit the resource base of an environmental niche best (Hannan & Freeman, 1977). Retention involves forces, including inertia and persistence, which perpetuate and maintain certain organizational forms (Van de Ven and Poole, 1995). Variation stimulates the selection of new organizational forms; on the other hand, retention maintains previous forms and practices. Retention is seen as process that serves to counteract the self-reinforcing loop between variations and selection (Van de Ven and Poole, 1995). These show that evolutionary theory explains “change as a recurrent, cumulative, and probabilistic progression of variation, selection, and retention of organizational entities” (Van de Ven and Poole, 1995, p. 518). These concepts illustrate that to some extent, we can study and specify the actual probabilities of the changing characteristics of the population or entities inhabiting in a certain environment. Although one cannot predict which entity will survive or fail, the overall population persists and evolves through time because of specified population dynamics (Van de Ven and Poole, 1995). A prescribed mode of change channels the development of entities in a prespecified direction. These changes are typically of maintaining and incrementally adapting their forms in a stable, predictable way.
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social environment, each population or entity needs resources for its survival, which are limited. Evolutionary theory operates on multiple entities and its forces are defined in terms of the impact they have on populations and have no meaning at the level of the individual entity (Van de Ven and Poole, 1995). There are identifiable mechanisms existing for variation, selection, and retention processes of the population. Macro-population characteristics set the parameters for micro-level variation, selection, and retention processes.
In organization and management applications, evolutionary theory often depicts global-level changes in organizational populations, and the evolutionary model is adopted to explain strategy making within organizations (Burgelman, 1991). No matter what the organizational level is, an evolutionary model can be used to focus on the processes of variation, selection, and retention among numerous organizational entities (Van de Ven and Poole, 1995). Organizational scholars who support Darwinian evolution argue that those population characteristics are inherited through intergenerational processes, while those who follow Lamarckian evolution argue that population traits are acquired within a generation through learning and imitation.
The outcomes. The processes and outcomes are coevolution effects this research intends to find out. As the outcomes include changes of the emergent composition of a collectivity over time, the time period from 2006 to around 2013 for the development in China of fast fashion companies — ZARA in this research — can be seen as the pre-outcomes. Further investigation and more targeted fast fashion companies are needed to find out a more completed coevolutionary outcome for the fast fashion industry in China.
2.2 Coevolving dynamics: from the economic and institutional perspectives
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economic, social, and political macrovariables may change over time and influence the deep structure within which micro- and macroevolution operate.
Macro-population characteristics set the parameters for micro-level variation, selection, and retention mechanisms (Van de Ven and Poole, 1995). Besides the three coevolutionary elements mentioned above, scholars studying the coevolution effects connect the coevolution theory with other firm level or meso level theories to find out the coevolutionary dynamics or mechanisms. Meso level theories (e.g., institutional theories and evolutionary economics) provide theoretical foundation to link firm adaptation to macro institutional and competitive environment (Volberda and Lewin, 2003). Because this research focuses on the environment of China’s fashion industry, I will connect the three coevolutionary elements with the economic and institutional dynamics within the targeted environment. For the economic dynamics, I investigate the market size, competition and manufacturing condition of China’s fashion industry. For the institutional dynamics, I distinguish between the social and political perspectives which correspond to the three mechanisms Dimaggio and Powell (1983) identify for the institutional theory. The marketing and manufacturing strategies are the core strategies for fashion companies. Consequently, the variation, selection and retention processes are supposed to be shown through these strategies. After the introduction of two research populations in the next chapter, a conceptual model will be shown to help understand the structure of this research.
The core causalities in my research are the relations between the manufacturing and marketing strategies evolution of the fast fashion company and China’s fashion industry. The key challenge is to establish these “causal processes which indeed do connect the two sides in a coevolutionary relationship” (Murmann, 2003, p. 23).
2.2.1 The economic dynamics
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practical “market size” as part of the economic perspective focuses on actions fast fashion companies have taken to explore and expand the Chinese market.
Secondly, because the market areas that “were exhibiting promise became overpopulated with competition and therefore unprofitable” (Reid and Zyglidopoulos, 2004, p. 247), local competitors can be a serious threat and should not be ignored. The “intense competition” has become another factor to study in this research considering the marketing strategies of fast fashion companies.
Thirdly, because the Chinese labor costs are relatively low compared to the developed countries and the skill level of Chinese labor is improving year after year, how fast fashion companies have set their manufacturing strategies is also a study point. The refreshing speed is an important factor for fashion companies. Due to far transportation ways to China, ZARA is supposed to open more manufacturing plants which will lower its costs.
2.2.2 The institutional dynamics: social and political environment
Kostova (1997) introduces the concept of a three-dimensional country institutional profile to explain how a country's widely shared social knowledge (the cognitive dimension), value systems (the normative dimension), and government policies and regulations (the regulatory dimension) affect business activities. These three concepts will be talked about in more detail when referring to the social and political environment of China’s fashion industry in the following.
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provide support to the establishment and operation of a new business (Busenitz, Gómez and Spencer, 2000). ZARA is supposed to investigate, select, and open stores firstly and more frequently in the developed cities and areas within a city in China, in order to build and stabilize its brand image and get more acceptances from China’s consumers. But this store distribution is mostly decided on by the actual city hierarchical system and the development potential in China.
Introduction to China’s city classification. Based on a city’s function in national politics, economics and other social activities, and its ability in leading and radiating the surrounding and other cities, the cities in China can be divided into first-, second-, third- and forth-tier cities (Baidu Encyclopedia, 2014). This classification of city structures in China is used mostly by media and analytical experts. The first-tier cities in mainland China include Beijing, Shanghai, Guangzhou and Shenzhen. Their competence is mainly shown in the city development level, their comprehensive economic ability, their leading and radiating position, their attraction to human resources, the communication of information, international competitiveness, technological innovation and transportation (Baidu Encyclopedia, 2014). The second-tier cities include Tianjin, Chongqing etc. Almost all the first- and second-tier cities are located in the eastern part of China, which is the most developed part. Most of the third- and forth-tier cities are located in the middle and western part of China.
Secondly, the complexity and importance of the network issue in doing business in China was beyond the experience of most MNEs (Reid and Zyglidopoulos, 2004). The common broadcast ways for fast fashion companies, such as Facebook and YouTube, are forbidden in China, so I focus on how fast fashion companies utilize the Chinese network or relationships among people to build the images of their brands and influence people’s consuming behaviors. This point is also related to the cognitive dimension of the institutional theory, which refers to the influences from the social knowledge and information.
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related to the normative dimension of the institutional theory, which refers to the value systems that have influences on domestic business activity within a country (Kostova, 1997). Fast fashion companies would adapt their products to the local taste.
The environment in which companies are doing business includes “not only buyers, sellers and suppliers but also regulatory organizations and a host of other supporting institutions” (Murnann, 2003, p. 7). This is related to the political environment. Consequently, foreign companies should focus on government policies, rules and regulations in order to maintain sustainable development. The open policy benefits the international companies, but there are some regulatory issues, such as quality criteria, that need to be considered so that the strategy change will fit the target country’s regulations. The regulatory dimension of the institutional theory is related to the laws, regulations and government policies that could influence the business activities (Busenitz, Gómez and Spencer, 2000).
To conclude, under the institutional dynamics, the social environment includes the cognitive and normative dimensions of institutional theory, and the political environment includes the regulatory dimension of institutional theory.
Summary
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CHAPTER 3: RESEARCH METHODOLOGY
Introduction
This chapter introduces the function of a case study, how this research collects data and the data analysis strategy.
3.1 Research method: case study
According to Yin (2014), a case study is the better choice under the following conditions: (1) when the main research questions are “how” or “why” questions; (2) when the researcher has little or no control over behavioral events; or (3) when the focus of the study is a contemporary (as opposed to the entirely historical) phenomenon (p. 2). Most publications on coevolution and most empirical contributions to coevolutionary theory use the case study approach in which narration and historical analysis are applied (Volberda and Lewin, 2003). As my main research question begins with “how”, this research chooses case study as the main research method. China’s specific environment is another reason for me to choose the case study. The fast fashion industry is the latest fashion evolution, so as a fast fashion company, I choose ZARA in China as my main research case.
Based on Yin (2014)’s classification method of case studies, my research is an exploration case study and the main focus is to find out the causal relationships between the coevolving objects.
Yin (2014) summarizes the twofold definition of case study, namely the scope of case study and the features of case study. For the scope of case study, a case study is an “empirical inquiry” that studies the case in depth within its real-world context (p. 16). In this research, in order to find the coevolution effects, the research cases will be studied in depth with their developing environment in China. The features of a case study include many more variables of interest than data points. Outcomes of the research rely on various sources of evidence and also some outcomes are derived from the prior development of theories that would guide the data collection and analysis. These features are firmly related to data sources, collection and data analysis strategy, which I will talk more about in the following parts.
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the intervention occurs. As the coevolutionary theory is studying the coevolving effects between populations or entities of populations, the next part introduces the research populations.
3.2 The research populations
3.2.1 Population 1: fast fashion company-case of ZARA
Fast fashion companies are keeping their expansion steps in China. Spain’s largest clothing industry the Inditex Group, including the brand ZARA, planned to make China its largest oversea market in 2013 (Economic and Commercial Counselor of Chinese Embassy in Spain, 2012)1. According to the latest data on Inditex Group’s official website, until now, there are a total of 152 ZARA storesin China, being at a second place in terms of the store numbers compared to its domestic market Spain (452 stores in Spain until April, 2014). Hennes & Mauritz AB (H&M) of Sweden will have a total of 114 stores in China until 2012, excluding the ones in Hong Kong. Other world famous fast fashion brands like Uniqlo (Japan) and Forever 21 (the United States) are also competing intensely, and expanding their business and market share in China.
Fast fashion companies, especially ZARA, have gained remarkable success. As mentioned before, ZARA is at the most forefront of this fashion retail revolution and has almost become synonymous with the term fast fashion. Combining its developing speed and appealing reputation, ZARA is chosen to be the representative of fast fashion companies here. As China is a complex market which has a different background than the western market, in particular because of historical and social influences, companies are bound to take appropriate strategies when entering the Chinese market. I choose the period from the year 2006 to 2013 because the year 2006 is the time when ZARA entered the mainland of China, which has a more typical Chinese environment.
When case study chooses one main research case, it doesn’t mean the research is just a particular phenomenon and is not generalizable. The research case here is not solely a sample, and my research goal is to connect theories with cases. Lipset, Trow and Coleman (1965) also point out that their single case study is not a particularizing analysis. As representative of fast fashion companies, I choose ZARA as the single case for fast fashion industry because this case is the most developed fast fashion
1 The article is published on the government website for Ministry of Commerce of People’s Republic of China,originally
comes from Economic and Commercial Counselor of Chinese Embassy in Spain,
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case and therefore, suitable for the critical test of the related theories. ZARA is not only the “common case” which captures the circumstances and conditions of the common situation but also the “revelatory case” which may provide evidence about the social or business processes related to some theoretical interest (Yin, 2014).
ZARA is not the whole population of fast fashion companies, but there is no doubt that it can be the representative. Because of the limitation of time and resources, this research chooses ZARA as the main research target. More research cases of fast fashion companies in the future would have a more complete picture for the coevolving effects between this fresh fashion industry and China’s traditional fashion industry.
3.2.2 Population 2: China’s fashion industry
I divide China’s traditional fashion industry as population 2 into three parts. The first part is the environment of fashion industry, the second part is China’s domestic fashion companies which are the most important entity of population 2, and the third part is other international but traditional fashion brands which also hold a strong position in China’s market.
(1) Murmann (2003) regards the rise and development of large managerial firm “as a new economic institution” (p. 4). Based on the coevolution theory, the entering and changes of fast fashion companies will have influences on the environment of China’s fashion industry. For example, fast fashion’s international fashion products and styles are likely to influence Chinese consumers’ fashion tastes.
(2) In order to clearly find out influences on China’s domestic fashion brands resulting from fast fashion companies, I pick up two typical Chinese domestic fashion companies to do research on, namely Metersbonwe and La Chapelle.
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brand offering fashionable and on-trend products at mass price”2. It began to transfer its developing and management center from Zhejiang Province to Shanghai since 1998. When its new headquarter was built in Shanghai in 2005, Metersbonwe turned its business model innovation to the management model innovation which represents its new developing stage. Metersbonwe’s typical and famous operation model is the “combination of outsourced production, retail of company-owned and franchisee sales”3. In 2006 the Group's retail sales exceeded RMB 4 billion, making Metersbonwe the largest casualwear retail brand in China. By using franchisees and building a strong team including French and local designers, the company opens around 30% new stores every year. By focusing on good quality and reasonable prices, Metersbonwe gains increasing popularity. Their corporate slogan is "Be Different".
As the representation of fast fashion of China’s domestic companies, Metersbonwe currently has over 5000 stores (Wang, Chai and Wu, 2012). Metersbonwe has the goal to build China’s ZARA and H&M (Shang, 2008). “The times in which consumers get to know what they need and how to consume need us to satisfy consumers with fast speed”, said Jiancheng Zhou, CEO of Metersbonwe (Shang, 2008).
The brand quickly catered to the needs of a young and increasingly fashion-conscious consumer base.
Until now, this company has developed five main brands, namely Metersbonwe, ME&CITY (including ME&CITY Kids), AMPM, MooMoo and CH’IN.
In its new Shanghai Headquarters, Metersbonwe opened a fashion museum for the public, including ancient and ethnic costumes and accessories many of which even cannot be found in national museums.
La Chapelle. Since the brand building in 1998, La Chapelle is focusing on ladies costumes and opens new stores every year, which is developing quickly in China’s fashion industry. It is a multi-brand fashion group in China that designs, markets and sells apparel products with a focus on mass-market ladies’ casualwear. But it didn’t make much profit until 2007. In 2008, La Chapelle began to rise up and its profits exceeded 16 million dollars since 2010. La Chapelle strives to offer consumers the latest fashion at competitive prices through a wide range of apparel products under eight brands (included 5 brands for women, 2 menswear brands and 1 childrenswear brand), namely La Chapelle, La Chapelle
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Sport, 7.Modifier, Candie’s, La Chapelle Homme, La Babité, La Chapelle Kids and Pote4. La Chapelle sells its products directly to retail consumers through retail points, which are totally and directly controlled and operated by its company. This direct sales model sets La Chapelle apart from the majority of its domestic competitors. Until December 2013, La chapelle’s extensive nationwide retail network comprised more than 5,000 retail points which are mainly located in department stores and shopping malls, across all 31 provinces, autonomous regions and municipalities in China.
Jiaxing Xing, the founder and CEO of La Chapelle wants to make the brand China’s ZARA which is focus on young girls’ and ladies’ wear (Zhao, 2011). La Chapelle has always been learning from ZARA since its beginning. Its learning strategy emphasizes on multi-brand or multi-style to occupy the terminal market. In China, the market of young girls and ladies’ wear was firstly occupied by companies from Taiwan, Hong Kong and Japan. It is actually those western brands, including ONLY, Etam, and Vero Moda, bring that market to maturity. These brands have been in China for many years, but only after 2005 the large-scale imitation by China’s local brands began (Qi, 2011).
(3) Considering that fast fashion companies’ international competitors, such as Esprit from Germany and Vero Moda from Denmark, are positioning the same group of consumers and their price is relatively higher than fast fashion products, the rise of fast fashion is also likely to have influences on these traditional fashion companies. Although these international traditional fashion companies entered China earlier, the expanding fast fashion companies bring threats to them. Just as their common international competition elsewhere, these traditional fashion powers will take action to keep and expand their market share in China. These traditional fashion companies are considered to learn from ZARA’s quick response, which is a kind of valuable and rare resource, and ZARA’s lower price, which is a valuable resource that results from the pricing and market positioning strategy. These attributes are regarded as resources for competitive advantages because they are helpful to exploit opportunities and neutralize threats in these traditional fashion companies’ challenging environment (Barney, 1991). However, compared with China’s domestic companies, these international-famous but traditional fashion companies have a more valid foundation and a more mature business model facing ZARA’s expansion.
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Including the coevolutionary elements introduced in chapter 2 and the two coevolving populations introduced above, the conceptual model is shown as the following figure 1.
Figure 1 Conceptual model: coevolution of the fast fashion company-case of ZARA and China’s fashion industry
3.3 Data collection
Combining prevailing theories with empirical observations is a significant data collecting method because the dual sources of information ensure that the actual study reflects an important theoretical or policy issue as well as questions relevant to real-world cases (Yin, 2014). Yin (2014) classifies six sources of case study evidence, namely documents, archival records, interviews, direct observations, participant-observation and physical artifacts. One of the data collection principles of case studies is to use multiple sources of evidence. Patton (2002) also mentions data triangulation in doing evaluation to establish the construct validity and reliability of the evidence. However, due to the connecting and relationship limitation, I collect data mainly from documents, archival records and direct observations.5 Documents include ZARA (Inditex)’s annual report, announcements and other written reports of events; formal studies related to the case I am studying; and news clippings and other
5 I didn’t get interview chances with management team members who have more knowledge about ZARA’s strategies in China. They replied to me to search for the information on their official website inditex.com, and the unlisted information are their “business secrets”.
Population 1: Fast fashion company-case of ZARA Population 2: China’s fashion industry
Industry environment: consumer orientation etc.
China’s domestic fashion
companies: cases of Metersbonwe and La Chapelle
Other international but traditional fashion companies
Population 1 and 2 as interactors
Coevolutionary dynamics: from the economic and institutional perspectives (the environment of China’s fashion industry)
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articles appearing in the mass media. Archival records include service records, organizational records and survey data produced by others about this research case. The direct observation stems from ZARA’s physical stores in western countries6 and China. Investigator triangulation of different evaluations and methodological triangulation of research methods are all triangulations Patton (2002) mentions when doing evaluations.
Data items
Population
Necessary research data Data resources
Fast fashion company-case of
ZARA (Spain)
Marketing and manufacturing strategy changes which are influenced by the economic and institutional dynamics when entering China
·Inditex’s annual reports from 2005 to 2013, and other relevant reports; ·Formal research literature related to
ZARA;
·News clippings and other published articles;
·Official account of social website in China.
China’s fashion industry
Changes of industry environment; China’s Metersbonwe and La Chapelle, and other international fashion companies: marketing and manufacturing strategy changes facing fast fashion company’s entering
·Related companies’ available annual reports7 and their official websites; ·Formal research articles related to
these companies;
·News clippings and other published articles;
·Official accounts of social website in China.
Table 1 Necessary research data and its sources8
3.4 Data analysis strategy
Data analysis of case study is the process to examine, categorize, tabulate, test or recombine evidence in order to produce empirically based findings (Yin, 2014). In Yin (2014)’s four general strategies of data analysis, my research develops a case description whose ideas for the framework come from the initial literature review and theoretical background. Theoretical orientation guides my case study analysis, helps to organize my entire research analysis and points to relevant contextual conditions to be described as well as explanations to be examined. After data collection, I build my research database and then categorize this data according to different theoretical orientations. The high-quality
6 As the research is doing in the Netherlands, ZARA’s physical stores from the western countries pick up the stores from the Netherlands.
7 Metersbonwe’s annual reports are available from 2008 to 2013; La Chapelle doesn’t have its annual reports yet.
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analysis principles pointed out by Yin (2014) guided my data analysis as well. I do attend to as much evidence as possible, address the most important aspect of this case study and use my own prior learned knowledge to analyze the case and its surroundings.
Summary
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CHAPTER 4: RESEARCH FINDINGS
Introduction
In this chapter, I present my research findings based on the coevolutionary dynamics from the economic and institutional perspectives of China’s fashion industry environment. In general, each subunit of economic and institutional perspectives first presents the general environmental findings, followed by the empirical findings of my fast fashion company-case of ZARA (population 1) and China’s fashion industry (population 2). A figure at the end of this chapter summarizes the casual relations between the two populations resulting from the economic and institutional dynamics.
4.1 Coevolutionary dynamics: from the economic perspective
After China became one member of the WTO, its tariff for imported products was lowered drastically. Furthermore, the increasing GDP also improved people’s income, what changed people’s consuming structure and increased the demand for products that improve the Chinese’s living conditions. Consumption became faster compared to previous years. On the other hand, many companies in China, especially those international companies which are influenced by American and European crisis, are slowing down their investments.
4.1.1 Market size China’s market size
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China’s fashion industry is at a turning point, from a traditional to a modern fashion industry; and it develops in a stable and upward way (Zhao, 2013).
Brand advantage. Nowadays, brand competition is fiercer than price or product competition compared with the past (Ji, 2011). As retail space is getting crowded in China, stores have to differentiate themselves, and brand popularity becomes even more important (China Economic Review, 28-03-2012). “The Chinese are the most brand-friendly people in the world. They use brands as tools for showing success in society, as weapons of advancement in the battlefield of life.” Tom Doctoroff, the North Asia CEO of marketing firm JWT said in one report of China Economic Review (28-03-2012). With easy access to international brands, Chinese consumers are prone to purchase famous brands.
New platform: the E-business. Electronic business has been thriving these years, and more and more transactions are done online in China (Ji, 2011). Without going to physical stores, consumers can get knowledge of the new items that are recently on shelf. Online shopping doesn’t need much time and the quick bargaining and delivery often exceeds consumers’ expectations, which saves time and energy for consumers. Because of long working hours and fast pace of life for Chinese people, the online shopping is no wonder so popular currently. As estimated, the online shopping users in China exceed 310 million in the first quarter of 2014. The biggest online shopping platform, Taobao, has a high consumer flow rate covering more than 80% of the online market share in China. Until March in 2013, sales of the Big Taobao platform ( which consists of Taobao, Tianmao and Juhuasuan) has exceeded 160 billion dollars.
Population 1: fast fashion company-case of ZARA
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consumers” love fashion but they have limited economic conditions. ZARA’s fashionable but fair priced products are popular among Chinese young people (Yan, Zhan and Wu, 2012). This is also the application of the “long tail strategy”, which shows the total value of limitless common products would not be less than the value of those big products. Achieving long-tail effects, ZARA satisfies these “non-prime consumers” to build a foundation of valuable consumers. This long-tail effect shows ZARA’s positioning strategy — the common but mass consumers (Yan, Zhan and Wu, 2012). In China, ZARA still distinguishes its products for women, men, younger women (the TRF series) and kids to target different consuming groups. The average visit rate of ZARA in China is 17 times a year, while the average industry-level visit rate is 3 to 4 times a year (Yan, 2008). The fast fashion brands have filled a long-standing gap in China between those local, low-end brands and the foreign, luxury or sub-luxury brands like Coach. ZARA effectively sets a new price tier. Compared to local brands, these fast fashion products are a bit pricey, a retail analyst at Deutsche Bank said (China Economic Review, 28-03-2012). But as an international-famous brand, it offers fair prices compared to other international brands.
ZARA is young but world-famous already, which makes ZARA even more preferred by Chinese consumers compared to local brands, especially when they compete at the same price level. ZARA has a great brand advantage when it is developing in China and it is still spending quite a small proportion of budget for advertising compared to other fashion brands.
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(Xu and Cui, 2013). This kind of promotion will also cut expenditure on shop’s decoration for ZARA (Ji, 2011).
It’s difficult to discern ZARA’s success in China financially since Inditex releases little China-specific data. One analyst however estimated that ZARA’s sales reached 515.3 million dollars in China in the fiscal year ending in January 2011. That estimate may be low because ZARA’s average store in China is larger than its average store in a western market (China Economic Review, 28-03-2012). The sales of one store in Shanghai in February 2007 was 128,000 dollars for its first open day, which is about the total amount of day sales for 80 Chinese fashion brands (Bai and Lv, 2007).
Population 2: China’s fashion industry
Metersbonwe and La Chapelle are two representative brands of China’s fashion industry, as introduced in the methodology part, which are influenced by the entering fast fashion companies to a great extent. This research filtered out three main changes for China’s domestic fashion companies under the new market environment.
(1) The first point is market positioning. Facing ZARA’s expansion and popularity, Metersbonwe and La Chapelle react with learning processes from the multi-brands strategy, which is not only the classic strategy of ZARA’s parent company Inditex but also the developing trend for modern fashion companies. There are many foreign brands abroad, but not the same number of companies which are running these brands (Zhao, 2011). Operations of multi-brands offer both opportunities and challenges for China’s domestic fashion companies.
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stores and regular stores will be changed into big image stores of ME&CITY (Shang, 2008). In 2011 and 2012, Metersbonwe pushed forward its kids brands ME&CITY Kids and MooMoosuccessively. Metersbonwe now focuses on distinguishing its sub-brands and making them get close to consumers, not just copying ZARA’s operation pattern. The basic mission for Metersbonwe currently is to build a marketing network and information system to manage feedback and react accordingly (Shang, 2008).
La Chapelle. Emphasizing on multi-brands or multi-styles is La Chapelle’s most important learning process from ZARA. Each brand has different styles to achieve the effect “1+1>2” to satisfy different consuming groups (Qi, 2011). Among its eight brands mentioned before, La Chapelle has three main brands, namely La Chapelle, La Chapelle Sport and Candie’s. La Chapelle targets the white-collared office lady aged from 22 to 30, and is thus more expensive compared to the other two brands. La Chapelle Sport targets the casual women wear. Candie’s came to China in 2011 and is a brand cooperating with an American fashion company. Candie’s targets younger girls aged 16 to 24, and is thus relatively cheaper. When the brands are distinguished from each other, the performance of the whole company is much better than in the beginning period. La Chapelle aims to run the company through multi-brands, by having 10 to 20 brands in total instead of just the fashion designing (Qi, 2011). Chinese fashion market is on its way from dispersion to gathering. La Chapelle is at its exploring stage to develop a multi-brands strategy and adds one brand each year on average. Since the beginning of its second brand La Chapelle Sport, two brands now both occupy nearly half of the total sales, what shows the success of the second brand. La Chapelle’s first men’s wear brand La Chapelle Homme was launched in 2011, and the kids brand La Chapelle Kids showed up in 2013.
(2) The second point is brand building.
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have a strong innovative image it should find a spokesman. Metersbonwe’s exclusive stores with large area are also its advertisement to attract consumers. It is now focusing on brand building and exploring the global market after a stable position within the domestic market.
La Chapelle. La Chapelle is learning from ZARA’s less advertising strategy, so it focuses less on advertising. However, this strategy is not suitable for La Chapelle which is at the starting stage and doesn’t have such strong designing competence as ZARA. This will become clearer with evidence of the institutional perspective. After all, in the long run, building a brand will help companies get close to consumers and expand globally (Zhou, 2013).
(3) The third point concerns online shopping. The Internet is like a battlefield that one cannot escape and where one has to occupy at least a small position. Metersbonwe is at the front place for occupying the online fashion market. It has built its own online store “banggou.com” in 2010 and began its cooperation with the Taobao platform for its official online flagship store in the same year. Although not as popular as ZARA, yet Metersbonwe caught this business opportunity earlier than ZARA and many other fashion companies in China. La Chapelle doesn’t have its own online store till now. Its online store and cooperation with Taobao are still on its current schedule. The Internet overturns that traditional marketing way. Consumers used to compare several close products or brands before they purchase, but in the Internet they have the chances to compare endless products or brands and have better choices. More choices also bring confusion and difficulty to make decisions, and fashion companies are bound to deal with this conflict and be careful with its products’ categories and designs.
4.1.2 Competition
Competition in China’s fashion industry
Nowadays, Chinese media is used to report the entering of foreign brands as invaders to conquer China’s fashion market. ZARA mainly faces competition from two sides: China’s domestic fashion companies and famous international fashion companies.
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that putting the reservation cost to manufacturing more qualified designs is more economical and this will benefit both fashion companies and manufactories. China’s domestic brands lack more trained designers as well (Yan, Zhang and Wu, 2012).
Before ZARA entered China, China’s domestic brands were mainly developing in secondary cities because other top brands or famous international fashion brands occupied the developed areas. When ZARA and other fast fashion companies came to China and expanded to China’s secondary cities, China’s domestic brands began to face great competitive pressure (Lu, 2011). The brand is the most important intangible asset for an enterprise (Zhao, 2008). Compared to foreign fashion brands, China’s local companies are better in distinguishing features and various ways to spread their brands. In contrast, foreign brands are specialized in products’ scales and scopes, but utilize simple way to spread their brands. China’s local brands lack the competence to compete with the well-known foreign brands in terms of design, marketing and quick-response (Zhao, 2008). For China’s domestic fashion companies, it is too early to lead the fashion industry, but making profits is extremely urgent (Xiang, 2011). One advantage for China’s domestic fashion brands however is that the prices of their products are lower than the prices of fast fashion products. This helps them gain competitiveness in third-tier cities (Zhou, 2011).
34 H&M doesn’t admit its fast fashion images (Zhu, 2013).
There are other famous international brands with higher price levels compared to ZARA, such as Esprit from Germany and Vero Moda from Denmark. These fashion companies are traditional fashion companies, which differ from fast fashion companies in different degrees. Their marketing condition is not optimistic in China. Esprit’s net profit dropped 98% in 2011 compared to the previous year. Plenty of competitors are poaching ZARA’s employers to learn its secrets. “My main task at C&A is to replicate Inditex's obsessive focus on its products and its shops,” says Mr Pavia, who has hired people from Inditex to help him (The Economist, 2012). However, no one has ever copied Inditex's business model successfully. “I would love to organize our business like Inditex, but I would have to knock the company down and rebuild it from scratch” one executive in Gap said (The Economist, 2012). Nothing lasts forever in the fashion world and the gulf between Inditex and its competitors is bound to shrink (The Economist, 2012).
Population 1: fast fashion company-case of ZARA
ZARA’s entery to secondary cities puts China’s domestic brands under great competitive pressure, because ZARA has an excellent brand image, product design and hold for fashion compared to China’s domestic fashion companies (Lu, 2011). Common consumers are the largest target group that should be focused on. ZARA is based on its competent parent company Inditex and possesses perfect marketing terminal networking, which is difficult for China’s general companies to obtain (Xiang, 2011). Traditional fashion brands, which are world famous and entered the market earlier than ZARA, face pressure and thus induce changes. This will be explained more detailed in the following description of population 2.
Besides the competition from the two parts, ZARA is also facing external risks like an interrupt of the supply chain and quality requirement risks (Zhao, 2013). ZARA makes strategies facing these competitors, such as opening online stores to expand its market reach in China. However, it is insisting on most of its classic business model. ZARA still doesn’t have many advertisements in China and attracts consumers mainly by its brand and store images (Gao, 2010).
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internationally than its prices or its positioning strategy do (Ji, 2011). Advertising and other promotional efforts are generally avoided worldwide except during the sales periods, which are typically biannual, in line with European norms.
Population 2: China’s fashion industry
Under competitive pressure from entering fast fashion company ZARA, China’s fashion companies react with different marketing strategies. I summarize two points for China’s domestic fashion companies Metersbonwe and La Chapelle.
(1) Operation model. ZARA mainly opens direct sales stores in the developed business areas while China’s fashion brands begin with stores opened inside shopping malls. Before fast fashion companies came into China, the domestic fashion companies mainly took the franchising pattern to run their brands (Xiong, 2012). They didn’t have strong control over the terminal market and could not get market information in time, which resulted in a decision-making delay. Fewer information about consumers’ demand caused large stock and a large proportion of discount products, which lower profits (Xiong, 2012).
Metersbonwe. Metersbonwe’s typical operation model is a combination of outsourced production, company-owned direct retail stores and franchisee sales. It is also called the virtual operation (asset-light pattern), which is its most important marketing strategy (Shang, 2008; Wang, Chai and Wu, 2012). It outsources the manufacturing and marketing process to suppliers and franchisers to save costs beforehand. This is also a win-win strategy to motivate related franchisers (Shang, 2008). Different places have different types of stores (Li and Liu, 2011), for example, the most developed business areas choose direct-sales-stores, whereas less developed areas still keep the franchising-agency form. A combination of more marketing channels and effective supply chain helps Metersbonwe control the terminal market, get instant information on consumers’ demand and decrease the repeated data maintenance among different apartments (Xiong, 2012).
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La Chapelle. La Chapelle sells its products directly to retail consumers through retail points, which are totally and directly controlled and operated by its company. Most of these retail points are located inside large shopping malls instead of being independent direct sales stores as ZARA. For example, La Chapelle and La Chapelle Sport are located mainly in shopping malls. Candies and La Chapelle Homme are relatively cheaper and target the shopping area around some supermarkets (Zhao, 2011). La Chapelle’s learning strategy emphasizes multi-brand or multi-style to occupy the terminal market, which is the basic business model of ZARA. Xing, the CEO of La chapelle pointed out that La Chapelle will keep learning fast fashion’s operating pattern instead of just the fashion styles. This mainly refers to the comprehensive direct sales stores and quick response (Qi, 2011). Since 2002, La Chapelle began to weaken its cooperation with franchisers and turned to the first-tier market, while it tried out direct sales stores in the developing market.ZARA’s entry in China gives La Chapelle more opportunities to learn its advanced marketing operation. La Chapelle has opened many large stores like ZARA until now, on average covering 500 to 1000 square meters.
La Chapelle has a database containing each day’s sales information from its retail points, which took the company five years to be build. This database shows the former sold quantities, styles and colors in the former corresponding period, the sales of the regular prices and discount prices, former store activities and weather condition in different places, etc.
(2) Improvement of reacting speed and designing ability. ZARA is not only famous for its quick response but also for its fashionable designs. The fashion director of Louis Vuitton, Daniel Piette, points out that ZARA is the most creative and powerful fashion retailer. ZARA hasn’t lost its fashion and design competence because of being a fast fashion brand. The most basic designs of ZARA also have attractive details. Compared to ZARA, China’s domestic companies are not rapid in releasing new products, and they are represented by a lower designing level. The products are casual but not fashionable enough, and lack remarkable designs and styles.
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needs to correspond with market demand and keep the quick response. Similar to ZARA and H&M, Mestersbonwe now pushes forward around 10000 styles each year (ZARA has around 12000 new styles per year). The products, from designing to market, take ZARA about 30 days. At the moment, Mestersbonwe can make this in 70 days (Shang, 2008; Xiong, 2012). Though the speed gap still exists, we cannot deny that this has been a big process for China’s domestic fashion company. Currently, 50% of ME&CITY’s summer series rely on fast fashion’s small-quantities and quick-response strategy. The imitation of ZARA also brings Metersbonwe the risk of heavy stock (Wang, Chai and Wu, 2012). Metersbonwe learns from ZARA to use intelligent management for returned and replaced products to lower market risk and reduce overstocked products. It also develops advanced package to maintain safety for on-the-way products.
Metersbonwe doesn’t have strong design capabilities compared to western fast fashion companies, it employs “buyers” who would buy the designs with the latest fashionable tastes and then copy the fashionable products with some decoration or detailed changes (Li and Liu, 2011), and keeps cooperating with remarkable designers from France, Italy and Hong Kong to improve its designing level. Mestersbonwe is good at combining creativeness with its basic designs, as the MTEE series has been very popular in 2010 (Li and Liu, 2011). Metersbonwe’s responsibility and duty due to its position to lead the domestic fashion brands in China, designers analyze the fashion trend before designing, which is different from ZARA’s direct fashion information. This lengthens Metersbonwe’s designing time. There also exits a gap for color control and designing between China’s domestic fashion products and global fashion products, but Metersbonwe is more familiar with the Chinese consumers’ model (Zhou, 2013). The localization strategy gives Metersbonwe much competitiveness (Wang, Chai and Wu, 2012). Concerning product types, compared to ZARA, Metersbonwe still does not own minor products such as jewelries and cosmetics (Li and Liu, 2011).
The sustainable development strategies of Metersbonwe are to speed up the supply chain and change traditional marketing to the online platform. These two breakthrough points are regarded as keys to win market shares in China and get closer to ZARA (Zhou, 2013).
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than 1000 styles for each brand, meaning around 8000 styles in total each year (Zhao, 2011). The current trends for fashion brands are to increase brands and refresh styles quickly. To make the supply chain effective, La Chapelle’s main target is to develop distinguished brands to differentiate consumer groups (Qi, 2011).
There are also findings for other international fashion brands. This research mentioned the developing condition for other international fashion companies in the beginning of this chapter. Large numbers of international fashion retailers have already taken their steps into China and have owned quite a proportion of China’s fashion market share. These globally famous western brands, which include ONLY and Vero Moda from Denmark, and Etam from France, help China’s fashion market to become mature (Qi, 2011). Other major retailers which are already established in China and closer to fast fashion include Mango from Spain, H&M from Sweden and Gap from the USA. These brands which are regarded as fast fashion brands deny that title on some occasions, for example, Uniqlo emphasizes its fabric skills and H&M doesn’t admit its fast fashion images (Zhu, 2013).
Compared to ZARA, these international fashion brands, such as Esprit from Germany and Vero Moda from Denmark, have higher price level. When their market share began to shrink, they took actions to maintain sales in China. Vero Moda and Etam are discounting more frequently to maintain their market share. ONLY is learning from ZARA to open direct sales stores in China (Wang, 2012). In different extents, the past top-ten-sales fashion brands, Vero Moda, Jack & Jones, Esprit, etc., are all learning from ZARA and trying to get close to “fast exhibition”, “fair price” and “fashionable” (Deng, 2012).
4.1.3 Manufacturing
China used to be the world factory, which made the majority of international companies transfer their manufacturing procedure to China or around China in the Asian area.
Population 1: fast fashion company-case of ZARA
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outsourcing factories. Products to the areas that are outside Europe are delivered by air from the distribution centre and then local freight contractors will transport the products to the stores from place to place. Compared to the traditional procedure, ZARA’s logistic efficiency is extremely high.
ZARA is famous for making its high-fashion clothes in Spain itself and the nearby countries Portugal and Morocco. The choice not to offshore its production to labor-intensive industry countries is one of the company’s success factors (The Economist, 2013a). This costs more than if its products are manufactured in China or other low-labor-cost areas, but this short and flexible supply chain allows ZARA responding quickly to changes in consumer tastes. ZARA sells the majority of its outfits at full price rather than at a discount (Xiang, 2011). ZARA’s decision to stay close to home has become its main source of competitive advantage (The Economist, 2013a). “Even if you save a couple of bucks an hour by shipping the stuff off to the Third World, you end up paying more in the end, because it destroys your flexibility” (a management consultant cited in the New Yorker, 2000, p. 74; Tokatli, 2008, p. 31).
After seeing excessive products that are “made in China”, the “made in Europe” mark gives freshness to Chinese consumers and makes them believe there would be some differences. Although this is helpful to promote purchasing behaviors, the costs and risks caused by long-distance production and delivery time still need to be considered by ZARA. In order to maintain its quick response and distribution efficiency, ZARA gradually outsources its production process to China or other Asian areas that are around China (Ji, 2011). ZARA’s top subsidiary manager is of the opinion that the capability to develop a collaboration with local suppliers can improve efficiency throughout its value chain (Cao and Dupuis, 2009). The chief executive officer of the Inditex Group announced in New York that ZARA’s percentage of global sourcing would grow gradually to 60%, to take advantage of those partially industrialized countries, principally China (Tokatli, 2008). As estimated, about 50% of ZARA’s products are made in Europe, while about 12% of the products have been manufactured in China since ZARA has outsourced part of the production stage to China (Ji, 2011). Labors’ improving skills in the low-labor-cost countries also contributes to ZARA’s outsourcing (Tokatli, 2008).
