INTRODUCTION
As the intensification of globalization on the market and economy is in progress, the trends of outsourcing, internet marketing, franchising, licensing, market strategizing, operation management are prevalent in the business cycle.
However the reasons why companies survive or become moribund, is a crucial fact that needs to be investigated, considering the scope and complexity of the market. Competitive advantage is one concept that comes into the picturesque, but the question of how it shapes market behaviour or trends, consumer and producer behaviour is what this paper would like to investigate. Having gained prominence in the European market, American market, the Asian market is the next step for Zara, which leads to investigating how Zara can effectively outsmart its competitors; competitive advantage plays a central role here.
Zara is a flagship brand of the Spanish retail group, Inditex SA, one of the prominent performers in the retail market in recent years. (Dutta, 2002)
Zara has developed a unique business model and today Zara is a vertically integrated retailer, Zara controls every step of the value chain, only clothes with a longer shelf/fashion life time are mostly outsourced. The challenge of Zara is therefore that of keeping with the market challenges of service delivery and competitive advantage, strategic planning and management, alongside the effective control of customer relationship management (CRM).
The paper therefore seeks to find the best way of breaking the market by Zara in the Chinese clothing market; a market breaking formula alongside the compliance with suitable theories and valid data’s to support reasons for the adoption of the formula.
The choice of business model in a competitive market brings to fore a need for analysis, in terms of research; complementarity is another concept that would be explored; characteristics of firms that influence performance. The goal is to achieve coherence within a set of complementary which paves way for characteristics set at a high level or at a low level.
(Roberts, 2004)
The argument of Roberts is that of the cruciality of an organizational design in a competitive globe. The mix of strategic choice and organizational design, “mix and match” between the characteristics is not a combination to recommend. (ibid)
Operation management also as it concerns production management is crucial in the explanation of the trends of competitive advantage, it’s the design operation and improvement of the systems that create and deliver the firms primary services or product combinations.
LITERATURE REVIEW
The main concept as relevant to the research would be my focus here, relating it to the work and how relevant it is to the discuss. This section therefore explores the six traditional basis of competitive advantage.
Professor G.F Gause of Moscow University, was the father of mathematical biology, the concept of competitive advantage originated from him in 1934, when he published an experiment where two protozoans of the same genus in a bottle, with an adequate supply of food. He submitted that if the organism were of different species, they could survive and persist together, if they were of the same species they could not. His submission was tagged Gause’s principle of competitive exclusion, that no two species can coexist that make their living in an identical way, each must be different enough to create a unique advantage.(Henderson, 1989)
Establishing a unique advantage over many players creates an edge for maximization of profit, it also creates a rich environment, the greater the numbers of competitors emerge and the more challenging it becomes to develop ones unique advantage to survive.
There are several ways of perception or thinking about competitive advantage, firms could take an external view and analyse their industry structure and competitive positioning, or an internal view, looking first at their own resources and capabilities as the basis of plotting their strategic direction. Firms could focus on adapting a value chain framework for competitive advantage or profitability, earning a consistent higher rate of profit over competitors in the same market.
Strategic planning is the component of strategic management that aims at the formulation of a firm’s strategy; it is argued that strategic planning consists of logical sequence of steps. The intensity of rivalry and competition allows for a need to embark on product differentiation, branding, and marketing.
The crucial factor here is building and securing a competitive edge, to get ahead of the others and win in terms of profit and dominance.
PORTER’S FIVE FORCES FRAMEWORK
A company’s competitive advantage emanates from a vivid understanding of the competitive forces acting in its industry. This was the main submission of Porters forces of framework.(Porter, 1980) , which is a set of analytical techniques to help companies understand their industry as a whole and predict the industry’s future evolution, and to understand their competitors and their own position of surviving and dominance in the market. Succinctly Porters classifications are, power of buyers, barriers to entry, industry rivalry, threat of substitutes, and power of suppliers. The concrete goal of Porter’s framework is to find a position where the company can best defend itself against competitive forces or can influence them in its favour.
Value chain as one of the framework, according to Porter, every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. He argues that it is at at this level, as opposed to the company level that the unit achieves a competitive advantage. (Porter, 1987) there are two crucial activities that constitute the value chain, primary activities that create service, deliver and market the services, and provide after-sales support. These activities include inbound logistics, operations, outbound logistics, marketing and sales and service. The value chain therefore draws out two crucial things, the first , the company’s ability to transfer expertise among similar value chains, the second is the ability to share activities to achieve economies of scale, learning and scope.
The second categorisation is the business process reengineering, which posits that companies’ awareness of the activities in the value chain can lead to increased efficiencies when managers step back from their business and operational mould and ask the question: if peradventure we decide to start from the scratch , how would we design this process? This is the concept of business process reengineering (BPR), developed by consultants and reengineering experts. (Grant, 1991) Business process reengineering recognises that most processes involve complex interactions among many individuals and that these processes tend to evolve over time with little conscious or consistent direction.
Core competencies, which implies a bundle of skills and technologies rather than a single discrete skill or technology. Core competence, connotes the collective learning in the organisation, especially the coordination of diverse production skills and the integration of multiple streams of technologies, the root of competitive advantage.(Hamel&Prahalad, 1990)
Core competence is therefore about the organisation of work and the delivery of value, in the short run, a company’s competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. The real source of competitive advantage here stems from managements ability to consolidate corporate –wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities. Building core competencies therefore around skills and capabilities built over time and incorporation of the company’s best practice over the years.
The resource based theory of competitive advantage posits an inward looking approach to define competitive advantage, competitive advantage stems from companies’ internal resources and capabilities.(Grant, 1991) In a globe where customer preferences are volatile, the identity of customers is changing, the technologies for serving customer requirements are continually evolving and changing. An externally focused orientation does not provide foundation for formulating long term strategy, when the external environment is in a state of flux, the firm’s own resources and capabilities may be a much stable foundation on which to define its identity. (ibid)
Grant defined resources as inputs to the production process, where only few are ever productive, he submits that while resources are a source of a firm’s capabilities, capabilities are the main source of its competitive advantage.
The firm’s most crucial resources and capabilities lies in durability, difficult to identify and understand, imperfectly transferable, not easily replicated and a strong possession or clear ownership and control; likened to a firms crown jewel that need to be protected.
A response to the aforementioned states that, in a syndicated globe, core capabilities are no longer secrets to protect, they are assets to buy and sell. In an economy of scarcity, core capabilities are a source of proprietary advantage, in an economy of abundance, they are the best product.(Werbach, 2000)
Diversification is however a response to the no secret to protect thesis, it’s a strategy for building competitive advantage, the strategic thinking behind diversification revolves around two main issues, first, how attractive is the industry to be entered (profit potential),can the company establish a competitive edge or advantage within the new industry? Competitive advantage lies in exploiting synergies between different businesses within the diversified company Companies therefore diversify to enhance profitability by creating market power, they employ mechanisms such as predatory pricing, cutting prices below the competitors’ costs and sustaining losses over the period needed to drive their rivals out of business and reciprocal buying arrangements, which give them a leverage in the market.
STATEMENT OF THE PROBLEM
The problem stems with the incomplete provisions of the theoretical submissions, even the competitive advantage submissions does not really provide with a complete overview of what we have in the present globe , because its dynamic and more competitive than some few years back, the concept of complementarity posits the transformations within characteristics that influence performance. Flowing from this level of analysis is a picture of the problem, the success story of Ford is a clear instance of complementarity, the black model T, the firm had a tight product line and the production of the black model T went on decades, ford had low flexibility, and focused only on the model T, to change production, to model A, ford had to do multiple changes due to the inflexible product line. Ford had created an organizational design that fitted with strategic choice. The features of a tight production line and low flexibility were complements to each other. This shows the complexity of situations and their dynamics in most cases does not allow for replication of a particular success principle or formula else where, this is the main problem.
THEORETICAL FRAMEWORK
Game theory is concerned with situations where two or more players have to make interdependent decisions. It’s a game against nature; game theory is mostly used in the business cycle to get a feedback from the system. (Douma &Schreuder, 2002)
Linked to mutual forbearance is the idea that business as a series of cooperative and competitive activities that balance each other to create value-game theory. Business is cooperative, manifested by the importance of partnerships, alliances, customer relationship management, however business is equally competitive, demonstrated by the importance of capturing the market and gaining share, beating the existing competition and gaining dominance, this sounds good as an analytical tool for examining the trends,scope and a way of maintaining a competitive advantage in the Chinese clothing marketing as in the case of Zara. By putting value creation on centre stage, game theory allows business leaders to look at the current game and design the right conditions to extract the most value, this may often result in restructuring the game, changing the rules, profit sharing or creating a branded service.
Strategic application of game theory connotes that companies can systematically look
At the issues that confront their industry and decide on a plan of action on how to break the competitive advantage of other competitors before the attainment of dominance. From Grants perspective , game theory has two crucial contributions to strategic management, first it permits the framing of strategic decisions, by breaking down the game into its component parts, the principles of game theory enable managers to comprehend the structure of the competitive situation and facilitate a systematic and rational approach to decision making.
Game theory simplifies the game in terms of who are the players involved, what are each player’s action, does it tend towards opportunistic behaviour or collective goal? What are the benefits and costs from every combination of options? What is the strategic order of decision making? Game theory is categorised in three ways, the sequential and co-ordination game, simultaneous games. The coordination game depicts the choices players take although it might not be obvious what each player chooses.
Game theory paves way for managers to predict equilibrium competitive situations through insights into competition and bargaining and the consequences of each strategic move by one player. Game theory provides valuable insights into central issues of strategy, such as cooperation, non-cooperation, cheating and competition and the ability to analyse the aftermath of reputation, detterence, information and commitment to the game.
Game theory also points out that the game of business is all about creating and capturing value, Successful business strategy is about actively shaping the game you play not just playing.
Through game theory, the scope of strategic management as it relates to customer relationship management (CRM), gives a report of what is the trend in the market.
PURPOSE OF THE STUDY
The paper seeks to add its voice to the numerous researches , the powerful influence of globalization on businesses as it affects most businesses either through the foreign entry path or Indigenous entry, the analysis of concepts as they relate to the practical situation in the Chinese clothing Market is a crucial part here, the concept of competitive advantage takes the focal stage, the “how” to gain a competitive advantage through strategies in a competitive globe is a strong basis for the paper. The paper takes a critical, logical view point by adopting the games theory, which gives the true picture of what obtains in the competitive market and what to expect by taking certain decisions. The kind of strategy adopted is also in line with the theoretical cum practical argument of the games theory. An evaluation of actions of players, possible actions and outcomes and threats are forecasted.
HYPOTHESIS
The dissertation seeks to validate and investigate:
- That traditional theories of competitive advantage like Porter’s Five Forces Framework are not sufficient to fully explain and guide companies or firms towards achieving competitive advantage both offline and online.
- That new sources of competitive advantage exist, especially in the e-marketing and internet arena, companies therefore must strive to achieve a competitive advantage with the advent of the internet, and however the impact of the internet on competitive advantage would be a focus of debate.
- To show the role of business models as an enhancing tool to giving the company a large consumer base.
- To analyse the impact of transaction cost theory and competitive advantage.
RESEARCH METHODOLOGY
The theories of transaction cost, opportunism, the game theory and competitive advantage would be used in the paper. The paper seeks to use the theoretical framework which comprises of games theory, competitive advantage, as a form of understanding the dynamics behind remaining in dominance or advantageous position in the market, this relates to the fact finding mission the paper is going to engage on the best way for Zara to take control of the Chinese market considering its remarkable success in Europe. In a bid to get information and recommendations for the paper, online articles, journals, textbooks that match the analytical discuss would be used, providing a wealth of information to the dissertation.
The main approach adopted in this research is deductive and qualitative in nature, a case study of a specific company, means a study of the profile, business acumen, project, plan, CRM and a survey or questionnaire. The traditional bases of competitive advantage, would be examined critically, the main goal of the exercise been to discover and recommend ways of improving Zaras’ competitive edge in the market. The Primary and secondary form of research and data collection would be exploited. Data would be collected online and through primary research which entails a questionnaire sent out to the potential consumers and consumers, of their perspective of the brand and services of Zara, which would be analysed strictly, the competitors in the market would also be studied strictly vis-à-vis the ample chances or the perceived competitive advantage Zara would attain.
The detailed integration or conglomeration of theory and practice would be strictly accomplished in a new sense. The theories in question are that of competitive advantage, transaction cost, and games theory to mention but a few. The use of the internet as a way of breaking into the market would also be a base of analysis.
The dissertation would therefore revolve around:
- Which strategies are best for the Chinese Clothing market?
- The influence of culture and consumer relationship management as a strength or weakness that would favour success or failure.
- Which of the traditional and e-bases of competitive advantage are most useful and in what combinations?
- The impact of competitive strategy and corporate strategy on Zara in the Market.
- Which theories are most relevant for the thesis and why?
Some areas for further research would be highlighted considering the expanding market in the clothing market in Asia and Africa.
OBJECTIVE OF THE STUDY
The research seeks to examine from the theoretical perspective, the validity and potency of theories as it relates to the real world. The paper therefore seeks to find a theoretical base for the research, from the theoretical base, would be the foundation of the dissertation, afterwards the clothing market in China as it favours or negates the chances of Zara would be investigated through logical and deductive reasoning which entails the use of primary and secondary sources. The continual surge of businesses through the use of internet marketing, retailing would be a focal point of the paper. The internet and other business strategies would be explored, considering the ever deepening competition in the market and globalization.
LIMITATION OF STUDY
Considering the location of the researcher to the location or setting, its vivid that the collection of data and investigation might be distorted through the form of questionnaire or survey or interview, well to overcome this, the paper still intends to use questionnaire in evaluating the respondent’s views in data analysis. The use of secondary resources would also be used, to fill any vacuum, internet sources, journals would be explored. The non-proximity to the location would be a major problem, which would hinder a direct contact with retail managers and or store managers, the use of the survey or questionnaire however would be a fast way and more secure way of interpreting the data’s that accrue from the questionnaire. The limitation of time spent in analysing a subsidiary company in a diverse cultural setting is a limitation, but that would be overcome by the method of research, the data collection and analysis, taking into consideration the world of the internet, where information moves faster than air.
CHAPTER ORGANIZATION
Chapter one is the introduction , where the proposed thesis is laid and explained, a foundation to the dissertation, having methodology, conceptual framework , hypotheses, problem, limitation of the study to mention but a few. The chapter prepares the stage for the whole dissertation explaining basic concepts and their relevance to the central theme.
Chapter two examines the competitive advantage thesis, as against the games theory from an analytic perspective, bringing in arguments to fit into the framework. The relevance of the internet would also be discussed in this chapter. The normative and descriptive process, to the explanation of strategic management. The ideas of analyzing the environment, formulating goals, assess company’s strengths and weakness through SWOT, formulating corporate and competitive strategy, implementing strategy, evaluating strategy among others would be the main form of analysis.
Chapter three looks into the choice of theories, a look at the transaction cost, games theory, complementarity, the resource based view of the firm alongside the scope of customer in relationship to the Chinese clothing market.
Chapter four is for data analysis, the data from the questionnaire would be analysed, the need for e-marketing and sales would be further appraised and analysed here. The background and development of Zara would be analysed here.
Chapter five looks at the submissions from the questionnaire and makes a recommendation cum projection of the future of Zara clothing in the Chinese market, detailed analysis as it relates to the topic would be explored here. The competitive advantage as it relates to competitors positioning and Zara would be explored. Diversification as a tool of economies of scope, the production of two less costly goods separately.
Chapter six takes a look at research strategy, sample selection, operationaliation, validity, and reliability, and generalisability, problem associated with access and finally a recommendation and general remarks.
CONCLUSION
This focuses on a general summary of the fact arrived at during the research, the general submissions of the research work.
REFERENCE
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Dutta, D, retail at the speed of fashion, accessed 11th May 2008, http://www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf
Hamel, G, &Prahalad, C, the core competence of the corporation, Harvard business review, May- June, 1990.
Porter, M, Competitive Strategy-techniques for analysing industries and competitors, New York, Free press, 1980
Porter, M, from competitive advantage to corporate strategy, Harvard business review, May-June 1987.
Roberts, DJ, the modern firm –understanding organizational design for performance and growth, Oxford University Press, Inc, New York, 2004.
Henderson, the origin of strategy, Harvard business review, November 1989.
Werbach, k, syndication, the emerging business model for business in the internet era, Harvard Business Review, May-June 2000.
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