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Critically Evaluate the Comparative Transnational Effectiveness of Benetton and Zara

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Zara and Benetton are two of the most acknowledged clothing companies in the fast fashion industry. The different international business strategies they adopt result in different transnational effectiveness. To begin with, this essay will give a brief overview of the motivation, means and mentality of these two companies, and then compare how they sustain their competitive advantages through integration, responsiveness and flexibility. Next, it will highlight their evolving strategies and demonstrate the structures, worldwide learning and innovation models they adopt to support the strategies. Finally, the evolving global roles will be analyzed.

Motivation, Means and Mentality

As well-known leading clothing corporates, Zara and Benetton both choose to expand aboard. Although their motivations to internationalize are quite similar, their means and mentalities are different in many ways.

Basically, there are two kinds of motivations: traditional motivations and emerging motivations. The biggest traditional factor that drives Zara and Benetton to expand aboard is market-seeking. The former CEO of Inditex, Jose Maria Castellano, pointed out that the limited market growth potential in domestic market was the main driver for Zara to go aboard (Martinez, 1997). In 1988, Zara opened its first overseas store in Oporto, Portugal as the first step to occupy global market (Lopez and Fan, 2009). Nowadays it has expanded into 88 countries and has more than 6,500 shops worldwide (Ruddick, 2014). Like Zara, Benetton set up its first overseas retail store only one year after the opening of 3 domestic shops. In 2009, foreign market accounts for around half of Benetton’s overall sales (Palladino, 2010). Zara and Benetton’s global expansion is also driven by emerging motivations. They both capture global demand to achieve scale economies. Because Zara and Benetton competes in a fast fashion industry, they focus on producing some basics that can meet universal needs and sells aboard to achieve economies of scale.

Although Zara and Benetton carry the similar motivation to global expansion, they enter global market in different modes. Zara mainly uses wholly-owned subsidiary to achieve internationalization. By contrast, Benetton usually takes the form of

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franchising and licensing. It is the first Italian fast fashion corporate that uses the quasi-franchising system to retailing (Crestanello and Tattara, 2009). Mentality refers to company’s strategy to go aboard. In general, Zara is evolving from global mentality to transnational mentality, while Benetton is witnessing the transformation from international mentality to global mentality.

Developing Transnational Strategies

Initially, ZARA and Benetton adopted Global Strategy and International Strategy respectively, for achieving the goals of global efficiency, flexibility and global learning.

Firstly, for achieving the global efficiency, both ZARA and Benetton take the advantage of national differences by centralizing the capital-intensive production, meanwhile, transferring partial labor-intensive activities in relatively low labor cost countries. For example, ZARA conducts about 64% of the production within the Spain radius area for protecting the production know-how, with 36% of the production of basic styles in Asia and Africa to reduce the production cost. Comparatively, Benetton mostly controls 80% of its production at home to enjoy the accession to superior domestic textile, with 20% of its basic products’ production in other regions (Decken, 2010). Additionally, the two companies pursue economies of scales in different ways. For example, ZARA triples other competitors’ annual sales by offering limited quantity but diversified choices to fashion-oriented customers to spread production costs. On the contrary, Benetton produces a considerable amount of garments dyeing with multiple colors but in limited styles, at the same time beats the competitors with the superior textile and dyeing quality, it enjoys higher margin from the standardized production with higher pricing (Fox, 2011).

Secondly, in terms of pursuing global flexibility, ZARA and Benetton adopt different entry modes to realize different levels of risk aversion. As mentioned above, ZARA expands mainly through wholly owned subsidiaries to guarantee tightly controlled and globally standardized operation. Benetton, by contrast, expands typically through franchising and licensing to avoid the macro risks of specific markets.

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Thirdly, in regard to global learning, these two companies adopts different innovation models. ZARA aims to ‘discover’ and ‘reactively follow’ the fashion trends emerging globally, while Benetton proactively ‘create’ the fashion trends with exploring its own innovations. Details will be given later.

On balance, both ZARA and Benetton provide standardized products to the world markets. Nevertheless, due to different pricing and different capabilities, ZARA turns out to adopt the Global Strategy as it faces slightly higher pressure of cost reduction than Benetton. In contrast, Benetton preempts the competitors with excellent quality and superior technology through the International Strategy.

Notwithstanding, both strategies evolve for strengthening the competitive advantages and building blocks for competitors. ZARA, comparing with Benetton, differentiates itself with increasing customer responsiveness, thus transforms to Transnational

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Strategy (Figure 1). By making good use of its capabilities like telecommunication information system, Zara makes sure the instant weekly tracking of different regions’ preferences with slightly adjusted offerings (Horn and Faulkner, 2010). These reduce the inventory cost of the unsalable product, besides, increase the sales margin by customer satisfaction. In terms of Benetton, even though it has the advantages of exclusive technology and superior quality, the cost and prices pressure from the emerging competitors like H&M and ZARA have forcing Benetton to further cut its cost, therefore chasing after Global Strategy instead, to be better off in the competition. For example, evidence shows that Benetton’s low cost advantage with JIT supported production (inventory cost 18% over total sales), almost surpassed by ZARA’s complex customer responsive oriented JIT system (inventory cost less than 10% over total sales) (Hill, and Jones, 2012).

Developing a Transnational Organization

To manage and support the process of changes in the strategies, Zara and Benetton applied different structures. Zara used to develop a centralized hub to support its global strategy. It centralized its

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