“Foreign Firms Entering Indian Fashion Apparel

Industry”

DISSERTATION

Submitted to

Submitted by
Harshil Sharma

1
LIST OF CONTENTS

List of Tables................................................................................5

List of Figures....…………………………………………………….. 5

List of Acronyms………………………………………………….... 6

Declaration…………………………………………………………... 9

Copyright Statement …………………………………………....... 9

Acknowledgement………………………………………………....... 9

Chapter-1 INTRODUCTION……………………………………………11

 1.1 Strategies12
 1.2 Objectives Of The Study14
 1.3 Importance Of The Study15

Chapter-2 LITERATURE REVIEW

Foreign Direct Investment (FDI) in India………………… 15
 2.1 Introduction15
 2.2 Reforms17
 2.3 Effects of Liberalization in India 18
 2.4 Routes To Inward Flow of FDI20
 2.5 FDI and Apparel Industry21
 2.6 Recent Changes In FDI Policy23

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  2.7 Fashion Market: FDI or Domestic Market Development?24

Chapter 3 MARKET ENTRY STRATEGIES…………………………………… 24

 3.1 Introduction 24
 3.2 Entry Mode25
 3.3 Entry Timing30
 3.4 Comparison Between Early Movers and Late Movers32

Chapter 4 APPAREL INDUSTRY………………………………………...... 33

 4.1 Introduction33
 4.2 Strategies Adopted According To The Preferences37
 4.3 Changes In 201241
 4.4 What’s Ahead41
 4.5 Challenges Faced In India43

Chapter 5 RESEARCH METHODOLOGY……………………………………………..45

 5.1Introduction45
 5.2 Research Approach: Inductive45
 5.3 Nature of the Research: Exploratory46
 5.4 Research Strategy: Case Study46
 5.5 Secondary data 47
 5.6 Sources of secondary data 47
 5.7 Company documents 48
 5.8 company websites 48
 5.9 Data analysis 48

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Chapter 6 RESEARCH ANALYSIS

Zara: Case Study……………………………………………49

 6.1 Introduction49
 6.2 Zara’s Market Strategies51
 6.3 SWOT analysis of ZARA53
 6.4 ZARA: India and success54
 6.5 Analysis of Challenges Zara Faced55
 6.6 Conclusion of Zara Case Study 57

CONCLUSION AND SUMMARY………………………………………58

 Limitations Of The Research60

REFFERENCES…………………………………………………………………. 61

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LIST OF TABLES

Table-1: Entry Strategy of firms and their time of entry in India

Table-2: India at a glance

Table-3 Comparing GDP of 2011 and 2020 of various countries

Table-4: Entry Timings and mode of entry of Different Firms

List of Charts

Chart – 1: FDI flow in India from1948-2010

Chart- 2: FDI inflows in Pre reform period

Chart- 3: FDI inflows in Post reform period

Chart-4: Percentage of shares of retail sector held by different sectors

Chart-5: Percentage of of share of organized and unorganized sector

Chart-6: Recent changes taking place in FDI policies in India

Chart-7: choices of entry mode on account of Risk/Return

Chart-8: Entry Timings

Chart-9: International Fashion Brands In India

Chart-10: International Fashion Brands In India with preferred mode of

Entry

Chart-11: Sales of Zara in the last five years

Chart-12: Time taken and acceptability of styles of consumers

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List Of Acronyms

FDI- Foreign Direct Investment

FII- Foreign Institutional Investment

MNE- Multinational Enterprise

UCB - United Colors of Benetton

FCUK - French Connection

WOS - Wholly Owned Subsidiaries

JV - Joint Venture

BMI - Brand Marketing India

MBRT- Multi Brand Retail Trade

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GDP - Gross Domestic Product

BPO - Business Process Outsourcing

FERA - Foreign Exchange and Regulation Act

MRTP- Monopolistic and Restrictive Trade Practices Act

FEMA- foreign Exchange And Management Act

NRI’s - Non-residential Indian’s

U.S. - United States

R&D - Research and Development

INR - Indian National Rupees

CEO - Chief Executive Officer

BRICS- Brazil, Russia, India, China and South Africa

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N.A.- Not Applicable

NEP- New Economic Policy

IRJC- International Journal of Marketing, Financial Services &

Management Research

RBI- Reserve Bank of India

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DECLARATION

No portion of the work referred to in the dissertation has been submitted in support of an
application for another degree or qualification of this or any other university or other institute of
learning.

COPYRIGHT STATEMENT

Copyright in text of this dissertation rests with the author. Copies (by any process) either in full,
or of extracts, may be made only in accordance with instructions given by the author.

Details may be obtained from your Programme Administrator. This page must form part of any
such copies made. Further copies (by any process) of copies made in accordance with such
instructions may not be made without the permission (in writing) of the author.

The ownership of any intellectual property rights which may be described in this dissertation is
vested in the Manchester Metropolitan University, subject to any prior agreement to the contrary,
and may not be made available for use by third parties without the written permission to the
University, which will prescribe the terms and conditions of any such agreement.

Further information on the conditions under which disclosures and exploitation may take place
is available from the Academic Dean of Manchester Metropolitan University.

9
ACKNOWLEDGEMENT

It gives me deep satisfaction to appreciate all the people who supported and encouraged me
during the course of my dissertation.

I also express special acknowledgments to my friends and classmates, for continuous

encouragement and inspiration, through the academic year. Finally my deepest gratitude and
appreciation is reserved for my parents and family, for giving me an opportunity to pursue a
Master’s Degree Programme in the AUD, as well as for their constant love and support
throughout the duration of my studies.

I sincerely acknowledge the efforts of all those who have directly or In-directly helped me in
completing my dissertation successfully.

CHAPTER-1

INTRODUCTION

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India is a country with diversified customs and cultures with every culture having its unique
identity. People following various traditions live here, their way of dressing also differ from each
other. Every religion has its own customs and traditions. The traces of Indians being fashionable
can be found out from the ancient remains of Harappa and Mohenjodaro civilizations. Since
independence globalization has been an integral part of the Indian fashion industry, due to which
changes have occurred in the style of Indian dressing.

With the changes in fashion industry taking place on day to day pace one of the most striking
developments during the last two decades is the spectacular growth of FDI in the global
economic landscape. So big multinational brands from various parts of world can now explore
different big markets of developed and especially of developing countries. With the liberalization
of many trade related activities in various developing countries brands like UCB, FCUK, PUMA,
ADIDAS and many more entered the fashion industry of BRICS countries.

In an emerging economy like India, fashion industry has now gained international recognition
and acclaim at several global forums, attracting a number of international client ele (Grail
Research, 2009). One of the main reasons to have contributed to the increasing popularity of
fashion brands in the country is the increasing consumer brand awareness, due to their rising
affluence (Rajput, 2012). Another reason to have contributed to the increasing demand of foreign
fashion brands among the Indian population is that most of them symbolize brands as a sign of
modernity and a reflection of their progression in economic and social life (Chadha and
Husband,2007; Dhillon, 2005).

India’s apparel market is in the phase of changes. Transition and integration with whole world
accompanied by rapid growth and rising urbanization has resulted in a new class of consumers
who are filthy rich, have connections globally , and a growing passion for fashion. In India’s
high-growth, fast-changing retail clothing market, we see significant new growth opportunities
for foreign and domestic players.
In India, apparel is the second largest retail category (behind food and groceries), representing
approximately 10 percent of the total market.

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1.1 STRATEGIES

Growth in the firms entering India started after the adoption of New Economic Policy (NEP) in
1991 which removed trade restrictions and abolished many acts like FERA(Foreign Exchange
Regulation) ACT, FEMA ( Foreign Exchange Management Act) and MRTP( Monopolistic and
Restrictive Trade Practices) ACT. All these acts which earlier restricted firms from entering
Indian markets now lead to a sudden upsurge in big brands exploring various parts of the world.
These firms did not enter at the same time so some were classified as early movers (United
colors of Benetton, Lacoste etc) and some were classified as late movers(FCUK, Diesel etc) .
Both early movers and late movers had their own set of advantages and disadvantages. Strategies
adopted by firms were different from each other and unique in their own way. (Boulding and
Christen 2001).

Entry strategies of different firms can be majorly be classified in four categories:

1. Licensing
2. Wholly owned subsidiaries
3. Joint Venture(majority)
4. Franchise or Distribution
5. Joint Venture (incl. Minority Stake)
Different brands adopted different strategies to enter Indian market at various phases. The chart
depicts the entry pattern of various firms and divide time period in three parts i.e. before
1990(before economic reforms), 1990’s (early movers) and post 1999 (late movers) :
All brands had their peculiar strategies which shared their own set of advantages and
disadvantages. The chart follows:

CHART-1: Entry Strategy of firms and their time of entry in India

Entry Strategy Time Period

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 1980s or Earlier 1990s Post-1999
Louis Philippe,
Allen Solly, Arrow, Jockey,
United Colors of
Licensed Lacoste, Lee, Nike, Van Puma
Benetton and 012,
Heusen, Vanity Fair
Wrangler
Wholly Owned
Bata, Pepe Jeans Levi’s® Hanes, Triumph
Subsidiary
Joint Venture
Adidas, Reebok Diesel, Nautica, Sixty Group
(Majority)
Aldo, Burberry, Canali,
Versace, Debenhams, Esprit,
Franchise or
Gucci, Guess, Hugo Boss,
Distribution
Mango, Marks & Spencer,
Mothercare, Tommy Hilfiger
Joint Venture (incl.
Celio, Etam, Giordano,Zara
Minority Stake)
Source: “Global Fashion Brands: Tryst with India” (A Report by Third Eyesight) © Third
Eyesight, 2009
Note: The above table shows the structure used during entry, and not the structure that exists
currently.

These different strategies involve different levels of risk-return proposition, so the entry mode
decision by a firm has to complement the long term goals, that it holds with respect to that
particular market (India) in terms of scale of operations, level of investments, etc. (Zekiri and
Angelova, 2011).These strategies would be discussed in upcoming parts of this paper and will be
analyzed thoroughly.
Today, the fashion industry has almost unlimited resources at its disposal. Because of the
presence of internet which has been a boon for fashion market as information and photographs
that appear on the Internet instantaneously reach millions of women the world
over. Immediately, they know which fashions are in and which are out. They see the colors and
trends on splashy, popular websites. They find out very quickly what they should be wearing

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and what they shouldn’t. also online sales have made a fashion which is prevailing in Europe to
be at same time trending in India as women here can easily order the required piece of cloth by
browsing on the required website.

Fashion marketing firms use some techniques which are used by many small scale business
players. Fashion marketing includes market research, branding, advertising and sales promotion
as in any other industry. Research includes information about the market for a particular brand or
product. Advertising helps generate sales, and promotion increases brand or product awareness.
Some fashion marketing techniques include fashion events, print publications, press releases and
media relations, digital media and product placement. The peculiar feature about fashion industry
is time period for a product to remain in fashion is not determined by anyone except the
consumers.(Aiello and Donvito, 2008)

The main objective of the research is to support the foreign fashion companies in their
strategically decisions while entering India, the changes or dynamics of FDI policies and how
firms adjust with that, to study the pros and cons of various entry modes, in relation to their
timing of entry. Also a case study is done on a fairly new entrant in Indian market ZARA which
entered India in 2008 and peculiar strategies adopted by it according to the customer base of
India and trying to figure out factors which will lead to success in Indian market.

1.2OBJECTIVES OF THE STUDY

1. To explore FDI policy and trend in India.

2. To outline the potential issues related to market entry and expansion strategy for
international firms.

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 3. To study various strategies adopted by foreign firms and their own advantages and
disadvantages
4. Identifying dynamic challenges faced by international firms in their market entry and
expansion in India.
5. To study the particular experiences by Zara entering Indian market and various steps
adopted by it to settle in Indian market.

1.3IMPORTANCE OF STUDY

This research would be helpful for all major fashion firms to analyze and study various strategies
or combination of strategies which they can adopt for settling their brand in India. Also this
research would help a firm in knowing various routes to enter Indian market and various norms
and FDI policies which have to be taken care of. This study would be of vital importance to
researchers of apparel market who want to study patterns of the FDI inflows and investment in
apparel market. Also it would be helpful to firms to study the success formulae of Zara and how
can a firm adapt to the environment.

CHAPTER 2

Foreign Direct Investment (FDI) in India

2.1 Introduction

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According to IMF definition of FDI, foreign direct investment is the category of international
investment that reflects the objective of obtaining a casting interest by a resident in another
economy.

FDI are thought to be the most sought after capital inflow. They are long term investments in
actual equity of a company. FDI results in production i.e. it is the actual investment in brick and
mortar.

To study FDI in India let us look at India’s economy at a glance.

TABLE 2: India at a glance

FDI policy in India has changed dramatically after independence, in the initial years of 1980’s
Indian industry was facing a slowdown in the growth due to low productivity, high
cost( Alluwalia 1985), due to which India entered into partial liberalisation policy regime with
the help of various committees set up by government in context of industrial stagnation since
mid- 1960’s. With the help of these committees set up by government foreign firms were
allowed to enter the Indian market in collaboration with Indian firms. Further during the partial

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liberalization phase Indian government announced “New Industrial Policy” (NIP) on July 24 th
1991 as a part of New EconomicPolicy, this resulted in de-regulation of Indian industry. The
essential objectives of 1991 policy were to “build on the improvements already made and correct
the distortions that might have sneaked in, maintain the sustained development in productions
and productive employment and to achieve international competitiveness. To attain these
objectives strong initiatives were taken with regard to the policies such as industrial licensing,
foreign investment and technology collaboration etc.

Chart 1: FDI flow in India between 1948-2010

As we can clearly see in period 1948-1990 FDI flow in India was very much ranging between 0-
1000 crores but after 1990 it sprung up so we can conclude NEP led to very high amounts of FDI
flowing in India.

2.2 REFORMS

As already discussed the initial stimulus to FDI in India came in July 1991 when the new
industrial policy provided automatic approval for projects with foreign equity participation upto
51 percent in high priority areas. In recent years, the government has initiated the second
generation reforms under which measures have been taken to further facilitate and broaden the
base of FDI in India. The rate at which foreign direct investment inflow has grown during the
post liberalization period is a clear indication that India is fast emerging as an attractive
destination for overseas investors.

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Among the developing nations India has one of the most transparent and liberal FDI regimes.
There are very few banned sectors (like lotteries and gaming and illegal services) and some
sectors with limits on foreign equity proportion. The entry rules are clear and well defined for all
the sectors.(Hooda, Sapna, 2011)

With the help of above discussion it can be said that India‘s FDI policy has become highly
liberal in the post-reform period, as a result the FDI inflows in the country have increased
massively (Singh, 2007; and Rajan et al 2008). Now the Indian economy is in its transitional
phase and has become major player in world economies. India have led all the world economies
with gross domestic product (GDP) growth rate more than 9% (Victor 2007), and is the fifth
largest economy in purchasing power parity (Wilson and Purushothaman 2003). It is also been
predicted that by 2050 India will be amongst top three leading economies (Hawksworth 2006).

2.3 EFFECTS OF LIBERLISATION IN INDIA

The post reform India saw a remarkable economic development that ended the balance of
payment crisis. The speedy regaining was attributed to major liberalization policies on the
national as well as the international fronts. Prior to 1991’s economic reforms, there were
certain restrictions to the extent of foreign investment under the Foreign Exchange and
Regulation Act (FERA), 1973. Foreign firms were subjected to a high rate of taxation, restrictive
labour laws and inadequate patent protection (Kochanek, 1986). But the liberalization policy
resulted to ease number of country’s regulatory policies.

The inflation rate in1991 was 13.6% which declined to 1.3% in 2001-2002 (Kulkarni 2010, p.
372), this was a tremendous achievement to the economy. Also the economic growth helped in
increasing imports and exports of the country and attributed in lower tariff rates. The Economic
Policy of 1991 ended the regulation of licensing except in 18 sectors and opened gates for
foreign investments (Panagariya, 2008, p. 96). The government authorities ended import
licensing on capital goods and corrected overvaluation of exchange rates, which became key
factors of the liberalisation process. The reduction in taxes and elimination of licensing

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incentivized the trade immensely. The policy of 1991 also opened the doors for other private
sectors participation including the foreign investors. De-reservation of many public sector
reserved areas, uplifting the general ceiling of 40% foreign equity and elimination of restriction
of foreign brand names in local market led to foreign firms to enter Indian market. Further the
equity was raised to 51%, including automatic approval by government to numerous industries
under such limit. This limit was increased to 74% and non- residents of India (NRIs) were
encouraged to invest in Indian market (Kesavan, 2003)

Panagariya in 2006 pointed that as a whole “India now has foreign direct investment policy
nearly as open as that of China ( Panagariya, 2008).

All this liberalized the Indian economy through opening of international trade and investment,
de-regulation helped in laying a strong platform for globalization (Aluwalia, 2002). During
1990s India was going through transitional phase which means shifting from close to open
economy and encouraging trade and foreign investments (Serban ,2012). At present India is in
‘peaking phase’ which means it is developing rapidly and has number of opportunities for the
retailer to function in the market. The window of opportunity analysis in figure 2 represents
different phases on Indian economy after liberalization.

India is going through transition phase in terms of market potential from investor’s point of view
and in real. Consumers have grown wiser with large amount of brands available at their
doorsteps. This incredible resurgence of India has made reinforced foreign firms to their position
in Indian market to capture the prevailing opportunity in India. Further the chart 2 and 3 shows
the trend of FDI inflows in India over last decade showing substantial growth. The following two
charts show:

Chart- 2 FDI inflows in Pre reform Chart- 3 FDI inflows in Post reform
period period

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Source : IRJC(International Journal of Marketing, Financial Services & Management Research)
Vol.1 Issue 8, August 2012, ISSN 2277 3622 “Foreign direct investment and economic growth
in India”- R.Anitha.

With the help of above two charts we can clearly understand impact the New Economic policy
had on India’s FDI regime. In Chart 1 as we can see till 1989-90 FDI flows were around 340
crores but due to the debt crisis it fell to meager 100 crores.

After the adoption of new liberal reforms FDI flows have risendramatically to a figure of 40000
crores which makes us to wonder from where did these funds came to India. These questions will
be answered in subsequent parts of this paper.

2.4 Routes to inward flows of FDI

FDI can be approved either through the automatic route or by the government.

1. Automatic Route: Companies proposing foreign investment under the automatic route
do not require any government approval, provided the proposed foreign equity is within
the specified ceiling and the requisite documents are filled with the Reserve Bank of
India (RBI) within 30 days of receipt of funds. The automatic route of the RBI was
introduced to facilitate FDI inflows. Since 2000 automatic approval has become very
significant and accounts for a large part of FDI flows.( Mathur, 2009)

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 2. Government Route: For the following categories, government approval for FDI though
the Foreign Investment Promotion Board (FIPB) is necessary:
a. Proposals attracting compulsory licensing.
b. Items of manufacture reserved for small scale sector.
c. Acquisition of existing shares.

FIPB ensures a single window approval for the investment and acts as a screening
agency. Some foreign investors use the FIPB application route where there may be
absence of stated policy or lack of policy clarity.(Mathur, ibid)

2.5 FDI and Apparel Industry

After the adoption of NEP apparel industry in India received a big boost. Not only many foreign
firms entered Indian market but also the domestic firms started maintaining international
standards to withstand the foreign competition. India’s large population base in turn has been an
inspirational market for the international companies.

The Indian retail industry has experienced growth of 10.6% between 2010 and 2012 and is
expected to increase to USD 750-850 billion by 2015. Food and Grocery is the largest category
within the retail sector with 60 per cent share followed by Apparel and Mobile segment.
(Deloitte, 2013)

Chart 4 : Percentage of shares of retail sector held by different sectors

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Within the organized retail sector, Apparel is the largest segment which is clearly depicted in the
following chart which shows apparel industry takes 33% share in organized sector.

Chart-5: Percentage of share of organized and unorganized sector

Source : Delloitte 2013 report

2.6 Recent Changes in FDI policy

The Government of India had been considering opening up the MBRT (Multi Brand Retail
Trade) sector to FDI for some time. A paper was released in 2010which got every economist

22
interested in it. In November 2011, the Government came out with its proposal for the new FDI
policy. But the government was unable to achieve political consensus on the issue,the policy
couldn’t be adopted. Finally the Government decided to pass the new FDI policy on MBRT in
September 2012.( Deloitte, ibid)

CHART-6: Recent changes taking place in FDI policies in India

Source: Delloitte, 2013, January, “Indian Retail Markets Opening More Doors”

2.7 Fashion Market: FDI or Domestic Market Development?

Every firm that enters a business has many objectives but one common objective i.e. to earn
maximum profit. Competitions are getting tough and with every passing month we can read that
another company announcing its entry into Indian market. It would certainly be a bold statement
to say that all firms that enter the Indian market make large chunks of profits. Though majority
of firms do incur profits still is this profit made by firms from outside hampering the domestic
industry. Though customers receive international quality products and these FDI investments
lead to more employment generations but this has hampered the domestic firms as most of them
are not able to withstand the foreign competitions and leave the market at a very early stage.
So we can say that these foreign firms share their own set of advantages and disadvantages for
Indian domestic market.

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CHAPTER-3

MARKET ENTRY STRATEGIES

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3.1 Introduction

As already discussed in the earlier parts of this paper the developing economies with a large
consumer base (especially India and China) are the main target groups of various big brands in
the world. China and India have become major players in the world economy. For example,
China and India have led all world economies with gross domestic product (GDP) growth rates
of more than 9% in recent years (Vietor 2007). Because of this rapid growth, China and India are
currently the third- and fifth-largest economies in purchasing power parity (Wilson and
Purushothaman2003). Some forecasts suggests that by 2020, China and India will pass Japan in
GDP in purchasing power parity and that by 2050 China will be the leading economy of the
world, followed by the United States and India (Hawksworth 2006).
Researchers have not yet developed a single coherent theory of the drivers of success or failure
of entry in emerging markets. There is no particular single strategy which will always result in
success of a firm. There are various factors and challenges present before a firm before exploring
the foreign market so firms need to analyze and predict the best possible strategy for itself which
will help itself in not only settling but become successful in some other country. We may classify
the factors on which success of a firm depends on mainly two types: (a) ENTRY MODE and (b)
ENTRY TYPE.

3.2 ENTRY MODE

When a firm plans to extend its operations overseas, mode of entry is a fundamental decision a
firm has to make. The choice of entry automatically constraints the firm’s marketing and
production strategy. The mode of entry also effects how a firm faces challenges in a new country
and deploys its skills to market its products successfully (Gillespie, Jeannet& Hennessy
2007).The modes to enter a new market is classified into five ways, (1) exporting, (2)
franchising, (3)licensing, (4) joint venture and (5) wholly owned subsidiary. Foreign firms can
choose any of these modes to enter emerging market. The key attributes that distinguishes the
different modes of entry is the degree of control over its resources (Anderson and Gatignon
1986).

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There have been modifications consistently in the literature of mode of entry, like Dunning,
Buckley, Cason, and Hill etc. describe entry mode as an institutional arrangement that makes
possible entry of company’s product, technology, human skills and resources into a foreign
market. In addition Luo (2001) states that entry mode has to fit inter capabilities of the firm,
strategic goals and the business environment.

There are around 15 different ways a firm can enter foreign market but most of them are a
mixture of two or sometimes three different modes so here in this section we will discuss the
major and most popular ways which firms prefer as entry mode in foreign markets.

1. EXPORTING:
Exporting is the handover of goods or services through national boundaries. Being the
simplest mode, enterprises begin their expansion into the global ground by trading into a
foreign market and then change to the other modes of entry. This method of entry
involves less risk, as production in host country is not required which means there is no
substantial cost of starting operations such as manufacturing, factory etc. (Agarwal and
Ramaswami, 1992). Exporting is of two types, first is ‘direct exporting’ which is
exporting to distribution importers and second is indirect exporting which is done using
commission agents.
Exporting has several advantages. First, the firm inflowing a foreign market can uphold
production services at home and transport the goods or services overseas.
On the other hand, it also has some disadvantages. First, the mode of entry is not
appropriate if the low production facilities are available at host country. Second, the cost
related to exporting goods in other country is highly expensive. This method is the most
common approach employed by companies taking their first international step because
the risks of financial loss can be minimized. Zara initially used to practice this trategy in
some foreign markets.

2. FRANCHISING

26
 Franchising is an agreement in which the franchisee can use the brand name of the
franchiser by purchasing rights of his brand in exchange of a payment and some portion
franchisee’s profit. This mode of entry differs from licensing as the franchisee has to
follow some rules set by the franchiser (Agarwal and Ramaswami 1992). It is employed
mainly by service and marketing companies, some examples of companies who used
franchising as a mode entry in India are Gucci, Hugo Boss.
The advantages of this mode are as follows, first the franchiser does not have to bear the
development cost or risk involved in entering a new market. Therefore it is a safe mode
of entry for companies who want to enter the market with low capital investment and
mind set of quick expansion. Second, it is the benefit for the franchiser in terms of local
market knowledge, capital and control over participation of management of franchisee.
Third the franchiser can have certain degree of control over the franchisee.
Apart from above mentioned advantages there are some disadvantages as well, first the
most crucial disadvantage of franchising is difficulty of quality control. The root of
franchising lies in the company’s brand name that conveys about its quality. This is
because this brand conveys the consistency in the quality of product and services .Second
franchising hinders company’s ability in achieving global strategic coordination.

3. JOINT VENTURE / STRATEGIC ALLIANCE

Joint ventures and strategic alliance are discussed together because strategic alliance is
weaker form of joint venture. A strategic alliance is a contract between two companies in
order to combine their value chain activities to gain competitive advantage
(Doole/Lowe/Phillips (1994). In this mode the cost and benefits are shared between the
ventured firms and the firm having larger share of financial contribution has greater
control (Yiu and Makino 2002).The objectives of strategic alliance are technical give and
take, research and development exchange, marketing relationships etc. on the other hand
joint venture can be defined as ventures between a national company and an international
company. However the common form share in a joint venture is 50-50, in which each
party has equal ownership stake. The ownership stake also varies between the managing
team from both the parent companies. However, the equity splitting in some joint

27
 ventures can be 49/51, allowing the national firm to have a higher share and tighter
control over the venture.
The base of forming a joint venture is to benefit from the complementary competitive
advantage of the international company and national company. Hence, the difference
between strategic alliance and joint venture is the contractual agreement, example to
share technology, research and development project without creating separate legal entity
as in the case of joint ventures.
Some advantages of joint venture and strategic alliance are strong command over
production and marketing. Second, it also reduces political and economic risk as there is
involvement of a native partner. Third, it is the best mode of entry in a new market where
ownership to foreign firms is not permitted. On the other hand it also have some
limitations like different aims and objectives of the venture firms can built tensions over
working strategies and risk of losing control over technology over venture partner.

4. Wholly owned subsidiary

A wholly owned subsidiary is a method of entry in which the parent company has 100%
proprietorship of the subsidiary’s stock. A wholly owned subsidiary can be set up either
by acquisition or by ‘green field venture’ which is starting entirely new legal entity
(Wang, 2009). The benefits of a wholly owned subsidiary are as follows. First, a firm
whose competitive advantage is centered on technical capability does not need to fear
loss of control over it. Second, it allows a company to benefit from overall strategic
synchronization. Third, it supports a firm to benefit since location economies. However,
wholly owned subsidiaries have weaknesses too. First, they are a very costly means of
entrance into a new market. It requires huge investment and organization resources.
Second, it means working without local market understanding and connections of a local
company. Third, the risk associated is very high related to the other modes of entry
(Agarwal and Ramaswami, 1992)

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 5. LICENSING
Licensing is an procedure by which the licensor or the foreign company gives the right to
the licensee or the national company to use one or more of the following, patent rights,
trademark rights, copyrights or product or process know how, in a particular foreign
market in exchange for certain performance and payment from the licensee. In exchange
for the rights received, the licensee generally agrees to produce the goods enclosed by the
rights, to market these products in an allocated market, and to pay the licensor some
aggregate related to the sales volume of such product in the form of royalty. The
objectives are aimed in benefiting both sides. The royalty fee from the licensee to licenser
would decrease the overall cost of the expansion.

Chart-7 :- Entry mode with respect to control level and returns

SOURCE:-Adapted from Sternquist, 2007

The figure above gives us a comparative view of strategies that are adopted by different
firms according to their preference based on the view of risk and return that it can reap. We can
clearly see wholly owned subsidiary and joint venture are ways that carry high control level but

29
are accompanied by high risk too but still these are the ways mainly that companies like to
follow when they enter a new market.

A firm can choose any of these modes to enter the new market. The important traits that
distinguishes these different modes of entry is “degree of control” (Anderson and Gatignon
1986). Amongst all the modes of entry ‘exporting’ has least degree of control, franchising,
licensing and joint ventures (JV) have progressively increasing degree of control and wholly
owned subsidiary has highest degree of control.

Resources based view and transaction cost view, oppose alternative theories. Resource based
view holds that as the degree of control increases the chances of success also increases as a firm
can manage and operate its resources accordingly and which are essential for success in
developing economy like India (Gatignon and Anderson, 1988; Isobe, Makino and
Montogomery, 2000). These resources can be tangible or intangible like marketing knowledge or
patents etc. having control over these resources makes a firm more flexible and enhances the
chances of success in the market. In relation with the fashion firms in India it can be beneficial in
two ways; first it can safeguard key resources such as patent theft. Second, control over internal
operations of the firm which is crucial for the success of the firm in new market (Luo, 2001).

The transaction cost view holds that costs rise with increasing control of the mode of entry.
Control and commitment are inseparably linked in mode of entry (Luo, 2001). High control in
entry strategies requires high pledge. Transaction cost theory recommends that the higher the
resource commitment and desired control of an entry mode, the higher is the cost. Wholly owned
subsidiaries and joint ventures are high-cost entry modes because of the level of resource
commitment required to set up operations (Pan and Chi 1999). These higher costs imply that
higher levels of investments are needed for the firm to break even and make a profit. This could
be analysed also with help of chart 7.

3.3 ENTRY TIMING

30
In addition to mode of entry, entry timing plays critical role in developing market (Pan and Chi
1999). This part of literature gives an overview about early entrants and late entrants in a
developing market and whether it can be a success or a failure.

Some advantages of being a first mover in the market are having a strong brand recognition and
large customer base, which can have a long lasting impression on the customers. This also makes
the following firms to put in extra efforts and resources to attract the customer of existing firm
(Boulding and Christen, 2001). In context with the fashion industry it can be very beneficial for
the first movers to have a strong brand image in the market. This can help in giving the
follower’s a tough competition and lead to early entrants over the late entrants.

On the other hand it is not guaranteed that these possible advantages will be beneficial enough to
give early entrants a strong position and the late movers in the market can learn from the errors
of early movers and seek help (Shankar et al, 1998). According to Cottrell and Sick (2002), some
first-mover advantages/ late-mover advantages are chance of learning from the errors, success
and strategies of first-movers i.e. “advantages of free-ride effect” technological discontinuities
that make first-mover investments obsolete. The free-rider effectmaybe observed in terms of
pioneering firm’s investments in fields like R&D and infrastructure advancement (Lieberman
and Montgomery, 1987). As mentioned by Schnaars (1994) few other advantages of the late-
movers as to lower cost by imitating the products rather than innovation and create a parallel
market with the existing players of the market and technological discontinuities can act as the
“gate-way” for the late-movers to enter the market (Foster, 1986).

CHART-8: Entry Timings

ENTRY TIMINGS

EARLY MOVERS LATE MOVERS

31
Free-rider effect in fashion industry is extremely functional for late-movers. As they can gain
knowledge from the trends, patterns and style of early movers and can take benefits from the
expenditure of early-entrants on R&D or machines for particular style or fabric. Moreover the
late-movers can also employee skilled workers who have experience of working for specific
fashion style and also trained in handling retail operations. Late-movers can analyze the failures
of the early-movers and avoid repeating mistakes done by them.

A pioneer fashion firm could enjoy a huge customer loyalty, even if it is able to provide them
with substantive designs, which have never been provided by any firm before. If a fashion firm
were able to capture exclusive space of preference of the customers, and enjoy a monopoly in the
fashion market for a longer stretch of time, than its decision to enter as a pioneer firm would be
considered as a successful one. This can make it very tough for its competitor firms to enter the
market, as it would require more investments by late-movers for surviving in the market.
However, as fashion industry is highly dynamic (Christopher, 2004), so even the first-movers
have to continue diversifying their product line, so as to enjoy their existing sustainable
advantage.

According to Lieberman and Montgomery (1987), the first-mover and late-mover do not enjoy a
mutual set of predictions in any business in terms of market-size, customer-base, supply chain,
etc. (Shankar, et.al., 1998). The early entrants may favor in terms of main physical locations,
technology space in terms of patents or customer conceptual space, pre-emption of uncommon
assets like geographic space,product space, shelf space (advantage by controlling the assets that
already exist rather than the asset created by the change of new technology) and may be capable
to frame the cost structure of the customers.

3.4COMPARISON BETWEEN EARLY MOVERS AND LATE MOVERS

A pioneer firm in a fashion industry is advantageous over late-entrants in terms of intact

customer base, prime physical locations such as urban or metro cities, with the potential of
becoming a fashion hub, can patent their design so as to evade its replication by any other firm
and even setting a benchmark price in the minds of the customers for their quality products.

32
The literature review demonstrations that there are certain first-mover and late-mover benefits in
every business. However, there applicability in fashion industry might be a slight dissimilar than
what we propose. Concentrating on the Indian fashion industry in specific, it would be
interesting to research and investigate, which of the précised first-mover and late-mover
advantages were actually dominant and how do their applicability differs with respect to
different foreign companies. However, firm’s choice to be first or a last-entrant depends upon the
conditions prevailing in the business, economic and social environment. It also depends on the
firm’s specific characteristics, in terms of unique R&D skills or strong marketing skills, where a
firm would act as a first-mover or a late-mover irrespective cases. (Jain, Pulkit 2012)

Although first movers have larger profitability in comparison with late-movers, Golder and
Tellis (1993) says that the pioneers are often not long-term winners and less profitable as
compared to late-movers. Further below is evidence discussed of two international brands
Lacoste being early mover and Zara being late-mover in India fashion retail industry and effects
of entry timing on their mode of entry.

Now in Indian fashion industry entry timing and its effect on mode of entry were immediate such
was the case with French apparel brand Lacoste who entered in year 1993 which was an early
mover in India retail apparel market. The advantage of being an early mover in the market for
Lacoste was huge customer base and locational advantages in metro cities of India but on the
other hand entering the Indian market through licensing had a disadvantage of less control over
the operations and the barriers faced by Lacoste were less developed market infrastructure.
Whereas Zara being a late mover entered the market by forming a joint venture with TataTrent in
year 2010 with 51% of share which gave them more control to handle the operations, other
advantage was learning from the errors of early entrants. Both the foreign brands had certain pros
and cons when they entered Indian market that influenced them to choose that particular entry
mode with respect to time, characteristics and nature of market.

33
CHAPTER-4
APPAREL INDUSTRY

4.1 Introduction

India has been exchanging culture and clothes with different parts of the world from past more
than 5000 years. This market continued even during the British Rule. After independence India
adopted a protectionist policy but still had its own share of brands in India.

Currently INDIAN market is at its peak considering growth of the apparel industry. According to
Harminder Sahni (Founder & Managing Director Wazir Advisors, India) Indian apparel market is
going to be fastest growing market by 2020. His statement is backed by high growth rate which
Indian apparel market is achieving continuously from past 10 years.

Table-3 Comparing GDP of 2011 and 2020 of various countries

Source: Sahni , 2012 , Indian textile summit , Mumbai

34
India was and has been one of the major markets for international firms. Europe’s luxury brands
have had a long history with India’s princely past, but modern India tickled the interest of
international fashion brands in the 1980s when it set on the path of liberalization. The pioneering
companies during this stage were Coats Viyella, Benetton and VF Corporation. At the time the
Indian apparel market was still fragmented, with multiple local and regional labels and very few
national brands. (Dutta, 2009)
India has seen the presence of international brands for almost a century, including mass brands
such as Bata and luxury brands such as Louis Vuitton. However, as the colonial government
systematically repressed local textile production, the local resistance to foreign products grew as
well. Because of all this international brands were present in very low numbers till 1980’s. This
was a period Indian economy had huge restrictions and protected its domestic industry from
foreign competition.

Indian economy opened up again in 1990 and with that a few international fashion brands
entered the Indian market. The pioneering companies during this stage were Benetton, Coats
Vivel and VF Corporation.

Even today international fashion brands, particularly those from the USA, Europe or another
Western economy, are perceived to be superior in terms of design, product quality and variety.
International brands that have been drawn to India by its large “willing and able to spend”
consumer base and the rapidly growing economy have benefitted in attaining quick acceptance in
the Indian market and given their high desirability meter, most international brands have
positioned themselves at the premium-end of the market, even if that is not the case in the home
markets.
In addition, Indian companies – manufacturers or retailers – have been more than ready to act as
platforms for launching these brands in the market and today there are over 200 international
fashion brands in the Indian market for clothing, footwear and accessories alone, and their
numbers are still growing.(Dutta , ibid)

35
CHART-9: International Fashion Brands In India

Source: third eyesight report, 2013 , “Global fashion brands: Tryst in india”

This chart here depicts the upsurge of various fashion brands in Indian market. This upsurge
consisted of two waves one in 1993 when different brands entered market at a very rapid rate.
Higher disposable incomes and the availability of credit significantly enhanced the consumers’
buying power. A growing supply of good-quality retail real estate in the form of shopping
centers and large format department stores also allowed companies to create a more complete
brand experience through exclusive brand stores and shops-in-shop.
Growth of apparel industry was further boosted by changing FDI deregulations. The number of
international brands continued to grow each year at a steady pace until the early 2000s, and took
off exponentially thereafter. By 2005 the number of international fashion brands present in India
was over three times compared to that in the mid 1990s. The second wave was witnessed at this
period only which took place around due to changes in FDI policies which encouraged
investment in retail sector and removed the 51% limit.

36
4.2 STRATEGIES ADOPTED ACCORDING TO THE PREFERENCES

There is no particular route that a company can take to enter India. These strategies have differed
from fir to firm. Many of the international companies entering India in the late 1980s and 1990s
chose licensing as the entry route to India to gain a quick access to the Indian market at a
minimal investment.
A few companies such as Levi Strauss set up wholly owned subsidiaries while others such as
Adidas and Reebok entered into majority-owned joint ventures. This helped them to gain a
greater control over their Indian operations, sourcing and supply chain, and brand.
In the subsequent years import duties for fashion products successively came down making
imports a less expensive sourcing option and the realty boom brought investors in retail real
estate that were ideal franchisees for the international brands. (Golder,2000). By 2003,
franchising became the preferred launch vehicle for an increasing number of international
companies, while only a few chose to enter through licensing.
In 2006 the Government of India reopened retail to foreign investment (allowing up to 51 per
cent foreign direct investment in “Single Brand” retail). Using this route, many brands have
entered India by setting up majority owned joint ventures, or transitioned their existing franchise
arrangements into a joint venture structure. So in all Government is keeping on taking steps to
attract FDI in India.
Analyzing and gathering data from various sources we can study the mode of entry of various
different firms with their respective time:
Table 4: Entry Timings and mode of entry of Different Firms

Company Country of origin Year entered Entry mode

1991-1997 Trade Liberalisation
Lacoste France 1990’s Licensing
Van Heusen US 1990’s Licensing
Vanity fair US 1990’s Licensing
Adidas Germany 1990’s Joint Venture
Bennetton Italy 1991 Wholly Owned
LEE US 1993 Licensing
Arrow US 1993 Licensing

37
 Levis US 1994 Wholly owned
Nike US 1995 Licensing
Jockey US 1995 Licensing
Reebok Germany 1995 Joint Venture
1991-2005 Trade Restriction in FDI
Puma Germany Post 1999 Licensing
Aldo Canada Post 1999 Franchising
Versace Italy Post 1999 Franchising
Guess US Post 1999 Franchising

Hugo Boss Germany Post 1999 Franchising

Mango Spain Post 1999 Franchising
Marks and Spencer UK 2001 Franchising
Nine West US 2002 Franchising
Tommy Hilfiger US 2004 Franchising
Espirit US 2005 Franchising
Since 2006 Trade Deregulation In Retailing
Diesel Italy 2006 Joint Venture

Nautica US 2006 Joint Venture

Gucci Italy 2007 Franchising
Walmart US 2007 Joint Venture
DKNY US 2009 Licensing
Burberry UK 2009 Franchising
Zara Spain 2010 Joint Venture
Source: Adapted from Dutta and Saxena (2009)
When we try to develop a Pattern between these strategies we hardly find any similarities except
that post 1999-2005 almost all firms adopted Franchising as a mode of entry but this trend again
changed after deregulations in FDI and now firms have started adopting Joint Venture as the
mode of Strategy as it helps firms to gain a significant amoumt of control in another country.

38
Chart-10 : International Fashion Brands In India with preferred mode of entry

Source- Third eyesight report, 2009, ‘global fashion brands: tryst in India’

We have already analyzed this graph in earlier parts of this paper where we studied the two
waves but here we would certainly like to point out the amount of companies choosing
franchising and Joint venture as mode of entry in recent past as compared to licensing which was
a clear favorite in the period 1987-1997. These graphs are taken from a report by Third eyesight
titled ‘Global Fashion brands: tryst in India’

In 2006 the Government of India reopened retail to foreign investment (allowing up to 51 per
cent foreign direct investment in single-brand retail). By the end of 2008, more than 40 per cent
of the international brands were present through a franchise or distribution relationship, while the
share of wholly owned or majority owned subsidiaries was 25 %. All these structures allowed the
brands to have greater control of operations, particularly of the product and these techniques kept
their unique operating styles intact.
Amongst the international brands that entered the Indian market, a few were on their second or
even third attempt at the market. For instance, Diesel BV initially signed a joint venture
agreement in 2007 with Arvind Mills. But since the begininning this relationship was struck in

39
some controversies and by the middle of 2008, the relationship ended with mutual consent, as
Arvind reduced its emphasis at the time on retailing international brands within the country.
(Arora,2010)

Within a few months of ending this relationship, Diesel signed a joint venture with Reliance
Brands as the iconic denim brand wanted to take on the Indian market full throttle and the Indian
counterpart had indicated that it wanted to rapidly build its portfolio of Indian and foreign brands
in the premium to luxury segments across apparel, footwear and lifestyle segments.

Similarly, Miss Sixty entered India in 2007 through a franchisee agreement with Indus Clothing.
It switched to a joint venture with Reliance Brands in the same year but the partnership was
called off in 2008. Reasons behind this were not very clear to analyze. Miss Sixty finally entered
India through a franchisee agreement with a manufacturer of women’s footwear and accessories.
During the turbulence of 2008 and 2009, a few brands also moved out of the market. Some of
them were possibly due to misplaced expectations initially about the size of the market or about
the pace of change in consumer buying habits. Others were due to a failure either on the part of
the brand or its Indian partners (or both), to fully understand what needed to be done to be
successful in the Indian market. Whatever the reason, the principals or their partners in the
country decided that the business was under-performing against expectations for the amount of
effort and money being invested, and that it was better to pull the plug. Amongst the brands that
exited the market during 2008 and 2009 were Gas, Springfield and VNC (Vinci).
In the last few years as the foreign direct investment rules are being softened in particular with
regard to the more flexibility in the 30% domestic sourcing. All this is done to attract more
companies in India and the companies already present here to increase their stake.
Several brands have taken the plunge into investing in the Indian operations and moved more
aggressively into the market. Since the year 2009, international brands increasingly opted for
joint-ventures as the choice for entry into the market. Reasons behind that decision have already
been discussed i.e. gaining more control. Even the brands already present started looking to
modify the nature of their presence in India in order to exert more control over the retail
operations, products, supply chain and marketing. Brands that changed their operating structures
and, in some cases partners, include VF (Wrangler, Lee etc.), Lee Cooper, Lee, Louis Vuitton,

40
Gucci, Burberry amongst others. Mothercare, the baby product retailer, which was initially
present through a franchise agreement with Shoppers Stop, formed a joint venture with DLF
Brands Ltd to enable the expansion through stand-alone stores. (Dutta, 2009 ).

4.3 Changes in 2012

2012 was a defining year marking the government’s decision to allow 100% foreign direct
investment in single brand retail business which led to permitting multi-brand retail in India. Not
only has this encouraged new brands to consider the Indian market but many existing brands
have started reviewing their existing operating structures and alliances, and have initiated moves
towards greater ownership and a stronger foothold in the Indian market.
Some of the brands have taken the decision to step into an ownership position in India as they
felt that India was too strategic a market to be “delegated” entirely to a partner (whether licensee
or franchisee), or that an Indian partner alone might not be able to do justice to the brand in terms
of management effort and financial capital. (Hooda, 2011)

4.4 What’s Ahead?

In the midst of economic upheaval around the world, how does India look as a market for
international fashion brands?
To answer this question it would be a very difficu8lt task .the current changing global scenarios
there is lot of unpredictability in Indian fashion market.
Although India’s position as a target market for international brands has been improving, as is
evident from the number of launches in the last 6-7 years, some companies considering
international expansion may prefer entering other markets that may seem more “familiar”,
developed and safe (such as Europe, Japan, South Korea or Taiwan). Against such comparisons,
India’s growing but fragmented market can seem chaotic and difficult to deal with as it involves
a lot of paper work, corruption and red tapism.
However, the fact remains that there are very few markets globally that can provide the sustained
size of mid-term and long-term opportunity that India does. We are already seeing the more far-
sighted and committed brands consolidating their position and presence in the market by
continuing to look at expansion, even while examining how they can make their existing points

41
of sale perform better. We also constantly come across new companies carrying out
investigations into the market.
In the current environment we expect to see a shift in the nature of launch vehicle. While
franchising seems to be a safe option for risk-averse brands in the current times, we will
probably see more brands with a long term strategy, who would establish a controlled presence
either through joint-ventures or through wholly-owned subsidiaries, since they can lay the
foundation of the business today at much lower costs today than in the past few years.

India’s foreign direct investment (FDI) policy, allowing FDI only up to 51% in retail trading of
“Single Brand” may have held back some fashion brands as they are still managed by owner
founder with a conservative outlook on “control”. However, in the last couple of years, we have
found companies not being deterred by the barriers to FDI.
As their comfort and familiarity with India has grown, international companies are more willing
today to create corporate structures that allow them a presence in the market today and a step-
through to a more controlling stake as and when government regulations allow.
All in all, we feel that international brands are in India not only to stay, but also to expand. There
is yet a lot of potential untapped in the market, and as the integration of the Indian consumer
with global trends continues, international brands can expect to find India an increasingly fertile
ground for growth. (Delloitte, 2013)

4.5 CHALLENGES FACED IN INDIA

42
“India is, moreover, a multi-cultural society and most of the MNCs do not understand the
diversity and the multi-plural nature of the society and the different stakeholders in this country”-
TALAT ANSARI

Whenever a foreign firm thinks of entering Indian market it has to face numerous challenges.
Not only filling up with the legal formalities but also the social environment of India is very
different as compared to its western counterparts. If a foreign apparel firm wants to enter the
Indian market it has to face the entire social political and also the competitive landscape.

1. Availability of Retail Space: Hypermarkets require more than 60,000 sq. ft. and
departmental stores require more than 20,000 sq. ft. of retail space. These types of places
are difficult to find especially in big cities. If you find these spaces these spaces occur not
only a huge initial but also a high maintenance cost.

2. High rental cost: it has been one of the major deterrents for foreign firms to expand
business to every big city of in dia. Rents in prime properties have increased by 50 per
cent in just three years. According to an industry estimate, rentals comprise approx. 40
per cent of total cost of sales in the retail sector. Rental cost therefore is one of the core
challenges an MNC faces.

3. Culture Customs and Norms: India has its own set of set of culture. Majority of Indian
crowd is middle class and somewhat apprehensive towards western culture so brands
have to mould their products in such a way that it does not harm sentiments of its
consumer base.

4. Currency Fluctuation: In the past six months, the dollar/INR exchange rate has
fluctuated by approx. 20 per cent. This is one of the major problems Indian economy is
facing right now. This may put considerable currency risk on any foreign investment in
India.

43
5. Red Tape: Getting various government approvals :Entry of a multi-brand MNC retailer
in the retail sector would fall under the approval route. Even after getting entry there are
various levels of bureaucracy to be faced by MNC’s. This implies that the MNC retailer
would have to go through different layers of Government departments before getting the
go ahead.

6. Skilled Manpower: One of the major challenges faced by the existing players is the
availability of skilled manpower; any foreign retailer planning to enter India will have to
face similar challenges.

7. Political Risk: With the ongoing political wars and also the largest political party already
opposed FDI policies so there is a lot of political debate going on related to FDI
investment which really makes foreign firms stay away from Indian market.

8. Corruption: Corruption is a big hurdle when doing business in India. As per the
Transparency International’s Corruption Perception Index, in 2005, India ranked 92nd
out of 159 countries in a study measuring perceptions about corruption. Foreign investors
should avoid violating local and foreign anti-corruption laws. Political and regulatory
risks can also pose a major challenge. Investment in sectors which require continuous
interface with various regulatory authorities expose the investor to delays in
implementing the project thus affecting their profitability. Foreign investors also face the
challenge of dealing with rampant bureaucracy at various levels of federal, state and local
governments.

9. Inadequate Infrastructure: India’s weak infrastructure manifested by its poor energy

supply, unpaved roads, ineffective airports and ports pose a major challenge to foreign
investors. Infrastructure inefficiencies like inadequate power generation adds a
significant cost factor for manufacturing companies in the country.

44
 10. Middle class consumer base: When luxury brands enter Indian market the focus on rich
people as their target customers but to set up a strong industrial base it has to attract
middle class people which are about 60% of Indian population.

10. Imitations: India has a large imitating market which sells lower quality product at a very
cheap price which looks just as the original product. This product is found to be very
attractive by the middle class people of India and lead to large amount of loss in market share
to foreign firms.

The above mentioned points will help us in our case study and help us in analyzing are there
more such factors or hurdles a firm has to face.

CHAPTER-5

45
Research Methodology

5.1 Introduction
After the research subject was sorted and formulated, the research methodology to be conducted
was devised. The research methodology section involves explanation and justification for the
nature of the research, research strategy and design, sampling, research method and data
analysis, essential for a well-structured methodology (Ghauri and Gronhaug, 2005). The purpose
of this section is to explain and justify the main methodological choices and their likely
limitations, with tactics to counter them.

5.2 Research Approach: Inductive

Approach followed by the researcher should be fundamentally well known, as it helps to make
refined choices about the selection of the appropriate research design, strategies and choices and
also account for any possible limitations (Easterby-Smith,2002).
The inductive approach, usually deals with case studies, where by recognizing the nature of
relationships among constructs, within and across cases, and also by identifying their
fundamental logical arguments, a theory is constructed.
(Yin,1994).
Thus, the focus was on collecting company specific data i.e. of company ZARA, interpret it and
thereby try to build a theory. The findings of the research intend to contribute to present
literature, to advance knowledge about the strategic challenges and techniques required to be
known to be successful in Indian market.
So after the research approach was decided, the next step in the research process was deciding
about the nature of the research.

5.3 Nature of the Research: Exploratory

The nature of the research can be categorized to- explanatory and exploratory. An explanatory
research is conducted to discover and report some relationships and interactions among different
aspects of the phenomena under research (Ditsa, 2004).

46
An exploratory research is conducted to probe past and current happenings, so as to obtain new
understandings and access phenomena in new light (Robson, 2002). The present literature is
exploratory in nature, as it seeks to provide new insights in the field of Indian fashion industry by
studying the firm ZARA’s unique and distinctive style of expansion in Indian market.
Different sources were referred to study Zara’s development strategy which could help us in
knowing Zara’s past , understanding Zara’s present and try to predict Zara’s future. After
deciding the approach and nature of the research, the strategy for conducting the research was to
be decided.

5.4 Research Strategy: Case Study

The strategy applicable for conducting the present research was a case study research strategy.
According to Yin (1994), case study approach helps to examine existing phenomena under the
influence of real life perspective. This research deals with real life context involving foreign
fashion firm ZARA in the Indian fashion market.

So case study approach was adopted and was further substantiated on grounds of thepresent
research being exploratory, inductive and qualitative, supporting the use of case study for
analysis (Bryman, 2008).

5.5 Secondary Data

Secondary data is the information collected by someone else for a specific purpose, but is used
by the user for the investigation of an enquiry or answering the research question (Saunders,
2003).
Also, secondary data is permanent and often easily available, hence the findings of the research
can be easily checked for credibility and are more open to public inquiry (Denscombe, 1998).
The secondary data is classified into three groups: documentary secondary data, survey-based
secondary data and multiple-source secondary data (Saunders, 2003).

5.6 Sources of Secondary data

47
Documentary data (Company Documents and company Websites)
The documentary secondary data sources are grouped as -Written material and non-written
material. Written materials include use of organization’s websites, organization’s records, reports
of committees, reports to shareholders, newspapers, books, and journals for conducting the
research (Saunders,2003). Non-written materials comprises of tape and video recordings,
pictures, drawings and television programmes (Robson, 2002).The present research
complimented the use of documentary data in the form of company documents and company
websites, as written data provides for useful qualitative evidence for conducting the research, and
can be easily collected in comparison to primary data, leading to time and cost saving (Saunders,
et.al., 2003).Thus, secondary data has the advantage of saving of resources, like time and money
(Gauri and Gronhaug, 2005).

5.7 Company Documents

Survey of company documents is significant in offering information about their performance,
turnover, policies, strategies, products and services in detail. The company documents are highly
dependable and precise. Moreover, documents play an explicit role in the data collection for the
case studies (Yin, 1994). Though it is difficult to gather company reports but with presence of
internet they can be easily availed and all the minute details about a company can be easily
availed.

Cooper and Schindler (2001) emphasizes that the responsibility of reliability, credibility and
validity of secondary data utilized in the research are solely of the researcher. However, this
research used the company documents that are highly trustworthy and accurate. The only
limitation was that it was difficult to search for country specific documents (India in this case),
as most of the multinational companies announced global annual reports. So, a reference was
made to the press releases that the companies made with respect to their Indian operations.

5.8 Company websites

48
The web based information is an economic research tool and are popular data collection tools,
due to their worldwide easy access and low cost. A lot of company statements can be easily
available on the firms official website (Markus, 1994). This method was used for gathering
regularly updated information that will be useful in building the case study. The company
websites provided useful information about the policies and mode of operation, followed by the
fashion companies, on the basis of the advantages and disadvantages experienced by the firm, on
its entry into the Indian fashion market. The profits levels, further expansion strategies can be
availed of at company’s website and proves as a trusted source. Though difficult to access but
full of information Zara’s Official websites Zara and Zara India were of immense use.

5.9 Data Analysis

The data collected form secondary sources will be analyzed using both qualitative and
quantitative methods depending on the nature of the data. Quantitative analysis will involve
Descriptive and analytical statistics. Descriptive statistical tools like frequency, percentage, mean
will be used to analyze the data. The analyzed data shall be presented in the form of tables,
diagram, Pie chart, flow charts and texts with suitable interpretations, generalization and
implications. The Microsoft excel tools will be used to process the data. Different patterns
related to strategies adopted by different firms will be tried to bring out. Also the analysis of FDI
trends in India would be done to see whether policy changes brought in by India have actually
resulted in growth of FDI. Also during the specific case study of Zara challenges faced by the
new entrant would be analyzed using the Porter’s five forces model.

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Chapter 6: RESEARCH ANALYSIS - ZARA: CASE STUDY

6.1 Introduction

Zara is a Spanish brand of clothing founded by the visionary Amancio Ortega Gaona and Rosalia
Mera in Artexio, Galicia. It is one of the major selling brand of one of the biggest fashion retailer
“Inditex” which is a global specialty retailer that designs, manufactures, and sells apparel,
footwear, and accessories for women, men and children through its chains around the world.
Zara is the largest and most internationalized of the six retailers that Inditex owns: (Zara,
Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho).

ZARA was founded in the year 1975. From that moment forward, Zara’s expansion has been
unstoppable. By the year 1990, Zara had opened stores in Oporto, Portugal, New York, USA,
and Paris, France (Inditex, 2012). Utilizing Zara’s strong brand image, Zara Home was
introduced in 2003, providing housewares. Later, in 2007, the first online store was launched to
sell Zara Home products (Inditex, 2012).

Zara’s aim according to Amancio Ortega is to democratize fashion by offering the latest fashion
in medium quality at affordable prices. What distinguishes Zara from its competitors is the
Feedback that Zara's managers get from the customers at the point of sale about new garments or
new products that they are interested in. Store managers report the demands of customers and the
sales trends to the headquarters on a daily basis. The design group will use the feedback to create
new articles or modifications to the existing goods and then deliver items to the store.

50
Chart-11: Sales of Zara in the last five years

16000
13793
14000
12527
12000 11048
10407
10000 9435
2008
2009
8000
2010
6000 2011
2012
4000

2000

0
Sales in billions

Source: Zara Sales from Inditex Annual Report

The Figure above shows sales of Zara in the last five years which show a tremendously rising
pattern as in last 5 years sales of Zara have increased by 46% which shows its tremendous
success.

After 38 years of operation, Zara now has 1,830 stores in 82 countries across Europe, America,
Africa, and Asia. The number of stores that Zara has accounts for approximately one-third of
stores that Inditex has; however, they generate more than 64% of Inditex’s sales (Inditex, 2011).
Zara right now is household name in almost all parts of the world. Zara classifies itself through
its commitment as a fast fashion brand rather than high fashion, and quickly adopts high fashion
styles from the catwalk to reach the public at an affordable price.
The Louis Vuitton fashion director Daniel Piette also described Zara as “possibly the most
innovative and devastating retailer in the world.”

Unlike other fashion brands, which outsource their production, Zara has successfully developed a
vertical integration model including design, just-in-time production, marketing, and sales (The
Economist, 2001). With vertical integration, Zara is able to meet consumer demands within a

51
relatively short timeframe and respond to market trends quickly. Because the fast fashion
industry is constantly changing and hard to predict, the flexibility and efficiency provided by this
model is becoming the key factor in Zara’s success.

Before Proceeding towards Zara’s strategies in India let us study the unique strategies and
strengths that Zara possess that have led to growth of a small store into a large empire.

6.2 Zara’s Market Strategies

1. Follow Early
Most companies believe and invest heavy amount in “setting a trend” but here lies a
distinction with Zara. It not at all believes in Setting a trend rather it believes in
responding very quickly. This means Zara likes to follow the innovators very quickly
rather than being the one. This needs a capability to understand design, but an even
stronger capability to be a “stylist”, that is, recreating rather than creating first.

Chart-12: Time taken and acceptability of styles of consumers

Acceptability Of

Early Late
majority majority
Early Laggard
Style

adopter s
s
TIME
Source: “retail @ the speed of fashion” by devangshu dutta,2009

The figure above shows the acceptability of style by consumers. Zara targets to being an
early majority. It identifies the innovators and follows the trend upto the majority level.

52
 At some point remember also to drop it as after that there will be other companies, many
others, who will quickly follow. Then margins become low, and profitability becomes
even lower, because there is much more competitions

2. Product Strategy ‘Fast Fashion’: Product strategy is one of key components of a brand
strategy, and a special one can lead to brand strategy’s success. Zara provides a
considerable number of products, which are more than rival corporations in the fashion
industry. It produces approximately 11,000 different products per year, while its major
rivals only produce 2,000 to 4,000. Zara spends four to five weeks on the process of
designing a new product and getting finished products in its stores (Inditex, 2007). So,
Zara is the leading brand in ‘fast fashion’. The latest fashions are quickly supplied from
design to delivery place in less than 2 weeks as compared to the 6‐month industry
average which is prevailing in the apparel market.

The shorter the product life cycle, the larger success it will have in meeting consumer
preferences. According to Roux “If a style doesn’t sell well within a week, it is
withdrawn from shops, further orders are cancelled and a new design is pursued. No
model stays on the shop floor for more than four weeks, which encourages Zara zealots to
make repeat visits” (Roux, 2002). The above unique product strategies are successful due
to data gathered. In Spain, a high street shop has an expectation that consumers (or
zealots) will visit it three times a year, whereas that rises to seventeen times in Zara’s
case. This uniqueness offers a positive image to consumers. Hence, these particular
product strategies help Zara to become a powerful brand in the fashion industry.

3. No traditional advertising :
For major firms advertising is considered as one of the most important strategies for its
success but the case with Zara is different. Zara spends only 0.3% of sales on advertising,
while Zara’s rivals spend 3% to 4% of sales on it. “The reason for not spending money on
publicity is that it doesn’t bring any added value to our customers. We would rather
concentrate on our offering more in terms of design, prices, rapid turn-around of stock and

53
 the store experience.” Carmen, a press officer at Inditex Group, remarked. (Tungate, 2005:
51)

4. Customer’s feedback:
Whichever new product Zara launches its stylists keep a close eye on its customers by
knowing that what all they like in the product, what more did they expect and ask them
for specific changes. All this looks like a cumbersome process but due to this strategy
only Zara has established itself worldwide as the leading fashion firm.

5. Extensive Market Research: Providing a constant stream of inputs into the product
development process, rather than in batches or discrete seasons.

6. Control :Locating the various business functions in close proximity of the headquarters
and tight control, allows the various functions to coordinate and take joint decisions very
quickly. Control also refers to early investment in raw material and direct or indirect
ownership of processing and production capabilities. These provide the capability to
respond very quickly to the market research-influenced decisions.

7. Communication and Information Technology: They are absolutely vital to managing

the constant interface of various functions and management of the huge variety of
product information. Selling products online helps Zara expands its market base to a
whole different level.

6.3 SWOT analysis of ZARA

1. STRENGTHS :

a. Effective information technology investments to help reduce costs.

54
 b. Minimal advertising (can be a strength as well as weakness)
c. Fast and responsive communication within the entire supply chain
d. Minimal inventory, which creates a sense of exclusivity.
e. Up to date designs at an attractive prices.

2. Weaknesses
a. Resist outsourcing, which creates high labor costs
b. Minimal advertising (can be a strength as well as weakness)
c. Low in store inventory

3. Opportunities
a. Fast growing demands from the Asian markets
b. Advantage of Spain joining the EU
c. Outsourcing when necessary to further cut costs
d. Launch more advertising campaigns

4. Threats
a. Fierce competition from H&M and The Gap
b. Increasing labor costs at its own manufacturing facilities.
c. Changes in consumer behavior
d. Saturation of retailers of the clothing industry. (Jha and Chandan 2012)

6.4 Zara: India and Success

Zara opened its first store in India on 31st may 2010. Zara’s arrival in India — the world’s second
most populous country, with 1.1 billion inhabitants — represents a new milestone in the Inditex
Group’s expansion in Asia, a region in which it already had a very sizeable footprint. After
opening its first Asian stores in Japan in 1999, establishments followed in other Southeast Asian
countries – Singapore, Malaysia, Indonesia, Thailand and the Philippines – in addition to Hong

55
Kong (2004), mainland China (2006) and South Korea (2008). When ZARA entered India Jesus
Echevarria Hernandez, Chief Communication Officer at Inditex Group said that “The entry in the
Indian market has a significant strategic importance for Inditex. India is one of the top priorities
in the Asia region when our retail offering has been very well received”

For its expansion into India, Inditex formed a joint venture with the Tata Group, one of the
country’s top industrial conglomerates. Zara entered Indian market through the automatic
route and in the joint venture Inditex controlled 51% of the venture, while Trent Limited, a Tata
Group company, controlled the remaining 49%.
Zara chose Joint Venture as entry strategy in Indian market because it is one of the large
brands which have large cash outlay so they belong to the high risk and high return group.
Moreover Zara’s strategies require significant amount of control over its outlets therefore Joint
venture option very well suited Zara.
India’s economy has grown quickly in recent years, and the country has a large population of
shoppers who are keen on fashion and up to date on international trends. The country has a dozen
cities whose populations each exceed three million people, and the Indian market promises
substantial growth potential for Zara’s fashion offering.(Prasad and Jha, 2012)
Zara currently has 9 stores operating in major cities of India like Delhi, Mumbai, Banglore etc.

Success in India:
Zara can now be literally weighed in gold in India as its average sales per store has soared much
above other top apparel brands to be at par with the country's largest jewellery chain Tanishq.
With annual sales of Rs 405 crores , each of Zara's nine stores in the country on an average made
Rs 45 crores last fiscal, over six times more than the country's largest apparel brand Louis
Philippe and a tad higher than the country's largest department chain Shoppers Stop. Because of
this it is planning to extend it store strength to 18 stores in India. (Zara India, 2013)

“Among the different projects set up by the cluster in India in 2012 in an effort to strengthen
Inditex's supply chain in the region, special mention should be given to its participation, as a
founding member, in the Tirupur Stakeholder Forum.” (Inditex Annual Report, 2012)

56
The tremendous success of Zara in Indian market did not come without facing the challenges that
a foreign form has to face when it begins its expedition in Indian market. We will look in at both
type of challenges i.e. challenges that a foreign firm has to face when it enters retail market and
major challenges a firm has to face while entering Indian market.

6.5 Analysis of Challenges Zara Faced

Let us study the entry barriers or challenges Zara had to face in terms of William Porters five
force model (1980). This model is applied as a theoretical framework since it allows a
compressive and systematical examination of an industry’s structure, which determines the
attractiveness of an industry and the industry profitability. The five force model also provides a
baseline for evaluating a retailer’s strength and weaknesses as to where it stands in terms of
consumers, suppliers , entrants, rivals and substitutes. (Porter, 2008)

1. Threat of New Entrants: In fast fashion business that Zara specializes in the threat of
new entrants is low. The reasons for this are twofold. Huge investments, production and
distribution costs spread over large production units. New players find this kind of
working extremely difficult to achieve. Moreover new entrants consider twice before
realizing the huge initial investments. Also Zara has its one of a kind type of fast fashion
industry which is extremely difficult to compete with.

2. Bargaining power of Suppliers: The bargaining power is low because there are a lot of
suppliers in the apparel industry so same is the case for ZARA. Moreover raw materials
is widely offered by developing economies like India and China. Also it is not easy for a
supplier to dominate materials such as cotton and cloth so supply of raw materials is a
smooth process for Zara

3. Bargaining Power of Buyers: Bargaining power of buyers in case of Zara would be

considered to be relatively low but considering Indian market it will be moderately high.
Throughout the world for Zara there is high brand loyality but in Indian industry
customers are very flexible in choosing products across brands. However the large

57
 number of customers compared to fast fashion retailers, along with the low possibility of
customer integration, lowers the bargaining power of customers.

4. Threat of Substitute Products: The Threat of substitute products in Indian market is

very high as cheap imitations are easily done in Indian markets. Also the switching cost
in industries are low since customers can easily find substitutes that have the same levels
of price and quantity. In this case the substitutes of Zara products would be high-end
luxury retailers, discount retailers and departmental stores.

5. Rivalry among Competitors: Rivalry among competitors is intense in the fast fashion
apparel industry. There are a large number of global apparel retailers adopting the fast
fashion model. Main competitors of Zara are H&M, Topshop, Prada etc. Moreover most
fashion companies are listed companies and so their management cannot decide to exit
the industry at will.

Challenges specifically faced in India

Now let us look at challenges discussed in earlier chapter which a foreign firm has to
specifically face in India and lets analyze how much has Zara succeeded in overcoming
those challenges.
a. Availability of retail space and high rental cost: Zara could easily overcome these
challenges because of the huge cash outlay. Within span of 5 years it has expanded to
9 stores and is in talks of opening 18 more stores in India.
b. Red tapism and Corruption: Though enough literature was not available for this
but as a general observer if Zara is continuing its expansion strategies in Indian
markets so it is successfully overcoming these challenges too.
c. Middle class consumer base: Though products of Zara as compared to its
competitors are fairly priced but middle class consumer base of India find them
expensive. Most of the Indian consumers are price conscious rather than being brand
conscious, any record of future steps or changes brought in by Zara to capture middle
class market is yet to be studied. But still Zara’s target market which is fast fashion
people Zara is successful in meeting their demands.

58
 d. Skilled Manpower: Zara boosts of having one the most efficient team of designers
and stylists who think keep on working day in and day out to meet the needs of
consumers. Zara never settles for inefficient workforce and has one of the best worth
ethic environment.
e. Culture, customs and norms : main target market of Zara are fashion conscious
people so it does not face many problems of traditional or orthodox views of Indian
consumers related to its products but still Zara in its working is conscious about this
challenge and does not take any steps that will harm sentiments of its consumer base.
f. Inadequate Infrastructure: Toug many big cities in India are scaling new heights but
still there are some parts of India which still lack infrastructure facilities. For instance
“In 2012-13, Inditex Trent reported a loss ofRs 10.08 crore on its proposed store in
Phoenix Market City mall at Kurla, Mumbai, which it had to completely redo with a
new concept due to continuous water leakage, the company said in its annual report
filed with the registrar of companies.” (The Economic Times, 2013)

6.6 Conclusion of the Case study

After doing thorough analysis of Zara’s expansion and entry strategies we can arrive at some
conclusions and try to differentiate between Zara and its competitors i.e. how Zara stands out in
fashion industry having fierce competition. For trying to compare these strategies let us take the
help of a chart adapted from Inditex , 2008.

CHART-14 : Comparison between strategies of Zara and its competitors

59
 PRICE +

UCB

GAP

FASHION +

FASHION - ZARA

H&M

PRICE -

Source: Adapted from Morgan Stanley Dean Witter, “Inditex,” 2008

This chart helps us to compare strategies in terms of fashion and price charged by major 4 firms
in fashion market mainly GAP, UCB, Zara and H&M. As we can clearly see Zara stands at
rightmost side of the chart which is a clear result of the strategies of Zara which mainly focus on
delivering the most fashionable products and that too at a moderate price as when we see the
price line represented by y-axis Zara is under the zero mark and in the negative side. This graph
is adapted from 2008 and the strategies followed throughout the world are still on the same track
which is delivering fashionable design with medium price.
Distinctive features that separate Zara from its competitors can be summed as:
 Zara can produce 11000 products per year which are different from each other. The
speed of creating a new design and delivering it to stores is very fast which has helped it
in Indian market. Fashion is something that keeps on changing on day to day basis and
Fast fashion industry like Zara has to always be on its toes and aware about new fashion
so that new products are launched even before the earlier product becomes outdated.

60
  Zara pays more attention to the feedback from customers, and such feedback is reflected
in its values, images and added values. Team of designers is in constant touch with their
consumers and trying to adapt to their taste rather than forcing their own products onto
them.

Now when we particularly talk about Zara India the trend is still the same Zara as compared to
its competitors is way ahead in terms of fashion. All competitors of Zara namely GAP , UCB,
H&M have entered Indian market but the trend continuing globally has remained same in India
as Zara offering the most fashionable products at a moderate price to its customers.
This feature is one of the most valuable distinguishing features of Zara but the price at which
Zara offers its product as compared to its competitors is moderate but it is still not affordable for
large consumer base of India which is in particular middle class so to expand its horizon Zara
can take certain steps which help it reach the middle class consumers of India.

Though Zara has still not captured the middle class consumer base but it has very well been able
to identify its target customers and generating tremendous profits in India.
“In Select Citywalk mall in New Delhi, anchor tenant Pantaloons, spread over 25,000 sq ft, and
generates average monthly sales of Rs 4 crores, while Zara does Rs 7-8 crores a month business
in its 16,500-sq ft store, trade insiders say.” (The Economic Times, 3 July 2013)
The lines above clearly show that Zara India has been a tremendous success and even after
facing numerous challenges it still has established itself in Indian market.

Also we conclude that Zara’s business model adopts a distinctive feature of vertical integration
which has allowed the company to successfully develop a strong merchandising strategy. We can
infer from the case study that strategies and unique style of branding of Zara is accompanied by a
qualified team of designers and efficient and effective work force. Indian brands need to do the
same, without expecting that Information Technology will help the business to grow rapidly and
make profitable business instantly.

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Zara is the most independent and valuable concept of Inditex Group (a brand portfolio), Zara can
become a powerful international brand more easily as compared to its other counterparts.
Inditex’s other endorsed brands assist Zara to compete against its rivals and help it in entering
new market and developing strategies according to the new territory.

Zara had to follow all the norms and FDI rules like giving 49% stake to a resident associate and
Zara has very well obliged with all these norms and has overcome all the barriers to emerge as an
fast fashion giant in India. While it may not be possible for another company to exactly duplicate
the conditions under which Zara grew and flourished, without doubt we can attempt and learn
from its knowledge, its procedures and its company structures. So in the end we can say that
ZARAFICATION is still continuing in India and with announcement of opening 18 more stores
in the next three years to expand into smaller cities such as Mangalore, Surat and Indore can lead
to Zara strangling its old tighter on Indian apparel market.

CONCLUSION AND SUMMARY

The research study was conducted to answer three questions: 1.Have FDI policies resulted in
attracting more firms in India. 2. Strategies adopted by foreign firms entering Indian market 3.
Dynamic challenges firms have to face while working in India. The research has certainly helped
us in answering these entire questions.

Our journey began by studying trends of FDI in India and what impacts the New Economic
policy had on Indian markets. We could clearly distinguish between post reform and pre reform
amounts FDI brought in India which was floating around 100-300 crores in 70’s and 80’sand in
matter of twenty years it rose to over 40000 crores. When studying about foreign firms and
apparel industry most of the firms entered India around 1991 after adoption of NEP and then
many firms entered India around 2006 when 51% limit on shareholding was removed.

FDI policies had to undergo various reforms by the Government of India and all those efforts
have brought almost all big Multi National companies to explore markets of India. Government
since the 1991 regime has been attracting more and more FDI in India .Advantages shared from
FDI’s are twofold. Firstly For a developing economy like India and China these FDI’s bring
more employment generation, better quality products, and better infrastructure facilities as it is

62
actual investment in brick and mortar. Secondly for big MNC’s BRICS nations are economies
with a large consumer base where consumers are hungry for new products whereby they can not
only expand their brands globally but also generate enormous amounts of profits.. But while
attracting more firms from outside India’s domestic industry base is going weak. Though
protective measure are adopted for SSI (small scale Industries) but other Indian fashion
companies can barely withstand the competition of giants like ZARA, Lacoste, UCB etc. so the
skilled manpower of India ends up getting placed in designer teams of these brands and hardly
any initiatives are taken to setup individual companies.

When we discussed the strategies part of modes of entry and entry timings of different firms it
was seen that being an early mover had its own set of advantages like monopoly, trend setter etc
and also its share of disadvantages like experimentation. Same was the case with a late mover
where it could learn from the mistakes of early movers and develop their strategies to rectify
them but at the same time it is not essential that a work and working culture which has been
proved successful for a firm will lead to same results for another firm too. So trying to imitate a
successful firm’s strategies can have harmful effects.

After that we explored various entry strategies namely Wholly owned subsidies, Joint Venture,
Exporting , Franchising etc and compared the difference between them in terms of control
offered and risk/return factor where we can say right now with the ongoing FDI norms Joint
Venture is the most preferred mode of Entry of enterprises which want to explore Indian market
as it offers high degree of control to foreign firms with a little less risk as compared to wholly
owned subsidiaries. Even after choosing the mode of entry it is not easy for a firm to be
successful in Indian market. It can very well happen that a strategy adopted by company X which
resulted in huge profits that strategy if adopted by Company Y can result in losses.This is the
main reason that all firms to follow strategy which suits the working of their company.

While choosing strategy according to style of company it is very important for the firm to study
the target market which in our case is India. A strategy of expansion which was successful in
Brazil may not have same effects in India too. When Cadbury came in India the feeling was it’s
having a bitter taste but when it entered second time it built its product according to the needs of
its customers and that was its success mantra. The same is the case with almost all firms who
have a separate team of workers working just to remove the cultural gap between the foreign

63
firms and Indian consumers. As Charles Darwin has mentioned in his theory “survival of the
fittest” It is very much necessary for a firm to be adaptive to the environment it is working in.

When we talk about Fashion industry, it had to face these cultural barriers in India i.e. a woman
can freely walk in shorts in Spain but same is not the case for India so the products are built
according to the needs of customers. Not only according to the needs of customers but also
products that do not harm the sentiments of the society. Globalization has lead to integration of
Indian economy with the world’s economy and has developed a consumer class which is
independent and likes to wear whatever suits his/her need but compared to western culture India
is still lacing behind. Change is taking place with help of these MNC’s at a very rapid rate and
perception of Indian society is changing but will still require a lot more years for that change to
actually be felt. In the area of fashion Consumer feedback is one of the most important things in
fashion industry and firms have to really keep a check on their consumers that are they actually
liking the product. This was identified as one of the most important factor behind success of Zara
during the course of case study.

External Challenges like Currency fluctuations, political risk , imitations etc which are not in
hands of firms are almost impossible to overcome but factors such as intense competitions,
bargaining power of suppliers, infrastructure facilities, skilled man force etc are in hands of firm
and through proper function i.e. achievement of organizational goals efficiently as well as
effectively. Every fashion industry firm faces the same challenges and tackles the problems in its
own style but to remain dominant in Indian market dynamical changes, customer feedbacks and
various other factors already mentioned in the thesis are very much important for their success.

So in all after reading and analyzing from large resources the conclusion that we can draw is
fashion industry is unique from other industries in its own way and it’s not easy to be successful
in that industry. It is not easy for any Indian firm to become Zara but as they say “Rome was not
built in a day” so large amount of efforts is needed to be put in.

There is no tried and tested strategy that guarantees success of firms in Indian market but
learning from mistake of its competitors. Working on your own strength and capitalizing on the
competitors’ weakness can increase the probability of success for any firm.

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Limitations of the research

To collect primary data related to case study of Zara, various heads were tried to be contacted
through telephonic conversations but because of no response that data was not been included.
Zara only has 9 stores working in India currently so we can still not term it as market giant of
Indian fashion industry.
Also due to short span of time and limited amount of resources no interviews were constructed
during the course of the study.

When trying to work on Second hand data various articles and Journals could be accessed only
after a payment but due to shortage of funds some literature had to be missed.

65
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