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IBSM_Case 6_Zara v.s. Li&Fung
Transcript of IBSM_Case 6_Zara v.s. Li&Fung
What are the value propositions for
both Zara and Li&Fung? Demand Value added - fashion garments Supply -fast
-not bad quality
-relative low price
→both of them build high imitation barriers Q2.
What are the similarities and differences between Zara and Li&Fung’s business models? efficient manufacture Similar business models cost controlling Different ways to manage Li&Fung:
vertical integration ROE=ROS*Asset turnover*Leverage (DuPont Identity) Q3.
Comparing Inditex, Li&Fung, Benneton, and H&M’s financial results.
What are the Inditex’s relative operating economics? Margins? ROI? ROS? ROE? Its relative capital efficiency?
Note that while the electronic version of Exhibit 6 automates some of comparisons, you will probably want to dig further into them. Q4.
How specifically do the distinctive features of Zara’s business model affect its operating economics: gross margins, ROI, ROS, and ROE?
Specifically, compare Zara with an average retailer with similar posted priced.
In order to express all advantages/ disadvantages on a common basis, you may find it convenient to assume that on average, retail selling prices are about twice as high as manufacturers’ selling prices. (1) Shorten the production cycle
(2) Vertical integration
(3) Low inventory
(4) No advertising
(5) Outsourcing basic-item to Asia relatively higher Gross Margins and ROS → Cost controlling ROE=ROS*Asset turnover*Leverage (DuPont Identity) relatively higher ROI → Investment activities ROE=ROS*Asset turnover*Leverage (DuPont Identity) (1) IT systems
(2) Distribution Center
(3) Invest visible locations for Zara’s store (1) Higher proportion of fixed assets
(2) Zara retained more than 60% of the
shareholding rights relatively lower ROE → For Asset turnover (Low capacity) → For Leverage (1) Zara diluted its unit of staff capacity ROE=ROS*Asset turnover*Leverage (DuPont Identity) Zara has $7.2 spread Q5.
Can you draw Zara’s strategy activity system and link the activity system to Zara’s competitive advantages reflected in its V-P-C analysis?
And, how about Li&Fung’s? (1) Country management team
(2) Product offering
(4) Scarcity of product
(5) Twice-weekly shipment of new merchandise Q6.
1. Can you figure out the similarities among
the stores of Zara all over the world? Q6.
2. What is the linkage the store
open process with its strategy? -resembled the Spanish market
-minimum level of economic development
-relatively easy to enter. Step 1: Market Selection At the beginning Now – all the advanced countries. Step 2: Market analysis and forecast Local macroeconomic variables
and future evolution.
(e.g., tariffs, taxes, legal costs salaries) Sector-specific information.
(e.g., local demand, channels,
available store locations, competitors) Step 3: Three different modes of market entry Step 4: Open a flagship store in major city Step 5: Add stores in adjoining areas DuPont Identity: ROS ↑ *Asset turnover ↓ *Leverage ↓ =ROE