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The International Review of Retail,


Distribution and Consumer Research
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A case study on the


internationalization process of a bornglobal fashion retailer
a

Vertica Bhardwaj , Megan Eickman & Rodney C. Runyan

Division of Textiles and Apparel , The University of Texas-Austin,


200 W , 24th Gearing Hall, 1 University Station, A2700, Austin,
TX, 78712, USA
b

Department of Retailing , University of South Carolina ,


Columbia, SC, 29229, USA
c

Retail and Consumer Sciences , The University of Tennessee ,


245 Jessie Harris Building, 1215 W. Cumberland Ave., Knoxville,
TN, 37996-1911, USA
Published online: 08 Jul 2011.

To cite this article: Vertica Bhardwaj , Megan Eickman & Rodney C. Runyan (2011) A case study
on the internationalization process of a born-global fashion retailer, The International Review of
Retail, Distribution and Consumer Research, 21:3, 293-307, DOI: 10.1080/09593969.2011.578804
To link to this article: http://dx.doi.org/10.1080/09593969.2011.578804

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The International Review of Retail, Distribution and Consumer Research


Vol. 21, No. 3, July 2011, 293307

A case study on the internationalization process of a born-global


fashion retailer
Vertica Bhardwaja, Megan Eickmanb and Rodney C. Runyanc*

Downloaded by [University of Birmingham] at 03:16 28 October 2013

Division of Textiles and Apparel, The University of Texas-Austin, 200 W, 24th Gearing Hall,
1 University Station, A2700 Austin, TX 78712, USA; bDepartment of Retailing, University of
South Carolina, Columbia, SC 29229, USA; cRetail and Consumer Sciences, The University of
Tennessee, 245 Jessie Harris Building, 1215 W. Cumberland Ave., Knoxville,
TN 37996-1911, USA
(Received 8 February 2010; nal version received 20 December 2010)
This case study on Zara elucidates the expansion strategies used by both bornglobal and gradual global fast-fashion retailers based on theories of internationalization. Aspects related to knowledge sharing, resource-based theory, and
psychic distance are overlaid with Zaras internationalization strategies to
advance understanding of the role fashion plays in dynamic internationalization.
Zara employs a high-risk, high-reward model of internationalization to defend its
unique merchandise and retail position by remaining completely vertical. Zaras
born-global expansion strategy engendered a psychic distance paradox in that it
was very successful in distant markets early on. It is proposed that fashion
retailers may take note of Zaras success through the proposed dynamic strategic
planning process for expansion in international markets. Researchers can test the
proposed framework empirically to investigate the theoretical constructs for both
gradual- and born-global rms.
Keywords: fashion; dynamic strategic planning; internationalization

The fashion apparel industry has evolved greatly over the past decades due to the
expansion of boundaries across the world (Djelic and Ainamo 1999). Among the
various reasons in changing the dynamics of the fashion industry are: fading of mass
production, modied structural characteristics in the supply chain, desire for low
cost and exibility in design, quality, delivery, and speed to market (Doyle, Moore,
and Morgan 2006). This indicates that fashion retailers can gain a competitive edge
in the market by ensuring speed to market with their ability to provide fashion trends
rapidly to the consumers, resulting in adoption of quick fashion to reduce the time
gap between designing and consumption on a seasonal basis (Taplin 1999). Retailers
who practice quick fashion utilize inventory turns much higher than the average
clothing retailer, getting in and out of styles quickly and protably.
Similar to the concept of quick response, fast fashion has been dened as a
business strategy that aims to shrink the processes involved in the buying cycle and
lead times for getting new fashion product into stores, in order to satisfy consumer
demand at its peak (Barnes and Lea-Greenwood 2006). In addition, fast-fashion

*Corresponding author. Email: rrunyan@utk.edu


ISSN 0959-3969 print/ISSN 1466-4402 online
2011 Taylor & Francis
DOI: 10.1080/09593969.2011.578804
http://www.informaworld.com

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V. Bhardwaj et al.

retailers seek to create signicantly higher merchandise turnover than traditional


competitors. Traditional retailers achieve high turnover by replenishing best sellers
at the time of peak demand. Fast-fashion retailers achieve higher turnover by
actually creating the demand. This strategy is realized by the retailer creating many
more products in smaller quantities than traditional retailers. When the product is
sold, it is replaced by a new style, not with more of what was originally sold out,
creating a sense of urgency in the customer.
The demand for fast fashion is evident from annual reports of retailers. In 2006,
after posting sales of $8.15 billion to fellow fast-fashion retailer Hennes & Mauritz
(H&M) $7.87 billion, Zara became the number one fast-fashion retailer. More than
50% of Zaras prot is in international retail outlets (Folpe 2000). The retailer
opened its rst store outside of Spain in 1988, and in 1994, focused their continued
expansion on France and Mexico (Ramey 1994). Since this time, the retailer has
expanded worldwide and is in more than 64 countries. In 2008, Zara announced
plans to open as many as 640 stores, including Zaras rst ventures into South
Korea, Egypt, Ukraine, and Montenegro, with 80 new stores to be opened in Russia
alone (Murphy 2008).
Another important reason for the changing dynamics of the fashion industry is
the internationalization process of fashion retailers. Even though internationalization of retail has evolved signicantly over the past years, the empirical literature has
focused on aspects in relation to stages theory or Uppsala models of development
(Johanson and Vahlne 1977a, 1977b). These conceptualize internationalization as
gradual and a sequential stage process through a series of commitment decisions
based on experience and managerial capacity (Bell, McNaughton, and Young 2001).
However, a new paradigm has emerged in rm internationalization in recent years,
prompting scholars to rethink the belief that all rms entered foreign markets
gradually. This new phenomenon has been referred to as born-global (Knight and
Cavusgil 1996).
Zara is emblematic of the fast-fashion retailers who have internationalized (Burt,
Dawson, and Larke 2006). The huge success of this retailer generates integration of
interesting research phenomena: born-global and fast-fashion. It has been argued
recently that the born-global phenomenon may/may not require new theories for its
further explanation. Based on this argument, the main purpose of this case studybased research is to identify, in an exploratory way, the dierences between bornglobal and gradual-global fashion retailers through the lense of existing theories of
internationalization. The methodology used in this study was based on a structured
review of literature to evaluate the existing conceptual research on a fast-fashion
retailer, Zara. The sources related to the objectives of this study were taken from
peer-reviewed journals, conference proceedings, market research reports, and ocial
statistics by the company. Whilst many case studies on Zara have been published in
recent years, there appears to be a scarcity of studies addressing conceptual issues
related to Zara, based on theoretical principles. Therefore, a structured review of
literature approach was considered as appropriate for this research. In doing so, this
study proposes an integrative explanatory framework based on the extent and timing
of internationalization of a rm.
With this objective, this study will also be helpful in adding to the existing
literature, as the main role of theory is to increase understanding through a
systemized structure capable of both explaining and predicting phenomena (Hunt
1991). Furthermore, this study will attempt to contribute to the fashion retailers who

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may take note of Zaras success through the proposed dynamic strategic planning
process for expansion in international markets. This study also provides future
implications to researchers who can test the proposed explanatory framework
empirically to investigate dierences between gradual and born-global rms based
on theoretical constructs.
The explanatory framework seeks to acknowledge the dierences in the
internationalization process, between the two types of retailers discussed above. This
study also analyzes whether or not the theories on retail internationalization (e.g.,
knowledge sharing, resource-based view, and psychic distance) are applicable for bornglobal retailers (e.g. Zara) as they are to gradual-global retailers (e.g., H&M, GAP).
Hereafter, dierences in key aspects of internationalization are explored based on the
extant literature and implications for rms are discussed further.
Gradual-global versus born-global phenomenon
The traditional and most frequently utilized approach to retail internationalization
includes the Stages model, often known as the Uppsala Model proposed by
Johanson and Vahlne (1977a, 1977b). Based on this traditional method, rms learn
and gain knowledge about a specic market with time and experience in dierent
stages of the process. As the rms gain knowledge, their level of commitment to
invest in more resources increases, though it is a gradual and incremental process
(Jonsson 2008). This can be termed as a gradual global process. Firms that
internationalize utilizing this strategy, emphasize having a strong base in the home
market before trading internationally (Chetty and Hunt 2004). This implies that the
Uppsala model is based on time and experience, which impact the internationalization process. Retail rms that exemplify this model would include Carrefour, Marks
& Spencer, and the GAP. There has been some criticism in the literature on this
traditional concept of internationalization, as many retailers skip stages in posed in
the Uppsala model and directly expand across international markets. These rms are
what Knight and Cavusgill (1996) refer to as born-global.
This new phenomenon emphasizes early and rapid internationalization by highly
committed and technology-intensive retailers (Bell, McNaughton, and Young 2001).
These scholars also assert that retailers who have the ability to oer niche or
specialized products adding value to the market tend to expand their operations in
various geographic locations more rapidly to achieve rst mover advantage. Rapid
internationalization also minimizes the relevance of psychic distance, compared to
traditional retail expansion in foreign markets, which is based on the geographic and
cultural distance from the home market (Chetty and Hunt 2004). Building upon their
discussion of categorization of rms based on extent of internationalization, the
current study highlights the theoretical dierences between gradual global and bornglobal as depicted in Table 1. The dierences noted in Table 1 are based on relevant
theories of internationalization for both traditional (incremental) expansion in
foreign markets as well as the emerging concept of being global from inception or
within 35 years of establishment.
Internationalization as a process
Based on the literature, internationalization can be explained as a process to increase
a rms involvement in international operations. More specically, this process must

296
Table 1.

V. Bhardwaj et al.
Internationalization theories and Zara.

Theory

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Knowledge-sharing and
entry-mode

Born-global rm (e.g. Zara)


Perceives the world as one
marketplace and may/may
not have a strong domestic
market as support to the
internationalization process
Risk-taking ability is higher
among managers in such
rms, which results in
adapting and innovation in
new environments more
quickly
Asserts that prior experience
and knowledge can be
gained early on in life of the
rm

Resource-based

Psychic distance

Fully integrated
Consider its marketplace as
homogenous throughout the
world and keep the products
standardized

Maintain long-term
relationships and networks
with intermediaries that
have experiential knowledge
instead of waiting to
accumulate the knowledge
themselves
Emphasize that psychic
distance is irrelevant for
internationalization

Traditional or gradual
global rm
Perceives domestic
market as a strong
support for
internationalization
process as it helps in
nancial stability
Aversion to take risks
and lack of knowledge
results in slow nature
of learning process
Asserts commit through
incremental steps to
gradually build on
experience and gain
knowledge about
foreign markets
Partially integrated
Considers its
marketplace as
heterogeneous and
may develop
customized products
based on target
location
Maintain short-term
relationships in early
stages of
internationalization
and accumulate
knowledge with time
and experience
Assume that the rms
enter new markets as
a function of the
psychic distance to the
rms prior experience

Note: Adapted from Chetty and Hunt (2004).

include a rational planning perspective that can help the rm make strategic
decisions to improve performance (Anderson 2000). This indicates that rms
internationalize their operations based on development of strategies that support
their predened long-term goals, and achieve improved performance. In a similar
attempt, we propose a framework of strategic planning process for fast-fashion
retailers that internationalize across borders based on time taken to operationalize
their business. Specically, the proposed innovative framework (as shown in
Figure 1) depicts the internationalization trends for both gradual global and bornglobal fast-fashion retailers based on time factor. The proposed framework
delineates and systematizes research focusing on the born-global process of

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Figure 1.

297

Gradual global versus born-global retail internationalization (I).

internationalization and applies it to a fast-fashion retailer. By this means, the


framework attempts to classify fashion retailers on the basis of the time taken and
hence their strategy process as either incremental or dynamic. Appropriately, it is
proposed that gradual global fashion retailers adopt an incremental planning process
whereas born-global fashion retailers adopt a dynamic strategic planning process.
These processes are discussed in the following section.
An incremental planning process allows rms to increase their involvement in
international operations in a stepwise manner, after securing their position in the
home market. It has been demonstrated that the incremental process of planning for
internationalization evolves around learning through commitment over time
(Johanson and Vahlne 1977a, 1977b). It further signies a learning process where
actions and commitment of retailers are nurtured in their domestic market until they
reach the expected performance levels (Anderson 2000). In this way, retailers develop
a strong base in their home markets and it becomes possible for them to be more
responsive toward expansion of their operations in other geographic areas. Hence,
an incremental planning process can provide retailers with a better understanding of
their local market and identify various strategies that can be successful enough to
apply to their international operations.
A potential drawback of the incremental planning process is that retailers might
not be able to apply similar strategies in the international market. To support this,
Bell et al. (2003) argue that in practice, retailers usually do not adopt similar
strategies whilst internationalizing at dierent locations. In such cases, the concept of
improving through learning does not compliment strategies that facilitate improved
performance of the retailers. Apparently, it can be said that growing a stronger base
in the home market may not be benecial for retailers in the long run. To meet this
end, another ideology of internationalization follows the dynamic strategic planning
process. This process entails rapid internationalization through creation of niche
markets, by oering specialized products, advancement of technologies and
communication that leads to quicker response, exibility, and adaptability
advantages (Bell, McNaughton, and Young 2001). Often addressed as a nonlocal
phenomenon, the born-global concept of internationalization may often ignore the

298

V. Bhardwaj et al.

local market or enter both international and domestic markets concurrently (Bell
et al. 2003). In this way, retailers gain competitive advantages through greater
knowledge intensity from rapid internationalization. In this regard, the proposed
framework focuses on the strategic planning process instead of operational process
in internationalization. Thus the framework provides a view of dierences between
born-global and traditional fast-fashion retailers. In doing so, the framework oers
pathways or trajectories that clearly show the extent and timeline for both types of
retailers to internationalize their operations.

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Knowledge sharing and entry mode


The way that a retailer gathers and diuses proprietary market information is known
as knowledge sharing. Knowledge sharing is important because it is a major
competitive advantage to be able to share and exploit worldwide, locally created
knowledge (Kogut and Zander 1992). Within a corporation, there can be forward,
reverse, and lateral knowledge ow. Forward knowledge ow goes from headquarters to subsidiaries, reverse ow from subsidiaries to headquarters, and lateral
ow occurs between subsidiaries (Jonsson 2008) When a retailer becomes
international, it is important to look at all three types of knowledge sharing as
each generates foreign market insight. If a retailer is expanding to a foreign market,
forward knowledge ow is useful in the sense that managerial expertise and the
business model can be passed along from headquarters to newer stores. Lateral
knowledge allows stores that open in foreign markets to share experiences and
customer interactions in the new location, with stores in other foreign markets.
Reverse knowledge occurs when a new store gathers unique information about a new
market. The new stores need to successfully share information about the new market
with headquarters in order for practices to be eectively adapted. The largest
amount of learning about a new culture will occur within that culture. Thus when
local employees utilize reverse knowledge ow, the global retailer gains greater
insight into its new markets.
Jonsson (2008) considered knowledge sharing in four categories to help describe
the level and use of knowledge sharing within a company. The four categories are
dimensions of international retail experience, degree of learning, locus of learning
diusion, and the outcomes of the lessons learned. Dimensions of international retail
experience include factors both outside of the retailer and within (Jonsson 2008).
Degree of learning refers to the level to which the retailer acquired and retained
information. Locus of learning diusion is the most applicable to the current study,
and refers to how acquired knowledge is processed and organized within the
organization (Jonsson 2008). It is locus of learning diusion that emphasizes the
importance of reverse knowledge ow because of the importance of headquarters
learning from subsidiaries. Since 1960, there has been an increase in the
abandonment of the traditional hierarchal structure from headquarters to
subsidiaries (Jonsson 2008). Increasingly, structures that are more responsive to
subsidiaries have emerged due to the importance of knowledge sharing in the global
market (Jonsson 2008). The ability to share knowledge within the retailer, whilst still
shielding information from the competition, is a major competitive advantage in the
global market.
Knowledge sharing is also crucial to a companys entry mode choice into a
foreign market (Kim and Hwang 1992). There can be a broad selection of entry

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mode for retailers in the international market including licensing, joint venture,
wholly owned subsidiaries, to name a few (McGoldrick and Davies, 1995). Each
involves a higher level of control and risk when entering a new market (Anderson
and Gatignon 1986). The way that knowledge is transmitted within a retailer is
crucial to the companys decision of what kind of control they retain and the risk
they will take, and will therefore help to form their ultimate entry mode choice. If a
retailer chooses to internationalize with licensing, it lowers investment and risk, but
knowledge sharing with the licensee is still required (Kim and Hwang 1992). Wholly
owned subsidiaries are the opposite end of the spectrum. Here, a retailer has
complete ownership of a new store in a foreign market, which allows them to
maintain a high level of control, but also involves a much bigger risk. In order for a
retailer to take a larger risk, resource-based advantages that make high-level of
control possible are the best policy for expansion (Anderson and Gatignon 1986).
Kim and Hwang (1992) have analyzed the entry mode choice for companies, and
proposed four variables that aect entry mode choice. The variables most salient to
Zaras internationalization are transaction-specic variables. Knowledge sharing is
known as a transaction-specic variable in Kim and Hwangs analysis of entry mode
choice. Transaction-specic variables include the value of retailer specic know how
and tacit nature know how. Retailer specic know how is information that can be
expressed in physical forms, such as manuals or directories. Tacit nature know how
is not embedded in physical knowledge but is instead knowledge gained through
doing and communicating. Nonakas (1994) study on the dynamic theory of
organizational knowledge also emphasizes the synthesis between these two types of
knowledge, which helped my understanding of the interaction between the two and
its importance to this case.
Nonakas (1994, 12) dynamic theory of organizational knowledge creation holds
that organisational knowledge is created through a continuous dialog between tacit
and explicit knowledge via four patterns of interactions, socialization, combination,
internalisation and externalisation. Explicit knowledge can be transmitted, such as
written rules or guidelines, and tacit knowledge is harder to formalize and is mostly
rooted in action, commitment, and involvement (Nonaka and Takeuchi 1996). This
furthers the importance of both written and learned knowledge within a company,
and helps to elucidate tacit knowledge and the dierence to a company. Kim and
Hwang (1992) propose that a retailer with high levels of transaction-specic and tacit
nature know how would choose a high level of control when they internationalized,
because they would not want to lose proprietary knowledge.
Resource-based theory
Resource-based theory centers on a rms ability to achieve and sustain competitive
advantages (Wernerfelt 1984). In an internationalization frame, the theory is
concerned with asset-exploiting foreign investment (Dunning 2000). Resource-based
theory is echoed by Dunnings (2000) ownership-specic advantages that provide a
framework to consider Zaras resources that are valuable (V), rare (R), imperfectly
imitable (I), and not substitutable (N). In order for one rm to hold a sustained
advantage over another, it is important that it maintain a distinct advantage in a
valuable skill or product that cannot be replicated. Characteristics that can make a
resource valuable (V) include a unique strategy or new idea. Whilst creating and selling
a new product, many parts of that product could be copied. However, implementing a

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V. Bhardwaj et al.

new strategy or an idea that has not been done before can be a valuable resource. Rare
(R) and imperfectly imitable (I) imply that resources are both dierent from other
resources, and cannot be easily imitated. Thus new ideas must not only be unique but
also must be dicult to copy. But even if a new idea cannot be imitated, it must also be
dicult to substitute (N) for. If a resource can be found with equal benets in the
marketplace, the resource is not valuable (or at least loses some value). Tangible
resources can be copied or exhausted, so often it is the intangible resource that provides
a sustained competitive advantage. Valuable, Rare, Imperfectly imitable, and Not
substitutable (VRIN) resources are hard to nd, thus a retailer possessing VRIN
resources must protect and sustain them (Barney 1991).
Dunnings (1981) eclectic theory of the rm has been characterized as resource
based in nature for many years. Dunning (1981, 1988, 2000) conceptualized resource
advantages, which mostly aected internationalization strategy as ownership-specic
advantages. His eclectic paradigm helps explain why rms invest in foreign markets,
and how the rm will behave in those markets, with the salient variable to the
current study being ownership (O) specic advantages. O-specic advantages include
the competitive advantages specic to that rm, and are the most readily seen in
research on Zara. There are two basic types of O-specic advantages: asset-based
and transaction-based. Asset-based advantages refer to unique products or a
companys reputation. This can be private label clothing or uniquely recognizable
products. Transaction-based advantages come about because of the way things are
done within the retailer (Sternquist 1997; Runyan 2003). Volume buying, economies
of scale, and distribution advantages can be considered transaction-based.
Often a companys resources aect its decision to, and method of internationalizing. Companies tend to internationalize in two fundamental ways: as a
multinational retailer or a global retailer (Sternquist 1997). A multinational retailer
adapts its internationalization model to the culture to which it expands, and is
willing to share and change its business format for an international stage. A global
retailer maintains its basic format as it internationalizes. This can be one result of
resource-based advantages such as asset- and transaction-based advantages: a global
internationalization model when the retailer expands overseas. Global retailers use a
standard retail format, internationalizing using rm-specic resource advantages.
Often, global retailers have decentralized management to keep greater control over
the expanding retailer (Sternquist 1997). Since there are O-specic resource
advantages, the retailer needs to keep a high level of control as it internationalizes,
preventing format duplication, and protecting secrets. A global retailer is often also
backward integrated, allowing all of its subsidiaries to contribute to the preservation
and continued growth of the company. A resource-based advantage needs to precede
international involvement, and a rm needs to have an understanding of its own
resource-based advantages before successful expansion.
Psychic distance
Psychic distance is the degree to which one culture is comfortable dealing with
another culture, and has been dened and operationalized in dierent ways by
dierent researchers (OGrady and Lane 1996). For the purposes of this study, we
adopt Nordstrom and Vahlnes (1992) view that it is comprised of dierences
between countries in culture, structure, and language. These are perceived dierences
between a home country and a foreign country, where the home country is where the

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retail rm originated. The inuence of culture on the management of global


operations has been well established in the literature, and can be traced to at least
Hofstedes (1980) seminal work on culture. Culture has even been shown to explain
more of the variance in consumer behavior at the country-level than income, over
time (de Mooij and Hofstede 2001).
Cultural barriers are a considerable component of international retailing research
(Evans and Mavondo 2002). Subsequently culture has been the focus of many
internationalization studies (cf., Evans and Mavondo 2002; Brookes and Smith 2007).
When a rm considers international expansion, psychic distance usually plays some
part in the decision-making process. Johanson and Vahlne (1977a, 1977b) suggest that
rms perform best in a foreign market most similar to the rms own market.
Typically, rms internationalize in a gradual process of moving into psychically
proximate markets and then into more distant ones (Benito and Gripsrud 1992).
Recent researchers seem at odds with the Johanson and Vahlne (1977a, 1977b)
proposition, and have found what has been characterized as a psychic distance
paradox. This occurs when companies tend to be more successful when they enter
markets that are at greater psychic distances from the home market (OGrady and
Lane 1996; Evans and Mavondo 2002). This phenomenon implies that retailers who
intend to enter a psychically distant market will work harder to gain knowledge of
the market, as opposed to the more proximate market (OGrady and Lane 1996).
Thus the retailer may actually acquire a better understanding of the distant market,
as it makes an a priori assumption that the proximate market is similar enough as to
not require market intelligence. Evans and Mavondo (2002) further argue that the
perception of greater dierences will lead a rm to extend its research and
preparation before market entry, thus increasing the chance of success.
Fast-fashion strategy: a case study on Zara
The Spanish apparel retailer Zara is part of a fully vertically integrated company
called Inditex. Zaras integration of design and manufacturing has set it apart from
any other retailer. Zara uses information and technology to decide on new
merchandise, and then uses its own resources to execute new ideas in the fastest
possible time (Folpe 2000). In 2006, the majority of Zaras factories were still in
Europe, despite much lower labor costs in Asia (of which its competitors take full
advantage). The company keeps its operations in Europe to maintain quick product
turnover, a key source of competitive advantage (Tiplady 2006).
Zara built a global brand based on the retail concept of fast-fashion (Castellano
2005; Barnes and Lea-Greenwood 2006). For example, in a typical year, Zara produces
11,000 new items, almost triple that of its biggest competitors, H&M and GAP, which
produce 20004000 items (Castellano 2005). From the design conceptualization to its
delivery to store, Zaras whole process takes as little as 2 weeks. In typical chain retail
formats, it takes about 46 months to move from design phase to distribution center
(Tiplady 2006). Excitement is created when Zara introduces new items every week, in a
strategic move to keep customers coming back to see the latest arrivals. This lends an air
of exclusivity to the products. Yet such perceptions of exclusivity come not from a highprice/limited product strategy, as is the model for designers like Armani. Zara
maintains a low-price strategy but combines that with limited stock keeping units in
each store (Capell, Kamenev, and Saminather 2006). The company does not restock the
same item again in its stores, adding to consumer perception of urgency. This strategy

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provides a cushion against large losses, as if a style is unsuccessful the retailer can easily
move resources into new items and styles (Ramey 1994).
Every Zara shop uses point-of-sale terminals that report directly back to
headquarters in Spain, showing real-time information for buyers (Castellano 2005).
Local managers are responsible for making sure that corporate designers have up-to-theminute customer information, so they can accurately decide on the latest fabric, cut, and
price point for a new garment (Folpe 2000). Information ows from corporate to store
level also, as store managers access a digital assistant on a daily basis. This technology
allows local managers to see what new designs are available, and to order new
merchandise for their particular store (Castellano 2005). This local inuence helps Zara
act locally and keep up with local cultural dierences. Zaras corporate strategy is not one
of trendsetting (Capell, Kamenev, and Saminather 2006). Rather, Zara is constantly
updating its product assortment to reect current trends and fashion. Thus customers
have come to expect that if a style or fashion is new, it will show up rst at Zara.
Zaras marketing and advertising are unique. Zara spends just 0.3% of sales on
advertising, as opposed to the industry average of about 34% of sales (Castellano
2005). The retailer instead focuses on location strategies, seeking key spots in hightrac malls (Ramey 1994), and upon store atmospherics (Capell, Kamenev, and
Saminather 2006). Accordingly, total trac is generated by the mall location whilst
store trac is driven by merchandise presentation. Advertising therefore is based on
word-of-mouth, and repeat business.
Theories for internationalization of Zara
Knowledge sharing
Knowledge sharing and organization are two of the most important facets of Zaras
success. Backward and forward knowledge sharing by the fast-fashion retailer leads
to a communication line that is benecial and crucial to a global company. Zara
probably most benets from reverse knowledge sharing due to its managers and
trend spotters daily reports to headquarters. This ts the knowledge ow model, as
reverse-ow knowledge is more likely to lead to successful globalization. Zaras
reverse-knowledge setup also allows for both explicit and tacit knowledge to be
exchanged from the foreign units, back through the home oce and then back out to
the foreign units. Specic knowledge of product sales, customer reaction to new
products and local trends can also be exchanged. This exhibits a clear blend of rm
and transaction-specic types of knowledge (Kim and Hwang 1992).
Every Zara store is setup using basic formats and operation modes. Operations
succeed because of the rms unique knowledge sharing capabilities. The study of
Zaras structure and knowledge sharing establishes the presence of exchange of rmspecic and tacit-nature knowledge in its operations. This supports the high-control
entry-mode internationalization model used by Zara with wholly owned subsidiaries
in foreign markets. In so doing, the retailer maintains competitive advantage by
protecting important information, reducing the risk factor associated with new
markets (Anderson and Gatignon 1986).
Resource-based view
Zaras international success can be explained within both Barneys (1991) sustained
competitive advantage and Dunnings (2000) O-specic, transaction-based

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advantages. With a vertically integrated company, Zara controls each level of its
clothing production, distribution, and sales. It is through vigilant adherence to
technological and information strategies that it is able to turn the latest trend into a
saleable product, delivered to consumers in as little as 2 weeks. Internal production,
with its step-by-step process from idea to design to manufacture to distribution to
store, is unique. It also is incomparable to any other retailer in the world. Zara has
transaction-based advantages from a centralized factory, which still produces the
majority of its products. Their corporate structure is not hierarchical, helping to
create a pseudo-backward integration to compliment the forward integration of its
clothing production. From an asset-based perspective, the Zara brand (or private
label) is known for being up-to-the-minute and aordable, a reputation that precedes
Zaras entrance into almost every market today. For example, a majority of
European women have been found to have a very positive perception of the Zara
brand (Heller 2001).
All of these advantages meet both the O-specic criteria proposed by Dunning
(1981, 2000) and the VRIN criteria posited by Barney (1991). Because of the
companys strong O-specic advantages, it has internationalized as a global retailer.
The format and execution of each Zara worldwide follows the same basic format,
and this allows the control and execution mentioned previously. The unique
processes and diculty competitors have in imitating or copying Zara provide
resource-based advantages that are diculty to overcome. The high-control strategy
of internationalization allows Zara to protect these resources.
Psychic distance
The history of Zaras business would suggest initially, congruence with the classic
psychic distance model (Johanson and Vahlne 1977a, 1977b). As previously
mentioned, Zara opened its rst international store in 1988. By 1994, they had
moved into several markets, but were focusing on France and Mexico (Ramey 1994).
Psychic distance provides a suitable explanation for this. France is geographically
close, its language is related, both are Catholic countries and France has a
comparable southern-European culture. The psychic distance model would predict
that Zara would internationalize rst in France. In Mexico, Zara saw a culture with
a common language and religion. It also found consumers seeking aordable ways to
adopt the fashions of developed countries (Ramey 1994).
Zaras initial movement into foreign markets was gradual and into those which
were proximate, but this lasted a very short time. By the middle of the 1990s, Zara
had begun opening stores in psychically distant markets such as Greece (1993),
Sweden (1994), and Cyprus (1996). As Zara gained knowledge through its
backwards integration, it expanded quickly (by 2003) to the rest of Europe, South
and North America. Thus it appears that Zaras strategy bridges the divide between
the classic psychic distance model of Johanson and Vahlne (1977a, 1977b) and the
paradox framework of Evans and Mavondo (2002). Research suggests that as rms
gain knowledge in foreign markets, expansion will move to more distant markets
(OGrady and Lane 1996), but in a gradual manner. Zara seems to have been able to
accelerate the process and move more quickly to psychically distant markets such as
the United States and South Korea. The key to this acceleration seems to be its
knowledge gathering and sharing strategies, implemented at the store level in each
country it enters.

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Conclusions and implications


This article draws upon existing literature on theories of internationalization and the
emerging concept of born-global retailers to develop an exploratory conceptual
model that divides retailers internationalization processes into two: dynamic and
traditional. In the following section, implications of the study are addressed from the
perspective of internationalization of a fast-fashion retailer. Zaras methods of
internationalization display characteristics seen in internationalization through a
dynamic strategic process.
Based on this, several conclusions can be drawn about the insight provided by
internationalization theories. Zara is unique in the sense that a commitment to
foreign expansion was a priority in the business model at a very early stage in the
companys growth. Thus in its internationalization strategy, it behaved in a
dynamic fashion like a born-global rather than a gradual global rm (Moen and
Servais 2002). In examining Knight and Cavusgills (1996) proposition regarding
born-global rms, Moen and Servais found that a focus on resources, which
support international competitiveness, is the key issue when considering a rms
international performance. Thus Zaras focus on knowledge sharing, unique
products and market intelligence in distant marketplaces lends support to Moen
and Servais (2002) claims. When aggregated, it is clear that these theoretical
frameworks t the strategic orientation of Zara as a born-global fashion retailer,
and help explain its explosive growth and success in international markets as
further illustrated in Table 1.
The rst conclusion can be drawn from knowledge sharing theories. Through the
use of forward, lateral, and/or reverse knowledge sharing, companies can gain a
signicant worldwide competitive advantage (Kogut and Zander 1993). Zara uses all
three types of knowledge sharing, beneting the most from reverse knowledge
sharing. The companys rapid international growth made eective communication a
necessary component of the company. Zaras internationalization decisions, such as
expanding with wholly owned subsidiaries, are inuenced by its communication
strategy, which is considered to be a key strategy in the born-global concept. Since
the companys communication is eective from new stores to headquarters, a highrisk method of expansion is an eective choice.
The second conclusion drawn is that this high-risk, high-reward model is the best
for Zaras internationalization, due to its unique resource-based advantages. By
remaining completely vertical, Zara was able to employ and defend a unique
merchandise and retail strategy. Its abilities to quickly design, manufacture, and
deliver clothing create intangible, or VRIN resources that helps in providing niche
fashion products in the markets. This further explains why it is important for Zara to
maintain a high level of control when internationalizing. The nal conclusion is that
Zaras method of internationalization is congruent with psychic distance theory as
the retailer began its internationalization with countries that seemed psychically
close and progressively grew to worldwide stores. Yet in its quick, born-global
expansion strategy, it engendered the psychic distance paradox (Evans and
Mavondo 2002) in that it was very successful in distant markets early on. Using
what many would have considered an unsustainable, vertical model of retailing Zara
has become a dominant born-global retail force and the global leader in fast fashion
through the dynamic strategic planning process (Tiplady 2006). Figure 2 depicts the
key drivers for the success of Zara in the international market.

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Figure 2.

305

Internationalization strategy components for a born-global fashion retailer.

Future research
As mentioned by Burt, Dawson, and Larke (2006), Zara has exemplied the concept
of fast fashion in regards to retail internationalization by redening and
reconguring the traditional approach of demand and supply for fashion clothing.
Furthering this rationalization, the proposed explanatory framework presented in
this study attempts to provide a connection with the research stream in fashion
retailing. The framework explains, though in an exploratory way, that there are
dierences in the planning process of internationalization for fashion retailers that
can be explained through theory; further research should be extended in this area.
There is a need for empirical studies that specically focus on the planning processes
(e.g., dynamic strategic and incremental planning processes) to see how they can help
retailers achieve successful international operations. Such empirical investigations
may help in clarication of the dierences between born-global and gradual global
fashion retailers.
Furthermore, as identied in the conclusion, Zara employs a high-risk, highreward model of internationalization to defend its unique merchandise and retail
position by remaining completely vertical. It would be interesting and more practical
to understand the dynamics of internationalization process for fashion retailers that
are not vertically integrated. Additionally, Zaras born-global expansion strategy
engendered a psychic distance paradox that has been successful in the fashion
markets. However, a similar global expansion strategy may not be generalized for
other fashion retailers, which may vary based on the size of the business. Conducting
empirical studies and testing the proposed framework with small, medium, and large
fashion (and nonfashion) retailers may provide reliable and valid results that could
be used for future benchmarking of the process of internationalization of fashion
retailers. Another possible future research area could be scale development using
mixed methods (qualitative and quantitative methods) for the theoretical constructs
to measure the internationalization process for born-global retailers.

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