8/10/2019 Porters Diamond for Zara

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Firm Strategy,

Structure

and Rivalry

Firm Strategy,

Structure

and Rivalry

Demand

Conditions

Demand

Conditions

Related and

Supporting

Industries

Related and

Supporting

Industries

Factor

Conditions

Factor

Conditions

-Rivalry oriented

toward price

-Relatively backward

structure: overhang of

specialist independents

+/-Price-sensitivity

(intensifies rivalry but ma

limits upgrading)

-Limited store visits,

expenditure, although

fashion content increasing

-Lack of complete

thread-to-apparel chain

-Limited localmachinery supply

+Low cost labor

+Reasonable (but not

highest) labor productivity

-Poor physical

insfrastructure

-Lack of institutional

infrastructure to facilitate

cooperation: universities,

technical institutes,

industry association

Firm Strategy,

Structure

and Rivalry

Firm Strategy,

Structure

and Rivalry

Demand

Conditions

Demand

Conditions

Related and

Supporting

Industries

Related and

Supporting

Industries

Factor

Conditions

Factor

Conditions

-Rivalry oriented

toward price

-Relatively backward

structure: overhang of

specialist independents

+/-Price-sensitivity

(intensifies rivalry but ma

limits upgrading)

-Limited store visits,

expenditure, although

fashion content increasing

-Lack of complete

thread-to-apparel chain

-Limited localmachinery supply

+Low cost labor

+Reasonable (but not

highest) labor productivity

-Poor physical

insfrastructure

-Lack of institutional

infrastructure to facilitate

cooperation: universities,

technical institutes,

industry association

8/10/2019 Porters Diamond for Zara

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1. Porters diamond framework emphasizes that location matters, but is somewhat vague asto whether the appropriate level of analysis is a local district, an intranational region, a nation, or even aninternational region. The analysis in Exhibit Dis at the intranational regional/national level.

2. Similarly, the Porter framework is somewhat vague as to the competitive benchmark to beutilized. The analysis in Exhibit Dis generally couched in relation to Italy as the benchmarkalthough

Italy has an even more backward sector in terms of the overhang of specialist independents andtherefore conclusions from it have to be normalized to account for the fact that Italy does stand out asbeing a very internationally competitive home base on many dimensions. Spain would look better incomparison with, say, Greece.

3. The Porter framework, while broad, nevertheless seems to miss out on certain categories ofinfluences. For instance, entrepreneurship seems to be in the air in Galiciamost plausibly interpretedas a cultural attribute given the regions economic backwardnessin light of the Galician entrepreneurialsuccess stories cited in the case. Perhaps this is not entirely unconnected to Ortegas rags-to-riches story(less common in the Spanish/European context than the U.S. one).

4. Along similar lines but more tangibly, the diamond framework offers no obvious place to putwhat Inditex CEO Castellano describes as the key negative associated with the home base in Galicia: the

fact that it is at the northwestern tip of Spain, itself at one of the western corners of the Europeancontinent. This illustrates the positional rather than relational character of the diamond (like many otherframeworks for assessing national competitiveness): it ranks countries on a single yardstick instead ofthinking of them as existing in space, at varying distances from each other. The distinction is importantsince (differential) distance of various sorts still has a very important effect on cross-border economicactivity. Second, it illustrates the need for assessments of particular locations as home bases from theperspective of a particular strategy as well as industry: Galicias remoteness would matter less if Zarawere pursuing a more conventional strategy with less upstream centralization at home.

Overall, the broad conclusion from the exercise seems to be that Spain is notthe most internationally

competitive home base in the world. Juxtaposing this observation against Zaras success suggests,

therefore, that location is not destiny.