ZARA-Value Creation in the Global Apparel Industry

ASSIGNMENT 1
SUBMITTED BYPRACHI GARG ROLL NO 12 PGDM-IB

Q 1 Outline the key changes in the International Business environment decade by decade from 1970 onward for global fashion apparel retail industry? The global fashion apparel industry is one of the most important sectors of the economy in terms of investment, revenue, trade and employment generation all over the world. Apparel industry has short product life cycles, tremendous product variety, volatile and unpredictable demand, long and inflexible supply processes. The industry has been in a transition over the last 20 years. Some of its major contributors are: y Significant consolidation in retail, y Increasing use of electronic commerce in retail, and y Wholesale trade

The clothing and apparel industry produces finished clothing products made from both natural and manmade fibers like cotton, silk, wool, lenin, polyester, rayon, lycra and denim. The important segments covered in apparel industry include kids clothing, mens clothing, clothing for women, bridal wear, mens wedding wear and intimate apparel. The apparel is sold through three major channels, which includes, brick & mortar, catalog and through internet. The market share of the different channels is shown below: Category Sales $ Billion Market Share (%) Brick and Mortar 169.256 92.9 Catalog 7.177 3.9 Online/ Internet 5,873 3.2 Total 182.306 100.00 Industry Supply Chain The apparel industry supply chain can be broadly categorized into five major components as raw materials, textile plants, apparel plants, export chains, apparel manufacturers, retail stores and customers Major Manufacturers and their Market Share In 2006, the largest apparel manufacturers and exporters were countries from the Asia-Pacific region which included countries like China, Hong Kong, Phillipines, Malaysia, Indonesia, Bangladesh, Srilanka, Pakistan, Thailand and India. The other major apparel manufacturing nations were USA, Italy, Germany and Mexico.

Global Trade Volume and Trends As the apparel manufacturing industry has become more labour intensive and requires less capital investment, its concentration is shifting more towards the developing countries and even constituting large amount of their exports. This can be analyzed by the fact that the apparel production in industrialized countries decreased between 1980 and 1996, where as the production increased in developing countries during the same period. Similar trend was seen in exports, the apparel exports of developing countries increased six times between 1980 and 1997, and that of developed economies rose by 150%. The global apparel industrys total revenue in 2006 was US $ 1, 252.8 billion, which was approximately 68% of the overall industry value. Asia Pacific constitutes the largest amount of production and trade in the apparel industry worlwide. The percentage share of different regions of the world in the total trade revenue in the year 2006 was Region % Share Asia Pacific 35.40% Europe 29.40% USA 22.30% Rest of the world 12.90% China had captured 65% of the global market share towards the end of 2006 in total apparel exports. The other major apparel exporting nations include USA, Germany, Hong Kong, Italy, Malaysia, Pakistan, Thailand and India. Some of the apparel trade statistics are presented below: Country China Hong Kong Italy Malaysia Germany US $ Billion 8,260.921 1,723.210 1,353.586 1,255.069 669.130

Pakistan 618.830 Thailand 597.758 USA 595.171 India 522.463 Exports in 2006 Industry Challenges The Apparel Industry is growing at a very high rate but still there are some barriers, which are hindering the growth of this industry. Some of them are: y Though the demand for garments is increasing day by day but the production rate has still not been able to match with the ever rising demand. More production facilities are needed to meet the demand. y Most of the raw material needed for apparel manufacturing is available in the developing or under developed countries and these countries do not have enough resources and manpower to explore them. These countries also do not have finance to set up factories for clothing and garment production. y Globalization has helped the trade in many ways but due to globalization the competition has increased and so it is not very easy for the firms to cope up with so much competition, as they have to meet the deadlines and also maintain quality. y The importers of developed economies are facing very stiff competition as countries like China are producing good quality products in low prices due to availability of very cheap labour. y Some trade laws still are very much in favor of developed countries and they need to be reviewed, to facilitate imports from the developing countries. y As apparel industry is fashion driven, and fashion keeps changing, the firms have to cope with the changing apparel industry trends and still complete orders in time. Thus they usually have to work under pressure. Future Prospects The global apparel manufacturing industry is expected to grow more than ever in times to come. According to an estimate, the global apparel industry will reach a value of US $ 1,781.7 billion by the end of 2010. The apparel manufacturers are now adopting new techniques to increase their trade. New business models and competitive strategies are used to enhance profits and growth. The consumer is more aware and more demanding with the development of media like television and Internet. They have more choices in quality, price and design. This is the reason why apparel chains all over the world are focussing more on improving the quality of the product and offering in varied range of fashion designs. Apparel manufacturers are developing methods to keep up with the pace of change like offering on wholesale prices to survive in the global competition. Though the above trends show a very positive picture but according to some experts, the dilution of MFA (Multi Fiber Agreement) will make a lot of apparel workers to loose their jobs, in many regions of USA, Asia, Central and Latin America and these jobs will shift to China. According to an article published in the Business

week magazine, 30 million jobs will be lost to China, the hardest hit countries would be Turkey, Mexico and some African nations. The World Bank report says, this will be one of the largest short-term transfers in history. Despite these developments the apparel industry is estimated to grow at very high pace and will provide employment to a large number of people all across the world.

Q 2 What is Zaras business model? Explain briefly Zaras strategic positioning? What trade offs Zara made? Zara is the most profitable arm of the retail conglomerate, Inditex. Amancio Ortea Gaona, the companys founder, began trading garments in 1963. By 2005 Inditex emerged as one of the worlds fastest growing makers of affordable fashion clothing. Now with over 2000 stores and promising to double that number by 2011, Inditex is one of the biggest business success stories in Spanish history. Zara has been described by Daniel Piette, fashion director LVMH, as "possibly the most innovative and devastating retailer in the world". No doubt, Zara has a very successful business model, but ironically, nothing is revolutionary. Through a clear focus and vision they have streamlined the cumbersome old supply chain response from 20-30 weeks down to 8-10 weeks and their customers are eagerly awaiting next weekstake note, not next seasons new fashion. Zaras. Business model is characterized by a high degree of Vertical integration compared to other models developed by their International competitors. It covers all phases of the fashion process: design, manufacture, logistics and distribution to its own managed stores. It has a flexible structure and a strong customer focus in all its business areas. The key to this model is the ability to adapt the offer to customer desires in the shortest time possible. For Zara, time is the main factor to be considered, above and beyond production costs. This signifies there clear cut policy of valuing time even more then money. Vertical integration enables them to shorten turnaround times and reduce stock to a minimum and diminishing fashion risk to the greatest possible extent. Zara has tapped into the power of fashion. Small and frequent shipments keep product inventories fresh and scarcecompelling customers to frequent the store. Under the Zara model, the retail store is the eyes and ears of the company. Instead of relying solely on electronically collected data, Zara utilizes word-of-mouth information to understand more about their customers. Empowered store managers report to headquarters what real customers are saying. Products that are not selling well are quickly pulled and more selling items quickly replenished. Their quick turn around on merchandise helps generate cash which eliminates the need for significant debt. Zara maintains a strong relationship with their contractors and suppliers viewing them as part of the company. To successfully react to consumers demands, design decisions are delayed as long as possible. Typically, Zara commits to 50%-60% of their production in advance of the season, whereas other apparel retailers commit to 80%-90%. Zara practices

precommitment, meaning they reserve mill capacities to ensure production facilities are available when needed. Zaras team of designers, made up of more than 200 professionals, continuously assessing the customers preferences, wishes and demands offering each year comprised some 12,000 different models for sale in its stores. The availability of the factories owned by the company, together with a wide range of highly experienced external suppliers who have a solid commercial relationship with the format, allow Zara to manufacture a model and to have it for sale in its stores worldwide within the average term of approximately two weeks. Garments, both the in-house manufactured and those purchased from external suppliers, arrive at the hubs Zara has in Spain, wherefrom they are dispatched to the stores worldwide. Clothes are dispatched twice a week, and this frequency allows a continual renewal of our fashion offer. Zara sells three lines of items, for women, men and children. Each of them has its own independent creative team who carries out the fashion proposals for each campaign. That is why their customers may find in Zara stores, located at the major shopping streets of more than 500 cities in the world, a high quality fashion proposal that takes into account the latest trends at affordable prices. This is very different from most clothing retailers that outsource much of their manufacturing to developing countries. It produces about 11,000 distinct items annually compared with 2,000 to 4,000 items for its key competitors, constantly updating its range of clothes. Zara shop managers report back every day to designers on what has and has not sold, information that is used to decide which product lines and colors to keep or alter, and whether new lines should be created. Reducing the time to get the clothes into the shelves and the batches of clothing in small quantities also keeps the costs down by keeping stocks low, and if a design doesn't sell well within a week, it is withdrawn from shops, and further orders are canceled. Where most retailers have different "seasons" Zara keeps no design on the shop floor for more than four weeks, encouraging customers to make repeat visits. Popular items appear and disappear within a week creating an image of scarcity. Zara doesnt invest in traditional advertising. Prime locations in regal buildings are chosen for splendid visibility. The stores ambience is consistent and appealing from the interior design, artwork, window displays, lighting and music. 50% of the products are manufactured in Spain, 26% in the rest of Europe, and 24% in Asian and African countries and the rest of the world. Design collections are not developed by small elite groups of designers but by creative teams. Teams consist of designers, sourcing specialists and product development personnel. The teams work simultaneously on different products, expanding on styles that were previously successful. Designers are trained to limit the number of reviews and changes, speeding up the development process and minimizing the number of samples to be made. Traditionally, design and development precedes fabric procurement. Zara has turned this practice up side downZara is fabric driven. Designs are developed with

available fabrics and trims. This eliminates waiting for the long and laborious process of fabric formation. Poor communication is often results in bottlenecks. Zara invested in information technology (IT) early on. Their in-house IT is simple and effective. Vendors and suppliers report that people are accessible and answers can be obtained quickly. Internal communication is maximized by housing on one floor, the designers, pattern makers and merchandisers, as well as everyone else involved in getting the product completed. Zara hires young designers and trains them to make quick decisions. Decision-making is encouraged and bad decisions are not severely punished. Designers are trained to limit the number of reviews and changes, speeding up the development process and minimizing the number of samples made. Some say Zaras real strength is its well developed culture, and that isnt something that can be easily knocked off. Not everyone can be a Zara, nor does everyone want to be. But in todays competitive environment, fine tuning the supply chain is no longer a strategic tool, but a necessity. The stages of the supply chain will not change, but to obtain quicker speeds the sequence and focus has to. STRATEGIC POSITIONING Zaras strategic positioning is variety based. At first Zara followed ethnocentric strategy by encountering unexpected difficulties in some countries due to cultural differences it changed its international marketing strategy to geocentric strategic. Strategic positioning refers to performing different activities than rivals, or the same activities in a different way. While the model itself is often very easy to replicate, technology is essential to creating and enabling novel approaches to business that are defensibly different than rivals and which can be quite difficult for others to copy. The fashion market has changed considerably over the past few decades. Fashion products, which used to be an elite consumption product and now, are mass consumption market, are embodying what has been called the democratisation process of fashion. In the last years the fashion market has polarized. On the one hand there are producers and retailers of premium products on a high price level offering luxury products. On the other hand the low price young fashion producers, often foreign international operating chains like the Swedish chain H&M (Hennes & Mauritz), the Dutch chain C&A (Clemens and August ), the Spanish chains Mango and Zara or the American chain Gap. Zara is considered as an example of the relationship between technology and strategic positioning. Inditex describes Zara in this way: Zara is a high fashion concept offering apparel, footwear and accessories for women men and children, from newborns to adults aged 45. Zara stores offer a compelling blend of fashion, quality and

price offered in attractive stores in prime locations on premier commercial streets and in upscale shopping centres. The in-house design and production capabilities enable us to offer fresh designs at out Zara stores twice a week throughout the year. Zaras target market is very broad because they do not define their target by segmenting ages and lifestyles as traditional retailers do. Its target market is a young, educated one that likes fashion and is sensitive to fashion. Today, people around the world through various communication devices have more access to information about fashion. Therefore, fashion has become more globally standardized and Zara uses this to their advantage by offering the latest in apparel. For that reason, 80- 85% of the products that the company offers globally are relative standardized fashionable products. The international strategy of this fashion chan is excellent because it adopted a balanced mixture of standardization and customization. Figure 1 shows the Zaras positioning according to the process and the customization. Fashion retailer Zara has used its supply chain management to create "instant fashions:" cheap, trendy clothing using a high-wage paradigm. Unlike its competitors, Zara did not outsource the fashion design function. It created an in-house design shop that could follow fashion trends quickly and then electronically transmit the designs and patterns to its job shops. As part of the "just-in-time" model, these shops tended to be within Europe, rather than the Far East. This technology-based local supply chain enables store managers to restock quickly and in smaller batches. This reduces unsold inventories, thereby saving money that can be spent directly on merchandise and sales staff, not warehousing and logistics. Similarly, the company uses its sales records to shape its staffing patterns for stores, putting more sales people on the floor at peak times (e.g., lunchtime or right after work), increasing sales and reducing personnel costs. Another innovation: alarm tags are now installed at the factory so sales staff at the stores spend more time actually selling, rather than processing inventory. TRADE OFF y Zara keeps very low level of Inventory to save the costs. y Zara makes about 40 percent of its finished garments internally. It is having 20 automated factories, 28 of which are clustered around its headquarters in La Coruna. Since it manufactures most f its finished goods in Spain, it incurs some 20 to 40 percent more to manufacture than its counterparts. However it feels it is necessary for the Just in time model which it has installed for quickly adjusting to fashion trends. y Zara did not develop products to respond to a particular countrys requirements and 85 to 90 percent of basic designs sold in Zara stores tend to be same from country to country. y Zara does not spend much on the advertising aspect so as to keep the costs under control.

Q 3 Using a diagram explain Zaras value chain and comment on the degree of strategic fit among Zaras activities. How is Zaras value chain different from competitors?

The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource

management, information technology, and procurement. The costs and value drivers are identified for each value activity. Zara has been able to get the garment from the factory to customer in 15 days as compared to 6 months by the industry. Zara was able to keep its cost of production comparable to factories in developing nations like China. All this and a lot more was achieved through building core competencies ahead of the competition. Following are the competencies that were built by Zara: PRIMARY ACTIVITIES Design: Zara challenged the traditional idea of having two collections each year that is Spring and Autumn clothing. Zara realised that consumers of apparel have started to be highly demanding and hence it tweaked its design to match the changing needs. It keeps a live collection that is designed, manufactured, distributed, and sold almost as quickly as its customers changing taste. Zara did not develop products to respond to a particular countrys requirements as done by the major competitors. 85-90% of the basic designs sold in Zara stores tend to be the same from country to country. Production: Zara employs more than 14,000 people to make about 40% of its finished garments in any of its 20 fully owned factories. 18 of 20 factories are clustered around its head office thereby reducing the transportation costs. Its factories are heavily automated, specialized by garment type, and focused on the capital-intensive parts of the production process. Zara built a network of about 450 workshops, which perform the labour intensive, scale intensive activity of sewing the garment pieces cut at the factories Logistics: Any garment partially completed or fully completed is first moved into Zaras massive distribution centre in La Coruna. Zara has mobile tracking systems that dock hanging garments in the appropriate bar-coded area and carousels capable of handling 45,000 folded garments per hour. There are twice weekly deliveries to every store triggered by real-time inventory data collected through a network of computer handsets feeding through the internet. Zara was capable to handle a large number of stock keep units which helped build sustainable competitive advantage in longer term. Marketing: Zara spends about 0.3% of its revenue on media advertising, compared with 3-4% of most specialty retailers i.e. their direct competitors. Its advertising is limited to the start of the sales period at the end of each season. It relies heavily on word of mouth to market its products to potential customers. Management adjusts pricing for international market, thereby making customers in foreign market bear the costs of shipping products from Spain. Store operations: Zara made sure that the window displays and interior presentations convey the right image of the brand and apparel for sale. At their headquarters, designers use mock store and test possible themes, colour schemes and product presentation model window and store areas. Salespersons at the store wear Zara brands to increase the brand position. All salespeople are also equipped with wireless handheld organizers that let them punch in trends, customer comments and orders which are analysed at real time.

SUPPORTING ACTIVITIES Sourcing: Zara sources from external suppliers with the help of purchasing offices in Beijing, Barcelona and Hong Kong apart from their head office. It also acquires fabric, inputs and finished products from suppliers in Spain, India, and Morocco and the FarEast. One half of the fabric purchased is Gray (not yet dyed), so designs can be quickly updated during a season. This helps in overall cost reduction and delay the processes to attain operational effectiveness. Technology Development: Zara is equiped with mobile tracking system and its sales people are equiped with hand held organisers. Infrastructure: Managers sense of customers and markets and their ability to coordinate activity worldwide. Store managers and staff choose which mercagndise to order,which to discontinue and which to propose. Zara equips all salespeople with wireless hand held organisers to punch in trends, customer comments and orders.Zaras designers do also the market reasearch about the emerging trends. DEGREE OF STRATEGIC FIT Strategic fit is a source of both competitive advantage and its sustainability. They are three types of fit: 1st order fit: activities are all consistent to each other. But its not strong enough to block imitation 2nd order fit: when activities reinforces each .high degree of barrier to imitation 3 order fit: activites are chosen in such a way so as to optimize resourcrs. Very less chance of imitation. Zara followed 3rd order fit because in this chance of imitation is very less. And as there is coordination and information exchanges across activities to eliminate redundancy and minimize wasted effort leading to effort optimization ZARAs VALUE CHAIN IN COMPARISION TO COMPETITORS

Zaras main competitors are Gap, H & M, Next & Benetton. ZARA y Highly Integrated Fashion Clothing Designer, Producer and Retailer y It has short lead times-2-3 weeks y Better inventory control hence low cost y Centralized Distribution costs GAP y Separate sourcing & logistics function y Global sourcing team aligned with brands & logistics with inventory planning and distribution H&M y Longer lead times y Production is outsourced y No focus on store makeups y A distribution center in each country leading to high costs BENETTON y Main model is licensing

Q 4 What is the basis of Zaras competitive advantage? Is it sustainable? Why or why not? Zara, the leading division of the Spanish firm Inditex, is head quartered near La Coruna. La Coruna is a mid sized city in northwest Spain. Following is how Zara has created Competitive advantage: y One of the strongest differentiating factors of Zara's business model is its closeness to its customers and its ability to transform this into a trendy value proposition. Zara made sure customers visited its stores more frequently. y Zara has a unique quick response strategy of capturing the market requirements in a very dynamic manner. It has got its 300+ designers who continuously track the market events, fashion trends and customer preferences and update their collections keeping in mind these observations. Their designers have frequent chats with store managers, industry publications, TV, internet and film trend spotters who focus on venues such as night clubs, university campuses etc. All this helps to gauge the changing trends ahead of competitors. y Zara sources mainly gray fabric (not yet dyed fabric) which gives them the leeway to postpone activities according to the current fashion trend. y Zara has opened stores at high profile and premier shopping streets including the lead markets. This helps to be present among the premier brands and help understand what is being done by competitors early enough to benefit Zara. Care is being taken in doing the interior decorations of the stores as provides the first impression to potential customers.

The production of most fashion sensitive products has been kept internal to Zara. They have built a network of about 450 workshops which are in the northern border of Portugal which perform the activity of sewing the garment pieces. These workshops are provided with cut and colored pieces of clothes which are finally stitched as per the design by them. This helps Zara to concentrate more on the design aspects. y Due to its rapid turnover strategy, Zara has been able to get customers visit their stores 17 times in a year as compared to 3-4 times for competitors. y Zara also fully owned 20 factories for internal manufacture. These factories apply just-in-time production (JIT). Again, this gave Zara further competitive advantage, in terms of both cost and control. SUSTAINABLE COMPETITIVE ADVANTAGE According to Michael Porter, the three methods for creating a sustainable competitive advantage are through: y Cost leadership: Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost. y Differentiation: Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost. y Focus (economics): A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference. Following are some reasons why Zara has Sustainable competitive advantage: y The activities of the firm are having a strategic fit among each other which provides the sustainability of the competitive advantage. y The activities of the company are in tandem with its core operation. The marketing is focused to only media and also a low spend. The gap here is efficiently filled by the market research activity which is very dynamic and which enables to design only those apparels which are current market need and for which the word of mouth advertisements will be sufficient. y Another set of activities where the fit is prominently visible is the manufacturing operation where it spends 15% extra compared to its rivals but which it adequately compensates by means of the lean advertising, efficient inventory management and quick adjustments to fashion trends. y Also the sourcing activity is in a strategic fit with the dynamic design strategy wherein the purchases of gray fabrics enable it to respond efficiently to dynamic changes in customer preferences. y Vertical Integration. y Centralized Distribution Center at La Coruna helps reduce a lot of transportation costs and avoid duplication of efforts. y

Q 5 What strategic challenges Zara is facing today and emerging challenges till 2015? What are the distinctive competencies & capabilities Zara needs to develop? What are your strategic recommendations for Zara? Why? Following are the strategic challenges ZARA is facing today and in next 5 years: y Zara current vertically integrated model is pose a threat to Zara success in long run. The model will not work once Zara scales its operation to greater levels. Currently, Zara's designing, production, distribution and retails stores are tightly coupled together and operate very closely. Expanding operations in different regions (America, Asia, Europe etc.), requires addressing different fashion trends at a time. Also, given different sizes/ trends in different regions, it would not be easy to pull a new fashion cloth or apparel from one region and put it in other region. y Also, scaling its operation may require joint-ventures and acquiring some smaller chains also. In a joint venture, it is very difficult for Zara to impose its business model to the other partner. In this case, we have already seen Zara joint ventures dissolving on a couple of occasions. y While Zara may find it difficult to manage the vertically integrated model for its large scales of operation, local retailers may follow Zara's formula to success and can emerge as big threat to its success. y It is not easy to beat the local retailers in their home market. For example, the Local appreal market in Italy is still owned 61% by the independent stores, 45% in Spain (Note that this is Zara's local market too) and 15-30% in other three major European markets. Specially, in a country with very cheap labour (mostly in Asia), it will be very difficult for Zara to keep up its production in Spain. y Zara's business model is based on ever changing fashion. For countries like US, where people are less fashion forward, it may be a challenge for Zara to sustain its presence. y With changing time, Advertisement is becoming an important part of the business and it reflects directly to the sales. Zara's in-store advertisement model may not work going forward. Zaras direct competition may be their largest threat, especially when expanding into new geographic territory. Almost any retailer can be a threat to Zara due to their wide range of merchandise categories. Zara offers clothing and accessories for men, women, maternity, children, and baby. Many other retailers also offer goods to one or all of those merchandise groupings. The Gap is one of these competitors because they are also international and sell the same range of merchandise with a less trendy style. H&M is probably Zaras most similar and threatening competitor. They too have been quick to internationalize, which allows them to gain sales in countries outside their native Sweden. H&M also is more attentive when entering new markets and tends to enter one country at a time, as opposed to Zara who multitasks globally. H&M builds distribution

centers in their international locations in order to cut down lead times and potential logistical costs. Another threat to Zara is that H&M carries trendy clothing choices that they have designed based on the melding of international apparel tastes. However, H&M offers these styles at a cheaper rate than Zara. H&M also uses more advertising than Zara, but not as much as the Gap, which may aid them in entering new markets successfully because the local customer is aware of H&Ms merchandise mix. Key success factors y Shorter lead times y Smaller quantities per style and y Many more styles during a year y Extensive market research y Locating various business functions in close proximity to headquarter. Zara has expanded too fast while maintaining a highly centralized vertically integrated supply chain. Operations and distribution is becoming complex and are fast approaching a state of diseconomy of scale. Following are some recommendations for Zara: y Decentralized production and setting-up facilities beside major clusters of countries (Western Europe, Eastern Europe, Asia, etc...). This would decrease the complexity of the system while catering for the fashion needs of each cluster. y Expansion: Setting-up other major distribution centres to avoid the major bottleneck. y Sustainability: Zara has expanded too fast while maintaining a highly centralized vertically integrated supply chain. Operations and distribution are becoming complex and are fast approaching a state of diseconomy of scale. ZARA should consider the following options to increase future scalability of the Zara system. Stop expanding economies of scope i.e. do not acquire any additional chains and concentrate on expanding the current operations.

Q 6 What are your learnings from this case? Value Chain: The value chain is a representation of the firm as a series of discrete value creating activities. o Primary activitiesthose that are involved in the physical movement of raw materials and finished products, the production of goods and services, marketing and subsequent services of the outputs of the business. o Support activitiesinclude procurement, technology and system development, human resource management, and firm infrastructure. A companys competitiveness is determined by how effectively it manages its value chain. Value chain analysis serves to guide managers efforts to build expertise in those value activities that are critical to reducing costs or improving differentiation. y Trade Off: A trade-off is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect y

Strategic Positioning: Strategic positioning is the positioning of an organization (unit) in the future, while taking into account the changing environment, plus the systematic realization of that positioning. The strategic positioning of an organization includes the devising of the desired future position of the organization on the basis of present and foreseeable developments, and the making of plans to realize that positioning. Business Model: A business model describes the rationale of how an organization creates, delivers, and captures value - economic, social, or other forms of value. The process of business model design is part of business strategy. Business model is used for a broad range of descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. Hence, it gives a complete picture of an organization from high-level perspective. Competitive strategy: Competitive strategy refers to how a company competes in a particular business. Competitive strategy is concerned with how a company can gain a competitive advantage through a distinctive way of competing.