Section Two: CASE ANALYSIS (Marks: 5) Please read the following case and answer the two questions given at the end of the case. Zara's Competitive Advantage Fashion houses such as Armani and Gucci produce highly differentiated, expensive clothing that is affordable to only the very rich. They supplement their sales by producing a line of upscale ready-to-wear fashion for sale in luxury department stores. However, in recent years, the fashion houses' position as the industry's differentiators has been challenged by new firms that use information technology (IT) to lower costs and speed time to market with new designs. These new designers sell their clothes through mid-price retailers such as Dillard's and Macy's, or through their own retail outlets, as the start-up Zara does. Zara, headquartered in Spain, has designers that closely watch fashion houses' offerings each season. Then, the designers link with low cost suppliers, manufacturers, and shippers from overseas, produce a new product line and have it in the stores in about six weeks. The firm also uses IT to monitor each product line's sales, constantly change its product mix, and minimize inventory. While most fashion houses outsource production, Zara has its own factories and keeps about half of its production in-house. Zara does not produce in large volumes to attain economies of scale, instead it produces in small lots. Labor-intensive activities, such as sewing, are performed by subcontractors located close to Zara's factories. Zara makes a practice of having more production capacity than necessary, so that if an emerging fashion trend is spotted, the company can quickly respond by designing garments and ramping up production. Zara is thus able to charge low prices, Increasing demand, and leading to high ROIC. Zara's profitability led to a very successful IPO in 2001, and rivals are now copying the firm's techniques, hoping to improve their own performance. Required: 1. Read the above case and explain how Zara has achieved competitive edge in the clothing fashion industry. 2. Is it easy (or difficult) for other companies to imitate Zara's business model? Explain.