Producing Domestically, Expanding Internationally

Inditex, a Spanish based retailer, has experienced a 68% increase in profit this year as in plans to expand its business to five more countries and tap into the e-commerce market. Growing its store base anywhere between 8-10% annually, Inditex Chief Executive Pablo Isla expects to “see big potential” fulfilled as the company expands. Inditex’s rapid growth can be attributed to its cheap supply inputs and its ability to respond quickly to consumer demands. Nearly half of all Inditex’s products are made in Spain, thus cutting down on transportation costs and production time while also allowing the company to adapt to new fashion trends. Furthermore, Inditex is in a prime location to receive information on trends occurring in the fashion world.

Early in the blog, we mentioned that many American based stores were suffering from slow growth do to the recession and therefore frugal consumers. However, Spain’s economy as a whole has experienced a slower growth rate than the United States. Spain lacks the capital and technology that the US has, so why is it that Inditex is citing greater profits than American companies? First, I attribute Inditex success to, unlike many US companies that use offshore production, Inditex manufactures half of all its goods in is base country of Spain. Thus not only does Inditex save time and money, but is also facilitating its country’s economy. Secondly, Inditex utilizes a fast-fashion model where it, constantly updates its stores to sell the lasted fashion trends where as US retailers wait to see if that fashion has any longevity. Therefore, I conclude, that while offshore production may seem cheaper, producing goods domestically is not only beneficial to one’s company, but also its country’s economy. Secondly, adapting to rapidly changing consumer demands is a necessity for any company to survive in today’s ultra competitive markets.

Wall Street Journal, Print Issue, 23 September 2010, Coporate News Section, pg b3