Zara, the Spanish fashion giant, has gained a worldwide reputation of high quality, constant up-to-date fashion. They achieved this through not falling for the tables and only outsourcing production to nearby countries in which they already operate. While labor costs may be higher, it allows them to reduce a lag in communication and so they can design, build and manufacture new designs almost immediately. Zara releases new designs into stores every week, and this can only be achieved through their small supply chain compared...
Zara, the Spanish fashion giant, has gained a worldwide reputation of high quality, constant up-to-date fashion. They achieved this through not falling for the tables and only outsourcing production to nearby countries in which they already operate. While labor costs may be higher, it allows them to reduce a lag in communication and so they can design, build and manufacture new designs almost immediately. Zara releases new designs into stores every week, and this can only be achieved through their small supply chain compared to competitors such as H&M. The high costs are made up for by this and the fact that their products are quite priced inelastic, so a change in price leads to little change in demand.
While labor costs are an important factor, legal issues surrounding workers can also affect where businesses decide to place themselves. In the UK, annual leave is a minimum of 5.6 weeks per year for any worker whereas in China, statutory annual leave is not mandatory until after the first year of employment and even then it is only five days a year until your 10th year of work. This can greatly affect a business’s decision to situate there as less holiday time means more paid time working and less spent on wages while nothing gets done. This is by no means right but looking at it from a financial point of view, you are getting more for your money. The low labor costs and long working hours are why China seems so attractive to outside businesses.
