Marketing management: CSR theory and the case of Zara PDF

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Análisis of Corporate Social Responsibility and the case of Zara: what is doing, problems of the corporation and solutions...

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CORPORATE SOCIAL RESPONSIBILITY

Author: Paula Ampudia Luzuriaga

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INDEX: I. II.

History of the Brand: page 2 Theoretical background: What is Corporative Social Responsibility? Pages 3-4

III.

Does CRS hold an strong role in customer deciding process? Pages 5-7

IV.

Should CRS theory focus more on economical advantages, in order to attract corporations? Page 7

V.

VI. VII. VIII. IX.

Are labour conditions protected enough the manufacturing process when it is partially de-located? Pages 8 – 9 Is environmental responsibility compatible with fast-fashion? Pages 9 – 11 Environmental Recommendations: page 11 Ideas to improve labour conditions: pages 11 – 12 Bibliography: pages 13

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1. History of the Brand The beginning of the Indintex empire could not start in a more unpredictable way. Amancio Ortega Garona started as a shop assistant in La Maja (A Coruña), where he soon started selling his own creations and collecting his first clients, women that were particularly impressed for the price-quality ratio of his gowns. It was in 1963 when he started working independently and with the company of his brother Antonio, they created Confecciones GOA. The huge success of the project led to the opening of the first Zara store in A Coruña in 1975. The city is still central for the company and currently the central services of the company remain there. Zara soon became the brand of that new generation and teens from all Spain were willing to go to Galicia to get their affordable fashion item. In the following ten years the brand spread all around the country, opening in the main shopping streets of the commercial cities of Spain. In fact, the location of Zaras in commercial areas and in luxurious and beautiful establishments is also a marketing strategy for the brand. In 1985 INDITEX was formed, a holding company that manages all the businesses that were latter created, each of one focusing in a specific sector of the population. For example, Bershka offers garments for creative and connected to social media youth. The first international shop was opened in Oporto (Portugal) in 1988 and a year latter Zara arrived to Lexington Avenue (Manhattan, NY). Greece was the sixth market where Zara entered, opening a shop in Athens in 1993. Although before COVID-19 the number of shops reached 7,000 (after opening a shop in Hawaii), currently 6.657 shops remain open. However, thanks to the digitalisation of the brand, it is available in 216 markets. The key for Zara’s success was the closer approach of high fashion to the overall public. Zara copied or gets closely inspired from designs of High Fashion brands, but their business model, when garments are produces with low costs, offers them the possibility to sell those items in a way lower prize.

2. Theoretical background: What is Corporative Social Responsibility? The UEs Green Book defines social responsibility as the way in which corporations voluntarily include social and environmental preoccupations both in their businesses and in their relationship with stakeholders. More than charity, it should be viewed as the inclusion of certain values and concerns in their everyday practices. Also it could be implicitly giving a greater relevance to stakeholders, instead of only to shareholders (Schmidheiny et al., 1997) and specially changing the corporation from an economic entity to a socioeconomic one. CSR´s increasing importance could be exemplified by how between 2011 and 2012, Mission declarations of Fortune 500 corporations increased by 112% the explicit mentions to society concerns, compared to 23% of “clients” (Rey y Gutiérrez).

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Such a wide concept certainly requires a focus on its dimensions. (Dahlsrrud 2008 and European Commission): environmental, social, economic, stakeholder and voluntariness. Studies often refer to Carrol’s pyramid. In order for companies to embark on ethical or philanthropic responsibilities, the conditions below should be fulfilled (compliance with the law an regulations and capacity to be profitable while contributing to social causes). Although some might associate CAPSR with the pursue of “shared values”, must companies prefer to focus on a more multifaceted CSR. Instead on the full integration of CSR values in their strategy, it is rather common to invest in CSR programs that are coherent with the brand published values. The modern or strategic version that has recently developed advocated for a good relationship with their stakeholders while introducing CSR as a long-term strategy, not only to add value to their environment but also as a way to improve their competitiveness. This is what I was defined as “moral capital” by Godfley (2015) or by Salas (2005) as “comprehensive selfishness”. Finally. we redefine fast fashion strategy as a marketing approach to respond to the latest fashion trends by frequently updating products with a short renewal cycle and turning the inventory at a rapid rate. Furthermore, such pursuit of the latest fashion trends and a short renewal cycle are closely interlinked and interdependent with limited supply. In other words, fast fashion retailers deliberately undersupply products to provide up-to-date products in a short time gap (Dutta 2002, Moore and Fernie 2004). As such, a short renewal cycle and a limited supply are identified as the two most important components of fast fashion strategy. Contrary, DEFRA’s (2010) definition of sustainable clothing considers social and environmental aspects across the entire value and supply chain: ‘sustainable clothing does not adversely affect people or the planet in its production, manufacture, transport, retail or end-of-life management’. It could be seen as a sum of ‘eco-fashion’ and ‘ethical-fashion’. Slow fashion stands in contrast to the fast fashion industry, it is part of the “slow movement”, a cultural transition towards quality over quantity. It aims at slowing down as well as taking off the pressure of the nowadays fast-paced life in order to reject the swiftness caused by globalization and increasing consumerism. Slow fashion is often characterized by higher materials quality and more ethical production processes. The reduction of the consumption could also reduce the amount of fashion waste (Jung & Jin, 2014).

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3. Does CRS hold an strong role in customer deciding process? Yuan-Shuh Lii (2011) investigated the relationship between the type of CSR and Reputation with the Consumer Evaluations of the Firm, using as the main theoretical model the stimulus-organismresponse (SOR) paradigm. The model is presented in the following diagram:

In order to fulfil their CSR initiatives, the model presented three categories (first presented by Polonsky and Speed, 2001). A CSR perspective could be implemented to the tree of them, but after investigating Zara and some businesses from their competence, I believe that it is worth analysing the last two: A. CRM involves a company's promise to donate money to a non-profit organisation or to a social cause, when consumers choose to buy their items. Smith and Alcorn (1991) found out that 46% of their interviewers would switch brands because of their desire to support a specific cause. B. Philanthropy (P) requires a step further, the donation to a cause merely because of their wish to be good citizens, without any expectation of a latter income. The report is focussed on this idea of true P in spite of the amount of so-called P that actually conceal the seek of benefit (pseudo-altruism). Although true P does not seek it, numerous studies have proven that they provoke a positive feeling and improvement in the attitude of consumers. Those external stimuli are processed cognitively (ex. Expectations or decision rules) and affectively (ex.motivation, attraction) and affect their internal process of regulating choice. Favourably the initiatives would enhance consumers C-C identifications, which means a closer resemblance between their self-definitional needs (distinctiveness, enhancement etc, the values that top Marshall pyramid) and the causes the company patronises. To reach that level of identification and therefore loyalty CSR can hold a crucial role abuse CSR creates human traits to corporations, what it would be called “The Values of the Company”. Social identity theory analyse the urge of people to classify themselves and am others in categories. A way to identify themselves is by looking for organisations that are known for the dimensions than that customer’s follow (Ahearne et al. 2005). By aligning themselves to responsible brands you are building a positive social identity, that is also enhanced by the evaluation of people around you and even by yourself. CRS reputation moderates the relationship between a firm's CSR initiatives, the C-C identification and the brand attitude. When the reputation is low, the efforts of communicating the CSR projects

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may prove useless because people would perceive sceptically even the most philanthropist of the initiatives. Contrary, a brand with high reputation would not have to bother that much about those projects, as the evaluation of the brand will remain positive. While trying to explain Inditex´s reputation, I find it convenient to differentiate between reputation inside Spain and international reputation: Zara´ s brand reputation inside Spain is strongly linked to its creator Amancio Ortega. Either if you love him or you hate him, discussions around his figure have reached even the Parliament. Amancio Ortega is well known in Spain for its philanthropic causes, coordinated by its own foundation. Amancio Ortega Foundation reached its highest popularity when it announced its Programme to Support Public Oncology in 2015. Thanks to these projects, firstly in Galicia and after in the whole state, an amount of 300 millions of euros were donated to install 450 last generation equipment to fight against the disease. These new gadgets helped a more efficient and precise early diagnosis and provided a Prototherapy treatment, less aggressive and shorter than past used radiotherapy. This recent year another donation of 280 millions of euros was done to finish implementing the project and thanks to that Spain will become a leader in the usage of this advanced technology against cancer. On the other hand, the foundation also focuses primarily in Education and Social Welness, with the creation of public schools and Centres for people with brain damage and providing scholarships both to Master students and professors. Inditex has yet again reached the top position in the podium of best corporate reputation in Spain, according to the annual publication Merco that monitors both reputation in Latin America and Spain since 2000. Individually, Pablo Isla (chairman of Inditex Group) has placed second in leader´s general ranking. This is no surprise considering the latest news on Inditex CSR, which came hand to hand with COVID-19. The pandemic first wave was devastating in Spain and consequently the country suffered one of the longest lockdowns in Europe. Despite this, the multinational made a statement confirming that it would not sent to ERTE any of its employees in Spain, assuming by themselves the total costs as long as the crisis continued. ERTE is a legal mechanism that was used during the lockdown by the Government in the aim to finance the cost of the temporary firing of workers by companies and avoid the massive wave of collective dismissals that occurred after the past financial crisis. Furthermore, Inditex placed at the full disposal of the government all their installations in Spain, so they could be used to fabric any means necessary (mask, hospital garment etc.). On the other hand, numerous cases of tax evasion has followed Amancio´s career. The most notorious of these practices could be dated back in 2013 when it was condemned by the Supreme Court to pay 33 millions to Public Finance System. Therefore, another part of the populations has a rather skeptical view of his philanthropic acts, especially taking into consideration that foundations in Spain had traditionally been used for financial benefits. The debate escalated to the Parliament, where Lilith Vestrynge (secretary of Podemos political party) called Amancio ``not a philanthropist but a tax evader”. On the international level consumers do take less importance to these reputation matters, as it is not such a common debate. However, in the next questions I will further explain some controversy that the company has faced and that had reached internationally.

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Finally, I will briefly analyse the Consumer Citizenship Behavior, which strongly connects with consumers attitudes. Blau (1964) explained consumers and organisations as a social exchange, based on the expectations of trust and reciprocation. When a company promotes altruism, the attitudinal evaluation will arise and consumers will be more reciprocate by engaging more in in-role behaviours (purchasing products) and extra-role behaviours (recommending the brand).

4. Should CRS theory focus more on economical advantages, in order to attract corporations? The report analysed which of the CRS initiatives held a stronger role in the internal decision process of the consumers (organism). CRM campaigns were more likely to be viewed as suspicious because of their explicit mention to sales. Although studies have proven that CRM is the most effective way to decrease unethical behaviours within companies, consumers may also view search for the hidden motives on them and therefore, companies which follow these strategies may be submitted to higher moral and ethical standards by the population. In other words, philanthropy is the most effective way to reduce suspiciousness amongst the potential consumers and therefore, is considered the most effective CSR initiative. On the other side, the study also proved that the only initiative where reputation has a significant effect is also philanthropy. Therefore, when a manager is trying to enforce the C-C identification, regarding the brand reputation, should consider first engaging philanthropist tactics and afterwards sponsorships and CRM campaigns. In addition, a close monitorisation of the feedback should be implemented, to prevent consumers from thinking that the initiatives covers pseudo-altruism rather than pure willingness to help others or the environment. Using these model, Tamara Dvorak (2017) presented a thesis applying these discoveries to fastfashion industries and used Zara as the object of investigation, as the embodiment of this model of fashion supplying. Results found no significant interaction between consumer awareness and consumer purchasing behaviour for the brand. That aligns with Jorgensen (2006) studies where he suggested that in fashion purchases, the majority of consumers are more influenced by their personal fashion needs than by the needs of other people involved in the supply chain. However, the same study conducted for the case of H&M proved contrary, even if the relationship was still weak. This could be reasoned in two directions. 1. H&M communicates more successfully its CSR efforts to the consumers. 2. H & M's customer profile differs from Zara´s (in my opinion this one is more unlikely). Nevertheless, the results do not prove the lack of efficacy of CSR practices, but it encourages a further communication of the projects and specially, of the impact of the projects on their consumers life and environment.

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5. Are labour conditions protected enough the manufacturing process when it is partially de-located? Current vertical disintegration of retailer´s supply chain is clearly shifting toward countries on which labour law and conditions are underdeveloped (Pickes and Smith 2011). Those de-located fabrics are characterised by the lack of risk prevention policies and by high pressure on workers. Laudal (2010) found out that global fashion industry is exposed to higher CSR risks, due to 6 characteristics: 1. Labour-intensive production 2. Corporation´s own social and environmental standards are lost under the higher corruption of their producers (problems of de-location) 3. Fashion market is a buyer´s market in which retailers have a higher bargaining power and strong competition, that can result in overexploitation amongst producers. 4. Short deadlines: these factories normally produce for various companies at the same time, each one with its own deadlines. Moreover, campaigns are no longer seasonal. Instead, new campaigns are published monthly or even weekly, a consequence to the high cloth rotation. Zara currently releases 24 trend-led collections every year and 500 designs a week, which means that 20,000 designs are produced per year. 5. Low transparency in the supply chains lead to unnoticed breaches of CSR standards and communication barriers between manufacturers and retailers. Consequently, companies of this profile often are held responsible for problems that might not be caused directly by them, but by their suppliers. 2011 reports from Brazilian Ministry of Labour exposed that textile industry was the third industry with the highest incidence of slave-like labour. Indeed, AHA contractor, responsible for the 90% of Zara´s Brazilian production emerged into a scandal after it was found that it used subcontracted work from a factory that used migrants from Bolivia and Peru, which worked from 16 to 19 hours a day while they were trying to pay the debt from their traffickers. They were minors found working in the inspections. The good side was that the Inditex´s reaction came fast. From the beginning, they published a communication explaining the case and they cooperated with the Brazilian prosecution and with the Ministry of Brazilian labor to “strengthen the review of the production system, both the supplier and the rest of its business in Brazil”. Later in December, Zara committed itself to invest a fortune to remove the poor working conditions of providers and an extra 1,8 million dollars to other social actions. Nevertheless, Inditex did not assume direct responsibility in the case and blamed AHA Industria e Comercio Ltda of Roupas (one of the 50 Brazilian Suppliers) for violating the Code of Conduct for External Manufactures. Some might argue that, even though their external suppliers are a lot, Inditex should be more careful in the selection of its providers and should reinforce its supervision system. Regardless, the multinational´ s strategy proved successful as it reduced the reputation risk. The most scandalous news surrounding this optic came shortly afterwards. The 24rd of April 2013, the ceiling of Rana Plaza manufacturing facility (Dhaka, Bangladesh) collapsed and fell off, ending the life of 1129 people and thousands more injured. Despite the public reports and workers protests on the poor conditions of the facilities and the appearing of ceiling cracks, that did not stop the managers

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from continuing the normal production rhythm. Between the fabric clients, they were well known brands such as H&M, Primark, Lidl and Inditex. Since 2013 events, Inditex has approved a Strategic Plan for a Sustainable and Stable Supply Chain, a project that is divided on four acting lines (identification, evaluation, optimisation and sustainability) and that reaffirms its compromise with the Guiding Principles on Business and Human Rights of the UN. To approve the evaluation part, Inditex also reformed the Code of Conduct Compliance Program (CC). This program is divided in two time periods: pre-assessment auditory, where potential retailers and fabrics are investigated without prior notification, and assessments auditories. These last one consists in 4215 social auditories, which verify the compliance of the CC and recommends Correcting Actions Plans; special auditories, which are focused on specific matters on safety and security at work, and traceability audits, responsible for reviewing the supply chains after they receive information of the manufactures management system. That being said, Zara has also faced some backlash after receiving the scor...