There is precedent f o r co ntract f irms clo sing

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Unformatted text preview: tible to f inancial vulnerabilities during perio ds when the euro strengthens relative to the do llar. Many lo w-co st manuf acturing regio ns have currencies that are either pegged to the do llar o r have o therwise f allen against the euro . This situatio n means Zara’s Spain-centric co sts rise at higher rates co mpared to co mpetito rs, presenting a challenge in keeping pro f it margins in check. Rising transpo rtatio n co sts are ano ther co ncern. If f uel co sts rise, the mo del o f twice-weekly deliveries that has been key to def ining the Zara experience beco mes mo re expensive to maintain. Still, Zara is able to make up f o r so me co st increases by raising prices o verseas (in the United States, Zara items can co st 40 percent o r mo re than they do in Spain). Zara repo rts that all No rth American sto res are pro f itable, and that it can co ntinue to gro w its presence, serving f o rty to f if ty sto res with just two U.S. jet f lights a week.J. Tagliabue, “A Rival to Gap That Operates Like Dell,” New Yo rk Times, May 30, 2003. Management has co nsidered a lo gistics center in Asia, but expects current capacity will suf f ice until 2013.C. Ro hwedder and K. Jo hnso n, “P ace-Setting Zara Seeks Mo re Speed to Fight Its Rising Cheap-Chic Rivals,” Wall Street Jo urnal, February 20, 2008. Ano ther po ssibility might be a center in the Maquilado ra regio n o f no rthern Mexico , which co uld serve the U.S. markets via trucking capacity similar to the f irm’s Spain-based access to Euro pe, while also pro viding a regio nal center to serve expansio n thro ugho ut the Western Hemisphere. Rivals have studied the Zara recipe, and while no ne have attained the ef f iciency o f Amancio Ortega’s f irm, many are trying to learn f ro m the master. There is precedent f o r co ntract f irms clo sing the cycle time gap with vertically integrated co mpetito rs that o wn their o wn f acto ries. Dell (a f irm that builds its o wn P Cs while nearly all its co mpetito rs use co ntract labo r) has seen its manuf acturing advantage f...
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