Firm

FirmStrategy,
Strategy,
Structure
Structure
and
andRivalry
Rivalry

Factor
Factor
Conditions
Conditions
+Low cost labor
+Reasonable (but not
highest) labor productivity
-Poor physical
insfrastructure
-Lack of institutional
infrastructure to facilitate
cooperation: universities,
technical institutes,
industry association

-Rivalry oriented
toward price
-Relatively backward
structure: overhang of
specialist independents

Related
Relatedand
and
Supporting
Supporting
Industries
Industries
-Lack of complete
thread-to-apparel chain
-Limited local
machinery supply

Demand
Demand
Conditions
Conditions
+/-Price-sensitivity
(intensifies rivalry but may
limits upgrading)
-Limited store visits,
expenditure, although
fashion content increasing

1.
Porters diamond framework emphasizes that location matters, but is somewhat vague as
to whether the appropriate level of analysis is a local district, an intranational region, a nation, or even an
international region. The analysis in Exhibit D is at the intranational regional/national level.
2. Similarly, the Porter framework is somewhat vague as to the competitive benchmark to be
utilized. The analysis in Exhibit D is generally couched in relation to Italy as the benchmarkalthough
Italy has an even more backward sector in terms of the overhang of specialist independentsand
therefore conclusions from it have to be normalized to account for the fact that Italy does stand out as
being a very internationally competitive home base on many dimensions. Spain would look better in
comparison with, say, Greece.
3. The Porter framework, while broad, nevertheless seems to miss out on certain categories of
influences. For instance, entrepreneurship seems to be in the air in Galiciamost plausibly interpreted
as a cultural attribute given the regions economic backwardnessin light of the Galician entrepreneurial
success stories cited in the case. Perhaps this is not entirely unconnected to Ortegas rags-to-riches story
(less common in the Spanish/European context than the U.S. one).
4. Along similar lines but more tangibly, the diamond framework offers no obvious place to put
what Inditex CEO Castellano describes as the key negative associated with the home base in Galicia: the
fact that it is at the northwestern tip of Spain, itself at one of the western corners of the European
continent. This illustrates the positional rather than relational character of the diamond (like many other
frameworks for assessing national competitiveness): it ranks countries on a single yardstick instead of
thinking of them as existing in space, at varying distances from each other. The distinction is important
since (differential) distance of various sorts still has a very important effect on cross-border economic
activity. Second, it illustrates the need for assessments of particular locations as home bases from the
perspective of a particular strategy as well as industry: Galicias remoteness would matter less if Zara
were pursuing a more conventional strategy with less upstream centralization at home.

Overall, the broad conclusion from the exercise seems to be that Spain is not the most internationally
competitive home base in the world. Juxtaposing this observation against Zaras success suggests,
therefore, that location is not destiny.