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Walmart around the World

1. Evaluate Walmart’s globalization strategy over the last two decades. Where did the retailer struggle? Where did it do well? Can location characteristics explain the differences in Walmart performance

2. Walmart entered in some countries through acquisitions and in some countries through greenfield investment. What entry mode do you think was best? Did location characteristics drive the mode of entry? Why?

3. In 2013, Walmart decided to enter the Indian market in a joint-venture with Bharti Enterprises. Based on your analysis of Walmart’s global expansion up to that point, do you think it was a good idea to go to India? To select joint-venture as the mode of entry?

4. In general, what do you think is the best way to enter a new market: acquisition, joint venture, or greenfield investment? What are the location characteristics that affect this decision? What are the firm characteristics that affect this decision? What industry characteristics affect this decision?

Zara – Fast Fashion

Please assume you are a competent consultant of a very famous consulting company, such as Boston Consulting Company (BCG), McKenzie, or Monitor. And you are assigned to diagnose/evaluate the current strategy and to give recommendation(s) for the future growth of ZARA (or Inditex). You should submit your report to your boss on the day of the discussion.

1. Describe the characteristics of the industry in which ZARA compete.

2. What are the value(s) that ZARA?

3. What are the core features of the ZARA business model? And how do they affect its operating economics (or costs)?

4. How might ZARA fail? How sustainable would ZARA with its competitive advantage relative to other apparel retailers?

5. What are the key features of organizational form of ZARA? And what are the key features of the global structure(s) of Inditex?

6. Was Galicia/Spain fertile for the emergence of an apparel retailing powerhouse?

7. How well does ZARA’s advantage travel globally?

8. What do you think of ZARA’s international strategy? Evaluate, in particular, its strategy for (product) market selection, its mode of entry, and its standardization of its marketing approach?

9. What is the best way to grow the ZARA chain? How, specifically, do you see prospects in the Italian market? And more broadly, what do you think about the strategy of focusing on Europe versus making a major commitment to a second region?

10. What other strategic recommendations would you make to Inditex CEO Jose Maria Castello?
Zara Roundtable Discussion

|00:00:03.0 >> |PANKAJ GHEMAWAT: What are the core features of the ZARA business model and when were they |
| |established? |
| |JOSÉ MARÍA CASTELLANO: The original idea of combining distribution with manufacturing began with the |
| |founder. |
| |This model, which was intuitively seen to have some advantages, was perfected by introducing |
| |technology and especially human resources. |
| |It's not the same to have ten stores as 1,300 stores or one country vs. 40 countries. |
| |But the model has been the same since the beginning. |
| |It improved over time, through the incorporation of technology and the fact that the company is |
| |larger and more complex than it had been. |

|00:00:43.0 >> |JUAN CARLOS R. CEBRIÁN: I would add only one key word, which is: innovation. |
| |This company is in a state of constant innovation. What Jose María said is true, and the last thing |
| |is: when they [the competition] get to where we are, we will have invented something new. |
| |What we cannot do is stop. This is the key [to this company], to not stop, to be constantly |
| |introducing new things. |
| |DIEGO COPADO: If we draw a diagram of our marketing mix from the standpoint of public relations, we |
| |have the best creative agency in the world, which is our real estate department. |
| |They choose windows in the best sites in the best and largest cities in the world. |
| |We have some designers and sales people who create designs and the most attractive products for our |
| |customers. |
| |And we have store designers and people who design the window displays who put together the layouts or|
| |the most fantastic creations that an advertising department could imagine. |
| |All this combined allows us to project a very powerful message. |
| |Which is that, based on the customer's experience, and [the subsequent] word-of-mouth, every time you|
| |open a store, the trajectory of your growth is improved and the awareness of the product increases. |

|00:02:10.0 >> |JESÚS VEGA: When you grow from a small thing into something bigger, the tendency is for a relaxation |
| |of the very values that existed with the start of the company. |
| |JOSÉ LUIS NUENO: What are those values? |
| |JESÚS VEGA : Freedom, perfectionism, responsibility, to respond quickly, to be flexible, and above |
| |all, respect for others and the need to be consistent when acting with this freedom. |
| |Whenever there is a part of the equation that is unresolved—where freedom is failing or where |
| |responsibility is lacking—the company will stop working. |
| |Until now this equation has worked perfectly because the chairman demands that we adhere to these |
| |values. He is the first one to practice what he preaches, which is another of the fundamental values.|
| |Here deeds are more important than words; one must lead by example. |

|00:03:10.0 >> |JACQUES SALLUN: It is a company where you work hard. Someone who comes from the outside might have |
| |the impression that we don't work very hard, but this is not true. It's a good environment, but you |
| |work hard. |
| |That's why if there is a problem, you can contact anyone 24 hours a day. This is very important. |
| |The other thing that's very important is open communication. In a normal company there is a strong |
| |hierarchy, but not in this company. |
| |I think this manner of working is key to why this company is growing so fast. |

|00:04:01.0 >> |JOSÉ MARÍA CASTELLANO: Our whole organization is used to responding quickly to the changes in demand.|
| |We have a flat organization; we have responsible people, dedicated people, and people who have |
| |understood this type of work from the outset. |
| |For those who want to adapt to our business model, they will have to do all of this as well as change|
| |their method of applying human resources, which is the most costly. This is where Inditex's |
| |competitive advantage lies. |

|00:04:28.0 >> |PANKAJ GHEMAWAT: How have you implemented your business model so quickly and effectively in so many |
| |different countries, given the difficulties that many retailers have experienced in globalizing their|
| |store networks? |
| |JUAN CARLOS R. CEBRIÁN: There used to be a greater difference in fashion... when media communication |
| |was not as immediate as it is today the variation in fashion between countries was quite large. |
| |Where was fashion previously? In France. And when it crossed into Spain, it started in the north and |
| |it took a few months for it to get to the south of Spain. |
| |Today, this has changed. Not only in Spain, but all over the world. And so there are no great |
| |differences in fashion now. |

|00:05:04.0 >> |JOSÉ MARÍA CASTELLANO: When we started in France, around the year 1989, we opened two stores in |
| |Paris. The French market was very different from what it is today, [in that] it was a designer market|
| |with very high prices. Later there was a market for cheaper clothing, which [in our jargon] was |
| |called 'rags.' |
| |That is, the industry had relocated; it was now manufacturing goods in Vietnam or China or Japan and |
| |sold them at very low prices. But in the middle segment of the market, where someone might offer good|
| |quality fashion at a reasonable price, this was a segment of the market that no one served. |
| |We took advantage of the situation and inserted ourselves in this market niche, and it worked. It |
| |took a while to adapt; we spent three years in France with two stores - without opening any others - |
| |preparing our organization, and getting oriented. |
| |From there, we began to expand. Here we have the director of the French operation. France is today a |
| |very important market for us; it's the second largest market for Zara after Spain. It's a very |
| |profitable market, one in which we've had great success. And that is what we have developed in |
| |France. |
| |At first, we were centered in Paris, which is still the most important city in France for us. |
| |Afterwards we spread out to other cities such as Marseilles, Lyon, Bordeaux, etc. By the end of last |
| |year we had 67 Zara stores in France. |

|00:06:22.0 >> |JACQUES SALLUN: The example of France is not so different from the Spanish example. Because there is |
| |no difference in culture, the clients are the same. I agree with Juan Carlos; there is not a lot of |
| |difference between European countries. Yes, France is different with regards to legal problems with |
| |the 35-hour labor agreement; there was a very big change in the mindset of the staff resulting in the|
| |fact that we don't have as many sales clerks as we would like. |
| |But I don't think there is a big difference in the clients, they are the same as in Spain. What the |
| |client expects is the same for both France and Spain. |
| |As mentioned before, on the day the truck arrives, there are many people lining up to buy the latest |
| |styles. This is true. I think it's the same in all the countries in the world. |
| |It's for this reason that France is different regarding the sizes and numbers of stores, but all the |
| |other factors are the same. |

|00:07:37.0 >> |DIEGO COPADO: I think there are two keys regarding your question about globalization, focusing on the|
| |company standpoint. The first is that when Inditex positions its chains, or in the case of Zara, |
| |[looking more at the past] we were looking for a target without analyzing ages or lifestyles, which |
| |simplifies things a lot. |
| |And this is part of the culture of the company. We want to target buyers who like fashion and who are|
| |receptive to it. It's true that in the '80's and '90's this target or consumer was bigger or smaller |
| |depending on the country. But at the time, media and various new technologies began to instill new |
| |habits in society, and the number of consumers whom we are targeting today is growing. |
| |What occurs is that various tastes in fashion that were different in different countries become more |
| |similar, such as France and Spain, or Portugal and England. But nowadays, it's not that clients are |
| |becoming more uniform in taste but just that while other companies aim to sell casual clothing and a |
| |huge number of garments, we are looking for a target which is uniform and that is not limited by |
| |international borders, that is, people who appreciate fashion. |

|00:09:12.0 >> |RAMÓN REÑÓN: We sell fashion; 60% of our products are intended for women. And to sell fashion, well, |
| |fashion is common in different capitals of the world. When a very popular product is sold in Mexico |
| |or New York, it is also sold in Paris and in a Barcelona store or in a Lebanese or Kuwaiti store. |
| |That is, there is a uniformity of demand on the part of the fashion-conscious public. |
| |I remember when I started in this company, there was a unique concept that went: "that girl is a Zara|
| |girl," which coincides with our market surveys of the types of consumers in each country. That is, |
| |finding a 'Zara girl' in a market is one of the things that influences our decision whether or not to|
| |go to a particular country. Evidently, this is the type of customer we're looking for. |

|00:10:25.0 >> |BORJA DE LA CIERVA: Investors often ask us, "Why are you in so many countries rather than being more |
| |concentrated in fewer countries?" "Why have you broken the traditional barriers to being in so many |
| |countries?" We explain that there are two basic barriers or costs that we don't incur when entering a|
| |new market. One is advertising, since we don't advertise, when we open a new store in Poland for |
| |example, we don't have this extraordinary advertising expense to create brand recognition. |
| |And the second thing is local logistics. We don't have to do this. When other chains enter a new |
| |country, or come to Spain, the first thing they undertake is an ad campaign and [the building of] |
| |logistical facilities. For us it's the same whether we open a new store in Spain or the Czech |
| |Republic. Because we aren't going to advertise or set-up logistics in that country. This is what |
| |allows us to take better advantage of the real estate opportunities regardless of the market we're |
| |in. |

|00:11:29.0 >> |JOSÉ MARÍA CASTELLANO: Because we organize production here in Spain we compete effectively in terms |
| |of response time. Our competition, in terms of costs, corresponds to the products we don't produce |
| |internally. Our presence in other countries consists of stores, but to compete in manufacturing, we |
| |have to reduce our response times, which is done by producing mostly in Spain, about 50% of our |
| |volume. Europe [including Spain] accounts for 80%. |
| |Therefore, all we have in France are stores; in Germany we have stores, in Austria we have stores; we|
| |don't have the rest of the organization. So we see the differences in terms of stores in each |
| |country. But the business model is the same everywhere. |

|00:12:12.0 >> |PANKAJ GHEMAWAT: What are the differences between the stores, if any, from one country to the next? |
| |JUAN CARLOS R. CEBRIÁN |
| |The culture of each country. But this decreases over time and in the end you're left with a single |
| |culture, which is Inditex. In principle, if you go to Japan you'll find a serious cultural |
| |difference. The rhythm of work, productivity, in one store you might need five people, whereas in |
| |another maybe seven or three. The customs: in certain stores they'd need to have a cup of coffee, but|
| |not in a different country. Basically it's customs, and these converge little by little into a single|
| |set of customs, which is Inditex. |

|00:12:57.0 >> |JESÚS VEGA: The philosophy is fundamentally the same. The values that are valid here in Arteixo are |
| |also valid in the stores. It's clear the type of work is different and many business dynamics are |
| |different. But this is precisely one of the things that has made this company big: that it has been |
| |able to impart these values, not only to the people working here in Arteixo where it's easier because|
| |of proximity, but also to the stores. And not just the stores in Spain, but also the stores in |
| |various countries and of various chains. |
| |One of the things that Juan Carlos and Casti [Castellano] ask of us constantly is to be close to |
| |people. To truly see what is happening in order to identify two things: one, to convey these values, |
| |and two, to be quick and effective at resolving problems precisely because those are where the values|
| |are not being practiced. And this means having international teams, store management teams, human |
| |resource teams that are in the stores, window display teams that constantly travel to various |
| |countries, specifically to remain aware of the dynamics inside the stores. |
| |We are not a company that manages from here; we are a company that operates from Arteixo but has a |
| |mission to be more reality-based and for us the reality is in the stores?they are the center of the |
| |company. |

|00:14:33.0 >> |PANKAJ GHEMAWAT: Can you summarize your future growth plans and the challenges that they entail? |
| |JOSÉ MARÍA CASTELLANO: We have a plan for the next five years, more specifically until the year 2006.|
| |But this plan is only assured until a certain point. We project the company will grow at an annual |
| |rate of 20%, of which 15% will be new floor space and 5% 'like for like' growth from existing floor |
| |space. |
| |Of this 15% growth, 80% is committed for 2002; 40% for the year 2003; 10% for the year 2004, and the |
| |rest is still theoretical. |
| |What happens is that our yearly experience shows that on average we are capable of opening between |
| |200 and 250 stores [per year]. |
| |Now, that's for the year 2002, 2003, and 2004... if you ask us where these stores are going to be in |
| |2006 we couldn't say. But we think that this will be our growth rate unless something exceptional |
| |happens. So there is a degree of certainty in planning that decreases over time. |

|00:15:51.0 >> |LORENA ALBA: Logistics, in the end, involves three or four very important variables. Without going |
| |into the details too far, because for logistics, five years is not a lot of time. We always have to |
| |be ahead of the curve. We always have to think about volume and how much product we're going to move |
| |over the next five years. The SKUs (stock keeping units) also influence the variety we're going to |
| |handle in existing and future chains, and the delivery points—clearly it's different to expand into a|
| |country where you already have stores than to grow continuously each year in different countries |
| |where you have to establish the entire distribution system from the start. Taking all this into |
| |account, if we think of the future and also the day-to-day, we can accomplish our short-term |
| |planning. |

|00:16:39.0 >> |JOSÉ MARÍA CASTELLANO: The future is so uncertain that I, for one, am unable to predict it. But for |
| |the next five-year period we don't anticipate any great changes. Production here is more expensive |
| |than in Morocco, but in the fashion industry, while it is always fundamental to control costs, the |
| |most important thing is not to attain the lowest costs, but the shortest response times. Why? Because|
| |if a customer wants a flowered outfit, and we have to get it from Asia, it'll take four months. By |
| |then they'll want a black outfit. |

|00:17:08.0 >> |JOSÉ LUIS NUENO: What degree of coordination exists between chains in the same group and different |
| |countries within the same chain? |
| |JUAN CARLOS R. CEBRIÁN: I see more growth throughout the entire company within the same chains, and |
| |with future chains... and with other segments of the market, maybe other types of products... the |
| |company cannot stop. |

|00:17:29.0 >> |JOSÉ MARÍA CASTELLANO: The company has a five-year plan, and aside from any acquisition—which is not |
| |in the plans, nor anticipated—the growth will be through existing chains and new chains developed |
| |internally, organically. |
| |Zara dominates the six in the group we now have. Over the next five years Zara may lose market share |
| |at two points per year because the other chains are growing faster, as they are newer and younger, |
| |among other reasons. |
| |We will continue being an essentially European company; we will have 80% of our volume in Europe. We |
| |don't have very big plans for growth in the Americas or Asia, although that is where the rest of the |
| |volume will come from. |
| |And as for the development of new chains, we are thinking about developing a line of children's |
| |clothing and this would be all. But essentially, we'll grow the lines we have and add one other |
| |chain. |

|00:18:33.0 >> |BORJA DE LA CIERVA: Last year the company had 3,200 million Euros in sales. Any new concept or chain,|
| |no matter how aggressive its growth plan is, will have difficulty generating more than 2 or 3% of the|
| |sales of the company in the limited time of four or five years. So future growth can't be based on |
| |this. The new chains contribute a bit more growth, but it is only a marginal growth, above what is |
| |already being produced. |

|00:19:04.0 >> |JOSÉ LUIS NUENO: When one opens a store in a country other than Spain, or opens a new chain, what |
| |degree of autonomy do they have? What systems exist for control, centralization or decentralization |
| |of services, strategy coordination, store opening decisions, coordination of expansion with respect |
| |to the landlords? What variables are behind these actions? |

|00:19:19.0 >> |JOSÉ MARÍA CASTELLANO: The company has a five-year plan for all its businesses arranged by chains and|
| |by countries for every product line you can imagine. We don't have six chains, rather we have six |
| |companies that act independently in certain respects. In these six companies, we prepare plans with |
| |all the departments for the next five years. |
| |Inditex, as the holding company, decides centrally where to invest, not based solely on financial |
| |criteria, but also on commercial criteria. For example, when we open a new store in a country it's |
| |not always based on financial profit; this might be a 'flagship' store. We are seeking company |
| |'presence' in the country. The first store we opened in Hamburg didn't have to be profitable at |
| |first. We wanted a flagship store in Germany. |
| |From there we decide how to expand each of the chains over the next few years. Zara, which has the |
| |most international exposure of the group, serves as an important example for the others. |
| |In Germany, there are now 18 Zara stores. We also have Massimo Dutti and Oysho. So Zara's experience |
| |regarding real estate, personnel costs, hiring or other contract negotiating, is valid for Massimo |
| |Dutti, or if we go with Pull & Bear or Bershka subsequently. |
| |Because Zara is the most international of all the companies, its experience is shared with the |
| |others. This doesn't mean the information is shared on a day-to-day basis. [For example] Massimo |
| |Dutti in Germany doesn't know what a Zara store is selling per square meter (which we keep track of |
| |here at Inditex centrally), but yes, they do know if street "X" is a good street for Massimo Dutti |
| |because of Zara's experience. |

|00:21:17.0 >> |JOSÉ LUIS NUENO: How does Inditex function in Germany, for example? |
| |JOSÉ MARÍA CASTELLANO: There is a Zara office that shares resources with Massimo Dutti and Oysho. In |
| |Mexico, all six chains are present but one of them is franchised, so the central office monitors the |
| |other five chains. Venezuela is the same. France has a Stradivarius store, but the central Zara |
| |office monitors all the information for Stradivarius in France and so on. |

|00:21:47.0 >> |JUAN CARLOS R. CEBRIÁN: The resources that are shared are not the only resources. Zara has its |
| |commercial part, as does Massimo Dutti; they are independent. Zara's financial part is shared with |
| |other chains. [That is] the business portion is independent; it is not shared with the other |
| |companies. None of them has authority over any of the rest of them; this is specific to the chain. |

|00:22:11.0 >> |JOSÉ LUIS NUENO: Ramón is negotiating with the malls for five chains [for example], correct? |
| |JOSÉ MARÍA CASTELLANO : Yes, but it's not the same for Oysho to go and negotiate 250 square meters at|
| |a mall, as it is for Ramón Reñón to negotiate 3,500 square meters for six chains [where a per square |
| |meter volume advantage can be gained at the mall]. But in reference to placement, every chain has a |
| |team that finds the locations in the cities. |
| |JUAN CARLOS R. CEBRIÁN: Regarding what is shared; since the smaller chains can't contribute as much |
| |and the chain that contributes the most is Zara, the rest of them have to take advantage of this |
| |'engine' which is Zara. |
| |In the mall, the engine is Zara, not Massimo Dutti. Therefore, even though Ramon negotiates on behalf|
| |of all of them, he negotiates for Massimo Dutti, Oysho... yet the director of each chain has the |
| |final say [can say yes or no]. |
| |LORENA ALBA: On the theme of transport, they can also take advantage of routes that are shared. |
| |Without obligation, of course, they can make use of the volume [of goods] that Zara moves. |

|00:23:34.0 >> |RAMÓN REÑÓN: There is a very important issue at the international level. There are a number of |
| |players common to each country. For them it is necessary to have a single policy and strategy, |
| |otherwise they would end up doing things differently [in each country] and creating inefficiencies. |
| |So these are the operations we are managing at a global level; for the others, what we have is a |
| |business template, which we follow because the actions of one country can impact the other countries.|

|00:24:07.0 >> |JESÚS VEGA: In the area of human resources, each chain has its own structure which both serves as the|
| |executive and operations department. In the corporate human resources department we're trying to |
| |provide the tools, like we discussed with transport and locations that can be used so as to avoid |
| |duplicating the efforts with respect to employment, hiring, public relations tools. The chains use |
| |the designs that are produced here so that we don't have to repeat the same process multiple times. |
| |But it is each department of each chain that has the initiative and autonomy to handle the day-to-day|
| |tasks with respect to human resources. |

|00:24:59.0 >> |JOSÉ LUIS NUENO: Companies tell you that the capital markets themselves limit the innovation you |
| |discussed, because it requires you to improve performance each quarter. So will a capital market |
| |allow you to continue to be so innovative, given that it demands cash flow and sometimes 'milking' of|
| |the business rather than laying the foundation for future business profits? |
| |JOSÉ MARÍA CASTELLANO: In our case, this limitation doesn't apply for several reasons. First, we're |
| |in contact with our investors; we pay attention to the additional information they give us, which is |
| |important to analyze, just as is the information we get from our customers, from analysts, mass |
| |media, the professionals and universities, etc. But what was said at the start is that this company |
| |does what it believes it must do. In light of all this, we are not limited by the capital markets. |
| |What's more, another important difference is that we continue to have a controlling shareholder. That|
| |is to say, in the capital markets we have 30% of 'free float' but not the 70%. And the rest is |
| |dispersed. We still have a controlling shareholder who, fortunately, continues to make the company's |
| |strategic decisions. |
| |So what the investors tell us is another source of information to consider but it doesn't mean that |
| |we have to do what they say. This doesn't mean we have to think exclusively short-term over the next |
| |quarter. The company has to continue to think long-term and to think about what it must do. |

|00:26:38.0 >> |JUAN CARLOS R. CEBRIÁN: When we were about to go public, that was the question we asked ourselves. |
| |But we also knew we couldn't divert the company from its successes or failures up to that point. |
| |Neither the stock market nor the capital markets can change us. If they change us, we would become a |
| |different company, and who knows where we'd end up? We continue thinking the same, buying the same |
| |things, making the same mistakes and achieving the same successes, without thinking about being |
| |publicly traded. |
| |I think this is another of the reasons why many other companies are more concerned about being |
| |publicly traded. We have changed practically nothing [since going public] except maybe for these two |
| |people here who have to meet with the investors and analysts every so often, but the rest of the |
| |company functions the same as before. |

|00:27:39.0 >> |BORJA DE LA CIERVA: We've only been traded publicly a short time; this week will mark one year. The |
| |investors are free to say whether or not they like the things we do, and to buy or sell the stock |
| |when they want. In this sense, there is sufficient liquidity. I don't think investors show a lot of |
| |emotion about what they do or do not do. If they don't like something, they sell the stock. Time will|
| |tell. We think the company has never been run according to financial parameters, nor has it been |
| |governed by financiers, and therefore it should never be governed by financial investors such as |
| |stock market investors. |

|00:28:11.0 >> |PANKAJ GHEMAWAT: Continuing on the subject of sustainability and barriers to imitation, what are the |
| |barriers for a new company in China for instance to set up the same business model as Zara to serve a|
| |market like Japan? |
| |JUAN CARLOS R. CEBRIÁN: The main barrier is cultural. We have to put ourselves in the position of the|
| |Japanese, or the Chinese when we go to China, and bit by bit introduce our philosophy. We can't go as|
| |colonizers, as if, here we are, the Spaniards from Inditex arriving to transform everything; not |
| |that. We have to adapt to the market that exists in that country, changing our ideas as we go. Many |
| |barriers do exist: the language, culture, [clothing] sizes, etc., but our task is to overcome these |
| |so that we can expand. If we are in 40 countries, getting into 40 more is a question of getting |
| |organized. We haven't yet encountered serious problems. Problems, yes, but not serious ones. |

|00:29:14.0 >> |RAMÓN REÑÓN: There is a fundamental barrier, which is location. Actually, there are two basic |
| |barriers beyond what Juan Carlos brought up. On the one hand, the [fashion] products that come out of|
| |Asia: these aren't looked upon very favorably in Europe, so that would be considered a handicap. |
| |Next, it's very difficult to establish stores in the best sites of the biggest capital cities. |
| |Because it's not a question of money; the markets are very tight. Right now, there are three or four |
| |companies in the markets fighting over every square inch of real estate in the major capitals, so a |
| |new company would have a hard time coming in. |

|00:29:55.0 >> |JOSÉ MARÍA CASTELLANO: I understood the question as having to do with whether a company in Japan |
| |could replicate the Zara model in Japan, and expand as we have done. |
| |JOSÉ LUIS NUENO: Such as Uniqlo [a fast-cycle Japanese competitor]? |
| |JOSÉ MARÍA CASTELLANO: Uniqlo is a different company; it has nothing in common with us. In any case, |
| |first, a company would have a team of people that would have a learning curve and an experience |
| |curve. Like Lorena Alba said, there are many logistics and computer software packages available on |
| |the market, but since our company is unusual, most of the available software or hardware doesn't suit|
| |us. We ourselves have developed about 95% of the software we use, because the standard in the market |
| |is not the standard for us. So there are the matters of teams, of learning, of experience, of real |
| |estate opportunities, of capital, etc. I think the main thing is related to teams, philosophy, |
| |operating methods. |

|00:30:56.0 >> |JOSÉ LUIS NUENO: This week, the CEO of The Gap stepped down from that company, a company that had |
| |presented horrible results, but that was admired by everyone for the last ten years? How might a |
| |company like Inditex - which is perhaps at its golden moment or maybe this moment is still to come - |
| |how can you prevent this from happening to you? |
| |JOSÉ MARÍA CASTELLANO : I don't think there is an infallible formula in business economics. Everyone |
| |thinks you can add two and two to get four, but I don't think that's possible. There is no certainty |
| |that what happened to others won't happen to us. I think we have to go back to the beginning; all of |
| |us firmly believe that as long as the company continues to maintain the philosophy of adapting to the|
| |market, having motivated personnel, having people who think about the company 24 hours a day, every |
| |day of the week, every week of the year, as long as the company responds to the needs of the public, |
| |and is capable of adapting to the demands and changes of the market, I don't think this will happen. |
| |If the company becomes rigid, if it operates from the top down rather than the bottom up, if it |
| |changes its structure, or chooses not to pay attention to the changes in the market, then this |
| |breakdown could happen. |

|00:32:15.0 >> |JUAN CARLOS R. CEBRIÁN: To find the most critical issues, I wouldn't look to the product. I would |
| |look to the people, as we said at the beginning of the conversation. The job of the Chairman was to |
| |put together a great team. When this company was founded, it didn't have this team and all the people|
| |behind it. The most important thing now is to maintain this team and to renew it constantly. The |
| |challenge that's on the table for the next 15 years is to be able to duplicate important job |
| |assignments, to promote those within the company to fill future positions, and to keep the company |
| |moving forward, with the current philosophy or whatever philosophy is needed at the time. |

|00:32:58.0 >> |BORJA DE LA CIERVA: One of the few things that could sink this company is self-complacency. I imagine|
| |that someone watching this edited program might think that everything's going fine in this company, |
| |that it's a business model for many things. I think that each of us knows of many things that aren't |
| |going so well and that even tomorrow, might have to change. The day that this company thinks that it |
| |is doing everything just right will probably be the beginning of the end. |

P&G’s Acquisition of Gillette

1. What were the possible synergies and forces propelling the merger between P&G and Gillette—as well as the history of other takeover attempts for Gillette?

2. In light of Gillette’s large increase in value during James Kilts’s tenure, was his compensation reasonable? Was his pay package in the best interest of shareholders?

3. Evaluate the P&G offer. Ask students to make a list of the positive and negative aspects of receiving shares or cash from both the perspective of P&G and Gillette shareholders.

4. Compare the valuation analyses in Case Exhibits 6 and 7. Why are they different?
Support and defend the validity of using each valuation method.
There are so many methods of valuating firms by formulation and analyst’s will.

5. Discuss the conflicts of interest for the investment bank in an M&A transaction where the same firm that writes the fairness opinion in support of the deal stands to be paid a large fee if the transaction is completed.

6. Should investment bankers and companies spend their time appeasing politicians worried about the effects of possible mergers? Are politicians representing the interests of the American public when they question the merits of a deal? Also evaluate the role played by federal and international regulators. Is there any better solution to the complicated regulatory process?

7. Evaluate the role played by Warren Buffett in the merger. Should the support of one investor be a deciding factor in the completion of an M&A transaction?

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