Fashion Industry SPA Mode: Why ZARA UNIQLO Can Take The Road

In the "vertical integration" mode, enterprises have assets in every link of the industry and internalize the industrial value. This mode is more suitable for the shortage economy.

Entering the 1980s, industrial division of labor, globalization and information technology development have greatly enhanced the supply ability of commodity market, and the competition among enterprises has become increasingly fierce.

Under the pressure of high equity investment cost, the "vertical integration" mode has dragged down the financial performance of enterprises and gradually been replaced by "horizontal integration".

The "horizontal integration" mode emphasizes that enterprises should make rational use of external resources to reduce costs, achieve rapid market response and improve core competitiveness.

"Horizontal integration" has formed the supply chain from suppliers to manufacturers to distributors, thus forming the new business mode of Supply Chain Management (SupplyChainManagement). Nike is a typical representative of this mode.

Simply speaking, enterprises in the core position of the value chain integrate all links in the industrial chain in the "horizontal integration" mode.

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Many Chinese companies are highly admired for the "Nike model", such as Li Ning Co and China's trend, which are the best in China's local sports apparel brands.

However, "light assets operation" does not mean that enterprises are really light.

If the value of intangible assets can not be thickened, such as brand, "light assets" will reduce the market value of the company.

For example, in 2009, Li Ning Co earned 8 billion 387 million yuan, and China's trend income was 3 billion 970 million yuan, but the market value of the latter was higher than that of the former.

In the eyes of consumers, Kappa is a more internationalized "big" brand than Lining.

Phil Nate, founder of Nike company (PhilKnight), once pointed out: "the only way to defeat Nike is to imitate us in a comprehensive and accurate way, and then find different points to break down."

In fact, this view reflects the profit characteristics of the highly strained industrial chain in the "supply chain management" mode. No matter how, the highly detailed division of labor mode limits the profit level of each business unit to the limit.

Unless a brand premium is available, it is difficult to get exclusive cost and price competitive advantage in Nike mode.

In the "horizontal integration", the intermediary service providers are very important. The professional services of the intermediaries connect the supply chain system in series.

Li&FengGroup is the largest trading company in Hongkong. 75% of its turnover comes from the clothing industry.

In the middle of 1990s, Li Feng group made the pition to the "virtual production mode" on the basis of "decentralized production" management with the help of the acquisition of Kim Bai Li.

Li Feng Group directly signs the supply contract with overseas customers and acts as the supplier's role directly.

For every order from European and American customers, the supply chain is optimized in the global scope, providing customers with cost competitive procurement and obtaining marginal profits.

Li Feng Group will be responsible for coordinating and closely following the whole production process, engaging in everything from product design, procurement, production management and control, to logistics, shipping and all other important supporting jobs. It actually acts as the global supply chain manager role in the apparel industry.

From the perspective of industrial chain value, "horizontal integration" relies on professional division of labor to achieve higher efficiency, greater capacity and economies of scale, resulting in lower costs and prices.

However, industrial profits are derived from the internal efficiency of an industry, which is a marginal profit, which is limited.

Now,