Spanish Retailer, Zara Decides to Form a Joint Venture with the TATAs, rather than franchise

Zara, which is controlled by Amancio Ortega, Spain's richest man, is stealing a march on arch rivals H&M and GAP, who are yet to move into India, a market that has grown rapidly in recent years and which analysts believe has enormous long-term potential. However, it will face several hurdles in the shorter term: India's middle classes are tightening their belts as rapidly as their western peers amid mounting job losses and a sudden drought of easy credit. Even before the global slowdown began to bite, Western middle-market retailers had found India hard work. Marks & Spencer, for instance, was forced to slash its prices last year after shoppers shunned its stores for being too dear.

Inditex will take a 51 per cent stake in a joint venture with Trent, the retail arm of Tata, which already has a partnership with Britain's largest retailer, Tesco. India's laws prevent overseas groups who sell more than one brand of good from wholly owning retailing operations. Some of the ways in which

Zara will not be further franchising. Franchising is one of most popular methods of venturing into new markets, due to obvious inherent advantages. However several companies including McDonalds India have created a joint venture that has the master franchise rights and they only expand with company owned locations.

The Spanish company relies on Spain for about a third of its sales, down from a half five years ago.