In many industries today, companies are shifting downstream, meaning that they make downstream activities the drivers of value creation. At that, upstream activities such as sourcing, production, and transportation are largely outsourced within the domestic countries or overseas, with the latter becoming ever more popular. The reason behind focusing on downstream activities lies in their potential to sustain customer loyalty (David, 2013). Companies become more responsive to their customers: they invest more into market segmentation, marketing, and positioning to gain more traction. However, as of late, these dynamics are also evolving with companies starting to dictate customers’ tastes and shape their behaviors after gaining their attention.
An example of a company shifting downstream is one of the world’s largest retailers Zara. Zara markets itself as a company that offers affordable clothes that replicate all the high-end fashion trends. The retailer adapts haute-couture blueprints within the first two weeks after the original designs appeared in fashion shows. By doing so, Zara meets customers’ expectations and outpaces other brands in providing goods that are in line with the latest trends. At the same time, the company influences customers’ preferences as well. As opposed to other retailers, Zara only releases hundreds of units per month, limiting its range.
Shifting downstream is not always compatible with the circular economy, the theory that highlights cycles, not linear processes dominating the market. A circular economy promotes restorative growth where all the resources are made the best use of through recycling (Genovese et al., 2017). Companies that shift their focus to downstream activities often sacrifice sustainability. For instance, retailers chase fashion trends and make clothes that do not last long, which, surely, makes sense financially. However, it is not sustainable as it leads to a great waste of resources – both natural and human.
References
David, F.R. (2013). Strategic management concepts: A competitive advantage approach. Pearson.
Genovese, A., Acquaye, A. A., Figueroa, A., & Koh, S. L. (2017). Sustainable supply chain management and the transition towards a circular economy: Evidence and some applications. Omega, 66, 344-357.