This report examines the position of L'Oreal in the cosmetics industry, in order to examine a possible expansion in China, which is best suited for an overseas expansion through Direct Investment. In compiling this report, the first part will be about the position of L'Oreal within the cosmetics industry, then, the second part will explain why China is the best suited overseas expansion country, and explain which foreign market servicing strategy is most suitable.
Since it was founded nearly a century ago by the chemist Eugene Schueller, L'Oreal has been focusing its research and expertise on one business: cosmetics. L'Oreal has consistently applied its policy of investing in research, ensuring that its products fulfill the highest possible standards of quality, safety and innovation in order to meet the beauty and well-being needs of men and women around the world. Because there is no single model of beauty, the group has 17 distinct and complementary brands which have worldwide recognition, each with different roots and offering the variety needed to match different physical features, tastes and lifestyles.
Since it developed nearly a century ago, the cosmetics industry hasn't stopped its evolution. In 2000, the cosmetics industry represented a $166.2 billion market worldwide. As a result of research and innovation, this market was projected to reach $198.2 billion in the year 2003. The world market in cosmetics and fragrances has been estimated to increase by 4 to 7% per year since 1995.
The world's growth is dynamic, in particular in the region "rest of the world". This region includes new and emergent countries such as Brazil, China, India and Russia for example. The growth of sales in this region was +7.3% between 2002 and 2003 and even more between 2003 and 2004, with an increase by 8.7%.
However, certain markets look mature, but apparently not much extensible. The Western European market had increased by only 1.8% in 2004, and even worst, the Japanese market had suffered from a decrease in sales by 1%. In Europe, there was a sharp and an unforeseeable drop in consumer spending. As an example, Germany and Japan are considered as mature markets mainly because of the unfavorable general economic climate; sales experienced a slight decline in 2004. There was no economic growth in Germany due to a high unemployment rate, which created a price consciousness for customers, and also to the development of private label products and discount stores.
The cosmetics industry is a much segmented market that includes the following segments: hair care, skin care, make-up, fragrances and perfumes, oral care, deodorants, sun care, baby care and men's toiletries. The hair care segment leads the industry with 22% of the market. Innovation and technology developed new products such as shampoos, conditioners, colorants, styling products, mousses, etc. Although the men's personal care market represents only 4% of the industry, it is a growing and demanding market.
Tags: L'Oreal, Eugene Schueller, cosmetics industry, Direct Investment, foreign market servicing strategy, safety and innovation, European market, Germany and Japan, hair care, skin care, make-up, fragrances and perfumes, innovation and technology.
[...] The next figure is about L'Oreal Strenghts, Weaknesses, Opportunities and Threats: Strenghts Weaknesses Innovations and launches Industrial costs Diversified product portfolio Organizational structures Powerfull commercial presence High advertising expenses Market leader Opportunities Threats Increase of the consumer Safety and quality of products education level Investment in research and development Development of new technologies Appendix PEST analysis of China Political: Communist government Membership: WTO, UN, GATT, APEC President: Hu Jintao Economical: Transitional progress towards market economy Main exports: Textiles, garments, electronics, arms Leading recipient of FDI Resources: 153 minerals Trade partners: USA, Europe, Sudan Social: Population: 1.3 billion of world population) Cultural structure: 56 different ethical groups, majority group is Han Chinese Language: Mandarin, + 55 minority languages scripts in use Religion/philosophies: Taoism and Confucianism, Buddhism Family focused: Unique child family” to regulate population growth Gender consideration: Male heirs are highly preferred Medicine: Does not act as quickly as western counterparts, includes: acupuncture, heat treatment, diets, illness as result of disharmony of body and mind Calendar: Divided into 12 animal signs Recorded history of nearly 5000 years Inventions: Black powder, compass, paper, porcelain Technological: Cooperation with technologically strong foreign companies to learn from their strengths Focus on more sophisticated technologies (e.g.: biotechnology) Appendix Current problems and opportunities in China Current problems in China High economic disparity exists, with rural dwellers flocking to towns Growing rate of HIV High corruption High pollution Torture persists Controversial rule over Tibet Current opportunities Private enterprises recently flourished after collective farming was abandoned Now one of the world's top exporters Attracting record amounts of Foreign Investment Gained admission to WTO Huge investment has been put into hydro-power with $25 billion for the Three Gorges Dam Appendix Trompenaars theory Trompenaars time and nature theory: Time: To be late to an appointment is considered a serious insult in business culture High-context culture where relationship building is essential Highly past-oriented Sequential past-oriented Sequential work approach Nature: Externalist view of the world Live in harmony with the environment and with others Trompenaars five orientation theory: Particularism: Personal relationships have to be built before business can be conducted Communitarian: “Losing Criticism is more than just shame, it is considered as failure. [...]
[...] An expansion in China through FDI will help L'Oreal to achieve economies of scale, scope economies and to develop greater research and development expenditures. With its market leader position and its excellent financial health, L'Oreal has a big potential in terms of money to invest in an emergent country like China, with a large potential of consumers for its products. FDI in China will procure intangible assets for L'Oreal regarding intellectual properties, patents and it is mostly important in terms of brand name and image, which procure the success of L'Oreal, in such a competitive industry. [...]
[...] In the cosmetics industry, most of the companies have their own laboratories and research plants. On another hand, companies are able to force down the price of raw materials through bulk buying and by building long term relationships with suppliers. Furthermore, the cosmetic products are easy to store/transport and have long shelf lives. Bargaining power of buyers: The power of buyers in the cosmetics industry is high. The customers are concentrated mainly of women, but in the last 15 years, the men's grooming market has progressed a lot. [...]
[...] Strengths Weaknesses Innovations and launches Industrial costs Diversified product portfolio Organizational structures Powerfull commercial presence High advertising expenses Market leader Opportunities Threats Increase of the consumer Safety and quality of products education level Investment in research and development Development of new technologies Part The best suited overseas expansion An overseas expansion in China China refers to a number of states and cultures that have existed and are viewed as having succeeded one another in continental East Asia, dating back to nearly 5,000 years. [...]
[...] In the cosmetics industry, most of the companies have their own laboratories and research plants. On another hand, companies are able to force down the price of raw materials through bulk buying and by building long term relationships with suppliers. Furthermore, the cosmetic products are easy to store/transport and have long shelf lives. Bargaining power of buyers: The power of buyers in the cosmetics industry is high. The customers are concentrated mainly of women, but in the last 15 years, the men's grooming market has progressed a lot. [...]
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