Owing to the saturation of domestic markets and the intensification of competition, companies are forced to internationalize their operations by exploiting new markets not just to survive but also to grow (Souvik Dhar, 2006). Different strategies have to be adopted according to the consumer. Many authors claim that if a company wants to be successful during the twenty-first century, it will have to be a competitive force in the global market (Hax, 1989).
Furthermore, Cavusgil and Zou (1994) argued that a good global strategy leads to good performance in the global market. In this essay, we will discuss about L'Oreal's international strategic management. Hence, this paper will focus on the following question: What are the factors leading L'Oreal to its success?
We will first conduct an overview of L'Oreal, following which we will analyze its industry, environment and global strategy. We will conclude with recommendations on how it can improve its strategy.
L'Oreal, world leader of the cosmetics market, was created in 1909 by Eugene Schueller, a chemist, who originally sold his own formulations to Parisian hairdressing salons. Today, L'Oreal is one of the biggest companies of cosmetics in the world. It is present in over 130 countries where it produces and sells make-up, perfume, hair and skin care products under 23 global brands. Its products are divided into three branches: cosmetics, body care and dermatology. In 1999, its turnover was 10,751 million euros and increased by 62% over 10 years to reach 17,473 million euros in 2009. Nevertheless, we can notice that the group's turnover decreased by 1% from 2008 to 2009. Its two major markets are Western Europe and North America which accounts for 66.7 % of the global turnover.
L'Oreal's industry is that of perfumes and cosmetics which belongs to the consumer goods category. This industry is very lucrative and the company revenues in the world cosmetics industry have doubled in 15 years reaching 124 billion dollars in 2006 (Bleu Lavande, 2007). In 2006, the cosmetic market increased by 4.8 %. This industry is marketing intensive and competitive and is growing quickly and constantly because it is not influenced by the economic cycles.
Nevertheless, this growth is not homogeneous and the emergent markets like Asia, Eastern Europe and Latin American have contributed to 60% of the world growth whereas traditional markets have slowed down (L'Oreal Finance, 2007).Despite this slowing down, we can notice that Unilever, Procter&Gamble, Estee Lauder and Colgate-Palmolive have managed to increase their turnover from 8 to 13% (Le Monde, 2010).
According to Yip (1995, p.27), it is possible to identify the globalization drivers of an industry with four drivers because they compose the "underlying conditions in each industry that create the potential for using global strategy". These competitive drivers are markets, costs and government.
The market drivers include customers, distribution channels, marketing techniques and presence in leading countries. We can notice that in the cosmetics market, L'Oreal sells nearly the same products in each country because it buys a local company and launches it internationally and so there are global consumers with the same needs. This shows that culture and environment do not really influence the customer for this industry as it pertains to consumer goods.
Tags: L'Oreal international strategy, globalization,expansion strategy, brand portfolio
[...] Political - Stability of the French government - Directives established by the European Community (Europa, 2010) o Directive 76/768/CE which forbids some substances or regulates its quantity o Directive 93/35/CE which tells that a cosmetics product cannot be damaging to health - In France, two authorities supervise the cosmetics market: l'AFSSAPS and the DGCCRF Economical - The cosmetics market represented $124 billion in 2006 - New distribution channels which lead to new possibilities of growth for main brands - Growth for the luxury market of + from 2007 to 2008 (L'Oreal Finance, 2010) - Increase in the value of euros Social A lot of sociological phenomena encourage the cosmetics demand. [...]
[...] The second one is to develop itself on emerging markets; L'Oreal does not really know these news markets so it will have to develop externally in order to acquire some knowledge about it and also enter quickly before they are saturated. L'Oreal will have to study the possibility of buying national companies in these emerging markets like it does already in mature markets. By focusing on these two recommendations, L'Oreal will be able to keep its leading position on the international market and also its current financial health. It has to keep in mind these recommendations and act quickly before its competitors gain the upper hand. CONCLUSION L'Oreal, at its beginning, was a very small company, selling products only toprofessionals. [...]
[...] It also has a strategic position on the emerging markets with of the market share The performance of the human resource management has a strong corporate culture Weaknesses L'Oreal is not the leader in some countries such as Germany or Great Britain as Beiersdorf or P&G lead the market. Its investment in Sanofi-Aventis where it has of the shares shows signs of weaknesses The communication and advertising costs are too high The research and development investment costs are also significant Problem of adaptation with respect to the changes of the consumer behavior Problem of ageing with respect to certain ranges Opportunities The demand in emerging nations is growing more and has already contributed at about 60% of the cosmetics market global growth The European growth was + in 2006 The demand for men's articles increased New interest for the anti-ageing products Development of the online purchase with the NICT Threats Strong competition in the cosmetics sector The maturity of West Europe and North America markets A lot of local competitors on the emerging markets The international development of the Japanese competitors More number of imitated products L'Oreal's strategy Analysis L'Oreal activity comprises two sectors: cosmetics and dermatology The cosmetics sector had a major part of the turnover with 16,257 million euros in 2009 (L'Oreal 2009 Annual Report) whereas the dermatological sector is mainly used for the Research and Development of products. [...]
[...] D Strategic Attributes and Performance in the BCG Matrix A PIMS-Based Analysis of Industrial Product Businesses. Academy of Management Journal. Vol.25, No.3, pp.510-531 EUROPA Cosmetics Directive [Online]. Accessed from: http://ec.europa.eu/enterprise/sectors/cosmetics/documents/directive/ [Accessed: 26/04/2010] GRIFFIN, R. W. & PUTSAY, M. W International Business: A Managerial Perspective. 5th ED. Pearson: Prentice Harrison, A., Dalkiran, E. & Elsey, E International Business. Oxford: Oxford University Press HARRISON, A., DALKIRAN, E., ELEY, E International Business. Oxford: Oxford University Press HAX, A Building the firm of the future. [...]
[...] That is the case in cosmetics industry where emerging countries constitute a solution to the saturated countries, influencing companies to penetrate them in order avoid loss in saturated markets. Cosmetics industry localiZation DRIVERS “Firms that compete in the global marketplace typically face two types of competitive pressures that affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise.” (Hill p.421). In order to understand these pressures, we will use the Integration- Responsiveness framework established by Prahalad and Doz (1987). [...]
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