International Business and Strategy
Introduction
L’Oreal’s is one of the largest cosmetic companies headquartered in Paris and is a French-based organization operated in all parts of the world. The company was founded in the year 1919 by Eugene Paul Louis Schueller (Sevilay, 2020). The organization firstly developed hair colour products and then expanded its operations and become the biggest giant in the personal and skincare sector. The company operates in nearly 150 countries and offers 36 brands. Almost 88,000 talented employees work in the organization and develop cosmetic products for the customers. The company succeeded in the domestic as well as an international marketplace. The below essay recognized the international strategies of the company and value chain activities that made it successful in the global cosmetic industry.
Main argument
L’Oreal’s international growth and its motivation
Internationalization is the process in which the company makes critical foreign investments using several entry methods to make profits and serve the global customers. The organizations expand operating market to make profits and gain competitive advantages. Each organization has a different objective to capture international markets and widen the business (Zapletalová, 2021). The entry strategies of the organizations differ from one another. L’Oreal’s also operated in international markets and is doing well in satisfying the needs of global customers.
Initially, L’Oreal started with offering hair care products in the Parisian marketplace. But after succeeding at domestics fronts the company targeted the American marketplace in the year 1954. It has licensed with Cosmair Inc, a cosmetic company (Chamorro Merino, 2020).
The company started with distributing the products to the salon. The major competitor of the L’Oreal in US market is Maybelline which offers products at cheaper rates. Thus, the company has realized that entering the freeing markets will not be going to easy.
L’Oreal then entered the South African market. The company has entered many geographical regions of the world. These are North America, Asia Pacific, and countries, Latin America, Eastern Europe, Western Europe, and the Middle East (Coutton, 2021). The company has followed the Uppsala model. It refers to the theory which explains the international strategies of the firm. The model depicts that the companies mostly enter with low commitment at nearby marketplaces. However, the model is not relevant for all forms as many organizations make foreign investments at a large scale.
Uppsala model is important as it allows the organization to follow the sequential approach. It ultimately helps in reducing the losses and creates alarming for the company to stop investing in the foreign markets which are not proving to be useful at the early entry stage (Vahlne and Johanson, 2020).
L’Oreal has followed the Uppsala model which it has started with providing products to the salon of other countries. The company has widened the market after analysing the performance of the products. It can be said that L’Oreal gets motivated by the positive response of the global customers to expand business at international fronts.
The biggest motivation of L’Oreal behind entering global markets is the numerous opportunities. The company has explored the scope of developing the products line to fulfil the demand of the customers (Chang, 2019).
L’Oreal’s pattern of growth in terms of mode of entry and geographical entrance
As shown in the below figure, it can be observed that L’Oreal has not shown a significant level of growth in the consecutive years. The company believes in making growth gradually in worldwide markets. L’Oreal always makes calculated investments with a low amount of risks. The company has a strong presence in international markets places (Coutton, 2021).
L’Oreal’s entry into foreign markets generally follows the four major steps. In the first type, the company makes a presence in the international market by licensing with the domestic organization. In the second stage of entry, L’Oreal exports the products in the countries where it is getting positive responses. In the third stage, the company established sales subsidiaries thorough the biggest giants. Lastly, after getting huge responses, the company develops production facilities in foreign countries (Igorevic, 2021). Currently, the company operates 40 manufacturing plants located in the worldwide marketplace.
The mode of entry preferred by L’Oreal is licensing, exporting, acquisition, and joint venture.
- Licensing refers to granting permission of using intellectual properties to the licensor by the licensee. These may be the patents, copyrights, technology and brand name, etc. It makes entry easy on foreign marketplaces (Nielsen al. 2022).
- Exporting is also one of the entry modes followed by the selected company. In this, the company exports demanded products to the targeted countries. L’Oreal has developed export hubs in several countries. These are India, Cambodia, China, Japan, South Korea, Taiwan, the Philippines, etc.
- The acquisition is one of the critical entry strategies. It is the most crucial strategy that helps to increase market power in the targeted region. For example, the company has developed a sizeable business by acquiring famous brands and large ventures. These are Vichy, Maybelline, The Body Shop, Kiehl’s, Garnier, Nyx, Urban Decay and Shu Uemura, etc.
- L’Oreal also performs joint ventures to enter the international marketplace. A joint venture refers to the combination of two or more organizations that develop a single firm to make profits and share revenues. The companies that participate in the joint venture also share several risks. L’Oreal’s has joint ventured with Lotus and Nestle. It holds nearly 10.41% shares of the organization Sanofi Aventi.
L’Oreal is constantly improving sales every tear. From the year 2009 to the year 2019, the company has raised sales volume worldwide. But in the year 2020, the sales growth declined by nearly 2000 million Euros. The major cause behind the decline is the spread of the pandemic (Collin and Taillard, 2021). Due to this, many hair salons have closed down which contributed significantly to the overall revenues of the company.
L’Oreal’s value chain activities
Value chain refers to the group of activities to move the products or material from one location to the other. The objective of every organization is to maximize value at the entire stage of the chain. The value chains are mainly categorized as primary and secondary value chains. In the primary chain, the activities involve inbound logistics, outbound logistics, operations, marketing, sales, and services (Linkov et. al. 2020). The secondary value chains are referred to as the support services incurred in the value chain network. These are the activities related to infrastructure, technology development, HRM, procurement, and other activities.
L’Oreal procures and obtains raw materials from high-quality suppliers to retain the quality of the products. The company generally maintained low lead time in the supply chain which helps minimize the overall inventory and material handling costs. This ultimately reduced the costs of the products for the targeted customers. Original extracts and leaves of flowers are used to manufacture cosmetic products. The natural ingredients produce great results for the customers (Withisuphakorn et. al. 2019).
The inbound activities of the company include moving material to the production stages and the location of manufacturing so that finished products can be made. The outbound activities of the company include transporting the finished products to the warehouses and locations and also involve transporting them to the distribution location (dos Reis, 2021). The step also includes packaging, order fulfilment, delivery, shipping, and customer service activities. Marketing and sales activities involve companies to promote the products.
For international business, the company performs heavy research on the foreign markets and develops a customized way to market products in different places. It helps to build interaction and connection with the global consumers. The company does not believe in using the one size fits for all marketing and sales channels (Kaple, 2020). The secondary value chain is the support services. The organization believes in transparent logistic systems to avoid ambiguities and ineffective communication between the entities involved in production and delivery processes. The company performs decentralized operations means creating cosmetics at the local level. High-end technology and physical work setting enable the employees to work effectively at all levels of the value chain network.
Advantages of the current internationalization strategy adopted by the company
Following are the advantages of the current internationalization strategy adopted by the company:
- The strategy is useful in making significant growth in the international markets by understanding the culture and demand preferences of the customers.
- The strategy also helps in partnering with the local organizations that help to make full utilization of potential workforce to meet the expectation of the customers. The strategy proved to be most effective in having a talented and dynamic workforce to perform the crucial responsibilities of the organization (Chaturvedi, 2022).
- The internationalization strategies followed by L’Oreal are cost-effective. The company gets enough time to estimate whether the company would operate well in the targeted marketplace. The initial responses of the market enable the company to revise the strategies or make exit on time to safeguard from losses.
- Providing cosmetics at the salon is the most effective way so that customers can use it and provide responses. It is the best place where individuals trust the brand used by the salon expert (Dmitrievna, 2021).
- The current strategy contributes to analysing the preferences and choices of global customers. It helps to provide the future scope of growth to the company and widen the product lines to get benefits.
- Exploring and expanding in foreign markets bring diversity to the organization which plays a crucial role in elevating effectiveness and efficiencies to gain competitive benefits (Amoah al. 2022).
- The current strategy also covers acquisition tactics. In which the company buys most of the market share of the domestic or local organizations. It also helps to save the costs of the production layouts and minimize time to recruit the talented workforce (Carillon, 2021).
- The strategy to locate the production layout locally helps in reducing the transportation costs which is effective in maintaining the pricing strategies of the company.
Potential threats L’Oreal may face in the future
Following are the potential threats that need to be addressed by the L’Oreal in the future:
- The first and foremost threat occurs internally within the business organization. L’Oreal is having huge workforce. Thus, promoting everyone is impossible in the company. The workforce may look for different job opportunities that become threatening for the company soon (Girija, 2022). The company also performs bulky operations in varieties of product lines, thus managing and retaining the workforce will become much more difficult for the company.
- There are many competitors of L’Oreal. The crucial among them are Revlon, Unilever, and Chanel. These competitive organizations are formulating differential strategies that are being successful in catching the attention of the customers (Rozanova, 2021). To maintain a competitive position in the global marketplace, the organization needs to rethink and redevelop strategies.
- Due to changing climatic environment, the availability of natural raw materials may not be the same, thus to maintain the quality standards, the company needs to develop and relocate the areas for producing raw materials of the same quality to retain product image and brand value (Malakar and Mohanty, 2021).
- Increasing health concerns of the people in the upcoming threat. It motivates people to avoid the use of extra chemicals, thus the organization needs to develop sustainable manufacturing that involves maximum use of natural products to maintain safety, health, and choices of people (Zamani al. 2021).
Reflection
The essay demonstrates information on L’Oreal and its internationalization strategies. For this, digital sources are used to gather information. Books and journal papers are referred to gather data. Only the papers that are published after the year 2018 are referred to present the current information on the company. The true examples are used to evidence the information depicted in the essay. In-text citations and reference lists are also mentioned after the conclusion section to authenticate the present information and develop the ethical essay.
Conclusion
It is concluded from the above essay that L’Oreal formulates significant strategies to enter international markets. The strategic performances of the company produce expected and effective outcomes. The sales of the company are also raised after international entries that symbolize effective strategic formulation. The essay has presented international strategies, entry modes, value chains, and potential threats of L’Oreal to develop insights about the company and increase understanding about international businesses.
References
Amoah, Y.S.A., Tiew, F.N.H. and Yap, C.S., (2022). Internationalisation strategies of emerging market firms: evidence from Sarawak, Malaysia. Review of International Business and Strategy.
Carillon, C., (2021). The art of integrating acquisitions by L’Oréal. Le journal de l’ecole de Paris du management, (5), pp.24-30.
Chamorro Merino, A., (2020). Internationalisation of a platform for the beauty and personal care industry.
Chang, J.L., (2019). The Motivation of Brand Acquisition of Business Group-A Case Study of L’Oréal SA.
Chaturvedi, K., (2022). Impact of Cross-Cultural Diversity on Organizational Productivity. International Journal of Research in Engineering, Science and Management, 5(2), pp.70-73.
Collin, B. and Taillard, M., (2021). Digital Makeover: How L’Oréal Put People First to Build a Beauty Tech Powerhouse. John Wiley & Sons.
Coutton, D., (2021). L’Oréal.
Dmitrievna, K.K., (2021). Transformation of Business Sustainability Strategies of FMCG Companies in the 21st Century on the Examples of Unilever and L’Oréal.
dos Reis, C.G.P.P., (2021). Green Beauty: A Path Towards Sustainable Luxury: The Cases of L’Oréal Luxe and Jurlique (Doctoral dissertation, Universidade Catolica Portugesa (Portugal)).
Girija, K.P., (2022). Therapeutics to Cosmetics: Reviving a Knowledge Tradition.
Igorevic, B.S., (2021). Advanced Analytics for Prediction of Customers’ Preferences: L’Oréal Case.
Kaple, G., (2020). Supply Chain Challenges in Cosmetics Industry: Indian Context. Supply Chain Pulse, 11(1), pp.17-21.
Linkov, I., Carluccio, S., Pritchard, O., Bhreasail, Á.N., Galaitsi, S., Sarkis, J. and Keisler, J.M., (2020). The case for value chain resilience. Management Research Review.
Malakar, B. and Mohanty, K., (2021). The budding potential of algae in cosmetics. In Algae (pp. 181-199). Springer, Singapore.
Nielsen, C., Marinova, S.T. and Marinova, M.A. eds., (2022). Business Models and Firm Internationalisation. Routledge.
Rozanova, N.M., (2021). Contemporary Competition: Process or Result?. Mirovaia ekonomika i mezhdunarodnye otnosheniia, 65(8), pp.5-13.
Sevilay, U.L.A.Ş., (2020). Augmented Reality in Luxury Brand Communication in The Digital Transformation Process: L’Oreal Example. OPUS Uluslararası Toplum Araştırmaları Dergisi, 15(21), pp.12-33.
Vahlne, J.E. and Johanson, J., (2020). The Uppsala model: Networks and micro-foundations. Journal of International Business Studies, 51(1), pp.4-10.
Withisuphakorn, P., Batra, I., Parameswar, N. and Dhir, S., (2019). Sustainable development in practice: Case study of L’Oréal. Journal of Business and Retail Management Research, 13(Special).
Zamani, N.A.N., Md Heshamuddin, N.S., Jafri, A.A., Abdullah, S.S. and Ariff, E.A.R.E., (2021). The Effects of Temperature, pH and Moisture Exposure on Human Hair. In Intelligent Manufacturing and Mechatronics (pp. 1171-1183). Springer, Singapore.
Zapletalová, Š., (2021). Internationalisation and Competitive Strategies of Enterprises. In Contemporary Entrepreneurship Issues in International Business (pp. 139-168).
Online
statista.com, (2022). [Online]. [Accessed through]< https://www.statista.com/statistics/243986/consolidated-sales-of-loreal-worldwide/> [Accessed on 17th March 2022].
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