L\'Oreal

GRADUATE SCHOOL OF MANAGEMENT



Prepared by:

Ahmad Mustafa Al-Malhuki B. Abdul Aziz

(G1130447)



Case:

L'Oreal and the Globalization of American Beauty



Course:

Case Methodology

(MGT 6798)



















Background of L'Oreal


L'Oreal was established in France in 1907 by a chemist named Eugene
Schueller. L'Oreal's nature of business is producing, marketing and sales
of cosmetic products. During in the era of Schueller, L'Oreal was majorly
focused on European markets and it has successfully penetrated almost all
European countries' market. Initially, L'Oreal has limited product line
such as hair-colouring and body-care products.

Subsequent to the World War II, L'Oreal's direction was driven by
Francois Dalle who was the successor of Schueller upon his death in 1957.
Dalle has bigger vision to bring L'oreal to massive market. Dalle realize
that America is the best market in order for L'Oreal to go global.

Why America

There were several reasons why L'Oreal considered America as a "door"
to global market. They believed that America has the population capacity of
almost 300 million people which in turn furnish them with huge potential
market. On top of that, America was unlike China, India or Indonesia, even
though those countries have huge population but they did not have
purchasing power similar to America. America has low rate of unemployment
and they were rising from the World War II back then.

The culture of America was in line with their products as beauty was
so much importance to women. Most of the women were up-to-date to trend and
fashionable. They were willing to spend thousands of dollars in order to
look pretty. In fact, regardless of age, career women, old women or even
school girls were using makeup, unlike other countries especially in Asia,
most of older women will not put makeup anymore when they reach certain
age.

America controlled any exported products that come into the country as
they wanted only high quality standard products to be in their countries.
Therefore, if L'Oreal managed to go into American market, they will able to
go to any country in the world as America helps them to establish their
name.







L'Oreal's Challenges in America

Entering American market was a brilliant idea, however, the challenges
need to be strategically tackled by L'Oreal to survive in the new market.
L'Oreal was at significant advantage compared to its competitor. L'Oreal
had limitation in supply chain. Its competitors have established its
existence for quite long time compared to L'Oreal. Therefore, channelling
the products to end users was a big challenge.

L'Oreal was famous with its high quality and expensive products. At
that particular period, other competitors were sold at lower price. The
L'Oreal management believed that its products were too premium for some
markets.

SWOT Analysis

"Strengths "Weaknesses "
"L'Oreal has established its "Lack of experience in American "
"existence in European market. "market in term of distribution. "
"Failure penetrating American market"The price was considerably "
"would only make L'Oreal suffer for "expensive compared to its rival in "
"short period. "American market. "
"Subsequent to acquisition of " "
"various companies, L'Oreal has " "
"strong supply chains which were " "
"created by local companies. " "
"By acquiring Maybelline, L'Oreal " "
"able to produce the products at " "
"lower cost. " "
"Opportunities "Threats "
"L'Oreal has bright future as they "The other competitors were also "
"have formed R&D division which will"acquiring other small companies. "
"continuously developing new "For example, P&G was trying to "
"products. "acquire Wella. "
"L'Oreal has sizeable influence on "Its Germany competitor seemed a bit"
"the strategy and development of it "advance in producing new brand for "
"s brands in American market as it "hair spray products. They were "
"has acquired most of the cosmetic "penetrating French market. "
"companies. " "


Problem Statement

L'Oreal has strong establishment in European market especially its own
country, France. However, the management of L'Oreal keen to globalize its
products. America is the first their target market as America is a "window"
to global market.

Practical Strategies

Acquisition was the main strategy for L'Oreal in order to make their
existence in the market. L'Oreal has acquired more than 20 companies in and
outside of America. Acquisition has allowed L'Oreal to produce their
products at lower cost as the acquired companies have existing equipments
and infrastructure. On top of that, acquisition furnished them with supply
chains which have been established for a long time.

As the organization got more complex, they have restructured the
organization hierarchy. Despite of preserving the headquarter in France,
the divisions were segregated based on the regions (e.g. North America,
Europe/ Africa and Asia). The division heads responsible with the sales and
marketing strategies of their own region. This restructuring helped L'Oreal
to monitor their products in all regions.

The management team of L'Oreal has formed an excellent Research and
Development team which were really committed to instil value in their
brand. In 2003 alone, L'Oreal has spent USD600 million for research and
development whereby the major portion of allocation was used to send 2,800
scientists for researching in research centres located in France, Japan and
America. This was an evidence how committed L'Oreal to provide high
standard products to their customers.

By having relationship with research centres and acquired companies,
L'Oreal stood a change to growth geographically. For example, Maybelline
has been assisting L'Oreal to channel their products outside of America and
France through Maybelline's retail shops worldwide.