L'Oréal's Entry Strategy into the Columbia Market

L'Oréal, the world's largest cosmetics company, is considering expanding its business to Columbia. The company faces competition from natural/organic brands in Europe and needs a strategy to overcome this challenge. L'Oréal can choose between direct exporting and franchising as a foreign market strategy. Exporting with some product packaging changes according to Columbia's culture could attract more customers. Franchising would allow the company to manage the sales without tracking every step, similar to its acquisition of Vogue, a Columbia-based brand.

L’Oréal paris ‘Expansion in Columbia’
Strategies for
expanding the
business in foreign
market

L’Oréal Paris Expansion in Columbia
Table of Contents
INTRODUCTION........................................................................................................2
L’Oréal......................................................................................................................2
STUDY.........................................................................................................................3
EXPANSION IN COLUMBIA................................................................................3
STRATEGIES FOR ENTERING FOREIGN MARKET........................................4
CORPORATE STRATEGY OF L’Oréal.................................................................5
IMPLICATIONS OF FORMAL AND INFORMAL INSTITUTIONS..................5
Formal implications..............................................................................................5
Informal implications............................................................................................5
CONCLUSION.............................................................................................................6
REFERENCE...............................................................................................................7
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L’Oréal Paris Expansion in Columbia
INTRODUCTION
L’Oréal
L’Oréal is a French cosmetics and hair care company and has its headquarters in
Clichy, Hauts-de-Seine, near Paris. It is considered to be the world's largest
cosmetics company producing or providing various products from different
categories involving hair care, colored cosmetics, skin care, hair color, sun
protection, oral care, child care, premium cosmetics, etc. The company is expanding
and growing with each passing day as it also works in the research and development
sector of the products before making it available to its customers. The company is
very active in the research field of toxicology, dermatology, biopharmaceutical,
tissue engineering. ("L'Oréal", 2016)
It is one among the various companies listed in the Forbes Global 2000 list, serving
the public by providing products according to the needs of every segment of
customers, i.e., providing affordable as well as premium/luxury products to the
customers, to choose as per their needs. It also taps the niche market for increasing
profits and serving as many customers as possible. The acquisition of YSL in 2008
helped the company in beating the rate of global growth. In 2009, the growth rate in
the global beauty and personal care market of the company fell. The company’s
advertising slogan - "Because I'm worth it" itself shows the company’s strategy of
universalising the company’s mission of “beauty for all”.
L'Oréal is a public company as some of its shares are raised from the public. It can be
understood through the below given breakdown of shares: 5,7% by individual
shareholders, 23.29% by Nestlé, 1.9% treasury stock, 21.8% by international
institutional investors, 33.31% by the Bettencourt family, 9.3% by French
institutional investors, and 0.7% by employees.
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L’Oréal Paris Expansion in Columbia
STUDY
L'Oréal being a multinational company already has its existence in many countries
and to expand the business more in some countries, a set of three target countries
where the company could potentially expand are France, Columbia, and Hungary.
("Market Entry Strategies", 2016) The company being a strong leader in color
cosmetics globally is weak in some markets but with the innovation and research, it
is capable of converting its weakness into a strength. Among the mentioned countries
the company should choose Columbia to expand the company as the market share of
L'Oréal in Columbia is much lesser than other companies of colored cosmetics
serving the consumer market of Columbia.
EXPANSION IN COLUMBIA
For expanding the market, from the above-mentioned countries, I chose Columbia
for expanding the company further. L'Oréal already has an existing market in
Columbia, but the market share it has is considerably less than other companies
serving the consumers of Columbia. The reason behind choosing Columbia is not
just to serve Columbian market but also to access and tap the surrounding markets of
the country including the market of Ecuador and Peru in Latin America. The
Columbian market is relatively smaller which makes it easy for the company to
overcome competitive barriers. The color cosmetics market in Columbia is
comparatively small making it a great opportunity for the company. Avon is the key
player of Columbian color cosmetics market, and L'Oréal comes at seventh position.
L'Oréal Paris is geared towards price-savvy consumers and hence will suit the
market. The company also has products to address the young consumers who want
affordable yet quality products. It can also make its presence more recognized in the
market by increasing the working in the natural/ organic products.
The reason for choosing Columbia over the other countries was the fact that L'Oréal
being a European company has already a large number of customers. So, expanding
the business there would be a difficult task as the company is facing competition
from the manufacturers of natural/organic brands in the leading regional market in
Europe. The consumers of developed countries as well are now more inclined
towards natural/organic products at affordable prices which can be a great
opportunity for Loreal to expand further, but this will take time. So for the initial
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L’Oréal Paris Expansion in Columbia
expansion from the above three countries to go for Columbia first would be a better
decision.
STRATEGIES FOR ENTERING FOREIGN MARKET
There are various types of strategies which can be chosen by a company to expand its
business in the foreign market. Some of them are exporting, franchising, licensing,
turnkey projects, contracting, wholly owned subsidies, joint venture, strategic
alliance and much more. ("Market Entry Strategies", 2016).
Exporting is that type of strategy where the products and services are produced in
one country, and then exported and sold in the other countries
Franchising is that strategy under which the owner company (franchisor) gives the
right to the semi-independent company (franchisee) to sell its products by paying fee
and royalty to the parent company.
Licencing is a strategy that allows the foreign company to manufacture the products
of a proprietor for a specified period with the permission of the proprietor.
Turnkey operations is that type of contract where the client company pays the
contractor to design and construct new projects and to train the personnel of the
company.
Others include Contracting, Wholly owned subsidies, Joint venture, Strategic
Alliance, etc.
For entering the foreign market, i.e., Columbia, I would choose direct exporting as
being already known to the customers; the company has no need to go for joint
venture or strategic alliance. The best way to expand their business while exporting
will be changing the packaging of some of its products according to their culture to
attract more customers. A few years back, L'Oréal also acquired the color cosmetics
brand Vogue to grow its business as Vogue being a Columbia-based brand; the
customers will be able to relate more with that brand. The company can also choose
to franchise so that the work will be managed by the franchisee company and for that
charging fee from the franchisee company will be charged by the franchisor. This
will help the franchisor company as then it would need not to track each and every
step of maintaining and managing the sales.
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L’Oréal Paris Expansion in Columbia
CORPORATE STRATEGY OF L’Oréal
L’Oréal works upon a mission of “Beauty for All”, it focuses on universalization
strategy that everyone should be served by the company regardless of the region they
live in. Its ambition is to attract as many consumers as possible, basically a billion
new consumers. The strength gets to work for achieving all that comes from the
confidence the company has in itself. ("L'Oréal 2014: Our strategy", 2016)
IMPLICATIONS OF FORMAL AND INFORMAL
INSTITUTIONS
Formal implications
While choosing a business strategy for expanding the business in a foreign market,
various formal implications are to be considered. Some of them are regulations of a
business which shows, how long the business is working and on what terms; trade
barriers i.e., the barriers that the company can face while doing the trade; the
protection of property rights, etc. (Ionascu, Meyer, & Estrin, n.d.)
Informal implications
As the formal implications are important for any company to be considered while
choosing the strategy for entering the foreign market, informal implications play as
important role as the formal ones. The uncertainty to be faced by the MNEs entering
the foreign market due to informal institutions is critical to understand. The
increased distance of informal institutions will lead to a greater proportion of
subsidiaries investment of expatriates and a full ownership preference. (Sartor, 2013)
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L’Oréal Paris Expansion in Columbia
CONCLUSION
L’Oréal Paris is considered to be the world's largest cosmetics company producing or
providing various products from different categories involving hair care, colored
cosmetics, skin care, hair color, sun protection, oral care, child care, premium
cosmetics, etc. The company is expanding and growing with each passing day as it
also works in the research and development sector of the products before making it
available to its customers. It is at the top among all the colored cosmetics company.
Also, its headquarters is related to many big companies, and it has overtaken some of
the most popular and quality brands like Urban Decay, Clarisonic, etc. The company
to expand its business must choose the country Columbia as the market is
comparatively short there which will help the company in resolving the issues of the
consumers fast and also in understanding the requirements of them better. The
company can either choose to franchise or export as a foreign market strategy for
expanding the business in Columbia.
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L’Oréal Paris Expansion in Columbia
REFERENCE
L'Oréal. (2016). Wikipedia. Retrieved 8 August 2016, from
https://en.wikipedia.org/wiki/L%27Or%C3%A9al#Brands
Market Entry Strategies. (2016). Tradestart. Retrieved 8 August 2016, from
http://www.tradestart.ca/market-entry-strategies
L'Oréal 2014: Our strategy. (2016). Loreal-finance.com. Retrieved 8 August 2016,
from http://www.loreal-finance.com/eng/annual-report-2014/our-strategy
L'Oréal Finance : L'ORÉAL groups its activities in Poland and Hungary. (2016).
Loreal-finance.com. Retrieved 8 August 2016, from
http://www.loreal-finance.com/eng/news/subsidiaries-67.htm
Sartor, M. (2013). The Impact of Informal Institutions on MNE Strategy: Innovation
Investments in Emerging Markets. Academy Of Management Proceedings, 2013(1),
17167-17167. http://dx.doi.org/10.5465/ambpp.2013.17167abstract
Ionascu, D., Meyer, K., & Estrin, S. Institutional Distance and International Business
Strategies in Emerging Economies. SSRN Electronic Journal.
http://dx.doi.org/10.2139/ssrn.665110
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