Impact of Macro Environmental Factors on L'Oreal and Body Shop

This assignment explores the impact of macro environmental factors on L'Oreal and Body Shop, including political, economic, social, technological, legal, and environmental factors. It also discusses the organisational culture at both companies, factors considered by L'Oreal before acquiring Body Shop, and the reasons for the failure of the acquisition.

Context of Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Impact of macro environmental factors..................................................................................3
Organisational culture at Body Shop and L'Oreal..................................................................5
Factors considered by L’Oreal before acquiring Body Shop.................................................6
Factors that affected in the failure of acquisition of Body Shop by L’Oreal.........................7
Reflection...............................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Context of business relates to all the internal and external factors that affects the operations
and functions of business and its sustainable survival in the competitive market. The
companies in order to grow and develop sustainably in the market must follow ethical and
social responsibilities towards all the concerned stakeholders so that its reputation does not
come at stake and it can continue to exist competitively in the marketplace. This assignment
is based on L’Oreal which is a renowned brand in the cosmetic sector and has its branched
in all parts of the world (Sarason and Hanley, 2015) The company has recently faced a
downfall in its reputation because of some unethical activities which it planned to boost up
by acquiring Body Shop which has been known for its ethical code of conduct. In this report
contains the effects of external environment on the company, organisational culture, factors
that are to be analysed before acquisition etc. Further, the elements that result in failure of
acquisition along witha reflection are also covered in this report.
MAIN BODY
Impact of macro environmental factors
Macro environment consists of all the external factors that cannot be controlled or changed
by the company but has to adjust its policies and strategies so that the negative impact of
these factors can be efficiently dealt with. These factors are important to be analysed so
that business do not suffer any losses and can maintain its competitiveness in the market.
PESTLE is a strategic management tool which can be used to analyse the external
environmental factors that affect L’Oreal in the market which are discussed below :
 Political : These factors are related to the governmental rules and regulations like
tax policies, trade tariffs etc. The company had a downfall in its image as it was
involved in price fixing which made it the price leader in the cost industry. This is
considered as unethical in UK as the government does not support companies that
charge high from general public on behalf of price fixing. This lead the company to
increase in negative publicity of the company which also resulted in the
deteriorating image of the company in the minds of its customers and decreased its
shares in the market.

 Economic: These are the economic conditions of a country which can be analysed
by the rate of unemployment in the country, GDP, interest rates etc. L’Oreal is a
French company which deals in beauty and personal care products and is the
world’s largest cosmetic company. During the acquisition of Body Shop which is a
company based in UK, L’Oreal faced few challenges that were related to difference
in exchange rates and had to pay an amount of £652 million in order to fully
acquire Body Shop (Voigt and et.al., 2017).
 Social: These factors are related to the composition of people of the country,
demographics, religion, culture etc. In UK the standard of living of people is high
and also people are concerned about their health and skin which is a positive factor
of L’Oreal. However, the company is indulged in unethical behaviour like animal
testing, misleading promotion, condoning child labour etc. which has deteriorated
its image and has created a dislike among the people of country which has
ultimately affected the brand image of the company.
 Technological : These factors are related to the advancement in technology in the
country, R&D activities etc. UK is a technologically advanced country which
means that L’Oreal can have an easy and cheaper access to technology which can
be used to manufacture and sell their products to customers. However, companies
like Body Shop who are ethically sound and manufacture the same products gives
the company a tough competition.
 Legal: These are the laws of the country which are to be followed by companies so
that they can work in a legal framework. UK has strong legal norms related to
employment, protection of human rights etc. L’Oreal has however been accused of
unethical practices such as animal testing, condoning child labour etc. which are
against the laws of the country and has brought a bad image to the company
(Vasudevan, 2015).
 Environmental: These are the environmental factors of the country like water,
weather, climate etc. In UK there has been increasing concerns related to use of
environment friendly products and the products that contain natural ingredients.
These increasing environmental concerns has decreased the market share of

L’Oreal as the company has been accused of using synthetic ingredients in its
products which has also affected its brand image.
Other factors that affect the operations of company are related to ethical factors which
mean that the company has to follow its ethical and social responsibilities in the market
in which they work so that their activities do not harm the people, environment and
society as a whole. L’Oreal has been accused of being involved in a number of unethical
practices such as airbrushing, misleading advertising, animal testing, price fixing, child
labour etc. which resulted in the drop in reputation of L’Oreal.
Organisational culture at Body Shop and L'Oreal
Culture of an organisation is made up of the collection of values, assumptions and beliefs
of all the people working the company which determines the way in which work is done in
the company. The ability of a company to accomplish its goals and objectives depend on
the organisational culture of the company. Handy’s culture can be used to determine the
type of culture at L’Oreal and Body Shop :
 Power culture: Under this culture power is concentrated in the hands of few
people like managers who are responsible to take all the decisions and are also
responsible for delegation of tasks among other employees based on their
capabilities. This culture can result in quick decision making as the employees are
not involved in the process. L’Oreal and Body Shop can adopt this culture when a
specific task needs to be performed in a short period of time (Ricci, 2014).
 Role culture: Under this culture specific roles and responsibilities are allotted to
staff members depending on their skills and talents so that the work can be
completed in systematic manner and within the time limit. Also this culture
encourages employee engagement as all the employees are involved in decision
making which helps in making efficient decisions. L’Oreal and Body Shop can use
this culture so that the functions of company can be completed in a systematic
manner.
 Task culture: This culture is mainly found in task oriented or project oriented
organisations so that the projects can be completed by a group of efficient
employees on time and within budget. L’Oreal and Body shop can use this culture
in order to accomplish certain projects (Guezguez and Lafforgue, 2018).

 Person culture: Under this culture people are more concerned about gaining
personal benefits and profits rather than organisational benefits. This culture can
lead to conflicts among staff members due to clashing objectives and is usually not
found in many organisations.
The organisational culture that is found in L’Oreal is person culture whereas the
organisational culture found in Body Shop is role culture. The cultures of both the
organisations are not compatible with each other as in Body Shop there is high employee
engagement which has lead the company to become more ethically responsible towards
the society and has contributed towards its strong brand image. In L’Oreal on the other
hand power culture is followed which means that employees are not involved in decision
making which has lead the company towards unethical practices which has affected its
brand image. The challenges that will be faced by L’Oreal after acquiring Body Shop will
to fully adopt its culture and convince the managers to involve employees in decision
making so that more ethical decisions can be made. Also the core values of Body Shop in
which it strongly support human and environmental rights and is also against animal
testing will also be adopted by the company. However, the benefits of adopting role
culture by L’Oreal the company can rebuilt its strong brand image and can also be
preferred by customers which will enhance its reputation and profits for long-term. Also
the company can motivate its employees so that they can work towards achieving
organisational benefits in an efficient manner. Further the company can continue to grow
and develop sustainably in the market which will help it in earning huge profits (Gough,
Hall and Seymour-Smith, 2014).
Factors considered by L’Oreal before acquiring Body Shop
There are certain factors which are to be considered by company before acquiring other
company so that the desired results can be obtained. L’Oreal has been accused of being
indulged in unethical practise which has negatively affected its brand image and so it wants
to acquire Body Shop for which it needs to consider the following factors so that the
damage to its brand image can be repaired:
 Cost of acquisition: It is the most important factor that needs to be considered
before acquiring other company. The amount spent in acquiring the other country
must not be more than what the company can afford and also the cost must be

worth with the value of acquiring the company. The total cost incurred by L’Oreal
to acquire Body Shop was £652 million.
 Market image of the company: It relates to the reputation of the company that is
being acquired which is an important factor and needs to be evaluated so that the
desired results can be achieved. Body Shop is a popular British brand and is famous
for its core values which includes human rights, environmental care and stand
against animal testing. This has led the company to become an ethical brand in the
market and can help L’Oreal to improve its brand image which has deteriorated due
to unethical practices of the company (Ferrão, 2015).
 Financial position of the company: It relates to the financial capacity of the
acquiring company so that the acquisition can successfully take place. L’Oreal has
a strong financial position which has helped it in acquisition of Body Shop which it
however sold to a Brazilian company Natura Cosmeticos SA.
 Human capital: It is the related to the skills and talents of the employees of both
the companies so that acquisition can take place in an efficient manner and both the
companies can consolidate together. This requires the acquiring company to check
if the other company has efficient and skilled employees or not which can help it to
grow. Body Shop has highly skilled workforce which has L’Oreal to easily acquire
it as this could help in its growth in the market and in the areas where Body Shop
has good market share.
Factors that affected in the failure of acquisition of Body Shop by L’Oreal
Acquisition is an uncertain process which can either result in the success or failure of the
acquiring company. Companies acquire other company in order to either expand their
markets, rebuilt their brand image, lower the cost of operations etc. L’Oreal has been
accused of many unethical practices such as child labour, misleading advertisements,
animal testing etc. which effected its reputation in the market and also decreased its share
(Febriyanti, 2014). Therefore it acquired Body shop which is famous for its ethical code of
conduct which could help L’Oreal in rebuilding its brand image. However the acquisition
failed due to the following reasons:
 High competition: The competition in cosmetic industry has been ever-increasing
which has resulted in availability of cosmetic products of same quality at lower

prices. This has diverged the interest of customers in L’Oreal products and
decreased its sales. This has also resulted in the failure of acquisition as many
companies have emerged in the market offering environment friendly products
containing natural ingredients.
 Lack of innovation: The Company has failed to bring innovation in its products
unlike other cosmetic companies which helps in enhancing customer experience.
This has lead to the failure of acquisition as many innovative products are available
in the market (Chun, 2016).
 Weak brand position of Body Shop: The brand image of Body Shop is
deteriorating as other companies are offering better products at lower prices which
has decreased the sales of Body Shop products and also increased losses for
L’Oreal. This lead to the failure of acquisition of Body Shop by L’Oreal because
the losses were increasing.
 Online shopping: The trend of online shopping is increasing which has increased
the inventory cost of L’Oreal and Body Shop which has also been one of the factors
of failure of acquisition (Coste-Maniere and et.al., 2019).
 High cost of running of stores: The cost of running all the stores of Body Shop
which are located in many parts of the world has also been the reason of failure of
acquisition. The cost of running stores has been increasing which has increased the
cost of L’Oreal and so the acquisition failed.
Reflection
The above report is based on an interesting topic related to two renowned cosmetic
companies L’Oreal and Body shop in which L’Oreal acquired Body Shop in order to
improve its brand image which had deteriorated because of unethical practices. The report
helped in enhancing my knowledge on various issues related to business ethics and
acquisition of companies. I also learned about the factors that affect the companies while
working in the external environment and how do they react in order to remain stable in the
market. This project has helped me in enhancing my research skills which will be helpful
in my future projects. Also i was able to use my analytical and critical skills so as to
complete this project in an efficient manner. I also explored various resources in order to

gain knowledge about various aspects related to the topic so that better conclusions can be
made.
During this project i faced a few problems like finding authentic and correct data from
various sources and then analysing the data to come to conclusion. I took help from my
teachers and also my classmates so that i can score high on the assignment. This
assignment will help me in growing professionally as i can take further research projects
which can help me in my personal and professional development. I gave my level best to
complete the project in the most efficient manner so that the objectives of this project can
be fruitfully achieved.
CONCLUSION
From the above project it can be concluded that the companies in order to sustain in the
market successfully and for a longer period of time needs to adopt CSR policies so that
ethical code of conduct can be established in the company. The companies that are more
socially and environmentally responsible are more preferred by the customers and they also
have a strong brand image in the industry. Further, acquisitions can be either successful or
can be a failure which depends on the market conditions. The companies must follow a role
culture in the organisation so that all the employees can be involved in decision making and
employees can stay motivated to work efficiently which also improves performance of the
company.

REFERENCES
Books and Journals
Sarason, Y. and Hanley, G., 2015. 10. Social ventures: exploring entrepreneurial exit strategies
with a structuration lens. Research Handbook of Entrepreneurial Exit. pp.214-226.\
Voigt, K. I. and et.al., 2017. Business Model Pioneers. Management for Professionals.
Vasudevan, H., 2015. L'OrealBaby Girl PerfumeMarketing Strategy. International Journal of
Information, Business and Management. 7(1). p.193.
Ricci, F., 2014. L'Oreal acquisition policy: The Body Shop case study (Doctoral dissertation).
Guezguez, H. and Lafforgue, H., 2018. Ivan Coste-Maniere1, Karine Croizet2, Eleonora Sette3,
Alexandre Fanien3. Circular Economy in Textiles and Apparel: Processing, Manufacturing,
and Design, p.123.
Gough, B., Hall, M. and Seymour-Smith, S., 2014. Straight guys do wear make-up:
Contemporary masculinities and investment in appearance. In Debating Modern
Masculinities: Change, Continuity, Crisis? (pp. 106-124). Palgrave Pivot, London.
Ferrão, L. M. G., 2015. A case study on the launch of Revitalift Laser X3 by L’Oréal Paris
Portugal (Doctoral dissertation).
Febriyanti, N., 2014. THE INFLUENCE OF BRAND EQUITY TOWARD CUSTOMER BUYING
DECISION ON COSMETIC PRODUCT IN JAKARTA (Doctoral dissertation, President
University).
Coste-Maniere, and et.al., 2019. Circular economy: A necessary (r) evolution. In Circular
Economy in Textiles and Apparel (pp. 123-148). Woodhead Publishing.
Chun, R., 2016. What holds ethical consumers to a cosmetics brand: The Body Shop
case. Business & Society. 55(4). pp.528-549.
Online
Factors resulted in failure of acquisition of Body Shop. 2019. [Online]. Available through:
<https://www.bbc.com/news/business-38905530>