L'Oreal's Acquisition of Body Shop: A Context of Business Analysis

This report provides a comprehensive analysis of L'Oreal's acquisition of The Body Shop. It begins by examining the impact of the macro environment on L'Oreal, particularly focusing on social and ethical factors, and uses PESTLE analysis. The report then compares the organizational cultures of Body Shop and L'Oreal, assessing their compatibility using Handy's cultural model and discussing the potential benefits and challenges arising from their differences. Subsequently, the report analyzes the factors L'Oreal considered before acquiring Body Shop, such as financial position, market image, total acquisition cost, and human resources. Finally, it explores the factors that contributed to the failure of the acquisition, including increased competition and a decline in Body Shop's brand image. The report concludes with a reflection on the writing process.

Context of Business

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. Discussion of all the impacts of macro environment on the current situation of L'Oreal
particularly the social and ethical factors.....................................................................................1
2. Body Shop and L'Oreal's organisational culture and their compatibility along with benefits
and opportunities arising from them............................................................................................3
3. Analysis of those factors which would have considered by L'Oreal before deciding to
acquire Body Shop.......................................................................................................................4
4. All the factors that had effect on the L'Oreal's acquisition of Body Shop resulting it in the
failure...........................................................................................................................................5
PART 2............................................................................................................................................6
5. Reflection report on the experience in writing the report........................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Context of business is the combination of different types of factors which are required to
be analysed by organisations for the purpose of reducing their negative impacts upon operational
activities. Main purpose of it is to guide all the business entities to analyse all the external as well
as internal forces which may possible lead towards failure of projects (al-Najdi, K. A., 2017).
This assignment is based upon an acquisition of Body Shop made by L'Oreal. For this purpose,
different topics are covered in this project which are analysis of impact of macro environment,
organisational culture of both the companies, factor considered to make acquisition decision and
forces resulted in failure. At the end of the report a reflection is also provided for the purpose of
sharing experience of working on the project.
PART 1
1. Discussion of all the impacts of macro environment on the current situation of L'Oreal
particularly the social and ethical factors
Macro environment is a framework which consist all the external factors which may
affect operational efficiency of an organisation. While operating business or planning for
expansion it is very important for all the companies to analyse the macro environment in order to
determine all the forces which may lead towards failure. When L'Oreal acquired Body Shop then
it is also analysed by the enterprise. For this purpose, PESTLE analysis was used by the entity.
All the effects of it on the current situation of the company are discussed below in six different
points:
 Political: The elements such as stability of government, possible changes in the
legislation and global influences are the part of political forces. While acquiring Body
Shop L'Oreal have faced different challenges because of different domestic countries.
The organisation was required to comply with all the legislation of UK while acquisition
and due to differences in governmental policies the entity have faced issues to make sure
that political interferences in the business could be ignored (Caitlin McBride, J. D. T. and
JDTT, S. A., 2019).
 Economic: Growth of economy, exchange and inflation rates, monitory policy, consumer
confidence, employment rates etc. are economic factors which has left negative impact
upon L'Oreal acquisition of Body Shop. Due to changes in these factors value of currency
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of a country gets changed. It has also affected the acquisition because fluctuation in
exchange rate resulted in changes in value of pound which has affect the consideration
paid by L'Oreal to Body Shop in its local currency.
 Social: Income distribution, lifestyle factors and demographic influences are social
factors which should be focused by an organisation to meet the expectation level of
targeted market. L'Oreal is facing various social challenges such as bad market image due
to its practices on animal and child labour. For the purpose of overcoming it the
organisation have decided to acquire Body Shop which is having a good image in
cosmetic industry. With the help of it the company is planning to overcome all the social
challenges which are faced by it due to its unethical practices in the market.
 Technological: International influences, changes in information technology and take up
rates are the elements of technological factors. All of them affected the acquisition of
Body Shop because L'Oreal was required to take all the latest trends in to consideration.
All of them changes with time due to lack of information about alternation in them the
enterprise have faced the issues and tried to deal with them in the acquisition situation
(Chaiyasit, K., 2019).
 Legal: Taxation policies, industry regulations, health and safety regulations etc. are legal
implications which were faced by L'Oreal while acquiring Body Shop. Due to separate
domestic countries the organisation have faced issues because it was not having
information about the acts and regulations about acquisition of UK. For this purpose
additional amount with the purchase consideration because of increased taxation in
United Kingdom.
 Environmental: Regulations, restrictions, CSR activities, unethical manner of business
execution etc. are environmental factors which are required to be focused by all the
organisations to operate business in systematic way. L'Oreal is operating business in
unethical manner as it perform practices on animals and recruit child labour. Due to this
various ethical challenges are taking place in the business execution of the organisation.
For the purpose of overcoming all of them the enterprise planned to acquire Body Shop
so that it can represent a positive image in the market.
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All the above described factors in the macro environment have affected the acquisition of
Body Shop made by L'Oreal for the purpose of overcoming the issues of bad market image
taking place due to its unethical business practices.
2. Body Shop and L'Oreal's organisational culture and their compatibility along with benefits and
opportunities arising from them
Organisational culture can be defined as a framework in which companies follow specific
values, attitudes and beliefs for business execution for the purpose of governing all the
employees working within it. With the help of it, long term business goals are achieved by
organisations by motivating all the staff members and enhancing their abilities to perform tasks
(Dunne, M., 2014). As L'Oreal has acquired Body Shop therefore it is very important for it to
analyse the culture which is followed by the company and analyse its compatibility. For this
purpose, Handy's cultural model could be adopted by the management of L'Oreal. Description of
all the elements of it are as follows:
Power: Under this culture top level executives form all the decisions for business
execution and they do not take advice form staff members as they do not want to take risk. In
order to perform all the operational activities systematically this culture could be adopted by
Body Shop and L'Oreal.
People: In this culture all the staff members considered themselves as the superior of the
company and it results in higher engagement level of them. In order to keep the employees
motivated this culture can be applied by L'Oreal and Body Shop.
Task: When it is adopted by business entities then the management make sure that they
are allocating different tasks to the employees so that they can find easy solutions for critical
problems of business. It could be adopted by L'Oreal and Body Shop to reach the organisational
goals easily.
Role: In this culture managers assign different roles to all the employees so that they can
perform their jobs specifically. In order to enhance the productivity and work quality of all the
staff members this culture can be adopted by Body Shop and L'Oreal.
From all the above described cultures Task is followed in L'Oreal and power is followed
in Body Shop. Both of them are not compatible with each other and due to this the organisation
may face different challenges and opportunities in future (Febriyanti, N., 2014). Description of
all of them is as follows:
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New working environment for staff of Body Shop: It is the oportunity which may take
place due to incompatible cultuyres of Body Shop and L'Oreal. As task culture is followed in the
organisation therefore it will provide a new and effective working environment to the employees
working under power culture from a long period. With the help of it, they could be motivated to
perform all the tasks effectively in future as they will be assigned different jobs which are
required to be executed by them for attaining organisational as well as personal goals.
Decreased productivity of employees: When staff members work under a totally
different culture then it may affect their productivity and this issue could be faced by L'Oreal
when Body Shop will be acquired. The employees have habit to work in power culture therefore
it will be very difficult to work according to task culture.
3. Analysis of those factors which would have considered by L'Oreal before deciding to acquire
Body Shop
For all the business entities it is very important to analyse an organisation properly if they
are planning for acquisition. With the help of it, possibility of failure could be decreased and the
goals which are formed for attainment in future could be achieved. When L'Oreal planned to
acquire Body Shop the management would have considered different elements for making the
decision (McLymont, R., 2015). All the factors which were focused by the enterprise are as
follows:
Financial position: It was the first element which are analysed by L'Oreal in context of
Body Shop because of the position of the company is low then it may result in higher expenses to
the organisation which is acquiring another one. For the purpose of ignoring the huge cost the
management have analysed the financial position of Body Shop so that it could be assured that
the enterprise is not having large amount debts which will be paid in upcoming years (Worek, M.
and et.al., 2018).
Market image: While formulating the decision of acquisition this factor is also analysed
by L'Oreal as it can help to determine that all the steps which are going to be taken by the
organisation for betterment will result positively or negatively. A bad image of a company which
will be acquired may harm the image of another company which will acquire it. For the purpose
of ignoring this situation the market image of Body Shop was analysed by L'Oreal.
Total cost of acquisition: The cost of acquisition is the amount which is paid by an
organisation to another one which is acquired. While making the decision about acquisition it is
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one of the major factors that should be focused. In order to form the judgement of acquiring
Body Shop the managers in L'Oreal have taken this element in to consideration because if it is
very high then it may affect the financial stability of the acquirer.
Human resources: While making a decision about acquisition it is very important for the
organisation to make sure that the human capital which is kept by the anotehr company is skilled,
knowledgeable and experienced. If the staff members of the enterprise which will be acquired
are not capable to handle work pressure then it will result in lower productivity in the market
therefore this element is focused by L'Oreal which taking the decision of acquiring Body Shop
(Menell, P. S., 2017).
When the decision of acquiring Body Shop was formed by L'Oreal then all the above
described factors were assessed by the management of the organisation as it is required for the
formulation of decision. By assessing all these elements mangers analyse actual position of Body
Shop and analysed that it will be able to provide benefits to the entity.
4. All the factors that had effect on the L'Oreal's acquisition of Body Shop resulting it in the
failure
The acquisition of Body Shop was a failure for L'Oreal because of various factors and
due to this different issues such as decreased profits and sales. There are various elements which
have resulted in the failure of acquisition. The main objective for acquiring Body Shop was to
increase market share and profits but it has resulted adversely. All the factors behind it are as
follows:
The higher level of competition: Competition in the cosmetic industry is very high and
in order to deal with it, it is very important for all the organisations to make sure that their
products are unique and innovative as compare to others which are selling same products. It was
the main reason behind the failure of acquisition of Body Shop by L'Oreal because there are
various local sellers of same products which are sold by the organisation (Ricci, F., 2014).
Very high cost of running the shops: L'Oreal have faced challenges due to higher cost
of running the shops of Body Shop and it was also a reason for the failure of the acquisition of it.
The main goal for the acquisition was to enhance profitability but the organisation faced losses
due to this and faced increased cost of running the shops of the company. It has resulted in the
failure of the the plan formed for acquisition.
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Unstoppable popularity of online shopping: Currently most of the people prefer to buy
products online and they want that they get all of them delivered at their door step. Popularity of
Body Shop online is very low and due to this the organisation was not able to attract large
number of customers. It has affected profitability of L'Oreal as the main reason for acquisition
was to enhance profits but it has resulted in losses for the company because Body Shop do not
sells its products online (Vasudevan, H., 2015).
All the above described factors have resulted in failure of acquisition of Body Shop made
by L'Oreal. It has affected the functionality of business and at last a decision of selling it to a
Brazilian organisation Natura Cosmeticos is being taken. Reason behind this judgement is to
ignore the possibility of losses which are affecting the company.
PART 2
5. Reflection report on the experience in writing the report
The present report is based upon L'Oreal which has acquired Body Shop and while
working on this project I have experienced various things. It was a great opportunity for me to
gather information about acquisition an the factors which should be focused by an enterprise
while planning to acquire another one. While working on the project I have worked hard and
managed the work according to the time plan which are created by me before starting it. I have
used different online sources to gather detailed information about the acquisition so that I can
write accurate and right facts about the company. I have worked so hard to make sure that I
complete this assignment on time as wanted to score high. The main issue which was faced by
me while completing it was related to the communication gap between me and tutor who have
assigned the project as it was not aware of this acquisition. In order to deal with it I have
interacted with the lecturer and then tried to get knowledge about it. I got full support from the
side of my tutor and it has led me towards successful completion of the project.
CONCLUSION
From the above project report it has been concluded that context of business is focused
with all the external and internal factors which are affecting an organisation in negative manner.
For the purpose of determining their impacts macro environmental analysis could be conducted
with the help of PESTLE analysis. When an organisation decide to acquire another one then it is
very important for it to pay attention towards different elements such as financial position,
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human capital cost of acquisition etc. There are various other factors which should also be
assessed by business entities all of them may result in failure of acquisition. These are
competition, higher cost of running the business and lower online availability.
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REFERENCES
Books and Journals:
al-Najdi, K. A., 2017. Emotions and Advertising: The Persuasive Advertising Language of
Modem Kuwait in the1960s. Arab Journal for the Humanities. 35(139).
Caitlin McBride, J. D. T. and JDTT, S. A., 2019. Action Through Law and Corporate Social
Responsibility Incentives to Protect Public Health. American Journal ofLaw &
Medicine. 45. pp.7-31.
Chaiyasit, K., 2019. Marketing Implication Relating To Identified Factors That Influence
Customer’s Loyalty Towards L’Oreal Cosmetics at Siam Paragon Mall in Bangkok.
Dunne, M., 2014. Mergers and Acquisitions within the EU: Have Member States Lost Belief in
the Single Market. ILJ. 2. p.2.
Febriyanti, N., 2014. THE INFLUENCE OF BRAND EQUITY TOWARD CUSTOMER BUYING
DECISION ON COSMETIC PRODUCT IN JAKARTA (Doctoral dissertation, President
University).
McLymont, R., 2015. 40 Under Forty Achievers. Network Journal. 22(2). p.20.
Menell, P. S., 2017. The Defend Trade Secrets Act Whistleblower Immunity Provision: A
Legislative History. Bus. Entrepreneurship & Tax L. Rev.. 1. p.398.
Ricci, F., 2014. L'Oreal acquisition policy: The Body Shop case study (Doctoral dissertation).
Vasudevan, H., 2015. L'OrealBaby Girl PerfumeMarketing Strategy. International Journal of
Information, Business and Management. 7(1). p.193.
Worek, M. and et.al., 2018. Acquisitions, disclosed goals and firm characteristics: A content
analysis of family and nonfamily firms. Journal of Family Business Strategy. 9(4).
pp.250-267.
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