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

This report examines the business context surrounding L'Oreal's acquisition of The Body Shop, a move within the cosmetic industry. The analysis begins with an examination of the macro-environment, utilizing PESTLE analysis to identify the political, economic, social, technological, legal, and environmental factors influencing the acquisition. It then delves into the organizational cultures of both L'Oreal and The Body Shop, comparing and contrasting their approaches and assessing their compatibility. The report further discusses the critical factors L'Oreal would have considered before deciding on the acquisition, such as cost, market image, financial position, and human capital. Finally, the report explores the factors that may have contributed to the failure of the acquisition, providing a comprehensive overview of the challenges and considerations involved in the business transaction. The report concludes with a reflection on the overall process and outcomes.

Context of Business

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Discussion of the impact of macro environment has on the current situation faced by
L'Oreal.........................................................................................................................................1
2. Organisational culture at Body Shop and L'Oreal...................................................................3
3. Discussion about the factors that L'Oreal would have considered before deciding to acquire
Body Shop...................................................................................................................................4
4. Factors having effect on the L'Oreal's acquisition of Body Shop resulting in failure of
project..........................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERNECES................................................................................................................................8

INTRODUCTION
Context of business can be defined as the analysis of different factors which are affecting
the operational activities of an organisation. In order to carry out all the operations in systematic
manner it is very important for companies to analyse all the elements that may leave negative
impact upon business (Chun, Coste-Maniere, and et.al., 2019). This assignment is based upon
L'Oreal which is one of the largest organisations in cosmetic industry and operating business all
around the world. It has planned to acquire Body Shop which is also executing under same
sector. This report covers various topics such as impact of macro environment, organisational
culture of both the companies, factors required to be considered before acquisition etc.
Additionally, elements resulting in failure of acquisition along with a reflection is also covered in
this project.
MAIN BODY
1. Discussion of the impact of macro environment has on the current situation faced by L'Oreal
Macro environment is the combination of external forces which are affecting an
organisation in positive or negative manner. If management of the company are not able to take
them in to consideration then it may result in higher losses for business. L'Oreal is one of the
largest companies in cosmetic industry which has planned to acquire Body Shop. In order to
analyse the impact of macro environment on this situation of business PESTLE analysis could be
used. There are six different elements of it which are discussed below:
Political: The factors which are related to political interferences are considered as the
part of it. These are corruption, stability of governmental parties, taxation policies, trade
restrictions etc. While acquiring Body Shop L'Oreal has faced different challenges related to
governmental and taxation policies (Febriyanti, 2014). The amount which is paid for acquisition
was 652 million pounds and the company was also required to pay a huge amount of tax on the
same. It has increased cost of acquisition for L'Oreal because a higher amount is being paid by
company.
Economic: The elements such as inflation, deflation, exchange rate, economic growth
trade policies etc. are economic factors which are considered as the major part of macro
environment. L'Oreal is a French personal care company and Body Shop is mainly established in
UK so the organisation has faced various challenges while acquisition. The company was
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required to pay the amount in the local currency of the enterprise which will be acquired. Both of
them were related to different economies which has also led towards economic challenges.
Social: Lifestyle attitudes, cultural barriers, age distribution, ethical considerations etc.
are social factors which are required to be focused by all the organisations to attain growth. Body
Shop is having a bad market image because it is practising its products on Animals. By acquiring
the company L'Oreal have also faced some social issues which have left bad image on the market
image of it. Due to this demand of products of the company is been decreased. As Body Shop is
operating business in unethical manner therefore ethical issues were also faced by L'Oreal which
is leaving negative impact upon its sales (Ferrão, 2015).
Technological: Level of innovation, technological development and awareness etc. are
example of these factors which should be considered by business entities to execute operations in
systematic manner. When L'Oreal was planning for acquiring Body Shop then all the
technological aspects were taken in to consideration to market all the products. It has left positive
impact upon the business because the company have adopted all the latest techniques for the
purpose of marketing products of both the entities.
Legal: Governmental laws, rules and regulations such as labour law, acquisition act,
copyright and patent etc. are legal factors. While acquiring Body Shop, L'Oreal was required to
comply with all the policies of authorities because it was the most important thing to make the
acquisition successfully. As both the companies belongs to different countries so the top level
executives of L'Oreal were required to focus on all the legal implications to acquire the company
and attain success in the market.
Environmental: Weather, climate, CSR, environmental policies etc. are such factors
which may leave negative impact upon business entities if these are not able to perform
operational activities in ethical manner. Currently, Body Shop is not having a good market image
due to its practising on animals. While acquiring it L'Oreal has faced various issues such as legal
interferences in business as its operations were harming environment.
From the above discussion it has been analysed that the current situation has left various
impacts upon L'Oreal. In order to deal with all the ethical and social issues it is very important
for the organisation to make sure that all the unethical practices performed by Body Shop gets
stopped.
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2. Organisational culture at Body Shop and L'Oreal
Organisational culture can be defined as a system that depends upon assumptions, beliefs
and values which are followed by management and other top executives of companies. With the
help of it staff is influenced to perform all the operations in systematic manner. There are four
main types of cultures which could be adopted by companies according to their requirements and
structure. L'Oreal and Body Shop are also having separate cultures to perform operations in
systematic manner. Description of all of them is as follows:
Role culture: Under this type of culture different roles are allocated to staff members so
that they can fulfil requirements of them and perform operations appropriately. It helps to
enhance engagement level of employees because all of them are having different responsibilities
to perform and reach to their personal goals. It could be adopted by Body Shop and L'Oreal to
carry out operations systematically (Gough, Hall and Seymour-Smith, 2014).
Person culture: Under this type of culture individuals give preference to their personal
objectives rather than organisational goal as they want to grow and attain the best for themselves.
Staff members with this culture believes that they are superior of the company. Workforce in
companies with it are similar in training, expertise and background that reduces the possibility of
discrimination among them. In order to motivate staff members this culture could be adopted by
L'Oreal and Body Shop.
Power culture: Under this culture the power of decision making is kept by management
and they supervise the staff members to perform their jobs. Employees are not allowed to take
part in decision making process as only top authority is involved in this procedure. In order to
perform specific tasks in small time period this culture could be adopted by managers in L'Oreal
and Body Shop.
Task culture: Under this culture different tasks are allocated to the employees according
to their skills, capabilities and qualities. With the help of it difficult jobs of the organisation
could be performed appropriately by finding simple ways for performing them. In L'oreal and
Body Shop it could be used by managers for the purpose of finding effective solutions for the
problems which are faced by them (Guezguez and Lafforgue, 2018).
From all the above described cultures task culture is followed by L'Oreal in which
different tasks are allocated to the staff members to find solutions to the business issues affecting
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operations. Role culture is followed in Body Shop and the mangers allocate different roles to the
staff members which are required to be performed by them according to their responsibilities.
The cultures which are followed in L'Oreal and Body Shop are compatible with each
other because with the help of both of them staff members get motivated and try to perform all
the activities appropriately. With the help of these cultures both the companies were planning for
the attainment of their long term business goals because main purpose of both the culture is to
contribute to the achievement of organisational objectives. The higher compatibility is creating
various opportunities for L'Oreal. All of them are as follows:
Highly motivated staff members: If organisations are focusing upon task and role
culture then it can help to motivate the employees because when they will have separate
responsibilities then they will perform all the activities appropriately and try to achieve goal.
Task culture also inspire the employees because managers provide tasks to all the staff members
which are performed by them to find solutions for all the problems which are faced by the
company. Both the culture result in high level of motivation of staff members which is beneficial
for the improvement of workforce engagement (Ricci, 2014).
Future growth: As high compatibility of role and task culture helps in the increment in
engagement level of staff members so that organisation can achieve growth in upcoming years. If
Body Shop will be acquired by L'Oreal then it will help the organisation to reach the business
goal of higher profits because the culture which is followed by the companies is also most same.
Main purpose of role and task culture is to increase employee engagement and achieve business
goals. With the help of them L'Oreal will be able to grow faster.
3. Discussion about the factors that L'Oreal would have considered before deciding to acquire
Body Shop
If a company is planning to acquire another one then there are various factors which are
focused while forming the decision regarding acquisition because it can help to analyse that the
decisions is right or not. As L'Oreal have acquired Body Shop for 652 million pounds therefore
before acquiring it different factors would have considered by it. Some of the which were
focused by the company are as follows:
 Cost of acquisition: While acquiring Body Shop L'Oreal have considered the cost of
acquisition because it is required to be analysed before deciding for acquiring a company.
If it is very high then it may result in spending of monetary resources on the acquisition.
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A very low cost for the acquisition may affect the decision of the organisation which will
be acquired in future because if it is receiving a lower amount then it will be very
difficult for it to sale itself to other company. In order to acquire Body Shop, it was the
first element which was analysed by L'Oreal (Sarason and Hanley, 2015).
 Market image of the company: When an organisation decides to but another one then it
is very important for it to make sure that the market image of other enterprise is good. If
it is not having a positive image then it may could be harmful for the entity which will
acquire the another one. In order to reduce the possibility of this issue L'Oreal have
analysed this factor in context of Body Shop because a low image in the market of it will
be harmful for the enterprise.
 Financial position of Body Shop: If a company is willing to acquire the other then the
financial position of it is also required to be focused to make the decision of acquisition.
If it is having a huge amount of debts then it may create issue for the organisation which
have acquire the other enterprise. While deciding to acquire Body Shop financial position
of it is focused by L'Oreal as the management was not willing to take a risk of paying
huge amount of debts of it. After analysing it the decision of acquisition would have been
formed by L'Oreal.
 Human capital: If an organisation which will be acquired by another company is having
skills human capital then it can help it to increase the consideration. For the enterprise
which will acquire the other entity it also very important to analyse that staff members
who are working in another company are experienced or not. L'Oreal have focused on
this element also and checked that individuals working in Body Shop have capability to
contribute in the growth of L'Oreal or not. The amount which is provided for acquisition
was decided by analysing this factor (Voigt and et.al., 2017).
4. Factors having effect on the L'Oreal's acquisition of Body Shop resulting in failure of project
When an organisation acquires another one then it is not possible that the acquisition will
result in success it may also result in failure. There are various factors which may affect the
acquisition. Some of them are lack of clarity, poor communication, missed value for investment,
cultural issues, external factors etc. As L'Oreal acquired Body Shop for the purpose of enhancing
profits, revenues, market share and number of customers but it the plan which were formed by
the company responded negatively (Factors resulted in failure of acquisition of Body Shop,
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2019). The acquisition of Body Shop was a failure for L'Oreal and there are various factors
which has resulted in this failure. All of them are as follows:
 High competition: The level of competition for Body Shop from an ever-increasing
number of shops all muscling in on the same territory from supermarket chain was very
high. Due to this the acquisition was failed for L'Oreal as the company was struggling in
the market. It may affect the profits and revenues of the organisation because of high
level of competition for Body Shop from the local sellers. It was the main factors which
has resulted in failure of acquisition for L’Oreal.
 Unstoppable popularity of online shopping: Online shopping is continuously
increasing individuals do not want to visit physical stores as they prefer to buy products
online. Body Shop’s products were not available online which affected the revenues of
L’Oreal and organisation have also faced various issues such as lower profits, decreased
sales and other problems. Purpose of L’Oreal for acquiring was to increasing the market
share and profitability but the plans were not able to make it successful. It was a huge
failure for the company as it has affected the market share, sales, and profits of L’Oreal
due to lower availability of Body Shop’s products online. It was also a factor which has
resulted in the failure of acquisition for the organisation (Vasudevan, 2015).
 High cost of running a large number of shops: The cost of running the shops of Body
Shop was very high and L’Oreal do not want to spend more oney for the execution of
business of it. The management analysed that the objective for which Body Shop was
acquired is not achieved with its acquisition because they were facing higher cost of
running its shops. It was also a factor which has made the acquisition failure for the
enterprise.
From the above discussion it can be analysed that there are various factors which has
resulted in the failure of acquisition got L’Oreal. It has affected market image, profitability and
sales of the company. The management have also faced a higher cost of running the business
which also created problem of overspending of budgets for the company.
CONCLUSION
From the above project report it has been concluded that if an organisation is acquired by
another one then it is very important for acquiring entity to analyse all the important factors
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about the other enterprise. It can help to make the acquisition successful. The element which
should be focused are market image, cost of acquisition, human capital etc.
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REFERNECES
Books and Journals:
Chun, R., 2016. What holds ethical consumers to a cosmetics brand: The Body Shop
case. Business & Society. 55(4). pp.528-549.
Coste-Maniere, and et.al., 2019. Circular economy: A necessary (r) evolution. In Circular
Economy in Textiles and Apparel (pp. 123-148). Woodhead Publishing.
Febriyanti, N., 2014. THE INFLUENCE OF BRAND EQUITY TOWARD CUSTOMER BUYING
DECISION ON COSMETIC PRODUCT IN JAKARTA (Doctoral dissertation, President
University).
Ferrão, L. M. G., 2015. A case study on the launch of Revitalift Laser X3 by L’Oréal Paris
Portugal (Doctoral dissertation).
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.
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.
Ricci, F., 2014. L'Oreal acquisition policy: The Body Shop case study (Doctoral dissertation).
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.\
Vasudevan, H., 2015. L'OrealBaby Girl PerfumeMarketing Strategy. International Journal of
Information, Business and Management. 7(1). p.193.
Voigt, K. I. and et.al., 2017. Business Model Pioneers. Management for Professionals.
Online
Factors resulted in failure of acquisition of Body Shop. 2019. [Online]. Available through:
<https://www.bbc.com/news/business-38905530>
(, 2015Voigt, and et.al., 2017)
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