Analysis of L'Oreal's Acquisition Strategy: Body Shop Case

This report examines the L'Oreal's strategic acquisition of Body Shop, delving into the impact of macro-environmental factors, including political, economic, social, technological, legal, and environmental considerations (PESTLE analysis). It analyzes the organizational cultures of both companies, highlighting the differences between L'Oreal's power culture and Body Shop's role culture, and discusses the challenges arising from cultural incompatibility. The report outlines the factors L'Oreal considered before the acquisition, such as cost, market image, financial position, and human capital, while also exploring the reasons for the acquisition's failure, including ethical concerns and cultural clashes. The study emphasizes the importance of ethical conduct and cultural alignment in successful business acquisitions, offering insights into strategic decision-making and the complexities of corporate integration. The report concludes by reflecting on the lessons learned from the acquisition process and the impact of ethical practices on brand reputation and market performance.

L’Oreal/Body Shop

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 caused the failure of acquisition of Body Shop by L’Oreal...............................7
Reflection...............................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
A business while working in the competitive environment has to face various internal and
external factors that create an impact on their operations and functions and also affect their
sustainable survival in the market. The companies must follow ethics in performing their
roles and responsibilities towards the stakeholders so that it can continue with the brand
image in the market and can compete in an efficient manner. This assignment is based on
L’Oreal which is a famous company known for its brand in the cosmetic industry and has its
branches in various parts of the world (Voigt, K. I. and et.al., 2017). The company has
recently been accused of following unethical practices in running its business which has
created a downfall in its reputation. So the company has planned to boost its reputation by
acquiring Body Shop which has been known for its ethical code of conduct. This report
contains the effects of external environment on an organisation, its culture along with the
factors that are to be analysed before acquiring other company etc. Further, the reasons due
to which acquisition fail is also discussed along with a reflection.
MAIN BODY
Impact of macro environmental factors
These are the external factors which cannot be controlled or changed by the company but
the company has to form its policies and strategies so that the external environmental
factors do not have negative impact on the company. These factors should be analysed by
the business so that it does not suffer any losses and can remain competitive in the market.
PESTLE which is a strategic management tool can be used by L’Oreal to analyse the
external environmental factors affecting the company which are discussed below :
 Political : These are related to the political conditions of a country which depends
on the rules and regulations of government like tax policies, trade tariffs etc.
L’Oreal was involved in unethical issues like price fixing due to which it had a
downfall in its reputation as UK government does not support companies that are
involved in unethical issues which increase prices of products in the market. This
way the company suffered loss in market as political conditions of UK does not
support unethical activities.

 Economic: These are the economic conditions of a country which depends on the
rate of unemployment, GDP rate, interest rates etc. L’Oreal has to consider various
factors before acquiring Body Shop as both the companies are located in different
countries it is important to consider various factors that affect acquisition. L’Oreal
had to pay £652 million in order to successfully acquire Body Shop which is a high
amount and it is due to the difference in exchange rates of both the companies
(Sarason, Y. and Hanley, G., 2015).
 Social: These factors are related to the society of country, demographics of people,
their religion, culture etc. people in UK are highly concerned about their standard
of living and can spend high amount to improve their daily lives which is a positive
factor for L’Oreal to acquire Body Shop. However, the company has been accused
of unethical behaviour like animal testing, promoting child labour etc. which is a
negative factor for the company as it has created dislike towards the brand in the
minds of customers.
 Technological : These factors are related to technologies that are being innovated
in the country and also the investment by government in R&D etc. UK is a highly
technological country with advanced techniques and innovations which means that
L’Oreal can have an easy and cheaper access to that can be used by it to approach
the customers. Also the technological advancement can also help it in acquiring
Body Shop which will be beneficial for the company as it can take the advantage of
technological advancement in Body Shop.
 Legal: These are the legislation and laws of the country which directs the
companies to follow certain rules so that they can work in ethical code of conduct.
UK has strong legal norms related to employment, protection of human rights etc.
L’Oreal has been accused of following various unethical practices which has
created a bad image of the company and the company needs to work hard so that
their actions can come under the legal framework.
 Environmental: These factors are related to the environmental conditions of the
country like availability of water, weather and climate conditions etc. In UK the
government supports the companies that use natural ingredients in their products
and also does not cause harm to environment. People are also attracted towards

natural products and these increasing environmental concerns can create problem
for L’Oreal and can decrease its market share as the company uses various
synthetic ingredients in manufacturing its products.
Other external factors that affect the functions of company are ethical factors which
mean that the company follows ethical code of conduct to carry out their business which
will ensure their sustainable existence in the market. The company needs to correct its
unethical practices in order to survive in the UK market for which it is planning to
acquire Body Shop which is an ethically strong country and can help L’Oreal to rebuild
its brand reputation.
Organisational culture at Body Shop and L'Oreal
Culture of a company determines the way in which work is done in a company which is
affected by the collective belief, values and assumptions of the people working in the
company. Organisational culture plays an important role in determining whether the
company will be able to achieve its goals and objectives or not. Handy’s culture can be
used to determine the type of culture at L’Oreal and Body Shop :
 Power culture: Under this culture power of taking decisions is in the hands of a
few people usually the managers who takes all th decisions regarding task
allocation, resource allocation, use of funds etc. the employees are not involved in
making decisions in this kind of culture. This culture is followed in L’Oreal and
Body Shop when they have to complete a particular task within a given period of
time (Ricci, F., 2014)
 Role culture: In this culture roles and responsibilities are delegated among all the
members depending on their skills and talents so that desired results can be
achieved. In this culture all the employees are involved in decision making which
makes efficient decisions as opinions and views of all the employees are included
which helps in coming at effective conclusions. L’Oreal and Body Shop can use
this culture so that work can be systematically done in the company.
 Task culture: This culture is mainly found in organisations which are task oriented
or project oriented so that the projects that they have taken can be completed on
time and within the specified budget. L’Oreal and Body shop can use this culture
while working on time-bound and budget-bound projects.

 Person culture: This culture is found in companies where every individual work in
their personal capacities based on their expertise knowledge in their respective
fields like law firms. In this culture people are only concerned about their personal
benefits and not the organisational benefits so their actions are focused on
maximising personal profits (Vasudevan, H., 2015).
The organisational culture found in L’Oreal is power culture whereas in Body Shop role
culture is found. Both the organisations have different cultures which are not compatible
with each other and L’Oreal might face difficulties in acquiring Body Shop as the
employees of the companies are used to different types of cultures. In L’Oreal the
employees are not involved in making decisions whereas in Body Shop employee
engagement is given a high priority. The challenges that are faced by L’Oreal in
acquiring Body Shop are convincing the managers to encourage employee engagement
which will help in increasing motivation of employees. Also the core values of Body
Shop need to be adopted by L’Oreal like protection of human rights and preserving
environment along with use of natural ingredients in cosmetic preparation etc. these
values need to be well adopted by the company so that the reputation of the company can
be made good and customers can be made happy which will help in increasing the market
share of L’Oreal. Further it will help the company to grow and develop sustainably in the
market and can maintain its competitiveness.
Factors considered by L’Oreal before acquiring Body Shop
Acquisition involves a lot of cost and also many resources are at stake of both the
acquiring company and the company that is being acquired. Therefore, before acquisition
certain factors need to be considered which will help the acquiring company in achieving
its goals and objectives. L’Oreal has been accused of being unethical in its practices which
has lead to increase in negative image for the company. In order to rebuild its reputation
the company is planning on acquiring Body Shop which is known for its ethical code of
conduct. Following factors must be considered by L’Oreal before acquiring Body Shop:
 Cost of acquisition: It is the most crucial factor that must be considered by
company before acquiring other company. The company must be able to afford the
amount which is required to acquire the other company and also the worth of the
acquisition must be well evaluated so that the benefits that the company is thinking

of achieving can be fruitfully achieved. The total cost of acquisition of Body Shop
is £652 million (Guezguez, H. and Lafforgue, H., 2018).
 Market image of the company: It is related with the brand image of the company
that is being acquired in the market. It is important to evaluate this factor so that the
company which is acquiring does not suffer heavy losses due to the negative image
of the company that is being acquired. Body Shop is known for its core values
which are ethical and responsible towards the society. The core values of Body
Shop include protection of human rights, environmental care and stand against
animal testing. L’Oreal can improve its brand image by acquiring Body Shop as the
company has faced a downfall in its reputation due to unethical practices.
 Financial position of the company: It relates to the financial soundness of the
company that is being acquired which helps the acquiring company in evaluating
the net worth of the company and also it can calculate the net cost it needs to pay
the other company to successfully acquire. The financial position of Body Shop is
strong which means that L’Oreal will have to invest a huge amount in its
acquisition which is approximately £652 million.
 Human capital: It relates to the availability of skilled workforce in the company
that is being acquired so that the acquiring company can calculate the total amount
of human capital it will have after acquisition which will help it in expanding its
business and will also help in gaining a competitive advantage in the market. The
human capital of company plays an important role as the company that is acquiring
will have to invest in training and developing the employees of acquired company
so that they can function in the desired manner (Ferrão, L. M. G., 2015).
Factors that caused the failure of acquisition of Body Shop by L’Oreal
Acquisition is done by companies in order to expand their business, enter into a new
product line, increase their market share, improve their brand image, make their shares
strong etc. L’Oreal planned to acquire Body Shop so that the company can improve its
brand image in the market which had deteriorated due to following unethical practices in
carrying out its functions such as child labour, misleading advertisements, animal testing
etc. Body shop on the other hand is well-known for its ethical code of conduct which could

help L’Oreal in improving its brand image. The acquisition failed due to the following
reasons:
 High competition: there has been ever-increasing competition in the market related
to cosmetic products with companies coming up with new and innovative products
so as to attract customers. L’Oreal faced huge competition in the market and was
unable to cope up with the competition as it offered its products at high prices
which decreased its sales. Also the high competition lead to failure of acquisition as
many companies emerged in the market which followed ethical code of conduct
and offered their products at low prices.
 Lack of innovation: There was a lack of innovation in the products according to
the changing preference of customers which is another reason for failure of
acquisition as customers got attracted to other brands which offered them with
unique products according to the changing skin needs which increased the loss of
company (Coste-Maniere, and et.al., 2019).
 Weak brand position of Body Shop: As many companies have emerged in the
market that offer products of the same quality as Body Shop and provide even
better products at cheaper rates. This has lead to decrease in the brand image of
Body Shop and decreased its number of customers which also lead to failure of
acquisition.
 Online shopping: The growing trend of shopping online by customers has
increased the cost of inventory and also the movement of goods has become slow in
the stores. This has further increased the cost of L’Oreal which lead to the failure in
acquiring Body Shop.
 High cost of running of stores: The stores of Body shop are spread all across the
world which has increased the cost of L’Oreal. The cost of acquisition has
exceeded than what was hoped by the company. This has failed the acquisition as
the movement of goods has also become slow and the costs are also increasing
(Chun, R., 2016).
Reflection
This report is based on two cosmetic companies which have strong brand image in the
market. L’Oreal and Body Shop are discussed in this report along with their organisational

culture and the factors that affect them while working in the competitive environment.
Further the acquisition of Body Shop by L’Oreal is also discussed under which L’Oreal
planned to acquire Body Shop so that it can mend its reputation which has weakened due
to following unethical practices like child labour, animal testing, misleading advertising
etc. This report has thus enhanced my knowledge about various aspects that are related to
ethical functioning of businesses and why it is important for companies to function
ethically in the environment. It also helped in enhancing my research skills through which i
was able to conduct PESTLE so that the external environmental factors affecting L’Oreal
can be determined. Further this project has enhanced my critical analysis which helps so
that i was able to draw accurate conclusions. I also explored various resources such as
newspapers, articles, internet etc. so as to enhance my knowledge related to acquisition.
Though i faced a few problems related to finding authentic and correct sources for data
collection and critically analysing them so that the meaning can be interpreted in the best
possible manner. I took help from my tutors so that i can score high on the assignment by
completing in the most efficient manner. This assignment helped me personally as it
enhanced my analytical thinking, communication skills etc. Also this assignment will
benefit in my professional career as i can go for research work for big companies so that
my work could be used by the companies which will help them to function efficiently.
CONCLUSION
From the above project it can be concluded that the companies must follow ethical code of
conduct in carrying out their business which will help them to grow sustainably in the
market. Customers and the government of countries support the companies are more socially
and environmentally responsible which helps in building their strong brand image in the
industry. Further, it can be concluded that acquisition can be either a failure or success
which depends on market situation. Also the companies in order to motivate their employees
must encourage role culture in the company so that efficient decisions can be made which
will help in the growth and development of the company.

REFERENCES
Books and Journals
Voigt, K. I. and et.al., 2017. Business Model Pioneers. Management for Professionals.
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.\
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.
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.
Ferrão, L. M. G., 2015. A case study on the launch of Revitalift Laser X3 by L’Oréal Paris
Portugal (Doctoral dissertation).
Coste-Maniere, and et.al., 2019. Circular economy: A necessary (r) evolution. In Circular
Economy in Textiles and Apparel (pp. 123-148). Woodhead Publishing.
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.
Febriyanti, N., 2014. THE INFLUENCE OF BRAND EQUITY TOWARD CUSTOMER BUYING
DECISION ON COSMETIC PRODUCT IN JAKARTA (Doctoral dissertation, President
University).
Chun, R., 2016. What holds ethical consumers to a cosmetics brand: The Body Shop
case. Business & Society. 55(4). pp.528-549.