Strategic Management Report: Natura's Internal & External Analysis

This report provides a comprehensive strategic analysis of Natura, a leading Brazilian cosmetic manufacturer. It begins with an introduction outlining the scope of the report, followed by an in-depth examination of Natura's external environment, utilizing PESTLE and Porter's Five Forces frameworks to assess political, economic, social, technological, legal, and environmental factors, as well as industry competition. The internal environment is then analyzed, focusing on Natura's strengths, weaknesses, resources, capabilities, and core competencies. The report proceeds to a SWOT analysis summarizing the key findings, followed by an identification and evaluation of four business-level strategies employed by Natura, including innovation, international expansion, and acquisition strategies. Finally, the report concludes with strategic recommendations for Natura's future development, considering its challenges, opportunities, and competitive landscape.

Running head: STRATEGIC MANAGEMENT
Strategic management
University Name
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Authors’ Note

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Table of Contents
Part A:........................................................................................................................................3
Introduction:...............................................................................................................................3
External environmental analysis:...............................................................................................3
Internal environmental analysis:................................................................................................3
Part B:.........................................................................................................................................3
Summary SWOT:.......................................................................................................................3
Identification and evaluation of four business level strategies:.................................................3
Conclusion and recommendation:..............................................................................................3

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Part A:
Introduction:
The report is prepared for evaluating and analyzing the external and internal
environment of chosen company. Selected company for evaluation of its environment is
Natura. External analysis is done by evaluation of the general, industry and competitors
environment. Internal analysis of company is explained in terms of their strength and
weakness such as resource and capabilities, core competencies and capabilities, sustainability
advantages and core competencies. Natura Brasil is the leading cosmetic manufacturers of
Brazil that was established in 1969 and is leader in direct sales sector. Company is based in
Cajamar, Sao Paulo and have sustainable development as the guiding principles
(Naturabrasil.fr 2018). The main commercial strategy of company is its passion for adopting
direct sales for building customer relations. Some of the brand of Natura are Natura brasil
chromos, Natura brasil EKOS, Natura brasil Tododia and mamae e bebe (Naturabrasil.fr
2018). Report demonstrate the analysis of external and internal environment by considering
several aspects and summarizing into the strength and weakness.
External environmental analysis:
External environmental analysis of Natura is done by focusing on its general
environment, industry environment and competitor’s environment. General environment is
analyzed using PESTLE and industry environment is analyzed using Porters five forces
model. Competitor’s environment is analyzed by identifying the strength and weakness of
capabilities and resources.
PESTLE analysis:

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Political factors- The political system of Brazil is stable and the cosmetic distributor
in the country is affected by implementation of tax on industrialized products. Therefore, the
political system and federation of company affect the cosmetic company.
Environmental factors- Brazil have sufficient natural resources having the largest
reserves of niobium in the world with 93% total global reserves.
Social factors- Country is facing some social challenges in recent years such as rising
level of corruption and increasing crime rate. This might create hurdle in operations of
business of Natura (Steger and Meima 2016).
Technological factors- In order to develop the competitiveness of organization,
technology are considered as one of the essential factors. In science and technology, Brazil is
a leader, although Natura faced some challenges in finding innovative technology solutions
for providing testing that guarantee safety level for products (Wheelen et al. 2017).
Legal factors- Federal government of Brazil has responsibility for legislating on
business related matters. Any changes in legal factors have considerable impact of financial
situation of company, operating results and business models.
Economic factors- The economy of Brazil is dominated by service sector that have
contributed to 66% of total value of gross domestic product in year 2013. Brazil being the
largest economy of Latin America is regarded as the largest cosmetic and beauty products
market in the world. Cosmetic market of country is projected to grow at CAGR 7.56% by
2020. Macroeconomic situations of country have improved as the inflation rates are under
control along with reduction in internal debt and have built foreign relations. Improvement in
economic situation of country would have positive impact on operation of business of Natura
(Zito 2017).
Porter’s five forces:

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Threat of substitutes- E commerce is emerging as competitors to direct sales for all
premium and mass brands. Increasing e commerce trend might be challenging to direct sales
strategy of Natura.
Threat of new entrants- Brazil is the fourth largest market for cosmetic products
and has become the trendsetter in the global industry. It is required by new entrants to have
high degree of quality assurance and certification for selling into Brazilian market. Therefore,
threat of new entrants ranges from low to medium.
Suppliers bargaining power- The largest cosmetic supplier for cosmetic company in
Brazil is United States and they import all sorts of cosmetic products. Hence, it can be said
that UUS is the major supplier for Natura and with fewer suppliers for the leading cosmetic
company, it can be said that they enjoy low bargaining power of suppliers (Dornela et al.
2016).
Buyers bargaining power- Customers are increasingly looking for value of money
products that are beneficial and natural for skin. They are looking for products that provide
them with combined benefits of high premium products. Number of substitutes available in
the market and the level of competitions determine the barging power of buyer (Charter
2017). Since, Natura is the leader in the cosmetic market, therefore, barging power is power
is considered lower.
Rivalry amongst competitors- The key players in the cosmetic industry of Brazil
include both international and domestic brands such as Loreal, Unilever and Mary Kay.
Competition amongst rivals can be regarded as high for Natura.
Competitor’s environment analysis:
The operational pathway of Natura is innovation and the process of learning and it is
the first company to employ model of direct sales. In order to improve the product features,

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company make continuous investment in research and development. Success of Natura at the
international level is contributed to its innovation and learning activities. On other hand,
Group Boticario is a powerful cosmetic chain due to its powerful campaigns that involves
women of all colour, ages and sizes. This particular cosmetic company sells multiple brands
in a small format store of boutique style and has strong e commerce presence. Avon products
on other hand are making aggressive improvement by implementing e commerce platform
(Chun 2016). Therefore, it can be seen from the analysis of competitor’s environment that
Natura should employ e commerce platform for marketing its products.
Internal environmental analysis:
Strength:
 Natura is the biggest domestic cosmetic company operating in Brazil having expected
gross revenue of around US $ 1,5 billion.
 In recent years, Natura had grown into international operations. Company along with
opening flagship store in Paris established a new direct selling operation in
Venezuela, Mexico and Colombia.
 Natura is considered as one of the best cosmetic brand in Brazil as it made the best
sustainable use of bio diversity of country (van Rensburg 2015).
Weakness:
Cosmetic manufacturers have not been able to properly explore and fully emphasize
the sustainability efforts and eco consciousness as perceived by Brazilian consumers.
 The weakness of Natura is mainly identified in going green in some region.
 Enhancing the specific attributes of products is the main challenge faced by
organization, as they are poor in some specific region or countries.

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 Natura weakness comes when expanding at international level as it requires adaption
of Brazilian model to other countries (Frynas and Mellahi 2015). This makes
operation of company somewhat difficult.
Natura is a producer direct
Resource and capabilities contributing to competitive advantage:
Redefinition of corporate strategy emphasizing on innovation by Natura is considered
as the growth driver and as one of the core capabilities. Incorporation is the culture driver of
company that has incorporated encouragement of innovation in the products manufactured.
One of the crucial factors to the marketing strategy of Natura is continuous
reformulation and reinvention. The products of Natura are wrapped in a stylish natural fibre
bag that is presentable and this differentiates other products present in the market. Catalogue
based retailing of company was non-existence in Brazil and it became an important sales tool.
Use of this particular tool provided Natura with competitive advantage. Products of Natura
are based on being well/well being concept that refers to pleasant and harmonious
relationship between one’s body and oneself along with combining the concept of empathetic
and rewarding relationship with others and with nature. This particular approach has helped
in strengthening relationship with suppliers in value chain and is regarded as key
differentiation factor for the products offered.
Part B:
Summary SWOT:
Strength-
 Biggest domestic cosmetic company of Brazil and considered as one of the best
brand.

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 Acquisition of Body shop from Loreal has helped in solidifying Natura efforts to
become a multi brand, global and multi channel cosmetic groups.
 Enhanced international operations of Natura are one of its strength.
 Wide range of product lines such as high margin cosmetics, natural sold premium
and personal care products to upper and middle class customer segments (Suganya et
al. 2016).
Weakness-
 Transition in economic policy and changes in government make it difficult to perform
their operations.
 Difficulty in sustaining the growth rate of international operations of company (Grant
2016).
Opportunities-
 World of beauty is finally waking up to Brazil and the market has huge potential to
offer. Over the next few years, this rising force is set for global domination.
 Population of Brazil is fashion forward and they have greater interest in personal care
and beauty products. Investment made by company in innovative marketing and new
products would guarantee growth of company (Dornelas et al. 2016).
Threats-
 There is a change in marketing structure due to recent shift from direct to store based
retailing.
 Moreover, rising intense competition due to prevalence of international brands along
with change in market structure is the reason for struggling of direct sales companies
such as Natura.

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Identification and evaluation of four business level strategies:
The relevant strategy employed by Natura are as follows:
Business level strategy- Such strategy is an integrated and coordinated set of
commitments that is used by organization for gaining competitive advantage. It deals with
superior capabilities and resources of organization that provide competitive advantage over
their rivals along with providing value to customers. Capabilities of organization have been
strengthened for operating in mature markets. Cosmetics and relationship form the fruits of
two passions that have sought to create value to society that has led to generation of triple
bottom lines. Innovation is one of the main drivers of development and core competencies of
Natura that has helped in gaining competitive advantage over its competitors (Morden 2016).
The movement names “Innovation Innovation” was the turning point towards reshaping
innovation and it has been the differentiating factor. Redefinition of innovation differentiators
is one of the transforming changes at Natura. Process of product development was revised by
focusing on maturity of classical product development stage-gate with process specifications,
updated requisites and training of employees. Innovation process of Natura makes use of
sustainable bio diversity in the product formulization. Implementation of alternative
productive model and focusing on renewable packaging and renewable ingredient are some
of the features providing value to customers (Sahota 2014).
International strategy- The internationalization process of Natura has been
increasingly making investment in innovation. Increasing investment has been witnessed at
international level and in recent years, the international operations of Natura have increased.
Some of the strategic issues concerning international expansion have been overseen by
organization and has led to several initiatives on international process. Considerable potential
for international expansion was the main reason for expanding in different countries.
International expansion was started by implementing the model of direct selling business.

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Products of company were placed in international brands in terms of value perception
and pricing. However, the biggest challenge faced by organization while expanding
internationally was in terms of successfully adapting Brazilian model in different countries.
The bottleneck in the international strategy is the lack of professional pool of talent
(Rothaermel 2015).
Acquisition and merger strategy- Natura relied on the acquisition strategy for
enhancing their business growth. Company completed 100% acquisition of equity of
Australian brand, Aesop in year 2016. Business model of firm is advanced by the practices of
technology acquisition. The fundamental strategic issues such as skill acquisition are faced by
organization if control over the scare resources is the economic profit source (Rothaermel
2015).
Recommendation:
The identification of strategic challenges faced by company is done by considering
threats, weakness and risk of strategies. Development of strategies by organization would
require a systematic analysis of strength, weakness, opportunities and threats. Such analysis
and recommendation of strategies is done by the application of TOWS model.
Internal factors/ External
factors
Strength (S)
Natura is best-known brand for
cosmetics, shampoos, and
cream and beauty products.
One of the sources of
competitive advantage for
Natura is strong ethical and
environmental commitments
(Pervin et al. 2014).
Weaknesses (W)
Sustaining growth of
international operations of
company is the weakness of
Natura.
In the home market of Natura,
some of the widely known
companies and brands are
already participants. This might

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create difficult for organization
to operate seamlessly in the
industry.
Operation in Brazil is
experiencing unprecedented
growth and the organization
does not have sufficient in
house talent.

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Opportunities (O)
Market of Brazil is fast growing
market of beauty products.
Big improvement in purchasing
power of middle and low
income Brazilians is providing
opportunities for expansion.
There exists expansion of
relationship selling in market of
Latin America.
One of the great opportunities is
digital environment for
expressing the concepts of
vision.
S-O strategies
For enhancing the development
opportunities available to the
network of Natura, Natura
should implement offer
segmentation strategies and
there should be extensive use of
technology. It is also
recommended to Natura to
make intensive use of customer
relationship tools and business
intelligence. This will enable
organization to provide
customers with highly
customized options. The aim of
business should be create an
entrepreneurial environment for
taking advantage of
opportunities available in the
cosmetic industry (Baker 2014).
W-O strategies
It is required by Natura to
strengthen their position in
domestic and international
market by coming with
strategies that is different from
their competitors.
Products of Natura should be
tailored according to broad
range of customer requirements
more technologically advanced
in an extremely competitive
environment.
The key role in the market
development of Natura for
keeping them ahead of its
competitors is development of
products. It should increasingly
target products by ethnic group,
gender and specific age profiles.
Threat (T)
Change in market structure of
Natura and increased opening of
store based retail chain is
posing a threat to direct sells
business.
S-T strategies
Capabilities for operating in
mature markets should be
strengthened. In the initial
stage, the direct selling model
was the main strength of Natura
that helped in gaining market
share. Therefore, efforts should
W-T strategies
Natura should give emphasis on
building in house talent at
international level so that they
are able to prevail in
international markets and
increase market share.
Implementation of strategies

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be taken for recovering the
strength of direct selling model
by the introduction of new
value models.
creating a kind of social pack on
customers, suppliers and
employees.
Company should adopt new
sales paradigm. In addition to
relying on direct sales model,
there should also be opening of
retail chain stores for increasing
selling of products and
competing with the competitors
using retain chain model (Hill et
al. 2014). Therefore, there
should not be pure direct selling
model, but also employment of
retail chain model.
Conclusion:
The external and internal analysis of Natura depicts that several strength of company
that has helped in gaining market share. However, some weakness of organization at
international level has posed some challenges in their operation. It is ascertained from the
external analysis of organization that technological factor is one of the considerable factor in
the era of fastest growing technology. Natura has adopted several strategies that have helped
in gaining overall strength at both domestic and international level. Therefore, Natura should
take efforts for creating technological innovation. Moreover, there should also be adoption of
retail chain stores along with recovering direct sells model strength.

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