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1.0.

Introduction
At the heart of every global business lies a tension that is never fully resolved. The tension
between global integration and local responsiveness is especially high when product
development and marketing require complex knowledge. Achieving economies of scale and
scope, demands, some uniformity and integration of activities across markets are some complex
situations. However, serving regional and national markets requires the adaptation of products,
services, and business models to local conditions. As developed market companies increasingly
look for customers in emerging economies, both the advantages of global scale and the need for
local differentiation will only increase. This report tries to give an idea how businesses exploit
opportunities available in growing emerging markets with their different strategies. LOral, the
cosmetic giant and its entering to Indian market was selected to explain the above scenario.

What is an emerging market?


Emerging markets are the most potential markets for the business in future .At present Emerging
markets symbolize 86% of the world population, 75% of the resources and worlds land mass as
well as 50% of continuous world growth rate (GDP) at purchasing power parity (PPP), 12%
capitalization of global equity market on a float adjusted basis. These facts help to understand
that emerging growth is significantly exaggerating than the developed world. (Blackrock, 2011)
Engage in businesses in Emerging markets generate a lot of advantages such as,

Improve competitive ability, prolonged product cycle and cyclical fluctuations


Enhance greater growth opportunities and investment profiles
Increase profits, contribute to economies of scale and also sales volume
Reduce market dependence, cost of market entry, competition as well as effect on market

saturation
Amplify the possibility to enter large potential markets

Definition of Emerging markets and characteristics


DR. Valdimir Kvint, president of the International Academy of Emerging Markets describes an
emerging market as a society transitioning from a dictatorship to a free market- oriented
economy, with increasing economic freedom, gradual integration within the global market place,
an expanding middle class, improving standards of living and social stability, and an increase in
cooperation with multilateral institutions ( Klainowski, 2012)

Characteristics

Transitioning from a closed economy to an open market economy.


Implementing economic reforms; more accountability in the system.
Increasing in both local and foreign investment (portfolio and direct)
Rising production levels and thus it increases GDP
Stabilizing the political climate.
Shifting balance from economic power from sellers to buyers.
( Klainowski, 2012)

Why businesses move into emerging markets


Economies of scale by offering to a larger market
Emerging market has a huge potential in terms of demand since more population with rising
middle class who spend. Then Production can be increased and economies of scale advantage
can be enjoyed which lead to higher margin.
Learning and knowledge sharing
These market has a huge verity in terms of culture, resources etc. Business can do experiments
and come up with innovations.

To reduce different distances of doing businesses


When business go internationally they have to face some restrictions called Cultural distance,
Administrative distance, Geographic distance, Economic distance (CAGE). By moving to

different regions and countries help them to come out of the CAGE by studying each location
and adopting their strategies.

Why are emerging economies attractive for international


business?
When an organization chooses to develop internationally, the procedure of internationalization
based through successive stages and each aspect characterized by decision priorities and new
strategic challenges. Considering emerging markets all engaged with a growing middle class as it
increases the consumer base for international businesses. As a result this facilitates EMs
attractive in terms of businesses expansion and export destinations. The development of
infrastructure also provides significant opportunities for global companies in emerging markets.
Businesses all around the world can contribute to growth in these infrastructure projects by
offering their services and products. This convinces that EMs have the possibility to shape the
future of the global economy. (Pennisi, 2013)
Below factors are mainly contribute to the attractiveness for the international
business as part of the international strategy.

Hyper growth
Deregulation & Infrastructure Developments
High population with high spending
Many countries with unfulfilled needs
Rich Resources and Young work force

Hyper Growth
As discussed earlier emerging markets maintain a growth rate of 5-10% on
average where as that of developed market is ranging from 1-3%. Further

the world growth rate is driven by emerging markets trends. Therefore this
is a critical attractive determinant of the emerging markets. Following graph
clearly demonstrates this scenario.

Infrastructure, Financial system developments and


Deregulation
Governments of emerging market a very optimistic about their potentials
and try to stimulate their economies. With that stance deregulation and
infrastructure developments to attract foreign capital flows is inevitable.
Following graph shows the private equity (PE) flows to different emerging
markets

High Population with high spending


China and India have 1.36 billion and 1.25 billion population respectively. That is almost 37% of
the world population. Further rest of the emerging markets also have large population. Therefore
emerging markets are the large markets which can create huge demand for goods and services.
Other than that EM demographic factors are much more positive than in developed countries,
with younger and growing populations and, therefore, a growing workforce in contrast to the
declining workforce and rising dependency ratios of the developed world (Blackrock, 2011).
They are lavishly spending too.

Rich resources and young work force


All emerging countries has a rich mineral and natural resources base. With the young and
talented workforce those resources can be utilized for the production.

2.0. L Oreal Success and Its International Strategy


LOreal is a global company which is famous for cosmetics and known as the number one
worldwide beauty products and cosmetics such as makeup, skin care and hair care.
The French cosmetics company LOreal altered into a multinational cooperation which operates
more than 68,000 employees and offices in 130 countries worldwide. Their 23 global brands
which control 15% of the world market of cosmetics represent its global portfolio. (Machek,
2010)
So LOreal demonstrates this global-local tension as it has manufactured a range of brands from
many cultures as an instance French (Garnier, LOreal Paris, Lancme ) and also American
( SoftSheen-Carson, Kiehls, Maybelline), British (The Body Shop), Japanese ( Shu Uemura),
Italian( Giorgio Armani).

LOreal has managed its global-local tensions by developing new products to cope up with the
multicultural backgrounds as it is the companys vital source for competitive advantage.
According to the top management of LOreals the above strategy is the main reason for their
impressive success in emerging markets.
As the company transformed itself from French beauty products to worldwide, multicultural
executives have got the opportunity to play a critical role in product development not only in
Paris all over the world such as Tokyo, Shanghai, New York and Mumbai. (Jung Hong and Doz,
2013). They have above 14 research and development centers to innovate products best fit with
each of their markets. Innovations through their R & D is their core strategic capability to exploit
the emerging market opportunities.
LOreal is using equity methods as their internationalization strategy. They go for green
field investments by establishing their own plants in different emerging markets. As a result of
that they establish 5th regional research center in Mumbai India as management see it as essential
to their universalization strategy. Then regional wise they practice export base method too for
their global presence. With that global presence, LOreal attempts to achieve three strategic
objectives of Bartlett and Ghoshal model as discussed below.

Effectiveness
2012 also marked a milestone in LOrals internationalization process, as the New Markets
became the groups number one geographic zone in sales terms which contributed 40% of the
total revenue .As per their annual report, over half of its sales came from new markets outside
such as Europe and North America. In spite of the financial crisis occurred in North America and
Europe, LOreal has been developing and increasing market share effectively. It proves from the
sales grew in the Middle East and Africa by17.6% and Asia Pacific region by 18.4% in 2012.
Since 2004 LOreals profits have increased by double and revenue by half along with a growth
in net profits of 17.6%, in 2012 has been achieved the same without an effort.
Flexibility
One of the critical success factors of LOreal is customization of the products country and
regional wise by adopting to local trends. Hitting the right audience with the right product at the
right place Present in India for the last 18 years, LOrals growth rate in the country is 23.3% +,
making it one of the most dynamic in the beauty market. The group inaugurated its new Research
and Innovation hub, which consists of a Product Development Centre in Mumbai and an
Advanced Research Centre at Bangalore. Ultimately the hub employed more than 100 Indian
researchers and scientists. The aim is to develop products adapted to the Indian market by
drawing on a thorough knowledge of local consumer preferences and on the distinguished local
scientific community.
As an example COLOSSAL KAJAL by MAYBELLINE NEW YORK The inspiration came
from an ancestral Indian beauty ritual: the application of a black paste that women use to
emphasize and care for their eyes. By combining five different ingredients, Maybelline New
York has designed a modern KAJAL that guarantees intense colour, reduces puffiness and
soothes the skin.
Learning

LOreal also invest money and time in innovating at 14 research centers around the world,
spending 3% of annual sales in Research and Development. Understanding the unique beauty
routines and needs of different cultures, countries and consumers is crtical to LOreal. Skin is
different from one part of the world to another. Therefore continuous learning and innovation is
required for their success in international markets. According to their evaluation centers of
beauty rituals, came across that the natural ingredients utilized on a daily basis there, out of 66
skin shades listed worldwide, 44 of them can be found in India. (LORALS INDOVATION, 2014). This helps them lot when they share the common features studied in one
market.

3.0. Integrated Responsiveness Framework of LOreal


LOreal is pursuing a MULTI DOMESTIC strategy as per IR framework since pressure for local
responsiveness is so strong and pressure for global integration is weak. LOreal global
integration take place under the research and development paradigm rather cost efficiency.
However responding locally has paid off them since high revenue is generated through their
international businesses.
By recruiting local talents, as an example in India they have recruited above 100 Indian scientist
to their Mumbai Lab, LOreal is able to respond to the local trends and needs very easily. Further
in India LOreal has introduced KAJAL and some other products which are specific to their
customs. Therefore LOreal is more towards pressure for local responsiveness rather pressure for
global integration according to the IR framework.

As clearly given in the LOreals Strategies in India it is evident that they practice the multi
domestic strategy.

Hofsted Cultural analysis for India


Hofstede, in his theory, gave five dimensions for cultural analysis as follows.
1) Individualism/Collectivism
2) Power Distance
3) Uncertainty Avoidance
4) Masculinity/Feminine
5) Long Term Orientation(LTO).
Understanding of these five dimensions will give any business managers the knowledge to have
meaningful and effective interactions between the two cultures.

Individualism vs Collectivism
Individualism/Collectivism is the relationship between individuals and their fellow individuals.
Hofstede said that individualism means everyone is trying to look after him or herself and their
immediate families only. Collectivism means a society in which people are integrated into strong
cohesive groups, which protect them throughout their lives. Individualism is often regarded as

the characteristic of a modernizing society, while collectivism reminds us of both more


traditional societies.
India has a traditional culture where they value collectivism highly. This will help LOreal to get
the marketing advantage through referrals and public relations. Trust has to be developed and
family base should be addressed.

Power Distance
Hofstede proposed Power Distance as the extent to which cultures expect and accept the unequal
distribution of power. A high Power Distance ranking indicates that inequalities of power and
wealth have been allowed to grow within the society. These societies are more likely to follow a
caste system that does not allow significant upward mobility of its citizens. A low Power
Distance ranking indicates the society de-emphasizes the differences between citizen's power and
wealth. In these societies equality and opportunity for everyone is stressed.
In India cast system is highly valued and income inequality is also high suggesting a high power
distance. LOreal has to identify their market segment clearly base on these power distance.

Masculinity/Feminine
India has Masculinity as greater the gap between values of men and women. It may also
generate a more competitive and assertive female population, although still less than the male
population. Male is dominating the society. Main decision maker and the influencer is a male.
Therefore Business should focus on influencers and decision makers in their marketing
programs.

Uncertainty Avoidance
India has high tolerance of uncertainty and ambiguity since they have not specific rules and
techniques to deal with uncertainties. That depend on the sub cultures and casts. Doing buinsess
in such an environment is easier.

Long Term Orientation


The final dimension of Hofstedes analysis of culture is that of Long-Term Orientation. This
fifth element was recently added by Hofstede in an attempt to incorporate more Eastern attitudes,
and it is based on Confucian principles.
India's Long Term Orientation Dimension is strong since culture is more persistent and prudent.
Indians have a sense of shame that is shared amongst a group of people and relationships are
viewed by order of status. Therefore LOreal need to build a long lasting relationship with their
customers.

Benefits of Joint Ventures for LOreal

Current circumstances in LOreal and India

Strengths
Global / International Brands
Eg: Three different business
segments
(Make-up Fragrances, and
Skincare)
Global sales, growth and
profitability
( strengthening the core
products)
Increased and Interactive
training
(Hair care and cosmetic experts )
Offerings to all women and men
Opportunities
Provides products that helps to
strength the Skin
Market position

Weaknesses
Advertising Issues (use of
beautiful woman and
product testing rules)
Handling and adopting to
local cultural market
Responsibility of
divisions

Threats
Growing competition
Consumer Spending
manner
Economic Downturn in
few countries

References
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