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GLOBAL IMMERSION 1: Global Awareness - MSEP16 - DXB

- Tri I

Title: LOreal Successful Entry strategy in India

Lecturer: Prof. Haico Ebbers

Individual Assignment
Sheetal Proag (MGBSEP16GL41)

Hand In Date: 13OCT2016

Contents
LOreal Successful Entry strategy in India................................................................................................ 1
1.1 LOreal The Global Cosmetic Firm .................................................................................................... 1
1.2 L Oreal How Global it is? ................................................................................................................. 1
1.2.1 Trans-nationality Index ................................................................................................................ 1
2 India, LOreal The beauty of Global Expansion ................................................................................... 3
3 How did LOreal connect with the Indian Consumers?.......................................................................... 4
3.1 Uppsala Model ................................................................................................................................ 4
3.2 The integration-responsiveness framework ................................................................................... 5
4 Conclusion- Is India worth it in the Long run? ....................................................................................... 6
References .................................................................................................................................................... 7
Appendix 1 .................................................................................................................................................... 9
LOreal Successful Entry strategy in India
1.1 LOreal The Global Cosmetic Firm
LOreal is considered to be the largest cosmetic and personal care firm in the world based upon brand
value with USD 23,524 Million. It is followed by Procter and Gamble with a Brand Value of USD 18,309
Million (The Statistica Portal, 2016).Therefore, one should not be surprised about its success around the
world.

Beauty for all, this is the mantra for LOreal, the biggest cosmetics group omnipresent in 140 countries,
which enabled the firm to be the market leader (L`Oreal, 2015) and ranked twice on WWW Beauty Inc.
consecutively. (HuffPost Style, 2012) This would have been impossible without growing the brands with
the help of target marketing, acquisitions and Research &Development.

L`Oreal is focusing on the global emergence of urban class people in Brazil, African and Middle East as it
represents 38.3 % of sales currently and especially when now L`Oreal is aiming for a billion of new
customers in emerging countries, a historic opportunity. (L`Oreal, 2015)

1.2 L Oreal How Global it is?

After getting listed on the local stock exchange in 1967, the firm originating from France only but did its
first international step in 1910s by selling in Italy, Brazil and US after the war (L'Oreal, 2016). This was
mainly due to the fact after the war, women started to work and earn. Now, this beauty tycoon is present
in 140 countries (L'Oreal Group, 2015) and also employed around 153 different nationalities compared to
only 135 in 2010 (L'Oreal, 2015). There are several ways to prove the global situation of LOreal.

1.2.1 Trans-nationality Index

Trans-nationality Index can be used to assess to what extent LOreal is global. Normally, this index uses
foreign sales, employees and assets over its total assets (Tobey, 2015).

1.3 Ratio of foreign sales to total sales

Western Europe is the home country of LOreal and based on 2015 figures (L'Oreal Group, 2015), the total
local sales only constituted of 33.1% of total sales. It is surprising to note that new emerging markets
comprised of only 39.5% of total sales. It clearly demonstrates that the firm is global to a large extent
considering that more than 50% of its total sales is from its host countries.

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 L'Oreal - Percentage of foreign sales
78
76
74
72
70
68
66
64
62
60
58
2010 2011 2012 2013 2014 2015

Figure 1 - Percentage of Global Sales (L'Oreal, 2010-2015)

However, it is noticeable that LOreal had the highest market share in 20141. However, the percentage of
foreign sales has fallen from 74% in 2010 to 67% in 2015. Therefore, LOreal may adapt their market
strategies to increase their sales in other emerging markets which still have untapped potential in the
cosmetic industry.

1.3.1 Ratio of foreign employees to total employees

LOreal has been actively trying to improve its multicultural employee ratio. It is has improved from 28%
to 36% in US. However, it is not completely transnational. LOreal has invested in sustainable partnerships
with associations focusing on social and ethnic diversity (L'Oreal, 2015). It is interesting to note that
LOreal competitors has a higher sales transnational ratio. For instance, the sales ratio for Johnson and
Johnson is 56% (Johnson & Johnson, 2016) while P&G is approximately 60% (Procter & Gamble, 2016).

However, LOreal is present is 140 countries (L'Oreal Group, 2015) while P&G has strong presence in 180
countries (Procter & Gamble, 2016) and Johnson & Johnson in only 60 countries (Johnson & Johnson,
2016) . This may seem that Procter & Gamble is more transitional than LOreal but it should be noted
while LOreal mainly concentrates on personal care and beauty products Procter & Gamble has a wider

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Please refer to Appendix 1

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range of product offerings that range from Baby care, Feminine and Family care to fabric and homecare.
Therefore, it may not give a true statistical figure for this two competitors.

2 India, LOreal The beauty of Global Expansion

However, interestingly, LOreal started exploring the Indian markets only since 1994 and experienced an
annual growth rate 30% in the last 30 years (L'Oreal, 2013). This leads to the question of how come India
is such a lucrative market for LOreal.

India is projecting to be amongst the top 4 consumer markets by 2020 (Hawley, 2016). Therefore, there
is no surprise that most firms will be rushing to emerging countries, especially India as they are more likely
to expand and experience higher sales compared to stable but saturated markets. STEEPLED analysis,
which can be described as a scanning tool for the external environments, can be used to explain this
cosmetic firm still reigning the Indian beauty industry (Marcouse, 2012).

The STEEPLED framework includes Socio-cultural, Technological, Economical, Environmental, Political,

Legal, Ethical and Demographical factors. However, it seems that the most impacting factors for LOreal
is socio-cultural and Economical factors.

Socio-Cultural factors which is omnipresent in the country vary

from Bollywood industry to deep-rooted traditions (L'Oreal,
2013). It is unsurprising that LOreal uses celebrity
endorsements to push its products to compete against beauty
leaders like Lakme and Lotus. The celebrities ranges from
mature actresses like Aishwarya Rai to young adults like Alia
Bhatt and Sonam Kapoor. Moreover, the workforce is getting
more skewed towards beauty industry. Therefore, LOreal has
Figure 2 - Sonam Kapoor, the face of L'Oreal
2016 (Pink Villa, 2016) 50 academic institutions whereby it even trains and educates
beauticians (L'Oreal, 2013).

Moreover, there has been a socio-cultural shift whereby more Indian men are now using makeup.
According to ASSOCHAM, sales of beauty and personal care for men has increased by 42% over the last
five years in India (COLUMNIST TIMES, 2016). Furthermore, 68% of young Indian males confirms that
beauty product improve their confidence and players in the industries have certainly took advantage of it
(COLUMNIST TIMES, 2016). Consequently, males contribute to USD2.8Billion in the Indian Market
(COLUMNIST TIMES, 2016).

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Economic factors is the major impacting force that drives most consumerism firms to India. It is expected
that the India. Currently, GDP per capita of India is USD5, 730.14 in 2015 (World Bank, 2016) and it is
grow by to USD7, 000 in 2020 (Trading Economics, 2016). Therefore, purchasing power parity is expected
to increase by 18.1%. This ensures demand for LOreal in the long run. Also, inflation is India is expecting
to decrease from 5.05% to 4.8% in 2020 (Trading Economics, 2016). This means LOreal can not only
produce at a cheaper rate in the Asian Economy but also customer spending will be much higher.
Currently, only 50.4% of women are active participants in the labor force (Catalyst, 2015) and it is
expected that this figure will further increase as more females are now having access to education. This
will contribute to a higher demand for LOreals products.

Mostly, these two factors influenced the growth of the Beauty and Personal Care Industry in India since
the 1990s to 2016.

3 How did LOreal connect with the Indian Consumers?

LOreal identified that India Economy would triple by 2020 (L'Oreal, 2013)and therefore did not lose the
opportunity to exploit the potential sales. Uppsala model can be used to describe how LOreal penetrated
the Indian market according to different strategies. It has been observed that most firms gradually
expands to nearby countries (Zohari, 2013). This is because as they expand further, the more
knowledgeable the senior management is about the neighboring countries business environments.
Similarly, LOreal first entered Western markets, then China markets and then Indian Markets after
intense market research.

3.1 Uppsala Model

The Uppsala model suggests that it the beginning the firm has very little export activities in the market.
Second step is to export with an official representative and this is Foreign Direct Investment. It is
interesting to note that LOreal went for Mergers and Acquisition in India. Until 1990s, the Asian countries
had strict laws considering foreign companies to operate from the host countries (L'Oreal, 2016). When
the Indian Government opened up the economy by relaxing the trade terms, LOreal became the first
company to be owned a subsidiary in India (L'Oreal, 2016). This ensued with first-mover advantages
compared to Avon, P&G, Neutrogena and Dove. LOreal initially partnered with a local entity: Ultra Doux
in 1991 (L'Oreal, 2016), but unfortunately, the partnership was a marketing disaster as it marketed the
product as being for the mass population and as a cheap product (Passariello, 2016) . In 1994, it
established as a subsidiary of LOreal and launched innovative products- Ultra Doux conditioners (L`Oreal,
2015). This helped to boost up sales and image in the Indian Market.

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Finally after gradually capturing the Indian Market share, LOreal introduced more products in the market
(L'Oreal, 2013). For instance, it started to supply Garnier anti-wrinkle cream in 1995, started B2B by selling
the professional Products Division in 1997 amongst others. However, it made the first Green-Field step in
2004, when it opened a factory in Chakan, Pune for Garnier Line. It continued to expand its products lines
in diverse segments but this time they were more adapted to Indian tastes and preferences. For instance,
LOreal commercialized Maybelline Colossal Kajal and Garnier man line products.

This pressure to customize and sell products according to local preferences and tastes can be further
explained by using the Choice global strategy / local strategy developed by Prahalad and Doz in 1987.

3.2 The integration-responsiveness framework

The integration-responsiveness framework mainly deals with how to penetrate the market based on the
pressure for local responsiveness and lower costs (Tobey, 2015). In the beginning, LOreal adopted the
international strategy where it was providing Ultra Doux at low price and without any customization.
However, this strategy copied from Unilever failed in 1990 (Passariello, 2016).

Therefore, LOreal realized in order to succeed in Indian market, it should provide localized products to
different income groups of the population. One can assume that LOreal is using both Transnational and
Multi-domestic Strategies for its products. For instance, Garnier and Maybelline are perfect examples of
product-lines being commercialized using multi-Domestic strategy. This is being it is mainly targeted at
the mass population, that is, mostly at the middle class population. Therefore, the products need not only
be highly customized but also have a competitive pricing strategy. Moreover, these products are also
targeted at the young adults whereby the income level maybe not high but rising. As a result, it is heavily
marketed towards young adults and teenagers. For example: the famous film star, Alia Bhatt advertised
for Maybelline Babylips product recently to attract younger set of the population. In order to be able to
provide goods at competitive prices, LOreal decided to produce locally so as to enjoy cheap lab our and
other resources like materials (L'Oreal, 2013).

LOreal also uses Multi-Domestic Strategy as it also provides highly customized products and premium
prices. This can be observed with Lancme and Yves St Laurent product lines. It also set-up research
laboratories to cater to the Indian customer base more efficiently (L'Oreal, 2013). However, it should be
noted that most of its sales revenue from India is derived from the growing middle class population.

Therefore it can be concluded that LOreals strategy is more skewed towards transnational market
strategy. Therefore, one can argue that it may not be stuck in the dilemma of being a firm either choosing

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cost-leadership or differentiation as it is successful with its current strategy. The main reason of its fruitful
performance is that LOreal manages different Strategic Business Units based on its effective
segmentation.

As such it can observed that LOreal uses a polycentric approach in India as 99% of its employees are
Indian (L'Oreal, 2013). This has been advantageous so far because sales for LOreal has only been
increasing. For example: Distributors have increased from 345 in 2008 to 585 in 2011 (L'Oreal, 2013).

These are the strategies adopted by LOreal that led to the firms success in India. However, many analysts
argue whether it is a profitable hub compared to its emerging counterparts.

4 Conclusion- Is India worth it in the Long run?

The portfolio of LOreal are rising stars and cash cows in India. For instance, sales have only grown by 2.7%
in the Asian markets while it is only the third market player with 8% of the total Indian market share.
Therefore, it has possibility to grow further, especially as purchasing power of the country is also expected
to increase. Also, according to the diverse reports, India is a lucrative host country for diverse reasons.

Despite a high corruption index and high economic gap between the rich and poor which constantly fuels
economic problems, the country has a huge potential to follow Chinas lead or even become a superpower
by 2025.

India has ascended from the seventy-first to the fiftieth position in the World competitiveness report. This
is mainly due to the Prime Minister, Mr. Modi, who propelled the growth of India by using pro-growth,
pro- business and anticorruption policies (Schwab, 2016). However, one of the major drawbacks of the
countries that it is not technologically advanced. Therefore, LOreal can expect to further expand and gain
higher revenue in India but it may not be able to use latest technological advances for lean production
and distribution. Also, compared to other countries, it may not be able to use a clicks and mortar business
model like in USA but mostly focus on Bricks and Mortar Business model.

However, even the supply side policies may not be effective in the short-term, the demand side is highly
favorable for most consumers and it is expected that the situation will further improve. Therefore, it is
highly recommended that LOreal continue milking and investing more in its portfolios in India.

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References
Jim Downey & Technical Information Service . (2007). Strategic Analysis Tools: Topic Gateway Series No.
34. Great Britain: The Chartered Institute of Management Accountants .

Catalyst. (2015). Women In The Workforce: India. Retrieved from Catalyst:

http://www.catalyst.org/knowledge/women-workforce-india

COLUMNIST TIMES. (2016). Men spend more on makeup & grooming comparing women in India.
Retrieved from COLUMNIST TIMES: http://www.columnisttimes.com/Lifestyle/Men-spend-
more-makeup-grooming-comparing-women-India

CWJE. (2008). Wales Business Studies A Level Resources. Wales: WJEC.

Hawley, J. (2016). These Will Be the World's Top Economies in 2020. Retrieved from Investopedia:
http://www.investopedia.com/articles/investing/100515/these-will-be-worlds-top-economies-
2020.asp

HuffPost Style. (2012). TheHuffingtonPost.com, Inc. Retrieved October 30, 2012, from HuffPost Style:
http://www.huffingtonpost.com/2012/08/09/loreal-beauty-industry-2833-
billion_n_1761412.html

Johnson & Johnson. (2016). Market Presence. Retrieved from Johnson & Johnson:
http://www.jnj.com/caring/citizenship-sustainability/strategic-framework/Market-Presence

L`Oreal. (2015). Annual Report 2015. Clichy,France: Administration and Finance Division and by the
Image and Corporate Information Department.

L'Oreal. (2013). L'ORAL IN INDIA. Retrieved from L'Oreal: http://www.loreal.com/media/beauty-

in/beauty-in-india/l'or%C3%A9al-in-india

L'Oreal. (2015). Diveristy Report 2015. Europe: INTERNAL COMPANY REPORTINGS.

L'Oreal. (2015). L'ORALS 1ST WORLDWIDE DIVERSITY REPORT. Retrieved from L'Oreal:
http://www.loreal.com/media/press-releases/2015/dec/loreals-1st-worldwide-diversity-report

L'Oreal. (2016). 1984-2000 : BECOME NUMBER ONE IN THE BEAUTY INDUSTRY. Retrieved from L'Oreal:
http://www.loreal.com/group/history/1984-2000

L'Oreal Group. (2015). Annual Report 2015. Europe: Administration and Finance and the Image and
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Marcouse, M. S. (2012). Business Studies (3rd ed.). London: Hodder Education.

Passariello, C. (2016). Behind L'Oral's Makeover In India: Going Upscale. Retrieved from Wall Street
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Pink Villa. (2016). Retrieved from http://www.pinkvilla.com/entertainment/photos/sonam-kapoors-

new-print-ad-loreal-paris

Procter & Gamble. (2016). Global Operations. Retrieved from P&G :

http://www.pg.com/en_US/downloads/media/Fact_Sheets_Operate.pdf

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Schwab, K. (2016). The Global Competitiveness Report 20152016. World Economic Forum.

The Statistica Portal. (2016). Brand value of the leading personal care brands worldwide in 2016 (in
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Tobey, D. (2015). The TranTransnationality Index: Measuring the diversity advantage of transnational
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Trading Economics. (2016). India GDP per capita PPP Forecast 2016-2020. Retrieved from Trading
Economics: http://www.tradingeconomics.com/india/gdp-per-capita-ppp/forecast

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Zohari, T. (2013). The Uppsala Internationalization Model and its limitation in the new era. Retrieved
from DigiPro: http://www.digitpro.co.uk/2012/06/21/the-uppsala-internationalization-model-
and-its-limitation-in-the-new-era/

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Appendix 1