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. L’Oréal, 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 world’s 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)

Why businesses move into emerging marketsEconomies 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

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)

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 spendingChina 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 forceAll 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 L’Oreal 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 L’Oreal 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 L’Oreal demonstrates this global-local tension as it has manufactured a range of brands from

many cultures as an instance French (Garnier, L’Oreal Paris, Lancôme ) and also American

( SoftSheen-Carson, Kiehl’s, Maybelline), British (The Body Shop), Japanese ( Shu Uemura),

Italian( Giorgio Armani).

L’Oreal has managed its global-local tensions by developing new products to cope up with the

multicultural backgrounds as it is the company’s vital source for competitive advantage.

According to the top management of L’Oreal’s 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.

L’Oreal 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, L’Oreal attempts to achieve three strategic

objectives of Bartlett and Ghoshal model as discussed below.

Effectiveness

2012 also marked a milestone in L’Oréal’s internationalization process, as the New Markets

became the group’s 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, L’Oreal 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 L’Oreal’s 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 L’Oreal 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, L’Oréal’s 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

L’Oreal 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 L’Oreal. 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. (L’ORÉAL’S “INDO-

VATION”, 2014). This helps them lot when they share the common features studied in one

market.

3.0. Integrated Responsiveness Framework of L’Oreal

L’Oreal 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. L’Oreal 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, L’Oreal is able to respond to the local trends and needs very easily. Further in India L’Oreal has introduced KAJAL and some other products which are specific to their customs. Therefore L’Oreal is more towards pressure for local responsiveness rather pressure for global integration according to the IR framework.

As clearly given in the L’Oreal’s 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 L’Oreal 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. L’Oreal 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 Hofstede’s 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.

Indian’s have a sense of shame that is shared amongst a group of people and relationships are

viewed by order of status. Therefore L’Oreal need to build a long lasting relationship with their

customers.

Benefits of Joint Ventures for L’Oreal

Current circumstances in L’Oreal 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

Weaknesses Advertising Issues (use of

beautiful woman and product testing rules)

Handling and adopting to local cultural market

Responsibility of divisions

Opportunities

Provides products that helps to strength the Skin

Market position

Threats Growing competition Consumer Spending

manner Economic Downturn in

few countries

References

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