Research Proposal: Corporate Analysis - L'oreal Group Contents

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Corporate Analysis - L'Oreal Group

Contents

1. Company Overview

1.1. Company History

The following pages will focus on analyzing the corporate situation of

the L'Oreal Group, the most prominent cosmetics company in the world. The

company was founded in 1909 by the French chemist Eugene Schueller. The

company first activated as a hair dye manufacturer, hair dye that was

supposed to be safe for consumers and that was sold to hair salons in Paris

at that time.

After a decade, the company employed only three chemists. In 1950,

L'Oreal employed 100 researchers. In 1984 the company provided the products

developed by 1,000 chemists, and their number has doubled nowadays. L'Oreal

currently employs 67,660 people worldwide.

1.2. Company Development and Growth

Since its establishment, L'Oreal has significantly developed its range

of products. The company started as a hair color producer, and it has grown

to be the world's largest cosmetics company currently, addressing fields

like hair color, skin care, make up, hair care, sun protection, perfumes,

body care, hairstyling.

The pharmaceutical and dermatological fields also play a very

important role in the company's activity. In addition to this, L'Oreal is

the most important nanotechnology patent holder in the United States.

The company is well-known for its research and development activity

that has been continuously expanded. The company currently owns five

international research and development centers. Two of them are located in

France. One is located in the U.S., in New Jersey, one in Japan, and

another one is located in China. Another research and development center

will join the already established one in New Jersey.

The pharmaceutical activity of L'Oreal was made clear when the company

purchased Synthelabo in 1973. After the merger with Sanofi in 1999, and the

merger with Aventis in 2004, Synthelabo became Sanofi-Aventis, the third

pharmaceutical company in the world, and the first one in Europe.

Currently, L'Oreal owns 10.41% of the shares of Sanofi-Aventis.

L'Oreal's line of impressive mergers continued with the ?652 million

takeover of The Body Shop in 2006. The move was strongly disapproved by The

Body Shop's customers, since The Body Shop is a well-known ethical

cosmetics company that worked against animal testing, while L'Oreal still

uses animals for testing new ingredients and products.

L'Oreal and Nestle have formed several joint ventures, like

Laboratoires Inneov focusing on nutritional cosmetics, and Galderma,

focusing on dermatology.

2. Company Internal Strengths and Weaknesses

2.1. Strengths

The company's secular presence on the global market has helped L'Oreal

gain enough experience in order to overcome any threats that inevitably

emerge in the course of any company. The company has experienced tough

times, when because of global economic and social context the cosmetics

field was not at its peak. Those problems were counteracted, allowing

L'Oreal to gain the expertise required for overcoming such difficulties in

the future.

The company has also experienced flourishing market conditions, but it

maintained a stable, constant position on the market, taking advantage of

the opportunities presented at one point or another.

However, the strongest asset of L'Oreal consists in its research and

development activity, which has been a guiding principle ever since its

establishment in 1909.

The facts and figures regarding L'Oreal's research and development

section are a proof of the company's continuous interest in this field. For

example, the company's research and development activity is carried by

3,268 employees, of 60 different nationalities, working in 30 different

disciplines. As mentioned above, in 1920, the company's research and

development activity was ensured by only three chemists.

In 2008, the financial interest of L'Oreal in the cosmetic and

dermatological research was represented by E581 million. Together with the

five important international research centers, the company has 18 research

centers across the world, and 13 evaluation centers.

One third of the entire research and development budget is destined to

basic research. This is considered to be the starting point of all of the

company's innovations, which means the company intends to grant special

financial attention to this activity.

The results of the company's research and development activity are

represented by 5,000 formulas developed each year, 628 patents filed in

2008. In addition to its research centers across the world, the company has

100 active cooperation agreements with leading academic and research

institutions (L'Oreal, 2009).

2.2. Weaknesses

It is difficult to say whether one or more of L'Oreal's functions or

activities can be considered weaknesses. Throughout time, the company has

managed to solve any emerging problems and to prevent them from emerging in

the future. Maybe some parts of the company's activity do not work as

perfectly as other do, but they can hardly be considered weaknesses.

However, in my opinion, one of the business aspects that might prove

to be harmful for the company's activity is represented by advertising. In

such an industry, like cosmetics, image is a great part of the business.

Image means product, it means customer, and it is also translated by

advertising.

Advertising is the point where the company can prove the

differentiation between its products and competition's products.

Advertising can either make or brake the company's image. And it seems

L'Oreal has some issues regarding some of it advertising spots.

For example, in Australia, in 2007, the company was ordered by the

Therapeutic Goods Administration to withdraw the advertising consisting in

anti-wrinkle abilities of the company's products. TGA found the

advertisements to be misleading, because the advertised products were only

cosmetic, and not therapeutic, as the ads claimed (Daily Telegraph, 2007).

This measure addressed other cosmetics giants also, but this does not

diminish its effect on L'Oreal. In my opinion, such an official measure

represents a great hit in the company's image. The idea that the ads are

misleading and that the products do not delivered the promised outcome

could expand to other products in the company's line.

Even more, other products, like some of the company's mascara were

advertised in spots that promised to deliver certain effects, but the

reality was entirely different. In this case, the advertising strategy was

attacked by the British Advertising Standards Authority.

And the problems regarding the advertising strategy of L'Oreal do not

stop here. One of the most important negative aspects the company's image

is facing consists in racism. In 2007, the company was found guilty of

systematic race discrimination in France. The promotional campaign

regarding a product line of Garnier, one of L'Oreal's brands, excluded non-

white candidates from promoting the products in case. The situation was not

singular in France, leading to the conviction of the company (Africa

Resource, 2007).

Such aspects do not represent quantitative issues. However, they have

practical effects that consist in a reduction of the volume of sales. In

other words, such issues are harmful for L'Oreal's image, given the fact

that certain categories of customers might find themselves to disapprove

with such practices, like racism or misleading advertising. On medium term

and long term, the situation might perpetuate, leading to reduced sales and

a smaller market share.

Another area of concern regarding L'Oreal's activity consists in the

control activity. L'Oreal consists in several expanded businesses, as it

activates in important business fields. The company is in charge of

managing several important international brands, and it is present

worldwide. Given the circumstances, it may be difficult to properly control

such a developed group.

3. External Environmental Opportunities

3.1. Opportunities

The current macroeconomic environment is significantly affected by the

financial and economic crisis. The cosmetics industry makes no exception.

It is obvious that the cosmetics market will have to face tough times in

the following periods of time. As in all other industries, some of the

companies will be able to counteract the threats of the environment, while

other while be forced to exit the market. It is expected that cosmetics

giants, like L'Oreal, will have an easier job at surpassing these problems.

However, even during such difficult times, the environment still

presents a series of opportunities for those who are able to observe and to

take advantage of them. Observers have agreed upon the following trends

affecting the cosmetics industry: the global population is becoming older,

increased wealth in emerging markets, pursuit of agelessness, technological

advances, massive awareness of health and wellness (Lee, 2008).

Given the fact that lifespan has increased, the global population is

becoming older. This happens especially in developed countries. The oldest

population in the world can be found in Japan, where 22% of the population

is represented by people over the age of 65. In order to connect this with

the cosmetics industry, it is worth mentioning the fact that Japan is the

biggest cosmetics consumer per capita. Also, 20% of the global cosmetics

consumption goes to Japan each year, accounting for $13.1 billion. The

reason behind such an increased cosmetics consumption is a combination

between an increased number of older consumers, high incomes, strong

interest in health and beauty.

Another opportunity in the cosmetics industry is represented by

increased wealth in emerging markets, like Brazil, Russia, India, and

China. In these countries, the… [END OF PREVIEW]

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