Strategic Management

by Katharina Ralls, July 2015

2400 words

8 pages


Strategic Management

L’Oreal is the largest cosmetics group in the world, operating in 130 countries, offering 27 international brands, and employing 68,9000 people. Its sales accounted for €20.3 billion in 2011. The same year, 613 new patents were registered (L’Oreal, 2012a, p. 1). The company concentrates on strategic areas offering high technological value, i.e. hair colour, hair care, skin care, sun protection, make-up, and perfumes. It has brands in five major areas: hairdressing salons, pharmacies, Body Shop, and consumer and luxury products. Such division increases the efficiency of its operational processes and distribution channels, e.g. department stores and perfumeries offer luxury goods, while consumer products are distributed through retailers and via mail orders. The most famous brands include L’Oreal Paris, Garnier, and Maybelline NY using the world famous slogan “Because I’m worth it” (L’Oreal, 2009, pp. 3, 8, 10).

L’Oreal has a strong competitive position ensured by internal and external organizational factors. The Group’s internal strengths are connected to its commitment to the creation of diverse, innovative, quality, safe, and sustainable products. This focus on excellence in manufacturing is accompanied by respective advertising policy, based on “proven performance and scientific data,” honesty, and clarity (L’Oreal, n.d.f). Thus, the organization of L’Oreal’s operational process becomes a significant strength. Also, the company has creative workforce, which adds much to the creation of loyal customers. Besides, organizational decentralization helps the Group to manage its regional subsidiaries in accordance with local requirements.

L’Oreal has numerous opportunities for market growth, especially in the emerging markets (e.g. through acquisitions) (L’Oreal, 2009, p. 3). Even during economic recessions, cosmetics consumption tends to remain quite stable, which is a great benefit for the company (Macedo-Soares and Silva, 2012, p. 21). Still, this does not mean that it should not consider the possibility of demand declines and fluctuations. Additionally, L’Oreal builds strategic alliances with its customers and suppliers. This is a significant benefit in terms of stability and adaptability and can provide certain growth opportunities. The company is very responsible about choosing suppliers, which is crucial for its position and brand name, though it may be more time consuming and quite costly (L’Oreal, n.d.f; Macedo-Soares and Silva, 2012, pp. 22, 26).

On the other hand, the Group operates in a highly complex external environment due to economic, social, and political differences around the world. Every country has its own political context and specific requirements, legislation, restrictions, and prohibitions regarding drug and ingredient use, testing on animals, advertising, etc. These peculiarities affect L’Oreal’s business operations and require it to adapt and make changes in resources and production process. Besides, political instability and bureaucracy, especially in emerging economies, e.g. Latin America or Asia, can pose a great threat. Also, each country has specific economic conditions in terms of labour costs and exchange rates, availability of raw materials, and possibilities of creation of strategic alliances (L’Oreal, 2009, p. 5; Macedo-Soares and Silva, 2012, p. 21).

Naturally, market competition is high. Being a global company, L’Oreal competes with Unilever (the Dove, Seda, and Rexona brands), Louis Vuitton Möet …

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