AMOREPACIFIC International Business Strategy

AMOREPACIFIC International Business Strategy 1. Introduction 1.1. Industry overview Cosmetics With low-barriers to entry, the competitive business environment of the cosmetics industry requires companies to secure stable sales channels, and make great marketing efforts to differentiate its products. However, the cosmetics industry is closely related to the fashion industry which is constantly changing and offer potential growth opportunities. Consequently, cosmetic products typically have short product life-cycles because which require mass-customization capabilities and production agility. Personal Care On the other hand, personal care products business is a relatively a mature industry. Also with a low-barrier to entry, the domestic market is currently saturated with competition. In addition, the emergence of large-scale discount stores and new sales networks has called for rapidly changing marketing and distribution channels. Consequently, the domestic personal care products industry is focusing on developing niche markets by differentiating its product as offering higher quality and value. 1.2. Overview of AMOREPACIFIC AMOREPACIFIC Corporation (â€Å"AMOREPACIFIC† or â€Å"the Company†) aims to become a global beauty company with its core businesses in cosmetics and personal care and health products. Founded in 1945 as a Pacific Chemical Company, AMOREPACIFIC Corporation has been involved in beauty products. With the corporate vision of â€Å"The World will know us as the ‘Asian Beauty Creator,† AMOREPACIFIC seeks to push the boundaries of traditional beauty with innovative solutions drawn from its rich Asian heritage.The Company also stresses the five values: Openness, Innovation, Proximity, Sincerity, and Challenge to openly communicate with its customers and employees, pursue innovative ideas and new concepts, maintain physically and psychologically close to customers, fulfill obligations to society, and be passionate about overcoming challenges. The Company first began its export sales via OEM and also began to sell cosmetics products under its own brand â€Å"AMORE† in 1964. In 1990, the Company turned to international markets by establishing its first overseas subsidiary in France, followed by establishing its Shanghai and Chartres plants in 2002 and 2004, respectively. In 2010, AMOREPACIFICs sales reached KRW 2 trillion, with operating profit of KRW 340 billion and net earnings of KRW 285 billion. The Company maintains its number one player in the domestic market with a 34.9% cosmetics market share in 2010. In terms of its overseas operations, the Company has enhanced its sales in 2010 by approximately 11% to KRW 335.8 billion. With its strong domestic position, the Company is targeting sales and operating profit growth of 10% in 2011 by creation of growth markets. For each business segment, the Companys Cosmetics Division is focusing on securing competitiveness in the Asian markets through reinforcement of RD activities to provide differentiated products and services. For the personal care products business or â€Å"Mass Cosmetics Sulloc Division,† the Company is intent on strengthening domestic market competency by expansion into high-functional products in major personal care categories. 2. International Business Strategy of AMOREPACIFICs Cosmetic Products AMOREPACIFIC aims to be a Global Top 10 cosmetics company. While tapping on matured and developed markets such as North America and Western Europe, AMOREPACIFIC is more focusing on developing countries such as China and other Southeast Asian countries. To overcome the limitations of the market size and increasing level of competition in the domestic market and accomplish economies of scale through market expansion with its own line of competitive products, AMOREPACIFIC, utilizing its number one position in the domestic market, has been looking to develop overseas market with in its efforts to gain presence and become a successful international player in a very competitive global cosmetics industry environment. While the domestic market has been steadily growing due to an increase in the number of professional business women who have brought about buying power of female customers, developing market conditions for high-function cosmetic products from the middle-class aging population, as well as an increasing demand from men for cosmetics products, AMOREPACIFIC has been facing increasing competition from the domestic competitors and market penetration from global cosmetics companies. Nevertheless, AMOREPACIFIC has potential to be successful in overseas market taking into account following advantageous factors: The quality and diversity of products of AMOREPACIFIC has reached the level to be competitive against global brands in most product lines. Experiences of highly competitive market in Korea enriched the Company with various competitive marketing strategies. Koreas cultural wave has created friendly demands of Korean beauty products among customers, especially in Asian market. Globalization strategy of AMOREPACIFIC is primarily based on a multi-domestic approach where international strategies take on differentiated approaches for each regional market as divergent demands for cosmetics products exist due to different levels of industrial and economic development for each country/region. In addition, benefits from standardization are less significant due to segmented nature of cosmetics market even within the country/region and price functions differently for each customer segment and it is not usually the major factor for determining purchase. Finally, since demand in overseas market for cosmetics are highly divergent and the Company possesses the capability and resources to leverage with to meet those divergent demand, multi domestic strategy would be suitable for AMOREPACIFIC. Based on such multi-domestic strategy, AMOREPACIFICs globalization strategy takes on differentiated approaches for developed and developing countries. For emerging countries, AMOREPACIFIC aims for an early market penetration, while, raising image by focusing on the prestige brand lines in developed markets. Two representative countries of AMOREPACIFIC (France and China) have been analyzed below to evaluate its international strategy in each country contrasting AMOREPACIFICs strategies in each respective country. 2.1. Expansion into the France Market 2.1.1.Market Penetration with Lolita Lempicka France has long been renowned as the capital of cosmetic industry and fashion. AMOREPACIFIC began to penetrate the France Market with the Lolita Lempicka Perfume from 1997. In 1997, the Lolita Lempicka Perfume won all the top awards at the French FIFI Award for best womens fragrance, best mens fragrance, and perfume design. AMOREPACIFIC released Lolita Lempicka L in 2006 and released Si Lolita Lempicka in 2009. With the success in France, Lolita Lempicka products are now available for sale in over 100 countries worldwide 2.1.2.Rationale France is considered one of the biggest markets of cosmetics products and trend leader of fashion and beauty goods and the arena of competition for global cosmetics manufacturing companies. Experiences and reputation in France market can lead to an expansion in developed markets including the U.S. where the AMOREPACIFIC would consider as major market for growth. 2.1.3. Entry Mode Selection Notwithstanding the high risk of failure, AMOREPACIFIC decided to penetrate the France market via direct ownership to establish strategic position as a flagship business in the developed market. With such high level of commitment and resourcing from the headquarters, the Company hired local management with entrepreneurial spirits to experiment with new brand and new strategy. AMOREPACIFIC perceived that its entry mode into the France Market was necessary in order to deploy local talents which would enable expansion into adjacent high-end European markets once strategic position is established. 2.1.4. Marketing and HR Strategy in France Abandoning nationality and company title to overcome the stereotype against Asian cosmetic brands, AMOREPACIFIC teamed up with local marketing agents, manufacturers and vendors. As a newcomer to the market, AMOREPACIFIC differentiated its approach by naming its brand after young local designer to target customers following up-to-date trends of unisex mode and strong fragrance. Also limited direct distribution channels have been utilized for distribution and advertisement is delivered through only high-end fashion magazines targeting customers in their twenties and thirties as well as models and designers. As is important to the cosmetics products to be recognized by word-of-mouth, promotion activities are focused in providing samples to celebrities and influential group of people. Through hiring entrepreneurial local experts in marketing of cosmetics, AMOREPACIFIC could upgrade its marketing expertise in luxury/premium market one notch above. 2.1.5. Evaluation of the International Strategy in France Global Configuration The Companys entrance to the France Market was not driven by cost differences or economies of scale, but it rather served the purpose to make a case for experiments in the leading market. With the successful launch of the Lolita Lempicka brand in France by leveraging the local talent and blinding nationality and company name, other high-end brand can be entered into the market utilizing the distribution channels secured through perfume business. In addition, AMOREPACIFIC may consider introducing other more competitive premium brands in the market through large scale international cosmetics franchise stores such as Sephora. Global Coordination Learning the effects from highly autonomous management of local subsidiaries and transfer of such knowledge to other developed market strategy (e.g., U.S.) is expected to benefit the company through global networking. Although it is inevitable to tap on developed market to notch up brand recognition level, considering the Companys ultimate goal of globalization to expand its market, targeting developed countries would result in limited volume growth at least in the mid-term as we could see from the financial results of France market which was out of red first time in 2010 since its launch in 1997. 2.2. China Market Expansion 2.2.1. China Market Analysis The volume of cosmetics sales in China is still explosive and has high potential to growth (Yearly cosmetics consumption of $13 per person compared to $50 in global average). China Market is well stratified according to product lines which are in line with development stages of different areas (eastern seaside and western inland). They comprise of all four major segmentation including top luxury market, premium market, middle market and mass market. In China, the cosmetics market is not dominated by single or a few major manufacturers yet and accordingly, market penetration is relatively easy. Compared to use of make-up products, the skin care products are dominant in market, and as Koreans have similar skin type as Chinese customers, the Company can hold strong competitive position against the multinational competitors. With increased level of earnings, demand for premium brands is also expected to grow significantly. 2.2.2.Rationale With Korean market being saturated, the high growth potential China market appears to be the next logical choice for AMOREPACIFIC. The Company is able to fully leverage the beneficial impact of Korean cultural wave in China. Although the Company has entered other Asian countries in tandem with China market, the growth and experiences in China market can provide the Company with boosting power to expand further into other Asian countries. Also, the proximity to Korean market and similar cultural background can give the Company competitive edge against other multinational manufacturers. 2.2.3. Entry mode selection The Company entered into China market through direct investment since 2002. The decision to enter into China in a form of direct investment was primarily due to the potential threats other global and local companies possibly gaining foothold in China. The Company needed to stay in competitive position by internalizing technical advantage and products quality while local brands are growing in fast pace. As competition is already intensified in China market, high level of commitment of resources from head office is necessary for sustainable growth in China market. 2.2.4.Marketing and HR strategy in China As the Company owns line-ups of products for all segmented markets, success in one market segmentation can lead to relatively easier launching of other product lines under more competitive conditions. The major product line marketed in China is the Laneige Brand, which is premium brand of AMOREPACIFIC which targets the middle-class. As brand recognition is gained from Laneige through skin-care products, it is considered a good strategic move for AMOREPACIFIC to promote other lines of products under same brand including make-up and products with specific functions including anti-aging and whitening. As Korean wave is huge in China market, AMOREPACIFIC leverages the benefit to its maximum by using famous Korean celebrities as models for its flagship brand (Laneige) and sponsoring Korean television dramas aired in China and concert events. However, As Chinese people are known to be not reliant on advertisement on media and cosmetics products are characterized that information on the products tends to be delivered by word-of-mouth through experiences of family or friends, AMOREPACIFIC set up free booths that provide make-up service, free tutorials and samples. 2.2.5.Evaluation of the International Strategy in China Global Configuration The main drive for entrance into China market is the market expansion. As China market will surely bring larger volume to accomplish economy of scale and its spillover effect to other territories in Asia region will give further boost to AMOREPACIFICs effort in those countries. Although AMOREPACIFIC started with premium brand to make a case in China market, the biggest portion of the market segment is the mass market with vast demands for lower end products. As AMOREPACIFIC has a line-up of products to cope with all those demands, with success from premium brand, it can expand its efforts to market expansion into more casual younger-customer targeted brands. However, in the course of bringing products in other segment, AMOREPACIFIC carefully needs to consider the possibility of casual brands adversely affecting the premium brand image to the customers. In this regard, AMOREPACIFIC may need to deploy differentiated marketing approach, such as blinding the company name not to be recognized as same companys brand and targeted promotion to specific group of customers (younger generation or lower income customers). Also, distribution channels other than department stores should be sought for differentiation. The brand shops that offer variety of brands of cosmetics can be fully utilized. Global Coordination Proximity to Korea can serve as an advantage for effective and efficient coordination with local operation. However, major cities located all over the vast land will bring about new challenges to AMOREPACIFIC which have focused on markets in smaller in size. For this instance, AMOREPACIFIC needs to bring in local expertise in logistics and tries to establish firm distribution channels. During the launches of its first premium brand, the close monitoring and control by head office and local subsidiaries must have been inevitable. However, to expand into other segment (mass market and luxury market), it is necessary, to fine tune its strategy, to leverage the experienced local management by delegating more power for more autonomous operation. 3. Recommendation for New Potential Market Strategy: India Based on the analyses and evaluations of AMOREPACIFCs international business strategy, India may be considered as the next potential target market for its international reach. The recommendations for entry mode and marketing strategies for AMOREPACIFICs entry into India are based on key success factors derived from the following market assessment and SWOT analysis. 3.1. Market Assessment The Indian cosmetics market grew by 9.5% in 2009 to reach a value of $141.6 million. In 2014, the Indian cosmetics market is expected to grow to $198.7 million, which is a 40.3% increase from 2009. Indias Cosmetics market volume: million units, 2005-09(e) Despite the growth of the Indian cosmetics market, the extent of poverty in the country implies that sales would come from only a small consumer base. In this regard, the target market may need to focus on female professionals living in urban areas who are brand-conscious. As seen in the graph below, the cosmetics market in India is already dominated by the top 3 global brands which account for 68% of the total market share. Indias Cosmetics Market Share: % Share by Value, 2009(e) Another interesting observation is the market segmentation of the cosmetics type. As seen in the below chart, lip make-up is the largest segment of the cosmetics market in India, accounting for 51.2% of the total market value Indias Cosmetics Market Segmentation: % share, by value, 2009(e) Also, Indian market has shown significant growth in the whitening products of 20% every year, making up 55% of total cream products. 3.2. SWOT Analysis Based on the above market assessment of India, AMOREPACIFICs SWOT analysis can be performed as follows: Strength AMOREPACIFICs strong management initiatives for globalization would offer a sound strategic decision process. As already proven in earlier efforts for globalization, the Company retains competitiveness of its line of products. In addition, the lack of infrastructure of the India in terms of distribution and sales channels would prove to be favorable for AMOREPACIFIC, since the Company retains a unique sales distribution of direct-sales approach, where salespersons personally visit door-to-door for marketing and sales. Weakness AMOREPACIFICs relatively small presence in a limited number of countries, as well as its weak brand image compared to global players would create challenge for the Company in terms of building its brand. Also, the lack of expertise in cosmetic products for dark complexions could be considered a weakness, considering the Indian population. Opportunities Considering that the cosmetics industry typically has low-barriers to entry, AMOREPACIFIC has opportunities to readily enter into the Indian market. In addition, the market growth potential of India considering its population size and economic growth would offer AMOREPACIFC to enhance its presence in the global market. Threats Considering the different culture and religious background of Indian people, the need for decentralized management could warrant potential management issues with the Headquarters in Korea for potential misalignment in AMOREPACIFICs globalization strategy. 3.3. Entry Mode Recommendation: High Local Responsiveness Approach In case of AMOREPACIFIC, its entry mode to the Indian market should consider the uniqueness of the culture. India has a unique religion and also has a strong history in their stratification system named Indian Cast system. In order to cope with such unique culture and history, AMOREPACIFIC would need to be highly responsive on the local culture. Observations could be made for other instances where attempts to penetrate into India cosmetics market with high degree of localization had been better off succeeding in the India market. Hyundai Motors and LG Electronics are some of examples that were successful cases where localization had been a key success factor in entering the market. On the contrary, Samsung Electronics strategy to seek global efficiency has been enjoying relatively smaller success in India. Considering that AMOREPACIFIC had no prior experience in India, the Company should set up their entry mode as be highly responsive on the local needs. Hiring local managers and staffs who understand the Indian culture would also be very important for the operation of AMOREPACIFIC in India. Joint-venture strategy may also prove to be a viable alternative for AMOREPACIFIC considering its less expertise for customers with darker skin tones. In addition, AMOREPACIFIC may utilize the friendly impression that Hyundai Motors and LG Electronics are making on the minds of Indian people. 3.4. Marketing Strategy Recommendation: Positioning, Distribution Channel Brand positioning and distribution channel would be a very important decision point for entering a market. To be successfully positioned in the India market, AMOREPACIFIC should consider two factors. First, AMOREPACIFIC should position its products to compete with other globally renowned brands to cope with the increasing brand-conscious consumers in India. Second, the Company may need to consider tighter margins to maintain cost competitiveness and capture market share against already established brands. Consequently, AMOREPACIFIC should use a high-end luxury brand strategy distributed in department stores and duty free shops. This would enable AMOREPACIFIC build up a brand image of high-end quality cosmetics. And at the same time, the Company could utilize secondary affordable mass-market brands to meet the average income consumers in India. An interesting distribution channel that AMOREPACIFIC could additionally set up in India is where they had been successful in Korea, which is direct, face-to-face-sales approach. As the transportation in India is underdeveloped, being able to visit consumers directly and provide quality services should be a great opportunity in entering the market. 3.5.Conclusion Since its foundation in 1945, AMOREPACIFIC has been one of the dominant players in the domestic cosmetics industry, with quality product lines ranging from anti-aging solutions and make-up products to personal care products such as shampoos, body cleansers, and toothpastes. With increasingly competitive domestic environment, AMOREPACIFIC has turned its eyes to the global arena. With its vision that â€Å"The World will know us as the ‘Asian Beauty Creator,† AMOREPACIFIC has successfully proven its potential in France with its line of perfume products. Furthermore, AMOREPACIFIC took favorable opportunity of the ‘Korean Wave to sell its products in China considering its cultural similarities and has established a strong brand name. As AMOREPACIFIC has ambitiously declared its goal to become a Global Top 10 cosmetics company, it needs to continuously seek opportunities abroad where it could utilize its core competencies to establish and strengthen its brand image while maintaining a clear focus on the target market and customers.