INTERNATIONAL BUSINESS PRESENTATION SCRIPT LOREAL’S ORGANIZATION STRUCTURE IN CHINA MARKET

FOREIGN TRADE UNIVERSITY -*** - INTERNATIONAL BUSINESS PRESENTATION SCRIPT: “L'OREAL’S ORGANIZATION STRUCTURE IN CHINA MARKET” Lecturer: Mrs Nguyen Hong Tra My Class: KDOE307(GĐ1-HK2-2122)CLC.1 Group 10 Students Trần Thị Phương Thảo (Leader) Nguyễn Hương Giang Trần Thị Thu Hà Trần Thu Nga Đào Bảo Hà Lê Trang Nhung Nguyễn Mai Trang ID numbers 1911150068 1911150024 1911150025 1911150050 1911150027 1911150058 1911150075 I Market overview and corporate introduction Chinese cosmetic market China’s cosmetics sector has been growing rapidly in recent years, in line with the growth of the economy The typical cosmetic products sold in China include skincare, color cosmetics, haircare, and toiletries As of 2020, China became the world’s second-largest beauty and personal care product market after the U.S in terms of market value China’s demand for make-up products is maturing and diversifying According to Euromonitor, the size of the Chinese market for children’s cosmetics reached RMB 26.8 billion in 2020 Data from Askci Research reveal that 59.5% of the men buying cosmetics are aged under 25 The Chinese market is also moving towards more high-end products, especially foreign brands Chinabaogao.com figures show that China’s market for high-end skincare products was RMB 91.7 billion in 2020 Integrated e-commerce platforms, department stores and specialty stores are now the top three sales channels E-commerce on social media platforms such as Xiaohongshu, TikTok and Kuaishou has further stimulated spending on cosmetics L'Oréal Group L'Oréal is a French personal care company headquartered in Clichy, Hauts-de-Seine with a registered office in Paris It is the world's largest cosmetics company and has developed activities in the field concentrating on hair color, skin care, sun protection, makeup, perfume, and hair care The company was founded by a young French chemist, Eugène Schueller Schueller had already started a small commercial business called “Auréole” in 1907, which produced hair care products (The Telegraph, 2006), purchased by Parisian hairdressers In 1908, he patented the product and, in 1909, founded his company Sociộtộ Franỗaise des Teintures Inoffensives pour Cheveux” In 1939, the company simply became known as L’Oréal L’Oréal now operates in 150 countries across the globe and has approximately 88,00 employees By 1928, the company had established the subsidiary “Monsavon”, and over the coming decades established several others, such as the Brazilian “Faproco” in 1959, “Lancome” in 1964, “Garnier” in 1965 and “Biotherm” in 1970 By 1963, the L’Oréal Group was listed on the Paris Stock Exchange, and its market capitalization has increased more than 750 times since then According to L’Oréal’s annual results released in 2020 they made an operating profit of 5.20 billion euros, representing 18.6% of sales The company had a record year in sales and profits during 2000, and L'Oréal remained the market leader in the cosmetics industry with a 16.8% market share L'oreal Group in the Chinese market a) L'oreal's PESTEL model in China Political: This unease present in the business environment was somewhat lessened with China's WTO entry in 2001, by restricting some of the business risk through the WTO's membership requirements Amongst some of the measures are the reduction of import tariffs and other non-tariff barriers, as well as many others, which will help investment to take place in a more attractive, transparent and predictable business environment Fears have been recently intensified by the upcoming annual plenary session of the National People's Congress Economic: China has displayed impressive GDP growth as well as an overall increase in disposable income, which often translates into greater expenditure on luxuries like cosmetics; experts estimate an expansion of the Chinese cosmetics market of 56.5% until 2010, reaching a total value of $2.3bn However, one currency risk that the firm may experience is that of the artificially low value of the renminbi, despite foreign pressure for revaluation, meaning some 'real' value loss during currency conversion Social: L'Oréal will need to embrace local tastes, lifestyles and values not only in product developments, but also in its promotion efforts It has already signed local star Zhang Ziyi, in order to encourage some identification on the part of the consumers These adaptations should be discernible within the marketing mix, which will need revising to consider local preferences of distribution, branding and promotion Technological: As for the private sector, L'Oréal has funded a new scientific research center in Shanghai, with the aim of furthering research on Asian hair and skin This is very important for L'Oréal, given that their competitive advantage has always been based on a strong emphasis on R&D to ensure local sensitivity and adaptation The cosmetic industry is a technology-heavy one, where research and improvement is of the essence to ensure an ongoing flow of new products and concepts, and in order to maintain an 'edge' Legal: The legal sphere L'Oréal will face is very much influenced by the CCP governance, making their support crucial Despite economic openness, the party maintains an iron grip in the running of the country and often dictates the law in an arbitrary manner L'Oréal managed in the past to circumvent a few restrictions during its entry into the Chinese market, though the skilful acquisition of 'Yue-Sai' in 2004, it has benefited from local knowledge and expertise, as well as already established production facilities Environmental: L'Oréal has also not yet acknowledged the growing environmental concerns of many consumers, and has not tapped into the emerging market for 'natural' and 'organic' products, being often perceived as more harmful and 'chemical-based' These changing consumer preferences have been observed in many markets, and some firms have already seized the opportunity to close this gap (for example, L'Oréal has a relatively small share (9.8%) in the Brazilian make-up market, whose consumers favor 'Natura', with 25.9% market share) b) L'oreal's SWOT model in China STRENGTHS WEAKNESSES - Largest beauty/cosmetic company with fantastic product and brand portfolio - In China, L’Oréal’s hair care has not taken off as planned, losing out to Unilever - Continuous R&D and P&G This highlighted a significant need - Their products carry a social and/or an to refocus the market strategy environmental advantage - Very high R&D costs The constant - Efficient supply chain management investment warrants a high risk of failure service - Relies on third party retailers, and is difficult to control, with a slower rate of production OPPORTUNITIES THREATS - The cosmetics industry has higher - L'Oréal has many competitors customer demand every year Innovation is globally all targeting the China market, an immense opportunity for L'Oréal with a L'Oréal is also facing competition from niche domestic companies such as “Procter & market for organic and natural cosmetics Gamble” in the skin care market in China - Promising products, skin market of pigmentation anti-wrinkle - Fluctuating exchange rates between products, the Euro and Chinese Yuan may pose a skincare etc threat with potential loss of profit margin - L’Oreal’s advanced research and product development - L’Oréal Paris recently launched their Makeup Genius app - Large patents registered by the company II L'oreal's organizational structure in the Chinese market Overview of L'oreal's international business strategy L’Oréal has positioned itself as a premium, high-quality cosmetics company that meets the sophisticated demands of consumers To this, L'Oréal has continuously researched to develop new product models and beauty formulas Furthermore, whether introducing a new product line or entering a new market, L'Oréal had to spend a significant amount of money on marketing campaigns Moreover, in the current globalization conditions, L'Oréal has to face many other cosmetic companies from emerging countries such as China, Japan, and Korea L'Oreal's main competitors such as P&G, Unilever, Kimberly Clark, Colgate-Palmolive are also trying to reform the production process, reduce product costs, and increase global competitiveness That also leaves L'Oréal facing huge cost pressures How to lower research and production costs while still competing with competitors is always a question that L'Oreal must answer in order to survive and develop In addition, the cosmetic industry in China is one of the industries that is under great pressure from consumers Products are manufactured not only to meet the wishes of consumers but also to fit their body structure In addition, the product must overcome cultural barriers and political pressure in order to capture the hearts and minds of this country's consumers Existing substitute products appear a lot, affecting the consumption of the company's products In order to reconcile that pressure, perform well and increase competitiveness in the international market, L'Oreal has applied a transnational strategy, which aims at expanding their sales, lowering their production costs, and also attain economies of scale Accordingly, L'Oreal researched the features of Europeans, Asians and Africans before launching products that were universally suitable for people from the same continent At the same time, find countries with low labor costs in each continent, set up factories, and then export manufactured products to neighboring countries in the region As factories in Indonesia and China have supplied products to markets in the Asia-Pacific region such as Vietnam, Thailand, Japan, and Korea Thanks to that, L'Oreal has overcome geographical obstacles and lowered production costs, using regional economic advantages, to become the world's leading cosmetics company In order to successfully implement the transnational strategy, the L'Oréal group has successfully coordinated the implementation of functional strategies, the most prominent of which is its international marketing strategy The company has smoothly coordinated between standardizing and adapting its marketing mix strategy, thereby solving the pressure of reducing production costs while still meeting local needs and increasing its competitiveness Organization structure a) Vertical management Globally as well as in China, L'oreal Group actually does not implement fully centralized or fully decentralized management, but combines these two methods to provide an effective approach Centralized management: The chain of command in L´Oréal is the continuous line of authority that extends from upper organizational levels (committee and board of directors) to the lowest levels (interns) and clarifies who reports to whom For instance, inside the upper levels, the board of directors make the decisions which are audited by the committee and then the one who makes the final decision is Nicolas Hieronimus, who is currently the CEO of L´Oréal So we could say that authority, which refers to the rights inherent in a managerial position to tell people what to and to expect them to it, is practiced by those upper levels of L´Oréal This really facilitates decision making and coordination These managers coordinate and integrate the work of employees, but we can also make a division here because as L´Oréal is a huge company, it is worldwide, so it divides the authority into the geographic zones having one manager for each one of them that makes decisions regarding their zone In China, Fabrice Megarbane, currently holding the position of CEO is responsible for making the final decisions for the development strategies of L'oreal in China There are also sub managers and coordinators with different specialized employees Those employees assume an obligation to perform any assigned duties regarding their field of expertise Decentralized management: Employees throughout the organization can access information that used to be available only to top managers in a matter of a few seconds Because for L'Oreal it is very important to take into account their points of view That's why they have jobs such as junior manager, which is aimed at young people and enables them to participate in the decision making together with upper levels Since L’Oreal plans on leading the beauty industry through innovation and capturing strength in niche global organizations, this requires the organization to have a high number of empowered roles and a large number of management levels within each division and within each subsidiary they own L’Oreal has evolved its organization to have a large number of levels from top to bottom with CEO Nicolas Hieronimus leading the organization forward Below him there are 14 board members and 19 main executives who are in charge of the organization’s operational, functional, and major geographical divisions (Executive Committee, 2018) It is the same in China, CEO Fabrice Megarbane is on the top and and under him there are also executives to head each product division & department Each management committee’s division has a large depth of hierarchy with a large number of management levels from top to bottom and a high degree of task specialization and a high amount of reporting levels within the department => We can realize that there is clear upper level management and centralization when making the most important decisions However, all those decisions are based on analyzing all the levels below: their studies, expertise, opinion and decisions So we can also say that it is decentralization management Advantages of the model: - It is more free-flowing and adaptive that will help the organization compete competitively in the marketplace while simultaneously empowering their employees to actively deal with the fast changes of demands in the cosmetic marketplace; - Enhancing the role of subordinates, but executive committee still have the right to direct; - Ensuring both creativity and compatibility with common goals; - Combines the advantages of both centralized and decentralized management models Potential disadvantage of the model: - There may be conflicts in the discussion between superiors and subordinates b) Horizontal management L’Oréal’s organizational structure is a mixture of divisional and functional structures L’Oreal has main product divisions (Consumer Products, Professional Products, L’Oreal Luxe, and Active Cosmetics), specialist divisions (including Research and Innovation, Human Resources, Sustainability, Communications/Public Affairs, Legal, Retail, Operations, Digital, and Ethics) Within each geographic and main product divisions, L’Oreal owns many subsidiaries that provide products demanded in the area Although L’Oreal is a large organization with many segments, the organization uses the organic decentralized approach Each division has a high degree of task specialization and a high amount of reporting levels within the department The company is structured as such considering the functions of work, as well as divisions, which can be seen from the functional aspects through titles such as CIO, Finance & Administration, Operations, etc However, the divisional structure can clearly be recognised through the structuration by country divisions and by product divisions, such as Luxury Products, Consumer Products, etc The organizational structure of L’Oréal is therefore a rather sophisticated one, which is due to its worldwide influence, and the fact that L’Oréal is a well-established organization Since L’Oreal plans on leading the beauty industry through innovation and capturing strength in niche global organizations, this requires the organization to have a high number of empowered roles and a large number of management levels within each division and within each subsidiary they own Each management committee’s division has a large depth of hierarchy with a large number of management levels from top to bottom Within each level of management, there is an adaptive culture where employees are able to collaborate and communicate horizontally to get tasks done Figure - Divisional Organization Structure Figure - Functional Organization Structure Advantages of the model: This combined structure was chosen to utilize the advantages that both functional and divisional structures offer - The functional structure leads to specialization as each profession is divided into different sections, resulting in increased levels of productivity in the work environment - Another advantage observed in the functional structure is that all the employees working within a department are experts in their field, which is beneficial for coordination at branch level Potential disadvantages: - Competition for resources between product lines can lead to counterproductive results - Having difficulty in adapting to factors affecting the whole organization, needing many people with general management and administration capabilities - Creates difficulties for top management control 3 Incentive mechanism and corporate culture Incentive mechanism At L'Oréal, sustainable growth and the social model are inseparable Since 2012, L'Oréal has rolled out a set of priorities for health, social protection, work-life balance and workplace well being across the globe This policy enables all their teams to enjoy the same protections and the best social practices around the world L'Oréal has already introduced a minimum maternity leave of 14 weeks, payments in the case of death or permanent disability, flexible working and improved working conditions In 2018, L'Oréal launched its first Employee Share Ownership Plan in over 50 countries The plan enables all employees to support L'Oreal's development, be involved in their strategic projects and share in their success Corporate culture To better share its values with all employees, particularly those who have just joined the Group, L’Oréal has decided that its corporate culture, thus far shared orally, needs to be formalized in writing This represents a significant step towards ensuring unity and growth for the Group which is now so global and decentralized A company’s culture is made up of a collection of values and specific ways of doing things that forge a feeling of belonging and pride Communicating this culture to employees – particularly those who have just joined the Group – enables them to share experiences and facilitate integration It also encourages all employees to become active participants within the Group by bringing its culture to life and helping it evolve This familiarity with and appropriation of their shared set of values is the key to L’Oréal’s ability to attract and retain talent In its role as the guardian of L’Oréal’s culture, Human Relations is also responsible for ensuring that employees’ daily experiences are in line with the values it upholds To make sure these values are reflected in people’s actions, the Group has created a document titled Life@L’Oréal to communicate the L’Oréal culture to new employees in a range of instructive formats An attractive culture Four pillars of the L’Oréal corporate culture which enhance the Group’s attractiveness are outlined: - Constant focus on consumers, to meet and anticipate their expectations; - The Group’s entrepreneurial spirit and support for employees who take initiative, everywhere and in every country; - The community spirit that pervades the company, which works together as a single team despite its size; - The role executives play as facilitators, for whom helping employees grow and realize their potential is considered a key function Tools to help employees embrace the L’Oréal culture New employees benefit from tools designed to help them better understand the corporate culture and allow them to contribute to it New employee orientation, known as FIT , has been strengthened through the inclusion of events focused on our corporate culture and strategic vision Each new employee is also encouraged to download the new FIT culture app This digital coach helps employees appropriate key values through challenges, personal stories and videos In addition to this daily guidance, employees can also benefit from MOOCs and corporate culture learning games At the same time, the Simplicity transformation programme includes seminars designed to share the Group’s culture with executives and managers In the Lead & Enable programme, managers learn to help employees grow and encourage them to take initiative In addition, the L’Oréal Momentum programme provides opportunities to reflect on how we can build a new, community-driven and more collaborative L’Oréal III L'oreal's business results in the Chinese market and lessons learned L'oreal's business results in the Chinese market Year after year, the beauty market in China continues to grow , and L’Oréal had another exceptional year there in 2019, despite an overall slowdown in the Chinese economy The market is benefiting from major shifts in demographics as well as emerging trends in cosmetics It is a fast-changing environment where consumers’ expectations are reaching new heights but L’Oréal continues to be the number one beauty group , and records China as its second biggest country in terms of sales L’Oréal provides beauty for over 100 million people in China and has seen an expansion in the middle to upper classes as well as Millennials over the past few years L'Oreal had relied on its e-commerce business during lockdowns last year to reach consumers, who lapped up hair care treatments and skin creams, but store closures hurt sales Overall group sales reached 7.6 billion euros ($9.03 billion) in the second quarter, growing by 33.5% when stripping out currency swings and acquisitions That was up from 10.2% like-for-like sales growth in the previous three months, and beat a consensus for 27.5% growth cited by Credit Suisse Hieronimus said in a statement there would be more product launches in the second half of 2021 Operating margins rose to 19.7% of sales by the end of the first half, with operating profit up 26.8% to billion euros However, new consumption types are also on the rise offering new prospects for L’Oréal Firstly, a new, younger generation of consumers is emerging, who are seeking exceptionally high quality products, which have a positive social impact, and premiumisation The Group’s brands are therefore required to respond to these needs by adapting their offering of products and services Secondly, the rise of China’s lower-tier cities is creating a growing consumer landscape thanks to the rise in household incomes and consequently consumer spending in cosmetics products Lastly, Chinese consumers’ daily cosmetics routines are becoming more sophisticated leading to an increase in the demand for high-performance skincare products and more personalisation, and the makeup category is also benefiting from this consumption upgrade Lessons learned/ Recommendation for Vietnamese cosmetic business - The combination of centralized and decentralized management helps L'Oreal succeed in the Chinese market and suggests that Vietnamese businesses should also use this model The company should have alignment, consistency from top to bottom, and also empower employees in order to support product research and development to adapt to the rapid changes of the cosmetic industry - Employees should be cared for, listened to or directly made decisions to increase problem solving skills, creativity and make employees feel valued, which creates loyalty - Vietnamese businesses should diversify their product lines, such as L'Oreal has main product divisions (Consumer Products, Professional Products, L'Oreal Luxe, and Active Cosmetics) This will help Vietnamese products be suitable for many different customers They may consider Gen Z as a potential customer - Enterprises should use geographical management It ensures them adapt to changes in the business environment of each market as well as change products to suit those markets  ... L’Oréal III L'oreal's business results in the Chinese market and lessons learned L'oreal's business results in the Chinese market Year after year, the beauty market in China continues to grow , and... in sales and profits during 2000, and L'Oréal remained the market leader in the cosmetics industry with a 16.8% market share L'oreal Group in the Chinese market a) L'oreal's PESTEL model in China. .. the most prominent of which is its international marketing strategy The company has smoothly coordinated between standardizing and adapting its marketing mix strategy, thereby solving the pressure