I. Corporate Level Strategy
L’Oréal corporate level strategies involve horizontal integration, vertical integration and strategic alliances, combining the advantages of each strategy to build a stronger image in different geographic markets.
Horizontal integrated corporate level strategy can be seen through L’Oréal strategy in acquiring companies that are industry competitors building up its competitive advantage in the scope it operates. Examples of this are the recent acquisitions of Magic Holdings in China or Niely Cosmetics in Brazil and the latest one was on January 2016 when L’Oréal acquired key assets from Rayon Corporation, a wholesale distributor of salon professional products, strengthening its professional products segment and distribution coverage in USA.
L’Oréal implements vertical integration is noticed on the strategies used on The Body Shop and throughout the organizations integrated research, development and production facilities.
Although The Body Shop outsources is raw materials for use in product manufacturing, they also participate in vertical integration by selling their products in their retail stores.
II. Outsourcing Strategy
L’Oréal has devolved mostly as a highly independent business focused in growth and revenue, aiming to stay close to its customers. In terms of manufacturing, and unusually for the cosmetics industry, most of L’Oréal branded products are still manufactured internally. The culture of outsourcing strategy is not really strong particularly due to L’Oréal culture of local power. Although, L’Oréal has a co-sourcing project on procurement of direct material; ingredients and packaging and has developed some procurement of indirect categories; human resources, IT and telecom. L’Oréal combines elements of consulting and outsourcing, with a strong emphasis on risk and gain sharing.
Unlike a consulting approach, and in line with a traditional outsource, the provider would take line management responsibility. But there would be no transfer of staff; instead, the provider team would work alongside existing L’Oréal procurement staff. The provider would also take significant risk in terms of linking reward to real, measurable bottom-line savings, and would commit to a skills transfer program. Finally, the provider would be engaged on a relatively long-term basis but with measures in place to ensure that the contract could be re-competed at that point.
L’Oréal also has an agreement with IBM essentially for expert procurement services using advanced cloud analytics, aiming at achieving new procurement contracts and cost reduction to be delivered at the end of the fiscal year. As part of the deal, IBM brings in strong procurement and category expertise to work along with the existing sourcing team at L’Oréal. Together, these will help the marketing and procurement team at L’Oréal gain immediate and broad access to global data to make faster and more insightful decisions, while ensuring purchasing compliance.
The difference from common outsourcing agreements in this case is L'Oréal retains the procurement department and operations and IBM supplements these operations with its different assets. They provide the analytics platform along with the domain expertise. IBM provides the procurement and category experts to work with L'Oréal and aid in their everyday jobs. L'Oréal retains the team and the process, and has complete control over the business function. IBM was to transform the process and retrain the users and augment L’Oréal’s skills with the IBM experts.
III. Diversification Strategy L’Oréal
At L’Oréal, beauty and diversity are related where its global presence and brand divisions had allowed the company to integrate the concept of diversity at all levels while carrying out their beauty mission: beauty for all. L’Oréal use efficient diversification strategies to build a competitive advantage and to take advantage of a financial opportunity that aligns with the business strategic plan. Diversification can be segmented into related diversification or unrelated diversification and for L’Oréal, the company use related diversification where they only focused
on the beauty business. For more than a century, L’Oréal has devoted their energy and competencies solely to one business: beauty (makeup, cosmetics, haircare, fragrances).
Founded in 1909, the L'Oréal Group has become the largest cosmetics and beauty company in the world. L'Oréal has kept the top position for years while the rest company in the same industry underwent some changes. The reasons why L'Oréal can become and remain the world's largest cosmetics company by revenue are its sole focus on cosmetics and beauty products. They never tried to take a different route like other companies do; like having food, beverage and home care business. L’Oréal ambition is to attract more people around the world by creating the cosmetics product that meet the infinite diversity of their beauty needs and desires.
L’Oréal growth strategy has been carried out both through internal development and through acquisition of companies already operating in the cosmetics industry. In particular, external growth by acquisition is part of L’Oréal’s long-term strategy, with a long-term annual growth goal of 10%. The acquisitions help promotes L’Oréal to quickly expand its geographical horizon and develop its market segments.
With all those brands acquisition, L’Oréal being positioned it to consumers across all income levels by providing a wide range of beauty product. The company wants people around the world to have easy access to their products that match their desire, lifestyles and beauty needs. L’Oréal’s brand portfolio is organized by Division, which each develops a specific vision of beauty by consumption universe and distribution channels.
The brands in different subdivisions didn’t compete against each other since one divisions contain more than one brand, so the important fact was defining a strong brand positioning. One brand doesn’t copy try to copy another. Related diversification give company the advantages of a diversification strategy such as advantage of existing expertise, knowledge and resources in the company when expanding into new activities which may result in transfer of skills, such as research and development knowledge and sharing of resources.
Chapter 10