L'Oreal: Expansion in China SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Strategy & Execution
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of L'Oreal: Expansion in China
The world's leading cosmetics companies are competing with--and buying--local cosmetics firms for a share of China's vanity cash. French cosmetics giant L'Oreal is grabbing a major share of the Chinese make-up market. The company recently announced its acquisition of Chinese cosmetic brand Yue-Sai. The surprising announcement came just 45 days after L'Oreal made a successful bid for Raystar Cosmetics (Shenzhen) Co. Ltd's skin-care brand, Mininurse, at the beginning of the year. L'Oreal has been very successful in China's high-end and middle-segment cosmetic markets. The recent two acquisitions, however, indicate that L'Oreal is focusing more on the mass market and shows its determination to step up the pace of its growth in China. It also indicates how red-hot the cosmetics trade has become in China. What competition is situation L'Oreal facing? How can L'Oreal retain its leading position in China? Is it through more acquisitions or improving on its own products? What will be the impact of the future tariff reduction?
Swot Analysis of "L'Oreal: Expansion in China" written by Zhigang Tao, Li Dongya includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that L'oreal Cosmetics facing as an external strategic factors. Some of the topics covered in L'Oreal: Expansion in China case study are - Strategic Management Strategies, Emerging markets, Growth strategy, Mergers & acquisitions and Strategy & Execution.
Some of the macro environment factors that can be used to understand the L'Oreal: Expansion in China casestudy better are - – digital marketing is dominated by two big players Facebook and Google, competitive advantages are harder to sustain because of technology dispersion, there is backlash against globalization, challanges to central banks by blockchain based private currencies, talent flight as more people leaving formal jobs, customer relationship management is fast transforming because of increasing concerns over data privacy, supply chains are disrupted by pandemic ,
geopolitical disruptions, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of L'Oreal: Expansion in China
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in L'Oreal: Expansion in China case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the L'oreal Cosmetics, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which L'oreal Cosmetics operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of L'Oreal: Expansion in China can be done for the following purposes –
1. Strategic planning using facts provided in L'Oreal: Expansion in China case study
2. Improving business portfolio management of L'oreal Cosmetics
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of L'oreal Cosmetics
Strengths L'Oreal: Expansion in China | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of L'oreal Cosmetics in L'Oreal: Expansion in China Harvard Business Review case study are -
Cross disciplinary teams
– Horizontal connected teams at the L'oreal Cosmetics are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Organizational Resilience of L'oreal Cosmetics
– The covid-19 pandemic has put organizational resilience at the centre of everthing that L'oreal Cosmetics does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– L'oreal Cosmetics is one of the leading recruiters in the industry. Managers in the L'Oreal: Expansion in China are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For L'oreal Cosmetics digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. L'oreal Cosmetics has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Successful track record of launching new products
– L'oreal Cosmetics has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. L'oreal Cosmetics has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Ability to lead change in Strategy & Execution field
– L'oreal Cosmetics is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled L'oreal Cosmetics in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– L'oreal Cosmetics has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in L'Oreal: Expansion in China HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Sustainable margins compare to other players in Strategy & Execution industry
– L'Oreal: Expansion in China firm has clearly differentiated products in the market place. This has enabled L'oreal Cosmetics to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped L'oreal Cosmetics to invest into research and development (R&D) and innovation.
High brand equity
– L'oreal Cosmetics has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled L'oreal Cosmetics to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Learning organization
- L'oreal Cosmetics is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at L'oreal Cosmetics is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in L'Oreal: Expansion in China Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Innovation driven organization
– L'oreal Cosmetics is one of the most innovative firm in sector. Manager in L'Oreal: Expansion in China Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Diverse revenue streams
– L'oreal Cosmetics is present in almost all the verticals within the industry. This has provided firm in L'Oreal: Expansion in China case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Weaknesses L'Oreal: Expansion in China | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of L'Oreal: Expansion in China are -
Aligning sales with marketing
– It come across in the case study L'Oreal: Expansion in China that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case L'Oreal: Expansion in China can leverage the sales team experience to cultivate customer relationships as L'oreal Cosmetics is planning to shift buying processes online.
Interest costs
– Compare to the competition, L'oreal Cosmetics has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study L'Oreal: Expansion in China, is just above the industry average. L'oreal Cosmetics needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Products dominated business model
– Even though L'oreal Cosmetics has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - L'Oreal: Expansion in China should strive to include more intangible value offerings along with its core products and services.
Lack of clear differentiation of L'oreal Cosmetics products
– To increase the profitability and margins on the products, L'oreal Cosmetics needs to provide more differentiated products than what it is currently offering in the marketplace.
High operating costs
– Compare to the competitors, firm in the HBR case study L'Oreal: Expansion in China has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract L'oreal Cosmetics 's lucrative customers.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, L'oreal Cosmetics is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study L'Oreal: Expansion in China can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Slow to strategic competitive environment developments
– As L'Oreal: Expansion in China HBR case study mentions - L'oreal Cosmetics takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of L'oreal Cosmetics supply chain. Even after few cautionary changes mentioned in the HBR case study - L'Oreal: Expansion in China, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left L'oreal Cosmetics vulnerable to further global disruptions in South East Asia.
High cash cycle compare to competitors
L'oreal Cosmetics has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study L'Oreal: Expansion in China, in the dynamic environment L'oreal Cosmetics has struggled to respond to the nimble upstart competition. L'oreal Cosmetics has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Opportunities L'Oreal: Expansion in China | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study L'Oreal: Expansion in China are -
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, L'oreal Cosmetics can use these opportunities to build new business models that can help the communities that L'oreal Cosmetics operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help L'oreal Cosmetics to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Building a culture of innovation
– managers at L'oreal Cosmetics can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects L'oreal Cosmetics can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Leveraging digital technologies
– L'oreal Cosmetics can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Manufacturing automation
– L'oreal Cosmetics can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. L'oreal Cosmetics can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Buying journey improvements
– L'oreal Cosmetics can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. L'Oreal: Expansion in China suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Better consumer reach
– The expansion of the 5G network will help L'oreal Cosmetics to increase its market reach. L'oreal Cosmetics will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Learning at scale
– Online learning technologies has now opened space for L'oreal Cosmetics to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Redefining models of collaboration and team work
– As explained in the weaknesses section, L'oreal Cosmetics is facing challenges because of the dominance of functional experts in the organization. L'Oreal: Expansion in China case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Developing new processes and practices
– L'oreal Cosmetics can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for L'oreal Cosmetics in the consumer business. Now L'oreal Cosmetics can target international markets with far fewer capital restrictions requirements than the existing system.
Threats L'Oreal: Expansion in China External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study L'Oreal: Expansion in China are -
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. L'oreal Cosmetics needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, L'oreal Cosmetics can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study L'Oreal: Expansion in China .
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. L'oreal Cosmetics will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Consumer confidence and its impact on L'oreal Cosmetics demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents L'oreal Cosmetics with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
High dependence on third party suppliers
– L'oreal Cosmetics high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for L'oreal Cosmetics in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Increasing wage structure of L'oreal Cosmetics
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of L'oreal Cosmetics.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of L'oreal Cosmetics business can come under increasing regulations regarding data privacy, data security, etc.
Shortening product life cycle
– it is one of the major threat that L'oreal Cosmetics is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study L'Oreal: Expansion in China, L'oreal Cosmetics may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Technology acceleration in Forth Industrial Revolution
– L'oreal Cosmetics has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, L'oreal Cosmetics needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Stagnating economy with rate increase
– L'oreal Cosmetics can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Weighted SWOT Analysis of L'Oreal: Expansion in China Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study L'Oreal: Expansion in China needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study L'Oreal: Expansion in China is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study L'Oreal: Expansion in China is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of L'Oreal: Expansion in China is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that L'oreal Cosmetics needs to make to build a sustainable competitive advantage.