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 - – technology disruption, competitive advantages are harder to sustain because of technology dispersion, talent flight as more people leaving formal jobs, there is backlash against globalization, there is increasing trade war between United States & China, challanges to central banks by blockchain based private currencies, increasing commodity prices,
increasing government debt because of Covid-19 spendings, increasing inequality as vast percentage of new income is going to the top 1%, 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 -
High switching costs
– The high switching costs that L'oreal Cosmetics has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
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.
Operational resilience
– The operational resilience strategy in the L'Oreal: Expansion in China Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
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.
Analytics focus
– L'oreal Cosmetics is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Zhigang Tao, Li Dongya can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
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.
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.
Training and development
– L'oreal Cosmetics has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in L'Oreal: Expansion in China Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Low bargaining power of suppliers
– Suppliers of L'oreal Cosmetics in the sector have low bargaining power. L'Oreal: Expansion in China has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps L'oreal Cosmetics to manage not only supply disruptions but also source products at highly competitive prices.
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.
Strong track record of project management
– L'oreal Cosmetics is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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 -
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.
No frontier risks strategy
– After analyzing the HBR case study L'Oreal: Expansion in China, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
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.
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.
High bargaining power of channel partners
– Because of the regulatory requirements, Zhigang Tao, Li Dongya suggests that, L'oreal Cosmetics is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
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.
Need for greater diversity
– L'oreal Cosmetics has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
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.
Increasing silos among functional specialists
– The organizational structure of L'oreal Cosmetics is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. L'oreal Cosmetics needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help L'oreal Cosmetics to focus more on services rather than just following the product oriented approach.
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.
Capital Spending Reduction
– Even during the low interest decade, L'oreal Cosmetics has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
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 -
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.
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.
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.
Loyalty marketing
– L'oreal Cosmetics has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, 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.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. L'oreal Cosmetics can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. L'oreal Cosmetics can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
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.
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.
Using analytics as competitive advantage
– L'oreal Cosmetics has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study L'Oreal: Expansion in China - to build a competitive advantage using analytics. The analytics driven competitive advantage can help L'oreal Cosmetics to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
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.
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.
Low interest rates
– Even though inflation is raising its head in most developed economies, L'oreal Cosmetics can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. L'oreal Cosmetics can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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 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.
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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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 .
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.
Regulatory challenges
– L'oreal Cosmetics needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for L'oreal Cosmetics in the Strategy & Execution sector and impact the bottomline of the organization.
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.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. L'oreal Cosmetics can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
Environmental challenges
– L'oreal Cosmetics needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. L'oreal Cosmetics can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
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.