L Oreal is one of the largest cosmetics manufacturers in the world and takes a

lot of market share with more than 20 brands within production line. It is a
successful story about the internationalization of L Oreal in such a competitive
world market. LOral is present in 130 countries on five continents. To be as close to its
consumers as possible, the group establishes its expertise in all the major geographical
zones.( LOreal, 2015)
Firstly, it is necessary to know more about the history of its development and
internationalization progress. The small company founded by Eugne Schueller in 1909
has become the number one cosmetic group in the world. ( LOreal, 2015) The whole
development process of LOreal can be divided into four sections referring to the official
website. The first section is 1909 to 1956, during this period LOreal experienced its first step
to construct a model. Then, the company began to expand into international market after
1957 and by 1983 it already became a well-known grand LOreal in the world. This part will
be illustrated more in detail latter. Between 1984 and 2000, LOreal spent much to invest in
terms of product development and research which contributed to the big progress of the
brands reputation and service. From 2000 to nowadays, the company are focusing on how
to diversify the production in different markets in order to meet the diverse demands.
However, these series of improvement and investment have already made L Oreal more
and more successful and accepted by more different groups of consumers.
In this report, we will discuss about the entry strategy of Loreal into China. And why
LOREAL invested in china.
PEST analysis of LOreals Penetration into Chinese market

Political:
The capability of negotiating with local government
The optimal entry mode for LOreal to penetrate in Chinese market with
governments instruction . Economics:
Huge Chinese market
Different price ranges products could be targeted to divergent consumers with
differential levels of purchasing power .
Improving consumption
culture Better
infrastructure networks.
Prosperous development of selling distributions, especially with the internet
selling channels .There is a promising picture of cooperation with the internet
selling platform.

Social:
With the enhancement of living standards, Chinese people progressively
attach increasingly importance to individuals social image. This
burgeoning cultural transformation serves as the fundamental social
element in Chinese market .
Technology
Loreal hold strong firm specific assets ,such as huge amount of research
expertise ses and have advanced technical insights in cosmetics products
development .And it may need to adjust its research activities in Chinese market
to tailor to the local customers and cooperate with local brands to efficiently find
the most appropriate way to research products.

Theory:
Foreign Direct Investment can be defined when a company from one country
makes physical investment into building a factory in another country. FDI
plays an extraordinary role in global business. It can provide the firm with
access to new markets and marketing channels, cheaper production
facilities, access to new technology, capital, and processes and additionally
can provide strong impetus to economic development. (Going -global.com).
Now lets explore why firms make FDI in more details:
a. Resource seeking: In this type of endeavor, MNEs aim to seek particular
type of resources which are not available in the home country or may be
available in cheaper cost with respect to the home country.
b. Market Seeking: In this category MNE choose various reasons to follow
suppliers or customers that have built foreign production facilities, to
adapt goods to local needs or tastes and to save the cost of serving a
market from distance. In recent times it is becoming important also to
have a physical presence on the market to discourage potential
competitors from occupying that market.
c. Efficiency seeking: They are considered to occur especially in two
occasions: in the first case firms take advantage of differences in the
availability and costs of traditional factor endowments in different
countries, while in the second one they take advantage of the
economies of scale and scope and of differences in consumer tastes and
supply capabilities(Dunning, 1993, p.60)
d. Strategic Asset Seeking: The purpose of the investment is that of
acquiring and complements a new technological base rather than
exploiting the existing assets.
Now lets explore some of the factors the organizations should keep in
mind while investing abroad:
Market analysis: Pestle analysis, Competitiveness: How competitive it is to enter
into the new market, what is the market expectation and companys internal
resources: Internal resources includes firms management structure, experience,
support of the upper level management, manpower, financial condition and do
on. So before investing abroad, all these factors need to be considered.

Various market entry strategies:

There are various ways a company can enter into new market. Lets explore the
various strategies and its advantages and disadvantages:
Exporting: It is defined as the marketing of goods from one country to another
(Fao.org, 2015) country. The main idea is not to get comprehensive market
information of the new market; however, this does not negate the need of a
marketing strategy. Now lets see the advantages and dis advantages of this
strategy:
Advantages: Since the manufacturing is home based, thus it will be less risky than
overseas based. Secondly it also gives the opportunity for the firm to learn
overseas markets before actually investing fully and thirdly reduces the potential
risk of operating overseas. Additionally it helps to increase their competitiveness in
domestic market.
In terms of risk, there is less control over the operation of the product you need to
be in the mercy of the overseas agents. Also there is also chance of financial risk
collection of payments through bank transfer, online and it takes lot of time. Also
there is less control over the quality of the final product reaching the new market
(Brokers, 2015)

Licensing: Licensing is a process where a firm from one country allows another
firm of a new country to use the manufacturing processing , trademark, know-how
or some other skill provided by the licensor. (Licensingexpo.com, 2015)
Advantages: It is a great way to start in foreign operation and paves the way of low
risk manufacturing relationship. Secondly there is a linkage of parent and receiving
partner interest and that allows both of them to get the most of marketing effort.
Also it provides methods of circumventing tariffs, quotas and other exporting
barriers. It also involves low investment, however attractive return on investment.
Disadvantages:
Licensee may become your competitor, licensee may exploit company resources,
lack of control of the product quality, very limited participation and the returns
may be lost. (Keegan and Keegan, 1989)

Joint Venture: It is an enterprise in which two or more investors shares ownership

and control over the property rights and operation. (Contractor and Lorange, 2002)
Advantages: It includes joint financial strength, may be the only modes of entry,
joint financial strength with the local company with great knowledge of the market,
less political barrier. In terms of risk, different views with partners, less control over
the management, may be impossible to recover capital if it is needed, the partner
might become the competitor.
Turnkey Contracts: It is a business agreement where the product is reached at a
finished state to the owner, rather than contracting the owner at different stages
of the product making. The advantages include ability to earn return in process
technology skills where FDI is restricted. In terms of risk, there is lack of control
over technology, inability to realize location economies and inability to engage in
global strategic coordination. (Hill, Hwang and Kim, 1990)
Whole owned subsidiary: In wholly owned subsidiary, you are actually establishing
your own company fully in the new market without depending on other partners
(Small Business - Chron.com, 2015). Advantages include great control of quality of
product, protection of technology and ability to engage in global strategic
coordination. The disadvantages include high cost and risk. (Christopher, 1998)

Merger and acquisition: Merger means when two company join together to form a
new company, while acquisition means when one company buys another company.
The advantages includes increased market share, lower cost of production or
operation (provided the company buys another company of the same industry),
industry know-how and positioning, financial leverage and improved profitability.
Economy of scale. Provides the ability to speedily acquire resources and
competencies that was not there in the house.
Disadvantages include less innovation, decreased performance, suppression of
competitive business and decline in equity pricing and investment value. (Murray,
2001)

Strategic alliance: It is an agreement between two parties to pursue a set of

agreed upon objectives, while remaining independent organization. (Chan and Wong,
1994)

Advantages include capitalizing on the individual strength of the respective

organization, can provide local contacts and link to local communities and
stakeholders, involved shared responsibility for the execution of any program or
service, reduce cost. Disadvantages include firms conflict, time consuming, less
flexible and usually limited in the scope of the objectives of the alliance or
partnerships. (Strategic alliances: Choose your partners, 1995)

Entry Strategy :
a. Loreals

acquisition of Chinese Magic Holdings:

Jean-Paul AGON, Chairman and CEO, said: "This is the most important acquisition
for LOral since the acquisition of Yves Saint Laurent Beauty in 2008. The MG
brand beautifully completes the brand portfolio of our consumer products division in
China: LOral Paris, Maybelline New York and MG, the iconic Chinese brand. This
acquisition marks the acceleration of our conquest of new consumers in China.
(Market Watch, 2015) "

b. Loreal opened new research and development facility in China

LOral, the worlds leading cosmetics company, announced today the opening of a
new research facility in China, the Pudong LOral Research Centre, whose main
mission will be to conduct and support basic science research to vastly improve
present understanding of the structure and behavior of Chinese hair and skin.
(Thompson and Strickland, 2003)

.c Loreal Yichang plant in china to reduce carbon footprints:

LOrals investment plan for the extension and connection to hydropower of its Yichang
plant was signed today in the presence of French Prime Minister Manuel Valls and Chinese
Prime Minister Li Keqiang in Toulouse, France. This project is part of the strategic agreement

between the Yichang government and LOral regarding the use of clean and renewable energy
such as hydropower and solar panels. (Sharingbeautywithall.com, 2015)

D . Loreals aquistion of Yue sai:

The L'Oral group has signed an agreement to acquire the Chinese make-up and
skincare brand Yue-Sai. "Yue-Sai, a symbolic brand for the Chinese woman of
today, will naturally slot into L'Oral's portfolio The brand strengthens the group's
leadership in make-up and facial skincare. The group's technological input will enable
Yue-Sai to win new market share (Bloomberg.com, 2015)".
E. Loreal partnered with SINA corporation
L'Oreal, a leading cosmetics group worldwide, selected SINA (Nasdaq: SINA), a leading Chinese
media and Internet services company, as the host and partner for a women's site targeting Chinese
women worldwide. Additionally, "Women of China," the largest women's press group in China, will
provide content and editorial management for the new women site. (Phx.corporate-

ir.net, 2015).

Analysis:
a.

Loreals

acquisition of Chinese Magic Holdings:

As we have seen in the theories discussed above, acquisition provides lot of

benefits for a company while entering a new market. So LOREAL , one of the
French beauties giant decided to acquire Magic holdings. If we analyze we can
see this acquisition reflect an astute strategy that allowed LOral to do both
better penetration through an already established player and canny product
diversification (Skin Inc., 2015) thus getting benefit through synergistic effect. To
counter increasing competition in the domestic market, this acquisition in the
Chinese market is the right decision. The advantages of these acquisitions are
many. First of all, despite the fact that magic holding is a young company, they
were doing well for the last 5 years and it was dominating over a quarter of facial
mask market (market seeking). This will allow LOREAL to supplement its two
existing factories with a new production facility and thus will help gaining
economies of scale by bringing an expected 50 percent plus production
capacity(efficiency seeking). Additionally, the fact that there is absence of facial
mask line within the companys product portfolio; this will help LOREAL to extend
and enhance its product range. However, there might be some risk associated with
that because as we have discussed in the theories that acquisition can sometimes
result in less innovation and can often failed to explore new opportunities.
Henceforth, it is essential that LOREAL should keep on innovating their products
and provides Chinese consumers with what they really want.
b. LOral opened new research and development facility in China
In this case, if we analyze using our theories, we know that LOREALS
decision to invest in china was a commitment to formulate cosmetic
products that meets the consumer needs the world over (Lorealusa.com,
2015), while continue to respect cultural diversity. Henceforth, LOREAL will
leverage the valuable knowledge gained from the research(resource
seeking) that was done at Pudong LOREAL research Centre to develop
innovative and better performing cosmetics, skincare products for ever
increasing Chinese consumers and Asian world over. This research Centre
will also be responsible for developing efficient, highly tolerant products
that will help LOREALS brand internationalization strategy-, thus adapting
brands from different parts of the world to the Asian and Chinese consumer

needs, while at the same time support the internationalization of Chinese

local brands. (Loreal-finance.com, 2015)
c. . Loreal partnered with SINA corporation

SINA is a leading Chinese internet and media service company that targets
women consumers in china. This new women site is dedicated to all women
who speak Chinese and are of Chinese culture and will provide range of
information and specific services for Chinese women. Now by partnering
with SINA, LOral will be able to provide millions of women Chinese
consumers with its expertise in beauty, the knowledge of specific
expectations, and information about its services and products of
international brands. This strategy is a great way to effectively reach large
number of Chinese consumers who really care about their products this
establishing their market seeking strategy .Also the features of the website
with its interactive sessions, chat room, where people can talk and share
their experiences will allow to potentially expand LOREALS distribution
channel and will strengthen the links between the virtual and real worlds
for internet users. As director of LOral rightly said "Our partnership with
SINA is a fundamental component in our strategy. It will help us understand Chinese
consumers even better and increasingly meet their needs (Phx.corporate-ir.net,
2015).
Thus in this case LOREAL went for market seeking strategy by leveraging
SINA corporation in order to reach more consumers.
d.

Loreals acquisition of Yue sai:

Yue Sai, which has been operating in china since 1997 with a growth
of 69.3 percent yearly (Loreal-finance.com, 2015), was acquired by
LOREAL. In the light of theories discussed above, this move falls
under market seeking. LOREAL understood that it needs to
understand the traditional tastes of Chinese consumers in order
acquire the Chinese markets. Hence to respond to the Chinese
aspirations for brands that fit with the specific qualities of Asian skin,
LOREAL by acquiring Yue sais assets of already established brand for
Chinese women (market seeking) wanted to expand their growth in
Chinese market. As Paolo Gasperrinni has said in an interview YueSai, a symbolic brand for the Chinese woman of today, will naturally
slot into L'Oral's portfolio The brand strengthens the group's
leadership in make-up and facial skincare. The group's technological
input will enable Yue-Sai to win new market share".
Additionally having acquired Yue Sai, LOral was able to establish
production facility in shanghai that helped the company to ensure rapid
growth.
E LOral Yichang plant in china to reduce carbon footprints.
LOral made a strategic agreement with the Yichang government to
make use of the clean and renewable energy such as hydroelectric
power and solar cells. The Yichang plant has been innovating to improve
its energy efficiency and was trying to reduce its carbon footprint.
LOREAL took this opportunity to make good relation by going into
strategic agreement with the government and tried to clean up any
political barriers that can come from Chinese governments. This is a
good strategy by LOREAL especially when the government has been
trying to reduce pollution and invest in sustainability. Hence, we can see

LOral executive director has commented that For Yichang to become

carbon neutral demonstrates our continued confidence in the long-term
prospects for China and the Asian market, as well as our strong
commitment to sustainable development (Mass market leadership and
shampoo wars: the L'Oral strategy: Journal of Business Strategy: Vol 34,
No 1, 2015)