Download - Loreal diversification strategic management
A corporate growth strategy in which a firm
expands its operation by moving into a different
industry
Many reasons or motives for diversification
Two major types of diversification
◦ Related (concentric) diversification
◦ Unrelated (conglomerate) diversification
Risk reduction and/or spreading
To make use of surplus cash flows
To build shareholder value
To Grow
To more fully utilize existing resources and
capabilities
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Diversification implies two levels of strategy
1. Business-Level Capabilities/resources to create competitive advantage within each business -low cost - differentiation-focused low cost - focused differentiation- integrated low cost/differentiation
2. Corporate-Level Capabilities/resources needed to create value across businesses
RelatedRelated Diversification Diversification
◦ share activitiesshare activities
◦ transfer core competenciestransfer core competencies
◦ Eg. Kraft foodsEg. Kraft foods
UnrelatedUnrelated Diversification Diversification
◦ More efficiently allocate internal capital More efficiently allocate internal capital
◦ restructurerestructure
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Key Facts and Figures
1st cosmetic group worldwide
1 century of expertise in cosmetics
23 international brands
19.5 billion euros of sales in 2010
130 countries
66,600 employees
612 patents registered in 2010
DIVERSIFICATION STRATEGY“Closely-related” Dermatology
Entering three kinds of industry:
Cosmetics
The Body Shop
COSMETICS INDUSTRYOffering different product lines through four market lines:
Professional Products
COSMETICS INDUSTRY
Consumer Products
COSMETICS INDUSTRYLuxury Products
COSMETICS INDUSTRYActive Cosmetics
THE BODY SHOP
A chain of cosmetic storesspecializing exclusively inhair and skin care products
based on naturalingredients.
Operated a total of 2,550stores in 62 countries
worldwide by the end of2009.
DERMATOLOGY
Galderma Laboratories: ajoint venture with Nestle. It
boasts three of the top 25best-selling drugs.
It specializes in skindiseases and skininfections.
REASONS OF DIVERSIFICATION
1Part of L’Oreal Long TermStrategy
Exploiting RelevantEconomies of Scope2
Strengthening External Growth
3 Meet Consumer Needs
STRATEGIC CHOICE
InternalGrowth
Resources
Asset
ExternalGrowth
Diversification
(M & A)
Alliances
GROWTH STRATEGY“Merger and Acquisition”
Objectives:
Satisfying local needs.
Creating a portfolio of distinctive butcomplementary products and brands.
Quickly acquiring new resources andtechnologies.
Overcoming the entry barriers.
Reaching a critical size for exploiting
economies of scale.
CHARACTERISTICS OF
COMPANIES ACQUIRED
Operating indifferent geographical markets from those inwhich L’oreal is already operating.
The Body Shop: Enters India Easily
Offering products that complete the L’oreal portfoliobrands or products.
ROGER&GALLET: Produces Pharmacy Fragrance
CHARACTERISTICS OF COMPANIES ACQUIREDOperating in geographical markets in which L’oreal intends to
reach leadership position.
Inneov: Number 1 in Spain
Having high technology and compet hL’oreal products.
Vichy: Advanced Skincare Technology
ACQUISITION PREPARATION
FLOWCHARTPreparation
(Gatherinformation)
Decision(Implementation)
FinalPreparation
Similaritieswith L’oreal
Characteristics
What is theObjectives?
IMPLEMENTATION
L’Oreal has acquired more than 25 brands with differentmarket segments (see acquisition timeline).
Each brands contributes a different advantage forL’Oreal long term strategies.
The Body Shop makes L’Oreal distribution broader.
ACQUISITION TIMELINE1990 1995 2000 2005 2010
ProfessionalProducts
ConsumerProducts
LuxuryProducts
ActiveCosmetics
The BodyShop
RISK MITIGATION STRATEGYIncreasing patent rights on its inventions.
Innovation and PatentRebuild the products to get customers’attention.
Patents, R&D Expenditures and Employees at L’Oreal2001 2003 2005 2007 2009
Registered 493 515 529 576 674patents
R&D 432 480 496 560 609expenditures(mill. Euros)
R&D employees 2,743 2,921 2,903 3,095 3,313
MARKETING MITIGATION
Market different product with different target market.
Develop a clear positioning statement as a current market leader.
MARKETING MITIGATION
Try to be the first mover - to gain more market share before other.
PRODUCTS STRATEGY
Collaboration with Channel Partners
Licensee
Hair Salons Mass Market
Retail
Partners
Department
Market Research Agencies
Stores,Perfumeries
Pharmacies,Dermatologists
ALIGNING WITH NATURE’ STRATEGY
Commitment toSustainable Development:
Reducing impact on natural capital.
Responsible sourcing.
Eco-designing new ingredients.
Addressing controversy on ingredients.
Protecting the global system.
Biomethanisation Unit at Libramont Plant:100% Green Energy
-50%
GREENHOUS
E
GAS EMISSION
Target for 2015
-50%
WASTE
GENERATED PER
FINISHED
PRODUCT
Target for 2015
-50%
WATER
CONSUMPTION
PER FINISHED
PRODUCT
NEWEST ACQUISITION:
PACIFIC BIOSCIENCE LABORATORIES
Date of Acquisition: Dec 15th, 2011.
Intermediated by L’Oreal USA (thefranchisee).
Products: Sonic Skin Care Devices(Patented).
Channels: Dermatologists andPrestige Retail.
Main Market: US.Reasons behind Acquisition:
Pacific Bioscience Laboratories’Expertise in Devices.
Size alone does not guarantee firms an advantage.
◦ Coordination required to exploit economies of scale and
scope is not without cost.
◦ Size creates additional challenges and difficulties, including
problems of communication and coordination.
Higher levels of diversification are not incompatible
with high performance -- nor do they necessarily
imply that firms will suffer lower performance levels.
Critical factor in determining success is the level
of management expertise in formulating and
implementing corporate strategy.
◦ More difficult for diversified firms.
◦ Managers of large diversified firms possess a variety of
well-developed mental models that provide them with
powerful understandings of how to manage their firms.