Discuss about the Global Regulatory Issues for Cosmetics Industry.
L`Oriel is a multinational beauty and cosmetic company that is headquartered in Clichy, Hauts-de-Seine in France. L`Oreal is the largest cosmetic company in the world. The company was formed in the year 1909 by a man named Eugene Schueller and it operates in the personal care industry. The products offered by the company include; hair color, skin care products, sun protection, make-up, perfume and hair care products. The company is also involved in designs and produces products related to dermatology, toxicology, tissue engineering and bio-pharmaceutical research and product development. The company is also the single largest holder of nanotechnology patent. L`Oreal is incorporated and its listed in the Euro Stoxx stock market index. The revenue of the company in the year 2015 was 25.257 billion euros (Hisrich & Kearney, 2013). The other important financial records of the company include the operating income which stood at 4.388 billion Euros and the profit of the company which was 3.297 billion Euros. All the financial information stated above was for the 2015 financial year. The company has approximately78700 employees across the globe (Baines & Fill, 2017). The company also has two subsidiaries which also specialize in manufacturing of beauty product. These subsidiaries include The Body shop and Lancome. L`Oreal has six research center located in different parts of the world. This explains the company’s strong product portfolio and need driven product development. The company’s current advertising slogan is “because we are worth it”.
The company’s strategies are always globally focused with the company creating a globally recognizable brand. L`Oreal seeks to expend its operation further in the countries in which it does not perform so well especially in the Middle East and Africa. The expansion strategy has seen the company open new its regional offices in countries like South Africa and Nigeria. L`Oreal philosophy is to provide to the world the best and safest beauty and cosmetic products at cheap prices. The company has research and development centers in 4 countries across the globe with further plans to develop some more. Two of the development centers are in France, one in Japan, one in Shanghai China, one in India and another one in Clark, New Jersey, USA (Hisrich & Kearney, 2013).. The regions for location of the research and development centers are chosen based on various factors. Some of the factors considered when decision on location of R&D centers include; availability of skilled labor, availability of highly trained and experienced researchers, operational costs that the company will incur in this region, laws affecting research and development in the region, economic development and growth of the region as well as political stability of the area under consideration (Tungate, 2011). For an area to be chosen for location of R&D center, it has to have attained all the above requirements as well as offer a suitable environment for research to thrive.
The marketing strategies of L`Oreal are very effective. The company carries out proper market research before development of new products in order to identify the needs of consumers and fill the existing gap in the market. This therefore makes the marketing of the companies` products easier since it does not have to do a lot of promotion and impose the product on the customers. The customers buy the product because it fulfills their specific needs. L`Oreal sells its products in all corners of the world in both developed and under-develop countries. The company’s major sales are attained mainly in Europe, China and USA (Baines & Fill, 2017). There are also fast developing markets like India which form an important component of the company’s customer base. Africa is also experiencing growth at a very high rate and this has provided an opportunity for the company to market it products in this region with the company gaining increased market share in this region. Therefore, the major motivating factors for the marketing of the company’s products is the level of economic activity and development, stability of the country as well as social and religious customs of the people living in these countries. This mainly applies in Muslim dominated countries which have restrictions on use of beauty and cosmetic product. The company has diversified its products to cater for the needs of each class of customers.
L`Oreal uses a variety of marketing strategies in order to achieve its marketing objectives. One of these strategies is diversification strategy. The company has developed products ranging from skin care, hair care, dermatology and toxicology products. This has provided the company with a large customer base and therefore, they are able to attain high sales volumes (Plankett & Plankett, 2008). Another marketing strategy used by the company is that of product differentiation. This involves making little changes to products with similar uses in order to offer more value and choice to the consumer. L`Oreal has used this strategy especially with the skin care products. The company uses indirect distribution channels. The company sells to the wholesalers who sell to the retailers and then the retailer sells to the final consumer.
L`Oreal produces its goods in various countries but its main manufacturing plant is in France. The companies` largest factory was completed in the year 2012 in Jababeka Industrial Park, Cikarang, Indonesia. The investment cost the company a total of US$100 million. Of the total production from the company, 25% will be sold within the country and the rest will be exported. The factories in France also produce a significant amount of products which are exported to other countries (Hitts & Hoskinsson, 2014). Other countries where L`Oriel produces its products include China and USA.
The decision by the company on where to locate its factories is influenced by a combination of factors. These factors include; the availability of skilled labor force and the cost of factors of production in the country. The factors of production considered in this case include, wage rate, cost of capital and the cost of land. The company opts to produce its products in countries where these factors are cheap in order to minimize cost and hence make more profit. Other factors that influence the selection of a country to produce goods include; political stability of the country of location, economic growth rate of the country, economic policies and foreign investment policies of the country, the level of government support to foreign investors as well as the market potential of the country in regard to the goods the company wants to produce. The combination of this factors influences the decision of the company to invest in the country of not.
The companies HRM strategies advocate for fair recruitment and employment opportunities for all people irrespective of race, tribe, nationality or even religion. The company offers equal employment opportunities to people applying for jobs and recruitment, selection and hiring are all done on merit. The company’s human resource policy states that the company cannot employ more than 25% of its employees from outside the country in which the factories are located. The rest of the employees for the company should be nationals of the country in which the production activities are located. The 25% or less should be only skilled workers. The locals always get consideration before the companies decides to outsource for labor. The promotion policies of the company also give locals a priority to be promoted to senior level of management based on their performance.
The human resource policies of L`Oreal will be very important for this country since they are favorable to the locals. The nationals of the countries will be guaranteed of 75% of all the vacancies in the organization and therefore, this will boast the levels of employment in the country (Abdallah& Albadri, 2011). Creation of employment by the company will result to reduction in the levels of poverty in the country and hence promoting improved standards of living.
There are various risks that may come with the company investing in this country. One of the risks of investing in this country by L`Oreal is that the company will bring competition to the local infant industries. When L`Oreal opens its production factory in this country, the local industries that have invested in cosmetic and beauty products will suffer from the effect of competition from the giant multinational company(Alsop, 2008). This is because the company has large amount of resources at its disposal and will therefore enjoy economies of scale in its production and hence offer its products at a cheaper price.
Another risk of allowing L`Oreal to invest in this country is that the country may fail to benefit much from the profits generated from local operations because the company may direct the profits realized in this country to other countries. The movement of the capital will mean that the country won’t benefit fully from the use of its resources in the country and the economic impact of the invest may not be as big as expected (Jones, 2010).
The environment effect of new industries by the company will also be a risk. Increasing concern for the environment in the country due to the negative effects that environmental pollution has brought to the country is a major cause for concern (Betton, 2007). The production activities of the company will bring a lot of negative environmental effects to the country and in areas which the factories will be located.
Despite being several risks associated with the company investing in the country, there are also various advantages that the country will gain from the company investing in the country. One of the benefits is creation of employment opportunities. The company’s human resources policies are very friendly and will promote the development of local human resources through training and experience. The locals will get employment through skilled and unskilled job opportunities (Industrial Systems Research, 2013). This will help to reduce the unemployment burden faced by the country at the moment.
The company will also be paying taxes to the government. This will contribute further to economical development of the country.
By investing in the country, the company will contribute positively to the society through corporate social responsibility activities of the company.
Investment by the company will help to develop research and development in the country. Research in tissue engineering and biotechnology by the company will be a positive influence for the country and will encourage other companies also to invest in research and development in the country to help solve problems facing human beings.
If the company in the country, it will gain by allowing exchange of human resources between countries in which the company is operating. This will promote the exchange of ideas and knowledge which will promote development in the country.
The company should be allowed to invest in the country and given all the necessary support to help them in setting up a factory. This is because of the many advantages that the investment will bring to the country compared to its shortcomings.
The government should create an enabling environment for foreign investment because of the advantages that accrue from the companies investing in this country. This will be done by making laws that are friendly to foreign investors and that makes carrying out business in the country easier.
Conclusion
The investment by L`Oriel in the country will be a major milestone for the country because it will set a trend for other large international companies to follow by inspiring them with confidence. The country will also benefit in a big way through the employment opportunities that will be created by the investment. Among many other advantages the company will contribute greatly to the economic growth of the country by paying taxes and through many other means (Abdallah& Albadri, 2011) The shortcomings that may arise with this investment include the risk of killing the local manufacturing companies through unfair competition. Another major risk is to the environment given the waste that will result from the manufacturing activities of the company.
References
Abdallah, S., & Albadri, F. (2011). ICT acceptance, investment and organization: Cultural practices and values in the Arab world. Hershey, PA: Information Science Reference.
Alsop, R. (2008). The trophy kids grow up: How the millennial generation is shaking up the workplace. San Francisco: Jossey-Bass.
Academy of Marketing Science. (2008). Developments in marketing science. Greenvale, N.Y., etc: Academy of Marketing Science.
Baines, P., Fill, C., & Rosengren, S. (2017). Marketing
Betton, C. I. (2007). Global regulatory issues for the cosmetics industry. Norwich, N.Y: W. Andrew Pub.
INDUSTRIAL SYSTEMS RESEARCH. (2013). Manufacturing and Investment Around the World: An International Survey of Factors Affecting Growth and Performance.
Jones, G. (2010). Beauty imagined: A history of the global beauty industry. Oxford: Oxford University Press.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2014). Strategic management: Competitiveness & globalization.
Hisrich, R. D. D., & Kearney, C. (2013). Managing Innovation and Entrepreneurship.
Capon, N. (2007). The marketing mavens. New York: Crown Business.
Guston, D. H. (2010). Encyclopedia of nanoscience and society. London: SAGE
Plunkett, J. W., & Plunkett Research, Ltd. (2008). Plunkett’s nanotechnology & MEMS industry almanac 2008: The only comprehensive guide to nanotech companies and trends. Houston, Texas: Plunkett Research, Ltd.
Tungate, M. (2011). Branded beauty: How marketing changed the way we look. Philadelphia, PA: Kogan Page.
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