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L’oreal: Expansion In China Essay

1722 words - 7 pages

L’Oreal: Expansion in China
Jamie O’Neill
A9079721
BUS3047

L’Oreal’s Positioning Introduction

L’Oreal originally founded in Paris is the worlds largest manufacturer, marketer and distributer of Health and Beauty aids. After their success in Europe and America they decided that it was time to focus on their expansion in to China, the worlds 2nd largest economy. In December 2003 L’Oreal acquired Raystar Cosmetics (Shenzen) Co. Ltd’s skin care brand, Mininurse, and then in January of the next year signed an agreement to acquire the famous Chinese cosmetics brand Yue-Sai.

Aim of Report

The aim of this report is to analyze the structure of these new acquisitions and see how these ...view middle of the document...

The Scale of China however can also be an issue that needs to be addressed; due to its undoubtedly great prospects there is also vast interest from rivals with thousands of other manufactures already established in china, with L’Oreal being a late arrival in this market. Even still the undeveloped market is still untapped and where L’Oreal is the 3rd biggest cosmetic in Mainland China (see Figure 2) it still has the opportunity of this merger to take advantage of the underdeveloped regions.

Analysis of the Acquisitions

Shenzhen Raystar Cosmetic Company

Raystar Cosmetic Company founded Mininurse in 1992, which since being founded has gone from strength to strength and in 2003 was in the Top 4 ranks of market share of skincare products in China (Figure 3). L’Oreal will receive many advantages from the acquisition on Mininurse over starting from fresh due to Mininurse already being well established in China. Mininurse also has a full range of products that L’Oreal could expand, customize to include their own labels etc. or fully replace with their own products. The main advantage to L’Oreal of this acquisition is the fact that they can take advantage of Mininurse’s extensive distribution channels and if L’Oreal are going to target the undeveloped or developing rural areas this could be a good channel to choose as Mininurse’s products at present are very affordable and this would work well in the areas which the choice of cosmetic are entirely chosen on the price. The one issue that L’Oreal may face however is with one of the clauses in the contracts, as in the acquisition it was agreed that the founder and president must leave the cosmetic field.

Yue Sai Han (Shenzen) Cosmetic Ltd

Yue-Sai Han was founded in 1992 and had the concept of producing products that would typically target the Asian women; to do this they produced brands that would suit the Asian face, skin and hair. The brain behind this was Yue-Sai Kan, who was a Chinese born international celebrity, who was best known for being a successful Television producer. Due to her celebrity connections and her close ties to the Media her company grew rapidly in to a major brand with 900 stores and sales amounting just under $47 million. One of the major advantages to L’Oreal of this acquisition is that as part of the contract L’Oreal would take ownership of a manufacturing plant in Shanghai, this could prove very useful if they were to expand production to the rural areas and therefore needs a larger supply of goods. As in the first acquisition part of the deal was for Yue-Sai Han to leave the cosmetic industry.

Recommendations

Due to there being a split in the two markets in China, that of the Luxury high level cosmetics and that of the more price elastic market their should be two different recommendations for the two acquisitions so that L’Oreal can span as larger area as possible and hit the whole Chinese market.

Mininurse
Mininurse should be used to target...

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