Amore Pacific Essay

AmorePacific, the leader in the Korean commercialise for beauty crossways, was established in 1945 with a healthy focus on researching and create products based on Korean office remedies. The high society 1959, listed its shares in the Korea Stock Exchange in 1973, and changed its name to AmorePacific Corporation in 1993. Industry dynamics and stones throw of development at Amore Pacific accelerated greatly during the 1990s. Domestically, anticipated entry by multinationals forced major changes in corporate and business strategy with a rigorous refocus on cosmetics by the mid-1990s, slashing of affiliates and reduction of headcount.At the business level, it repositioned itself and its brands domestically and deepened its commitments by investing in product development and manufacturing as tumefy as securities industryplaceing/distribution in selected foreign markets, gearing itself for the quarrels of the new millennium.Suggested Assignment Questions1.Where does AmorePacif ic make most(prenominal) of its money? How has it been able to dominate the Korean market against local anesthetic firms such as LG Household and health care (HHC)? Against multinationals such as LOreal?2.Assess the performance of MNCs how do they compare against local competitors? What are the reasons for local companies outperforming MNCs?3.Which of AmorePacifics three principal internationalistic targetsFrance/Europe, china and the United Statesseems the most promising? Should a penetration strategy for the U.S./Europe differ from that for china?4.What other recommendations would you make to Suh Kyung-Bae about AmorePacifics internationalization?Class TimelineThe timeline for a typical class of 80 minutes might be as follows quantifyIntroduction5 minutesSWOT analysis and challenges faced by local companies in the face 25minutesof foreign competitorsExamination of the economics of local vs. multinational entrants20 minutes appointment of patterns in market selection and20 min utes discussion of time to come opportunitiesUpdate & Summary10 minutesTOTAL80 minutesCase AnalysisAMORE PACIFICs initial exploration of exporting face powders to ground forces based Coty, coupled with its steatimedfast market share in Korea, and its forcefulness in herbal/ kinsfolk remedies all paved the way for a successful entry into the international arena. But this path was not without the initial bumps as AmorePacific had a slow pass over success only came about after deep understanding of the various foreign markets along with committed R&D and bag investment. The oversizedgest future challenge for AmorePacific is achieving synergy across its main markets and continuing with further elaborations into new markets/ countries. For this a comprehensive strategy outlining products, production/ sourcing, marketing and distribution is required. This is important because in a very diverse world, many foreign contexts will be alien to many of the managers who must decide on cro ss-border issues. In such situations, success in home country is not enough.1)Where does AmorePacific make most of its money? How has it been able to dominate the Korean market against local firms such as LG Household and Healthcare (HHC)? Against multinationals such as LOreal?In 2004 Amore pacific nabbed a place in the top 30 companies worldwide with a 30% share of the Korean market. While that of LG Household and Healthcare stood at 8% within the same context. Amongst other reasons one of the reasons for its relatively slow progress in comparison to Amorepacific was its new-made entry into the cosmetics business along with the heavy financial and restructuring damages over the same time period. This lead to a lack of innovation on its man generally following a me-too strategy to AmorePacific. For example setting up its own chain of stores and establishing door to door gross revenue netwoek without a clear strategy. accord to exhibit 7 AmorePacfic leads the market with signifi e rectt investments in advertising, sales, and R&D 20,000 Amore women, 350 effectiveness outlets versus 39 outlets for LG, development of innovative and relevant distribution line of businesss and strong positioning of different product lines are just a few of the examples. Multinationals entering the market was relatively difficult due to the government division and disparagement of the dollar. This was magnified with the fact that the multinationals like Loreal had to import their products due to a lack of investment in production infrastructure. This lead to a higher cost of goods sold mainly due to high tariff rates of 8%. Consequently leading to a high impairmentd product to the consumer and this availability and distribution was curb to high priced departmental store channels.We can see that LG HHC was losing money, and was never very profitable in economic terms, after allowing for cost of capital. This was mainly due to expressage access/scale of distribution cosmetics was not the main business for LG HHC. On the other hand Amore Pacific enjoyed a strategic advantage over LG as all their efforts were snappered around the cosmetics business and they had greater advantages to leverage and typically get trade and consumer on their side thus share of specific market winning over total size of business. AmorePacific had been earning healthy (20%-plus) operatingmargins on the Korean cosmetic business whereas LG had seen its profitability drop down to zero in 2004.In a situation like this considering price realizations, or the willingness to pay it is difficult to back up a door-to-door sales force if youve got a 10%, 15% share of the market.2)Assess the performance of MNCs how do they compare against local competitors? What are the reasons for local companies outperformaing MNCs?Amore PacificLOrealP&GUnileverShiseidoGlobal Expansion strategyMainly centering around acquisitions in the Asian market starting off with Mininurse in China which was a well pen etrated scrape-care brand and later Yue-Sai. This enabled LOreal to bank on the existing political partys consumer and market expertise in the region without initiating heavy investment in product development, distribution or marketing strategy. Focus on inorganic growth. Shiseido favored a joint investment with local partners. ProtectionismLarge established share FDIs welcomes at much later stage in country fiscal supportGlobal movement provided the backbone for investments in the wake of Koreas financial and money market crisis. R&DVertical integration aiding operations and quick product development. Successive launches of Hera, IOPE and Sulwhasoo focalisation on different age groups, SECs and distribution channels.Focus on developing products as per Korean tastes rose after 10 days of its presence in Korea Distribution Rationalized distribution AmorePacific was operating at three distribution markets. One was mass, the other one was door to door, and the third one was speci alism Success in self developed channel of door-to-door (contributing 85% sales comprising 20,000 women employees) and agility in specialty stores (Amore undecided 350 outlets in Korea while for LG opened only 39.)Concentration on high end/ high cost department store channel. Shisiedo opened up Les Salons du Palais Royal, a high end beauty living-room in Paris in 1992 and focussed on providing beauty consulting to consumers Marketing ExpenditureStrong focus with media advertising, beauty magazines and sponsoring relevant events moving onto more innovative means of converse via magazines and new media.High investment in advertising spend and expertise in marketing vigilance. Shisiedo localised product development but used spheric modeling for marketing (Eau dIssey by Issey Miyake of Japan and Jean Paul Gaultier, named after its French creator) Cost vs. Foreignness advantageLocal manufacturing with indigenous materials sustaining prices at lower levels than MNCs. Added support th rough the Made in Korea campaign. Adapting to market conditions sticking to local celebrities albeit at higher cost to consumers Product PortfolioFocus on skin care and products developed typically for the Korean woman (products developed from home remedies with ginseng proving to be USP).Leverage of the biggest global beauty brands in its portfolio. To keep prices affordable for local consumers LOreal launched Maybelline with gnomish success in bringing down relative pricesAlso operating in household products but mainstay was Olay a person-to-person care brandLargest player in various food categories with an extensive interest in personal care Competing in global perfumes market as well as cosmetics.Brand management/restructuring Strong brand personality, project top of the line product, Asian beauty with global appeal supported by a strong diverse product line each with their distinct positioning. Scale/ relative size Amore Pacifics cosmetic presence was about three times as big versus LG. Given that R&D, and advertising should be considered fixed costs and wouldnt vary with volume assuming they spend 10% on R&D and sales, and 14%, 15% advertising, supported by a higher local share, AP can amortize the cost over their international volume.Better understanding of the market This lead to stronger strategies that were not easy to implement for multinational companies who have less flexibility and were not as prepared to come with a door-to-door sales force or the same marketing tactics. Product development and R&D Having a strong R&D infrastructure provides a strength like no other and also serves a a strong barrier to entry for multinationals. Brand loyalty Amore Pacififc has been number one in the Korean market for 60 years and has a solid line of loyal consumers and traders on its side.3)Which of AmorePacifics three principal internationaltargetsFrance/Europe, China and the United Statesseems the most promising? Should a penetration strategy for the U.S./E urope differ from that for China?ChinaFranceUSAMarket positionEconomy considered poorer and runtyer than KoreaSignificant requiring focused investment in R&D, strategy and productionV small/dual problems Market characteristicsGeographically and culturally closer. Middle of the line product range with focus on naturalist and product driven consumersDistant in consumer tastes and market peculiarities perfumes vs. skin care and makeup. Geographically distant prestige market seemingly offering higher potential. Market potentialPopulation of 1.3bn potentially with rising incomes. Considered home of cosmetics and important to gain strong foothold in global beauty business industry. Largest personal care market in size $33bn.-Which market makes most sense for cosmetic company from Korea/how do you select which market to go into? CulturalAdministrativeGeographicEconomicClose cultural ties involvingi) script The Korean alphabet (Hangeul) not developed until 1392 ii) Colonial rule China go vern North Korea from 108 B.C. to 313 A.D. iii) Similarities in values and traditions Chinese herbal medicines used in South Korea iv)Religion Confucianism and Buddhism are common religious and moral systems v)differences in concepts of beauty and levels of personal hygiene vi)varying importance, usage and importance of personal care products vii)Home bias preference for using local brandsviii)influence of traditions on personal care productsNo cultural associations with France or USA distinctly separate culture, values and traditions across both continents from that of Koreai) No shared monetary or political association ii) Little political ill will (China backing North Korea South Koreans moving toward reconciliation with North Korea iii) Democracy (South Korea) versus Communism (China)iv) High government involvement in Chinese industry presence of state-owned enterprises, many of which are inefficient and/or insolventRelatively less government involvement in South Korean indus try v)Both countries harbor suspiciousness of Japan (recent colonial memories) vi)potential discrimination against French productsNo administrative ties with France or USA disadvantage of not being part of EUCommon border in the nineteenth century, South Korea closed all borders to trade except for the one with ChinaStrong logistic set-up coupled with infrastructural investment involving production, distribution and marketing. Differences in climate poignant usage, need and type of personal care productsDisparity in disposable income levels Gap in % of wages spent on personal careDifferences in infrastructure and distribution structuresThe second part of the question should be analyzed using the ADDING value framework Adding VolumeFulfillment of the 2015 vision required global expansion with significant growth from the international markets. In 2004, Amore Pacific had international sales worth $100mn. Coming from France, China and USA and modestly from Hong Kong and Taiwan. Geogra phic affinity to China coupled with close cultural ties and similar distribution scenario vs. greater investment in R&D, brand development and marketing strategy in USA The value of growth had to pass the ROI test with business earning positive economic results coupled with greatest market potential. Decreasing CostsGlobal expansion can decrease costs through either size (scale/scope) economies or absolute economies. Size-based cost economies seem redundant in this industry product/ brand affiliations center more around brand benefit, loyalty and credibility expenditures on product development and branding are constant Similarities in opportunities across both countries includes Set-up of specialty stores prolific in both countries ROIseemingly better in USA since target market is upper SEC Retail expansion leading to price affordability of products Differentiating/Driving up Willingness to PayUSA market focused on prestige product lineBrand-building with new product line containing Asian botanicals in USAAmore Pacific beauty gallery and Spa in Soho New York adding range of mountainsry Special ingredient green tea extract adding to exclusive imageChinese consumer more product drivenGrowing popularity of Korean culture Hallyu with support from Korean film stars and celebrities image creation and brand building through beauty centers, culture halls, and Hyangjang the magazine published by Amore Pacific. Improving Industry AttractivenessEntering new territories with market relevant products perfumes in France, luxury products in USA. Constant innovation to meet continuous demands of consumers Lucrative market excellent future prospects growth expected to exceed increase in global gross domestic product Evidence of product improvements trickling down into the masstige market New trade and distribution channels enabling wider access to consumers Neutralizing RiskFrequent economic crisis on the home front leading to inflexibility of investment abroad Differing str ategies and product lines across international markets Differing consumer tastes requiring further investment and R&D short lived span for perfumes vs. long-term spans for skin care products. Generating and Upgrading Knowledge/Capabilities/Other ResourcesConstant R&D both at the technical and consumer front International aspiration multinational management, international consultants, product development and brand / corporate image repositioning4)What other recommendations would you make to Suh Kyung-Bae about AmorePacifics internationalization?Product innovationSpecialty ingredients like green teas proven success along with Korean herbal/ medicinal heritage focus for future productdevelopments Distribution structureSpecialty and discount stores gaining importance for masstige channel large scale supermarkets and hyper markets also increasing in importance to gain masstige market appeal. Party plans involving product demonstrations/sales to groups of consumers to be explored as a fu ture alternative Building brands and credibilityContinue brand / image building efforts in both upscale and mass markets Inorganic growthEvaluate acquiring smaller/ financially distressed players in both key and upcoming markets like Hong Kong and Taiwan.Can we give reference to some academic theories here, based on issues of internationalization strategy?