Natura Case Study
International Marketing Management Case Study by Andy Lalinde, Michal Berka & Claudia Baumgart Case Study – Natura: Global Beauty Made in Brazil 1. The benefits and obstacles of globalization for Natura Globalization can be described as the process of the increasing worldwide interconnectedness in many areas such as economics, politics, culture, communication, environment, etc. The consolidation of the global relations occurs on the level of individuals, societies, institutions and countries.
The digital revolution, the technical advance in general and especially in regard to communication- and transport technologies as well as the political decisions to promote liberalization of world trade can be mentioned as main drivers accelerating globalization. It is undeniable that it has become one of the principal characteristics of our modern age and determines nowadays society and businesses to a large extent.
From the business perspective the phenomenon of globalization offers great expansion opportunities on the one hand, but on the other hand it also comes along with certain obstacles which are additional competitors and systemic risk for example. WTO agreements facilitated market entries for foreign companies and allowed them to gain significant market share outside of their home market which lead to rise of their overall profitability. Nonetheless, the vastly increasing amount of international competition has had a negative impact on many original local businesses and even resulted in their extrusion.
Also crucial to mention is systemic risk which has gained overall importance in particular during the global financial crisis since risks nowadays transmit much further and faster, bouncing from one country or industry into several countries or sectors. Although the cosmetics industry is regarded as relatively crisis-proof, the cosmetics companies have to deal with the above mentioned challenges and need to develop optimal strategies with competitive advantages to participate in these global trends.
There are certain drivers, particularly valid for the cosmetics industry that have to be taken into account and can be regarded as reasons why Natura and other cosmetics companies should not miss out on global investment: ? Rising living standards and higher income in developing regions lead to increased spending, notably in cosmetic items: In developing countries consumers are more willing to spend large amounts on personal care and cosmetics. This is proven by exhibit 2 which shows that among the top 10 countries in terms of global per capita spending on cosmetics and toiletries are more developing nations than developed countries. International Marketing Management Case Study by Andy Lalinde, Michal Berka & Claudia Baumgart ? Increased international travel and mobility: Business as well as private travelers are seeking to buy their common beauty products abroad and are even disposed to pay a premium. ? Increased media influence: The influence of media on potential customers has always been significant, but recent trends such as online shopping and consumer apps on the I-phone and I-pad have amplified the media? impact. With a saturated home market, Natura generally does not have any other option but to expand and globally take advantage of the favorable developments of the tremendously fast growing cosmetics and toiletries market. The small market share of 0. 4% in Latin America and their current foreign market observation also leave room for improvement and expansion. Furthermore the device to connect universal values with Brazilian characteristics has proven to be successful before.
The Brazilian flip flop brand Havaianas has become a global market leader within its segment. In addition, Natura possesses several competitive advantages so as to keep up with its international competitors. As examples can be mentioned their Akno Natura and bikini waxing product which reached outstanding success in France. Conquering the Russian market Many people would say Russian upper class women are spotless – hair styled, perfect make up and freshly painted finger nails at any time.
Whichever event they have to attend, they like to dress up and invest a lot in their styling which is why cosmetics have become the second fastest developing retail sector in Russia with a growth of about 40% per year according to Passport Magazine Moscow. Taking a look at Russia? s history these outstanding growth numbers even appear to be reasonable. For decades, the Russian women were only able to apply soviet cosmetics and had to improvise a lot by using beets instead of rouge for example. After the collapse of the USSR though, the cosmetics industry exploded since privatization brought choice and variety with it.
In 1989 the first cosmetics store “Golden Rose” opened in Moscow and customers had to face long queues for weeks. In the beginning the demand for foreign luxury brands like Chanel was huge, but after the Russian Crisis in 1998 the industry experienced more “consumer aware” customers leading to a come-back of the original Russian brands like Kalina. Since then, the Russian cosmetics market has supplied its customers with international as well as with national products. The promising growth numbers of Russia let us understand why Natura casts an eye on this peculiar market.
In conformity with an Ernst & Young survey Russia spends 1. 3% of their 2 International Marketing Management Case Study by Andy Lalinde, Michal Berka & Claudia Baumgart GDP on cosmetics, whereas Western Europe only employs 0. 5% of their GDP for beauty expenses. Nevertheless, there are several shortcomings Natura has to deal with in case of a Russian market entry. These are the following: ? Governmental issues: Strong bureaucratic obstacles and poor legislation in terms of product quality are major concerns. ? Competitors: As mentioned before, Natura would face local and global competition. Russian attitude: The Russians in general do not worry too much about sustainability, environmental friendliness and they know little about Brazil and its rainforests. ? Background of potential consultants: People born and raised in the former Soviet Union do not easily understand the Western concept of customer importance. Being aware of these risks and appropriate handling could still make a market entrance successful. Although there is also a growing share of direct sales companies in Russia, the implementation of a hybrid model like in Mexico is probably the more appropriate alternative for a country like Russia.
Recently salon treatments have become very popular. Women go to a salon of their choice and get all their beauty treatments with different high quality products done there. Our suggestion would be to place Natura consultants in these salons and fulfill the task of being a consultant, but also directly apply the product to the customer. As Russians like to get served, this appears to be the most matching solution for their demand. At the end of the day, it is a financial decision whether the company is willing to take the risk to invest in such an unknown location.
But all in all, considering their experiences and lessons learned in Latin America and France, Natura disposes the capability to gain share in the promising Russian market. 3. Capability to become a global player and investment possibilities Entering a new market requires brand equity which Natura was able to establish throughout the past years by operating successfully in seven countries. Due to their longstanding experiences in Latin America and in France, Natura should be able develop a significant network of consultants in any country and manage their productivity as well as general logistics and distribution.
Through their observation of different countries in regard to population, size, direct sales models, regulatory issues and cosmetics markets, the Brazilian company should be capable to expand globally. They have developed the necessary tools over the last years and now need to set the focus on country-specific and cultural adjustments. As 3 International Marketing Management Case Study by Andy Lalinde, Michal Berka & Claudia Baumgart described in the case they have already successfully provided the Mexican and French market with adaptable solutions.
In terms of expansion, Natura has point the way into Europe. By starting in France, home of L? Oreal, Chanel, Dior and Co, Natura challenged itself by picking one of the most embattled European markets. But success in a demanding environment like France could facilitate future expansion to other European leading cosmetic markets such as the United Kingdom and Germany but also guarantee access to smaller sales markets like the Benelux countries or Scandinavia. A further question Natura has to ask itself is whether it wants to focus its expansion strategy on emerging markets like its competitor L?
Oreal or set footstep in developed countries. From our point of view, in order to become a global player Natura has to cope with both, developed and developing markets. One investment criterion could be the degree of eco-friendliness of a country since Natura only produces eco-friendly products which are likely bought by eco-friendly customers. According to Expatify. com Switzerland and Costa Risa are among the Top 10 countries in regard to eco-friendliness. For an investment in Costa Rica Natura could benefit from its knowledge gained from its operations in Latin America.
The experiences from France could help Natura to profit from synergies in case of an expansion to Switzerland. Another criterion could be cultural similarity. This on the one hand promotes investment in other Latin American countries, but owing to the large amount of Brazilians of Japanese origin could possibly mean entering the Japanese market which appears to be the second biggest cosmetics industry worldwide taking exhibit 1 into account. Of course market growth opportunities could also be considered as a potential criterion.
As already mentioned in section 2, Russia perceives of one of the fastest growing cosmetics markets, but also Asia and the Arabic world will play a major role in the future. Thereby, Natura would have to deal with quite a lot of cultural challenges. For example Islamic regions are under strict Halal regulations which limits the amount of ingredients used. In China in contrast, colors and numbers have symbolic meanings which would need to be taken into account for the graphics development. 4.
Growth through independent entrepreneurs As the previous sections have pointed out, our group is in favor of a global expansion of Natura and believes that it perceives the necessary capabilities. As we suggested in section 2 for Russia to take advantage of these beauty salons, the option to work with independent 4 International Marketing Management Case Study by Andy Lalinde, Michal Berka & Claudia Baumgart entrepreneurs who share Natura? s values appears to be the most promising for us. Despite the fact that acquisitions are always expensive and often lead o rivalries, collaboration with the right persons could probably maximize the overall profitability in regard to the financial, social and eco-friendly perspective. Natura being rated as one of the best employer? s in Brazil will not face a lot of difficulties to also establish the necessary trust abroad to enrich their team by foreign consultants and entrepreneurs. In this way, they will have the chance to learn from the local culture and experience and therefore optimize their strategies for each target country so as to become a prosperous global cosmetics market player. 5