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International Relations. Internationalization Strategy of "The Body Shop"

Submitted Assignment 2017 41 Pages

Business economics - Miscellaneous

Excerpt

Table of contents

List of Abbreviations

List of Tables

List of Figures

1 Introduction
2 Theoretical Background
2.1 Strategic Management
2.1.1 SWOT Analysis
2.1.2 Competitive Forces
2.2 Internationalization Strategies
2.2.1 Eclectic Paradigm / OLI-Framework
2.2.2 EPRG-Model
2.2.3 Global Timing Strategies
2.2.4 Country-specific timing strategies
2.2.5 Modes of Entry
2.2.6 Franchising

3 The Body Shop
3.1 History
3.2 Strategy
3.3 Competitive Environment
3.3.1 Threat of new Entrants
3.3.2 Bargaining Power of Suppliers
3.3.3 Bargaining Power of Buyers
3.3.4 Threat of Substitute Products or Services
3.3.5 Rivalry Among Existing Competitors
3.4 Internationalization Strategy
3.4.1 Timing
3.4.2 Modes of Entry (applying the OLI-paradigm)
3.4.3 Challenges in the U.S.-market
3.4.4 Identifying The Body Shops Leadership Conception (applying the EPRG-model)
3.5 Reasons for the companies repositioning in 2005
3.5.1 Strength
3.5.2 Weaknesses
3.5.3 Opportunities
3.5.4 Threats

4 Conclusion

List of Literature

Eidesstattliche Erklärung

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Tables

Table 1: Market Entry and Market Cultivation Strategies in Dependence of the Advantage-Categories

Table 2: Comparison - Waterfall and Sprinkler Strategies

Table 3: First-Mover vs. Follower

Table 4: International Expansion of The Body Shop

List of Figures

Figure 1: The Five Forces that shape Industry Competition

Figure 2: The Body Shop 2015 Retail Sales Split by Regions (Million Euros)

1 Introduction

The Body Shop International Plc has been established in 1976 by Anita Roddick, as the first ethical beauty company to pioneer “a new kind of sustainable business.”[1] Within a short period, it became a worldwide successful enterprise. Today, The Body Shop is a leader in the movement for creating an ethic of social responsibility among corporations and is one of the most controversial players within that movement. This essay describes the company’s development, from opening the first shop, over its internationalization process, up to the acquisition by L’Oréal.

Therefore, some theoretical background in strategic international management will be explained. With the help of Porters Five Forces, changes within The Body Shops competitive environment will be discussed. By looking at the modes of entering foreign markets, as well as timing strategies, The Body Shops internationalization will be analyzed. Can the OLI-framework answer why the company has engaged in international markets in a certain way?

Especially after entering the U.S. market, the company faced some major challenges. The EPRG model will be applied, to see if those changed the way the company was managed. In 2005 The Body Shop went through a major repositioning, which ended up in the acquisition by L’Oréal. The latest part of this essay will describe the reasons and analyze the strategic position of The Body Shop before the takeover.

2 Theoretical Background

2.1 Strategic Management

Strategy is a series of measures adopted to achieve a stated aim.[2] „Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing different activities from rivals, or performing similar activities in different ways.[3] Strategy in practice is an integrated concept for ensuring long-term survival, in active interaction with the competition, as well as the opportunities and threats within the company’s environment. Furthermore, a strategic concept is enabled in regards to the firm’s individual strengths and weaknesses.[4]

Strategic Management is the process by which organizations determine that strategy, meaning their purpose, objectives and desired levels of attainment. It includes the decisions on actions for achieving these objectives, in an appropriate time-scale, and frequently in a changing environment, implement these actions, but also asses their progress and results.[5]

The mission and vision relate to the essential purpose of the organization and form the basis of its strategy. A mission describes what the company basically does. It provides an important tool for communicating ideals, as well as a sense of direction and purpose to internal and external stakeholders. Furthermore, it helps to guide the company’s managers in resource allocation. The vision lays out the desired future state of the company and why the organization is existent. Values define how managers and employees should conduct themselves, how they should do business and what kind of organization they should build to achieve its mission.[6]

2.1.1 SWOT Analysis

To determine a strategy, its required to gather and analyze all necessary information. The SWOT analysis represents the basic analytical framework for strategy research. It breaks down the available information into four areas: Strengths, Weaknesses, Opportunities and Threats.[7]

Thus, a SWOT analysis sees the strategy of a company as the result of its (external or environmental) opportunities and threats, as well as its (internal) strengths and weaknesses. The SWOT analysis remains highly abstract in practice, as its findings are descriptive. It doesn’t make any recommendations or sets any priorities.[8]

2.1.2 Competitive Forces

The job of a strategist is to understand and cope with competition. Very often managers define competition only by the rivalry among existing competitors, which is to narrow. Porters framework includes four additional forces, that define an industries structure and shape the nature of competitive interaction:[9]

- Threat of Substitute Products or Services.
- Bargaining Power of Suppliers.
- Threat of New Entrants.
- Bargaining Power of Buyers.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: The Five Forces that shape Industry Competition[10]

If all five forces are intense, no company earns attractive returns on investment - if they are benign, many companies are profitable. Porters forces help to define a basis for a company’s strategy, by giving a framework to analyze competitiveness within an industry. Based on that information, a company can structure and analyze its value chain, as well as its environment or potential market. Of course, the situation is always fluid, and the nature and relative power of forces will change, which makes it difficult to do a consolidated analysis.[11]

2.2 Internationalization Strategies

2.2.1 Eclectic Paradigm / OLI-Framework

The eclectic paradigm, also known as OLI-Framework, is a further development of the internationalization theory and has been published by John H. Dunning. It distinguishes between three forms of international activities: export, foreign direct investment (FDI) and licensing. The choice of any of these activities will be determined by the OLI-Factors. OLI stands for ownership-, locational- and internationalization advantages. These represent three potential sources of comparative advantages an Enterprise might consider, prior to becoming multinational. Ownership advantages address the question why some firms go abroad and describes firm-specific advantages, which allow to overcome the costs of operating in a foreign country. Location advantages focus on the question of where a firm choose to locate. Internationalization advantages influence how a firm chooses to operate in a foreign country.[12]

The OLI-frameworks key message is, that depending on the advantages a company holds and/or can achieve, it will choose its form of market entry mode. For example, if a business has ownership advantages only, it will choose licensing as its form of foreign market entry. If it has internationalization advantages additionally, it will start exporting. Only when locational advantages are possible, FDIs will be done. Following table summarizes the OLI-Framework’s key-message.[13]

Abbildung in dieser Leseprobe nicht enthalten

Table 1: Market Entry and Market Cultivation Strategies in Dependence of the Advantage-Categories[14]

2.2.2 EPRG-Model

Heenans and Perlmutters EPRG-model is a framework to identify or determine a company’s profile in terms of its international business strategy. The model states that a firm’s senior management holds on four primary orientations when building and expanding its multinational capabilities. A company can be an:[15]

- ethnocentric-,
- polycentric-,
- region centric-,
- or geocentric organization.

An ethnocentric firm takes decisions based on what works within its home market, which can be described as home country attitude. “This works at home; therefore, it must work in your country”[16] is the leadership motto. Such companies test new ideas in the parent company’s market, and transfer them to their subsidiaries. Export orders are viewed as additional sales. Decisions are made in the parent company and key management positions in subsidiaries are filled with managers from there.[17]

A polycentric orientation, also known as host country orientation, accepts significant differences between home and host countries. Positions in subsidiaries are filled by native mangers from the host country. Which are considered to act more competent within that specific country. Decisions are made within the local subsidiaries, independent from the parent company.[18]

The geocentric orientation, or world orientation, sees the parent company and its subsidiaries as a worldwide unity. A geocentric company develops a specific character, which is independent from company’s headquarters or individual countries cultures. Managers will be recruited irrespective of their nationality. Collective decisions will be made by the affected company’s organizational units. A central point is the capability of resource allocation: instead of an independent procedure on a national perspective, the company establishes an international division of labor. It specializes its individual units on different tasks, to ensure competitive advantage.

The region centric orientatio n is a further development of the geocentric orientation. It’s a reaction to the increasing regionalization of economies. Instead of looking at individual countries, it respects economic-areas, for example the European Union.[19]

The EPRG-model is giving a qualitative perspective on the internationalization process of a company. It focusses how a firm is managing its subsidiaries, i.e. the relationship between the parent company and its subsidiaries. The model reflects how a company’s managements takes decisions, communicates, controls, and leads. However, its necessary to mention that no company executes a clear ethno-, poly-, region- or geocentric orientated. In fact, different approaches exist within different parts of a company.[20]

2.2.3 Global Timing Strategies

Abbildung in dieser Leseprobe nicht enthalten

Table 2: Comparison - Waterfall and Sprinkler Strategies[21]

Global Timing Strategies are necessary when a company wants to enter several foreign markets. It is possible to distinguish between waterfall and sprinkler strategies. By using the waterfall strategy, one market after the other is entered, which means the internationalization is increased step by step. When following a sprinkler strategy, the company bundles its resources to engage in all, or many markets, at the same time. A a mix of both strategies can also be applied, especially if the company has limited resources to fully execute a sprinkler strategy, but wants to take first-mover advantages in as many countries as possible. Upper table summarizes the advantages and disadvantages of both strategies.[22]

2.2.4 Country-specific timing strategies

Abbildung in dieser Leseprobe nicht enthalten

Table 3: First-Mover vs. Follower[23]

When a company wants to gain competitive advantage, at least for some time, it can choose to be the first-mover abroad. Being a first-mover can have several advantages, for example the possibility to set higher market entry barriers for others. Followers can learn from first mover failures and use a market that is already established. Upper table summarizes the advantages and disadvantages of being a first-mover or follower.[24]

2.2.5 Modes of Entry

There are several ways for a company to engage in international business. The most common concepts are:[25]

- Licensing
- Export (direct / indirect)
- Mergers & Acquisitions
- Branch Offices
- Foreign Subsidiaries
- Representative Offices
- Joint Ventures & Strategic Alliances
- Distributors
- Agencies
- Marketing Representatives
- Franchising

As The Body Shop is known for their concept of working with franchisees, further explanations will be focused on that.[26]

2.2.6 Franchising

In franchising, many companies see an opportunity to expand their business model in a fast and efficient way.[27] The European Franchise Foundation defines franchising as follows:

“Franchising is a system of marketing goods and/or services and/or technology, which is based upon a close and ongoing collaboration between legally and financially separate and independent undertakings, the Franchisor and its individual Franchisees, whereby the Franchisor grants its individual Franchisee the right, and imposes the obligation, to conduct a business in accordance with the Franchisor's concept.

The right entitles and compels the individual Franchisee, in exchange for a direct or indirect financial consideration, to use the Franchisor's trade name, and/or trade mark and/or service mark, know-how, business and technical methods, procedural system, and other industrial and/or intellectual property rights, supported by continuing provision of commercial and technical assistance, within the framework and for the term of a written franchise agreement, concluded between parties for this purpose.”[28]

That means, franchisee and franchisor are connected through a continuing obligation. The franchisor takes care about the further development of the system concept, as well as the active support and education of the franchisee. Therefore, the franchise invests isochronously and continuously pays dues to the franchisor. The main target of franchising is to ensure a homogenous customer perception. Internationally, several definitions of franchise systems can be found. However, a real franchise system must fulfill following characteristics:[29]

- System-related: Defines the vertical relationship between franchise and franchisor.
- Contract-related: An individual, permanent, written contract defines the continuing obligation.
- Status-related: Legal and financial independence between both parties is given.
- Marketing-related: Franchising is a vertical sales system. An essential characteristic is the homogenous market appearance through standardization, e.g. of the shops, logos, branding etc.
- Functional-related: The tasks of the system partners are clearly defined, and usually differentiated by strategic tasks, fulfilled by the franchisor, and operative tasks, fulfilled by the franchise.

The benefits of franchising can clearly be seen in the speed at which expansion can take place, including global expansion.[30]

3 The Body Shop

3.1 History

In 1970, Anita Roddick visited “The Body Shop” housed in a car repairs garage in California, selling naturally scented cosmetic products. The shop used natural ingredients for its products and helped to employ and train immigrant women. Anita and Gordon Roddick founded a similar shop in the UK in 1976, using the same business name, color scheme and products (Roddick bought the exclusive rights to use “The Body Shop” name in 1992). The first franchise shop has been opened in 1977. One year later, the first overseas Body Shop was founded in Brussels. Since then, new shops opened by a rate of two per month.[31]

The Body Shop International Plc stock was floated on London’s Unlisted Securities Market in April 1984, opening at 95 pence. It attained full listing on the London Stock Exchange in 1986. Until then, its price per share had raised to 820p. Within the next eight years the company’s stock had split five times and its price rose about 10,944 percent.[32]

In 2003 the company’s share price went back down to 56.5p. London-based investment firm Investec Henderson Crosthwaite stated that The Body Shop is “barely profitable” on an ongoing basis. “Their extraordinary expenses, reorganization charges, and costs of acquiring failing franchises have become recurring and commonplace.[33] On 17th of March 2006, The Body Shop agreed to a £652.3 Million takeover by the French cosmetic firm L’Oréal (300p per share, while stock closing price has been 268p). L’Oréal stated that the company will continue to run independently from the UK. At that point, The Body Shop had 2,085 branches in 54 countries, 304 of them in the UK. Its total revenue in 2005 has been £415 million.[34]

Today, as part of the L’Oréal Group, the company runs 3102 Stores worldwide, of which 1134 are company-owned and 1,968 franchisees. 2015 Retail sales have been € 1559.6 million in total.[35] Following figure shows the company’s sales split by regions.

[...]


[1] Source: The Body Shop International Plc. (2015), p. 4

[2] Cf. Grattan, R. F. (2011), p 15ff.

[3] Source: Porter, M. E. (1996), p. 79

[4] Cf. Kotler, P. et al. (2016), p. 11; Bickhoff, N. (2002), p. 53

[5] Cf. Ibid.; Thompson, J. / Martin, F. (2010), p. 11

[6] Cf. Hill, C. W. L. / Jones, G. R. (2012), p. 30ff.; Harrison, J. S. / St. John, C. H. (2009), p. 79

[7] Cf. Kotler, P. et al. (2016), p. 26ff.; Pahl, N. / Richter, A. (2007)

[8] Cf. Ibid.

[9] Cf. Porter, M. E. (2008), p. 79f.

[10] Source: Porter, M. E. (2008), p. 79

[11] Cf. Porter, M. E. (2008), p. 79ff.; Thompson, J. / Martin, F. (2010), p. 113ff.; Kotler, P. et al. (2016), p. 39ff.

[12] Cf. Kutschker, M. / Schmid, S. (2011), p. 459ff.; Dunning, J. (1977), p. 395ff.; Neary, J. P. (viewed 07 December 2016), users.ox.ac.uk

[13] Cf. Ibid.

[14] Source: Kutschker, M. / Schmid, S. (2011), p. 459ff.

[15] Cf. Kutschker, M. / Schmid, S. (2011), p. 287ff.; Heenan, D. A. / Perlmutter, H. V. (1979), p. 1ff.; Perlitz, M. / Schrank, R. (2013), p. 81ff.

[16] Source: Heenan, D. A. / Perlmutter, H. V. (1979), p. 12

[17] Cf. Kutschker, M. / Schmid, S. (2011), p. 287ff.; Heenan, D. A. / Perlmutter, H. V. (1979), p. 1ff.; Holtbrügge, D. / Welge, M. K. (2015), p. 48ff.;

[18] Ibid.

[19] Ibid.

[20] Ibid.

[21] Adopted from Kutschker, M. / Schmid, S. (2011), p. 985 ff.

[22] Cf. Kutschker, M. / Schmid, S. (2011), p. 989 ff.; Schmid, S. (2006), p. 20

[23] Adopted from Kutschker, M. / Schmid, S. (2011), p. 985 ff.; Johansson, J. K. (2003), p. 460f.;

[24] Cf. Kutschker, M. / Schmid, S. (2011), p. 985ff.; Johansson, J. K. (2003), p. 460f.

[25] Cf. Schmid, S. (2006), p. 14 ff.

[26] Cf. Grass, H. (2011), p. 47; Schmid, S. / Daniel, A. (2006), p. 103ff.; Hodges, S. L. / Knaut, D. E. (1995), p. 108f.

[27] Ibid.

[28] Source: European Franchise Federation (viewed 04 December 2016), eff-franchise.com

[29] Cf. Grass, H. (2011), p. 10ff., Meffert, H. et al. (2015), p. 541ff.; Meurer, J. (1997), p. 9ff.;

[30] Cf. Linstead, S. et al. (2009) p. 778

[31] Cf. Body Time (viewed 05 November 2016), bodytime.com; Bronstein, Z. (viewed 05 November 2016), berkeleydailyplanet.com; The Body Shop International Plc. (viewed 05 November 2016), thebodyshop.com

[32] Cf. Choi, D. Y. / Gray, E. R. (2011), p. 44 f.

[33] Entine, J. (viewed 04 December 2016), jonentine.com

[34] Cf. The Guardian (viewed 05 November 2016), theguardian.com

[35] Cf. L'Oreal (viewed 05 November 2016), loreal-finance.com

Details

Pages
41
Year
2017
ISBN (eBook)
9783668540989
ISBN (Book)
9783668540996
File size
705 KB
Language
English
Catalog Number
v376004
Institution / College
University of Applied Sciences Riedlingen
Grade
1,0
Tags
International Relations The Body Shop SWOT Competitive Framework EPRG OLI Framework Timing Strategies Modes of Entry Franchising

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Title: International Relations. Internationalization Strategy of "The Body Shop"