The entrance of L'Oréal in the Chinese Market

By Karl Villeneuve, Veronique Fraisse-Hergot, Michel Ohayon, Tomasz Pogorzelski, Mohanad Soliman

The entrance of L’Oréal into the Chinese market seems like a sound decision. This market’s potential for growth is undeniable due to the size of the population and the economic development China has seen in the last 20 years and especially since the beginning of the 21^st century. However, the Chinese market is extremely different than the Western markets. The cultural distance and the physiological differences such as the type of skin make the Chinese market a very different one from any other market L’Oréal has ever entered before. Overall L’Oréal has historically been a very ethnocentric company. But the company is making a turn with its entry into the Chinese market.

L’Oréal partially adapted its strategy in order to enter the Chinese market and such move has proven effective. The company has put itself in a position to embrace all segments of the market by diversifying its EPG and Marketing Mix. Keeping its international brands with its global products, communication campaigns and distribution allowed L’Oréal to offer to the high-end urban segment luxury goods that promote the Western life style that this segment embraces. At the lower portion of its “Pyramid of Brands”, L’Oréal adapted considerably to the local market through its local acquisitions. The company’s more geocentric approach could provide L’Oréal with the knowledge and local understanding that could allow the company to better serve the Chinese market.

However, L’Oréal faces a very strong local and international competition and it will be difficult to succeed in such a competitive market. L’Oréal has a certain competitive advantage in its marketing and brand management knowledge that it has acquired through the company’s long history in international markets. L’Oréal’s choice to get local knowledge, adapt to local specificities and use this knowledge locally but also for its Asian customers worldwide could prove to be a move that strengthens even more this competitive advantage and could give L’Oréal the specific edge needed to succeed in China but also in other Asian markets.

The company’s acquisition of Chinese brands Mini Nurse and Yue Sai Cosmetics sets a geocentric approach for distribution and communication for the Chinese mass market. This takes a step further L’Oréal’s historical geocentric distribution to this market. But the company goes further in China. L’Oréal has opened a R&D facility in Pudong. This facility will be specialized in R&D on products specifically made for Asian skins. This approach to develop products that fit specific local needs is part of a more global strategy that aims at respecting local taste, culture and physical specificities. L’Oréal has also acquired, through its Chinese acquisitions, two production facilities which bring the number of Chinese production facilities to three. The company wants to supply with these facilities not only the local market, but all international markets. Finally, L’Oréal has also moved its Asia-Pacific “management and training development center” from Singapore to China. The company looks to develop brand research and marketing locally. Al this indicates that L’Oréal wants to leverage on the Chinese market specifically developed products and knowhow to spread and use these at a global scale through its corporate structure.

This strategic move in China show that L’Oréal is shifting its strategy in China to a more geocentric approach, recognizing the local aptitude to better understand local needs and culture. L’Oréal makes a big step in having a local management and marketing center to which the headquarters can bring international experience while adapting to the local market. From a production point of view, L’Oréal also leverages on its Chinese production capacity to supply markets globe wide.