International Business Strategy — Body Shop UK

Keywords: Uppsala School of Internationalisation, Multi-domestic strategy, Global strategy, Transnational strategy, Porter diamond, Modes of Entry in foreign market, International business assignment writing services

Introduction

Wall, Minocha and Rees (2015) described that internationalisation is a process in which firms develops and starts its operation across borders and such firms are known as Multinational Corporation (MNC). To achieve success in the foreign market, it is important that firm operations adapt to the environment as well as the market condition of the international market. Therefore, the international business strategy allows the firms to manage its operations and sell products outside the home market (Forsgren, 2016).

The purpose of this report is to evaluate the existing international business activities and strategy of ‘Body Shop UK’ to propose possibilities for future expansion to the international market of Brazil with existing product range. In addition, the report recommends suitable international business expansion strategy for ‘Body Shop’ for Brazil and evaluates its impact on the company.

Company profile –Body Shop

An iconic British retail brand ‘Body Shop’ sell beauty products. The company has expanded its operations globally through offering high-quality naturally inspired make-up, skincare and hair-care products. The business philosophy is that business can be force for good and company have operations in more 60 countries with 3000 stores. According to the company website, Body Shop was first cosmetic company to introduce fair trade cosmetic products (The Body Shop, 2016).

Company international expansion is expanded in two phases. The first phase is from 1992 to 2002 and in this period, the company expanded its operation to the US through franchising. In 2006, Body Shop became part L’Oreal that has resulted from rapid expansion of business to a number of international markets such as India, China and Turkey (Rugman and Collinson, 2017).

Cosmetic Industry analysis and operating environment

The cosmetic industry includes the makes, fragrances, haircare, skincare and other personal grooming products. According to Ernst and Young (2015), the annual total industry revenues was $250 billion with skins care generating 29% of revenues and Asian pacific markets contributed 34%. The diagram below shows the regional revenues and product categories. (Diagram 1 below)

global cosmetic industry - International Business Strategy -- Body Shop UK

The 50% of global market share is controlled by eleven companies and these companies differentiate themselves based on product assortment, brand, pricing, innovation and marketing. The industry growth rate is 3.4% and merger and acquisition are common in personal care industry. The key players in the industry are L’Oreal, Unilever, Proctor & Gamble, Avon, and East Lauder (Bidnessetc.com, 2015).

Body Shop — international business strategy and activities

Uppsala School of Internationalisation

Uppsala model elaborated that internationalisation is a slow process because the learning of organisation and market condition. The model presents useful interpretation for stages and changes of the internationalisation process. The process is based on four stages based on the market commitment and market knowledge. Company should consider commitment and activities of organisation because commitment to internationalisation. The diagram shows four stages of internationalisation (Chowdhury, 2015).

For Body Shop, the first stage involves acquisition of domestic experience but company have a number of experiences in domestic market. The important consideration is company should start countries with regional and cultural similarities to host country. Body Shop has strong presence and internationalisation experience from the European markets and established subsidiaries in other countries. In case of Latin America and particular Brazil, company have no present in the region (The Body Shop, 2016).

The Uppsala Internationalization Model

The internationalisation Uppsala model explains an incremental process for company to start operations aboard and gain experience in culturally diverse market. The internationalisation of Body Shop in Brazil start with export or setting up joint venture to develop understanding and learning about Latin market (Buckley and Ghauri, 2015).

International business strategy – Corporate level

Govindarajan and Ramamurti (2011) stated that the International strategy provides guideline and direction to manage operations in various countries. To manage operations international company has three choices, which are multi-domestic, global, and transnational. The selection of strategy is based on the need for local adaptation and pressure for the cost (efficiency). A multi-domestic involves responsiveness to foreign market rather efficiency. The company offers products customised for the needs and preferences of local customers.

Moreover, the global strategy focuses on the efficiency rather paying focus on the requirement of local customers. The focus is on the economies of scale and offers same product in each market with possible minor modifications. Transactional strategy is middle of global and domestic strategy and company balance the local responsiveness and efficiency (Cavusgil, Knight and Riesenberger, 2016).

Rugman and Collinson (2016) stated that Body Shop cosmetic products are made from fair trade materials as well as company product have strong reputation for high-quality cosmetic products. Company uses global strategy to enter and response to foreign market. Body Shop has introduced the same cosmetic product globally with minor changes in packaging labels. The focus of company is   efficiency (economies of scale) and introduced standard fair-trade products in the international markets (Meyer and Su, 2015).

Types of International Strategies

Business Level strategy

Chettya, Johansonb and Martin (2014) evaluated that international competitive strategy is based on operating requirement of corporate level strategy to response to international market competitiveness. The competitive strategy for international is analysed through ‘Porter diamond’ which highlight different market factors. The four factors of porter diamond are factor condition, demand condition, strategy and structure as well as related, and support industries.

Porter Diamond Model - International Business Strategy -- Body Shop UK

The factor of production includes natural resources and infrastructure in the country. In addition, demand condition highlights the size, need of market, and related and support industry define the availability of support network. Structure and strategy shows the competiveness and ability of firm to deliver according to customer need (Huggins and Izushi, 2015).

Modes of Entry in foreign market

Majocchi, Mayrhofer and Camps (2013) added that the four foreign entry modes for the international market are exporting, licensing, alliance and joint ventures as well as the wholly owned subsidiary (merger and acquisition). Exporting involves the lower level of involvement and offers localization advantage. In addition, the company can offer franchise to the international investor to start legal business.

Foreign Market Entry Modes

Pettinger (2016) added that this technique involves lower risk and quick entry to the market. Moreover, joint venture is the option to enter the market and this allows sharing cost and risk. The benefit of the joint venture is that company focus on core competence while local investor brings market knowledge. Wholly owned subsidiary involves direct investment and establishing company office in the foreign country with 100% control and with greater risk, this delivers maximum return.

Body Shop has managed its international operations through whole subsidiary or franchisee. The premium quality brand and prior rich internationalisation experience have allowed opening shop in the US and European markets while offering franchise and licensing in Asian market (Shaw, 2014).

Body Shop expansion to new international market — Brazil

Multi-dimensional market profile – Brazil

Brazil economy is the ninth biggest economy in the world based on nominal GDP and largest economy in the Latin America. The country has experienced a continuous growth rate of 5% over the years with per capital income of $8,978 in 2015. Country has well-developed agriculture, manufacturing, mining and service sector and its major trading partners are Germany, the US and China. Brazil economy is diversified and it is estimated that it will be the fifth largest economy in the world by 2050 (The World Bank, 2016).

The total population of the country is 206 million with 85% living in urban areas. In addition, the greatest attraction is a large number of young people age 16-49 make up 70% of the total population with median age of 28 years. (Diagram below)

Brazil Economy

Brazil middle class has expanded in last decade and people age between 29-44 accounting 24% of total population have annual gross income of above US $ 150K. The average income of consumer has increase by 31% in real terms as well as consumers have access to credit card and technology. The key changing consumers trends in Brazil consumer market are; 1) increase number of educated women joining the labour force, 2) expanding middle class, 3) emerging market and high disposable income, and 4) high urbanization (Banco Santander, 2016).

Rationale for expansion to Brazil

The global cosmetic industry has a small contribution from the Latin America markets and it represents economic opportunities for body shop UK.  The International business analysis shows that company prefer to adapt the global strategy for operation and sell fair-trade products. Brazil is the largest economy in the Latin America with plenty of natural resources and young consumer market.

The cosmetic products are popular with young people and especially women spend a large amount of money on cosmetic products. The economic data shows that disposal income is high among the young working class and a large number of middle age women are in the work force (Capizzani, Huerta and Oliveira, 2015).

The per capita income is high along with strong manufacturing sector and middle class on the rise. Body Shop has opportunity to capture market share among the young working class in Brazil who likely to buy imported high-quality product. Body Shop has the strong presence in the US since 1990’s, which has given regional experience to the company. Brazil consumer market offers huge market potential with 70% of population age between 16-45 and high disposable income (Chettya, Johansonb and Martin, 2016).

Marketing segmentation and targeted customers – STP model

Segmentation, Targeting and Positioning (STP) model is used for marketing communication which helps the marketer to prioritise the marketing proposition and deliver a personalised message to the target consumer market. The model allows to selected relevant consumer segment for the company product and communicates company offering (Alon and Eugene, 2012).

Segmentation, Targeting and Positioning — Body Shop

Chettya, Johansonb and Martin (2015) stated that market segmentation would allow determining a different group of buyer for company premium cosmetic products based on need and characteristic of the customer. The smaller segments can be reached effectively through matching unique needs. For instance, Body Shop segments can use demographic and psychographic segmentation through dividing working women age groups, lifestyle and income level. Moreover, targeting involves evaluating the potential of a market segment which company plans to target.

Body Shop can analyse purchasing patterns of young working women and spending habits to understanding profitability. The competitors and alternative products can be analysed as well.  Once company identified the profitable segment, the next stage is market positioning. The market positioning involves arranging product in a distinctive way and the desirable way in customer mind. For example, Body Shop can communicate value offered by natural cosmetic product to high earning women (Penghui, 2015).

Appropriate business strategy for Brazil market — Body Shop

The appropriate international business for Body Shop UK is ‘global strategy’ and company focus on economies of scale rather local adaptation. The experience from nearby the US market has given regional experience and company can effectively target the new market. The internationalisation advantage for Body Shop and psychic nearby market experience is useful to enter the new market. Consumers from Brazil are likely to accept the international brand high-quality natural cosmetic product.

The porter diamond offers valuable market insight for competitive strategy. Brazil market has natural factors, infrastructure, young people, and high disposable income likely to attract new customers. The technical knowledge from the UK and North America will help to make operations efficient. The suitable entry method for Body Shop is the joint venture with the local cosmetic company as it would minimise resource commitment but ensure entry to the market. This would allow developing networks and market knowledge to devise the plan based on strategic and socio-economic factors (Tallman, 2010).

Body shop has internationalisation through global strategy and using same experience in Brazil market would offer efficiency and control

  • It is recommended that Body Shop start the international process in Brazil through exploitation ownership advantage and deploying global strategy.
  • The company should focus on the joint venture with the local partner to learn the Brazil market and exploit new economic opportunities in cultural distance market.
  • Body Shop should develop a network and market knowledge to speed up the process of internationalisation. Once familiar with the market, Body shop could use transnational strategy to open subsidiary and increase target market.

Impact of expansion on Body Shop international market strategy

Organisation structure and culture

Body Shop is exposed to number factors, which affect the strategy of company. The national culture and operating environment is different in Brazil, which is likely to influence the operational strategy of company. Hofstede cultural model is useful tool to analyse the cultural differences to analyse power distance, uncertainty avoidance and individualism. For example, diagram below shows the national culture differences between the UK and Brazil (Shaw, 2016).

It shows that individual is very low in Brazil whereas uncertainty avoidance is high. Moreover, power distance is high in Brazil which shows that power is retain by senior manager rather autonomy for staff.  Organisation structure is likely to different in Brazil with vertical structure and chain of command when compared with horizontal organisational structure in developed markets (Vyuptakesh, 2015).

hofstede model - brazil vs uk

Economic and Political factors

Political environment is different in Brazil when compare with home market of Body Shop. For example, recent changes in political regime in the country present political challenges in strategy development. The political risk presents direct consequences for the operations of company. Moreover, economic factors affect the strategy of company through cost of operations for company as well as consumer spending.

The changing economic scenario such as lower economic opportunities and income inequality could affect sales of company. The political and social environment affects the strategy and operations of company (Campbell, Edgar and Stonehouse, 2011).

Conclusion

Body Shop UK has strong international presence in 60 countries but it is concentrated in European, Asian Pacific and US market. The cosmetic market of Latin America offers economic opportunity for company to expand in the region. Internationalisation is slow process and Brazil market is new for the company. Therefore, company should take incremental approach to enter the market. The exploitation of internationalisation from nearby the US market allows entering the market using global strategy.

Moreover, the entry mode of joint venture would allow to quickly entering the market through sharing risk and gain knowledge and experience of market before making further investment.

Body Shop effectively use STP model to segment the customers and target the different groups of customer through communicating effective message. The factors, which affect the strategy of company, are culture and structure of organisation. In addition, social and economic conditions affect the operations strategy.  The selection of global strategy would ensure efficiency and joint venture would allow developing understanding of market.

 

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