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CASE STUDY

ANALYSIS: AMORE
PACIFIC!
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IRENE FERNNDEZ HERRERO


14BN928R
INTERNATIONAL BUSINESS
RIKKYO UNIVERSITY

EXECUTIVE SUMMARY !

Founded in 1930, Amore Pacific, a Korean cosmetics company, that started its business producing handmade

camellia oil; it is, nowadays, ranked as one of the top 20 cosmetics company in the world and seeks to be one of the top
10 global player by 2015. The company deals with research, development and marketing of beauty and health products,
and services. Due to reach its propose Amore Pacific runs three divisions: Cosmetics, Healthcare and Personal Care.

A brilliant international strategy leads this company to an unbridled growth, that this year registered a 160%
increase on the share price. Regarding the overseas operations, the company current data shows that one-fifth of the
companys revenue is provided from its international sales and it has increase 38% on just half of the year. On this case
study we are going to analyze Amore Pacific role and performance in the international market.

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INTERNATIONAL STRATEGY!

Since its foundation in 1932, Amore Pacific, a Korean cosmetic company, has being growing exponentially
focusing in a product made by, as they mention, Asian natural ingredients and developing technologies and products
optimized for skin. In the 90s, Korea opened its frontiers to foreign companies, so the market size became smaller and
the number of competitors grew. That is what push the corporation to expand their boundaries, kicking off their own
global brand strategy.

The secret of such a successful international expansion is a wise localization strategy. The strategys key point
is making high investments on marketing and scientific research, in order to know their customer tastes and customizing
its product to the different customers from the various markets penetrated. In China, the company set a good example of
this intensive research, where Amore Pacific establish a R&D center that is collaborating Shanghai Institute of
Pharmaceutical Industry. Amore Pacific decided to differentiate its approach considering the dissimilar markets
demands, taking into account the environment and the development of each country. Furthermore, a standardization
strategy is not suitable in the segmented nature of cosmetics market, which wouldnt even work within a country, since
the price has to be appropriate for each costumer segment. At last, although theses cosmetics demand is divergent all
over the world, Amore Pacific has enough capability and resources to address it through a localization strategy.

On one hand, with this strategy the company assume different limitations related to the costs and revenues.
First, the cost of customizing the products is high, due to the vast amount of resources needed to run different
production lines, in order to satisfy the various customer preferences. Second, the company lose the revenue that could
gain with a mass-production of a standardized product, which implies economies of scale. Nevertheless, the company
have to be very careful with the cost, it is essential to look for opportunities due to be more efficient and capture as
many economies of scale as possible. On the other hand, these customized products, that suit the costumers
preferences, involve a higher value of the product in the regional market, which at the same time means a higher price.
What is more, this profit that we lose because of these limitations, can be made up with the lower cost pressure implied
on the market chosen, such as logistics cost, in the case of Asia.

Due to satisfy the different customers all over the world, this plan include an essential multi-brand strategy.
Amore Pacifics product lines seek to address every women in the market, since the product quality, feature and price
vary. As we can see in the following map, these different product lines ease the international expansion, satisfying the
dissimilar costumers tastes. This strategy aim to compete with the international rivalry in every perspective including
quality, brand image, distribution channel and price.

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Source: Amore Pacific
Another important field that Amore Pacific covers successfully is R&D, which is very significant in the
cosmetic market. Although it is a high invest the company accept, at the same time, provides the company a stronger
image. Amore Pacific built the image of Asian Beaty Creator, by using traditional botanical plant for its new
products, which ease a larger market penetration. So, as we can deduct, the R&D support and combine with the
marketing strategy. That means that the marketing field provides the customers profile that suits the company and,
then, the R&D is in charge of finding the most suitable product for this costumers profile. Amore Pacific, following its
localization strategy decided to go deep on its R&D, due to the varied demand. Therefore the company established
D&R centers in different overseas locations, such as China, and, what it is more significant, this centers collaborate
with local scientific institutions.

In the first stages, Amore Pacific chose exportation as the entry mode; but the nature of the cosmetic market,

which requires customized products to the varied customers preferences, force the company to change the entry mode
to direct investment, establishing its own factories and, what is more significant, as we already mention, R&D center.

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SWOT ANALYSIS!
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In order to understand and summarize Amore Pacifics role in the international business environment, we
decided to carry out a SWOT analysis:
STRENGH!

Strong brand image


High positioning in domestic and some Asian countries
High investment in R&D
Successful expansion in Asia, U.S. and France

OPPORTUNITIES!

Strong Korean cosmetics image


Increasing interest in male beauty
International position and expansion
Asian economy growth
Companys international logistics

WEAKNESS!

Strong competition in cosmetics market


High dependence in cosmetics ingredients
Difficulties to achieve economies of scale (Location
strategy limitations)
Organic growth
THREATS!

Global marketing
Saturation of domestic market
Market segmentation

INTERNATIONAL EXPANSION!

During the initial stages on the international business, they focus their attention on the Asian women, since its
main target up until now is China and other Southeast Asian countries. As its chairman, Suh Kyung-Bae, said: China
and ASEAN countries meet all criteria we need for overseas expansion: economic growth potential, disposable income,
population and size of cosmetics market. We should also highlight that Asia not only means a great market with a large
demand, but also an accessible market, reducing the logistical cost, which make this continent the most suitable choice
for Amore Pacific in order to expand their products.

In 1992, Amore Pacific entered in the Chinese market, one of the most successful choices, due to mainly four
different reasons. First, the high potential growth and the vast volume of demand. Second, this demand is very
segmented according to the different regions development (eastern seaside and western inland), which match with the
companys product lines: luxury market, premium market, middle market and mass market. Third, the market entry was
ease by the fact that this market is not dominated by a single or a few major brands. Forth, the Chinese skin and skin
care routines are very similar, which provides a stronger position against other foreign competitors. It is important to
highlight that although the company entered at the same time in different Asian countries, the higher profit and the
experience gained in China provided to Amore Pacific the power to expand globally.

Although the core strategy is focused on the Asian market, Amore Pacific look for other challenges, such as the
mature and saturated western market. The first stage on this market was France, one of the toughest choices as its
cosmetics are one of the most well-known in the world. The beginning wasnt very encouraging, because of two main
reasons. First, the label Made in Korea made the French costumer think about a lower status country. Second, the
products, such as withening products, didnt match the French women preferences.

Learning from failure, Amore Pacific decided to get involved in the culture in order to approach the French
costumer. Thus they decided to acquire the cosmetics manufacturing plant in France and established local subsidiaries
in 1990. Thus, the Korean standing effect was eliminated, and replaced by the more attractive label Made in France.
But it wasnt the only change, the skin care market was saturated so they decided to turn to a non-dominated market, the
Fragrance Market. Finally, this last decision was really significant, since Lolita Lempika Fragrance was the key to enter
the French market. What is more, the experience and reputation gain on France, ease the leap of the company to other
western countries, including one of the most influenceable market in the world, but also tough: the U.S.

Although, as we already mention, France and U.S. both are toughest western markets, since they are the
cosmetics leaders in the globe; the company was quite right to think that the success in France and U.S. would have a
seminal effect, that will support its expansion to other European markets in the future.

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CONCLUSION!

Amore Pacific became such a successful example because of its strong commitment in these three key

markets: France, U.S. and China. As we can see through all this case study, the company successfully penetrate these
key markets that reward the company better than investing in various not powerful markets, which implies higher
penetration costs. As we can deduct, although this markets were tougher, the expansion built a strong position in the
international business environment.

The companys goal of being one of the top 10 global player by 2015 is not reliable, they still have a long way
to go, since it is necessary to reach a better position in the already penetrated markets and to enlarge its foreign markets
list. Furthermore, its way to expand, organic growth, take a long time; while the other global brands expand faster using
M&As and joint ventures. Although the effort and the results of this company are remarkable, since they built by itself
the great reputation of the Korean cosmetics; the market expansion is not enough yet, compare to other global cosmetics
brands, such as LOreal.

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REFERENCES !

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