For Kylie Cosmetics, how much control and integration should it implement in order to establish

themselves in the Philippine setting.

Using the Transactional Cost Analysis and Propoisitions paper by Anderson and Gatignon we
will choose between

Dominant Equity Interest

Balanced Interest or
Diffused Interest

While considering the 4 Important factors in relation to Kylie Cosmetics.

1. Transaction-specific Assets:
P1: The higher the proprietary value of the product = needs more control
P2: Poorly-understood products = more control
P3: Products thats more customized to the user = more control
P4: More mature the product Class = less control

Based on Investopedia, the cosmetic industry is mature

“The cosmetics industry is mature, so the top spots don't change often. The big
companies have firmly established themselves in consumers' minds. Despite this
maturity, there is still income and growth to be had. The sector remains
competitive, and the track record of the top companies makes them solid
candidates for a portfolio that needs some stability.”1

It is also an industry in the philippines that has had considerable growth due to a “growing
middle class and improved logistics” 2

This combined with the Philippines being mass users of social media, wherein KC’s brand
became famous makes the product very familiar to the local populace.

Being a mature product, the details and methods for making these cosmetics have become
widespread, and that for our analysis, the true value of KC is less on its propriety value on how
its made.

Thus for Transaction-Specific Asset, KC needs less control and integration.

2. External Uncertainty:
P5: More country risk plus transaction-specificity of assets = more control

1
https://www.investopedia.com/investing/cosmetics-stocks/
2
https://www.mintel.com/blog/beauty-market-news/why-the-philippines-is-a-beauty-market-to-watch
As stated earlier, in the Philippine setting, the cosmetic industry grows and seems unaffected,
generally to the political status.

Thus for this factor, less control needed for KC.

3. Internal Uncertainty
P6: More Experience in the International Market = more Control
P7: The greater the Socio-cultural Distance = more control
P8: Larger Foreign Business Community= less control

For KC, the origins of the company began in 2015 with Kylie Lip Kits.
The company was renamed to Kylie Cosmetics in February 2016 and production was increased to
500,000 kits.By the end of 2016, the total revenue was $300 million.
In the first 18 months, the company generated $420 million in revenue. Kylie Cosmetics maintains its
reputation as an individually funded and self run company.
Forbes values Kylie Cosmetics (KC) at $900 million as of 2018-19, and that

Based on these facts, we can see that KC is relatively new-comer in the Cosmetic Industry, all
the more in the international arena, but a big contender with its popularity and current revenue.

Thus as termed by Anderson and Gatignon, KC is a “neophyte firm”, lacking experience to meet
the possible Internal Uncertainty that can occur if it expands in the Philippines.

As to Socio-cultural Distance, the Philippines has similar values in terms of cosmetics and style
in the United States. Trends in the US tend to travel and be similar in the Philippines thanks to
the internet and that the growing population are quite savvy in social media.

As for the Foreign Business Community, the same is considered relatively large, or present in
the philippines. “The Philippine beauty industry continues to flourish, spurring the entry of more
homegrown and international makeup and cosmetics brands.”3

For these three propositions, KC should exercise low control levels and pursue less integration
until it gains more experience in the international field, and that they do not need to worry about
the socio-cultural distance because it is at most a minimal.

4. Free-Riding Potential
P9: The higher the value of the Brand Name = more control

This circumstance we consider the meat of KC’s value.

3
https://www.philstar.com/business/business-as-usual/2018/03/19/1798025/business-beauty
Outside of the value of the product itself, the fact that it is attached to an internationally famous
individual gives the the product High Value.

Furthermore the KC is considered to be a “heavily advertised brand” as it gained popularity and

momentum through social media.

Thus in order to prevent free-riding, and to make sure the brand name is protected in KC, it is
recommended that for this instance it should exercise more control.

In summary we see that KC for a majority of the factors

Less control and integration is preferred in order to be efficient, except when it comes to its
Brand Name.

A Diffused Interest is recommended to Kylie Cosmetics in entering the Philippines.