ASSIGNMENT 1 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 32: Business Strategy (574)

Submission date 10/10/2021 Date received (1st submission)

Re-submission date Date received (2nd submission)

Student name PHAM LE TRUONG AN Student ID GBS200257

Class GBS0815B Assessor name HUYNH AI VAN

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TABLE OF CONTENTS

INTRODUCTION ................................................................................................................ 3
About L'Oréal ......................................................................................................................... 3

STRATEGIC CONTEXT ........................................................................................................ 4

Purpose .................................................................................................................................. 4

Mission ............................................................................................................................... 4

Vision.................................................................................................................................. 4

Core values ......................................................................................................................... 4

Objectives........................................................................................................................... 4

Performance/Scope ............................................................................................................... 5

Role of business strategy ....................................................................................................... 6

Corporate-level strategy .................................................................................................... 6

Business-level strategy....................................................................................................... 6

Functional strategies .......................................................................................................... 7

MACRO ENVIRONMENTAL AUDIT ..................................................................................... 8

PESTLE framework ................................................................................................................. 8

Political ............................................................................................................................... 8

Economic ............................................................................................................................ 9

Social ................................................................................................................................ 10

Technological ................................................................................................................... 11

Ecological ......................................................................................................................... 12

Legal ................................................................................................................................. 13

INDUSTRY AUDIT ............................................................................................................ 15

Porter’s 5 force model ......................................................................................................... 15

Competitive rivalry ....................................................................................................... 15

The threat of entry ....................................................................................................... 16

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 The threat of substitutes .............................................................................................. 16

The power of buyers .................................................................................................... 17

The power of suppliers ................................................................................................. 18

STAKEHOLDER ANALYSIS ................................................................................................ 18

Stakeholder mapping ........................................................................................................... 18

High Power – High Interest .............................................................................................. 19

High Power – Low Interest ............................................................................................... 21

Low Power – High Interest ............................................................................................... 21

Low Power – Low Interst ................................................................................................. 22

Recommendation............................................................................................................. 23

Corporate social responsibilities .......................................................................................... 24

OPPOTUNITIES & THREATS ............................................................................................. 26

Opportunities ....................................................................................................................... 26

Threats ................................................................................................................................. 28

DISCUSSION and FURTHER RECOMMENDATION ............................................................. 29

Key drivers for changes ........................................................................................................ 29

Forecast ................................................................................................................................ 32

COVID-19 scenario analysis.................................................................................................. 33

Blue Ocean ........................................................................................................................... 35

Comparison with competitors ............................................................................................. 37

CONCLUSION .................................................................................................................. 39
References ..................................................................................................................... 40
Appendices .................................................................................................................... 45
The Executive Committee .................................................................................................... 45

The Board of Directors ......................................................................................................... 45

Sharing Beauty with All: Assessment ................................................................................... 46

Scenarios for the economic impact of the COVID-19 crisis ................................................. 48

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INTRODUCTION

This report is the very first part of a project when the author is assumed to work for Deloitte
LLP, providing the consulting services for L'Oréal, with the requirement of comprehensively
assessing the organizational internal-and-external environment as well as offering the
company recommendations for their upcoming strategy.

For this first stage, the aim is to analyze the macro and micro environment's impacts and
influences on L'Oréal and its business strategy particularly in the beauty and cosmetics
market in Vietnam.

About L'Oréal

The L'Oréal Group was originally founded in 1909 by the chemist Eugène Schueller as a
company that began with one of the first hair dyes formulated, manufactured and sold to
Parisian hairdressers. With the strategic brand acquisitions, instigated by François Dalle in
1957-1983, as well as the significant investments made in the field of research for tactical
product launches, led by Charles Zviak in 1984-1987, the period 1988-2005 witnessed the
milestone of being number one in the beauty industry of L'Oréal under the management of
Lindsey Owen-Jones.

Until now, L'Oréal was the world's most valuable personal care brand in 2020, with a brand
worth of 29.47 billion dollars. The company's compound annual growth rate (CAGR) is
anticipated to increase by 11% from 2018 to 2021 (Statista Research Department, 2021).

In the mid-2007, L'Oréal entered Vietnam and has quickly become the country's leading
cosmetics company, distributing and marketing 12 brands across 4 divisions: L’Oréal Luxe
(Lancôme, Yves Saint Laurent, Kiehl’s, Shu Uemura), L’Oréal Consumer Products (Garnier,
L’Oréal Paris, Maybelline New York), L’Oréal Professional Products (L’Oréal Professionnel
and Kérastase), and L’Oréal Active Cosmetics (Vichy and La Roche-Posay and Skin Ceuticals)
(L'Oréal, n.d.).

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STRATEGIC CONTEXT

Purpose

Mission The mission “Beauty for All” offers all women and men worldwide the
best of cosmetics innovation in terms of quality, efficacy and safety to
satisfy all their desires and all their beauty needs in their infinite diversity.

Vision L’Oréal has chosen a unique strategy: Universalisation. It means

globalisation that captures, understands and respects differences.
Differences in desires, needs and traditions. To offer tailor-made beauty,
and meet the aspirations of consumers in every part of the world.

Core values At L’Oréal, 6 values which are at the heart of everything include Passion,
Innovation, Entrepreneurial Spirit, Open-mindedness, Quest for
Excellence and Responsibility. Its priority is to be open to new trends and
ideas from around the world, at any time. The most effective way to be a
pioneer.
(L'Oréal, 2019)
Objectives

According to Nicolas Hieronimus, Deputy CEO in charge of Divisions, reported in the 2020
annual report (L'Oréal, 2021), there are 3 ambitions for L’Oréal for the next decade.

First, top-line growth and outperforming the market will always be priorities: their global
market share, currently around 13%, is still a potential index to surpass; 3 regional priorities
will be: the Chinese momentum, the USA, and emerging markets having rapid digitalization
and the rise of e-commerce.

Second, about their category strategy, skincare, which is the largest and most dynamic
beauty category at the intersection of all market trends, will be their main priority. The
Group's multiple brands will continue to please all customers at all price ranges and trends
with L’Oréal’s global leadership in hair care and color, fragrance, and makeups.

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Furthermore, e-commerce, in the near future, could account for 50% of an organization's
revenue. Organizational goal is to consistently increase profitability through top-line growth
and increasingly virtuous profit and loss management (P&L).

“For the next decade, the unique L’Oréal adventure will continue. This adventure will take
us to new heights, to explore new business models and new territories from Green Sciences
to Beauty Tech. This adventure will make L’Oréal a company of the future—a global leader
with strong values, committed to sustainability and helping beauty play its role towards
humanity: a role of inclusion, a role of harmony and of respect. With the strength and
passion of the L’Oréal teams, the organization wants to Create the Beauty that Moves the
World” said Nicolas Hieronimus, Deputy CEO in charge of Divisions (L'Oréal, 2021).

Performance/Scope

In 2020, L'Oréal's consolidated sales produced almost 28 billion US dollars, with more than
85,000 people employed across the world. Skin care, hair care, make-up, hair colorants, and
fragrances are the backbone of L'Oréal's cosmetics division, which will account for 39.48% of
the company's worldwide cosmetic revenues in 2020 (Statista Research Department, 2021).

Proposition 1st cosmetics Group worldwide

Patents 500 patents registered in 2020

Labour 85,400 employees

Sales 27.99 billion euros in 2020

Profits 5.20 billion euros

Portfolio 35 brands

Nation 150 countries (L'Oréal, 2021)

In Vietnam, since the establishment of L'Oréal in 2007, the organization has distributed 12
cosmetics brands, employed up to 1,000 employees nationwide and rapidly risen to the top
of the cosmetic market (L'Oréal, n.d.). L'Oréal Vietnam annually profits more than 73% of
total revenue, in 2019 gross profit margin exceeded 75%, doubling profit to 107 billion VND
(CafeF, 2021).
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Role of business strategy

As other organizations, L'Oréal points out strategies periodically as the long-term and short-
term directions at three main levels.

Corporate-level strategy

Focusing on the organization's whole scope and how value is being added to the
organizational businesses (Johnson et al., 2017), L'Oréal strategies to Create the beauty that
moves the world. As the global leader in beauty, L'Oréal is aware that everything they do
can have a meaningful impact. Therefore:

"They act to shape the future of beauty by
leveraging the best of science and
technology, increasingly inspired by
nature.
They act to drive social innovation by
offering the best working conditions,
training, and social protection for their
employees.
They act to build a business with inclusivity
at its heart by ensuring we are as diverse
as the people we serve.
They act to nurture lasting partnerships
with their clients and suppliers based on
mutual trust and collaboration.
They act to create value for all their
shareholders, by sustaining a robust
business model.
They act to champion the cause of women
and to strengthen the communities with
which they engage.
They act to protect the beauty of the
planet, by fighting climate change,
respecting biodiversity and preserving
natural resources."
(L'Oréal, 2021)

Business-level strategy

Concerning the competitiveness in the respective marketplaces (Johnson et al., 2017), a

diverse and complementary brand portfolio in response to the infinite diversity of
consumers’ aspirations has made L’Oréal become a leader in the beauty market.

L’Oréal’s brands are organized by Divisions, each developing a specific vision of beauty by
consumption universe and distribution channels. Since it was founded, over a century ago,

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L’Oréal has built a palette of iconic and complementary brands through targeted
acquisitions. The portfolio of global brands - the richest and most diverse in the beauty
industry - drives the Group’s long-term growth.

“Through a complicated and uncertain context, L’Oréal’s four Divisions demonstrated their
solidity, their adaptability, and their resilience”, said Nicolas Hieronimus, Deputy CEO in
charge of the Divisions.

Functional strategies

Addressing how the components of the company effectively implement business and
corporate plans in terms of resources, procedures and staff (Johnson et al., 2017), the
members of L'Oréal's Executive Committee, including 20 people who are synonymous with
their experiences in top management in other famous group such as Nestlé, Solvay and
Bettencourt Meyers family, of whom information are attached in the Appendices, are
responsible for the Divisions, Functional Departments and Geographic Zones. They execute
strategic guidelines and manage Group operations across the world.

In addition, the financial, environmental and social performance of the Group have been
enhanced by 5 expert domains in the 2020 crisis.

Finance & Legal functions have played a key role since the start of the health crisis, thanks
to early, large-scale mobilization, being key players in the European Solidarity Plan,
established by the Group in March: freezing sums owed by SVE/SMEs in L'Oréal's
distribution channels and sped up payments to the Group's most vulnerable suppliers.

Research & Innovation coordinated with the major brands and at the Group level to outline
the absolute priorities for each open project to continue developing its extremely promising
portfolio of innovations as well as keep the business running and secure all launch plans.

Operations teams have mobilised across the globe to participate in the solidarity
programme rolled out by the Group to combat the Covid-19 pandemic: protecting all of
employees, satisfying consumers and ensuring deliveries worldwide.

Digital leads the group out of adversity and shapes the future of L'Oréal's beauty industry.
L'Oréal was able to accelerate its e-commerce capacities and maintain a close relationship

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 with its consumers thanks to digital media. E-commerce has compensated for 50% of the
decrease in sales in brick-and-mortar points of sale.

Thanks to the development of Technologies and Beauty Tech teams, L'Oréal provides its
customers with highly personalised, "augmented" products and services that offer
unmatched experiential quality while inventing new ways of working with its employees by
the acceleration of e-commerce, with demand increasing at an unprecedented rate.
(L'Oréal, 2021)

MACRO ENVIRONMENTAL AUDIT

The environment provides organizations with both potential and challenges. The macro-
environment comprises broad environmental variables that affect numerous organizations
in particular industries and sectors as a whole (Johnson et al., 2017).

In 2020, L'Oréal reported Asia Pacific and Western Europe as their 2 most highlighted zones,
with the highest performance at 35.0% and 26.8% of the total sale, respectively (L'Oréal,
2021). Let us see how the macro environment affects L'Oréal in these 2 geographically
different areas. Vietnam will be chosen to represent the Asia Pacific in this report.

PESTLE framework

Political

Vietnam is a one-party socialist republic, ultimately controlled by the Communist Party of

Vietnam (CPV) (Government of the Socialist Republic of Vietnam, 1992), playing a critical
role and deep involvement in the political and legal life of the country.

According to Invest Vietnam (2021), this country is one of South-East Asia's politically safest
countries, and being known as an attractive location for capital investment, compared to
other politically and economically unstable nations. The percentage of political stabilization
and absence of violence and terrorism of Vietnam, recorded by the World Bank, in 2019 was
53.81 percent (Trading Economics, 2021).

As of 2019, Vietnam has diplomatic connections with 189 countries across the world,
including all UN member and observer nations. Vietnam and the European Union (EU)
established diplomatic relations in 1990 (Ministry of Foreign Affairs Vietnam, 2020).

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Thanks to foreign relation policies such as taxation, total foreign investment (FDI) into
Vietnam in 2020 reached 28.53 billion USD, equaling 75% of the same period of previous
year (VOV, 2021), increased by 13.28 billion USD in September of 2021 (Trading Economics,
2021).

According to Transparency International (Trading Economics, 2021) the rank of corruption in

Vietnam has grown from 96 in 2019 (37 points) to 104 in 2020 (36 points), from in 2019,
which is quite high compared to countries in the region as well as the world. Prevention and
enforcement activity remain weak, public sector salaries low and opportunities for corrupt
practices many.

In contrast, with Western Europe, popularly represented by the EU, the European Union
was founded on the base of peace in Europe, which had been destroyed by the Second
World War. The Union has mostly succeeded in accomplishing its goal and also evolved into
a worldwide player with enormous effects for the global economy and politics. It engages
with other major international powers and plays a critical role in promoting global
democracy, freedom, peace, and security (European Union, 2020).

About the multi-party system in Europe, it represents the voices and opinions of each
section of the society. Any person or a group has the freedom to form their own political
party. Organizations are encouraged to trade freely according to the diversity or trading
promotion policies of different parties. For instance, France, L’Oréal’s hometown, has a
multi-party system with the number of competing political parties. This kind of system is
believed to prevent the abuse of power of parties, also constraining the negative side of
single-party one such as the corruption.

Economic

Thanks to transition from a centrally planned to a market economy, Vietnam is currently

one of the region's most active growing economies, elevated from one of the world's lowest
to a lower middle-income nation (World Bank, 2021).

Despite the COVID-19 epidemic, Vietnam's economy is still one of the fastest growing in the
world, with 2.9 percent GDP growth projected for 2020 (the economy expanded at 7% in
2019). According to the IMF, the country's GDP is expected to be US$ 341 billion, ranking it
38th globally and 4th in ASEAN. The GDP per capita is projected to be over $3,500, and it
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has more than quadrupled in the previous 10 years (GOV.UK, 2021). Poverty rates dropped
dramatically from over 70% to around 6% (2002-2018) (World Bank, 2021).

In comparison to 2018, the average inflation rate in Vietnam in 2019 was 2.8%, following a
sharp dip below 1% in 2015 (Statista, 2021). In 2021, due to lower power prices, the annual
inflation rate in Vietnam fell to 2.06% in September, the lowest since March, from 2.82% the
previous month (General Statistics Office of Vietnam cited in Trading Economics, 2021).

The European Union has the world's third largest economy and third largest purchasing
power parity, after the United States and China, in nominal terms. In 2020, the European
Union's nominal GDP is expected to be over $15 trillion (International Monetary Fund,
2020), accounting for around 13.46% of the world economy (World Bank cited in Trading
Economics, 2021).

Due to the impact of the coronavirus and lockdowns on the continent in the EU by 2020, the
gross domestic product dropped by 6.1%. A 4.2-percent growth rate is expected in 2021, the
highest increase in the EU since the EU economy expanded by 2.8% in 2017 (Statista, 2021).
According to a flash estimate from Eurostat (2021), the European Union's statistics agency,
annual inflation in the euro area would be 3.4% in September 2021, up from 3.0% in August.

In the first 12 months of 2020, the two-way turnover between Vietnam and the EU reached
49.78 billion USD, declining by 0.1% over the same period in 2019, accounting for 9.13% of
the total import and export turnover (Ministry of Industry and Trade Vietnam, 2021). The EU
is also a major export market for Vietnam. In 2020, Vietnam's goods exports to this market
will reach 35.13 billion USD.

Social

Vietnam is changing rapidly in terms of its demographics and social structure. Its population
increased to 96.5 million in 2019 (from over 60 million in 1986), and it is anticipated to reach
120 million by 2050. According to the 2019 Population Census Report, 55.5% of the
population is under 35 years old, and the country has the greatest life expectancy in the
area at similar economic levels, at 76 years (World Bank, 2021).

Vietnam's rising middle class, which presently makes up 13% of the population, is
anticipated to grow to 26% by 2026 (World Bank, 2021).

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The HDI rating for Vietnam in 2018 is 0.693, lower than the threshold of the High Human
Development Group 0.007 points below, placed at the second highest position in the human
development category, ranking 118 out of 189 states or regions. From 1990 to 2018, Viet
Nam's HDI rose by 45.9 percent, from 0.475 to 0.693. (United Nations, 2019).

In early 2021, the European Union's overall population was around 447,01 million. There are
around 741 million people in Europe in total. About 10,2% of the world's population were
living in Europe as of 2014 (Statista, 2021).

Europe is the world's second highest-level continent for life expectancy, predicted to be
around 78 years in 2013. Stable expanding and emerging European economies provide the
best living conditions for foreign people; 7 of the world's top 20 nations with the greatest
GDP in 2015 are situated in Europe (Statista, 2021).

Technological

Vietnam's IT industry is growing rapidly, driven by low costs and good worker quality.
Vietnam is presently the 8th largest IT services supplier in the world. The IT industry receives
tax and labor benefits from government support to further promote its expansion (Vietnam
Briefing, 2019). 5 IT industries that are currently trending are fintech, artificial intelligence,
E-commerce, software outsourcing, and education technology.

Total income from the ICT industry in 2019 is anticipated at US$ 112,350 billion, including
81.5% for ICT exports, according to 2019 summaries and 2020 guidance report of the
Ministry of Information and Communications (TOPDev, 2020).

In 2021, there are expectedly 72,53 million internet users in Vietnam. By 2025, this figure is
forecasted to reach 82.25 million people (Statista, 2021).

Vietnam's e-commerce market value reached around US$ 12 billion in 2020, one of the most
rapidly expanding online savings in the region (Statista, 2021). Overall retail sales in the
FMCG sector have increased rapidly across the nation as e-commerce is growing.

Across the last 10 years, mobile Internet use has been on the rise in Europe. With 15% of
subscribers only in 2010, penetration reached 73% by 2020 (Statista, 2021) - perhaps
because the on-the-go technology was becoming accessible and affordable. Although the

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take-off has started to slow down, growth is still possible with a rise in market share of
another 10% predicted by 2025.

The eCommerce sector has developed significantly in Europe with the Internet becoming
cheaper, quicker and more broadly available than before. Although less than 10% of
customers in some European nations have bought food and food online in 2006, the
number has substantially grown till 2019, with the Netherlands and the United Kingdom
leading the package (Statista, 2021). With the beginning of the coronavirus epidemic, the
sector experienced even another boost, as individuals were more likely than ever to
purchase online.

Ecological

Rapid development and industrialisation in Vietnam have had adverse environmental and
natural resources consequences (World Bank, 2021). Electricity use has grown 3 times,
faster than output. Over two thirds of the greenhouse gas emissions account for the energy
sector’s dependency on fossil fuels, expanding at around 5% yearly. Water demand rises but
water productivity is poor, around 12% of worldwide standards. Untenable use of natural
resources like sand, fisheries and wood might have adverse effects on long-term economic
prospects.

The rapid rise of waste, anticipated to twofold in less than 15 years, is due to urbanization,
high economic expansion and population increase in Vietnam. 10 inland rivers are believed
to be responsible for 90% of world marine plastic pollution, including the Mekong River.
Vietnam is one of the 10 most polluted countries in the world (World Bank, 2021).

European Union, as other developed nations, pollution is always a significant problem.

Pollutant air in Europe is damaging to human health and the economy, particularly in cities.
The recent air quality analyzes from the European Environment Agency (EEA, 2020) reveal
that exposure to air pollution in the European Union (EU) caused around 400 000 premature
deaths in 2016.

With efforts to solve environmental problems, renewable energy is playing a significant and
rising role. The Europe 2020 strategy aims to achieve 20% of the gross final energy
consumption from renewable sources by 2020 and 32% by 2030 (Eurostat, 2020).

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Encouraging the use of renewable sources of energy is vital to reduce EU energy reliance
and to achieve global warming objectives.

Legal

In recent years, the Government of Vietnam has passed several laws and regulations to
build the legal foundation for the open-door policy and meet the integration criteria of
international accords.

Foreign firms are authorized to operate in Vietnam, and are frequently promoted to invest
directly or indirectly. Limited liability corporations are now readily available to international
investors (Law on Enterprises, Law on Investment, 2020).

Also, to control the activities of foreign enterprises, the Vietnam Government also has
legislation frameworks to settle disputes between enterprises and workers as well as limit
the impacts on the environment (Law on Environmental Protection, 2020; Labour Code,
2019).

A Trade Agreement and an Investment Protection Agreement were agreed between the
European Union and Vietnam in 2019 (EVFTA) with the aim of providing an overall legal
framework for FDI operations in line with international norms (European Commision, 2021).
Once in effect, the accords will create possibilities to boost trade and promote employment
and growth on both sides by: eliminating 99% of all tariffs; reducing regulatory barriers and
overlapping red tape; ensuring protection of geographical indications; opening up services
and public procurement markets; and making sure the agreed rules are enforceable.

Vietnam has also signed and acceded to numerous bilateral and multilateral investment
arrangements such as agreements with 46 countries and territories on investment
promotion and protection, the ASEAN Investment Area (AIA) Framework Agreement, etc.

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 Opportunities Threads

- single-party country, stable politics. - medium corruption rate

- good foreign relations P
- welcome FDI

- market economy - medium inflation rate

- GDP, income, growth rate increase E
- poverty decrease

- large, young population - medium human development rate

- middle-class rise S
- longevity increase

- e-commerce growth
- internet user growth T
- IT development

- climate change
- high urbanization
E
- plastic waste
- water/air pollution

- tariff elimination - pollution liabilities Decarbonisation

- regulatory barriers reduction L
- foreign enterprise protection

Those 3 factors of the macro environment represent different opportunities as well as

threats that L'Oréal has to encounter when operating in the Vietnam market. Each factor
has its opposite sides where L'Oréal should put appropriate considerations on. Thanks to
favourable political and economic conditions, as well as the improvement in social level and
technology, L'Oréal can confidently set long-term goals to expand the business in the
Vietnamese market. Currently, the group has focused on 2 major objects which are the
skincare market, estimated at 42% of the beauty market and the digitalization of beauty
such as e-commerce, at +40% global growth in online cosmetics sale (L'Oréal, 2021).
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Fortunately, the environment in Vietnam has been encouraging those decisions when the
income and digital level as well as skincare demand in this country are rapidly increasing.
However, as a developing country, Vietnam is also facing environmental deterioration
issues. Therefore, according to increasing awareness of community about ecology, L'Oréal
should conduct more environment-friendly activities such as using recycled packaging or
biological materials as well as corporate social responsibility in order to gain reputation.

INDUSTRY AUDIT

After analyzing major effects of the environment, the industry and sector is the next layer
that needs to be audited. Let us examine 5 essential forces influencing the cosmetics
industry, particularly in Vietnam.

Porter’s 5 force model

Competitive rivalry -HIGH-

Despite an unusual supply crisis in 2020, the global cosmetics industry is a colourful market.
For the international market, L'Oréal still holds the leading position, with USD 33.43 billion
in sales (L’Oréal, 2021), compared to numerous other competitors.

However, in the Vietnam market, the first position is still an objective of L’Oréal. According
to Nielsen, Vietnam is one of the fastest growing countries in Southeast Asia in terms of the
cosmetics industry with a turnover of about 15,000 billion VND per year, approximately 700
million USD (CafeF, 2020).

Currently, the Vietnam market is very diverse from imported to domestic cosmetics as well
as handmade cosmetics. While popular brands such as L'Oréal, Channel, Shisedo... have
increased the market exploitation, the Vietnamese market has continuously welcomed
many new names ranging from the US brand (Nu Skin, VND 1,037 billion in sales in 2019) to
the domestic brand (M.O.I Cosmetics VND 84 billion in sales in 2019) (CafeF, 2020).

In 2019, L’Oréal is placed at the second position, at over VND 1,600 billion in sales, after
Shiseido, at more than VND 2,100 billion in sales (CafeF, 2020). Indeed, the power of
competitors in the Vietnam market should be assessed at a high level, which can influence
the group’s decisions.

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 The threat of entry -LOW-

In recent years, the beauty market has appeared many new cosmetic brands established by
celebrities or beauty bloggers such as Fenty Beauty by Rihanna in 2017, M.O.I Cosmetics by
Ho Ngoc Ha, CMD Cosmetics by Call me Duy in Vietnam, or by following dermocosmetics
trend using active chemicals in advance dermatology treatments such as Dermarium.
Obviously, a brand will not be easily founded if it lacks unique awareness such as the
reputation of influencers or trendy elements such as using BHA (β-hydroxy acids) or AHA (α-
hydroxy acids) in skincare (Hellobacsi, 2019).

The impact of new entrants is not a big deal with a group possessing unique expertise
acquired over 110 years as well as strategic brand acquisition experiences. L’Oréal can
completely acquire those new brands to diversify its product lines. For example, in 2020,
L'Oréal Group completed the acquisition of Thayers Natural Remedies - a 170-year-old
natural skin care brand of Henry Thayer company, USA (CafeF, 2020), contributing to the
world's leading cosmetics group position with 35 world-class brands, providing global
consumers with more than 7 billion products each year.

The threat of substitutes -MEDIUM-

Nowadays, skincare or cosmetics has become an essential commodity such as toothpaste,

shampoo or even food with lots of individuals and being listed as fast-moving consumer
goods (FMCG). Therefore, there is likely no substitute for this industry. However, in
Vietnam, substitutes of cosmetics, especially skincare can be considered as the handmade
or natural cosmetics, even the counterfeit goods (imitations/fake goods).

Since L'Oréal joined in Vietnam, imitations became a big problem, dominating the market
with a market share of up to 75% and becoming the main source of beauty products for
consumers. Along with the development of e-commerce in Vietnam, in 2015, counterfeit
goods were transformed into hand goods, publicly displayed on websites, the revenue
recorded from a website at that time was more than 1 billion VND per month (TCDN, 2019).

Additionally, especially in Mekong River Delta region, people are quite fond of natural or
cosmetics of unknown origin, mixed from various branded goods (homemade cosmetics)
with the main use of whitening skin (Tuoitre, 2021). According to the medical centers, the
main ingredient in this product is corticosteroids, which can cause unintended harm when
being used in excess for a long time (Vietnamnet, 2020).

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Moreover, along with the development of knowledge, the dermocosmetics or skincare with
active treatment is getting more attention at the moment, compared to cosmetics with
common attributes. For example, La Roche-Posay, a famous cosmeceuticals brand for acne
oily skin, is one of the 3 most popular cosmetic brands on Shopee, Vietnam's largest e-
commerce platform (Brandsvietnam, 2021).

For the cosmetics industry, particularly in the skincare market, L’Oréal already possesses a
diversity of brands covering comprehensively all segments including dermocosmetics, luxury
skincare and affordable skincare such as Vichy, Garnier, Kiehl’s. Moreover, the problems
with imitations and handmade products are steadily solved with the official store on e-
commerce platforms and well-educated commercials collaborated with professionals.
Therefore, the influence of substitutes, at present, is considered at the low level.

The power of buyers -MEDIUM-

Due to increasing demand for cosmetics, Vietnam's cosmetic import turnover has doubled
from about 355 million USD in 2010 to more than 790 million USD in 2018, according to
Statista (Innovative Hub, 2021).

According to Nielsen (CafeF, 2020), Vietnam is one of the fastest growing countries in
Southeast Asia in terms of cosmetic industry, although consumer spending is not much,
averaging only 4 USD/person/month, while the figure for Thailand, a similar country, is 20
USD.

The demand for beauty among women of different ages is constantly increasing. In a
developing economy like Vietnam, rising incomes lead to a sharp increase in non-essential
spending. According to the Insight Handbook 2019 report by Kantar Worldpanel (CafeF,
2020), the average amount of money spent on products such as makeup remover,
moisturizer and sunscreen has steadily increased exponentially over the past 4 years. The
majority of buyers practically spare no money and are willing to pay to own a cosmetic set
with good quality, with a reputable brand. Moreover, customers often buy cosmetics in sets,
thereby optimizing sales for brands. Therefore, L’Oréal, as a global cosmetics group, owning
famous brands such as Yves Saint Laurent, Armani, Shu Uemura, does not have to worry, for
those names are always the dream of customers.

17 | L'Oréal
 The power of suppliers -LOW-

As a leader of the beauty industry, L’Oréal Group has the capabilities to research and
manufacture their own product lines with their own laboratories and factories. Suppliers of
L’Oréal are only distributors and retailers who provide the channels or organizations such as
UNESCO to conduct science programs as their corporate social responsibilities.

Among their foreign suppliers, Watson and L'Oréal has been one of the most long-standing
and crucial partnerships, according to Malina Ngai, CEO Asia & Europe and Group COO of
A.S. Watson (L'Oréal, 2021).

To assess the power of suppliers, they only have the duties in transporting and distributing.
Along with a big number of retailers, including supermarkets such as Guardian, Co.op Mart,
e-commerce platforms such as Shopee, Lazada…, as well as the well-known reputation of
L'Oréal, suppliers also have to compete with each other for good deals. Therefore, the
power of suppliers is at a low level.

STAKEHOLDER ANALYSIS

Next layer needed to be assessed is stakeholders, who depend on the organization in

purpose, and on whom the organization in turn depends, to achieve its own aims (Johnson
et al., 2017), with different levels of power and interests, creating a map where L'Oréal
should place different concerns on.

Stakeholder mapping

While the level of power relates to the abilities of influencing the decisions or activities in
the organization, interest/attention refers to the profits/benefits earned from the
organization, (Johnson et al., 2017), stakeholders of L'Oréal are positioned in the matrix
below.

18 | L'Oréal
 Stakeholder interest

Low High

Government Suppliers

Low
Stakeholder power

Community Employees

Investors
High

Customers
Managers

High Power – High Interest

Investors / Shareholders

As a group, a big capital is always a significant advantage in dominating the market,

especially with a leader like L’Oréal. Therefore, shareholders possess a great power and
interest in company activities to make every dollar in capital count.

To attract more investors, the Annual Shareholder Meeting should point out strategic plans
to sustainably develop the company growth as well as take social actions to solve major
issues of community, contributing to the prosperous improvement of the world. According
to the crisis in 2020, net earnings per share decreased by -5.7% to 7.30 euros, compared to
7.74 euros in 2019 (Figure 1). However, in the next Shareholder Meeting, L’Oréal still
considered to propose a dividend of 4 euros at, an increase of +3.9% compared to last year
(Figure 2), thanks to the remaining operating margin at the same record level as 2019. This
action aims to encourage shareholders to continue accompanying L'Oréal.

Figure 1. Earnings per share of L’Oréal (in euros)

Source: L’Oréal, 2021.

19 | L'Oréal
 In 2020, the shareholder meeting
was also held completely online
for the first time (L’Oréal, 2021).
The Group wanted to use this
unique occasion to discuss the
latest news with shareholders
and bring them up to date.
L’Oréal’s Annual Report is part of
the Group’s commitment to
cultivate strong links with its
audiences.

Figure 2. Shareholder return

Source: L’Oréal, 2021.

Managers

The Board Membership reflects the unique management structure of L'Oréal and safeguards
the interests of all its shareholders. According to L'Oréal (2021), the majority of them have
experiences leading multinational groups at professional level such as Nestlé and Solvay, of
whom information is attached in the Appendices. It ensures quick insight into L'Oréal's
developmental issues, encourages open, informed and spontaneous conversations.

The Board takes full responsibility for providing the corporation with a strategic thrust, plays
a tireless and dynamic role, ensuring L'Oréal's continuing future and development, taking
into account its aims and its social, environmental impacts as well as annual priorities or
topic.

Moreover, as the directors of different companies, members of the Board of L'Oréal

demand special benefits from the company in order to retain them.

Indeed, managers are considered having strong power not only in attracting investors
gaining more capital for L'Oréal but also in deciding important strategies as well as high
interest, which are likely reputation, profits, and position.

20 | L'Oréal
 High Power – Low Interest

Customers

Obviously, not only with L'Oréal, customers are the main source of business revenue. All the
programs, decisions on products, company activities are influenced by the demand and the
choice of consumers. At present, the Vietnamese cosmetic market is booming with products
from affordable to high-end (Innovative Hub, 2021). Customers tend to make a choice based
on the price if the attributes of the products of brands are not too different. As a result, the
power of customers significantly affects company operations.

On the other hand, in the beauty market, the customer’s attention is only their personal
needs of caring for their health. Therefore, this stakeholder is placed at low interest.

Low Power – High Interest

Employees

Being seen as having low power in organizational decisions and high interest in profiting
from organization for salary or benefits, L’Oréal has changed employees’ perception and
influence by different actions.

According to Jean-Paul Agon, Chairman and Chief Executive Officer of L’Oréal, the company
could continue to develop throughout the Covid-19 epidemic owing to all the staff, who
adapted new approaches to work, who stayed at home or who respected public health
precautions.

In 2018, the first time in the history of the group, L'Oréal France introduced its second
employee shareholders' plan in 2020, which enabled L'Oréal workers to buy shares of the
business under preferred terms. The offer was accepted by almost 20,000 employees
(L'Oréal, 2021) with two-fold objectives of bringing people together on the basis of their
values, aims and strategy; and of involving workers in the growth of the Group.

Employees are used to having low power in the decision-making process of organizations.
However, L’Oréal has been sharing the responsibilities for these individuals by giving them
more say and involvement in the company. In general, the power of employees is now
leveraging to the medium level.

21 | L'Oréal
Suppliers / Retailers / Contributors

As already determined in Porter's framework, L'Oréal Vietnam's suppliers are frequent

retailers and contributors. They have just the transportation and distribution
responsibilities. Furthermore, when there are too many rivals in the retailing industry,
suppliers must fight for the ideal offers. Consequently, suppliers' power is low.

On the other hand, sales of retailers are tied to manufacturers. The more L'Oréal increases
its sales, the more income it earns. In addition, the superior quality provided by suppliers
adapts to the customer's satisfaction with L'Oréal. Suppliers have a great interest in L'Oréal.
Both parties, therefore, need to keep a tight relationship with one other.

Low Power – Low Interst

Government

Among the entities occasionally communicating with L'Oréal, the power and interest of the
Government on the operation of the company are limited in the legislation framework. The
interest is only the taxation and expectation on the influence of a company on society such
as employment rate, whereas its power just works when a dispute appears such as about
ethics, the environment or labour use.

Community

Likewise, the influence and interests of the community do not have much impact on the
company's operations. They only raise their voice when social values are threatened.

Currently, organizations often profit from the community by conducting such corporate
social responsibility (CSR) strategies to follow as approaches to gain attention. They believe
that community perspective can shape the brand’s image. With the L’Oréal for the Future
programme, the Group has signalled its desire to further accelerate its efforts and show that
businesses can offer solutions to major global challenges.

22 | L'Oréal
 Recommendation

Based on the matrix, L’Oréal can determine the level of influences and interest of different
stakeholders as well as decide the priority in strategizing to properly satisfy the demand of
each object.

Shareholders and managers are close to the development and core activities of the
organizations. Therefore, L’Oréal always focuses on creating a concrete relationship with
these stakeholders, as having pointed in the mission “We act to create value for all our
shareholders, by sustaining a robust business model”.

Customers have a significant position in decisions of L’Oréal. Their demands should be

properly satisfied, which is the main earnings of the organization. As a leader in the
cosmetics world, meeting customers’ demands, building strong customers’ belief and loyalty
are among extreme priorities of L’Oréal. The group should figure out the current trend in
using skincare to timely adjust the strategies. For example, medical skincare, and
dermocosmetics are such famous at the moment in the beauty community in Vietnam such
as La-Roche Posay, SkinCeuticals, CeraVe. Those brands owned by L’Oréal are partnering
with dermatologists.

Employees and suppliers are stakeholders that need to be treated with appropriate benefits
when the main disputes can happen with these objects are about their interest. Throughout
the year, the health and safety of employees was L’Oréal absolute priority. L’Oréal can easily
control these stakeholders with strategies about salary by letting them own shares,
favorable deals and price as well as build a strong relationship with them.

Lastly, the government and community are those who have the connection with L’Oréal
about how to legally act, operate and do business or how to shape the brand’s image.
Government controls the enterprises and market by legislation framework, so obeying the
rules and regulations is the recommendation for L’Oréal. Moreover, building a stabilized
relationship can help to easily get through permissions. On the other hand, CSR are the
essential activities that can help to gain attention from the community, which will be
demonstrated later.

23 | L'Oréal
Corporate social responsibilities

Many corporations are destined to have a big impact on society due to their sheer size and
worldwide reach. As a result, corporate social responsibility (CSR) is an organization's
commitment to act ethically and contribute to economic progress while also enhancing the
quality of life for its employees and their families, as well as the local community and society
as a whole (Johnson et al., 2017).

Once again, L'Oréal confirms its position as the world leader in beauty by contributing to
solve society’s current issues such as COVID-19, environmental deterioration, ethics and
human relations. These strategies are considered as tactical moves to face the community
stakeholders mentioned in the previous part, which not only joins in newly emerged
obstacles, but also devotes to the long-term circumstances.

Safety and solidarity during the COVID-19 crisis

Because of the substantial presence in China, L'Oréal was forced to address the Covid-19
epidemic at an early stage, allowing the rest of organs in other markets to react rapidly with
the top concern was to protect all of subsidiaries' employees.

In addition, the Group adopted a strategy to assist the battle against coronavirus including
all key stakeholders, as part of the European Solidarity Plan released in March 2020 by
freezing all debts due by hair salons, small perfume shops, and VSE/SMEs through the
Group's distribution networks until they could reopen (L'Oréal, 2021).

“Sharing Beauty With All”

In 2013, the sustainable transformation programme “Sharing Beauty With All” aimed to
make L’Oréal a model company in terms of sustainable innovation, production,
consumption, and in sharing its growth with all Group stakeholders (L’Oréal, 2021). Since
2020, L’Oréal’s sustainability commitment has continued with the new ambition for the
future as below. The result and rate of progress is attached in the Appendices.
• 96% of new or renewed products launched in 2020 have an improved social or
environmental profile
• -81% reduction in CO2 emissions in absolute terms in plants and distribution centres
since 2005

24 | L'Oréal
 • -49% reduction in water consumption in plants and distribution centres since 2005
• -37% reduction of waste generated in plants and distribution centres since 2005
• 3A ratings from CD for reducing carbon emissions, managing water sustainably and
protecting forests in the supply chain
• 100% of brands have assessed their environmental and social impact
• 100,905 people from socially or economically disadvantaged communities gained
access to employment
• 97% of the Group's strategic suppliers have been assessed and selected on the basis
of their environmental and social performance
• 96% of the Group's permanent employees benefit from health cover that reflects
best practices in their country of residence

Currently, L'Oréal has announced the establishment of “L'Oréal for the Future”, a social and
environmental solidarity program with 2 highlighted actions: allocating 100 million euros for
impact investment to help recover ecosystems and build the circular economy; as well as
another 50 million euros for a charity endowment fund to help the world's most
disadvantaged women (L'Oréal, 2021).

The brands are committed to having a positive impact on society when taking care of their
skin and the environment at the same time. For example, Garnier is committed to reducing
its environmental impact at every stage of the value chain, and L’Oréal Paris is working to
optimise its product packaging.

L’Oréal and e-commerce platform Lazada have established a partnership on sustainable

beauty in e-commerce across the region, focusing on reducing the use of plastic packaging
throughout the supply chain by using sustainable materials instead in Southeast Asian
markets. The program has been implemented in Vietnam since June 2021, reducing the
amount of plastic equivalent to 180,000 HDPE plastic water bottles during the first 3 months
of the pilot (CafeF, 2021).

This latest partnership is part of "L'Oréal for the Future" as announced in 2020 with key
goals including: achieving carbon neutrality at the Group's work and production sites by
2025; 100% plastic in packaging will be replaced by recycled or biological sources by 2030;

25 | L'Oréal
 and 95% of ingredients in product formulations will be biologically derived from abundant
minerals or from cyclic processes by 2030 (L'Oréal, 2021).

Ethics

Integrity, Respect, Courage, and Transparency are strong ethical values that have guided
L'Oréal's development and shaped its reputation. L'Oréal has been named, by Ethisphere,
for the 11th time, as one of the World's Most Ethical Companies (L'Oréal, 2021).

Since joining the United Nations Global Compact in 2003, L'Oréal has been dedicated to
upholding the Ten Principles. In 2020, the Group was recognized as a UN Global Compact
LEAD business for the second time, a recognition given to organizations who achieve the
highest degree of involvement (L'Oréal, 2021).

L'Oréal is also a signatory to the Women's Empowerment Principles, a joint UN Women and
UN Global Compact program aimed at promoting gender equality and empowering women
in the workplace, marketplace, and community.

Human relations

“Diversity and inclusion: the keys to beauty for all” (L'Oréal, 2021). This mission can only be
accomplished by encouraging inclusiveness and diversity among the company's employees.
The Group also established a worldwide diversity and inclusion Advisory Council, which
includes both internal and external stakeholders. This Council seeks to strengthen the
company's diversity and inclusion policy and action plan so that the Group may continue to
develop in all areas.

OPPOTUNITIES & THREATS

According to the 3 frameworks above about external influences in the macro environment,
L'Oréal is currently facing numerous advantages as well as challenges when operating in the
Vietnam beauty market.

Opportunities

To begin with, the current social and economic context as well as the stable politics of
Vietnam have made this country an attractive location with investors. As mentioned above,
Vietnam has a large and young population, reaching 97.6 million people in Dec 2020 (CEIC

26 | L'Oréal
Data, 2021), with individuals under 35 accounting for 55.5%. According to research by
Mintel - a global market research company (GMPc, 2021), Vietnam's cosmetics market
currently has a turnover of about VND 51 trillion a year (approximately $ 2.3 billion), thanks
to the increase of middle class, 13% of population, growing to 25% by 2026 (World Bank,
2021) as well as the income development.

Those figures have encouraged organizations investing more in this country. With L'Oréal's
financial abilities, the group can fully invest more in Vietnam not only to take advantage of
abundant labor resources but also to exploit potential customers with increasing income
levels. L'Oréal can also think of setting up a factory here with cheap and young labor costs as
well as being close to the raw material areas.

Due to the impact of the COVID-19, e-commerce categories saw significant growth, with
food and personal care products having the highest increase in consumer expenditure.
During the pandemic, more and more Vietnamese consumers have been willing to shop
online for necessities and fresh products. Moreover, according the technology development
in Vietnam, 59 million internet users, 78% of them aged between 16 and 64 already shop
online in 2019 (Global Web Index cited in Datareportal, 2019), L'Oréal can easily focus on
the digitalization of beauty, partnering with e-commerce platforms such as Lazada, Shopee,
Tiki not only to limit the physical interaction for anti-epidemic, but also to maximize the
sales in various distribution channels.

On the other hand, as a leader in beauty industry, possessing over-110-year-experience with

35 brands ranging from haircare, makeup to luxury, consumer and cosmeceuticals skincare,
L'Oréal completely takes advantage, compared to domestic brands or new players entering
the market, and also other major beauty groups, especially in Vietnam when individuals are
quite fond of imported goods and famous brands.

In addition, Vietnam is now polluted with industrial activities. Operating in the beauty
industry, cosmetics are considered as FMCGs which create a sheer volume of plastic waste
because of the packaging. This issue is currently concerned by the community and has
become CSR of all the enterprises. This is also an opportunity for L'Oréal to express the
duties of a leading position in this sector. Fortunately, L'Oréal has taken steps to protect the
environment from a very early age through various programs such as “Sharing Beauty With

27 | L'Oréal
All” or “L'Oréal for the Future” and since they came to Vietnam, it has had a positive effect
on the community.

Finally, the support of the government in tariff elimination and regulation barrier reduction,
benefited from EVFTA between Vietnam and the EU, has opened the door for foreign
investments such as L'Oréal to expand the business in this country.

Threats

At the moment, the rivalry in the cosmetics market of Vietnam is quite strict with lots of big
names such as Shiseido, Channel. Although L'Oréal is the leading name in the international
market, in Vietnam it is still behind many other names. L'Oréal needs to grasp current
consumer trends to quickly capture the market. Some of the main uses are currently being
cared for by consumers: for sensitive skin, bioactive ingredients, anti-inflammatory,
medicinal properties, recommended by dermatologists, soothing, intensive moisturizer,
treats acne, mild yet effective (GMPc, 2021).

On the other hand, L'Oréal is facing with imitations and cosmetics of unknown origin. The
counterfeit goods problem is only partially solved with the appearance of official stores on
famous platforms such as Shopee, Lazada and authorized distribution channels such as
Guardian, Watson. It's still an unresolved problem when users have a need for a cheap
price. For cosmetics of unknown origin or handmade cosmetics problems, it's related to the
problem of people's understandings. If people are more knowledgeable and care more
about ingredients, the need for unsafe whitening will be extinguished. L'Oréal needs to take
steps to educate consumers about genuine products as well as beneficial ingredients in
cosmetics.

Additionally, cooperating with retail suppliers also has the potential for a bad consumer
experience. According to an Ipsos global survey of 12,000 online shoppers (GMPc, 2021),
"delayed delivery" and "out of stock" were the main problems for them, accounting for 25%
and 16% of all respondents, respectively, followed by a 14% rate for “too many promotional
emails”, so L'Oréal need to address various issues arising from different channels that
complicate the customer experience to reasonable arrangement. L'Oréal should have
bindings about service standards to ensure consumer’s experiences when processing with

28 | L'Oréal
 suppliers as well as requirements about demands for goods from distribution providers to
ensure the stock.

Consumers are increasingly demanding not only about the price but also about the quality
of the product. Asian consumers, including Vietnamese when choosing cosmetics are very
interested in ingredients (GMPc, 2021). They are knowledgeable about the different
ingredients in cosmetics, knowing which ingredients are good for them, thanks to the
growth of beauty bloggers. Therefore, transparently publishing ingredients is a great way for
brands to promote their image and interact with customers. Cosmeceuticals are gradually
gaining popularity in Asia. Therefore, L'Oréal needs to diversify its product lines not only to
satisfy customers but also to compete with competitors.

Lastly, the investment to protect the environment also creates many shortcomings for
L'Oréal when replacing plastic packaging with eco-friendly bio and recycled packaging. This
can increase or incur costs that the company needs to consider.

DISCUSSION and FURTHER RECOMMENDATION

As further analysis, this part will identify sort of other evaluations including key drivers for
changes, forecasting, scenarios analysis, “Blue oceans” and comparison with rivals. These
could be valuable references for L'Oréal’s upcoming plans when operating in Vietnam.

Key drivers for changes

In the 2020-2021 crisis, L'Oréal is encountering 3 key drivers for change, which consider the
environmental variables influencing the success or failure of organization’ strategies as well
as the whole beauty industry (Johnson et al., 2017).

First of all, the emergence of the COVID-19 pandemic has disturbed all activities in the world
as well as in Vietnam, in which the cosmetics industry is also significantly impacted,
including L'Oréal. Since the 4th pandemic wave broke out, from April 27, 2021, the
Vietnamese government has issued many regulations on lockdown and social distancing to
prevent the spread of the disease. L'Oréal 's physically traditional distribution channels such
as supermarkets, commercial centers, shopping malls and independent stores were forced
to close. A large number of business clients such as hair salons, spas, dermatology clinics,

29 | L'Oréal
and agencies have also temporarily suspended operations. This has a significant impact on
L'Oréal's business.

According to L'Oréal estimates (Figure 3), in 2020, the growth

rate of the global cosmetics market, estimated based on
manufacturers’ net price, is a negative number for the first
time in the past 10 years, at -8%, estimated market of more
than 200 billion euros.

Figure 3. Evolution of worldwide cosmetics market over 10 years (in %)

Source: L'Oréal, 2021.

In this year, L'Oréal recorded 27.99 billion euros of sales,

decreasing by 4.1% year-on-year (L'Oréal, 2021), which is two
times lower than that of the global market, at -8.0%.

Obviously, based on those figures, L'Oréal needs new strategies

and appropriate, immediately effective changes to face
unforeseen changes in the upcoming period. COVID-19 is absolutely considered as the
biggest circumstance threatening the L'Oréal Vietnam operation.

Second, e-commerce has currently become a solution to help businesses get out of the
pandemic as well as orient the market to enter a new phase in consumer shopping behavior.
During the quarantine period, more and more consumers are turning to e-commerce sites
to buy essential products including cosmetics. According to L'Oréal (2021), e-commerce
compensated for 50% of the decrease in 2020 and could represent 50% of the business in
the near future.

30 | L'Oréal
As an example for the development of beauty e-commerce against the effect of pandemic,
the health and beauty industry holds the "throne" of revenue on Shopee Mall in Vietnam
with more than 180 billion VND/month in 2021 (Brandsvietnam, 2021). Despite the
pandemic, the health and beauty industry holds the "throne" of revenue on Shopee Mall
with more than 180 billion VND/month. Maybelline, La Roche-Posay and Nivea are the 3
most popular cosmetic brands on Shopee, of which 2 are owned by the L’Oréal group.

Therefore, L'Oréal 's focus on the digitalisation of beauty, particularly on e-commerce at the
moment is completely wise and it needs more investment. When brick-and-mortar stores
had to close because of public health lockdowns, L'Oréal had all the necessary tools to
maintain contact with its consumers and continue to sell its products. The Group capitalised
on innovation and e-commerce, which grew to account for nearly 27% of sales in 2020
(L'Oréal, 2021).

Lastly, consumer trends are always important issues that need to be significantly concerned.
This key driver is now possessing a major influence because of the development in
consumers’ knowledge and IT improvement when the Internet becomes a huge library.
“Skin first, makeup second", the motto of Glossier, the beauty unicorn and millennial beauty
consumers’ favorite (IMA, 2019), becomes viral at the moment in the beauty community not
only in Vietnam but also over the world.

Nowadays, consumers are paying more attention to skincare products than makeup. The
skincare market is accounting for the highest proportion in the beauty industry, accounting
for 42%. Despite the huge impact of the pandemic,
the growth rate of the skincare market only declined
by 3% in 2020, compared to -8.0% worldwide.
Moreover, dermocosmetics or cosmeceuticals has
become the new trend currently, being the only
market recorded growth in 2020, at 2% (Figure 4).

31 | L'Oréal
Figure 4. Evolution of different segments in cosmetics market over 10 years (in %)
Source: L'Oréal, 2021.

Vietnamese consumers are now very concerned about skin health. They select skincare
based on their thorough ingredients research, and cosmeceuticals are their top choices.
Therefore, L'Oréal's current focus on the skincare and dermocosmetics market is the right
plan, catching up with the trend and being loved by Vietnamese consumers. The growth of
La Roche-Posay is evidence of the current success of L'Oréal in Vietnam.

Forecast

In a sense, all strategic decisions involve forecasts about future conditions and outcomes
(Johnson et al., 2017). Beauty Tech is inventing the future of beauty. In order to accelerate
the pace of innovation, Technologies teams of L'Oréal have developed a specific programme
known as the Tech Accelerator (L'Oréal, 2021), which can forecast the future index based on
the current figures of PESTEL factors.

The TrendSpotter application was launched as part of this initiative (L'Oréal, 2021). Its
detection technology relies on artificial intelligence (AI) to identify avant-garde beauty
trends. Combined with L’Oréal’s expertise, this makes it possible to quickly develop
products tailored precisely to consumers’ emerging expectations.

32 | L'Oréal
In this increasingly uncertain context, expectations are high: improving sales forecast
accuracy (FA), ensuring product availability… All these challenges are addressed by Demand
Sensing (L'Oréal, 2021), another Tech Accelerator programme and a key enabler for the
digital transformation of L’Oréal’s supply chain.

Currently, the development of technology not only helps L'Oréal increase revenue and reach
more users by e-commerce, but it also helps in predicting future trends as well as upcoming
uncertainties. Creating new trends is always an advantage that helps L'Oréal become the
number 1 position in the beauty industry. The trends and concerns of consumers about
their skin care are easily predicted for the development of new product lines in the future.
Moreover, with this technology, L'Oréal can easily manage the production to ensure the
stock to sufficiently adapt with fluctuations in market demand. This can even predict the
income and population level of the target market which can contribute to the decision-
making process of managers in investment.

COVID-19 scenario analysis

Scenarios offer plausible alternative views of how the macro-environment might develop in
the future, typically in the long term (Johnson et al., 2017), which is a part of the forecasting
process. In the current situation in Vietnam, L'Oréal is facing 3 scenarios because of the
impact of the COVID-19 crisis. The illustration of the different levels of these 3 scenarios is
attached in the Appendices.

The time of this report is in early October 2021 when Vietnam has passed the peak of the
fourth wave of pandemic. The number of daily deaths has decreased and the government
has begun to relax regulations on lockdown. However, because it is currently impossible to
predict with certainty that the epidemic has passed and there will be no other outbreaks in
the near future, the author will still analyze based on these 3 scenarios.

First, Best scenario: when Vietnam has rapid and effective control of virus with strong,
public-health response succeeds in controlling spread within 2-3 months. Catastrophic
structural economic damage is avoided, and the recovery curve has U- or V-shape.
Businesses can resume normal operations. Consumer demand will increase dramatically in
this scenario. L'Oréal needs to have a strategy for the fastest return, the number of products
available to retailers and customers needs to be ensured, plans to drive sales need to be

33 | L'Oréal
prepared and implemented immediately. L'Oréal's revenue can spike rapidly due to
increased demand but then could decline sharply, so a strategy to promote long-term
growth in this situation is needed.

Second, Medium-level scenario: when Vietnam has effective response, (but regional) virus
recurrence, initial response succeeds but is insufficient to prevent localized recurrences;
local physical-distancing restrictions are periodically reintroduced. The GDP curve still has a
U-shape but it is not smooth with fluctuations. This scenario reveals a very cautious opening
period of the Government to gradually recover the economy after the shutdown period.
Businesses are still restricted to a certain extent. In this scenario, L'Oréal needs a plan to
properly distribute human resources to save operating costs. The company can continue to
promote transactions on e-commerce sites. Face-to-face transactions at physical sites
require safe measures to protect both employees and consumers, complying with
government regulations to avoid a new wave of outbreaks. Moreover, L'Oréal's sales can
recover gradually and surely.

Last, Worst scenario: when Vietnam has broad failure of public-health interventions, public-
health response fails to control the spread of the virus for an extended period of time (eg,
until vaccines are available). This would result in a prolonged L- or W-shaped economic
trajectory, with structural damage to the economy, combined with lack of policy response
to prevent widescale bankruptcies, unemployment, and a financial crisis, with the number
of new cases expanding exponentially. The government can continue to enact lockdown
policies. Businesses are still not allowed to operate, greatly affecting foreign investors,
causing them to withdraw from this country. In this scenario, L'Oréal should promote online
transactions to maintain revenue and prepare plans to protect employees when they are
out of work. At the same time, this may be an opportunity for L'Oréal to dominate the post-
epidemic market, when other players are absent.

The medium-level and worst scenarios are currently true in the 4th pandemic wave in
Vietnam. L'Oréal in retail systems (supermarkets, shopping malls) are still allowed to
operate even during the social distancing period, but sales are not much because consumers
focus on buying more essential products such as food and drink. At this stage, L'Oréal is
advised to consider the operating costs at physical stores and focus more on e-commerce
sites by cooperating with other objects such as dermatologists and clinics when these
34 | L'Oréal
enterprises are not restricted from operating. L'Oréal can partner with Shopee or Lazada in
their promotions to further connect with customers.

Thus scenarios are not strategies in themselves, but alternative possible environments
which strategies have to deal with. Scenario analyses can be differentiated from alternative
futures forecasting. The more detailed L'Oréal can forecast the scenarios, the more back-up
plans they have which contribute to a comprehensive preparation with different
uncertainties and circumstances.

Blue Ocean

Vietnam is obviously a “Blue Ocean” in terms of geographic zones which are one of new
market spaces where competition is minimized (Johnson et al., 2017), with a big demand for
skincare of individuals when their income and education level is rapidly increasing.

Out of the 6 giants in the cosmetics industry, only Shiseido is from Asia, originating from
Japan, positioning at the 5th place, behind L'Oreal, Unilever, Estée Lauder and P&G. Coty is in
6th place. The Asia Pacific region, including Vietnam, according to L'Oreal (2021) is a new
market when the demand for cosmetics is very high, accounting for 43% of the total global
cosmetics consumption (Figure 5), but there are not many suppliers in the region. Japan,
South Korea and Taiwan are the famous cosmetic manufacturers here, but the reputation
and experiences are still not equal to competitors from the West.

Figure 5. Breakdown of the global cosmetics market (as %)

Source: L'Oreal, 2021
35 | L'Oréal
According to L’Oréal, Vietnam is among new markets that need to be exploited more. This
country has contributed to 35% of total sales of the Group in Asia Pacific (Figure 6). This
could be a potential market in the future when Vietnamese consumers are crazy about
foreign brands such as La Roche-Posay, Vichy, Lancôme, Yves Saint Laurent, etc.

Figure 6. Breakdown of 2020 sales of L'Oreal (as %)

Source: L'Oreal, 2021.

In terms of the market segment, while skincare is the cash cow of the Group, contributing to
39.5% of the total sales (Figure 6), dermocosmetics are considered as a potential “Blue
Ocean” not only with L'Oreal but also with the whole cosmetic industry. As examined in
previous parts about “Skin first, makeup second" or the demand for cosmetics with active
ingredients, cosmeceuticals has gained lots of attention at the moment, thanks to the
promotion of celebrities and beauty bloggers as well as the increasingly educated
consumers.

In 2020, Active Cosmetics (dermocosmetics line of L'Oreal) is still only around 10.8% of the
total sales of the Group (Figure 6), and is the only segment recorded growth in the global
market, by 2% (Figure 4), which shows how much potential it has to grow. At the moment,
L'Oreal owns 6 cosmeceuticals brands which are La Roche-Posay, Vichy, CeraVe,
SkinCeuticals, Decléor, Sanoflore. The group can think of acquisitions for more
dermocosmetics companies in the future to expand its operations in this “Blue Ocean”.

In terms of functions as well as expertise, digital or e-commerce, in particular, is another

“Blue Ocean” that L'Oreal can focus on. E-commerce has become more and more important

36 | L'Oréal
in life and has grown tremendously, being able to meet the most basic needs of each
individual through connecting users with businesses.

On December 12 in 2020, Shopee Vietnam recorded a breakthrough with 12 million

products sold in the first 24 minutes and peaked when up to 1 million products were sold
within a minute (Hanoimoi, 2020). Health & Beauty or Skincare products are always the first
choice during the year-end festive season and welcome the new year in Vietnam. Every
minute of December 12, 1,000 skin care products are sold, with moisturizers, masks, lotions
and scrubs. Vietnamese users between the ages of 18 and 34 are the most active shopping
age group. Meanwhile, the top 5 brands with total transaction value on 12.12 Birthday Sale
belong to different product categories, including La Roche-Posay (Health & Beauty),
according to Mr. Tran Tuan Anh, Managing Director of Shopee Vietnam (Hanoimoi, 2020).

In 2020, online cosmetics sales increased by 40% globally, and e-commerce accounts for
22% of the total sale of the beauty market (Figure 7). Based on the above figures, e-
commerce is a potential pool not only in this current pandemic crisis but also in the future.

Figure 7. E-commerce in the beauty market

Source: L’Oréal, 2021.

Comparison with competitors

The world is currently facing a lot of challenges because of the epidemic and so is the
cosmetics industry in particular. As the leader in the beauty market, L'Oreal possesses
competitive advantages that make many competitors wary.

In 2020, despite facing an 8% decline in the beauty market, L'Oreal's sale remained at the
top with USD 33.43 billion (Figure 8), representing 13% of the 200 billion euro market share
(Figure 3). This figure is higher by 48.6% than that of the biggest competitor as Unilever, at
USD 22.49 billion and by 3.8 times than that of Coty, in the 6th position, at USD 8.65 billion.

37 | L'Oréal
Currently, according to Nicolas Hieronimus, this number is full of potential and can increase
even more in the future in order to extend the gap with rivals.

Figure 8. Main worldwide players in sales (in billions of USD)

Source: L’Oréal, 2021.

In the Vietnam market, if the sale of L’Oréal was at the third place in 2017 after Oriflame
and Shiseido, it was the second in 2019 according to a sharp decline of Oriflame (Figure 9).
Obviously, as a Western cosmetic group, L'Oreal has not yet completely captured the hearts
of consumers, for it is not really suitable for the Asian skin. But recent signs show that
consumers are starting to pay more attention to dermocosmetics, which will be a potential
for L'Oreal in the near future. La Roche-Posay is currently the most famous dermocosmetics
brand, owned by L'Oreal.

Figure 9. Sales of beauty players in Vietnam (in billion of VND)

Source: CafeF, 2020.

38 | L'Oréal
 When it comes to the competitive advantage of L’Oréal compared to the competitors, the
most outstanding component is about the diversity of product portfolio which can likely
satisfy all kinds of customer demand, with 35 famous brands, ranging from normal to luxury
and dermocosmetics products as well as haircare, colorants.

Moreover, this group has numerous up-to-date domains of expertise including the focus on
digitalization and technology, which not only helps to easily overcome the lockdown
regulations of Government and remain the operation at the same time, but also assists in
forecasting the upcoming uncertainties, trends, demands or in developing, innovating the
customer experiences with services such as virtual try-on apps, personal designed makeup,
etc.

In addition, every mission and strategies of L’Oréal have already consisted of the
environmental solutions or programs, for it is always aware that is the core issue of an
organization producing FMCGs to deal with community and sustainably operate on the
planet. CSR activities are absolutely competitive advantages of the group.

In general, L'Oreal deserves its leading position in the cosmetics industry, and Vietnam is a
potential market for this group, despite the implicit opportunities and challenges.

CONCLUSION

To sum up, the study illustrates an overview of the L'Oreal Group operations in Vietnam. It
has offered comprehensive internal and external variables affecting the Group's
development, including recommendations on the many circumstances that the Group could
encounter, through the use of PESTEL, Porter's stakeholder framework. The discussion part
also provides L'Oreal Vietnam the author’s personal opinion and advice.

39 | L'Oréal
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44 | L'Oréal
Appendices

The Executive Committee

Source: L’Oréal, 2021.

The Board of Directors

Source: L’Oréal, 2021.

45 | L'Oréal
Sharing Beauty with All: Assessment
Source: Source: L’Oréal, 2021.

46 | L'Oréal
47 | L'Oréal
Scenarios for the economic impact of the COVID-19 crisis
Source: McKinsey & Company, 2020

48 | L'Oréal