Herborist and Other Chinese Brands - Coursework Example

Herborist- What’s the next step forward? Background Every business organization looks forward to expanding its business activities beyond its borders. When Herborist got into the production of personal care products, the market was already flooded with well known Western cosmetic brands. Herborist is a brand of personal care products produced by Jahwa United Company Limited. The cosmetic industry has become very competitive in the 21st century and to succeed in developed markets; Herborist has to have a concrete strategy of entry, sales promotion and brand awareness. In the quest to expand its international operations, Herborist should enter the Canadian market. This would be the appropriate market for their line of products under this brand because the market is developed; consumers have product component awareness and the introduction in such a market would be the most appropriate and profitable for the company in the long run.. Country Background The cosmetic industry accounted for US $487.72 billion in 2010. Most of these purchases were done in developed markets even though they were just recovering from the global financial crisis. Canada is considered a developed economy with imports that totaled $474.9 billion in 2012. It has relatively recovered from the effects of the global financial crisis of 2008. Canada imports 94.9 percent of its cosmetic products and with the recovery from the global financial crisis the country’s per capita disposable income is expected to rise albeit at a slow rate. Canada has responded well to the recovery efforts as compared to other Western nations like Greece and Spain, which are still feeling the effects of the global financial crisis. This makes it the best country for the company’s international expansion activities (Zhou, K., 2011). Herborist and other Chinese brands have been able to be successful at home by exploiting their unique cultural features. To achieve internationalization, Chinese cosmetic companies like Herborist need to expand and look for markets beyond their borders. Herborist has done relatively well in Paris and with lessons from Hong Kong can do even better in Canada. The Canadian cosmetic industry has grown to be valued at $ 1.7 billion, and forecasts show that it will grow to be worth more. Being that the country depends on imports for their cosmetic needs, also makes it attractive business destination for Herborist. Just like when Herborist entered the Hong Kong market, there were well known international cosmetic Brands in the market. The same applies to Canada and being that the county imports more than 95 percent of its cosmetics, the competition is high. To avoid the failure, the company faced in Hong Kong, the entry strategy need to focus on the products components that gives it an edge over its competitors. The company’s strategy should include; the entry mode, a growth strategy, a marketing strategy, and a structural strategy (Bernstein Research, 2009). Having had success with its products in China where consumers appreciate the company’s products as useful and reasonably priced the company should base its Canadian strategy on the herbal and tradition components of their products. Another factor that would give the company an added advantage would be capitalizing on the uniqueness of herbal medicine from China. Consumers have become aware of the carcinogenic properties of some of the ingredients used in cosmetics. They are, therefore, moving towards herbal cosmetic and cosmetics that have herbal components. (Johanson and Vahlne, 2003) This presents a big opportunity for Herborist in Canada. Market Entry Before entering an international market, an expanding company has to ensure that it is well acquainted with the market, cultural differences, regulations and policies. Herborist needs to know its target market in Canada. Herborist also possesses some feature which it can use to its advantage in the new Canadian market. To this end the company should target women aged between 25 and 35 because this is the age group at which women use more cosmetics and beauty enhancing products. It is also an age group that is trendy and fast and forward making them the ideal candidates for herbal oriented cosmetics. The company should also capitalize on its strong capital base. Herborist has been able to do well in the Chinese domestic market because of a strong capital bases that enabled product development and promotion making Herborist one of the leading cosmetic brands in China. Research and development is another area that the company can capitalize on in Canada. Given its financial capability, the company should use it to develop products specifically tailored to the Canadian market. Using technology in product innovation, and improvement will give the firm a competitive advantage over its competitors (Dutton, 1999). The cosmetic industry is changing rapidly from artificial to natural products. Natural and green have become the new words in the cosmetic industry and consumers are paying attention. Consumers recognize the importance of herbal medicine and appreciate its use in cosmetics. Herborist was built as a high-end cosmetic product and as a herbal personal car product. This enabled the company to establish the product as a typical high end product in the market. Herborist can use this to their advantage in Canada through promotions and their endeavors to increase brand awareness in the new market. Consumers always want to be associated with successful brands and this will give Herborist and edge in the Canadian market. In expanding its operations internationally, the company should also stress the fact that it has been in the cosmetic industry since 1889. When purchasing cosmetics consumers look for well known brands because brand represents reliability in quality and service (Galaskiewicz, and Zaheer, 1999). With Herborist’s brand building system and the use of the concept of herbal beauty it will be able to appeal to the Canadian consumers. Another obstacle that the company will have a hard time dispelling is the fact that Chinese products are substandard. But then this can be solved by mentioning that the business subscribes to ISO9001 quality management system. This will enable the Canadian consumers trust their products because they know that companies that subscribe to the ISO9001 produce quality products. Before entering an international market, the company has to decide on the most appropriate entry mode to use. The different kinds of market entry strategies that Herborist can opt for are; direct exporting, joint venture, indirect exporting and licensing. However it is important that the company uses a cosmetic company on the ground as it did when it decides to enter France. To this end company should use licensing as a mode of entrance through Sephora just like they did in France. Sephora is a well known cosmetic chain store. In licensing, the licensor and the licensee agree on the use of the licensor’s brand name, patent and copyright by the licensee (Ozcan and Eisenhardt, 2009). Licensing will give the company an opportunity to get into the Canadian market without having to invest much. It will be able to use an existing business to expand its operation and have a presence in the country without much time and effort that is normally associated with an international expansion. Since Herborist had used this kind of entry method with the same company in France, replicating it will not be a problem. Licensing will also enable the company to enter the Canadian market without any investment obligations. However licensing comes with some disadvantages to the licensing firm like the loss over the quality of products and distribution, giving up of company rights and copyrights can lead to the licensee becoming a competitor in the future since the licensee learns and knows the secrets on the licensors operations and products. But for Herborist this model had worked in Paris and with the same chain store, so there is no cause for alarm while entering the Canadian market. Growth Strategy Before getting into an international market, the company should have a well defined growth strategy in the prospective market. Since Herborist has chosen to get into Canada, the most appropriate growth strategy under licensing would be through cosmetic centres that will be set up on Sephora’s branches all over Canada. Since Sephora is a trusted cosmetic chain in Canada, it will be easier to introduce the company’s products through its local cosmetic shops. This will help Herborist to increase its sales and brand awareness in the country. After figuring out the entry strategy, Herborist should then decide on the marketing strategy specifically tailored for the Canadian market. Marketing strategy A marketing strategy entails decisions on product offering, sales promotion, product pricing and the location (Bartlett and Ghoshal, 1998). Since most of Canada gets dry during winter, consumers will pay more attention to products that have hydrating properties. The company should focus on offering moisturizing and hydrating cream in the Canadian market. Since the expansion plan intends to use licensing as the mode of entrance into Canada, this gives Sephora the rights to distribution and production rights in the country. Herborist can, therefore, only advice on the best way of promoting its products in the Canadian market. Promotion can be done through commercials in both print and digital media. Another area that Herborist needs to look at in Canada is brand awareness. Despite being a leading luxury cosmetic brand in China, Herborist is little known in Canada. The company will have to use intense sale promotion campaigns to get consumers to know about them and their products. When the company entered the market in Paris, it priced it products relatively cheap as compared to its competitors on the same category. Since the Paris model worked, the one in Canada should also be modeled in the same way. The company should encourage buyer to choose their product by offering discounts like buy one get one free (Virpi, 2009). This gives Herborist the opportunity to give a free sample and sell at the same time. Since Herborist plans to get into Canada through Sephora, it will be vital to major the introduction of its products in store located in areas where there are large Asian population especially Chinese. Targeting this group will make it easy for the company to sell since the Chinese do not need to be convinced to purchase Herborist products because it is a leading brand in China. The product can also be promoted and sold online through Sephora’s online shop. International expansion needs a lot of planning and capital base. However for Herborist, Getting into the Canadian market should be the best option in its international expansion strategy because the cosmetic market in Canada is mature, with more informed consumers which makes it easy to sell herbal cosmetic products as opposed to developing markets where it will have to invest heavily in order to get into the markets. References Bartlett, C. A and Ghoshal, S., 1998. Managing across borders: The transnational solution. Cambridge: Harvard Business School Press. Bernstein Research. 2009. Cosmetics & fragrances: Analyzing sales growth prospects within the global beauty industry, LVMH: King of the Luxury Jungle, 139-153. Dutton, G., 1999. A Changing landscape for cosmetics and personal care. Chemical Market Reporter, 255(14). Galaskiewicz, J., and Zaheer, A., 1999. Networks of competitive advantage. Research in the Sociology of Organizations, 16, pp. 237-261. Johanson, J., and Vahlne, J. E., 2003. Business Relationship Learning and Commitment in the Internationalization Process. Journal of International Entrepreneurship, 1, pp. 83-101. Ozcan, P., and Eisenhardt, K.M., 2009. Origin of alliance portfolios: entrepreneurs, network strategies and firm performance. Academy of Management Journal, 52(2) pp. 246-279 Virpi, O., 2009. Material of International Marketing Communications. Savonia University of Applied Sciences. Varkaus. Zhou, K., 2011. Herborist: A Chinese personal care brand goes abroad. The Asia Case Research Centre, Poom Kam Kai Series, pp. 1-24. Read More