Introduction
Lush is an organic cosmetic providing business that started its operations in 1994. The primary products of the company are directed at young women, and the core area of expertise is skin care products. Lush is a British company headquartered in Poole. The motivation behind the formation of the company was to use natural ingredients and organic materials for the production of handmade skin care products and essential oils. The company has thrived with this idea and now maintains a global presence in more than forty countries around the world. The firm has more than 650 stores and distributes its products to the company owned franchises from several factories. The company also covers twelve countries through mail orders. The manufacturing facilities are present in UK, Japan, Italy, South America and Canada. The business model of the business suggests that it manufactures the products in company-owned facilities and distributes these products to the franchises only. Therefore, the areas of growth for the company are franchises and partnerships. The lush company is aspiring to expand its business to Argentina. This report provides the professional insights using strategic tools for the expansion of the business operations to Argentina.
External Analysis
For a successful international expansion, it is vital to understand the business environment of the host country. This section provides valuable insights into the Political, Economic, Social and Technological landscape of Argentina.
Economic Environment
The Argentinian economy is progressive particularly after recovering global financial crisis. The GDP growth of the country has witnessed astonishing growth over the past five years. The average GDP growth rate over the last five years is 9.3%. The economy is primarily based on the agriculture, and it is a leading exporter of the agricultural products like Corn, Wool, Sunflower, and Wheat. The agricultural background of the country suggests that the organic raw materials for the production of the cosmetics will be easy to source for the business. Besides the agricultural production Argentina is rich in natural reservoirs such as coal, iron, tin and zinc. The energy reservoirs of the country are sufficient to meet the national needs making it independent in meeting its energy needs. It suggests that the country is an ideal site for establishing a manufacturing site as the shortage of energy, and the raw materials is not a problem (Hamilton and Webster, 2015).
The business environment of Argentina is attractive and suitable for the international business. The business climate of the country makes it an attractive choice for the international investors among the Latin American nations. Many resources pour in the form of international development funds and financial aids. The international companies are turning their faces towards the country for harnessing the benefits of its business environment. Currently, more than 500 US companies have their business operations in Argentina. The business activity from international business is producing employment for more than 200,000 locals. Therefore, the employment conditions are better and so does the purchasing parity of the people (Hamilton and Webster, 2015).
Political
Argentina has a stable political landscape. The political environment witnesses multi-party politics where there is no dominance of single party or individual making the country a truly democratic state. The laws and legislation are governed by the constitution of the country. The country has a presidential form of government. The judiciary is independent and free from the political influence. In the past, Argentina has faced the havoc of increased corruption and disrupted relationships with the neighbors. However, even in that time, its judiciary remained free from any internal or external executive body and influence. The writ of the judiciary makes the country favorable for the business operations as the companies are reassured that they can bring the areas of conflict to the court for transparent trial (De Mooii, 2013).
Social
The literacy rate in Argentina is 93% percent. It is the second highest literacy rate in the Spanish speaking countries. The number of university enrollments in Argentina is highest in the Latin America. The literacy rate suggests the progressive trends in the social setup. The gender parity in Argentina is slightly higher than the US. However, the gender roles are highly differentiated. The gender differences are more highlighted in the workplaces of the Argentina. The conditions are now getting better, and 43 percent of the women population of Argentina is employed. Fifty percent of the working women in Argentina are between the ages of 20 and 50. It makes the country an attractive market for the Lush Company as the primary target market of the company is the working women between the ages of 20 to 50 (Hamilton and Webster, 2015).
Technological Environment
The technological advancement and the availability of tech products are varied in the different areas of the country. The urban areas have a relatively developed technological roadmap as compared to the peripheral areas. The developed urban districts follow the marks of US, Canada, and Japan in technological advancements. However, in regional areas even the telephonic connections are an alien concept to the people. The people of these areas have shown rigidity to the technological changes. The technological interventions are not very much important for the internationalization of Lush Company as the products of the company are handmade and require less technology at commercial scale involved in the production. However, the information technology diffusion is slow that dictates the reliance on the traditional media for the operational efficacy (Hamilton and Webster, 2015)
SWOT Analysis
Strengths
The strengths of the business are listed below:
The company saves much cost by cutting the packaging expenses. The cost savings gives the company a competitive advantage over the other in the cosmetic industry.
The global distribution and presence in more than forty countries with 800+ stores give the company required expertise for the international expansion.
The retail format of the franchises of the company is highly distinctive that provides the customers a shopping experience
The self-service concept is present in the retail stores, and the customers can try the products before purchasing (De Mooii, 2013).
Lush is a responsible corporate citizen and gives back to the society in every possible way. They have a policy of not using the animal for the testing purposes. Moreover, the green packaging and environmentally friendly concepts put the company at the top of the line ethical organizations.
Weaknesses
The weaknesses of the company are listed below
The advertising efforts are limited and not up to the mark as compared to the industry competitors.
The product prices are high due to the higher prices of raw materials making it out of the reach of lower class
The products of the company have an issue of storage and shelf life as organic products need to be stored in refrigerators.
The brand image of the Lush is not strong as compared to the other players in the cosmetics business (De Mooii, 2013).
Opportunities
The opportunities for the business are:
Increasing awareness and the passion for the organic products and health consciousness is an opportunity for the business. The company needs to use the right media for the information dissemination to the right people (Parnell, 2013).
The customer base of the company is increasing due to the increasing number of stores. The walk-in customers mean extra sales and revenue.
The green practices in the supply chain, and environmentally friendly policies pose an opportunity for the company for the creation of a new industry.
Threats
The threats for the business are listed below:
The competition and rivalry among the cosmetic brands are intense
The customers might switch to the alternative conventional products due to the lower prices and ease of use.
Porter Five Forces Analysis
It is a strategic tool that helps in identifying the competitive landscape of an organization on the industry forces.
Threat of New Entrants
The unique selling proposition of the Lush Company is organic products and the handmade skin care products. It requires special expertise that the company has. However, for a new business to enter the market, it will take ages to compete with the Lush in gaining the expertise that the business already has. The entry barriers to the market are limited. However, it requires a reasonable investment to compete with a business operating at the level of Lush. The overall threat of new entrants is moderate (Hamilton and Webster, 2015).
Power of Buyers
The market is saturated with the cosmetic products, and the industry is growing globally at a rate of 12% annually. It means that more and more players are entering the market. The buyers have a choice to choose from a long list of available products. However, the growing health concerns and the increased consciousness regarding health and beauty make the products of Lush Company a choice of the customers. Therefore, the buyer power is moderate (Hamilton and Webster, 2015).
Threat of Substitute Products
As already discusses competition is intense, and there are many substitutes available in the market. The conventional cosmetic products serve as a perfect alternative for the product of the Lush Company. They perform the same function as that of the organic products. However, the side effects of the chemically produced cosmetics are more as compared to the organic skin care products. It is the selling proposition of the Lush Company products. Overall, the threat of the substitute products is moderate to high (Terpstra, Foley and Sarathy, 2012).
Power of the Suppliers
Argentina is an agricultural country, and the organic farming is not a unique phenomenon in the country. The raw materials of the products of the company are the organic materials produced from organic farming. Therefore, the suppliers are abundant decreasing the bargaining power of the suppliers. The power of the suppliers for the host country operations is low (Parnell, 2013)
Rivalry among the Brands
The competition among the players in the cosmetic industry is intense. The growing awareness and the consciousness about the beauty and appearance are making people susceptible to a fear of looking bad. Therefore, these products are in demand resultantly the producers are more. The cosmetic companies are using intense marketing campaigns, advertisements and celebrity endorsements to make an impression. They are trying every possible way to create strong brands. These practices, however, lack at the part of the Lush Company. Overall the rivalry among the competing brands is high, and it requires many efforts to overcome the intense competition (Hamilton and Webster, 2015).
Ansoff Matrix
It is a strategic tool that defines the future growth direction of the company. It draws the growth strategies based on the market position and the product development. Only the strategies of the new market are considerable in the case of Lush Company expanding to Argentina as the operations will be in a new market (Hussain et al, 2013).
Market Development
The growth strategy involving the introduction of the existing products in the new markets is referred as market development. The Lush Company has gained marvelous expertise in handmade skin care products. Therefore, the existing products of the company can do the wonders when introduced in the untapped markets of the Argentina (Barisoux and Cheron, 2015).
Diversification
The introduction of new products in the new market is called diversification. It is the riskiest growth strategy and requires many resources. However, in the case of Lush Company, this strategy will generate the maximum profits for the company. The businesses are now moving towards the customization, and it is needed to incorporate the customization in the products to make them best fit for the local market of Argentina. The environmental and climatic differences between the British and Argentina suggest that the needs of the customers are different in both regions. Therefore, the company cannot rely only on the existing products and has to diversify the product portfolio to cater to the local needs of the Argentinian customers (Hussain et al, 2013).
Mode of Entry
The preferred mode of entry for the Argentinian market is foreign direct investment. The business cannot afford to introduce intermediaries in its distribution channels as the expertise of the company will not remain a competitive advantage anymore. Moreover, the cost of establishing a local facility is less than the exporting cost and production in UK or US. The reason is the availability of the less expensive resources in Argentina. Moreover, the local production facility will help in exploiting the Latin American Market in future.
Marketing Mix
Product
The products of the Lush Company will be same as offered globally. The company will serve of the philosophy of stay global act local. However, after the entry, the cultural and environmental factors will be considered in the product development to allow customization of the products to the local buyers. Moreover, the logo and the brand name will remain the same to build the loyalty based on the brand image. The packaging will have facts about the product and its nutritional value for the skin in the local language (Terpstra, Foley and Sarathy, 2012).
Price
The pricing strategy of competitive market pricing will be followed for setting the prices of the products in Argentina. The prices will differ from the product prices in the home country, but it is a normal practice followed by the cosmetic brands (De Mooii, 2013).
Place
The distribution of the products will be ensured through company-owned stores and the franchising arrangement. The intermediaries in the distribution will be avoided to keep the competitive advantage. Initially, the company owned store will be opened in the major cities. Later the distribution will be expanded using franchising arrangements. The distribution through the online website will also be ensured (De Mooii, 2013).
Promotion
The company will have to adopt a localized approach in the advertisements and the promotion due to the differences in the language and culture. The global promotional strategy can be implemented by localizing it to the Argentinian market. The marketing strategy followed at the entry stage will be intensive, and guerilla marketing techniques will be used (Barisoux and Cheron, 2015).
Conclusion
The crux of the whole matter is that Argentina is a favorable country from the operations of the cosmetic company like Lush. The business climate of the country provides the opportunity for the company to expand the production facility in Argentina. Moreover, the political landscape is stable. The target market and population of the country make it an attractive market. The company can manage a smooth international entry and profitable operations by following the strategies discussed in the paper.
References
Brisoux, J.E. and Chéron, E.J., 2015. Product Involvement in Relation to Brand Categorization: The Case of Cosmetics. In Proceedings of the 1988 Academy of Marketing Science (AMS) Annual Conference (pp. 487-487). Springer International Publishing.
De Mooij, M., 2013. Global Marketing and Advertising: Understanding Cultural Paradoxes: Understanding Cultural Paradoxes. Sage Publications.
Hamilton, L. and Webster, P., 2015. The international business environment. Oxford University Press, USA.
Hussain, S., Khattak, J., Rizwan, A. and Latif, M.A., 2013. ANSOFF Matrix, Environment, and Growth-An Interactive Triangle. Management and Administrative Sciences Review, 2(2), pp.196-206.
Parnell, J.A., 2013. Uncertainty, generic strategy, strategic clarity, and performance of retail SMEs in Peru, Argentina, and the United States.Journal of Small Business Management, 51(2), pp.215-234.
Terpstra, V., Foley, J. and Sarathy, R., 2012. International marketing. Naper Press.
