Global supply chain hierarchies, global customer/supplier relationships, and global market

mechanisms are the global environment of supply chain risk management.

- Global supply chain hierarchies include global geography hierarchy, global product
hierarchy, and customer hierarchy in the global marketplace.
- Global customer/supplier relationships determine the incentive/reward structure and
contracts, which can be used to mitigate risks.
- Global market mechanisms like auctions, collaborative forecasting, spot markets, and
global sourcing strategies can be used to mitigate supply chain risks.

Then managers input three factors into a two-stage real option framework.

- In the first stage, the MNE acquires ownership of assets and capabilities based on inputs.
- In the second stage, when a random contingency outcome is realized, managers deploy
and use the acquired assets and capabilities.

The outputs will provide global optimal resource allocation, determining operations policy,
which leads to operations performance. In this framework, value maximization is achieved by
a real option portfolio, which provides hedge and flexibility strategies to mitigate global
operational risks.

CASE STUDY:

CASE 6.2.

Case Example: Global Supply Chain of H&M

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H&M, a group headquartered in Stockholm, designs and retails a range of fashionable apparel,
cosmetics, footwear and accessories for men, women, children and teenagers through its stores,
online stores, and catalogue sales. In 2012, H&M has almost 2,600 stores across 47 markets.
H&M is well known for its cheap but chic fashion strategy, with a business concept "to give
the customer unbeatable value by offering fashion and quality at the best price".

By visiting trade fairs, talking with fashion media, meeting trend forecasters, and visiting
H&M stores, H&M collects demand information for the design. Approximately 140 in-house
designers work with pattern designers and buyers to create a large range of products, with a
core to balance between fashion, quality and the best price.

H&M does not own any factories, and outsources production to 700 indepen- dent suppliers
through its 16 local production offices in Asia and Europe. For example, one important H&M
supplier is the TL silk factory in Hangzhou city, China. With an area of 6,000 m², the factory
has advanced silk weaving equipment mainly for production of high-grade silk jacquard fabrics
and jacquard scarves.

H&M does not own any stores, but rents store space from landlords. The merchandise is
subsequently transported by sea, rail, road or air to distribution centers located in sales markets.
After unpacking and allocating, the goods are then distributed directly to the stores or to central
regional replenishment centers. For instance, a central warehouse in Hamburg in Germany
collects all apparel from various locations and distributes locally to distribution centers across
countries. Stores do not build safety stocks, but are replenished from central warehouses by a
request for replenishment once a product is sold. While physical stores are the main sales
channel, H&M is developing online sales to make itself more accessible.

H&M is developing a sustainable supply chain of design, manufacturing and distribution. In

2010 H&M became the number one user of organic cotton worldwide. H&M tries to make
products with added sustainability value to conscious customers, chooses and rewards
responsible partners, inspires others to reduce total CO2 emissions, reduces waste by 3R
(reduce, reuse, recycle), use natural resources responsibly, and contributes to the development
of the communities where it operates.

(Source: H&M annual reports 2000-2012)

Summary the case:

H&M operates a global supply chain without owning factories or stores, outsourcing
production to 700 suppliers across Asia and Europe and renting store space. It collects fashion
trends through trade fairs, media, and in-house designers. Logistics involve centralized
warehouses that distribute goods to stores and fulfillment centers. To promote sustainability,
H&M became the leading organic cotton user in 2010, adopts responsible sourcing, reduces

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CO₂ emissions, and implements 3R principles (reduce, reuse, recycle) while supporting local
communities. It also expands online sales for accessibility.

1. Study H&M’s global supply chain strategy using the GSCS taxonomy (see Sec
6.2.1)
2. What is the relationship between the global supply chain strategy and ít business
strategy of pursuing “cheap but chic fashion”?

Answer:

Question 1:

1. Upstream vs. Downstream

● Upstream: H&M follows a global sourcing strategy by outsourcing production to 700

suppliers across Asia and Europe. It uses supplier relationship management (SRM)
through 16 local production offices to oversee and support suppliers.
● Downstream: H&M’s logistics involve internal supply chain management (ISCM)
through centralized warehouses (e.g., in Hamburg) that distribute products to stores
and fulfillment centers. It also implements customer relationship management (CRM)
by integrating online and offline sales to improve accessibility.

2. Operational Competency

● H&M balances between a low-cost global supply chain (outsourcing production to

reduce costs) and a responsive global supply chain (adapting to fast fashion trends).
● The company uses mass customization and postponement strategies to maintain a
flexible global supply chain while ensuring quick responses to changing customer
demands.

3. Push vs. Pull Strategy

● H&M follows a push-pull supply chain:

○ Push: Products are mass-produced and stocked in central warehouses.
○ Pull: Stores and online channels request replenishment based on actual sales
data.
● This strategy minimizes excess inventory while maintaining product availability.

4. Process Cycle

H&M's supply chain consists of five stages:

1. Suppliers – Independent manufacturers produce clothing based on H&M’s designs.

2. Manufacturers – Factories in Asia and Europe handle large-scale production.

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 3. Distributors – Centralized warehouses (e.g., Hamburg) receive and sort goods.
4. Retailers – Physical H&M stores act as sales points.
5. Customers – Online and offline buyers complete the cycle, influencing replenishment
orders.

5. Production vs. Marketing Strategy

● H&M follows a marketing-based GSCS, focusing on demand fulfillment rather than

large-scale production.
● It leverages purchasing behavior analysis and market segmentation to create trend-
driven fashion.
● Sustainability efforts include 3R principles (Reduce, Reuse, Recycle), responsible
sourcing, and CO₂ reduction to align with eco-conscious consumer preferences.

6. Organization

● H&M operates a multi-tier supply chain, renting store spaces and outsourcing
production while maintaining control over logistics and design.
● The company engages in partnerships with suppliers but does not own factories,
allowing for flexibility in scaling production.

7. Contracts

● H&M uses long-term contracts with key suppliers to secure cost efficiency while
maintaining flexibility.
● It also engages in spot purchases for trend-driven products, ensuring responsiveness to
changing fashion demands.

Question 2:

H&M’s supply chain strategy supports its “cheap but chic” model by focusing on cost
efficiency, speed, and flexibility. It outsources production to 700 suppliers to lower costs while
ensuring quick trend adaptation. Stores use just-in-time restocking to reduce inventory costs.
Efficient logistics through various transport modes help distribute products quickly.
Sustainability efforts, like using organic cotton, enhance brand image. Expanding online sales
improves reach and inventory management. This approach keeps prices low while delivering
trendy, quality fashion.

CASE 6.3

Case Example: SkyTeam Alliance

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SkyTeam, the second largest airline alliance, based in Amsterdam, was formed in 2000 and is
made up of 15 member airlines (see Fig. 6.15) and several future members (with * in Fig. 6.15).
SkyTeam is a global network with 926 destinations in 173 countries, 490 lounges, a mainline
fleet of 2,431, 399,469 employees, and 151 million frequent flyer members all over the world.

Members of SkyTeam benefit from the alliance by gaining greater brand recognition,
improving their market positioning, increasing their reach to new destinations, enhancing
customer service and cost savings and knowledge sharing. The alliance helps members to
maximize airport facility utilization by co-location of check-in and ticketing areas, reduction
of ground handling costs through shared staff and equipment, and optimization of lounge
facilities. SkyTeam can provide the following better service to customers:

● Global coverage. With 15 member airlines, the SkyTeam network offers customers
more destinations and more connections from the best hubs in the world.

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 ● Frequent flyer benefits. Customers can earn and redeem miles with all 15 member
airlines. With “elite” status, customers can enjoy priority check-in, preferred seating
and lounge access.
● Lounge access. SkyTeam member airlines provide customers with over 465 lounges
worldwide.
● Travel passes to simplify global travel. With “SkyTeam Go Passes”, customers can take
advantage of global networks and enjoy more flexibility and savings during travels.
● Corporate solutions. “SkyTeam Global Corporate Contracts” go beyond a standard
loyalty program in meeting companies’ travel requirements, providing cost savings and
a vast network of travel needs. SkyTeam can help streamline the process of event travel
with “SkyTeam Global Meetings” with discounted fares and reward tickets.

(Source: SkyTeam fact sheet 2012)

Question:

1. What are the benefits of the SkyTeam alliance for its members, and for its customers?

2. How does SkyTeam improve the global revenue management of its members?

3. Which RM techniques (quantity-based and price-based) has SkyTeam used?

Summarize the case:

SkyTeam, the world's second-largest airline alliance, founded in 2000 and headquartered in
Amsterdam. The alliance consists of 15 member airlines across 173 countries, operating 2,431
aircraft and serving 926 destinations.

Member Benefits: SkyTeam membership offered airlines advantages in brand recognition,

market positioning, destination reach, customer service, cost savings, and knowledge sharing.
Specifically, it helped with airport facility utilization through co-location, shared resources,
and optimized lounges.

Customer Benefits: SkyTeam aimed to provide customers with:

● Global Coverage: Extensive network and connections.

● Frequent Flyer Benefits: Earning and redeeming miles across all member airlines, plus
elite status perks.
● Lounge Access: Access to a large number of lounges worldwide.
● Travel Passes: "SkyTeam Go Passes" for flexible and cost-effective global travel.
● Corporate Solutions: "SkyTeam Global Corporate Contracts" for business travel needs,
including cost savings. Event Travel Solutions: "SkyTeam Global Meetings" for
discounted fares and rewards for event travel.

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Answer:

1. Benefits for Members and Customers:

- Member Benefits: SkyTeam membership offers airlines:

● Increased brand recognition.
● Improved market positioning.
● Expanded reach to new destinations.
● Enhanced customer service capabilities.
● Cost savings (through shared resources, optimized facilities, etc.).
● Knowledge sharing with other member airlines.
● Maximized airport facility utilization (co-location, shared staff/equipment,
optimized lounges).
- Customer Benefits: SkyTeam offers customers:
● Global coverage with more destinations and connections.
● Frequent flyer benefits (earning/redeeming miles, elite status perks).
● Access to a large network of lounges.
● Travel passes for simplified global travel.
● Corporate solutions for business travel needs.
● Streamlined event travel arrangements.

2. Improvement of Global revenue management:

- SkyTeam improves global revenue management (RM) by expanding its network,

attracting more passengers, and optimizing pricing through RM techniques.
- The frequent flyer program enhances customer loyalty, making revenue more
predictable.
- Corporate contracts provide stable income, while data sharing helps airlines refine RM
strategies.
- Additional revenue comes from ancillary services like baggage fees.

3. RM techniques used:

SkyTeam likely uses both quantity-based RM (seat inventory control, availability

management, and capacity planning) and price-based RM (fare class management, yield
management, dynamic pricing, and price discrimination). These strategies help maximize
revenue across its member airlines.

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CHAPTER 2: Case Study
Case 4.2
Ryanair, an Irish low-cost airline founded in 1985 by the Ryan family and
headquartered at Dublin Airport, is an airline which operates over 1,500 flights per day
from 51 bases on 1,500 low-fare routes across 28 countries, connecting over 168
destinations. In 1990, Ryanair built a cost-based GOS which focused on a “low fares,
high frequency formula”, making it Europe’s first low-fare airline – copying the
Southwest Airlines low-fare model – after the airline had amassed losses of £20 million
trying to compete with British Airways and Aer Lingus. Using IT, Ryanair has been able
to improve its operational processes by reducing distribution costs, and now sells more
than 95 % of all its seats through its online booking system. Its prices start at a very low
level, and rise as seats are filled. Passengers receive an email with their travel details
and booking reference number, which has helped the company reduce the costs
associated with issuing, distributing, processing and reconciling the millions of tickets
it has sold over the last few decades . In 1992, Ryanair restructured airline networks by
cutting its route network from 19 to 6 routes and increasing the frequencies and lowering
fares on those remaining routes. The restructuring lead to a 45 % increase in traffic, as
passengers responded positively to the lower fares and the more frequent service.
Ryanair had previously launched many low-fare flights during non-peak times to utilize
idle resources. Ryanair ceased offering free drinks and expensive meals on board in
order to reduce their cost. Passengers can purchase food and refreshments on board.
Previously, Ryanair did not sell pre-assigned seats and passengers were allowed to sit
wherever they chose, which helped Ryanair speed up passenger boarding. Beginning in
2012, Ryanair has offered priority boarding – for a fee of €4, which allows passengers
to board early – and pre-assigned seats – for €10, and restricted to seats in row 1 (front
of the plane), row 2 (near the front, for quicker disembarkation) and rows 16 and 17
(over the wing and with extra legroom). Ryanair actively seeks aircraft with extra-wide
doors, which allows the flight and ground crew to get passengers on and off the plane
more quickly, thereby helping the airline reduce its turnaround times. It has even
considered removing toilets to make way for more seats. Ryanair prints its in-flight
magazine on thinner paper, cut the amount of ice it brings on board, and reduced the

30
weight of its seats and carts. Ryanair uses less-crowded, smaller European airports and
the secondary airports in many capital cities to limit the landing charges to which it is
exposed. (Source: Ryanair annual report 2012)
Case questions and answer
Question 1: Why did Ryanair decide to implement a low-cost strategy?
Answer:
The reason is that Ryanair is losing money, so it needs to reduce unnecessary
costs to reduce ticket prices, besides reviewing the target customer group, operations
and suitable facilities to increase competitiveness and revenue.
Ryanair has built a cost-based GOS focusing on "low fares, high frequency formula".
Implementing this strategy helps Ryanair take advantage of idle resources during non-
peak periods by launching many low-cost flights. And the cost of accompanying
services is significantly reduced. Therefore, with the low-cost strategy, Ryanair has been
able to compete with its rivals and become the first low-cost airline in Europe.
Question 2: What are the benefits to being a low-fare airline?
Answer:
o Increased Demand: Lower ticket prices often result in increased demand for
flights -> more people are able to afford to travel by air.
o Efficient Cost Management: For example, by direct online bookings, over 95%
of Ryanair’s tickets are sold online, eliminating the need for travel agents and
reducing distribution costs.
o No-frills service: By charging for extras like checked luggage, food, and priority
boarding, Ryanair limits costs to only essential operations.
o Flexible Pricing: By offering a range of ticket prices and services, low-fare
airlines can attract different segments of travelers, including both budget-
conscious passengers and those willing to pay more for additional amenities.
Question 3: Which approach (see Fig. 4.1) has Ryanair used to achieve cost
competency?

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Answer:
(1) Technology-based cost approach (Cost-based technology):
o Ryanair has sold more than 95% of its space through the online booking system.
o Initial seat price will decrease and increase when fully installed.
o Detailed information about the program and some previous settings of the
customer will be sent via email
➢ Reduces costs related to publishing and analysis Mix, process and adjust millions
of tickets that have been sold over the past several decades.
(2) Cost-based process approach:
o In 1992, Ryanair restructured its airline network by cutting back flight network
from 19 routes to 6 routes, at the same time increasing frequency and reduced
fares on the remaining routes
➢ The resulting restructuring Traffic increased by 45%, as passengers responded
positively to low fares more and more frequent service.
(3) Cost-based resource approach:
o Ryanair has stopped offering free drinks and expensive meals on board to reduce
their costs. Passengers can purchase food and beverages on board.
o Starting in 2012, Ryanair has offered priority boarding with fee of €4, which
allows passengers to board early and have assigned seats advance - for €10, and
limited to seats in row 1 (front of the plane), row 2 (closer to the front, for faster
landing) and rows 16 and 17 (on the wings and yes extra leg room).
(4) Cost-based facilities approach:

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 o Ryanair actively searches for aircraft with extremely wide doors, allowing the
crew to fly and ground staff get passengers on and off the plane faster, from there
helps the company reduce turnaround time.
o It has even considered removing toilets to make room for more seats sit more.
o Ryanair prints its in-flight magazines on thinner paper, cutting down on volume
ice is carried on board, and the weight of seats and strollers is reduced.
o Ryanair uses smaller, less crowded European airports and airports sub in many
capital cities to limit the landing fees it incurs.
(5) Scale-related costs:
o Ryanair has built a cost-based GOS focusing on “fare formula low, high
frequency. As production volume increases, so do the associated costs scale will
decrease
Case 4.3
Case Example: Mass Customization in Starbucks
Starbucks provides different kinds of coffee with various flavors, and has
leveraged mass customization principles to allow the consumer to create their own
beverage according to their tastes. A Starbucks store in Lyon, France, provides a
standard menu as well as a “create your perfect beverage” program to its customers
(Table 4.4). Customers can “create” their beverages, or customize their beverages, for
example by choosing the size, temperature and mix of their favorite flavors, or by
choosing cream to make it light, or by adding an extra short of espresso. Figure 4.5
diagrams the options thereby made available to Starbucks’ customers.

33
Case questions and answer
Question 1: By analyzing the menu, do you think Starbucks Lyon uses mass
customization in the menu design? Why does Starbucks use mass customization?
Answer:
By analyzing the menu, we think Starbucks Lyon uses mass customization in the menu
design because:
o Increase customer satisfaction
Increase individual customer satisfaction and increase customer experience at the store
that create customer loyalty to the brand
Creates additional sales opportunities: thanks to the variety of materials, it can stimulate
many hidden needs of customers, thereby diversifying revenue
o Increase sales
Actively connect with customers: Using IT to connect with customers
contributes to effective customer retention.
create differentiation and competition: differentiated and outstanding services can help
starbuck stand out from other brands thanks to the specialness of the campaign.
o Create a good image

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Starbucks image takes the form of personalized service for each customer, thereby
creating a personalized brand identity.
Question 2: By analyzing the “create your perfect beverage” program, do you think
Starbucks Lyon uses mass customization in the program? Why? What are the
advantages of this program?
Answer:
We believe that Starbucks Lyon is using mass customization in their program.
➢ This is because more and more consumers are seeking products that can be
customized according to personal preference. By using "mass customization" in
the "create your perfect beverage" program, Starbucks encourages creativity and
positive interaction from customers. This program views customers as the
collaborators who help they enhancing marketing and advertising effectiveness.
For example, customers can sharing their own recipe on online platforms and that
helps promote the brand to more customers and fosters social interaction.
The advantages of this program:
o Retain customers through personalized products, fostering a sense of pride when
their sharing is useful and strengthening the relationship between customers and
the brand.
o Enhanced Customer Experience: “Create Your Perfect Beverage" helps
customers turn a routine coffee run into an amazing experience. This program
also makes customers' visits more enjoyable and memorable, and they may
recommend this brand to others.
o The "Create Your Perfect Beverage" program is not only a business strategy but
also a way for Starbucks to build a stronger brand image. This demonstrates that
Starbucks is a creative and unique brand that always listens to and understands
their customers.
Question 3: Starbucks claims that their “Frappuccino blended beverages are
completely customizable”. Do you agree with this claim? Why?
Answer:
By stating that “Their Frappuccino Blends Are Fully Customizable,” Starbucks not
only provides a customized experience for customers, but also uses information from

35
the Frappuccino.com website to measure the popularity of different ingredients and
combinations. This gives Starbucks a better understanding of customer desires and
preferences, allowing them to adjust and improve their products based on real-world
feedback. This allows Starbucks to measure the popularity of different ingredients as
well as popular combinations, such as caramel and whipped cream. So the team agrees
with the statement: Frappuccino blends are fully customizable. Frappuccinos can
include other ingredients such as espresso shots, flavored syrups, chocolate chips, and
flavor powders.

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II. CASE STUDY
L’OREAL

L’Oreal Group, headquartered in France, is the world’s largest cosmetics and beauty
Company, with 68,900 employees managing 27 global brands across 130 countries in 2012. L’Oreal
consists of three major groups, namely Cosmetics, The Body Shop, and the dermatology branch, as
well as a joint venture Galderma Laboratories with Nestle ́. The Cosmetics group contributes over
90 % of its revenue.
• Industry
Competition is fierce in the cosmetics and beauty industry. In particular, the bargaining power
of global customers is strong in the consumer products division. In the global beauty market, new
trends such as the aging population in developed countries, aspiring consumers in emerging
markets, growing demand for male beauty products, and increasing ethnic groups bring about
serious threats of demand fluctuation and new product substitution. Thus, the group invested €721
million into cosmetic and dermatological research and filed 613 patents in 2011 to achieve product
innovation and to sell the “science of beauty” worldwide. L’Oreal’s main rivals are P&G, Unilever,
Estee Lauder, and Shiseido (see Table 3.3), all of which have strong financial, operational, and
marketing capacities, particularly in their home countries. L’Oreal meets higher competition
pressure from P&G and Estee Lauder in the US, from Unilever in Europe, and from Shiseido in
Asia. In the hair care category, the biggest revenue generator of L’Oreal, its main rival is P&G. In
the consumer division, its rivals are P&G and Unilever. In the luxury division, it competes with
LVMH and Estee Lauder.

Table 3.4 L’Oreal divisions and brands in 2012

14
 • Globalization
While internal development is one way for globalization, acquisition has also played an
important role in the globalization of L’Oreal (see “Acquisition/Own brand” column in Table 3.4).
Acquisition is an approach to obtaining access to the local markets in the US and Asia. For example,
the acquisition of Maybelline New York helped L’Oreal respond to local customers in the US, while
its acquisition of Yue-Sai helped it understand local demand in Asia. After acquiring Chinese
skincare brand Mininurse in 2003, L’Oreal made the following comments:
This acquisition is an outstanding opportunity to speed up our growth in the Chinese
market. It is a major step forward in L’Oreal development in a market which is strategically
important for the group (Lindsay Owen-Jones, CEO, L’Oreal, 2003, see loreal.com).
The globalization level of operations is high. Its manufacturing is globalized with 41 factories
around the world and 5.8 billion units manufactured in 2011. Its R&D is globalized with 3,676
employees of 60 different nationalities working in 30 disciplines. The group made 100 active
cooperation agreements with leading academic and research institutions.

15
 • Localization
L’Oreal develops global brands in four divisions: luxury products, consumer products,
professional products, and active cosmetics (see Table 3.3) and has an independent unit The Body
Shop for the natural segment. Each division builds its own marketing team for individual brands.
Regional teams further reach local customers. L’Oreal develops “geocosmetics” to address the
specific demand of local customers. For example, it has established a research institute in Chicago
and a research center in Shanghai to understand local customers. The L’Oreal Shanghai center has
developed more than 300 products for Chinese consumers.
To adapt global products to local markets, L’Oreal has built 19 research centers in five regional
hubs as well as 16 evaluation centers and 50 scientific and regulatory departments across the world.
It emphasizes the localization of manufacturing and its production policy is “local manufacturing”,
to set the number of units produced in each region proportional to their contribution to turnover.
1. Use Porter’s five forces framework to analyze the industrial environment of L’Oreal.
Threat of New Entrants:
▪ Barriers to Entry: High due to significant capital investment, strong brand loyalty, and
economies of scale achieved by established players like L’Oréal.
▪ Differentiation: L’Oréal invests heavily in R&D (€721 million in 2011) and innovation,
which creates cost advantages that new entrants may struggle to match.
▪ Distribution Channels: Well-established global distribution networks are challenging for
new entrants to imitate.
▪ Regulatory Requirements: The cosmetics industry is heavily regulated, requiring
compliance with safety and efficacy standards, which adds another layer of difficulty for
new companies.
Bargaining Power of Suppliers:
▪ Raw Materials: Many ingredients are standardized, leading to moderate supplier power.
▪ Supplier Base: L’Oréal’s global operations (“Its manufacturing is globalized with 41
factories around the world and 5.8 billion units manufactured in 2011”), which reduces
dependency on specific suppliers.
Bargaining Power of Buyers:

▪ Acquisition and Merger: L’Oréal has merged with many brands, for example, the
acquisition of Maybelline New York (diversifying its product portfolio).

16
 ▪ Diversification: By diversifying its sales markets and avoiding concentration of customers
in a specific location, L’Oréal ensures that it is not dominated by any particular group of
customers in a single market.
Threat of Substitutes:

▪ Quick response to the emergence of substitute products in the market: As a result, the
group invested €721 million in cosmetic and dermatological research and filed 613 patents
in 2011 to achieve product innovation and market "the science of beauty" globally.
▪ Innovation Mitigation: L’Oréal counters this by continuously innovating and offering
science-backed solutions.
▪ Leading the trend: By acquiring/merging with companies in the Americas, Europe, and
Asia, this enables L’Oréal to gain access to technology and even substitute products.

Industry Rivalry:
▪ Competitors: Intense competition from P&G, Unilever, Estee Lauder, and Shiseido.
Specific categories like hair care and luxury products have fierce competition. (eg.
“Competition is fierce in the cosmetics and beauty industry. Main rivals are P&G, Unilever,
Estee Lauder, and Shiseido (see Table 3.3), all of which have strong financial, operational,
and marketing capacities, particularly in their home countries”).
▪ Global Reach: L’Oréal’s ability to compete globally through acquisitions and local
adaptations gives it a competitive edge.
▪ Market Dynamics: Growth in emerging markets and demand fluctuations add pressure.

2. Use Porter’s diamond framework to analyze the nation advantage of France, the home of
L’Oreal.
Factor Conditions
France possesses highly developed factor conditions that provide L’Oréal with a significant
competitive edge:
▪ France has a strong tradition of expertise in cosmetics, beauty, and luxury industries, with
well-educated professionals and advanced research capabilities.
▪ France boasts a robust infrastructure for manufacturing, logistics, and R&D, which supports
L’Oréal’s global operations effectively.
▪ France has a long-standing reputation for innovation in cosmetics, bolstered by academic
and research institutions. For example, L’Oréal collaborates with over 100 institutions
worldwide, with significant contributions from French organizations.

17
 Demand Conditions
The French market plays a vital role in driving L’Oréal’s growth:
▪ French consumers demand high-quality, innovative, and luxury beauty products,
encouraging continuous product innovation.
▪ France is seen as a trendsetter in the global beauty industry, and the preferences of local
consumers influence global markets. For instance, L’Oréal has developed “geocosmetics” to
cater to specific demands, including local preferences in Asia and the U.S. (“L’Oreal
develops “geocosmetics” to address the specific demand of local customers.”)
Related and Supporting Industries
France has a cluster of supporting industries that enhance L’Oréal’s competitive advantage:
▪ France is a global hub for luxury brands (e.g., Louis Vuitton, Chanel), which complements
L’Oréal’s luxury products division.
▪ A strong focus on dermatological and cosmetic science in France supports the development
of cutting-edge products.
▪ France has world-class advertising agencies that help L’Oréal create effective global
campaigns tailored to diverse markets.
Firm Strategy, Structure, and Rivalry
▪ L’Oréal’s strategy emphasizes acquisitions and localization, enabling it to expand its global
presence. For example, the acquisition of Chinese brands like Mininurse helped L’Oréal
penetrate Asian markets.
▪ France’s competitive beauty industry pushes L’Oréal to innovate and maintain its global
leadership position. Rivals like Estée Lauder and Unilever force the company to
continuously improve its offerings.(“Competition is fierce in the cosmetics and beauty
industry.”, “L’Oreal meets higher competition pressure from P&G and Estee Lauder in the
US, from Unilever in Europe, and from Shiseido in Asia.”)
=> France provides L’Oréal with a strong foundation to succeed globally. The country’s
skilled workforce, high-quality infrastructure, and reputation for luxury products (Factor
Conditions) help L’Oréal create innovative beauty products. French consumers’ high expectations
(Demand Conditions) push the company to stay ahead in quality and trends. The presence of other
luxury and beauty brands in France (Related and Supporting Industries) creates opportunities for
collaboration and competition.
Additionally, the government supports research and ensures high standards, which boosts
L’Oréal’s reputation worldwide. France’s cultural connection to beauty and luxury (Chance) also

18
gives L’Oréal an advantage in building its global image. These factors combined make France the
perfect home for L’Oréal to grow and lead the global cosmetics market.
3. Use Porter’s configuration-coordination framework to analyze L’Oreal. Which global
strategy (among the four strategies in this framework) is used by L’Oreal?
- In terms of the level of dispersion: The L'Oreal Group, headquartered in France, is the
world's largest cosmetics and beauty company, with 68,900 employees managing 27 global brands
in 130 countries in 2012. L'Oreal includes three major groups: Cosmetics, The Body Shop and
Dermatology, as well as the joint venture Galderma Laboratories with Nestle. The level of
globalization of operations is high. The company's manufacturing operations are globalized with
41 factories worldwide and 5.8 billion products produced in 2011. The company's R&D operations
are globalized with 3,676 employees of 60 different nationalities working in 30 areas.
- In terms of the level of coordination between dispersion points: Acquisitions are an approach
to accessing local markets in the United States and Asia. For example, the acquisition of Maybelline
New York helped L’Oreal meet the needs of local customers in the US, while the acquisition of
Yue-Sai helped L’Oreal understand local needs in Asia. L’Oreal develops “geoengineering” to
address the specific needs of local customers. For example, they have established a research
institute in Chicago and a research center in Shanghai to understand local customers. It emphasizes
the localization of production and its manufacturing policy is “local production”.
=> L’Oreal Group adopts a Country-centered strategy.
4. Use Kogut’s comparative-competitive advantage framework to analyze the value chain of
L’Oreal.
▪ L'Oreal's comparative advantage:
Manufacturing in multiple countries allows the company to take advantage of low production
costs and save on transportation costs as products are produced close to major consumer markets
(“L'Oreal's manufacturing is globalized with 41 factories around the world and 5.8 billion units
manufactured in 2011). L'Oreal takes advantage of cheap labor (China), large-scale market (US),
and the prestige of brands in that market.
▪ L'Oreal's competitive advantage:
L'Oréal is a leading luxury beauty product company that differentiates its products and
maintains leadership in various market segments.(L'Oreal has invested 721 million euros in
cosmetic and dermatological research and filed 613 patents in 2011) Its ability to adapt to different
markets and maintain high quality standards gives it a competitive edge (The company has
established research institutes in Chicago and Shanghai, developing over 300 products for Chinese
consumers). Its global brands, which can be localized, help maintain global recognition and
relevance (L'Oreal has built 19 research centers in five regional hubs, 16 evaluation centers, and 50
scientific and regulatory departments worldwide). L'Oréal has successfully scaled quickly in key
19
growth markets like Asia, leveraging economies of scale, better supplier deals, and using its
established brand reputation to attract consumers in diverse markets.
→ L’Oreal’s case is competition mode III in Kogut’s Comparative and Competitive
Advantage Framework.
5. Use Bartlett and Ghoshal’s globalization-localization framework to analyze the L’Oreal
group. Read Unilever’s case to assess the original application of this framework (see Bartlett and
Ghoshal 1987, Fig. 1). These two firms are competing in several common markets. What is the
difference between Unilever and L’Oreal in the globalization-localization framework?
Bartlett and Ghoshal's globalization-localization framework used by L'Oreal group with 4
strategies: Global Strategy, Transactional Strategy, International Strategy, Multinational
Strategy to compete in international markets.
It can be identified one of the key globalisation drivers for L’Oreal to enter the cosmetics
market is growth of global and regional channels. This is a key market driver, since it has allowed
the company to develop their distribution channels worldwide. By entering the American market
and acquiring ready established brands (Maybelline New York, Garnier, NYX Professional
Makeup, CeraVe, and Redken) L’Oreal was able to access the acquired company’s resources.It has
been identified that global acquisitions by consumer product companies also acted as a competitive
driver.Therefore it can be argued the mode of entry into the market soon developed into strategic
acquisitions, in order to pursue the strategy of growth and internationalisation.
Localization at L'Oreal is the company's manufacturing operations. L'Oreal has factories
in many countries that produce products specifically for the markets in those countries. L'Oreal
develops “geocosmetics” to meet the specific needs of local customers. For example, they have
established a research institute in Chicago and a research center in Shanghai to understand local
customers. The L'Oreal Shanghai center has developed more than 300 products for Chinese
consumers.

L’Oreal Unilever

-L'Oreal is one of the major -Unilever is the world's top

French transnational companies multinational company from the UK with
with many successful transnational hundreds of large and small subsidiaries.
Globalization marketing campaigns
- Their Subsidiaries are large, cover
-L'Oreal pursues a a network of goods in many countries and
transnational market with acquired have a high degree of autonomy, they
companies to expand its territory, have a certain level of freedom to

20
 easily enter the market and customize and adjust goods to suit the
understand the country's market. region and local market.
-'Oreal pursues global
presence and global integration by
optimizing core processes such as
research and development.

- L’Oréal adapts its product - Unilever’s higher level of joint

offerings to address the unique ventures reflects a higher level of
beauty standards and preferences localization. Unilever has formed joint
of various regions. For example, it ventures to share risks and resources in
develops skincare products with local markets
brightening properties for Asian
- Unilever’s distribution of power to
markets, catering to the cultural
its subsidiaries reflects this
emphasis on fair skin.
decentralization, with regions and
- By acquiring brands from localities where the company can be
Localization different countries, L'Oreal has the easily customized based on local
opportunity to learn about the preferences. For instance, in Africa,
market and adapt faster instead of Unilever sources ingredients like shea
slowly entering a market butter from local cooperatives, supporting
independently. For instance, the economic development.
acquisition of Yue-Sai helped
L'Oreal understand local needs in
Asia, acquiring Chinese skincare
brand Mininurse in 2003.

The key difference between Unilever and L'Oreal lies in the level of integration and
distribution between markets. Unilever captures the market diversity opportunities of each market
and facilitates the autonomy of its subsidiaries. For L'Oreal, they prefer a global model and seek to
balance and deepen local adaptation to ensure that their products enter the lives of each local
market.
Overall, L'Oreal is more global than Unilever, with a more centralized organization, a more
globalized product portfolio, and more globalized manufacturing and R&D. Unilever is more
localized, with a more decentralized organization, a more localized product portfolio, and more
localized manufacturing and R&D.

―END―
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 REFERENCES
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1. Gong, Y. (2013). Global operations strategy – Fundamentals & Practice. Berlin: Springer
Heidelberg.
2. David, Fred. R., & David, Forest. R. (2017). Strategic management: A Competitive
Advantage, Concept and Cases (16h ed). England: Pearson Education
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and global vision. New York: Free Press.
4. Doz, Y. L., & Prahalad, C. K. (1984). Strategic management in multinational companies.
Sloan Management Review, 25(3), 27-41.
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Boston, MA: Harvard Business School Press.
6. Hill, C. W. L. (2014). International business: Competing in the global marketplace.
McGraw-Hill Education.
7. Peng, M. W. (2016). Global strategy. Cengage Learning.
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Nestle vào Việt Nam. Đại học Quốc gia Hà Nội. Accessed January 5, 2025, from
https://www.studocu.vn/vn/document/dai-hoc-quoc-gia-ha-noi/cong-ty-xuyen-quoc-
gia/can-cu-mo-hinh-ly-thuyet-oli-de-phan-tich-dau-tu-truc-tiep-cua-nestle-vao-viet-
nam/65389584
2. Trần Thanh Như Hà, Đinh Nguyễn Nhật Hân, Nguyễn Thị Cúc Hương, Nguyễn Văn
Hoàng Nhân, & Nguyễn Thúy Phương. (2022). Phân tích về mô hình Dunning và các học
thuyết liên quan. FTU Working Paper Series, Vol. 1, No. 2. Cơ sở II Trường Đại học Ngoại
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thuyet-lien-quan/
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5. International Strategic Management of L’Oreal Marketing Ukessay. Retrived from
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marketing-essay.php

2
+ Project management information system to manage projects in R&D.
+ New product development information system to manage New Product Development
activities.
+ IT-based design platforms to conduct global production development for global
manufacturing.

• Global revenue management and IM

Global revenue management is a computationally intensive process and information

systems infrastructure is a business condition conductive to global revenue management. For
example, hotels, airlines, and rental-car companies use Global Distribution Systems (GDS) to
receive bookings. The GDS then communicate with Computerized Reservation System (CRS)
in airlines and Property Management Systems (PMS) in hotels. Retail relationship
manager uses Retail Management System (RMS) to collect information from Point Of Sale
(POS) and connect with suppliers’ Enterprise Resource Planning system (ERP).

• Global service management and IM

IT can make service innovation including new service development, the innovation of
service elements, service organization innovation and innovation through service. By
improving abilities to process information, low cost high bandwidth information logistics,
process standardization and higher productivity, IM has shaped information-intensive services
like financial service, management consulting, health care and education. Global service
management can in turn improve IM. IT service management (ITSM) is implementing IT
service to meet business demand with focus on the relationship with customers, not just
internal organization.

• Global risk management and IM

While IT systems create global business opportunities, they may expose MNEs to
significant vulnerabilities from “cybersecurity risk”, which pushes MNEs to implement
Information Technology Risk Management (ITRM).

On other hand, IT can be used to mitigate global risks with information sharing, demand
and supply information acquisition, collaborative forecasting, advance information
management, and risk control information systems.

CASE STUDY 1: PHILIPS ELECTRONICS AND BALANCED SCORECARD

Summary:

Philips Electronics, a leading Dutch multinational company with around 122,000 employees in
over 60 countries, uses the Balanced Scorecard (BSC) to align its goals, train employees, and

22
drive continuous improvement. The BSC is implemented in quarterly business reviews for
global business units, focusing on four key perspectives including:

 Financial: Focus on value, growth, and productivity through profit growth.

 Customer: Deliver value propositions to ensure customer and employee satisfaction.
 Processes: Use operational excellence as a key driver of performance.
 Competence: Develop competencies in knowledge, technology, leadership, and
teamwork.

Philips implements the BSC at four levels: Strategy Review Card Operational Review Card
Business Unit Card Individual Employee Card The company uses an information system to
link all these levels, helping employees understand how their work impacts both their
department and the company as a whole.

 Question 1: Draw G1, G2 and G3 balanced scorecard

- G1 balanced scorecard:

23
- G2 balanced scorecard:

- G3 balanced scorecard:

24
  Question 2: How can Philips Electronics use balanced scorecards to guide cross-
functional practice?

- Aligning departments with strategic objectives: Philips Electronics uses the balanced
scorecard to align different functional areas (finance, operations, marketing, etc.) with the
overall strategy. This ensures that all departments work towards the same goals.

- Integrating performance measures: The balanced scorecard integrates both financial and
non-financial measures to evaluate performance. This prevents conflicts between functions and
balances competing goals.

- Encouraging continuous learning and improvement: The balanced scorecard supports

ongoing learning by setting clear goals and performance indicators for all functions. This
ensures consistent improvement in organizational capabilities.

- Facilitating communication across functions: The balanced scorecard promotes

communication by ensuring all departments work from the same performance metrics. This
reduces misinterpretations and silos between functions.

- Feedback and performance monitoring: The BSC system allows Philips to monitor
performance in real-time, providing feedback for necessary adjustments and improvements.

CASE STUDY 2: APPLE’S OPERATION AND MARKETING STRATEGY

Summary:

Apple's global marketing strategy follows "The Apple Marketing Philosophy" by Mike
Markkula, which includes:

- Empathy: Building a strong connection with customers by understanding their needs better
than competitors.
- Focus: Concentrating on key goals and eliminating distractions.
- Impute: Recognizing that products are judged by their appearance and branding.

Apple's strategy emphasizes anticipating consumer needs before they arise and fostering brand
loyalty. Even during market downturns, Apple's high-ranking products (iPod, iPhone, iPad)
sustain strong sales. Apple's marketing success is reflected in its ability to attract crowds
during store openings and its brand positioning as a marketing-driven company.

In terms of global operations strategy, Apple improved supply chain management after Steve
Jobs’ return in 1997. The company prioritized cost-effective sea transport and secured air
freight space to outmaneuver competitors. When iPod sales soared in 2001, Apple streamlined

25
shipping directly from factories to consumers. Apple also dominates its supply chain, reducing
production and logistics costs, which supports large-scale product launches at competitive
prices.

Apple enhances customer experience through its retail stores, using them to track demand and
adjust production forecasts dynamically. The company’s operational excellence is a key factor
in its overall success, aligning seamlessly with its marketing efforts.

 Question 1: What are the features of operations and marketing strategies in

Apple?

- Customer-Centric Philosophy: Apple’s marketing follows Mike Markkula’s principles—

Empathy, Focus, and Impute—which emphasize understanding customer needs, eliminating
distractions, and presenting products in a way that conveys their value.

- Integrated Supply Chain Management: After Steve Jobs returned in 1997, Apple improved
its global operations by using cost-effective shipping methods, streamlining logistics, and
building strong supplier relationships. This allows Apple to launch products quickly and
efficiently worldwide.

- Brand Experience & Retail Presence: Apple Stores play a dual role in marketing and
operations. They showcase products and gather real-time consumer feedback, which helps
Apple adjust production forecasts and maintain strong customer loyalty.

- Innovation & Differentiation: Apple focuses on creating innovative products (iPod, iPhone,
iPad) that stand out in the market. The company’s marketing highlights simplicity and
premium quality, reinforcing its brand identity.

 Question 2: Have operations and marketing strategies of Apple integrated? If yes,

how do they integrate and support each other? If no, how to improve?

Yes, Apple's operations and marketing strategies are well integrated, and they mutually support
each other in several key ways:

- Coordinated Product Launches: Marketing campaigns create significant consumer

anticipation, and operations align production schedules and supply chain logistics to meet this
demand on time.

- Retail Store Integration: Apple Stores serve a dual purpose by providing a high-quality
brand experience while also collecting real-time customer feedback. This feedback helps
operations adjust inventory and production forecasts dynamically.

26
- Data-Driven Adjustments: Both teams rely on analytics to monitor market responses. Rapid
adjustments in marketing messaging or production levels ensure that Apple can respond
quickly to shifts in consumer demand or unexpected supply issues.

- Crisis Management: When disruptions occur—such as delays in shipping or supplier

issues—the close collaboration between operations and marketing allows Apple to swiftly
modify launch plans or promotional strategies, ensuring continued customer satisfaction.

 THANK YOU 

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 REFERENCES
 Book
[1] Dennis Briscoe, Randall Schuler, Ibraiz Tarique “International Human Resource
Management: Policies and Practices for Multinational Enterprises (Global HRM)”.
[2] Gong, Y. (2013) “Global operations strategy – Fundamentals & Practice. Berlin: Springer
Heidelberg”.

 Website
[3] Robert S. Kaplan, David P. Norton (1993) “Putting the Balanced Scorecard to Work”.
https://hbr.org/1993/09/putting-the-balanced-scorecard-to-work?utm
[4] Susan P. Douglas, C. Samuel Craig (2010) “Global Marketing Strategy: Perspectives and
Approaches”.
https://onlinelibrary.wiley.com/doi/full/10.1002/9781444316568.wiem06013?utm
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[7] Chul Chung, Paul Sparrow (2021) “Exploring the configuration of international HRM
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[8] Martin Wynn, Christian Weber (18 January 2024) “Information Systems Strategy for
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