72-hours Individual Case Exam
21.4.2008 – 24.4.2008
Philip Jacek Lange
CPR Number: 100286-1719
Answer to Question 1:
L’Oreal, established in 1909, is today the world leader among beauty companies. It employs over 60,000 people (Company Overview, Facts & Figures, 2008) and had consolidated sales of 17063 Million EUR in 2007 (Latest Press Release Corporate, 2008). L’Oreal sees its mission to further the cause of beauty, and owns branches in Cosmetics, The Body Shop and Dermatology. However, the cosmetics branch is by far the biggest contributor of sales. Moreover, L’Oreal which is headquartered in Paris, can praise itself of having a portfolio of 19 global brands. These include such well-known brands like Lancome, Ralph Lauren, Giorgio Armani, Vichy, and many more (Our Brands, 2008). Over the years, L’Oreal has grown dramatically. In 2001 it sold its products in over 150 countries and had 283 subsidiaries and 46 plants scattered across the globe (Winners of L’Oreal’s first annual…, 2001). Since multinationality is defined as “the extent to which business activities span across national boundaries” (Tseng et al, 2007), looking at these numbers then, one might be tempted to say that L’Oreal is truly a multinational company. Despite these impressive international achievements, these numbers do not offer a very clear picture of the extent of L’Oreal’s multinationality. Therefore, I will go on and try to calculate the level of L’Oreal’s multinationality according to the percentage of foreign sales made outside L’Oreal’s home-country – France. Following this approach brings along several problems. First of all, I have not managed to find any data showing how big the sales are in France, and therefore I have decided to quantitatively assess it in order to calculate the foreign sales ratio. Second, despite L’Oreal’s activities encompass branches like ‘Cosmetics’, ‘The Body Shop’ and ‘Dermatology’, the latter two only contribute with only a small percentage of total consolidated sales (Latest Press Release Corporate, 2008): Sales from ‘The Body Shop’: 787 Million EUR in 2007
Sales from ‘Dermatology’: 368 Million EUR in 2007
Since total consolidated sales amounted to 17063 Million EUR in 2007, the combined sales from ‘The Body Shop’ and ‘Dermatology’ only accounted for less than 7% of total sales (Appendix: Calculation 1). This in turn means that the Cosmetics branch accounts for 93,2% of total sales. Additionally, due to the lack of information on the dispersion of worldwide sales of ‘The Body Shop’ and ‘Dermatology’, I have chosen to take the sales from the Cosmetics branch as representative of total consolidated sales. It has to be mentioned though that this simplification will lead to an inaccurate calculation of L’Oreal’s percentage of foreign sales, but it will still offer a much more precise measure of multinationality than merely the number of subsidiaries and countries where L’Oreal sells its products. In order to calculate L’Oreal’s percentage of foreign sales, I have chosen to look at the Cosmetics branch’s sales according to geographical zones (Cosmetics branch: 2007 consolidated sales by geographic zone, 2007). It can be seen that sales in Western Europe amount to 7250 Million EUR which account for 45,6% of consolidated sales of the Cosmetics branch on a worldwide basis. Moreover, (World Presence, 2008) gives us an overview of the European countries where L’Oreal operates in. Next, from that list of countries, I have selected all countries that constitute Western Europe and aggregated their GDPs. The data on the GDPs, all of them according to the official exchange rates of the year 2007, I have taken from (CIA, The World Factbook, 2008). The reason why I decided to use GDP as a foundation for the calculation of the foreign sales ratio of L’Oreal, is that GDP not only reflects the wealth of a given country, but also its size. It has to be noted though, that GDP does not...