Beiersdorf ag expanding nivea’s global reach

COVER SHEET

MANAGING IN A MULTINATIONAL CONTEXT

Assignment: Beiersdorf AG: Expanding Nivea’s Global Reach

Module code: BEMM160

Name of Tutor: Prof. Alan Benson

Group Members Student Number Candidate Number

Ayush Agrawal 630058475 002330

Rampisa Songsombat 630053498 018687

Weiwei Wang 630043489 000425

Ruiqiong Yan 630026439 029552

Zheyan Zhang 630050159 029678

William Hinshelwood 600007383 013805

Number of words: 2521

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BEMM 160 MANAGING IN A MULTINATIONAL CONTEXT

Beiersdorf AG: Expanding Nivea’s Global Reach

Table of Contents

1 Challenges that the new CEO of Beiersdorf AG has to address ...................................... 1

1.1 Liabilities of being an Outsider ................................................................................ 1

1.2 New Organizational Approach ................................................................................. 2

1.3 Financing................................................................................................................. 2

1.4 Sustainability........................................................................................................... 2

1.5 Competition ............................................................................................................ 3

2 Learning that Beiersdorf AG can extract from its attempted market entry into China .... 4

2.1 Avoiding overpayment ............................................................................................ 4

2.2 Acclimatizing distribution channels ......................................................................... 5

2.3 Adaptation to Cultural Diversity .............................................................................. 6

2.4 Adaptation to fit the environmental variation ......................................................... 7

References ............................................................................................................................. i

List of Tables

Table 1 China hair care market share: %share, by value(Datamonitor,2009) ......................... 8

Table 2 China hair care market share: %share, by value (Datamonitor, 2013) ....................... 8

List of Charts

Chart 1 China’s haircare industry market distribution (MarketLine, 2013) ............................. 5

Chart 2 Comparison of national culture (The Hofstede Centre, 2013) .................................... 6



Report by: Ayush Agrawal (630058475); Rampisa Songsombat (630053498); Weiwei Wang

(630043489); Ruiqiong Yan (630026439);Zheyan Zhang(630050159); William Hinselwood (600007383)

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1 Challenges that the new CEO of Beiersdorf AG has to address

1.1 Liabilities of being an Outsider

When a new Chief Executive Officer (CEO henceforth) takes charge of a firm, he is going to

encounter a wide variety of challenges that will span mainly across areas such as leadership

and strategic management. However, many other issues such as man management and

personal issues will also play a key role in the judgment of how successful a CEO is at guiding

a firm through both good times and bad. When studying the case of Beiersdorf AG, and the

new CEO – Stefan Heidenreich (who was appointed in April 2012), it is possible to see that

he was going to face a large number of organizational challenges in order to return

Beiersdorf AG to their previous levels of success and high profitability.

The new CEO; Heidenreich, was an outsider, and had not been promoted from within

Beiersdorf, and consequently there were a lot of things that Heidenreich needed to learn

and understand about the company when he first took charge. Heidenreich, needed to

know what Beiersdorf currently had in terms of resources and capabilities to run the

business, as well as how the firm had recently performed in the local and global markets. In

addition, the current position and status of the company were crucial to help him realise

how to move Beiersdorf AG to a better place financially. Thus, the Heidenreich can make an

analytical decision to choose an appropriate strategic choice to achieve Beiersdorf’s

organisational goals. However, to be effective, he needs to quickly adapt to new colleagues,

environments and, of course, the competitors of the company. It is believed that an outsider

can bring in innovative ideas and technology, while people within the company replicates to

the ongoing process adopted previously by the company. This can enhance the efficiency of

the production and processes. This was expected from Heidenreich.

Another major challenge that Heidenreich faced when joining Beiersdorf, was what kind of

approach to leading the firm he should take. According to Hall and Kehoe (2013), new CEO’s

face a tough and critical strategic choice, in whether they should settle into the new

position, and spend a year or so to get to know the business, before making changes to the

portfolio, or whether they should start implementing changes as soon as they join the firm

in an aim to “divert resources from mature activities, to a new generation of corporate

opportunities” (Hall and Kehoe, 2013, p. 64).





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1.2 Innovative Organizational Approach

The management of Beiersdorf was divided into two committees, the executive board and

the supervisory board. Changing administration is a huge challenge in any organization as it

directly implies testing the strength of the organizational structure. Implementing such

changes, may help Heidenreich to assess what areas of the structure are solid and which

areas require re-evaluation. He can then implement changes that can make Beiersdorf more

efficient and better prepared for the daily tasks of business.

Heidenreich should involve people from the region by placing local workers into important

management positions. However, trust is critical for leaders as it entails risk but lacking

trust, leadership is unattainable. Employing local managers might bring diverse

perspectives, different views and different ways of doing things, plus they should be familiar

with what doing successful business in the local region requires the firm to do. This can

reduce risks and possibly increase interaction with the target market; the local managers

must be given certain powers, so that they can execute plans when the right opportunities

arise.

1.3 Financing

The high flow of income from Nivea Brand has kept the liquidity of Beiersdorf AG at a

satisfactory level. Part of the $2bn reserves can be used for promotion of the brand in China

and the United States where Beiersdorf needs to work hardest to gain market share.

Beiersdorf also invested in opening a new research and development (R&D henceforth)

centre in Wuhan, China. Because of this investment, the company is able to react more

rapidly to local demands and make use of the raw materials and labour available in that part

of the world.

In order to cut down costs Beiersdorf has been cutting back on unprofitable merchandise.

This gives them scope for expanding the product line by innovating certain products that

may be profitable. This will shape its markets and set new trends. Heidenreich should that

R&D expenses of the company would however definitely increase following this.

1.4 Sustainability

Furthermore Heidenreich should focus on supply chain sustainability. The company have

introduced recycling and waste reduction projects in many countries. For instance In

Argentina and Spain, the company’s production facility decreased the volume of waste

resulting in a reduction of 40% in waste costs (Beiersdorf, 2013a). Similarly in Spain, Italy,

and Indonesia reprocessing has been adopted. Due to this, in the long run, cost will be

reduced; meaning Heidenreich can propose similar investments at other manufacturing

units all over the world in order to reduce the overall production costs incurred by the firm.





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1.5 Competition

Heindenreich also has the challenge of defeating the global competitors in the market.

Beiersdorf’s competitors mainly include Procter & Gamble, Unilever, L’Oreal, Henkel, and

Johnson & Johnson. These companies are all highly established companies that have been

trading and developing for years.

To convert these challenges into opportunities, there are several recommendations for

Heidenreich. First of all, one of the most significant factors to successfully compete with

other brands is to develop R&D for Beierdorf’s existing and new products. To illustrate, the

researchers need to improve the existing products based on customers’ behaviours’ and

needs in the present and create new products adherent to new technologies and

innovations of manufacturing cosmetic products.

In addition, in a context of marketing strategy, Beiersdorf should also use an interesting and

attractive communication in order to convince customers and compete with other brands.

For instance, the company may use celebrity endorsement as an advertising method by

inviting a famous actor or actress to be a brand ambassador to help promote the products.

They can make a decision to use other different types of communication to advertise each

product such as social networking, printed advertising, radio spots, in-store marketing, and

promotional activities. However, an efficient and effective communication may lead to high

cost to the organisation.

Beiersdorf can beat the others by correctly identifying its main issues and solving them in

appropriate directions corresponding to the research information and the consultants’

advice.





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2 Learning that Beiersdorf AG can extract from its attempted market entry

into China

Beiersdorf AG, like many other multinational enterprises, is expanding their global reach,

carrying their products and brands to the new and diverse Chinese market. A multi-tier

strategy with local and global brands will provide Beiersdorf with the widest reach into the

market and the potential for market leadership (Meyer & Tran, 2006). Therefore, direct

acquisition of local firms may offer them the best chance.

2007, Beiersdorf AG acquired an 85% stake of C-BONS Hair Care, and gradually took in the

remaining 15% stake within the next two years. Although Beiersdorf wanted to penetrate

successfully the Chinese hair care market (Beiersdorf AG, 2013), the acquisition leaded to

large debt in excess of $200 million and a failed market entry into China. Due to increasing

cost of raw materials and human labour as well as the cash flow out from the acquisition,

Beiersdorf’s financial pressure was climbing (Chen & Nie, 2012). This failure alarmed the

managers of Beiersdorf AG to consider their decision and think about what they can learn

from it to avoid failure in the future.

2.1 Avoiding overpayment

The first thing they could learn is that managers of Beiersdorf AG should properly examine

whether the company was correctly priced or not before they made acquisition. From

February 2007, the managers of Beiersdorf AG negotiated with C-BONS and achieved a

strategic cooperation. On 2nd October 2007, these two companies made a contract in which

Beiersdorf AG acquired an 85% stake of C-BONS Hair Care for a cost of €269 million. The

pricing benchmark for Beiersdorf AG to acquire C-BONS is that C-BONS had a 20 times price:

earnings ratio in 2006 and by forecasting its gross profit in 2008, felt that it might be nearly

¥200 million. One of experts who cooperated with C-BONS before did however predict that

€269 million may be an overpayment to some extent (Ding Fan, 2009). The returns to this

investment came slowly and in 2011, Beiersdorf AG made a €50 million loss because of this

investment (Vanessa, 2013).

Therefore, it is significant for managers of Beiersdorf AG to examine the value of the

company that they want to acquire carefully to avoid overpayment. Furthermore, managers

should not be overconfident of the returns to their investment.





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2.2 Acclimatizing distribution channels

Before 2002, there were only two distribution channels for the Chinese daily chemical

industry: supermarkets and independent retailers. With the old C-BONS’ huge-crowd

strategy and sale terminals, Slek almost lead the industry. However, with the accelerating

development of the daily chemical industry, distribution channels have become diversified,

which has gradually weakened the traditional distribution channels. In 2013, specialist

retailers occupied 23% of the total industry (Chart 1). By using new distribution channels,

high-end brands like Clear (Unilever), L’Oreal and Shiseido (Japanese brand) all have an

upward tendency in market share. However, C-BONS did not catch this opportunity still

using the old distribution channels (Chen & Nie, 2012).

Chart 1 China’s haircare industry market distribution (Market Line, 2013)

Without the specialist stores, C-BONS’ brands were almost solely sold at supermarkets in

cities or small stores in rural places. Like C-BONS, the most famous brand of Beiersdorf

(Nivea) in China also aimed at medium to low price market and was only sold in

supermarkets’ or some health and beauty retailers (Beiersdorf Hair Care, 2013). Although

Nivea once tried to open their own exclusive stores in China, they did not achieve their

expectations and gave up after one year of opening. Beiersdorf have shown their weakness

in expanding distribution channels. In addition, the acquisition of C-BONS Hair Care actually

did not bring any new distribution channels to Beiersdorf.

43%

23%

14%

9% 11%

independent retailers

specialist retailers

supermarkets

convenience stores

other





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It is correct that Beiersdorf AG went global by expanding through acquisition of another

firm, and they kept the C-BONS brands’ own names and used them to penetrate the Chinese

market. But what they need to focus and evaluate more carefully, is whether the acquisition

can bring them new distribution channels or whether they can use that distribution channels

efficiently. Therefore, Beiersdorf need to examine the previous successful distribution

channels from their own experiences in other markets, as well as other firm’s experiences in

Chinese markets, and find out a more efficient method of market penetration.

2.3 Adaptation to Cultural Diversity

To avoid misunderstanding and condense cross-cultural risk, cultural characteristics in the

targeting countries must be considered. Based on Hofstede 5 Cultural Dimensions (Chart 2),

there is elevated power distance from subordinates to superiors and the lower vagueness

avoidance in China which demonstrates that Chinese companies have a great eagerness to

take risk. Contrasting to German’s, Chinese people favour collectivism, hence instituting

relationship between individuals and firms in business is vital. Additionally, China ranks

enormously high on long term direction, which requires prolonged time to build trust and

long-term relationships as it focuses on persistence and perseverance. Furthermore, Chinese

language culture is high context i.e. silent messages are important in business

communications, whereas in German, the spoken words is more imperative (Würtz, 2005).

As a result, it needs a fairly long time to understand insinuation and adapt Chinese language

culture.

Therefore, Beiersdorf AG should be more patient to learn different cultures and build

relationship with Chinese Firms and distributions.

Chart 2 Comparison of national culture (The Hofstede Centre, 2013)

http://alexnstone.wordpress.com/2012/01/14/hofstedes-5-cultural-dimensions-for-china/





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2.4 Adaptation to fit the environmental variation

When looking at environmental changes, in order to succeed, a multinational enterprise

should adapt the strategy to fit the new environmental and marketing contingencies (De La

Torre & Chacar, 2012).

From 1997, C-BONS implemented a strategy of "building the core competitiveness in

terminal sale" (Liu & Huang, 2003) and introduced its main shampoos brand Slek into

thousands of stores, putting up POP banners and sign boards, turning the terminal stores

into seas of red. This strategy successfully helped Slek to gain market share from P&G and

become the third largest brand in the Chinese hair-care market (Wattanavituku, 2003).

However, this strategy also brought many problems: complex sales structure, too many

salespeople, high sales cost and difficulty of management, and these factors made C-BONS’

market share drop dramatically (Globrand, 2010). In addition, the fierce competition from

other competitors such as P&G, Unilever and other local companies who invested heavily in

product promotions made the promotion costs for C-BONS even higher. Differentiated

marketing tactics brought a rapid increase in sales, but with a large number of followers

using homogeneity promotions, the same promotion strategy could not gain the same

effect (Cai, Li, & Li, 2012).

Nowadays, supermarkets are too noisy and are full of recommendations and persuasion

tactics from in-store consultants. As excessive advertising will reduce the effectiveness, over

promotion may reduce interest of customers, cause insensitive even aversion (Liu, 2009).

However, C-BONS still kept the traditional terminal promotion strategy after the acquisition

by Beiersdorf AG, and thus lost market share gradually.

The competition threat is not only from the large global players. After acquisition,

Beiersdorf also started to lose market share in the Chinese hair care market to a local player,

Guangzhou Bawang, who started a massive TV advertising campaign for its shampoo using

Jackie Chan as a celebrity endorser (Euromonitor, 2013). As table 1 and table 2 shows,

Guangzhou Bawang successfully won market share in China, and became the third largest

brand instead of Beiersdorf. The main reason is Bawang changed the promotion strategy

and emphasised the benefits of its traditional Chinese medicine ingredients to prevent hair

loss which catered for the customer needs and psychology.





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COMPANY MARKET SHARE (%)

The Procter & Gamble company 37.0%

Unilever 12.4%

Beiersdorf AG 9.5%

Other 41.1% Table 1 China hair care market share: %share, by value(Datamonitor,2009)

COMPANY MARKET SHARE (%)

The Procter & Gamble company 38.1%

Unilever 14.2%

Guangzhou Bawang Cosmetics co. Ltd 8.4%

Beiersdorf AG 7.3%

Other 32.1% Table 2 China hair care market share: %share, by value (Datamonitor, 2013)

Another point to note is that the development and launching of new products by C-BONS

was too slow. In the personal care industry, consumers can be easily attracted to new

product or package, and can often get tired of the same product in a few months. When

other fast moving consumer goods innovated and changed frequently, C-BONS has slowed

down over the years without any change in the packaging and product range (Ding, 2009). It

was too late when Beiersdorf realized sales had dropped and they needed to innovative

new products.

Carlsberg is a success example of entering the Chinese market. After learning from their

own failure in southeast of China, Carlsberg adapted a new strategy and successfully re-

entered the market of the West Provinces of China (Meyer & Tran, 2006). Therefore, in

order to gain market share and success in flexible multinational environment, Beiersdorf

should adapt the strategy and innovate new products to fit the marketing variation.

As Edmondson (2011) says, it is very rare that organizations learn well from failure.

Carlsberg is a good example of a firm that has done this, and if Beiersdorf are to be

successful in the future, it is vital that they learn from their mistakes with the C-BONS

investment, and overcome their failures in future investment projects.



i BEMM 114 MANAGING OPERATIONS

SUPPLY CHAIN SUSTAINABLITY – ERIN COX (EXETER BASED BOUTIQUE JEWELLER)

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BEMM 114 MANAGING OPERATIONS

SUPPLY CHAIN SUSTAINABLITY – ERIN COX (EXETER BASED BOUTIQUE JEWELLER)

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http://www.apmforum.com/columns/china24.htm

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