Key factor influencing the upsurge of interest in linking business strategies and personnel/human

resource policies is the quest for competitive advantage. The idea of competitive advantage has
been championed by Michael Porter and can be described as any factor(s) which allow(s) L'oreal
to differentiate its product or service from its competitors to increase market share. Price and
quality are common mechanisms by which L'oreal attempts to achieve competitive advantage.
Competitive strategy is, therefore, concerned with achieving sustainable competitive advantage.
Porter identifies two main generic strategies for achieving competitive advantage - cost
leadership and differentiation.

Cost leadership involves positioning the organization as a low cost producer of a standard “no
frills” product for either a broad or a focused market. To succeed with a cost leadership strategy
it is suggested that the firm must become the cost leader and not one of several firms pursuing
this strategy. Cost leadership requires an emphasis on tight managerial controls, low overheads,
economies of scale and a dedication to the learning curve.

Differentiation strategy, on the other hand, requires that an organization's product or service
becomes unique on some dimension which is valued by the buyer, thus ensuring a premium
price. The basis for a differentiation strategy may be the product or service itself or other aspects,
such as delivery or after-sales service.

L'Oreal focuses on higher long term sustainability through effective strategies and they insure
integrity in their business, responsibility and respect for people and environment. They also have
established system for ensuring sustainability through establishing short term, medium term and
long term targets. Michael Porter represented three generic strategies: cost leadership,
differentiation and focus. In respect to L'Oreal differentiation strategy is essential as innovation
can enable them to make beauty accessible to all. L'Oreal has strong research and development
department, in terms of R&D around 3 to 5 percent is devoted to innovation.

The corporate level strategies that L’Oreal possess are horizontal integration, vertical

integration, and strategic alliances to continue their success as a worldwide leader in cosmetics

manufacturing. The company has utilized the advantages of horizontal and vertical integration to

build a more pronounced image in new geographic markets. L’Oreal demonstrates a horizontally

integrated corporate level strategy because they frequently acquire companies that are industry

competitors in order to achieve competitive advantage in the large scope environment they
operate. L’Oreal participates in both backward and forward vertical integration as corporate

level strategies. An example of how L’Oreal implements forward vertical integration is through

The Body Shop and throughout the organizations integrated research and development and

production facilities. Although the Body Shop outsources its raw materials for use in product

manufacturing, they also participate in vertical integration by selling their products in their retail

stores. This differentiates the Body Shop from other L’Oreal brands distributed amongst several

other retailers. L’Oreal also executes forward integration through its in-house research and

development facilities across the country and the integrated production facilities that

manufacture the majority of L’Oreal products.

The business-level strategies that L’Oreal implements are as follows: broad

differentiation, product proliferation, implementing an online storefront and the ability to

implement a low-cost structure through its global production facilities.

L’Oreal exercises a broad differentiation business-level strategy allowing them to possess

a competitive advantage in the industry. L’Oreal recognizes different segments in the market and

offers a different product to each segment in order to reach each consumer's needs. L’Oreal does

this by offering its products through five different distribution channels which are based on

specific consumer needs. The five different distribution channels include consumer products

(mass-market), active, luxury, professional product, and the Body Shop. The differentiation

between each of these distribution channels is based on desired needs of each segment such as

cost and quality of the product. Each distribution channel is carefully maintained, to not risk

harming the brands image. For example, the professional products division dispenses its products

all over the world to different hair salons and beauty boutiques. The luxury products division

products are sold in selective distribution channels including department stores and retail outlets
as well as free standing stores and through online websites. The consumer products division

distributes products at reasonable prices in all mass-market retailers such as supermarkets and

drugstores. (L’Oreal S.A., 2014).

In order to adapt to the technological paradigm shift of online shopping, L’Oreal is

focusing recent efforts in expanding its e-business storefront. The shift will allow L’Oreal to

distinguish the company's products and services from its competitors. Online marketing efforts

continue to lead customers to L’Oreal's beauty brand websites where the company has seen a

large increase in online spending. L’Oreal's beauty brand websites are also focusing on

attracting more men in the United States. The company hopes to appeal more men to the

products and services by marketing the benefit of privacy when purchasing online. The privacy

allows men to feel comfortable purchasing beauty products, without feeling ashamed and

uncomfortable. This is crucial to L’Oreal because they are competing in a mature industry which

it is crucial to deny entry from potential competitors in order to control the market share on a

global level.

L’Oreal can achieve value innovation because of its integrated global production

facilities located at strategic locations around the world. A total of 47 production facilities is

located throughout seven different geographical zones around the world in order to satisfy local

needs and trends. The operations department at L’Oreal oversees all aspects of the production

process, which allows L’Oreal to achieve economies of scale while maintaining the production

of high-quality, niche-need beauty products.

L’Oreal's ability to execute a low-cost structure that satisfies the needs of different locations
around the world demonstrates how a transnational strategy is executed. The complexity and
depth of L’Oreal's organizational structure is illustrated through a global-matrix structure in
which business units are separated by geographic zone, and then further broken down by
suppliers and supporting value-chain activities. L’Oreal's business activities are first broken
down by geographic zone in order to integrate research and production facilities on a global scale
that satisfy the specific needs of the areas in which they operate. The six different geographic
zones in which L’Oreal operates are Western Europe, North America, Asia/Pacific, Eastern
Europe, Latin America, and Africa/Middle East. L’Oreal's brands are then further broken down
by distribution channel and supporting value chain activities