Chinese Personal Care Brand - Essay Example

The re-establishment of Herborist in Hong Kong Table of Contents Table of Contents 2 Background 3 Justification for Market Selection: Hong Kong 3 Entry Mode 6 Growth Strategy 6 Market strategy and Sales Networks 8 Implementation of Suggested Strategies 9 Conclusion 10 Reference List 11 Background Zhou and Loo (2011) presented the case of Herborist in order to illustrate how a Chinese local brand can compete in international cosmetics markets with a resource rich global brand. Herborist, which is known as a high end personal care brand, has already entered both Asian and European markets, but the company failed to penetrate the Hong Kong skincare and cosmetic market despite trying twice in 2001 and 2007 (Zhou and Loo, 2011). In such context, the aim of this report will be to assess strategic alternatives for Herborist to re-establish the brand in Hong Kong. Issues regarding entry mode, growth strategy, market strategy and sales networks, cultural strategy etc will be addressed in the report. Justification for Market Selection: Hong Kong Due to existing economic uncertainties and low return on investment probabilities, it will not be right for Herborist to enter into new locations at this moment. Another reason is that the nature of the skincare and cosmetics market is much more consolidated and hypercompetitive in Japan and Singapore, therefore there is no guaranty that Herborist would be able to penetrate these markets with Chinese medicine ingredient as unique selling proposition (Wei, 2011). Entering new market would provide multitude of benefits to Herborist such as generating more revenue by attracting new customer base, using resources of new market to achieve reverse innovation, increasing product portfolio depth through product diversification etc. However, consideration of research works of Fan (2008) and Wei (2011) reveals the fact that emerging market companies like Herborist cannot afford to take risks of entering in new and hypercompetitive market due to their lack of access to resources which might not be sufficient to counter balance strategic risks. Rather, emerging market companies such as Herborist should try to re-establish the brand in existing market in order to avoid business uncertainties of new market. Therefore, in the present business context, it is advisable that Herborist should try to re-establish its brand in the existing market. New Zealand Trade and Enterprise (2010) reported that skincare and cosmetic products in Hong Kong depend heavily on imports from other countries and the indigenous manufacturing capacity is quite low. Skincare and cosmetic products market value in the country is over US$408 million (New Zealand Trade and Enterprise, 2010). Local retailers and traders act as selling agent for foreign cosmetic brands like Estee Lauder, Lancome, P&G, Unilever, Clinique, Shiseido etc. The demand for mid range products like L’Oreal cosmetics, Olay, Max Factor, Revlon has doubled in the last three years while global brands are facing competition from Japanese and Korean companies offering skincare products like Jurlique, Origins, Kiehl’s etc that are enriched with natural ingredients and herbs (New Zealand Trade and Enterprise, 2010). As of 2010, skincare and cosmetic products market in Hong Kong has witnessed more than 5% growth rate while facial care products cover more than 80% of the market (New Zealand Trade and Enterprise, 2010). Category wise import growth rate for cosmetic products in Hong Kong can be depicted in the following manner. Figure 1: Import Growth rate for Cosmetics in Hong Kong (Source: New Zealand Trade and Enterprise, 2010) After taking into consideration the report of report of New Zealand Trade and Enterprise (2010), it can be said that Herborist would avail three opportunities while re- establishing its business in Hong Kong instead of other countries. Market opportunity 1- demand for Chinese medical ingredients and herbal resources in skincare products has increased by more than 30% among people in Hong Kong in last 5 years. On the other hand, unique selling proposition (USP) of Herborist is also based on above mentioned ingredients which will help the company to use its USP to attract customers who are looking for Chinese medical ingredients and herbal resources in skincare products (New Zealand Trade and Enterprise, 2010). Market opportunity 2- brand heritage and USP of Herborist is being known to Chinese customers and tourists coming to Hong Kong from different parts of China. Almost 20 million tourists visit from mainland China to Hong Kong annually while more 60% of these tourists look for Chinese cosmetic brands (New Zealand Trade and Enterprise, 2010). Market Opportunity 3- unlike Taiwan, retail market for cosmetics and skincare products in Hong Kong is increasing. With the product diversification and entry of new players, market is becoming fragmented more rapidly for Hong Kong than Taiwan (New Zealand Trade and Enterprise, 2010). PESTLE analysis can be done in order to compare macro environment of Taiwan and Hong Kong. Table 1: PESTLE Analysis Factors Taiwan Hong Kong Political Unstable political environment due to tension with Chinese government Stable political environment Economics Lower PPP Higher purchasing power parity (PPP) Social Higher female population who use skincare and cosmetic products Higher Chinese population who prefer cosmetics product blended with Chinese medicine Technology More advanced local research & development support for cosmetics manufacturing Less advanced local technologies Environmental Prone to natural disasters Low probability of natural disaster Legal Moderate legal control over safety of cosmetics products Moderate legal control over safety of cosmetics products (Source: New Zealand Trade and Enterprise, 2010; Poon, 2013) It is evident from the above discussion regarding market opportunities and Pestle analysis that probability of achieving business success is more for Herborist while re-establishing the brand in Hong Kong in comparison to Taiwan. Due to such justifications, Hong Kong has been selected target market for Herborist to re-establish the brand (Poon, 2013). Entry Mode In order to facilitate aggressive marketing practices for mainland china population and tourists in Hong Kong, Chinese companies like Herborist cannot afford to rely only on exporting as entry mode. Exporting as entry option is being widely used by foreign cosmetic brands in Hong Kong, therefore saturation in margin has occurred for international brands while using exporting as entry mode. On the other hand, absence of resource rich and reputed local players makes it difficult for Herborist to re-establish brand in Hong Kong through joint venture and licensing. Homburg, Krohmer and Workman (2004) and Hrebiniak (2006) suggested that companies can go for foreign direct investment (FDI) as entry mode in three conditions, 1- existing market opportunity is lucrative enough for companies to ensure high return on investment, 2- extensive control over marketing activities is needed in order to penetrate in foreign market and 3- absence of partners who can match resource capabilities and business objectives of parent company. In case of re-establishment of the brand in Hong Kong, Herborist would face all the three aforementioned conditions. Considering the market opportunity and existing market conditions, it is being suggested that Herborist should go for FDI as entry mode to enter Hong Kong skincare and cosmetics market. While adopting FDI policy, Herborist should start operations on small scale by opening store in few prime locations, establishing research & development unit, manufacturing facilities, test marketing etc. Based on the market success, the company should decide further strategic initiatives (Wei, 2011). Growth Strategy In order to highlight market growth strategy, Ansoff (1987) proposed the following matrix. Figure 2: Ansoff Matrix (Source: Ansoff, 1987) As Herborist is not entering new market hence, new geographic locations related third and fourth alternatives mentioned in Ansoff matrix are relevant in this discussion. Based on remaining alternatives in Ansoff Matrix, Herborist can achieve market growth by selecting any one of the four alternatives. Alternative 1- while following the alternative, Herborist can increases penetration of marketing strategy in Hong Kong for existing product portfolio. As Herborist is entering the market, selecting first alternative would restrict the company to target new market segments, therefore first growth alternative cannot be selected. Alternative 2- according to New Zealand Trade and Enterprise (2010), in Hong Kong, people are ready to experiment with new cosmetic products while mainland China tourists prefer cosmetic brands blended with Chinese cultures. In such condition, new product development or second alternative is most suitable strategy for Herborist. By adopting second alternatives, Herborist can sell its products to both mainland china and non-Chinese segments. Market strategy and Sales Networks Henry Rak Consulting Partners LLC (2014) proposed the following model in order to describe strategic positioning of the firm while adopting growth strategy. Figure 3: Strategic Positioning Model (Source: Henry Rak Consulting Partners LLC, 2014) In case of market growth strategy adaptation of Herborist in Hong Kong, all the four elements can be adjusted in the following manner. Competitive frame- international cosmetics brands and Japanese and Korean companies offering herbal and medicinal skincare products like Jurlique, Origins, Kiehl’s etc are direct competitors for Herborist. Rise in sales volume of the company can be focusing more on selling facial range of products which cover more than 60% of share in cosmetics and skincare market in Hong Kong. Benefits & differentiation- Chinese medicinal benefits and latest product innovation should be used as USP of the brand while positioning of the brand will be based on Chinese cultural theme. Consumer target- mainland Chinese permanent female residents and female tourists will be primary target market. Rest of the population having sufficient disposable income will be secondary target market. Brand personality- link between Chinese culture and the brand will be communicated through advertisements and cultural inheritance of the brand might be communicated via word of mouth promotion (Brown et al., 2005; Martin, 2009). As part of sales network, the company should use commissioned sales executives in order to distribute products to speciality retailers, supermarkets, independent small level retailers, concept stores, beauty salons, pharmacies (New Zealand Trade and Enterprise, 2010). Online distribution model through e-commerce arrangement can also be used by Herborist to reach more customers in Hong Kong. Implementation of Suggested Strategies As part of strategy implementation, Schaap (2006) gave importance on three internal verticals of organizations such as organisation structure, HR and corporate culture. In case of re-establishing Herborist brand in Hong Kong, suggested strategies can be adjusted in context to above three strategy verticals. Organisation structure- in order to execute suggested strategies, Herborist needs to decentralize its organizational structure and empower its strategic business units (SBUs) in Hong Kong to make operational decisions (Wei, 2011). As part of decentralized organizational structure, R&D division should be separated from core business operation in the country while centralized control will be used only for R&D division. HR functioning- human resource division of the company should design proper training and development program for local employees in Hong Kong while coordination between expatriates and local employees will also be maintained by HR managers. HR managers should deploy transparent performance appraisal and performance management techniques in order to ensure proper alignment with strategic objectives and performance of employees. Corporate culture- while working in Hong Kong, Herborist should promote corporate culture of team work and collaboration among its employees. Culture of organizational learning will also be promoted by top level management in order to gather and utilize meaningful external information in making strategic decisions. Culture of situational leadership will help Herborist to empower its employees to make key strategic decisions during contingency periods and ensure successful implementation of proposed strategies. Conclusion The paper has ascertained the scope of re-establishment of Herborist, a high end personal care brand, in Hong Kong. Given the hypercompetitive nature of the other Asian markets, such as Singapore and Japan, the most suitable strategy for the company would be to stick with re-establishment of the brand name in Hong Kong. The company needs to make a unique strategy for growth in the already established market of Hong Kong. There are enormous opportunities for Herborist willing to re-establish themselves in Hong kong by setting up a strong organisational culture or by creating a strong brand personality for itself. The company needs to use the right mix of strategies to come out as a winner. Reference List Ansoff, H. I., 1987. Corporate strategy. 2nd ed. London: Penguin. Brown, T. J., Barry, T. E., Dacin, P. A. and Gunst, R. F., 2005. Spreading the word: investigating antecedents of consumers’ positive word-of-mouth intentions and behaviors in a retailing context. Journal of the Academy of Marketing Science, 33(2), pp. 123-38. Fan, Y., 2008. The rise of emerging market multinationals and its impact on marketing. Marketing Intelligence & Planning, 26(4), pp.353 – 358. Henry Rak Consulting Partners LLC., 2014. Marketing Growth Strategies. [online] Available at: [Accessed 18 March 2014]. Homburg, C., Krohmer, H. and Workman, J. P., 2004. A strategy implementation perspective of market orientation. Journal of Business Research, 57, pp. 1331–1340. Hrebiniak, L.G., 2006. Obstacles to Effective Strategy Implementation.Organizational Dynamics, 35, pp. 12-31. Martin, D. M., 2009. The entrepreneurial marketing mix. Qualitative Market Research: An International Journal, 12(4), pp.391-403. New Zealand Trade and Enterprise., 2010. Market Profile for Skincare and Cosmetic Products in the Hong Kong Market. [pdf] New Zealand Trade and Enterprise. Available at [Accessed 18 March 2014]. Poon, D., 2013. Cosmetics and Toiletries Industry in Hong Kong. [online] Available at: [Accessed 18 March 2014]. Schaap, J. I., 2006. Toward Strategy Implementation Success: An Empirical Study of the Role of Senior-Level Leaders in the Nevada Gaming Industry. UNLV Gaming Research & Review Journal, 10, pp. 13-37. Wei, W., 2011. International marketing strategy for herborist. [pdf] Savonia University of Applied Sciences. Available at [Accessed 18 March 2014]. Zhou, K. and Loo, G., 2011. Herborist: A Chinese Personal Care Brand Goes Abroad. [online] Available at: [Accessed 18 March 2014]. Read More