Foreign Market Servicing Decision - Beiersdorf on the Russian market.

Table of content

1. Introduction (Aims and Objectives)

2. Beiersdorf Group (Overview)

3. Analyse of the environment (S.W.O.T.-Analyse)
3.1 The internal environment of the firm
3.2 The external environment
3.2.1 The competitive environment of the industry
3.2.2 The external environment of the country (P.E.S.T-Analyse)

4. Modes of Entry (F.M.S.)
4.1 Exporting
4.2 Joint Ventures
4.3 Foreign Direct Investment (FDI)
4.4 Licensing
4.5 The entry mode for the Russian market

1. Introduction

As an example of international expansion this work will focus on the Beiersdorf AG and its intension to enter into the Russian market for cosmetic products. Although Beiersdorf is a Multi-National-Enterprise (MNE) with a high degree of experiences in foreign markets, they could be confronted with particular conditions as the Russian market is very specific.

The report is fundamentally structured in three main parts: First a short introduction about the Beiersdorf AG and their (cosmetic) products will be given. The second part is a detailed analysis of its environment and starts with assessing the firms strength ands weaknesses. Afterwards possible opportunities and threats for Beiersdorf in Russia will be analysed with regard to the competitive and external environment. The last section will focus on a Foreign Market Servicing Strategy (F.M.S.) for the market entry of Beiersdorf developed on the data of the analysis including the pros and cons of the suggested strategy.

2. Beiersdorf

Beiersdorf is an international leading undertaking in the industry of consumable goods. The company was founded in Hamburg (Germany) in 1882. The Beiersdorf group employs more than 18.000 people worldwide. In 2002 group sales of 4.7 billion Euros and group profit after tax was 290 million Euros could be achieved.

The company is producing, marketing and distributing a clear range of international known brands and owns with Nivea one of the most successful body care brands worldwide. Their main lines of business are cosmed, medical and tesa. The biggest profit is made in the cosmed line which participate with 67 % to the whole.

As this work will be concentrated on the cosmetic market the focus will be on Beiersdorf`s cosmed business line. This devision offers products in the areas of cosmetic, skin and body care, sun care, men care, deodorant and hair care. Their most important brands in this field are Nivea, atrix, Juvena, 8x4, Labello and la prairie. As Beiersdorf is a MNE they sell their products in nearly every country of the world by more than 90 affiliates, distribution and licence partners. Beiersdorf achieves 70 % of its sales outside the domestic German market.

The strategy under the current chairman Rolf Kunisch is to concentrate on the development and care of the strong international brands and to grow continuously in strategically selected markets. The concept is to draw their international strength from local strength. Beiersdorf has a single international marketing strategy that their affiliates implement in local responsibility. As the cosmed line makes the biggest part of the profit, the further development of this field might be decisive for the undertaking`s performance in the future. As the power brands (especially Nivea) will slowly come to its growth limit within the old markets in western Europe there will come up the need but also the opportunity to entry new markets.

3. Analysis of the environment

One of the key activities organisations such as the MNE need to undertake in the marketing process is to analyse the effectiveness of the attraction’s operation. This starts by looking at the internal factors which might influence success. Such analysis is often carried out by conducting a SWOT (strengths, weaknesses, opportunities, threats) analysis.

3.1 The internal environment of the firm

Following the Beiersdorf Group Interim Report (1 of January to 30 September 2003) the operating result (EBIT) was up year-on-year at €385 million. The operating return

on sales rose to 10.9% (previous year: 10.6%). Profit after tax hit a new record level of €240 million (6.8% of sales).

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Beiersdorf continued to build market share within their core business of branded consumer goods. Furthermore the company was able to improve the position and gain market share in important countries and markets.

From its whole capital expenditure of 112 million Euros (164 million Euros in the last year) Beiersdorf invested 77 million Euros in the cosmed division which are nearly 69 % (approximately 2 % more than in the previous year). Moreover they invested only 1 million Euros in financial assets (previous year 15 million Euros). This shows exactly the importance of the cosmed division in the companies point of few.

In December 2003 the company started a share buy back program to a total share amount up to 10 % of the company`s nominal share capital.

As the Chairman of Beiersdorf Rolf Kunisch said, the share buy back will help to stabilize the shareholder basis and thus to continue Beiersdorfs extremely successful growth model. It therefore forms the basis for a sustained increase of Beiersdorf’s enterprise value (Beiersdorf, 2004).

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The entry to new markets will cause high expenditures. Especially in the cosmetic market they will be confronted with strong competitors, therefore they will have to increase their spending for marketing up to the competitors` level to gain a market share profit. Furthermore the need to dispose a distribution network will cause extremely high costs.

As a result of the financial analysis it can be said that Beiersdorf is in a good position to transact the expenditures which are necessary. The financial situation can be clearly pointed out as a strength of the undertaking.

Beiersdorf owns with Nivea in its range, one of the leading body care brands worldwide. The comsmed devision could increase sales by 3.9 %. Furthermore they are high profitable. They have strong brands with a high innovation rate and are concentrated on the core competences.

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On one hand Beiersdorf possesses well-tried strategies, which means that they can bring the necessary marketing, distribution and technical know-how to the new market. Furthermore they have well-tried technologies on western standard. Financing is possible through cash-flow and a high quota of equity relieved the internal financing. There is a change of creating consumer trust in their products through transferring the positive image and goodwill of their power brands (like Nivea). Moreover they possess innovative products (Gmeinwieser, 2002).

On the other hand they need an effective system to control the management as they have not made any experiences with the Russian market yet. The prices of the products will be relatively high and there comes up the need to built a distribution system in Russia.

The Management of Beiersdorf has already cross-culture experiences with the east as they act already in the Ukraine which could be very helpful for entering the Russian market. As pointed out before the enterprise has a corporate aim system as a whole which they apply in every country. Furthermore the research and development is centralised and operates for every line and market. Problems could come up with getting through company decision in the new countries management. Another problem could be to maintain all the aims/targets which the board of the company laid down in the West. There would be another need to establish effective control systems to avoid corruption and to ensure the maintain of the quality standards abroad.

3.2 The external environment

The effective implementation of a successful F.M.S. depends on a profound understanding of the external or competitive environment. Generally spoken the objectives of industry analysis are to understand how industry structure drives competition, which determines the level of industry profitability and to assess industry attractiveness. Furthermore the analysis can enable to use evidence on changes in industry structure to forecast future profitability and help to identify opportunities to change industry structure to impose industry profitability (Hungenberg, 2001).

The industry environment relates to suppliers, competitors and customers and is composed of a set of forces that directly shape competition. The macro environment has an impact on the firm through its effect on the industry environment and affects all firms of an economy in a general fashion. While the industry environment can partly be shaped by firms the macro environment can hardly be influenced.

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