MINISTRY OF FINANCE

UNIVERSITY OF FINANCE AND MARKETING

------***------

POST HARVEST

INTERNATIONAL BUSINESS STRATEGY

TYPICAL THEORIES OF BUSINESS INTERNATIONAL

Leader: Võ Rạng Đông

Members: Phạm Phương Trang

Phạm Phương Anh

Đoàn Nguyễn Thảo Nguyên

Lecturer: Ph.D Tô Anh Thơ

HO CHI MINH CITY, MARCH 2025

 MINISTRY OF FINANCE

UNIVERSITY OF FINANCE AND MARKETING

------***------

POST HARVEST

INTERNATIONAL BUSINESS STRATEGY

EVALUATION BOARD

Completion
Full name ID Signature
rate (%)

1 Võ Rạng Đông 2221002469 100%

2 Phạm Phương Trang 2221000755 100%

3 Phạm Phương Anh 2221000370 100%

4 Đoàn Nguyễn Thảo Nguyên 2221002615 100%

Group 1 Class ID: 2421702076210

 TABLE OF CONTENTS

CHAPTER 1. RATIONALE BEHIND OPERATIONAL GLOBALIZTION ........................ 2

1.1 BASIC THEORIES RELATED TO OPERATIONAL GLOBALIZATION ....................... 2
1.1.1 Global Competency ............................................................................................................................. 7
1.1.2 Global Resources ................................................................................................................................. 8
1.1.3 Global Processes .................................................................................................................................. 8

1.2 BASIC FRAMEWORKS ........................................................................................................... 9

1.2.1 Dunning’s OLI Framework ............................................................................................................... 9
1.2.2 Porter’s Five Forces Framework ..................................................................................................... 13
1.2.3 Kogut’s Comparative and Competitive Advantage Framework .................................................. 15
1.2.4 Porter’s Configuration-Coordination Framework ........................................................................ 17
1.2.5 Prahalad and Doz’s Integration-Responsiveness Framework ...................................................... 21
1.2.6 Bartlett and Ghoshal’s Globalization-Localization Framework .................................................. 23

CHAPTER 2. ANALYSIS OF CASE STUDY OF L’OREAL ............................................. 25

2.1 CONTENTS OF CASE STUDY .............................................................................................. 25
2.1 ANALYZE THE CASE STUDY OF L’OREAL GROUP .................................................... 28
2.1.1 Use Porter’s five forces framework to analyze the industrial environment of L’Oreal.............. 28
2.2 Use Porter’s configuration-coordination framework to analyze L’Oreal. Which global strategy
(among the four strategies in this framework) is used by L’Oreal? ...................................................... 32
2.3 Use Kogut’s comparative-competitive advantage framework to analyze the value chain of
L’Oreal........................................................................................................................................................ 34
2.4 Use Bartlett and Ghoshal’s globalization-localization framework to analyze the L’Oreal group.35
 LIST OF FIGURES

Figure 1.1 OLI triad framework

Figure 1.2 OLI Framework for Strategic International Expansion Decisions

Figure 1.3 Porter’s five forces framework

Figure 1.4 Kogut’s international competition modes

Figure 1.5 Porter’s configuration-coordination framework.

Figure 1.6 Prahalad and Doz’s Integration-Responsiveness framework

Figure 1.7 Bartlett and Ghoshal’s Globalization-Localization Framework

Figure 2.1 Porter’s five forces framework

Figure 2.2 Porter’s configuration-coordination framework.

Figure 2.3 Porter’s configuration-coordination framework in L’Oreal

Figure 2.4 Kogut’s international competition modes in L’Oréal

Figure 2.5 The application of Bartlett and Ghoshal’s Globalization-Localization

Framework in L’Oréal and Unilever.
 LIST OF TABLES

Table 1.1 Basic theories for global strategic analyses and their influence on
operational globalization analysis

Table 2.1 The world’s five largest beauty manufacturers (ranked by 2011 sales volume)

Table 2.2 The acquisition of brands by L’Oreal group

 ACKNOWLEDGMENTS

We, Group 1, would like to extend our heartfelt gratitude to Dr. Tô Anh Thơ for
his exceptional guidance and expertise throughout the course on International Business
Strategy. His deep knowledge, insightful lectures, and unwavering support have
significantly enhanced our understanding of global business dynamics and strategic
frameworks. Dr. Thơ’s ability to bridge theoretical concepts with real-world
applications has not only enriched our academic learning but also inspired us to think
critically and strategically about the challenges and opportunities in international
business.

We are also deeply appreciative of the engaging and collaborative learning

environment he fostered, which encouraged active participation and meaningful
discussions among students. His dedication to teaching and his passion for the subject
have left a profound impact on our academic and professional growth. This paper would
not have been possible without his mentorship and the foundational knowledge we
gained from his course.

Once again, thank you, Dr. Tô Anh Thơ, for your outstanding teaching and for
equipping us with the tools to navigate the complexities of international business
strategy.
 CHAPTER 1. RATIONALE BEHIND OPERATIONAL GLOBALIZTION

1.1 BASIC THEORIES RELATED TO OPERATIONAL GLOBALIZATION

The decision for a firm to go global can be analyzed through various theoretical
lenses, each offering unique insights into the motivations and strategies behind
international expansion. These theories not only explain why firms globalize but also
provide a foundation for analyzing operational globalization and shaping global
operations strategies.

The Eclectic Theory (OLI Framework), developed by John Dunning, posits

that firms go global to achieve three key advantages: ownership, location, and
internalization. Ownership advantages refer to the firm’s unique assets, such as
technology, brand reputation, or managerial expertise, that give it a competitive edge.
Location advantages involve the benefits of operating in specific countries, such as
access to natural resources, low-cost labor, or large consumer markets. Internalization
advantages arise when firms choose to control their operations internally rather than
relying on external partners, reducing risks and maximizing profits. For example, a
technology firm like Apple leverages its ownership advantages (innovative products)
and location advantages (manufacturing in low-cost countries) while internalizing its
supply chain to maintain quality and efficiency.

The Transaction Cost Theory (TCT) focuses on minimizing transaction costs,

which include the costs of searching for partners, negotiating contracts, and enforcing
agreements. According to TCT, firms globalize to reduce these costs by internalizing
operations or choosing locations with favorable economic and regulatory environments.
For instance, a manufacturing firm might establish its own production facilities abroad
rather than outsourcing to avoid the risks and costs associated with third-party suppliers.

The Competitive Advantage of Nations (CAN) Theory, introduced by Michael

Porter, argues that firms globalize to build firm-specific competitive advantages by
leveraging the unique characteristics, cultures, and resources of different nations. This
theory emphasizes the role of national factors, such as skilled labor, infrastructure, and
industry clusters, in shaping a firm’s global strategy. For example, a German automotive

2
company like BMW might globalize to access advanced engineering expertise in
Germany while also tapping into growing markets in Asia.

The Resource-Based View (RBV) emphasizes the importance of firm-specific

resources that are valuable, rare, inimitable, and non-substitutable (VRIN). According
to RBV, firms go global to exploit and enhance these resources, generating rents and
sustaining competitive advantage. For instance, a luxury brand like Louis Vuitton
globalizes to leverage its unique brand identity and craftsmanship, which are difficult
for competitors to replicate.

The Competency Theory builds on RBV by focusing on the development of

core competencies as a source of sustained competitive advantage. Firms globalize to
achieve and enhance these competencies, such as technological innovation, operational
efficiency, or customer service excellence. For example, a pharmaceutical company
might expand globally to access diverse talent pools and research facilities, enhancing
its R&D capabilities.

These theories collectively provide a comprehensive framework for

understanding why firms globalize. They highlight the importance of ownership
advantages, transaction cost minimization, national competitive advantages, firm-
specific resources, and core competencies in shaping global strategies. By integrating
these perspectives, firms can develop more effective global operations strategies that
align with their unique strengths and market opportunities. For instance, a firm might
use the Eclectic Theory to identify optimal locations for expansion, TCT to minimize
operational risks, CAN to leverage national advantages, RBV to exploit unique
resources, and Competency Theory to build long-term capabilities. Together, these
theories offer a robust foundation for analyzing and implementing global operations
strategies in a competitive and dynamic international environment.

3
 Table 1.1 Basic theories for global strategic analyses and their influence
on operational globalization analysis

Theories of
Application or
global or Representative
Main viewpoints influence at the
international works
operational level
strategies

Dunning (1977, Ownership, location, and Location strategy,

Eclectic 1988) internalization advantages global manufacturing
theory influence a firm’s
globalization

Anderson and Transaction cost Vertical integration,

Gatignon minimization is the outsourcing
(1986), decision criteria in decisions, global
Transaction
Erramilli and classical TCT. Modified manufacturing
Cost Theory
Rao (1993), TCT considers non- networks, global
(TCT)
Klein et al. transaction cost benefits supply chain
(1990) management, global
service

Porter (1990) A firm can utilize the Competency-based

characteristics and global operations
Competitive
indigenous resources of strategy, global value
Advantage of
different nations as a chain
Nations
source to achieve
(CAN)
competitive advantage in
the global market

4
 Johanson and Knowledge development Internationalization
Vahlne (1977, and learning are process, technology
2009), Kogut fundamental to a firm’s management,
and Zander internationalization. information
Learning (1993) "Firms are social management,
theories communities that serve as production
(experiential efficient mechanisms for
and the creation and
organizational transformation of
learning) knowledge into
economically rewarded
products and services"
(Kogut and Zander 1993,
p. 623)

Penrose (1959), Competitive advantage Resource-based

Prahalad and relies on the firm’s global operations
Resource-
Bettis (1986) idiosyncratic and VRIO strategy
Based View
resources rather than the
(RBV) theory
economic profits from
product market positioning

5
 Sanchez et al. A core competency with Competency-based
(1996), Prahalad potential access to a wide global operations
and Hamel variety of markets, strategy,
(1990), Hamel contribution to the improvement and
and Prahalad perceived customer innovation
(1994) benefits, and difficulty to
Core
imitate can lead to
competency
sustainable competitive
theory
advantage. Instead of
competing in existing
industries, a firm
competing for the future
targets opportunity share
rather than market share

Interorganizat Powell (1990), Firms can engage in Global

ional network Hamel (1991), interorganizational manufacturing
theory Nohria and relationships to acquire networks, global
Eccles (1992), knowledge and skills, supply chain
Powell et al. access technologies, enter networks, global
(1996) new markets, benefit from revenue management
economies of scale, and (e.g., airline
share risks to compete alliances),
effectively cooperative research

6
Strategic Hunt (1972), Within a strategic group, Benchmarking,
groups theory, Thomas and firms with similar asset performance
based on Venkatraman configurations will set the evaluation,
industry (1988) same strategic objectives operational
organization to achieve similar competency
performances

Cognitive Porac et al. In an industry, managers Production process,

communities (1989, 1995), can construct competitive categorization
theory, based Spender (1989) groups from shared process, product
on psychology cognition type, production
technology

Real options Kogut and Study operating flexibility Global competencies

theory Kulatilaka and global manufacturing such as flexibility,
(1994) by the option value of a global resources such
multinational network as manufacturing
networks, risk
management

Source: Gong, Global Operations Strategy

1.1.1 Global Competency

Global competency is a critical factor in shaping a firm's ability to compete
effectively in international markets. Theories such as the Competitive Advantage of
Nations (CAN), core competency theory, and real options theory provide valuable
frameworks for developing competency-based global operations strategies. Core
competency theory, in particular, offers direct guidelines for firms aiming to leverage
their unique strengths to achieve sustainable competitive advantage. According to
Hamel and Prahalad's (1994) "competing for the future" theory, firms can gain a
foothold in emerging markets by focusing on continuous improvement and
technological innovation, thereby capturing opportunity share rather than merely
competing for existing market share. Real options theory complements this approach

7
by emphasizing the importance of flexibility in global operations. By treating
investments as options, firms can adapt to changing market conditions and seize new
opportunities as they arise, thereby enhancing their global competency.

1.1.2 Global Resources

Resource-based global operations strategies are influenced by a variety of
theories, including the eclectic theory, Resource-Based View (RBV), CAN, and real
options theory. The eclectic theory, which integrates insights from international trade
theory, RBV, and Transaction Cost Theory (TCT), provides a multi-theoretical
approach to resource allocation decisions, particularly in terms of location strategy.
RBV offers direct guidance by emphasizing the importance of leveraging a firm's
unique, valuable, rare, inimitable, and organized (VRIO) resources to achieve
competitive advantage. CAN theory further underscores the significance of utilizing
indigenous resources from different nations to enhance a firm's competitive positioning.
Real options theory adds another layer of strategic insight by enabling firms to manage
global manufacturing networks more effectively, ensuring that they can respond to
uncertainties and capitalize on new opportunities in a dynamic global environment.

1.1.3 Global Processes

Process-based global operations strategies are shaped by a range of theories,

including CAN, TCT, core competency theory, network theory, real options theory, and
learning theories. CAN theory suggests that firms can optimize their global value chains
by leveraging the resource advantages of different nations, thereby achieving a
competitive edge in the global market. Strategic groups theory provides a foundation
for benchmarking and evaluating operational performance within an industry, helping
firms to identify best practices and areas for improvement. Cognitive communities
theory highlights the role of shared cognition among managers in shaping operational
elements such as production processes, product types, and production technology.

Interorganizational network theory emphasizes the importance of forming

strategic alliances, joint ventures, and cooperative research agreements to design global
manufacturing networks, build robust global supply chains, and enhance global revenue

8
management. TCT examines key dimensions of transactions, such as asset specificity,
frequency of exchange, and uncertainty, to inform decisions on vertical integration,
outsourcing, and global supply chain management, with the goal of minimizing
transaction costs. Real options theory further enhances global risk management and
supply chain management by providing a framework for making flexible, adaptive
decisions. Finally, learning theories play a crucial role in global technology and
information management, enabling firms to continuously improve their processes and
stay ahead of the competition.

In conclusion, the integration of these theories provides a comprehensive

framework for developing effective global operations strategies. By focusing on
competency, resources, and processes, firms can navigate the complexities of the global
market and achieve sustained competitive advantage.

1.2 BASIC FRAMEWORKS

1.2.1 Dunning’s OLI Framework

Dunning (1977) provides a fruitful way to study multinational enterprises
(MNEs) and this work has inspired many applications in global operations such as
global sourcing and global service. Therefore, we present Dunning’s OLI framework as
a foundation of global operations strategy. OLI stands for Ownership, Location, and
Internalization, the three advantages that influence a firm’s decision to become an
MNE.

The three advantages are:

• Ownership advantages refer to the specific advantages (e.g., products, designs,

patents, trade secrets, and resources) used to overcome operational costs in a foreign
country. These are used to answer the question of why some firms go abroad but not
others, and help MNE successfully compete with local firms.

Example: Apple is one of the most valuable brands in the world, renowned for its
innovation, quality, and premium design. Apple holds proprietary designs, and
advanced technologies, such as the iOS operating system. Ownership advantages help

9
iPhone stand out and compete strongly in the global market through its strong brand,
unique technology, premium design, and ecosystem.

• Location advantages refer to low-cost labor and raw materials, lower taxes and
other tariffs, a well-trained labor force,....of the host country . These make a nation
attractive for a MNE added-value business. The more immovable the Location
advantages are, the more attractive the host country is and the more likely a MNE will
choose to invest in it.

Example: Nike chooses to produce in countries such as China and Vietnam, where labor
costs are low and tax conditions are favorable. Producing in these countries helps Nike
reduce production costs, increase profits, and easily access global markets.

• Internalization advantages influence a firm’s decision to operate in a foreign

country. They relate to the trade-off between the benefits of a wholly owned subsidiary
and the advantages of other entry modes such as exports, licensing, or joint ventures. A
MNE will hope to internalize its production instead of outsourcing through a contractual
agreement. Besides, the internalization of assets (especially intangible ones and those
that are not easy to transfer) ensures intellectual property rights by avoiding
unauthorized reproduction.

Example: Apple develops its own operating systems (iOS and macOS) instead of relying
on third-party systems like Android or Windows. This ensures a unique user experience
and enhanced security.

10
 Figure 1.1 OLI triad framework

Source: Gong, Global Operations Strategy

Expanding business operations into international markets requires companies to

choose an appropriate strategy to maximize benefits and minimize risks. Based on the
decision-making model, three key factors influence the choice of market entry strategy:
ownership advantage, location advantage, and internalization advantage.

Figure 1.2 OLI Framework for Strategic International Expansion Decisions

11
 Source: Gong, Global Operations Strategy

First, a company must determine whether it has a competitive advantage over

foreign competitors. This advantage may include a strong brand, advanced technology,
proprietary production know-how, or an extensive distribution network. If the company
lacks ownership advantages, it should focus on strengthening its domestic market
position rather than expanding internationally. However, if the company possesses
ownership advantages, it can consider entering foreign markets and proceed to analyze
other factors.

The next factor is location advantage, which refers to whether there are
significant benefits to establishing operations in another country. These benefits could
include lower labor costs, abundant raw materials, tax incentives, or high consumer
demand in the target market. If there is no location advantage, exporting goods from the
domestic market is a more suitable option than direct investment. On the other hand, if
the foreign market offers attractive advantages, the company may consider expanding
its operations there.

Finally, the company must assess whether internalizing production and

maintaining full control over business operations provides greater benefits than
licensing or partnering with foreign firms. If internalization does not offer significant
advantages, the company can license (License) its technology, brand, or business model
to foreign firms, reducing costs and risks. However, if internalization is beneficial, the
company should pursue Foreign Direct Investment (FDI) to retain full control over its
operations and maximize its advantages in the foreign market.

In conclusion, choosing an international market entry strategy depends on three

key factors: ownership advantage, location advantage, and internalization advantage. If
a company possesses all three, FDI is the optimal choice. If it has only ownership and
location advantages, exporting is a viable option. In cases where internalization does
not provide benefits, licensing is a more practical approach. If the company lacks all
three advantages, it should focus on the domestic market. By adopting this strategic

12
approach, companies can optimize resources, minimize risks, and enhance their
competitiveness in the global market.

1.2.2 Porter’s Five Forces Framework

Based on industrial organization economics, Porter (1979) proposes a five forces
framework for industry analysis and business strategy and develops five forces that
determine the competitive intensity and attractiveness of an industry. The attractiveness
of an industry refers to overall industry profitability. If the combination of five forces
acts to decrease overall profitability, the industry is “unattractive”. These five
competitive forces are:

• Threat of new entrants

This force examines how easy or difficult it is for new competitors to enter the
industry. Key factors:

- Economics of scale

- Brand loyalty

- Access to distribution channels

- Regulatory and legal barriers

- Capital requirement

• Threat of substitute products and services

This force analyzes the threat posed by alternative products or services that fulfill
the same need. Key factors:

- Availability of substitutes

- Switching costs for customers

- Price and performance of substitutes

• Intense rivalry among existing players

13
 This force evaluates the intensity of competition among existing competitors in
the industry. Key factors:

- Number of competitions

- Industry growth rate

- Product differentiation

- Exit barriers

- Fixed costs vs variable cost

• Bargaining power of suppliers

This force evaluates the power suppliers have to drive up prices or reduce the
quality of goods and services. Key factors:

- Number of suppliers

- Availability of substitute inputs

- Importance of suppliers to the buyer

- Switching costs for buyers

• Bargaining power of customers

This force assesses the power customers have to drive prices down or demand
higher quality and better service. Key factors:

- Number of buyers

- Availability of substitute products

- Importance of each buyer to the business

- Switching costs for buyers

14
 Porter’s five forces framework argues that to compete for profits, a firm should
consider not only established industry rivals, but also four competitive forces:
“customers”, “suppliers”, “potential entrants”, and “substitute products and services”
(see Fig. 3.2). The extended industry rivalry resulting from five forces defines an
industry’s structure and shapes the competitive strategy.

Figure 1.3 Porter’s five forces framework

Source: Gong, Global Operations Strategy

1.2.3 Kogut’s Comparative and Competitive Advantage Framework

Comparative Advantage and Competitive Advantage: Differences and

Interactions

● Comparative Advantage: This is a classical concept introduced by David

Ricardo, referring to a nation's ability to produce goods or services at a lower
opportunity cost compared to other nations. Comparative advantage is often
based on factors such as natural resources, labor, technology, and infrastructure.

● Competitive Advantage: This concept, developed by Michael Porter, focuses

on a firm's ability to create superior value compared to its competitors.
Competitive advantage can stem from proprietary technology, strong branding,
or efficient management.

15
Kogut (1985) emphasized that in the context of globalization, the comparative
advantage of nations and the competitive advantage of firms are not independent but
closely interrelated. He introduced the concept of "comparative advantage-based
competitive advantage," where firms leverage the comparative advantages of nations to
build and strengthen their own competitive advantages.

Kogut’s Three Modes of Global Competition

Figure 1.4 Kogut’s international competition modes

Source: Gong, Global Operations Strategy

Kogut (1985) proposed three modes of global competition, each reflecting a

different way firms can leverage comparative and competitive advantages:

● Competition Mode I: This mode focuses on the comparative advantages among

nations. Firms choose production locations based on factors such as labor costs,
tax rates, and macroeconomic conditions of the country. For example, a garment
company might choose to produce in Vietnam due to low labor costs and tax
incentives.

● Competition Mode II: This mode is based on differences in the chain of

comparative advantages among firms. Firms compete by optimizing activities
within their value chain, from research and development (R&D) to production
and distribution. For instance, a technology company like Apple might leverage
the comparative advantages of different countries to produce various
components of its products, thereby creating a global competitive advantage.

16
 ● Competition Mode III: This mode relates to the interplay between competitive
and comparative advantages along a value-added chain. Firms leverage both the
comparative advantages of nations and their own competitive advantages to
optimize the efficiency of the entire value chain. For example, an automotive
company like Toyota might produce components in countries with a comparative
advantage in technology and assemble them in countries with lower labor costs,
thereby creating competitively priced, high-quality products.

Application in Global Value Chains (GVCs)

Kogut’s framework is particularly useful in analyzing Global Value Chains

(GVCs), where production and service activities are distributed across multiple
countries. In GVCs, firms can leverage the comparative advantages of individual
countries to optimize production efficiency and reduce costs. At the same time, they can
build competitive advantages by controlling key stages in the value chain, such as
research and development, product design, and distribution.

For example, in the electronics industry, companies like Samsung and Intel often
locate their R&D facilities in countries with high-quality human resources, such as the
United States and Japan, while placing production facilities in countries with lower
labor costs, such as China and Vietnam. This combination allows them to leverage both
comparative and competitive advantages to maintain their leading positions in the
industry.

1.2.4 Porter’s Configuration-Coordination Framework

Porter (1986) states that to deal effectively with global competition, a firm must
choose a value chain configuration, determine how and where activities are performed, and
consider the coordination problem to decide if activities should be shared among operational
units. The value chain is a system of discrete activities conducted to do business. Its activities
include primary activities such as inbound logistics, operations, outbound logistics,
marketing and sales, service, and support activities such as firm infrastructure, human
resource management, technology development, and procurement.

17
 Porter (1986) develops a framework to address how firms can gain competitive
advantage in their value chains through two dimensions: configuration and coordination.
Global configuration refers to where and in how many places the firm’s value chain activities
are located worldwide. Global coordination refers to how and to what extent similar value
chain activities are coordinated with each other across countries to maximize the firm’s
competitive edge.

Figure 1.5 Porter’s configuration-coordination framework.

Source: Gong, Global Operations Strategy

Porter (1986) introduced a strategic framework to help firms navigate global

competition by optimizing the configuration and coordination of their value chain
activities. This framework emphasizes the importance of deciding where and how to
perform value chain activities globally while ensuring effective coordination to
maximize competitive advantage. Below is a comprehensive analysis and expansion of
this framework, presented in a cohesive and continuous format suitable for a report.

1.2.4.1 Global Configuration and Coordination: Core Concepts

Porter’s framework revolves around two key dimensions: global configuration

and global coordination. Global configuration refers to the decision of where and in
how many locations a firm’s value chain activities are performed. Firms can choose
between a concentrated configuration, where activities are centralized in one location,
or a dispersed configuration, where activities are spread across multiple locations

18
globally. For example, a technology company might centralize production in China to
leverage economies of scale, while an automotive company might disperse production
across several countries to reduce transportation costs and meet local demand.

Global coordination, on the other hand, refers to the extent to which similar value
chain activities are aligned across countries. Coordination can range from low, where
activities are performed independently in each country, to high, where activities are
tightly integrated across borders. For instance, a food company might produce different
products in various countries with minimal coordination, while a technology firm might
share R&D data globally to accelerate innovation and maintain consistent quality
standards.

1.2.4.2 Four Global Strategies Based on Configuration and Coordination

Porter’s framework identifies four primary global strategies based on the

interplay between configuration and coordination:

• Pure Global Strategy: This strategy involves concentrating all value chain
activities in one country and serving global markets from this base. It is ideal for
firms seeking to leverage economies of scale and centralized control. For
example, Intel centralizes chip production in a few factories and exports globally
to maintain cost efficiency and quality consistency.
• Multidomestic Strategy: In this strategy, firms disperse their value chain
activities across multiple countries with low coordination. This approach allows
firms to tailor their products and services to local markets. For instance, Nestlé
produces region-specific food products to cater to local tastes and preferences.
• Export Strategy: This strategy combines a concentrated configuration with high
coordination. Firms centralize production in one country but ensure high levels
of coordination to maintain consistent quality and standards globally. Toyota, for
example, manufactures cars in Japan and exports them worldwide while
maintaining strict quality control.
• Transnational Strategy: This strategy combines a dispersed configuration with
high coordination, allowing firms to leverage both local and global advantages.

19
 Companies like Unilever produce locally to meet regional demands while
sharing technology and processes globally to maintain efficiency and innovation.

1.2.4.3 Applications in Global Operations Strategy

Porter’s framework is highly applicable in various areas of global operations

strategy, including production, service, and technology development:

● Global Production: Firms must decide where to locate production facilities for
components and finished products. Configuration issues include choosing
between centralized or dispersed production, while coordination issues involve
networking international plants, transferring process technology, and sharing
production know-how. For example, automotive companies like Ford and
Toyota disperse production facilities globally but coordinate closely to ensure
quality and efficiency.

● Global Service: In the service sector, configuration decisions involve

determining the location of service organizations, while coordination focuses on
maintaining consistent service standards and procedures worldwide. For
instance, global hotel chains like Marriott ensure that service standards are
uniform across all locations while adapting to local cultural preferences.

● Global Technology Development: Firms must decide the number and location
of R&D centers (configuration) and how to coordinate innovation efforts across
these centers (coordination). For example, technology companies like Microsoft
and Samsung establish R&D centers in multiple countries to tap into local talent
pools while ensuring seamless knowledge sharing and collaboration across
borders.

1.2.4.4 Strategic Implications and Benefits

Porter’s Configuration-Coordination Framework offers several strategic

implications for firms operating in a globalized economy:

20
 ● Cost Efficiency: By centralizing production or R&D, firms can achieve
economies of scale and reduce costs. Conversely, dispersing activities can lower
transportation and labor costs while meeting local demand more effectively.

● Flexibility and Adaptability: A dispersed configuration with low coordination

allows firms to adapt quickly to local market conditions and consumer
preferences. This is particularly important in industries like food and beverages,
where cultural differences play a significant role.

● Innovation and Knowledge Sharing: High coordination enables firms to share

knowledge, technology, and best practices across borders, fostering innovation
and maintaining competitive advantage. For example, global pharmaceutical
companies like Pfizer coordinate R&D efforts across multiple countries to
accelerate drug development.

● Risk Management: Dispersing value chain activities can mitigate risks

associated with geopolitical instability, natural disasters, or supply chain
disruptions. High coordination ensures that firms can respond swiftly to such
challenges.

1.2.5 Prahalad and Doz’s Integration-Responsiveness Framework

The Integration–Responsiveness (IR) framework of Prahalad and Doz (1987) is
an important tool for examining operations strategy in a global context. It has been used
extensively in international business (IB) to represent the environmental pressures
facing multinational corporations (MNCs) as they expand worldwide. In the IR
framework, MNCs are faced with two types of pressures: the global integration (GI)
and the local responsiveness (LR).

• The GI pressures - such as the need to reduce cost through large-scale

investments, and the presence of global competitors in the firm’s target markets
- promote firms to conduct their activities on a global basis.

21
 • In contrast, the LR pressures - such as diverse government regulations, and
differences in customer demand and preferences across countries - require firms
to manage their activities on a country-by-country basis.

Figure 1.6 Prahalad and Doz’s Integration-Responsiveness framework

Source: Gong, Global Operations Strategy

Prahalad and Doz propose the following three strategies:

• Global integration: Brands that prioritise global integration have little to no

differences between countries. If the GI pressure is high, this strategy will be
adopted to highlight global coordination. Roth and Morrison (1990) point out
that this strategy is characterized by intense competition with both domestic and
global competitors.
• Local responsiveness: Local responsiveness refers to how companies serve a
specific market’s demand - essentially, how much do they change from market
to market? In this strategy, local responsiveness will be emphasized if industry
pressures are mainly perceived at the domestic level. Roth and Morrison (1990)
characterize this strategy by a high level of customer service needed and variable
factor costs across locations.
• Multifocal: When both local responsiveness and global integration are perceived
as important, a multifocal strategy will be used to respond to both dimensions.

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 While this strategy is characterized by intense competition and the presence of
global competitors, little standardization of products.

1.2.6 Bartlett and Ghoshal’s Globalization-Localization Framework

Based on Prahalad and Doz’s Integration-Responsiveness framework, Bartlett
and Ghoshal (1986) further explain the Globalization-Localization framework. This
framework analyzes in depth a firm’s strategic position in the global environment, and
has high practical values for managing different businesses, functions and markets.

There are also 2 maintenance pressures as presented below: pressure of local

responsiveness and pressure of global integration. The vertical axis represents the
globalization level. A higher globalization level means a higher level of global
integration and a higher level of central coordination. The horizontal axis represents the
level of localization and national differentiation.

Figure 1.7 Bartlett and Ghoshal’s Globalization-Localization Framework

Source: Gong, Global Operations Strategy

The left-hand diagram labeled “business” demonstrates the strategic positions of

different businesses in a firm. For example, business 3 needs more global integration
than business 4 and higher localization than businesses 1, 2, and 4.

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 The middle diagram labeled “function” demonstrates the strategic positions of
the different functions of business 3. For example, the “marketing” function needs to
consider localization and national differentiation more than research.

The right- hand diagram labeled “geography” demonstrates the strategic

positions of different countries for marketing functions in this firm. For example,
countries 1 and 2 are critical markets for the firm, so its marketing function will consider
higher localization and higher global coordination.

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 CHAPTER 2. ANALYSIS OF CASE STUDY OF L’OREAL

2.1 CONTENTS OF CASE STUDY

L’Oreal Group, headquartered in France, is the world’s largest cosmetics and
beauty Company, with 68,900 employees managing 27 global brands across 130
countries in 2012. L’Oreal consists of three major groups, namely Cosmetics, The Body
Shop, and the dermatology branch, as well as a joint venture Galderma Laboratories
with Nestle. The Cosmetics group contributes over 90 % of its revenue.

• Industry

Competition is fierce in the cosmetics and beauty industry. In particular, the bargaining
power of global customers is strong in the consumer products division. In the global
beauty market, new trends such as the aging population in developed countries, aspiring
consumers in emerging markets, growing demand for male beauty products, and
increasing ethnic groups bring about serious threats of demand fluctuation and new
product substitution. Thus, the group invested €721 million into cosmetic and
dermatological research and filed 613 patents in 2011 to achieve product innovation and
to sell the “science of beauty” worldwide.

L’Oreal’s main rivals are P&G, Unilever, Estee Lauder, and Shiseido, all of which have
strong financial, operational, and marketing capacities, particularly in their home
countries. L’Oreal meets higher competition pressure from P&G and Estee Lauder in
the US, from Unilever in Europe, and from Shiseido in Asia. In the hair care category,
the biggest revenue generator of L’Oreal, its main rival is P&G. In the consumer
division, its rivals are P&G and Unilever. In the luxury division, it competes with
LVMH and Estee Lauder.

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 Table 2.1 L’Oreal divisions and brands in 2012

Source: Gong, Global Operations Strategy

• Globalization

While internal development is one way for globalization, acquisition has also played an
important role in the globalization of L’Oreal (see “Acquisition/Own brand” column in
Table 2.1. Acquisition is an approach to obtaining access to the local markets in the US
and Asia. For example, the acquisition of Maybelline New York helped L’Oreal
respond to local customers in the US, while its acquisition of Yue-Sai helped it
understand local demand in Asia. After acquiring Chinese skincare brand Mininurse in
2003, L’Oreal made the following comments:

- This acquisition is an outstanding opportunity to speed up our growth in the Chinese

market. It is a major step forward in L’Oreal development in a market which is

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 strategically important for the group (Lindsay Owen-Jones, CEO, L’Oreal, 2003, see
loreal.com).
- The globalization level of operations is high. Its manufacturing is globalized with 41
factories around the world and 5.8 billion units manufactured in 2011. Its R&D is
globalized with 3,676 employees of 60 different nationalities working in 30
disciplines. The group made 100 active cooperation agreements with leading
academic and research institutions.
• Localization

L’Oreal develops global brands in four divisions: luxury products, consumer products,
professional products, and active cosmetics (see Table 2.1) and has an independent unit
The Body Shop for the natural segment. Each division builds its own marketing team
for individual brands. Regional teams further reach local customers.

L’Oreal develops “geocosmetics” to address the specific demand of local customers.

For example, it has established a research institute in Chicago and a research center in
Shanghai to understand local customers. The L’Oreal Shanghai center has developed
more than 300 products for Chinese consumers. To adapt global products to local
markets, L’Oreal has built 19 research centers in five regional hubs as well as 16
evaluation centers and 50 scientific and regulatory departments across the world. It
emphasizes the localization of manufacturing and its production policy is “local
manufacturing”, to set the number of units produced in each region proportional to their
contribution to turnover.

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2.2 ANALYZE THE CASE STUDY OF L’OREAL GROUP

2.1.1 Use Porter’s five forces framework to analyze the industrial environment of
L’Oreal.

Figure 2.1 Porter’s five forces framework

Source: Gong, Global Operations Strategy

✓ Threat of new entrants

The threat of new entrants in the cosmetics and beauty industry for Loreal is low.
Because new companies wanting to enter the market face very high barriers to entry in
terms of research and development, marketing and distribution, high requirements for
licensing procedures and testing processes to ensure health and production. Meanwhile,
L’Oreal has overcome the threat of new entrants thanks to:

● A large global manufacturing scale with 41 factories worldwide and 5.8 billion
products produced in 2011.

● Advanced technology and a globalized R&D operation with 3,676 employees

from 60 different nationalities working in 30 fields. The group has entered into
100 successful partnerships with leading research and academic institutions.

● L'Oréal's extensive distribution channels. Each division builds its own marketing
team for each brand. Regional teams further reach local customers.

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 ✓ Threat of substitute products and services

The American, European and Asian markets are always lucrative and easily
shaped by many new trends in the beauty industry so there are always substitute
products on the market. New trends such as the aging population in developed countries,
aspiring consumers in emerging markets, growing demand for male beauty products,
and increasing ethnic groups bring about serious threats of demand fluctuation and new
product substitution. The threat of substitute products is very high so L’Oreal’s
globalization is considered the best way to address the threat:

● Rapid response to emerging substitutes: The company hasinvested €721 million

into cosmetic and dermatological research and filed 613 patents in 2011 to
achieve product innovation and to sell the “science of beauty” worldwide.

● Leading industry trends: Through acquisitions and mergers in North America,

Europe, and Asia, L'Oréal gains access to cutting-edge technologies and can
potentially acquire potential substitute products themselves.

✓ Intense rivalry among existing players

L’Oreal’s main rivalries are P&G, Unilever, Estee Lauder and Shiseido, all of
whom have strong financial, operational and marketing capabilities, especially in their
home countries. L’Oreal faces higher competitive pressure from P&G and Estee Lauder
in the US, from Unilever in Europe and from Shiseido in Asia. In the hair care sector,
which generates the largest revenue for L’Oreal, its main competitor is P&G. In the
consumer sector, its competitors are P&G and Unilever. In the luxury segment, it
competes with LVMH and Estee Lauder.

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Table 2.1 The world’s five largest beauty manufacturers (ranked by 2011 sales volume)

Source: WWD Beauty Inc’s Top 100, August 10, 2012

To solve this problem, L’Oreal expands its market by acquiring with many
brands, for example, the acquisition of Maybelline New York (diversifying its product
range). This gives L’Oreal more options in implementing its strategy with its
competitors. Not only that, the acquisition of the brand also helps L'Oreal reduce
competitors in the cosmetics market.

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 Table 2.2 The acquisition of brands by L’Oreal group

Source: Gong, Global Operations Strategy

✓ Bargaining power of suppliers

L’Oreal has implemented a highly effective business model to prevent suppliers

from gaining too much power.

By maintaining a diverse global supply chain, including major suppliers like

Ingredion, Croda, BASF, and Solvay, as well as smaller local suppliers in each of its
operating countries, L’Oreal has successfully mitigated the bargaining power of its
suppliers.

✓ Bargaining power of customers:

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The bargaining power of global customers in the consumer products division including
L’Oreal, Garnier, CCBParis, MaybellineNewYork, Mininurse,… is strong. This can be
explained by the following reasons:

• High Availability of Substitutes: The consumer products market is often

saturated with numerous brands and products offering similar features and
benefits. This abundance of alternatives gives customers the leverage to switch
brands easily if they are not satisfied with the price or quality of a product.
• Price Sensitivity: Many consumer products are non-essential or have a high
degree of price sensitivity. Customers are often looking for the best deal and are
willing to compare prices across different brands and retailers, forcing
companies to compete on price and offer discounts or promotions.
• Global Competition: The consumer products industry is highly globalized, with
companies from different regions competing for market share. This global
competition often leads to lower prices and better deals for customers, as
companies strive to attract and retain them.

Faced to this case, L’Oreal Group has diversified the sales market through
acquisitions and mergers in international brands, not concentrating customers in a
certain location. This helps L'Oreal not be dominated by any customer group of a certain
market. So that, the bargaining power of global customers is controlled particularly.

2.2 Use Porter’s configuration-coordination framework to analyze L’Oreal.

Which global strategy (among the four strategies in this framework) is used by
L’Oreal?
Global configuration refers to where and in how many places the firm’s value
chain activities are located worldwide. Global coordination refers to how and to what
extent similar value chain activities are coordinated with each other across countries to
maximize the firm’s competitive edge.

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 Figure 2.2 Porter’s configuration-coordination framework.

Source: Gong, Global Operations Strategy

✓ Global configuration:

In terms of global configuration of L’Oreal is considered highly geographical dispersed

because of the followings:

● L’Oreal Group, headquartered in France, is the world’s largest cosmetics and

beauty Company. L’Oreal consists of three major groups, namely Cosmetics,
The Body Shop, and the dermatology branch.

● Its manufacturing is globalized with 41 factories around the world and 5.8 billion
units manufactured in 2011.

● Its R&D is globalized with 3,676 employees of 60 different nationalities working

in 30 disciplines.

● The group made 100 active cooperation agreements with leading academic and
research institutions.

✓ Global coordination:

The global coordination of L’Oreal is low because of the followings:

● Each division builds its own marketing team for individual brands. Regional
teams further reach local customers.

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 ● To adapt global products to local markets, L’Oreal has built 19 research centers
in five regional hubs as well as 16 evaluation centers and 50 scientific and
regulatory departments across the world.

● L’Oreal develops “geocosmetics” to address the specific demand of local

customers.

✓ Inconclusion: L’Oreal Group apply the Country-centered strategy.

Figure 2.3 Porter’s configuration-coordination framework in L’Oreal

2.3 Use Kogut’s comparative-competitive advantage framework to analyze the

value chain of L’Oreal.
✓ Comparative advantage:

● Acquisition is a way to access the local markets and take advantage of

comparative advantage in those markets. This acquisition is an outstanding
opportunity to speed up growth in international market. It is a major step forward
in L’Oreal development in a market which is strategically important for the
group.

● For example: L’Oreal has acquired brands of companies in the US and China.
This helps L’Oreal takes advantage of cheap labor in China, large market (US),
and the prestige of brands in that market.

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 ● In short, L’Oreal owns many competitive advantages thanks to its acquisitions
of other companies.

✓ Competitive advantage:

● L’Oreal ‘s competitive advantage is demonstrated when it has a strong position

in the market, especially when the group has abundant resources, invests heavily
in R&D, and owns many patents.

● To be more detail: L’Oreal invested €721 million into cosmetic and

dermatological research and filed 613 patents in 2011 to achieve product
innovation and to sell the “science of beauty” worldwide.

✓ In short: L’Oreal Group in the third Kogut’s international competition mode

when it owns comparative and competitive advantage at the same time.

Figure 2.4 Kogut’s international competition modes in L’Oréal

Source: Gong, Global Operations Strategy

2.4 Use Bartlett and Ghoshal’s globalization-localization framework to analyze.

Read Unilever’s case to assess the original application of this framework. These
two firms are competing in several common markets. What is the difference
between Unilever and L’Oreal in the globalization-localization framework?
✓ Evaluation of the Initial Application of the Localization-Globalization
Framework by Unilever

Unilever, a company that primarily employs a multidomestic strategy, has

historically focused on adapting its product policies and marketing strategies to align

35
with local markets. Each country’s subsidiary concentrates on tailoring products,
building brands, and managing distribution to meet local preferences. This approach
reflects Unilever’s emphasis on high localization and low globalization, allowing the
company to cater to the unique tastes and needs of consumers in different regions.

✓ Differences Between Unilever and L’Oréal in the Localization-

Globalization Framework

L’Oréal and Unilever are two of the world’s leading cosmetics companies. While
both operate in a global market, they adopt different approaches to globalization and
localization.

● Unilever: Unilever leans toward high localization and low globalization, as it

follows a multidomestic strategy. This means that Unilever prioritizes adapting
its products and marketing strategies to fit local markets, resulting in a
decentralized approach where subsidiaries have significant autonomy to meet
regional demands. For example, Unilever’s strategic focus on marketing tends
to be higher than its focus on R&D, as the company emphasizes building local
brands and tailoring products to regional preferences. Geographically, Unilever
concentrates on countries where local demand outweighs the need for global
standardization.

● L’Oréal: In contrast, L’Oréal strikes a balance between localization and

globalization. The company aims to achieve global efficiency while still
responding to local market needs. L’Oréal places a stronger emphasis on R&D
compared to marketing, as it focuses on innovation and developing globally
appealing products that can be slightly adapted for local markets.
Geographically, L’Oréal targets countries that require a mix of local
responsiveness and global integration, allowing the company to leverage both
local and global advantages.

● Strategic Functional Positioning

Both Unilever and L’Oréal demonstrate different strategic functional priorities:

36
 - Unilever: High priority in marketing, as the company focuses on building local
brands and tailoring products to regional preferences.
- L’Oréal: High priority in R&D, as the company emphasizes innovation and
developing globally competitive products..
● Geographic Strategic Positioning
- Unilever: Focuses on countries where local demand is prioritized over global
standardization. This reflects its multidomestic strategy, which emphasizes
adapting to local markets.
- L’Oréal: Targets countries that require a combination of local responsiveness
and global integration, allowing the company to balance efficiency and
adaptation.

Figure 2.5 The application of Bartlett and Ghoshal’s Globalization-Localization

Framework in L’Oréal and Unilever.

Conclusion

Unilever and L’Oréal exemplify two distinct approaches within the localization-
globalization framework. Unilever’s multidomestic strategy emphasizes high
localization and low globalization, allowing it to cater to regional preferences
effectively. In contrast, L’Oréal adopts a more balanced approach, leveraging both
global efficiency and local adaptation to maintain its competitive edge. These

37
differences highlight how companies can tailor their strategies to align with their unique
market positions and operational goals.

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 TÀI LIỆU THAM KHẢO

1. https://corporatefinanceinstitute.com/resources/management/eclectic-
paradigm/
2. Giáo trình Gong, Global Operations Strategy