AMORE PACIFIC - FROM LOCAL TO GLOBAL

Section 3 Group 33
As Leader of South Korean market for beauty products, Amore Pacific enjoys a huge market share in South Korea
by year 2005. It has been successfully defending its position in the South Korean market while simultaneously
expanding in France, USA and China. Amore dreams of being in the top 10 cosmetic companies of the world by
year 2015. To make this dream come true, Amore has to continue defending its turf and has to compete with
multinational corporations in foreign markets.
1. Defending Home Turf
To understand the options available to Amore in defending the home turf, it is essential to know how companies
can position themselves for emerging markets. This can be seen in the exhibit 1. For home markets the strategies
that AP can undertake are Defending or Dodging. As a defender Amore can focus on improve their products,
services and focus on providing a local touch. It can take advantage of the flexibility it has over the multinational
corporations which have to maintain a standardized product, practices or pricing. It further can learn and predict
the multinationals strategies beforehand be prepared for them. As a dodger, Amore will have to rethink business
model, focus on value chain. They can also enter into a joint venture or sell out in its entirety to a multinational.

From these two options available to Amore pacific, Amore took the option of Defending their turf.
To achieve this strategy, Amore indulged in cost reduction programs, invested heavily in R&D, realigned their
distribution, and upgraded their infrastructure. To understand each aspect of their strategic plan we study each
aspect separately:
Operations
Multinationals such as L’Oréal had to import all its beauty products to South Korea and the tariff rate for
cosmeceuticals in Korea was 8%. This was a big stumbling block and a huge cost for the big multinationals.
However, to avoid this Amore had limited imports and mainly manufactured all its products in South Korea.
Amore leveraged its first mover advantage and intensive knowledge of local supplier market to consolidate
important suppliers. It did not stop there, Amore streamlined operations by digitizing important processes such as
purchasing, quality management and even outsourced IT to IBM. This resulted in an annual savings of 2% from
2001-2004.Due to the extensive knowledge of its customer, Amore could even offer beauty counselling, a distinct
and inimitable activity.

New Products
Long before South Korea opened had its markets to global companies, Amore had invested great amount in
research on herbal cosmetics, and it took them 20 years to perfect their products. No company could replicate
Amore’s know-how and knowledge of the Korean traditional medicines. The years of research and development
meant that Amore now enjoyed lower production costs. Even after multinationals came in to the picture, Amore
had further increased the R&D spending to 3% of sales. These multinationals were several years behind both in
local knowledge and know-how and additionally had several restrictions in form of thousands of patents.

Marketing
After years of operating in Korea, Amore had perfected marketing to the South Korean consumers. Unlike
multinational companies which sold in standardized packing, Amore packaged their products in traditional Korean
skirts targeting South Korean women aged above 35, consistent with Korean traditional practices. This was the
local touch that multinationals could not replicate due their low flexibility of business strategy. They even played
on the psychology by leveraging Korean philosophy to structure their marketing pitch. The membership club of
brands too had programs that promoted Korean arts and culture. Amore essentially targeted the nationalist
emotion which the multinational couldn’t replicate.

Distribution
Another aspect which the multinationals couldn’t replicate was the long-term relations that Amore had with the
many distributers. Post Asian financial crisis when multinationals started adopting door to door sales, it found
Amore had a much larger pool of saleswomen and years more experience in it. During the time L’Oréal was trying
to come out of departmental store channel Amore opened its own speciality stores. This essentially differentiated
Amore products from competitors and helped brand to gain an aura of exclusivity.
2. Becoming a Global Player

After successfully defending their home base of South Korea, Amore dreamed of being a top 10 cosmetic brand in
the world and when Amore was looking to expand in international markets, the markets that interested Amore
were France, China and USA. This made business sense since these three markets accounted for 81% of the
worlds cosmetic sales. But would Amore need to a use a different strategy for penetrating the Chinese market
and the Western markets. The answer is Yes. This is because Amore needs to individually analyse the three
markets first and after analysing each market, Amore needs to decide whether its capabilities it gained in the
Korean market could be extended into a newer market or it would need to compete with the multinationals in a
niche segment. To understand this, we analyse each market and see if Amore has competence that can
transferred.

China Strategy- Extender

The skin care needs of an average Chinese consumer are similar to the skin care needs of the South Korean
consumer. South Korean and China further shared the same Confucian tradition, herbal medicines systems
and even colonial ties. From this it can be clearly seen that Amore does have some transferrable assets
that can be extended in the Chinese market.

What really helped Amore was the interest of Chinese consumer in South Korean culture, movies, tv soaps-
a South Korean wave of influence flowing through China called “Hallyu”. Tourism to South Korea from
China increased dramatically and many Chinese now wanted to even look and be like their Korean idols.
Amore could take advantage leverage this by associating all its products with Korean celebrities.

Finally, Amore itself had good knowledge about the Chinese market due its close proximity. It knew that
North East China was the place which shared the most similarities with the Korean culture and had harsher
climate compared to southern China which was already being served by multinationals. Amore cleverly
used an underserved region to help penetrate the market and also at the same use it as a testing ground to
improve its knowledge of the Chinese market before expanding all over China.

In conclusion Amore knew that China was a market similar to that of the home base of South Korea and
extended their core competencies to China to achieve success.

USA & France- Contender

To become a top 10 cosmetic company in the world, the next destinations to expand were France and USA.
However, one basic difference between China and USA, France was the Knowledge of consumers. While
China and Korea shared a common link of traditional medicines, history, culture and skin care needs.
France and USA were completely different. In Asia, women used 20 skin care products a day, in USA and
France women used 7 skin products a day. When it came to skin care people tended to value skin care
products from strong big brands. However, Amore did not have a brand presence in USA and France. These
characteristics show that Amore’s assets which were so useful in China would not be transferrable to the
western world.

In China, due to Hallyu, Amore just need to leverage its core competencies developed in its home base.
However, in USA and France, it found that association with Korea be a negative because people were
reluctant to buy products from a newly industrialized country. Therefore, they needed to market
themselves as “made in France” and as “Cult favourite in Asia” in France and USA respectively. This meant
they need to completely change their strategy and positioning to contend in these countries.

Finally, Amore had lesser knowledge of USA and France compared to China. They had to depend on
Catherine Dauphine to help improve sales in Europe and in USA they needed to target the niche segment
of Asian Beauty care experience to enter the market. In China, as the visibility of the Amore brand was
highly visible it was Amore found it better to extend. But in cases of the western world where people care
more about the skin care brand and are loyal to the first mover, Amore needs to shed some value
components and focus on finding a defensible niche that helps it contend with multinationals

In conclusion, from analysing all the markets it is clear that a “one glove fits all” strategy would fail. Though
being an Extender is the correct strategy in China, USA and France are another ball game and would
require Amore to Contend by getting smaller first before getting larger.
APPENDIX
EXHIBIT 1

Source: Competing with Giants (1999) Niraj Dawar and Tony Frost