BUSINESS STRATEGY ASSIGNMENT

Strategic Audit

Syndicate 2

Members of Syndicate :
Tamadara Hilman (29112042)
Adithya Nugraha(29112149)
Yulianita Rahayu (29112060)
Aditia Sovia Pramudita (29112061)
Ratu Sonia Gardenia (29112065)

SCHOOL OF BUSINESS AND MANAGEMENT

BANDUNG INSTITUTE OF TECHNOLOGY
2013
I. Current Situation
A. Current performance
Held share more than 30% of the Korean market cosmetics
It sell fell by 5% from 2003 to 2004 and its operating income by 7%- mostly because of
the contraction and continued restructuring of the Korean market.
International sales crossed nearly $100 million in 2004, but continued to be unprofitable.
B. Strategic Posture
1. Mission
Bring old tradition of Asian botanicals to be the most high-quality beauty and skincare
product in the world and become a world class company who provide the best high-
quality product.
2. Objective
Here are the objective of the companys strategy that we can conclude from the case :
Objective of marketing : to offer high-quality beauty product to customers using
service oriented personnel and strong advertising and promotion campaign.
Objective of operation : increase efficiency
Objective of R&D : developing and invented high-quality product for customers which
have competitive advantage in the market.
Objective of human resource : recruiting or hiring experts to make improvement for
growth of the company

3. Strategies
Providing beauty high-quality beauty and skincare product to all segmentation
Providing high quality service to customers
Aggressive market expansion to global market, from the latest information in the Amore
Website, the Amore Pacific brand will continue to advanced overseas through country-
specific strategy, especialli in Asia they will raise their image brand line such as
Sulwhasoo and AmorePacific. Here is the overseas expansion history until now.

Overseas expansion history of Amore Pacific

II. Corporate Governance

From the case we can not get enough information, so we get the information from the website of
Amore Pacific with the latest update (in 2013), so it might be unrelated for the case which taken in
2006.

Board of Directors

The board of directors is consist of three committee, which all of them are Korean and 5 of them are
outsiders. The committees are :

1. The Executive Committee, consist of 4 people.

2. The Audit Committe, consist of 3 people.
3. The Nominating Committee for Non-Executive Directors, consist of 3 people.

III. External Environment

A. Societal Environment
Political Legal
- Change in regulation (open price system, tariff rates) that Korean Goverment applied(T)
Economics
- The global personal care market was growing faster than global GDP (O)
- More woman joined the workforce (O)
- Possibilities of financial crisis (T)
Sociocultural
- Korean women applied more cosmetic product than Western (O)
- The growth of segmentation in cosmetic product user worldwide (O)
- Korean wave trends, emerging of Korean movies, TV dramas, musician, etc (O)
Technological
- The growth of technology in making beauty product (O)
- Posibility of product imitation (T)
 Table of EFAS

B. Task Environment 5F Porters

- Threat of new entrance = HIGH (T)
The cosmetic industry was growing rapidly, because of the attractiveness of sales in the
cosmetic industry, so this business have many players such as LG Household and Heath
Care, LOreal, P&G, Unilever, etc.
- Bargaining power of buyers = HIGH (T)
There are several competitors emerging as mention above, they also provide same
function of product, so the bargaining power of buyers are high.
- Threat of subtitutes products or service = LOW (O)
Because cosmetic and personal care is one of the primer needs so there are no subtitutes
product in this business.
- Bargaining Power of Suppliers = LOW (O)
In this kinds of business every company usually have their own manufacture to produce a
product, so they become supplier for themself. They positioning is the only cosmetic
company in the world to grow and harvest their main ingridient (Green Tea).
- Rivalry amongst competing firms = HIGH (O)
In this case we know that Amore Pacific has about 5 true competitors in international
scope, and also they have to compete other local brands in their home country.

IV. Internal Environment

A. Corporate Structure
The Amore Pacific have a functional and cross-functional structure in their corporate. The
company also lead by a CEO whos name Suh Kyung-Bae.
B. Corporate Culture
Learn from the best culture. The company not shy about learning from its multinational
competitors.
C. Corporate Resources
1. Marketing
- Have various segment and target market (W)
- Have strong brand image of asian botanicals ingridient product, embracing old
tradition (S)
- Good sales program, such as personal selling (digital door-to-door sales system) (S)
- Market leader and the largest brand in Koreas cosmetic industry (S)
- Low brand awareness in world wide (W)
- Have customer relationship managment (S)
2. Finance (NITA)
- Home Depot net sales is increase year by year (2004 until 2006) (S)
- Huge debt, due to recent acquisition of Hughes Supply (W)
3. R&D
- Have strong R&D team with employed more researchers (S)
- Have thousand domestic and international patents (S)
 - Cutting edge technology (S)
4. Operations
- Amore Pacific held domestic selling right, they manufactured all its product itself. (S)
- Emphasis on total cost reduction and total creativity revolution, which they have:
Enterprise Resourcing Planning system, Six Sigma program for TQM and a 10-year IT
outsourcing deal with IBM. (S)
5. Human Resources
- Hiring an international expert talent (such as French Designer, consulting with
European specialist and China consultant) (S)
6. Information System
- Advanced information system to support its growth, reduce and control cost (S)

V. Financial Analysis (FINANCE SPECIALIST : NITA)

A. Liquidity Ratio
B. Activity Ratio
C. Debt Ratio
D. Profitability Ratio

The assessement based on financial analysis :

VI. Analysis of Strategic Factors (SWOT)

A. Situational Analysis
1. Summary of Internal Factors
Strength :
- Have strong brand image of asian botanicals ingridient product, embracing old tradition
- Good sales program
- Market leader and the largest brand in Koreas cosmetic industry
- Have customer relationship managment
- Have strong R&D team with employed more researchers
- Have thousand domestic and international patents
- Manufactured all its product itself
- Hiring an international expert talent
- Cutting edge technology
Weaknesses :
- Have various segment and target market
- Low brand awareness in world wide

2. Summary of External Factors

Opportunity :
- The global personal care market was growing faster
- More woman joined the workforce
- Korean women applied more cosmetic product than Western
- The growth of segmentation in cosmetic product user worldwide
- Korean wave trends
- Growth of technology development and IT
- There is no subtitutes product in beauty product
Threat :
 - Change in regulation
- Possibilities of financial crisis at anytime
- Posibility of product imitation
- There are strong multinational competitors

B. Review of Mission and Objective

The current mission appears appropiate. The objectives needs to be quantified and given time
horizons.

VII. Strategic Alternatives and Recommended Strategy (lihat contoh hal: 386)
A. Strategic Alternative (ADIT)
Corporate Strategy
Table IFAS

Internal Strategic Factors Weigh Ratin Weighted

Strenghts t g Score
Have strong brand image of asian botanicals ingridient product,
s1 embracing old tradition 0.100 4 0.4
s2 Good sales program 0.050 2 0.1
s3 Market leader and the largest brand in Koreas cosmetic industry 0.075 4 0.3
s4 Have customer relationship managment 0.075 3 0.225
s5 Have strong R&D team with employed more researchers 0.075 4 0.3
s6 Have thousand domestic and international patents 0.100 4 0.4
s7 Manufactured all its product itself 0.050 3 0.15
s8 Hiring an international expert talent 0.075 3 0.225
s9 Cutting edge technology 0.075 3 0.225
Weaknesses
w
1 Have various segment and target market 0.125 4 0.5
w
2 Low brand awareness in world wide 0.200 1 0.2
TOTAL SCORES 1.000 3.025

Table EFAS

External Strategic Factors Weigh Ratin Weighted

Opportunities t g Score
o1 The global personal care market was growing faster 0.1 4 0.4
o2 More woman joined the workforce 0.05 4 0.2
Korean women applied more cosmetic product than
o3 Western 0.05 3 0.15
The growth of segmentation in cosmetic product user
o4 worldwide 0.075 4 0.3
o5 Korean wave trends 0.1 4 0.4
o6 Growth of technology development and IT 0.075 3 0.225
o7 There is no subtitutes product in beauty product 0.1 4 0.4
Threats
 t1 Change in regulation 0.075 3 0.225
t2 Possibilities of financial crisis at anytime 0.125 3 0.375
t3 Posibility of product imitation 0.1 3 0.3
t4 There are strong multinational competitors 0.15 1 0.15
TOTAL
SCORES 1 3.125

We get IFAS`s score is 3.025 and EFAS score 3.125 than we can conclude that Amore should do
growth strategy.

EFAS
Stability Growth
(Corporate Strategy)

IFAS

Survival Diversification

In growth strategy there are 2 options we can chose: concentration and diversification. We prefer
choose concentration strategy through horizontal growth. It shows that amore should spread their
market all over the world but Amore still need do market research before they decide which product
is suitable with the target market.

There are some options when they growth to other region, there are: exporting, licensing,
franchising, joint ventures, acquisitions, green-filed development, production sharing, turnkey
operations, Bot concept, and management contracts.

If we see from external factor that there is tight competitor in this business, we suggest Amore to do
acquisition with others company in their target regions, so they can have direct access to their
market, especially in Europe and US that they want to persuit. This way is to protect their product
innovation and have a clear association that Amore never have cooperate with other brand.

Business Strategy (ADITOSH)

AMOREPACIFIC aims to be a Global Top 10 cosmetics company. While tapping on matured and
developed markets such as North America and Western Europe, AMOREPACIFIC is more focusing on
developing countries such as China and other Southeast Asian countries.
 To overcome the limitations of the market size and increasing level of competition in the
domestic market and accomplish economies of scale through market expansion with its own line of
competitive products, AMOREPACIFIC, utilizing its number one position in the domestic market, has
been looking to develop overseas market with in its efforts to gain presence and become a successful
international player in a very competitive global cosmetics industry environment.

While the domestic market has been steadily growing due to an increase in the number of
professional business women who have brought about buying power of female customers,
developing market conditions for high-function cosmetic products from the middle-class aging
population, as well as an increasing demand from men for cosmetics products, AMOREPACIFIC has
been facing increasing competition from the domestic competitors and market penetration from
global cosmetics companies. Nevertheless, AMOREPACIFIC has potential to be successful in overseas
market taking into account following advantageous factors:

1. The quality and diversity of products of AMOREPACIFIC has reached the level to be
competitive against global brands in most product lines.

2. Experiences of highly competitive market in Korea enriched the Company with various
competitive marketing strategies.

3. Korea's cultural wave has created friendly demands of Korean beauty products among
customers, especially in Asian market.

Globalization strategy of AMOREPACIFIC is primarily based on a multi-domestic approach

where international strategies take on differentiated approaches for each regional market as
divergent demands for cosmetics products exist due to different levels of industrial and economic
development for each country/region. In addition, benefits from standardization are less significant
due to segmented nature of cosmetics market even within the country/region and price functions
differently for each customer segment and it is not usually the major factor for determining
purchase. Finally, since demand in overseas market for cosmetics are highly divergent and the
Company possesses the capability and resources to leverage with to meet those divergent demand,
multi domestic strategy would be suitable for AMOREPACIFIC.

Based on such multi-domestic strategy, AMOREPACIFIC's globalization strategy takes on

differentiated approaches for developed and developing countries. For emerging countries,
AMOREPACIFIC aims for an early market penetration, while, raising image by focusing on the prestige
brand lines in developed markets. Two representative countries of AMOREPACIFIC (France and China)
have been analyzed below to evaluate its international strategy in each country contrasting
AMOREPACIFIC's strategies in each respective country.

Arenas: france, China, and U.S.

Vehicles: Acquisition
Differentiator: Customer need and variety of product
Staging & Pacing: High-end department store and door-to-door channel
Economic Logic: Mixing between premium and low price depends on the market in the
countries
Functional Startegy (DARA)
Using TOWS matrix analysis (Table 5), we can formulate the functional strategy for Amore Pacific.
Here are the result of the analysis:
1. Marketing

2. Financial

3. Organization & HRM

4. R&D
 Table 5 TOWS Matrix

Strength Weakness
1. Pioneered mass-media advertising in Korea 1. Have various segment and target market
2. Good sales program 2. Low brand awareness in world wide
3. Market leader and the largest brand in Koreas cosmetic
industry
4. Have customer relationship managment
5. Have strong R&D team with employed more researchers
6. Have thousand domestic and international patents
7. Manufactured all its product itself
8. Hiring an international expert talent
9. Advanced technology & information system

Opportunity SO Strategy WO Strategy

1. The global personal care market was growing faster
2. More woman joined the workforce
3. Korean women applied more cosmetic product than
Western
4. The growth of segmentation in cosmetic product user
worldwide
5. Korean wave trends
6. Growth of technology development and IT
7. There is no subtitutes product in beauty product
1. 1. Growth in segmentation and technology will provide
more target segmentation that Amore can achieve.
(w1,o4,o6)
2. Korean wave trends and more Korean`s women
applied more cosmetic will make people search about
Korean Brand and it will provide more brand
awareness .(w2,o3, o5)
3. With various segmentation, Amore could catch the
opportunity in more market that still growing. (w1,o1)
4. Various segmentation can be fullfil with more women
joined the workforce that will costless. Besides there
is no substitutes in beauty product than every
segmentation will boundaries by their only product
(w1,02,07)
 Threat ST Strategy WT Strategy
1. Change in regulation 1. 1. Have various segment and reduce the risk of
2. Possibilities of financial crisis
regulation change and also possibilities of
3. Posibility of product imitation
4. There are strong multinational competitors financial crisis effected in company , amore
should targeting various countries to minimize
this risk. (w1, t1,t2)
2. With aggressively promote Amore brand and
making more product differentiation, they could
make their brand awareness higher and also
reduce the possibility of product imitation. This
action also will be a boundary to other
competitor if Amore have more product with
strong Brand`s name.(w2,t3,t4)
VIII. Implementation (Bareng2 hari senin pagi/selasa pagi)

IX. Evaluation and Control ((Bareng2 hari senin pagi/selasa pagi)