The Natura cosmetic companys international development

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The purpose of this report is producing an assessment of certain aspects of the Natura cosmetic company's international development. Understanding the Natura's international development means enhancing internationalization knowledge, examining how it performs business activities in international markets to finally obtain a critical insight of the company's strategy. Based on relevant theoretical concepts and models, the information provided in the case study is discussed and analyzed to bring out a critical evaluation of the company's internationalization strategy, in terms of relationships, learning and innovation, international market entry modes, logistics and distribution in the period 1982 - 2005.

1. Introduction

Natura is a largest Brazil's domestic cosmetics company which offers personal-care products and cosmetics to middle and upper class customer segment. The company was established in 1969 as a small laboratory and cosmetic store in Sao Paulo. In 1974, Natura decided to follow a new business model at that time being, direct-selling model, that brought to the company an appropriate approach to expand at low cost. During its operation, the company has most focused on continuous product innovation and development to create a key differentiation advantage for its products among competitors in different international markets.

With aims to give an assessment of Natura's internationalization, the paper first uses examples from the case study, to examine whether the effectiveness of Natura's relationship strategy; and its learning & innovation are considered as two key factors that contribute to the success of Natura's internationalization. Second, relevant theoretical models and examples from the case study are used to give a critical evaluation of the company's internationalization strategy in the period 1982 - 2005. Third, based on relevant theory, the paper will provide an argument that either for or against Natura's direct sales/distribution model and other international market entry modes. Finally, the paper will assess whether the decision that Natura's production facilities are located in Brazil, is correct in terms of strategy and logistics & distribution.

2. Effectiveness of an organisation's relationship strategy - learning and innovation

2.1 Effectiveness of company's relationship strategy

It appears on the case study that the company's relationship strategy is considered as a key factor that gives fundamental contribution to the company's. Operating by the door-to-door distribution system, Natura has had to continuously invest efforts to develop and maintain a wide range of relationships with its partners, sales representatives, social community, and obviously its customers.

First of all, the relationships between Natura and strategic partners as universities, research centers in Brazil and abroad have played an essential role in product innovation and development that create competitive advantages for products in international marketing (pp. 1).

Specially, with heavy commitment to corporate social responsibility, Natura has put it apart from its international competitors and built up its reputation and relationship with community as well as environment (pp.3). Through its program for social and environmental change and in its products such as its Rainforest Education and Recovery Project, the Rio de Janeiro Botanical Garden, Natura helps to maintain and improve the medicinal plant beds of the gardens. It has also promoted and reserved forests that provide ingredients and raw materials for products. Natura committed to use these ingredients not simply for benefits but also to help the communities who produce it (pp. 3). These activities have given Natura greater relationships with the community, customers where they doing business as it can be proved further in the following case.

In December, 2001, Argentina faced with a worst political and economic crisis. While all its competitors tried to raise prices to avoid risks, Natura decided to keep the prices steady until local salaries were adjusted (pp. 5). This wise strategy had brought to the company stronger relationships and loyalty of the local community, customers, suppliers and employees. Moreover, the company's revenues from 2002 to 2005 increased show the effectiveness of that relationship strategy.

The company has also paid attention to strengthening relationship with its sales representatives by offering the highest commissions in the industry (30% margin), while having 'no exclusivity' contract. This policy allows Natura's sales representatives get greater earnings since they can free to sell products of Natura's competitors. Besides, Natura has tried to give appropriate support for its consultants by an important marketing and sales tool, catalogue-based retailing. The catalogue is frequently updated and provides the consultants a reason to repeatedly visit their customers and improve customer relationships. Additionally, the new concept of the Natura House in Mexico market is viewed as an effective instrument to develop multi-relationship between the company, consultants, and customers. This is kind of relationship is mutually beneficial.

From the above discussion, it is clearly showed that Natura has paid most attention to conducting its relationship strategy in effective way which is considered as a sound foundation for the success of its direct selling operation model.

2.2 Learning and Innovation

During the Natura's development, learning and innovation always play an important role in its success.

The decision of following the direct sales operation model in 1974 of Natura can be seen as the first experiential lesson learnt from its competitors, Avon (pp. 1). The operation model brought to Natura a great chance to expand at a reasonable cost at that moment. From that experience, Natura always focus on learning and innovating on every single aspect of its business during the course of operations.

Innovating and developing products in-house on a continuous basis has been seriously studied and certified by patens and technology from universities and research center in Brazil and abroad (pp.1). Besides, high competition pressure and continuous changing of customer's needs has fostered Natura's learning process in order to provide continuous reinvention and reformulation of its product portfolio which has been essential for Natura's marketing. As such, from 2001 to 2005 with the efforts of product innovation and reformation, Natura launched and improved around 153 products per year. In an effort of differentiating its products, the company has paid more attention to particular research on skin-care products and on the sustainable use of ingredients from Brazil's biodiversity in Chronos and Ekos product lines to promote, preserve and share the benefits with Brazilian distinct natural resources (pp. 1).

Besides, Natura develops a concept of capturing emotions, feelings and aspirations of its customers behind each product. Its product, therefore, is designed and defined on the "well being/being well" based concept. This great innovation has not only added value, but also created key differentiation advantage for its products.

As a part of learning and innovation, Natura's headquarters is assumed to be the biggest and the most advanced building in Latin America which comprises all main operations of Natura. It allows Natura expand its manufacturing and storage facilities up to a maximum of 370 million items per year without increasing its storage, conditioning, or distribution capacities substantially (pp. 2). This innovation helps to saves the company's cost and resource for further expansion or increased orders, when necessary. The vertical warehouse with an automated system also gives effective support to logistics and distribution activities.

Furthermore, learning from Avon experience, "Natura's focus on sale allow consultants to make orders at any time and to make more than one order within the same sale cycle while Avon's representatives can only place an order at a specific point in a given cycle" (pp. 3). This innovation helps to improve the sales productivity of the company as it was almost twice the average direct selling market performance in Brazil in 2005.

Additionally, as a pioneer in the use of its "magalogue" in Mexico, a combination magazine and catalogue, Natura has created a new and effective way to approach customers (pp. 6). Moreover, when facing with difficult situation in Argentina market, the innovative solution of keeping the price steady had brought to the company many advantages afterward and above all things, the experiential lesson or market-specific knowledge were transferred quickly to other South American countries where the company was facing mostly the same problem (pp. 5). It is affirmed that continuous learning and innovation are always the most important factors that Natura has been focused to increase its knowledge and experience, especially, in the company's internationalization process. Therefore, from the experience in Chile market, Natura had adoted a new sales model as retail store in French market. Then a new "hybrid model", that could mix a pure direct selling and a store chain, is applied in Mexico based on French experience.

3. Critical evaluation of the Natura's internationalisation strategy in the period 1982 - 2005

3.1. Understanding of internationalization

Internationalization is defined as a process in which firms gradually enhance their involvement in international operation (Johansson J. & Vahlne J.E., 1977; Welch and Loustarinen, 1988). Meanwhile, Agndal (2004) argued that during the internationalization process, firms simultaneously increase their recognition of direct and indirect factors that may have impact on international transactions of their future, and set up as well as manage transaction with other firms. However, Johanson and Widershiem (1975) viewed internationalization process as the forms of international operations which are based on the mutual influence between attitudes and actual behaviors. The most essential obstacles to internationalization are the lack of knowledge and resources. Depending on core competences or the level of achievement in terms of knowledge (market information, abroad operation experiences, management skills, etc.) and resources (financial, people, product-related, etc.), each company that wish to internationalize should thoughtful consider in choosing suitable approaches to internationalization.

3.2 The Uppsala model - a typical approach to international marketing

Influenced by Aharoni's seminal study (1966), Uppsala model is resulted from a several studies of the internationalization of Swedish manufacturing firms during 1970s by a number of Swedish researchers at the University of Uppsala (Hollensen, 2007). The Uppsala researchers explained some patterns in the internationalization process they had observed from the Swedish firms basing on three basic assumptions (Forsgren, 2002). First of all, the main obstacle to international operations is the lack of knowledge about foreign markets. Second, due to the market uncertainty, firms appeared to invest in foreign markets gradually. Finally, since the high dependence of knowledge on individuals and the difficulty in transferring knowledge to other individuals, firms need more experiential learning. Because of the above obstacles, many companies tend to begin their international expansion to nearby market through export modes, keeping risks at low level.

The original form of Uppsala model, written by Johanson and Wiedersheim-Paul (1975), describes the internationalization process of a firm through four stages along with four different modes of international market entry, where the successive stages represent higher degrees of market involvement (Hollensen S., 2007):

Stage 1: No regular export activities (sporadic export).

Stage 2: Export via independent representatives (export mode)

Stage 3: Establishment of a foreign sales subsidiary.

Stage 4: Foreign production/manufacturing units.

Accordingly, Johanson and Vahlne (1977) proposed a clearer explanation for all steps in the internationalization process by the distinction between state and change aspects. The state aspects are considered as the resource commitment to the foreign markets that includes market knowledge and market commitment. The change aspects are related to commitment decisions and the performance of current business activities. This basic mechanism is demonstrated in the Figure 1.

Figure 1:

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