International business operations
First, read the following article (a copy is available on iLearn):
Jones, G. (2012). The Growth Opportunity That Lies Next Door, Harvard Business Review, July-August (( Attached ))
Students will be then required to write a 2000 essay that provides an analysis of the following statement/question:
Critically assess the ‘the rise of the emerging multinationals” and evaluate the impact this may have on the operations of established firms in the global marketplace.
An essay requires the systematic investigation of a topic and the development of a written argument. Essays assess cognitive and research skills. Essays are expected
to develop coherent arguments, be founded on thorough research, and provide insight into the topic area.
In undertaking this assignment students’ need to:
• Research the topic in an in-depth manner
• Provide a critical perspective of the literature on a topic
• Construct a sustained argument in response to the question/statement using concepts, theories and models relevant to BUS202
Your essay should incorporate at least 15 different references. These should be sourced from the following:
• Academic articles
• Relevant books (but not including your allocated textbook)
• Periodicals (ie The Economist etc)
The 15 references should be evenly balanced between these three resource options. Examples of all of these reference options are detailed on iLearn.
Students are expected to maintain an appropriate standard in presenting their essay Remember to acknowledge your sources throughout the paper using the Harvard
referencing system. The report is to be typed and 1.5 spaced (a standard 12 point font should be used). Students are expected to maintain an appropriate standard in
presenting their essay. It should be checked for spelling, consistency and clarity of expression.
The assessment sheet for the report will be available on iLearn.
Your essay must be submitted to Turnitin on iLearn, and handed in by hardcopy to your tutor in your normal class on Thursday 8th January, 2015.
Individual Assignment – Essay 30%
First, read the following article (a copy is available on iLearn):
Jones, G. (2012). The Growth Opportunity That Lies Next Door, Harvard Business Review, July-August
Students will be then required to write a 2000 essay that provides an analysis of the following statement/question:
Critically assess the ‘the rise of the emerging multinationals” and evaluate the impact this may have on the operations of established firms in the global marketplace.
An essay requires the systematic investigation of a topic and the development of a written argument. Essays assess cognitive and research skills. Essays are expected
to develop coherent arguments, be founded on thorough research, and provide insight into the topic area.
In undertaking this assignment students’ need to:
• Research the topic in an in-depth manner
• Provide a critical perspective of the literature on a topic
• Construct a sustained argument in response to the question/statement using concepts, theories and models relevant to BUS202
Your essay should incorporate at least 15 different references. These should be sourced from the following:
• Academic articles
• Relevant books (but not including your allocated textbook)
• Periodicals (ie The Economist etc)
The 15 references should be evenly balanced between these three resource options. Examples of all of these reference options are detailed on iLearn.
Students are expected to maintain an appropriate standard in presenting their essay Remember to acknowledge your sources throughout the paper using the Harvard
referencing system. The report is to be typed and 1.5 spaced (a standard 12 point font should be used). Students are expected to maintain an appropriate standard in
presenting their essay. It should be checked for spelling, consistency and clarity of expression.
The assessment sheet for the report will be available on iLearn.
Your essay must be submitted to Turnitin on iLearn, and handed in by hardcopy to your tutor in your normal class on Thursday 8th January, 2015.
Late submissions of written assessment (ie individual or group work) will be accepted up to 72 hours after the submission deadline. There will be a deduction of 10% of
the total available marks made from the total awarded mark for each 24 hour period, or part thereof, that the submission is late (for example, 25 hours late in
submission – 20% penalty). This penalty does not apply for cases in which an application for Disruption to Studies is made and approved.
HBR.ORG
July–August 2012
reprinT R1207P
The Globe
The Growth
Opportunity That
Lies Next Door
How a Brazilian cosmetics giant saw the beauty
in neighboring markets by Geoffrey Jones
This document is authorized for use only in International Business Strategy S1, 2014 by Dr Rob Jack at Macquarie
University from February 2014 to August 2014.
The Globe
For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org
The Growth Opportunity
That Lies Next Door
W
Photography: Cajamar/SP
How a Brazilian cosmetics
giant saw the beauty in
neighboring markets
by Geoffrey Jones
ABOVE Fragrance development at
Natura Cosméticos.
hat will the continued stagnation of the United States
and developed economies in
Europe mean for aspiring multinationals
based in booming emerging markets?
Traditionally, developed markets have
helped these emerging giants learn to fight
developed-nation multinationals on their
home turf, tap into the growth potential
promised by prosperous economies, gain
access to the latest technologies, attract
the best talent at home, and validate themselves as truly global players.
But how will the logic of globalization
change for corporations from countries
such as India, China, Indonesia, Brazil,
and Turkey if the growth opportunities in
emerging markets continue to far outpace
those in developed economies?
One company that has considerable
experience with that question is Natura
Cosméticos, the Brazilian beauty giant that
for some 30 years has been attempting to
move, with decidedly mixed results, into
developed markets even as the opportunities in its region have grown stronger and
stronger. Along the way it has discovered
just what a double-edged sword a robust regional base can be for an emerging-market
multinational.
In successive attempts to move beyond
its borders, Natura has found itself having
July–August 2012 Harvard Business Review 2
This document is authorized for use only in International Business Strategy S1, 2014 by Dr Rob Jack at Macquarie
University from February 2014 to August 2014.
Copyright © 2012 Harvard Business School Publishing Corporation. All rights reserved.
The Globe
Beyond Brazil
A Regional Pattern of Expansion
to weigh the pressure to devote scarce managerial resources to challenging adventures
abroad against the imperative of focusing
on burgeoning opportunities close to home.
Ultimately, it discovered, as its counterparts
in Latin America and Asia may increasingly
find, that the payoff from slow and patient
investments in its neighbors was not a consolation prize for failing to reap sufficient
returns in developed markets but was itself a successful globalization strategy. To
realize that, Natura had to stop equating
“the world” with “the developed world”—
a fundamental change in mind-set that was
decades in the making.
As opportunities in Latin America continue to be more
attractive for Natura than those in developed economies,
the company has steadily expanded its distribution and
production centers in its home region. The one departure
from this regional focus is its store in Paris, the capital of
the world’s beauty market.
Natura CosmÉticos
Total Revenue
2008 R$3.57 billion
2009 R$4.24 billion
2010 R$5.13 billion
Argentina,
Chile, Peru
2008 R$164 million
2009 R$219 million
2010 R$256 million
Mexico and
Colombia
2008 R$44 million
2009 R$66 million
2010 R$98 million
2006
Mexico
Growing Up in Brazil
Just 20 years ago, the U.S., Western Europe,
and Japan accounted for two-thirds of the
world’s market for cosmetics, fragrances,
and toiletries. Today Brazil is the thirdlargest segment of the $308 billion global
beauty market, China is the fourth, Russia
the eighth, and India the 14th. This growth
has not, however, translated into success
for most domestic firms. The Chinese, Russian, and Indian markets are dominated
by Western and Japanese giants such as
France’s L’Oréal and LVMH; U.S. behemoths Procter & Gamble, Avon, and Estée
Lauder; the Anglo-Dutch Unilever; and Japan’s Shiseido, all of which are ever on the
lookout to acquire emerging-market firms
with attractive brands.
Against that background, Natura’s success is exceptional. By any measure it is a
giant in the industry: Its 2010 net revenues
of R$5.1 billion ($2.8 billion) rank it among
the world’s top 20 beauty companies. Its
R$1.2 billion ($660 million) in pretax profits, which represents a stunning margin of
24.5%, puts it among the most profitable
(well above Avon’s 12%, Estée Lauder’s 18%,
and L’Oréal’s 19%).
Unusual among emerging-market
multinationals, Natura sells not low-end
but premium mass-market cosmetics and
personal-care products to middle- and
upper-class consumers. It does so through
a direct-sales network of more than 1 million independent, mainly female sales
2007
Colombia
consultants, about one-quarter of whom
sell Avon and other competitors’ products
as well. Natura has been the market leader
in Brazil since overtaking Unilever in 2004,
holding fully 14% of the highly competitive
market in 2010 (Unilever, at number two,
held 9.7%, and Avon, number three, 9.1%).
Like so many emerging giants, Natura
evolved in a way that took advantage of its
home market’s economic experience. In
1969, 27-year-old Antonio Luiz da Cunha
Seabra founded Natura as a small lab and
cosmetics shop in São Paulo. Five years
later, after experimenting with various distribution models, he followed the example
of Avon, which had been successfully operating in Brazil for nearly a decade through
door-to-door sales. Such direct-selling networks are costly and time-consuming to
establish because relationships have to be
forged one by one. But once in place, these
networks allow a company to expand at
low marginal cost even in times of economic adversity.
Natura found itself at a distinct advantage, then, when most of the department
stores and pharmacies where so many of
its competitors’ beauty products were sold
succumbed to the rampant inflation of the
1980s. Rising prices and tight exchange
controls prompted most international companies to leave Brazil or halt investments
1969
Natura is founded in
São Paulo, Brazil
1992
Peru
1988
Bolivia
1982
Chile
1994
Argentina
Source Natura CosmÉticos
3 Harvard Business Review July–August 2012
This document is authorized for use only in International Business Strategy S1, 2014 by Dr Rob Jack at Macquarie
University from February 2014 to August 2014.
For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org
2005
France
during what many referred to as the “lost
decade.”
Yet Brazilian culture continued to place
a premium on self-image. Rather than depress demand, the rising prices spurred
large numbers of Brazilian women to enter the workforce, swelling Natura’s ranks.
With the stars aligned, Natura’s revenues
grew at a breathtaking 43% compound
annual rate from 1979 to 1989. That year,
Seabra and two Natura executives—Guilherme Leal and Pedro Passos—bought
out the other shareholders to form Natura
Cosméticos. The trio articulated a vision for the company that has informed
its competitive advantage but has posed
some fundamental challenges to its global
ambitions.
In an industry that has for decades been
criticized for creating—and then preying
on—women’s insecurities, promoting racist stereotypes of beauty, instilling the fear
of aging, and overselling the (sometimes
entirely nonexistent) functional attributes
of its products, Natura’s founders wanted
to foster a company ethos and operating
model based on healthier relationships—
between the company and its customers,
its customers and its million-plus sales
consultants, the company and its suppliers, and, more broadly, society and the
environment.
Following this ethos, Natura became
a pioneer in the natural cosmetics market, a determined opponent of animal
testing, and the first Brazilian company
to adopt the Global Reporting Initiative’s
sustainability reporting framework. In
2012 Natura ranked second (behind Novo
Nordisk) on Corporate Knights magazine’s
annual list of the 100 most sustainable
corporations in the world. The Ekos line
of cosmetics Natura launched in 2000 is
emblematic: The products are made from
raw materials gathered through sustainable methods from the Brazilian rain forest.
A decade before Unilever launched Dove’s
iconic Real Beauty campaign, Natura in its
Truly Beautiful Woman campaign, which
featured ordinary women over 30, had already moved to equate beauty not with the
anxious pursuit of youth but with increasing self-esteem.
Beyond Soccer and Samba
Natura’s first move outside Brazil, though,
was not destined to fulfill or even advance
any of its goals. Back in 1980, Seabra was
already entertaining notions of global expansion. Walking down New York’s Fifth
Avenue that year, he was struck not only by
the immense competition in the cosmetics
market but also by the feeling that “there
was a place for Natura in the world.”
But where to start? Go after the riches
of the U.S. market? Enter a wealthy market,
such as Portugal, where consumers speak
your language? Stay close to home?
Like many emerging-market powerhouses, Natura tried all three approaches.
But having found success at home with a
value proposition that was in many ways
ahead of its time and a sales network that
was very time-consuming to start up in
new markets, Natura was at a disadvantage
in moving beyond Brazil. With no compelling economic reason to venture abroad
and limited managerial talent to spare as
they were building the business at home,
Seabra and his cofounders approached international markets halfheartedly, intent on
protecting their core operations.
Natura entered Chile in 1982 by forming
a partnership with a local distributor, which
sold Natura’s products less than enthusiastically through its own direct-selling network. A year later, the company allocated
$100,000 to create Numina—a brand of
cosmetics for export to Florida and Portugal—and hired people the company knew
or who had previously worked for Natura
to run the local operations.
In beauty, as in wine and cheese, country of origin matters. If Paris and New York
were the globe’s beauty capitals, Brazil was
equated in much of the world not with rain
forests and biodiversity but with hyperinflation, deforestation, soccer, and samba.
This competitive handicap, combined with
insufficient management attention, proved
too great to overcome. The Florida and Portugal operations were entirely abandoned,
while the Chilean business limped along
unprofitably even as Natura attempted to
start developing its own network in conjunction with a second Chilean partner.
Some five years later, as inflation abated,
economies all over Latin America were
beginning to grow. As they did so, many
neighbors sought to scale up commercial
ties with Brazil, which enjoyed a reputation
in the region for being big, powerful, and innovative. Consumers in many parts of Latin
America shared Brazilians’ emphasis on
beauty, and, propelled by mass advertising,
they were becoming more sophisticated in
their use of beauty products.
But with its home market heating up,
Natura was loath to devote resources to
establishing and building sales networks
abroad, and so it moved into Bolivia, Peru,
and Argentina with the same model it was
using to ill effect in Chile—setting up networks through partnerships with local
distributors.
It soon became apparent that Natura had
underestimated the differences not only
among Brazil’s neighbors but also between
Brazil and those countries—differences
that went well beyond the fact that Spanish,
not Portuguese, is the mother tongue of all
other countries in the region. In Chile, for
example, consumers were more inclined to
use the country’s strong retail channel than
to shop through direct-sales representatives. Product formulas and labels needed
to be adapted to local regulations and tastes
in all four countries, and some entirely new
product lines were launched. But without direct management, relationships between Natura and the sales reps remained
too shallow for them to forge strong bonds
with the brand or to allow enough information about local preferences to flow back
to the production facilities in Brazil. The
brand identity became diffuse. For a decade
none of Natura’s foreign operations turned
a profit.
Finding Success in
Latin America
Increasing revenues at home simultaneously made the prospect of investing in
July–August 2012 Harvard Business Review 4
This document is authorized for use only in International Business Strategy S1, 2014 by Dr Rob Jack at Macquarie
University from February 2014 to August 2014.
The Globe
other markets less attractive and allowed
Natura to bear the cost of unprofitable operations for years. And so it was that the company did not devote serious management
attention to its international operations until 1999. Alessandro Carlucci, then Natura’s
sales director and now its CEO, was sent to
Argentina with the resources and authority to build a sales network that was truly
committed to the brand and the company’s
values. To keep turnover low, the company
built strong relationships with its sales
consultants in Argentina. It also improved
logistics by opening a distribution center
there. Revenues from the Argentine business grew by about 30% a year from 1999
to 2001.
The company quickly transferred the
lessons learned in Argentina to other markets in the region and took steps to ensure
that its sales networks became fully committed to the brand and the company’s values. Investments in marketing shored up
brand awareness in Peru. Seasoned managers from Brazil replaced local managers
in Chile. Natura’s executives closely monitored the distribution network in Bolivia.
Logistics were improved and local warehouses established. Revenues increased
30% in Chile from 2001 to 2003 and 85% in
Peru in the same period.
With its confidence growing and its coffers brimming from an oversubscribed IPO
on Brazil’s Novo Mercado in 2004, Natura
Finding markets outside Latin America
that are compatible with Natura’s
direct-selling system, its community
values, and its focus on sustainability
has proved tricky.
Then, at the end of 2001, Argentina
plunged into recession after devaluing
its currency by 40%, and Natura learned
a vivid lesson about the wisdom of sticking to its values and vision. In response to
the devaluation, most competitors raised
prices. But Natura chose to keep its prices
steady and forgo short-term profits, focusing instead on reducing costs through efficiencies gained from the $110 million stateof-the-art integrated logistics,
production,
and R&D facility it had built on the outskirts
of São Paulo the previous year. “The idea,”
Carlucci says, “was to create a social pact
among suppliers, employees, and customers, showing the Argentine market that we
were there for good and we expected profits
[only] in the long run.”
The strategy paid off. From 2002 to 2005,
revenues increased sixfold, and the number of sales consultants grew from 7,000
to 20,000.
parabens in cosmetics until a visitor to the
Paris shop asked about them. The company
subsequently removed the preservatives
from its products. It also began to consider
internet sales.
Bolstered by their forays into foreign
markets, Natura’s leaders felt they had developed sufficient managerial expertise
to enter Mexico, a country they had long
recognized as a more natural fit with the
company’s business model. Mexico shared
Brazil’s passion for cosmetics and strong
direct-sales tradition, and it had a similar
economy and demographic structure. But
Natura was a latecomer: Avon had been
operating there since 1956. In fact, Avon’s
largest market outside the U.S. was Mexico,
where it sold not just beauty products but
also jewelry, toys, and cooking utensils.
Drawing on its experience in Paris,
Natura not only began establishing a directselling network but also opened a store it
dubbed Casa Natura in the upscale Polanco
neighborhood of Mexico City. Unlike the
Paris shop, though, the store sold no goods.
It was less a shop than a clubhouse—a
place for sales representatives to meet one
another and exchange experiences, test
products, and receive training. Natura saw
this as a hybrid of the direct-selling and
retail models, which could be replicated at
a fraction of the cost of building a comprehensive retail-store channel. This hybrid
model—which the company began to use in
Brazil in 2007—helped Mexico become the
company’s biggest international market (by
2012 Natura had opened five Casa Naturas
there). Its success in Mexico seemed to pave
the way to the U.S. market.
followed the path of other successful Brazilian firms in setting its sights once again
on developed markets. In 2005—which
happened to be a year of celebration of
Brazilian culture in Paris—Natura opened
a two-story flagship store in the elegant
neighborhood of Saint-Germain-des-Prés.
Although France was not as open to direct
selling as neighboring Great Britain and Germany, Natura had long-standing ties with
France as a source of packaging, some raw
materials, and knowledge. Moreover, Paris
The Decline of the West?
was the capital of the beauty world.
Now, five years later, Natura has not gone to
The Paris store offered only the Ekos line
the U.S. or, in fact, to any other new market
and was viewed as a chance to test different
outside Latin America. The French business
sales models. The second floor functioned
remains small, unprofitable, and the only
as a space where customers could sample
one in the developed world (see the exhibit
Natura’s products and learn about Brazil- “Beyond Brazil: A Regional Pattern of Exian culture, and Natura in turn could learn
pansion”). Finding markets elsewhere that
from highly sophisticated consumers. No
are compatible with the company’s directone at Natura, for example, had been aware
selling system, its community values, and
of the controversy surrounding the use of
its focus on sustainability has proved tricky.
5 Harvard Business Review July–August 2012
This document is authorized for use only in International Business Strategy S1, 2014 by Dr Rob Jack at Macquarie
University from February 2014 to August 2014.
For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org
The Changing Equation
In 2005, for instance, the founders traveled to Russia, where the fast-growing market for cosmetics and toiletries had topped
$6 billion. Direct sellers Avon and Oriflame
were thriving, as the market share of directsales beauty companies there soared from
5% in 1999 to 19% in 2004. But as the three
founders watched focus groups of Russian consumers from behind one-way mirrors, it quickly became apparent that these
people not only knew virtually nothing
about Natura, or even Brazil, but also were
not much concerned about environmental
sustainability. A poor fit, the founders concluded, and they pursued the opportunity
no further.
The firm’s commitment to environmental sustainability also played into the decision not to enter China, where regulations
required cosmetics to be tested on animals.
Natura’s commitment to sustainability and
the highest ethical standards also figured
into its walking away—sometimes after
months of negotiations—from acquisitions
that might have greatly extended its reach
in developed markets. At the same time,
mainstream beauty companies were energetically acquiring leading natural cosmetics businesses around the world: L’Oréal
bought Britain’s Body Shop in 2006, Colgate
acquired Tom’s of Maine in 2009, and the
Japanese direct seller Pola Orbis purchased
Australia’s Jurlique in 2011.
Did Natura’s decisions limit its growth?
A case can be made either way, though
Avon’s recent problems in China—where
allegations of bribery of local officials have
tarnished its brand, damaged relations with
sales representatives, and made possible a
takeover bid by Coty—lend some weight
to the founders’ insistence that the company’s values remain a fundamental source
of competitive advantage.
Meanwhile, recognizing that Natura’s
lack of management expertise has been a
continuing impediment to regional expansion, the company steadily worked to build
up its international management ranks in
Latin America. It established the Natura
Management System to capture and disseminate lessons learned. It began recruit-
While 2010 growth in the beauty
market was anemic in
developed economies…
0.2%
1.1%
Japan
United States
…the category took off in
Latin America.
7.5%
10.9%
13.3%
Mexico
Argentina, Chile,
Colombia, and Peru
Brazil
Source Global Market Information Database
ing Brazilians and other Latin Americans
from top MBA programs in the U.S. And it
worked to balance its predominantly Brazilian management with executives from
other countries in the region. Even so, the
company’s 2007 annual report announced
its intentions of entering the U.S. market—
a testament to the hold developed markets
have on the aspirations of emerging-market
multinationals.
In 2008 the financial meltdown conspired to make developed markets far less
alluring and Natura’s home market and
region even more lucrative. Since then,
the company has stopped talking about
U.S. markets in its annual reports. Instead
it has focused squarely on Latin America,
entering Colombia in 2007, increasing the
efficiency of its logistics, and tailoring its
products and communications to local
conditions. (Perfumes evaporate more
quickly in the higher altitudes of Chile, for
example, and Mexican consumers prefer
drier products than their Brazilian counter-
parts.) In 2010 Natura engaged in manufacturing outside its home country for the first
time, through a partnership in Argentina,
and in 2011 it entered into manufacturing
agreements with partners in Colombia and
Mexico.
These investments are a reflection of
the slowly changing economic equation
of globalization. Even as the U.S. beauty
market grew by an anemic 1.1% in 2010 and
Japanese demand by a microscopic 0.2%,
demand in Mexico grew by a healthy 7.5%;
in Argentina, Chile, Colombia, and Peru
by 10.9%; and in Brazil by 13.3%. Natura’s
net revenues from its operations in Argentina, Chile, and Peru, while small compared with those from Brazil, grew a hefty
27.7% to R$256 million ($139 million) from
2009 to 2010, as EBITA ballooned 44% to
R$13?million ($7.1 million). Although Colombia and Mexico, where the sales networks have had less time to develop, are
not yet profitable, 2010 revenues from the
two countries jumped 69.9% to R$98 million ($53 million).
As Natura negotiates a world in which
the economic importance of the West may
have reached a plateau while the commitment to environmental and ethical issues
is rising, it is finding itself in a position
that Seabra never envisioned as he walked
down Fifth Avenue 30 years ago. In the long
run, Carlucci says, although the company
has not abandoned plans to enter the U.S.
or expand in Europe, the goal isn’t to go
to any particular place but to have a global
portfolio that can be constantly adjusted to
reflect the knowledge acquired in different
markets. Just as its customers are moving
beyond stereotypes of youth, straight hair,
and light skin, Natura is moving beyond stereotypes of globalization, recognizing that
winning in Chile, Argentina, and Mexico
can be an entry onto the world stage every
bit as effective as conquering Paris or New
York.
HBR Reprint R1207P
Geoffrey Jones is the Isidor Straus
Professor of Business History at Harvard
Business School and faculty chair of the school’s
Business History Initiative.
July–August 2012 Harvard Business Review 6
This document is authorized for use only in International Business Strategy S1, 2014 by Dr Rob Jack at Macquarie
University from February 2014 to August 2014.
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