Posted: September 16th, 2017

SHISEIDO COMPANY ANALYSIS

Shiseido was founded in 1872 by Arinobu Fukuhara in the Ginza district of central Tokyo. There were critical incidences that occurred during the early stages of development of the company; The Company introduced a voluntary chain-store system in Japan in 1923 and worked closely with the chain-stores. In 1953, a resale price maintenance system was introduced by the government and the cosmetic industry excluded from antitrust law, something that led to the establishment of many stores by the company throughout Japan; it had 25,000 chain stores.

The stature of Shiseido Company grew from a small pharmaceuticals company through the combination of western scientific knowledge in medicine with the traditional eastern management concepts. This preceded the company’s involvement in research and the establishment of research centers both locally and overseas. In 2005, the company expanded the scope of its business by investing in non-cosmetics like the foodstuffs, restaurants and service providing in salon, spas and social cultural activities. This was a good expansion move that increased revenue and lessened the threat of too much competition in the cosmetics products market by introducing services too.

The company established a brand management strategy, in which lines of brands were categorized as high prestige, prestige and middle mass market brands. This was provided a means to capture the market as a whole considering all ages and levels of earning.

Following the deregulation of prices by the government in Japan, competition emerged and led to poor sales. In response, the management bought a failing company and reduced their brands from 100 to 35 in order to identify the clarity of their purpose and to invest in promoting them. The purchase of this company was not necessary at that moment and the resources could have been used in further marketing and promotion of the brands.

A good understanding of the different cultures in the world was necessary for the company to globalize, for a uniform market was not possible. The company established in Taiwan and Korea in 1929, which were Japan’s territory by then. By this time, that was a proper opportunity utilized for the growth of the company. In 1960, Shiseido started business in America and begun establishing companies there in 1962 at lower end, only to merge with the high end firms later after a successful kickoff. In 1963, local sales agents offered Shiseido to open businesses in Italy and Netherlands. The company ventured into France in 1980.

Shiseido is a global corporation with company owned stores in America, China and Europe, and mergers with companies in France, Europe and China. The company has locally owned stores as well as distribution of products through other chain-stores in Japan. In Japan all decisions are made by the board but it has overseas branches that are autonomous and fully managed by local managers. The hierarchy of leadership is based on performance as Fukuhara became president and CEO of Shiseido, and later Chairman after making good progress in the highly competitive market in the U.S. for such a huge corporation, the management should not be based on family and earlier involvement in the initial pain of establishing the basics but on qualification in business management and experience in business research and market dynamics analysis.

One of the main strengths of Shiseido was its roots in research and the quality of the eastern cosmetic cultures, where it was launched. The success in the competitive American market was amounted to by the uniqueness of the skin care method used as a massage cream after cleansing. The company’s mergers and acquisition of many overseas companies has led to its global establishment. There were several functions performed by the management that lead to value creation including;

  • Establishment of research centres and integration of knowledge from the local Japanese traditional medicine and western formulations. This provided the uniqueness of the locally manufactured products and the distinction made them survive in the market.
  • Multi-brand strategy in America and Europe to cover different cultures and introduction of make up products for the western women.
  • Mergers and acquisition to ensure globalisation resulting from early local investment.
  • Making France their centre of production of fragrances to utilise its resources.

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Shiseido had many problems inhibiting its expansion. Among them is the difficulty in the transfer of knowledge form one firm to another in different cultural and geographical settings. For example, in fragrance manufacturing from France based Beauté Prestige International to Japanese based entities. The company also face stiff competition locally from foreign companies that are either doing mergers or acquisitions. For example, when L’Oréal acquired the Japanese cosmetic brand Shu Uemura, it posed a threat to Shiseido’s plan to jumpstart its domestic sales (p. 10).

One of the threats that Shiseido faces is that with globalization, the products are traded internationally and given that costs and margins are not stable, losses could emerge any time. Given that the cosmetics and boutiques offer items bought directly at shops, the customers could actually compare prices with products from competitors and buy the cheaper one. This poses a threat if there is a competitor who can always offer better prices for almost same range of quality. The products made by Shiseido are high quality and competitive in the market, but if other companies found a way of counterfeiting the products that could pose a real threat.

The company had great opportunities to capture the Taiwan and Korean market as there was less competition for it was a Japanese territory. It also competed in American and European markets by basing its production of fragrance products in France and taking advantage of the French resources. Shiseido has Bargaining powers in the international market in its globalisation, accrued from its locally earned revenue.

The company should invest into promoting the firms established overseas since they have greater potential for the future than the local saturated market, in which the company experiences stiff competition. This would include coming up with a new strategy for china. The company has already done a lot of research in beauty and cosmetics from the pharmaceutical point and should increase its effort in conducting research in global market trends. The focus of the company and vision should be in global scales; how to coordinate management and ensure the integration of information technology in its strategy. The new strategy should involve consideration of global business and legal standards like ISO and acts and regulations governing IT. With the use of IT as a medium to make revolution in reaching and managing global markets, the company can keep up with the global competition.

Considering that the expansion has happened from pharmaceuticals to cosmetics, foodstuffs and boutiques to services, the spirit of market expansion should be kept up and new lines of investments considered. The Information Technology industry is also growing and offering real chances of investment and is worth consideration too. In global market, the prices of commodities are dictated to by the shifts in economies and this also affects the value of investments. Following this, investments in more stable economies should be a priority.

Reference

 

Geoffrey J. O, Akiko K, Masako E, Making China Beautiful: Shiseido and the China Market

 Rev. July 3, 2008.

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