Byline: Soren Larson
It’s a small world, and getting smaller still. Age-old boundaries are being smashed, new markets are opening like a series of doors and barriers to communication have virtually dissolved.
What this means for a business can be either daunting and exhilarating. Certainly it means that those companies whose products aren’t flowing into the global pipeline will be left behind by those who are preparing to take on the world.
As it happens, the beauty industry is more advanced than many when it comes to going global, and a handful of experienced world travelers discussed their strategies in “Leaving Town,” the final panel of the Summit.
“Are we all not tired of hearing about ‘Think global, act local?”‘ asked Jeanette Wagner, president of the international division of Estee Lauder Cos. and the panel’s moderator. “I am. Frankly, a more apt expression to describe what really goes on might be, ‘Think global, act local without thinking at all,’ because most U.S. companies think local and pretend global. What they really have is an export business. That’s not globalization.”
Wagner than ticked off a list of potential problems that come with globalization, from legal issues to tax difficulties to unorthodox retail situations.
“Who needs all this grief? Why do you want to go global?” she asked.
The reason, she said, is simply that the companies with the highest growth rates today achieve them because of increases in their international businesses. In addition, the smartest retailers are going global themselves. “That requires us to pay attention.”
“A lot of women are buying [a product] precisely because it has a global image,” said Peter A. Midwood, executive vice president of international at Elizabeth Arden. “And how about travel retail; how can you sell travel retail if you don’t have products that are recognized all over the world?”
Wagner stressed that companies need to understand the implications of a global strategy and whether their employees have the necessary skills — in terms of finances, human resources and an intangible she dubbed “the passion.”
The other panelists joined her in emphasizing that companies interested in globe trotting must anticipate the variety of challenges that await.
Linda LoRe, president and chief executive officer of Giorgio Beverly Hills, recalled that her company began to go global in the late Eighties. Due to its smaller size and limited knowledge, the firm chose a distributor network, and the process was not easy.
“It required a lot of patience,” she said. “We started with Europe, and we did not realize the extent of the cultural diversity we were going to face. We had to learn to listen with a different ear.”
By now, the company has made the necessary adjustments and Giorgio fragrances are sold throughout South America and the Pacific Rim. By the time it was acquired by Procter & Gamble in 1994, 49 percent of sales were done outside the U.S.
“It’s essential to understand multicultural differences if you’re going to expand,” said LoRe. “We have to remember that Europe and America are just two inhabitants of our global village. So how do we do business together? The sort of behavior we as Americans regard as trustworthy might be seen by Japanese as shifty, and vice versa. Our cherished American characteristics of frankness and openness are frequently misinterpreted.
“Our global future depends on our ability to project a vision of where we are headed in a manner that connects with people in all parts of the world,” she continued. “It’s a matter of building relationships. We need to start by being sensitive to differences.”
“It’s the sensitivity to understand many different cultures and the nuances and the differences,” noted Wagner. “Let me give you just an example: In the Czech language, ‘nova’ means new. In the Portuguese language ‘nova’ means new, but when Chevy made a car named Nova to sell in Latin America, they didn’t realize that in Spanish, ‘nova’ means it doesn’t go. Do you want to buy a car that doesn’t go? That doesn’t make any sense.”
“Global branding is certainly a buzzword,” said Andrea Jung, executive vice president and president of global marketing and new business at Avon Products. “We’ve had a philosophy that’s about making the company a global brand.”
The world is rapidly becoming one marketplace, she said, and competition is increasing for everyone across all markets. For that reason, brands have to be uniformly strong in the various regions in which they are sold.
Avon has been expanding internationally for 40 years and is now in 133 countries, Jung said; as a result, the abundance of growth has come from international expansion. But, as a U.S. company, before it adopted a global strategy, Avon was developing products in America and then simply rolling them out internationally.
“We had some 200-plus brands when I joined the company in 1994,” said Jung. “The goal is to reduce that number to 60, 20 of which will be global brands within a four-year period.”
She instituted a move to a centralized model from a product development point of view that she said “regards the wants and needs of the majority of our customers.”
“The challenge was how to build and continue international growth and at the same time develop a centralized model,” she added. “Traditionally, the channel of distribution has been Avon’s greatest strength, stronger than the products themselves. It was hard to believe that the power of a global brand could be greater than the local strengths.”
Far Away was Avon’s first global brand produced under the new model, and Jung said the positive effects were undeniable. “In Chile, typically a local fragrance would sell about 20,000 units on launch,” she said. “We sold 200,000 units in three weeks when we launched this global brand. We broke more paradigms when we launched [skin care] technology simultaneously around the world. Clearly, the opportunities for success were in aggressive, global branding.”
Last year, global brands represented 25 percent of sales; this year the figure will be 40 percent. When creating global brands, Jung stressed, consistency of concept and image should be the highest priority.
“It’s about staying focused on who you are and what you’re selling,” she said. “We’re not in the prestige business; we don’t want to be in the prestige business. But consistency has been key, whether you’re Calvin Klein or Avon.
“Today, our advertising is consistent everywhere,” she added, noting that the “Dare to change your mind about Avon” campaign is now rolling out to 12 markets around the world. In addition, the company’s sales brochures used to be extremely varied, but now they have the same cover, featuring the same product.
“But you also have to be flexible,” Jung said. “In some developing markets” — she cited India and Vietnam — “traditional price points don’t make sense. In skin care and color cosmetics, the need to be flexible is much greater. And for fragrance, you have to look at 15-ml. and 0.5-oz. sizes in developing countries.”
Midwood at Arden said those firms in the prestige business have a tougher time with consistency, because “internationally, we have to operate both globally and locally at a very high level.” He said, “Revlon and Avon have less reliance on retailers on a local level. You can have a global angle, but it’s also highly local, because the prestige business has been drawn into the retailing arena, and there’s nothing as local as retailing.”
Responding to a question from the audience about what to do in countries without the proper prestige channels, Midwood said Arden simply wouldn’t go there.
“Look at India — there’s a case in point,” he said. “There is no outlet that would support prestige, but within six months, I know of at least four outlets that are coming on. We wouldn’t go in without a proper structure. And by the way, India is awash with your products, and it’s all a smuggled market. China’s easy — they’ve got all kinds of stores. “I’d rather be market leader in 10 countries than number 10 in 100,” Midwood continued. “You gain money from predominant market positions. Just going out and being a weak player everywhere in the world is of very little value to anybody.”
He also discussed economies of scale involved in creating global lines. “Arden had a lot of problems because we let the stockkeeping units get out of control,” he said. “You have to make some choices. By and large, globalization is the key aspect of our business.”
Wagner also responded to an audience query by quoting the credo of Leonard Lauder, chairman and ceo of Estee Lauder Cos.: “One world, one global image, one positioning.”
“Our product range is one product worldwide — with modifications,” she went on. “The mix changes. In a country that’s a big fragrance country, you have greater fragrance depth. In the Asia/Pacific region, the shade range is different than the makeup range is in Europe. But our number one fragrances nearly everywhere in the world are Pleasures and Beautiful. There are commonalities more than there are differences.”
As the lone retailer on the panel, Stephen Bock, senior vice president and general merchandise manager at Saks Fifth Avenue, took the opportunity to remind his vendors that if they aren’t consistent with their images and retailers around the world, they will suffer the consequences at home.
“Something that concerns every retailer is the question of protecting the home base,” he said. “Understanding your distribution system is very important because we see the results on a domestic basis. We suffer in the long run, as does that company, if they don’t understand or have a grasp on the distribution system.”
Jack Salzman, managing director at Goldman Sachs, was present to give an analyst’s perspective on the pros and cons of globalization. He listed five points that he said Wall Street keeps tabs on:
“Multinationals usually grow faster than domestic businesses,” he said. “There’s a great deal of opportunity over and above your domestic business, and — perhaps more importantly — multinationals are characterized, as far as the consumer products area, as being more highly valued if they go into emerging markets. We reward companies for bigger exposures in Latin American and Asian markets, for instance.”
“Global branding is highly valued,” Salzman said, noting that the cosmetics and fragrance industry has “a preponderance” of global brands. “When you think about names like Revlon and Lauder, it’s unique to see so many global footprints. But there are also many great brands that have not made that global leap.”
Larger companies are favored over smaller companies. One reason is simply the numbers; institutional investors and their ilk are looking for liquidity. “Secondly, that’s where the growth is,” Salzman said. “That’s been the case in the last five or six years.” Salzman mentioned that multinationals have better overall returns on assets and better returns on equity. They also tend to lead with their established products, which gives them strong leverage. As a result, the stock price performance of multinational companies has been stronger than that of their domestic counterparts.
Global companies have lower earnings volatility. “Shiseido has 10 percent of its sales in international markets, and the company has very high earnings volatility,” Salzman said. “Unilever is the quintessential great multinational conglomerate. They have 90 percent of sales in international markets and very low earnings volatility. As the percentage of sales becomes more international, the lower the volatility.”
Salzman had further tips for those considering expansion of their worldwide reach. “Don’t run your company for Wall Street — but do run your company for profitability,” he said. “And don’t expand for the sake of expansion. Expand in the areas that have made you a success in your home markets.”
Jung added that having a balanced portfolio of international markets is also crucial to the stability of a global company.
“When Mexico was having its problems, that was balanced out by strength in our Asian markets,” she said. “If you have a global portfolio, it will enable you to have more long-term credibility.”
While the panelists listed myriad obstacles on the road to globalization, Wagner couldn’t resist one more joke at the expense of the retailers who had suffered so many slings and arrows throughout the Summit.
“Last but not least, we get to negotiate with retailers in 30 different languages,” she said. “Isn’t that wonderful? We love it.”