The purpose of this article is producing an evaluation of certain areas of the Natura plastic company's international development. Understanding the Natura's international development means boosting internationalization knowledge, analyzing how it executes business activities in international marketplaces to finally get yourself a critical understanding of the company's strategy. Predicated on relevant theoretical ideas and models, the info provided in the event study is talked about and examined to bring out a critical evaluation of the business's internationalization strategy, in terms of associations, learning and invention, international market accessibility modes, logistics and distribution in the period 1982 - 2005.
Natura is a largest Brazil's domestic beauty products company which offers personal-care products and makeup products to middle and upper class customer portion. The company was established in 1969 as a small laboratory and plastic store in Sao Paulo. In 1974, Natura decided to follow a new business model in those days being, direct-selling model, that brought to the company a proper approach to develop at low priced. During its operation, the company has most focused on continuous product invention and development to create a key differentiation advantage for its products among competitors in different international marketplaces.
With aims to give an diagnosis of Natura's internationalization, the newspaper first uses good examples from the research study, to examine if the success of Natura's marriage strategy; and its learning & advancement are considered as two key factors that donate to the success of Natura's internationalization. Second, relevant theoretical models and instances from the case study are used to provide a critical analysis of the business's internationalization strategy in the time 1982 - 2005. Third, based on relevant theory, the newspaper will provide a disagreement that either for or against Natura's immediate sales/syndication model and other international market access modes. Finally, the newspaper will assess whether the decision that Natura's development facilities are found in Brazil, is right in conditions of strategy and logistics & circulation.
2. 1 Success of company's romantic relationship strategy
It shows up on the case study that the company's relationship strategy is considered as a key factor that gives important contribution to the business's. Operating by the door-to-door distribution system, Natura has had to continuously make investments efforts to build up and maintain an array of relationships with its partners, sales staff, communal community, and clearly its customers.
First of most, the human relationships between Natura and strategic partners as colleges, research centers in Brazil and overseas have played an important role in product innovation and development that induce competitive advantages for products in international marketing (pp. 1).
Specially, with heavy commitment to corporate cultural responsibility, Natura has place it aside from its international competition and built up its reputation and romantic 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 Task, the Rio de Janeiro Botanical Garden, Natura helps to maintain and enhance the medicinal plant beds of the landscapes. It has also marketed and reserved forests that provide ingredients and raw materials for products. Natura committed to use these elements not simply for benefits but also to help the areas who produce it (pp. 3). These activities have given Natura increased relationships with the community, customers where they doing business as possible demonstrated further in the following case.
In Dec, 2001, Argentina confronted with a worst political and economic turmoil. While all its competitors tried to raise prices to avoid dangers, Natura decided to keep carefully the prices steady until local incomes were adjusted (pp. 5). This smart strategy had brought to the company better relationships and commitment of the local community, customers, suppliers and employees. In addition, the company's profits from 2002 to 2005 increased show the effectiveness of that romance strategy.
The company has also taken notice of strengthening relationship with its sales staff by offering the best commissions on the market (30% margin), while having 'no exclusivity' contract. This insurance plan allows Natura's sales representatives get greater income given that they can free to sell products of Natura's challengers. Besides, Natura has attempted to provide appropriate support because of its consultants by an important marketing and sales tool, catalogue-based retailing. The catalogue is frequently updated and provides the consultants a reason to consistently visit their customers and improve customer romantic relationships. On top of that, the new concept of the Natura House in Mexico market can be regarded as an effective tool to build up multi-relationship between your company, consultants, and customers. This is kind of romance is mutually beneficial.
From the aforementioned conversation, it is evidently proved that Natura has paid most focus on conducting its marriage strategy in effective way which is recognized as a sound basis for the success of its immediate 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 direct sales operation model in 1974 of Natura is seen as the first experiential lesson learnt from its challengers, Avon (pp. 1). The operation model brought to Natura a great chance to grow at a reasonable cost at that moment. From that experience, Natura always concentrate on learning and innovating on each and every facet of its business during operations.
Innovating and producing products in-house on a continuing basis has been critically studied and accredited by patens and technology from universities and research middle in Brazil and in another country (pp. 1). Besides, high competition pressure and ongoing changing of customer's needs has fostered Natura's learning process to be able to provide ongoing reinvention and reformulation of its product portfolio which has been essential for Natura's marketing. Consequently, from 2001 to 2005 with the efforts of product development and reformation, Natura launched and better 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 lasting use of materials from Brazil's biodiversity in Chronos and Ekos products to promote, protect and share the huge benefits with Brazilian unique natural resources (pp. 1).
Besides, Natura builds up an idea of capturing feelings, feelings and aspirations of its customers behind each product. Its product, therefore, was created and defined on the "well being/being well" based mostly notion. This great development hasn't only added value, but also created key differentiation benefits because of its products.
As a part of learning and creativity, Natura's head office is assumed to be the biggest and the innovative building in Latin America which includes all main businesses of Natura. It allows Natura develop its manufacturing and storage facilities up to a maximum of 370 million items per year without increasing its safe-keeping, conditioning, or circulation capacities considerably (pp. 2). This creativity helps to preserves the business's cost and reference for further growth or increased requests, when necessary. The vertical warehouse with an automatic system also gives effective support to logistics and distribution activities.
Furthermore, learning from Avon experience, "Natura's give attention to deal allow consultants to make purchases anytime and make more than one order within the same sales routine while Avon's representatives can only just place an order at a specific point in confirmed circuit" (pp. 3). This creativity helps to improve the sales output of the business as it was almost twice the average direct offering market performance in Brazil in 2005.
Additionally, as a pioneer in the utilization of its "magalogue" in Mexico, a combo newspaper and catalogue, Natura has generated a fresh and effective way to approach customers (pp. 6). Additionally, when facing with difficult situation in Argentina market, the ground breaking solution of keeping the purchase 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 Southern American countries where in fact the company was facing mainly the same problem (pp. 5). It is affirmed that ongoing learning and creativity are always the most crucial factors that Natura has been concentrated to increase its knowledge and experience, especially, in the company's internationalization process. Therefore, from the experience in Chile market, Natura possessed adoted a new sales model as retail store in French market. Then a new "hybrid model", that may mix a genuine direct offering and a store chain, is applied in Mexico predicated on French experience.
3. 1. Knowledge of internationalization
Internationalization is thought as a process where firms gradually enhance their engagement in international procedure (Johansson J. & Vahlne J. E. , 1977; Welch and Loustarinen, 1988). On the other hand, Agndal (2004) argued that during the internationalization process, companies all together increase their reputation of direct and indirect factors that could have effect on international transactions of their future, and set up as well as manage deal with other companies. However, Johanson and Widershiem (1975) looked at internationalization process as the kinds of international functions which derive from the mutual influence between attitudes and actual conducts. Probably the most essential hurdles to internationalization will be the lack of knowledge and resources. Depending on core competences or the level of achievement in terms of knowledge (market information, in another country operation encounters, management skills, etc. ) and resources (financial, people, product-related, etc. ), each company that desire to internationalize should thoughtful consider in choosing suited approaches to internationalization.
3. 2 The Uppsala model - a typical approach to international marketing
Influenced by Aharoni's seminal research (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 School of Uppsala (Hollensen, 2007). The Uppsala research workers explained some patterns in the internationalization process that they had seen from the Swedish companies basing on three basic assumptions (Forsgren, 2002). To begin with, the main obstacle to international businesses is having less knowledge about foreign markets. Second, due to the market uncertainty, businesses appeared to invest in foreign markets eventually. Finally, because the high dependence of knowledge on individuals and the difficulty in transferring knowledge to other individuals, organizations need more experiential learning. Because of the above obstacles, many companies tend to commence their international enlargement to local market through export settings, keeping dangers at low level.
The original form of Uppsala model, compiled by Johanson and Wiedersheim-Paul (1975), represents the internationalization process of a firm through four stages along with four different methods of international market accessibility, where in fact the successive stages symbolize higher levels of market participation (Hollensen S. , 2007):
Stage 1: No regular export activities (sporadic export).
Stage 2: Export via impartial representatives (export function)
Stage 3: Establishment of an foreign sales subsidiary.
Stage 4: Overseas production/manufacturing products.
Accordingly, Johanson and Vahlne (1977) proposed a clearer explanation for any steps in the internationalization process by the differentiation between state and change aspects. The state of hawaii aspects are considered as the source of information dedication to the international markets that includes market knowledge and market determination. The change aspects are related to dedication decisions and the performance of current business activities. This basic device is confirmed in the Number 1.
Source: Johansson & Vahlne, 1977.
It is assumed that the idea of market commitment is filled with two factors: the amount of resources committed and the degree of determination (Hollensen S. , 2007). The amount of resources identifies how big is investment in the market (marketing, organization, workers, etc. ), as the degree of dedication implies to the difficulty of discovering an alternative solution use for the resources and transferring them to the alternative use.
Meanwhile, due to the dependence on international activities, market knowledge has both basic knowledge and market-specific knowledge. Market-specific knowledge may be accomplished essentially through experience in the market, whereas standard knowledge or knowledge of functions can be transferred in one country to another. It really is postulated that there surely is a direct connection between market knowledge and market determination since knowledge can be viewed as a dimensions of human tool. As a result, the wider knowledge about a market, a lot more valuable will be the resources and the more robust commitment to the marketplace (Hollensen S. , 2007).
Based on the study of Forsgren and Johanson (1975), Hallonsen S. (2007) assumed that additional market commitment as a rule will be created in small incremental steps, both in the market commitment dimension and in the geographical dimension. However, matching to Johanson and Vahlne (1990), there are three exceptions. First, when businesses have large resources and experience small consequences of their dedication, they could take larger internationalization steps. Second, relevant market knowledge can be achieved in different ways instead of experience in case market conditions are secure and identical. Third, when the organization has significant experience from market segments, it's possible for it to generalize this experience to specific marketplaces which have similar conditions.
Additionally, regarding to geographical dimension, the model offers companies a successive way of going into new market with higher psychic distance through its incremental procedure for internationalization. Psychic distance is thought as distinctions in culture, terms, legal and political systems, which disturb the stream of communication between the firm and the marketplace. Therefore, businesses should start internationalization by expanding to markets they are in a position to most easily understand. Various opportunities are seen in these market segments and market doubt is regarded as low.
In 1988, the changes of the original level model was proposed by Welch & Loustarinen who operate with six dimension of internationalization: sales items, procedure methods, market, organizational composition, funding and personel.
Despite of substantial support of the Uppsala model to internationalization of firms, various criticisms against the idea have been brought up.
Some folks have insisted that the Uppsala model is also not valid for highly internationalized organizations and industries. Competitive makes and factors leave psychic distance out as the main explanatory factor for the businesses' process of internationalization. Moreover, since understanding of trades can be transferred in one country to some other, firms good thing about international experience seem to perceive the psychic distance to a fresh country shorter than others with little international experience (Hollensen S. , 2007).
Today, combined with the high development of it, firms are outfitted quicker and easier usage of knowledge of international business. Hiring people with expected experience and knowledge seems easier than producing it with an incremental process. Therefore, according to Hollensen (2007), learning in a gradual and continuous process is no longer necessary.
3. 3 The Uppsala model - the right framework to judge the Natura's internationalization strategy during 1982 - 2005
The Natura's internationalization was started in 1982 by an arrangement with an independent distributor in Chile (pp. 4). This first step was assumed to be hastily carried out with limited planning or understanding of the marketplaces. The development was sustained from 1983 to Portugal and Florida. During this time period, "people who used to benefit Natura or possessed a personal romantic relationship with the business were responsible for the local procedure" (pp. 4).
Choosing the low-risk market entrance mode, exporting, and Natura acquired started its internationalization process by widening to neighbor marketplaces where it assumed to have nearly no psychic distance. However, these operations were interrupted after a short while anticipated to financial losses (pp. 4). Roof cause of this failure may mainly result from the lack of market knowledge and experience. Without "any proper planning or knowledge of the markets", Natura managed its business in these marketplaces by "people who used to be employed by Natura or possessed a personal romantic relationship with the company" (pp. 4). These unskilled people certainly do not have market knowledge and international experience. It really is clear that, the business did not give any dedication in these market segments that leads to inefficiency in its current activities. However, behind failing, there's always a light for success. As the same, from the inability, Natura had attracted a valuable experience that can make significant contribution to its next steps in the incremental procedure for internationalization. It isn't difficult to perceive that right in the beginning, Natura internationalization strategy was inspired by the Upssala model.
In 1990s, coincided with advantageous politics and macroeconomic changes in Brazil and other South and Central North american countries, Natura decided to carry out an international expansion in a far more organized way (pp. 4). At the moment, other Latin American countries such as Mexico, Chile, and Argentina also got promising growth rates and want to tighten their commercial relationship with Brazil. With an increase of serious studies and analyses, Natura found that besides several common ethnic characteristics which mainly give attention to beauty principles and demands in your community, there still continued to be some subtle variations in culture, approval of direct advertising device as well as in general management problems between different Latin American countries (pp. 5). It means that Natura's door-to-door circulation system just designed well in specific countries. For instance, "Chile has a good retail network and a more western European consumer behavior when compared with other Latin American countries" (pp. 5). This might be one of the reasons for the unsuccess of the Natura's first look at in this country.
Natura possessed learnt that it is very important to have a good preparation before entering a fresh market. Renato Ribeiro, Natura's new market development director said: "Detailed data is gathered according of confirmed market about society; size of the cosmetic makeup products, fragrance, and toiletries market; the market's familiarity with/popularity of the immediate sales model; and regulatory issues, among others. Ethnic issues are also, of course, important" (pp. 5).
In Dec 2001, Natura had to handle with a most severe political and economic problems in Agentina. Within this situation, while all Natura's main competition were bringing up prices, the company went to opposite route. It tried to lessen costs and let people generally know that it could keep carefully the price constant until local salary was tweaked (pp. 5). This strategy taken to Natura a great chance to attain competitive advantages over its competitors through boosting its brand image, prestige as well as position, creating good romantic relationships with customers, suppliers and employees, and offering its high commitment to the market. As the result, from 2002-2005, Natura acquired achieved incessant development with respect to earnings increase, sizable and steady network of consultants.
The experiential lessons learned from Argentina market were then used in other SOUTH USA countries where the company had came into in the early 1990s and where was working with the similar managerial or positioning problem (pp. 5).
It plainly showed that Natura was gradually accumulating experiences, knowledge and expanding resources and moving forward on the way of internationalization. In Apr 2005, the beginning of Paris store ('Maison Natura') designated the first time that Natura, a direct offering model company, experienced open a shop. This flexible modification of Natura may come from the experiential lesson in Chile in 1982, where has more european consumer behavior with a big retail network. However, this adjustment should be achieved earlier to help make the Natura's internationalization process more efficient.
Based on the Paris experience, Natura's House was opened in Mexico upon a "hybrid model". Natura House can be considered as "a middle earth between a real direct sales and a store string" (pp. 6). Like a late entrant in the market, Natura was alert to the need of using different strategy and introducing several new marketing tools that could help maximize brand understanding.
In 2005, the Natura's international sales constituted only 3% of its total revenue. That is the achievements of a very time-consuming internationalization process. It really is no doubt to say that the Natura's internationalization development strategy is so thoughtful. Right from the start, with the limited availability of the company resources, Natura decided to follow an incremental process provided by the Uppsala model to achieve its global ambitions. However, after 2 decades, Natura internationalization process has just reached the level 2 of the model. With attempt to lessen international investment during expansion, the company has only use exporting as its market admittance modes together with direct selling model to all or any the target market segments. This risk-averse strategy contributes to delay the business's international growth due to its limited international market dedication. In addition, having less talent individuals who specialized in general management has been the essential restrain on the company's international strategy (pp. 6).
With aim to establish the business in the potential markets of the united kingdom, the US and some of the very most significant growth markets like Russia in approaching years (pp. 7), it is suggested that Natura should increase its global extension by causing leapfrog and moving to different entry settings such as branches or jv. In 2005, a relationship with another international company was considered by Natura (pp. 6). Additionally, nowadays, it appears easier for Natura to employ people with expected international experience and knowledge to proficiently support because of its international development than develop them through incremental process. Therefore, the Uppsala model have been great for Natura through the start of its internationalization process.
According to Wind and Perlmutter (1977) the decision of market admittance function has great influence on international functions and can be considered as the utmost critical proper decision in international marketing. For most firms, market entrance modes represent a crucial first step. There are three main types of market access modes (Hollensen, 2007):
Export methods (100% externalization - low control, low risk, high flexibility)
Intermediate methods (share control and risk, separated ownership)
Hierarchical modes (100% internalization - high control, high risk, low versatility)
However, no market accessibility mode is recognized as a perfect one. Matching to Petersen and Welch (2002), settings are usually combined for use to enter or create a specific overseas market. Each market admittance method may be most well suited for one stage of organizations' internationalization. Most making businesses start their internationalization by export modes, and Natura is no exception. Export methods combined with direct selling model allow Natura perform its international expansion in high overall flexibility, low risk, low priced, and also low control (Hollensen S. , 2007). However, Hill (2007) argued that similarly, export methods help the company avoid the costs of building up the manufacturing functions in host countries. Alternatively, it usually requires high travel cost. Moreover, tariff obstacles also make export settings become inefficient and also high-risk. Therefore, internal and exterior factors which influence tactical decisions must be serious evaluated.
According Hollensen (2007), interior factors include: organization size, international experience and product; while external factors comprise sociocultural distance, country risk, market size and progress, trade obstacles and level of competition. Before making a commitment decisions to a new market, firms need to have an insightful understanding of both benefits and drawbacks of its internationalization strategy. In the Natura's internationalization process, export settings were used from the beginning when the company's resource availability had not been enough to attain a high degree of control. Overtaking 2 decades, Natura's resources have been gradually increased along with more international experiences and product improvement; the business should transition to intermediate and hierarchical settings to help make the internationalization better. Joint venture model has been considering by Natura in 2005 (pp. 6). With aim to enter established market segments like the united kingdom, the united states and Japan, joint venture is the best option for Natura to survive and develop in high power of competition. In some level, cooperating with experienced local or international partners bring to the company substantial advantages related to skills, knowledge, experience, distribution network, resources, technology, government marriage, etc. and decrease failure and dangers.
Besides, the direct selling business design of Natura didn't seem to adapt well to all markets due to specific eating behaviors. It was proven in Chile in 1982. The usage of only one deal channel as direct offering made contribution to slow down the Natura's internationalization. Until 2005, Natura possessed to adopt a fresh sale model, retail store, when stepping into French market. Then your Natura House in Mexico was viewed as "a middle floor between a natural direct offering model and store string" (pp. 6). To be able to increase its international growth, Natura should considered further prospects such as: selling products in duty-free shop in the international airports, using internet sales and building retail chain using countries.
Since it was founded, Natura acquired decided to grow its business with low marginal cost via direct-selling model. Therefore, this door-to-door distribution system is considered as "the core of Natura's DNA" (pp. 3). This business model receives widespread popularity in Brazil and helps the business achieve a solid expansion throughout the united states.
However, in the Natura's current internationalization strategy, the company had to handle some road blocks related to the door-to-door syndication system, logistics and export methods.
First, the immediate advertising model just took maximized effect in Latin American countries, except Chile (pp. 5). Some countries prohibit the use of direct offering model (Hollensen, 2007). Based on specific consuming manners and legal legislation of certain markets, the door-to-door syndication system was widely accepted or not. From the experiential lesson in Chile in 1982, until 2005, the company acquired just made an modification by implementing store chains, a new circulation model, when joining People from france and Mexico market segments (pp. 5). During two decades of the internationalization process, along with export modes, Natura used only door-to-door circulation system for all the chosen markets. This may be one of the roof triggers for the hold off of the Natura's international growth. Although there were several efficient syndication systems that may match well with Natura's products, the business still insisted on keeping international investment at low level.
Second, because of the above risk-averse viewpoint, all Natura's main operations included logistics are just located in Sao Paulo, Brazil. That is also the reason why export methods were considered as the one market entry mode for Natura during its international expansion. However, in the long run, the extension of international functions would cause certain problems in logistics when all Natura products have to be developed, created, and sent from Brazil to warehouses and circulation centre in each market (pp. 6). Dealing with this subject, Natura should think about alternative market entrance methods to well support for the progress of its internationalization. Joint venture, international sales subsidiaries and international manufacturing businesses are suggested entrance methods for Natura in the future.
From the above analysis and evaluation, it would appear that the Natura internationalization process was very time-consuming and inefficient after two decades, due for some obstacles leading to by door-to-door circulation system, logistic and entry mode (export mode) as stated. With aim to turn into a global brand, Natura must increase its participation in international markets by increasing its resources or determination to get higher level of control in its international businesses.
The company has successful in building an effective wide range of relationships using its partners, suppliers, sales consultants, customers and contemporary society that support well for its key procedure model, direct advertising. Natura also turned out so it has a continuing progress of learning and creativity during its span of operation. Therefore, the Uppsala model is recognized as an appropriate route for Natura at the beginning of its internationalization process when it insufficient availability resources and knowledge. Today, with the introduction of information technology, international knowledge can be utilized and learned easier via the internet. Learning through a gradual process provided by the Uppsala model is no longer necessary.
Since there is a huge potential global market for cosmetic industry on the whole and then for Natura specifically, these mentioned weaknesses should be changed by adopting a new model, for case, joint venture, foreign sale subsidiaries or developing operations.