Essay Sample on Expanding the Company Estee Lauder in the Netherlands

Introduction

This paper focuses on the expansion of Estee Lauder Company in the Netherlands through the use of Porter's five forces that include the Threat of new entrants; bargaining power of buyers; the threat of substitute product or services and lastly, the bargaining power of suppliers. While PESTEL analysis involves the scanning of the Political factors; Economic; Social; Technological; Legal and Environmental factors.

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Porter analysis

Porter's five forces is a significant tool the enables a business entity to identify the strategies for potential profitability and understand the competitiveness of the business environment. Therefore, this section provides an analysis of Estee Lauder Company competitive environment with a major focus on the competitive rivalry, supplier power, and buyer power, threat to substitution and threat of new entry.

Competitive rivalry

Estee Lauder is among the leading marketer and manufacturer of cosmetics that include famous brands such as Jo Malone, MAC, Lab series, Bobbi Brown and Clinique. The Estee Lauder Company can grow its revenues and profits through corporate focus. For instance, the more a business moves away from its core base of products and clients, the more it becomes difficult to attain profitable transformation. When a company focuses on its core competence, it leads to a stronger base of both the customers and the business. The net results of the corporate focus are the freedom to Excellency and engagement in things that matter most. The company, therefore, prunes the extraneous hence build on its core competencies and the attributes that best describe their customers' preference. The company assess the position of the market competitiveness and removing any needs that are not in line with their customers' preferences. The firm, therefore, intensifies all its strength towards the areas that it can perform to its best and derive the marketing investments and returns on the product.

Activity Based Cost (ABC) is an approach that involves costing final output and tracing the consumption of resources. Through this methodology, activities are assigned to cost objects and resources to activities based on the estimates of consumption (Jones and Dugdale, 2002). This approach is beneficial to the company because the ABC system will bring reliability and accuracy in the products costs determination through the focus on the effects and causes relationship based on the incurrence of costs. Moreover, it doesn't recognize the products but the activities that are the major causes of costs. This system will provide the company with a platform where activities that do not add value to a product are identified and the costs reduced as this approach reveals the cost behavior (Jones and Dugdale 2002, 124). The managers of the company will, therefore, be able to control a number of fixed overhead costs through exercising control over all activities that led to the overhead costs. The costs related to fixed overheads become more clear and visible through the use of this system, therefore monitoring of the costs becomes easy. Through the use of the ABC system, the Estee Lauder is in a good position of making rational decisions based on the use of product cost data that is more reliable. Moreover, the management will be in a good position of tracing the costs to areas related to customers, processes, and departments.

The Estee Lauder Company is in a position of calculating accurately the mechanisms for cost management and calculation of product costs. The transaction volumes and costs driver rates useful to the performance and the management of the company, therefore, the firm used the cost driver rates might be applied by the company in designing the existing products or new products (Anderson, Hesford and Young 2002, 200). The ABC system provides a platform for managing costs and calculation of product costs more accurately.

Supplier power

The Global Supplier Relations department through a global basis procures the raw materials for Estee Lauder. Therefore, the improvement of quality, the increase in the speed to market and innovation and reducing costs is the major objective that helps in reviewing the supplier base with an effort in supplier rationalization. However, this type of model is prone to over-dependency on suppliers.

Buyer power

The skin care and beauty products of Estee Lauder caters to the premium market and are highly priced. However, it could be difficult for the affluent buyers to switch to lower-priced products as they tend to be less sensitive to prices. The Coty, Hennessy Louis Vitton, LVMH Moet, and L'Oreal premium cosmetics brand depend on department stores and specialty retail.

Products should have a good monetary value, which is affordable to consumers. The prices should be examined and determined. The prices should be affordable to generate reasonable profitability. The prices should represent good value for money and customers will feel happy to pay for certain products (Rafiq & Ahmed, 2015, 6). Companies to develop a strategy of restructuring prices of products and services to make sure they are to the standards of the current market price. Therefore, Estee Lauder considers all these factors in pricing its products hence remain competitive.

Threat of substitution

There is a large number of substitutes for the beauty and skin care products. However, the replacement of a product with high reputation brand unless if a permanent skin improvement is invented through new technologies. The research and development department of the Estee Lauder develops its unique ingredients, therefore, becoming its major competitive advantage.

Developing the right product pertains to how one feels about the marketing of the product. Therefore, a company decides on the product it will produce depending on the environment and whether it is the right commodity (Magrath 2016, 46). The company considers the design of the product, features, and quality. Subsequently, there is the product assortment including range, product mix, and lines. Branding is vital and packaging should be done accordingly. It is vital to managing products through life cycle (Magrath 2016, 46). The product should satisfy customer's needs and must be available. Similarly, the new product should have minimal impact on the environment with a long lifespan. Products should have a life cycle which includes sales decline phase, maturity and growth phase that makes products to have more demands by the consumers. Estee Lauder considers this factors to enable it to compete effectively.

The Threat of New Entry

The income levels and the skin type forms the basis for the purchase of cosmetics. Therefore, unless a new brand features an advanced unique technology it is difficult for a new enterprise to venture into the beauty and skin care business. Therefore, Estee Lauder which is a high-end company compete mainly on product differentiation, brand recognition, and product quality and heavily repeat customers.

PESTLE Analysis

Political

Politics has the ability to affect doing business in the Netherlands as it prevents future development of enterprises alongside the many opportunities and risks. Moreover, the political atmosphere of the Netherlands has been stable and there are no signs of interruptions hence providing a good avenue for doing business.

Economical

Various economic factors have to be considered for the expansion of Estee Lauder Company as it with both the marketing and manufacturing of hair care products, fragrance, makeup, and skin care. The country has an advanced free market economy that the government controls the taxes and wage scales and operates on the polder model that is based on periodic negotiations among the employers' associations and the labor unions.

There are trends in the business world that are shaping the course of the economy and the workforce. These trends have some negative impact on organizations in general and thus their effects are reflected in the human resource management practices. In this section, we study how labor and employment laws shape the business environment. The labor and employment laws determine the treatment that the employee get into an organization. Full compliance of these laws has been a challenge for many organizations. Labor laws provide the right to be unionized and enable the employees to take part in activities that would ensure that their demands are met (Edwards & Robinson 2012, 89). The challenge mainly comes in when unions negotiating for new collective bargaining agreements with hard conditions. The unions organize industrial action to further the meeting of their demands. Another issue that arises from the labor and employment laws is the wage and hour (Sachs 2008, 34).

The intense search by Estee Lauder to get the best from the employees by recruiting employees they feel are best suited also can be view as the resource-based approach. The foundational aim of resource-based human resource strategy is focused on coming up to the achieving in the strategic link between resources and openings from the effective placement of resources (Barney 2015, 668). The approach address ways in which the firm could the long-term planning ability by the development of managers and other staff who can be able to come up with strategic plans and understand the main issue of consideration (Barney 2015, 664). This approach is made in the basis that the organization can gain a competitive advantage if the organization can get and develop a workforce that enables it to get knowledge faster and apply the knowledge more effectively compared to the rivals.

Estee Lauder selection focuses on skills and experience since they desire to get a competitive advantage over other players in the industry. The resource-based approach suggests that human resources include the experience, knowledge, judgment, wisdom, and risk-taking capability in relation to the organization (Barney 2015, 660). Kamoche (1996, 90), views that the resource-based approach views the organization as a set of tangible and intangible means and abilities that are required to come up with a competitive product. Estee Lauder invests in the staffing process to ensure that reliable employees are taken in, trained, and properly oriented into the company so that the company can come up or modify their products to be competitive.

Graph: EU GDP versus U.S, China and India

The above graph indicates that purchasing power in European Union is much higher compared to India, China and U.S hence a better place for investment.

Social

The Netherlands is the most densely populated country in Europe for instance in 2000 it had a population of 15,898,331 people. The country consists of foreigners especially the Antilleans, Moroccans, Turks, and Germans majority originating from the European Union.

Technological

The Netherlands provides a good environment where technological advancement has thrived. For instance, the use of social media platform and the mainstream media has been enhanced. Therefore, this is an important avenue of communication where Estee Lauder will have the opportunity to market its products. For instance, marketing of new products is critical and used to persuade customers to buy products through advertisement, public relation, and sale promotion (Rafiq & Ahmed 2015, 10). Promotion is an important factor and helps in increasing sales through proper marketing. The advertisement may be done through online, newspapers, TV, magazines and Radio. Internet advertisement should be highly embraced set more funds towards online advertisement. Public relation is done through press releases, seminars and exhibition (Codita 2011, 20).

Legal

The current Netherlands regulations and legislation gover...