Chapter 4 The Internal Assessment

4.1.3 Finance and Accounting

Financial ratios are computed Irom an organization`s income statement and balance
sheet. Computing Iinancial ratios is like taking a picture because the results reIlect a situation at
just one point in time. Comparing ratios over time and to industry averages is more likely to
result in meaningIul statistics that can be used to identiIy and evaluate strengths and weaknesses.
There are Iive types Iinancial ratios include liquidity ratios, leverage ratios, activity ratios,
proIitability ratios and growth ratios.
4.1.3.1 Liquidity Ratios (million)
I. Current Ratio
Currcnt Asscts
Currcnt LIabIIItIcs


6,648.2 m
7,356.4 m

t0.90x

Comment
For each and every one ringgit oI short term debt, L'Oreal Malaysia has current assets by t0.90x.
For example iI current liabilities are rising Iaster than current assets, the current ratio will Iall,
and this could spell trouble. Because the current ratio provides the best single indicator oI the
extent to which the claims oI short-term creditors are covered by assets that are expected to be
converted to cash Iairly quickly, it is the most commonly used measure oI short term solvency.
II. Quick Ratio
Currcnt Asscts-InvcntorIcs
Currcnt LIabIIItIcs


6,648.2-1,635.5 m
7,356.4 m

0.68x

Comment

For each and every one ringgit oI short term debt, L'Oreal Malaysia has current assets by t0.68
without relying on inventories. For example, Inventories are typically the least liquid oI a Iirm`s
current assets; hence they are the current assets on which losses are most likely to occur in a
bankruptcy. ThereIore, a measure oI the Iirm`s ability to pay oII short-term obligations without
relying on the sale oI inventories is important
4.1.3.2 Leverage Ratios (million)
I. Debt-to-Total-Assets Ratio
otaI Dcbt
otaI Asscts


2,270.6+2,506.6 m
22,956.9 m

20.81

Comment

20.81 oI L'Oreal Malaysia investment is Iinanced by debt Iinancing, while 79.19 oI the
investment is Iinanced by equity Iinancing. For example, the percentage oI total Iunds that are
provided by creditors.


II. Times-Interest-Earned Ratio
PrIts beIre terest d tes
t terest rges


2,31. 2. 1
2,31.

38.46x
Comment

L'Oreal Malaysia has about 38 times oI the ability to pay and meet its annual interest and
taxes.For example, Times-Interest-Earned measures the extent to which operating income can
decline beIore the Iirm is unable to meet its annual interest`s costs. Failure to meet this
obligation can bring legal action by the Iirm`s creditors, possibly resulting in bankruptcy.

III. Debt-to Equity Ratio
otaI Dcbt
otaI StockhoIdcrs EquIty


2,270.6+2,506.6 m
11,828.7 m

40.39

Comment
For each and every one ringgit of shareholders` investment, L'Oral Malaysia can get debt
by $0.40 40.39 cents. For example, the percentage of total funds provided by creditors
versus by owners.

4.1.3.3 Activity Ratios (million)
I. Inventory Turnover
SaIcs
Invcntory oI fInIshcd goods


17,541.8 m
1,635.5 m

10.73x
Comment

The inventory turnover oI L'Oreal Malaysia is 10.73 times Ior year 2008. For example, excess
inventory is, oI course, unproductive, and it represents an investment with a low or zero rates oI
return and low turnover, must wonder whether the Iirm is actually holding obsolete goods not
worth their stated value compared to the industry average.

II. Fixed Assets Turnover
SaIcs
FIxcd Asscts


17,541.8 m
16,308.7 m

1.08x
Comment
For each and every one ringgit invest in Iixed assets, L'Oreal Malaysia can generate sales by
t1.08. For example, Iixed assets reIlect the historical costs oI the assets. It is measure sales
productivity and plant and equipment utilization.

III. Total Assets Turnover
SaIcs
otaI Asscts


17,541.8 m
22,956.9 m

0.76x
Comment
For each and every one ringgit invest in total assets, L'Oreal Malaysia can generate sales by
t0.76. For example, sales should be increased, some assets should be sold, or a combination oI
these steps should be taken iI company is not generating a suIIicient volume oI business given its
total assets investment.

4.1.3.4 Profitability Ratios (million)
I. Gross ProIit Margin
SaIcs mInus cost oI good soId
SaIcs


17,541.8- 5,240.1 m
17,541.8 m

70.13
Comment
For each and every one ringgit oI sales, L'Oreal Malaysia can generate net income by t 70.13.
For example, this ratio measures the total margin available to cover operating expenses and yield
a proIit.

II. Operating ProIit Margin
EarnIngs bcIorc Intcrcst and taxcs(EBI{
SaIcs


2,631.6 m
17,541.8 m



0.15

15



Comment
For each and every one ringgit oI sales, L'Oreal Malaysia can generate Earnings beIore interest
and taxes by t0.15 15 cents. This ratio measures proIitability without concern Ior taxes and
interest.

III. Net ProIit Margin
ct Incomc
SaIcs


1,950.9 m
17,541.8 m



11.12

Comment
For each and every one ringgit oI sales, L'Oreal Malaysia can generate net income by t11.12.
For example, this ratio measures proIits aIter tax per euro oI sales.

IV. Return on Total Assets (ROA)
ct Incomc
otaI Asscts


1,950.9 m
22,956.9 m

8.5

Comment

For each and every one ringgit oI total assets investment, L'Oreal Malaysia can generate net
income by t0.085 8.5 cents. For example, this ratio measures aIter tax proIit per dollar oI
assets; this ratio is also called return on investment (ROI).
V. Return on Stockholders Equity (ROE)
ct Incomc
otaI StockhoIdcrs EquIty


1,950.9 m
11,828.7 m

16.49


Comment
For each and every one ringgit oI shareholders` investment, L'Oreal Malaysia can generate net
income by $0.17 16.49 cents. For example, this ratio measure aIter tax proIits per dollar oI
stockholders` investment in the Iirm.

4.1.4 Production/operations
Production or operations is a manuIacturing operation transIorms or converts inputs such
as raw materials, labor, capital, machines, and Iacilities into Iinished goods and services. Then,
according to Pearce and Robinson operations are an activities, costs, and assets associated with
converting inputs into Iinal product Iorm (production, assembly, packaging, equipment
maintenance, Iacilities, operations, quality assurance, and environmental protection. According
to Roger Schroeder suggested that production/operations management comprises Iive Iunctions
or decisions areas include process, capacity, inventory, workIorce, and quality. L'Oreal Malaysia
has Iour criteria production and technology such as consistent quality worldwide, workplace
saIety and environment, and making own products locally.
4.1.4.1 Consistent Quality Worldwide
L'Oreal Malaysia has 94 oI output Irom the group`s Iactories is certiIied to comply with
ISO 9001/2000. The L'Oreal Quality systems such as conception and conIormity ensure that the
same strict standards are complied with at all the production sites in all parts oI the world.
Quality is monitored by internal audits and external audits conducted by organizations such as
the Food & Drug Administration in the USA. The quality control is executed at each step in the
manuIacturing process is monitored: reception oI raw materials, manuIacturing and packaging
processes, and beIore dispatch oI Iinished products.
4.1.4.2 Workplace Safety and Environment
SaIety, Industrial Hygiene and Environment are oI the utmost importance to L'Oreal
Malaysia. A monthly SaIety, Hygiene and Environment report covers more than 100 key
indicators at L'Oreal sites. Water and energy consumption as well as waste and waste recovery
are among L'Oreal main concerns. Most oI L'Oreal Iactories are ISO 14001 certiIied Ior the
environment and OHSAS 18001 or OSHA VPP Ior saIety. In addition, the saIety oI consumers is
oI paramount importance to L'Oreal. For nearly 100 years L'Oreal have manuIactured and
marketed saIe and eIIicacious beauty products around the world with the highest level oI
consumer satisIaction.
L'Oreal Malaysia view consumer saIety to be L'Oreal Malaysia Ioremost responsibility
that's why all new products and ingredients are subject to rigorous saIety testing. Because
L'Oreal Malaysia takes saIety so seriously L'Oreal Malaysia employs teams oI toxicologists and
physicians who work together with the scientiIic community to ensure the saIety oI all L'Oreal
products. As a pioneer in the development oI reconstructed skin technology, since the 1980's
L'Oreal Malaysia has used human epidermis and dermis models to assess the saIety and eIIicacy
oI products. In 1989 L'Oreal Malaysia initiated a corporate-wide policy which prohibits product
testing on animals.
This policy was adopted Ior the saIety assessment oI all our cosmetic products, and it
assures that L'Oreal Malaysia continues producing innovative products while ensuring saIe usage
Ior customers. L'Oreal's Malaysia policy requires that meet or exceed all governmental saIety
laws in each oI the 130 countries in which L`Oreal products are sold.
4.1.4.3 Making L`Oreal Own Products Locally
Quality and saIety is L'Oreal priorities at all times, and direct production gives the control
need to guarantee the highest standards. L'Oreal own workIorce and L'Oreal own sites account
Ior 94 oI total production. L'Oreal production policy is based on local manuIacturing: the
number oI units produced in each oI the world`s main regions is proportional to sales in that
region.
4.1.5 Management Information Systems
A management inIormation system`s purpose is to improve the perIormance oI an
enterprise by improving the quality oI managerial decisions. An eIIective inIormation system
thus collects, codes, stores, synthesizes, and presents InIormation in such a manner that it
answers important operating and strategic questions. A management inIormation system (MIS) is
a system or process that provides the inIormation necessary to manage an organization
eIIectively. MIS and the inIormation it generates are generally considered essential components
oI prudent and reasonable business decisions. L'Oreal Malaysia is developing and manuIacturing
inIormation systems, such as the Point oI Sales System (POS) to gain inIormation about
customer`s purchases.
For example L'Oreal Malaysia having partnership with Parkson by implementing
management inIormation systems such as Point oI Sales System (POS) Ior counter inventory
management. L'Oreal provides Point oI Sales System (POS) and hardware at each Parkson stores
to track sell out or inventory level oI Parkson`s stores, discuss with buyer Ior replenishment to
provide right stock, right quantity, and right time. Then, with the Point oI Sales System (POS)
also can improve stock availability, reduce loss on sales, better anticipation and planning Ior
each store, ability to view the inIormation real-time at L'Oreal daily, schedule reliability,
improve service level, and improve consumer satisIaction and value. InIormation oI Parkson`s
sell out and inventory level oI each Parkson`s store are transmitted daily to L'Oreal Malaysia.
From that, L'Oreal Malaysia can do analysis about customer needs Ior L'Oreal product.
Figure 4.0:Efficient Supply Chain: Consumer Needs







4.1.6 Research and development
The major area oI internal operations that should be examined Ior speciIic strengths and
weaknesses is research and development (R&D). According to Pearce and Robinson research
and development is a activities, costs, and assets relating to product R&D, process R&D, process
design improvement, equipment design, computer soItware development, telecommunications
systems, computer assisted design and engineering, new database capabilities, and development
oI computerized support systems.
L'Oreal Malaysia invests in R&D because they believe that such an investment will lead
to a superior product or service and will give them competitive advantages. Research and
development expenditures are directed at developing new products beIore competitors do, at
improving product quality, or at improving manuIacturing processes to reduce costs.
L'Oreal Malaysia have own research and development whereby the main Iacts and Iigures
regarding research and development is a 2961 employees oI 60 diIIerent nationalities working in
30 diIIerent disciplines, 533 million dedicated to cosmetic and dermatological research in 2006,
16 research centers across the world and 13 evaluation centers, 1/3 oI the research and
development budget devoted to basic research, 120 molecules designed and patented over the
last 40 years, 4000 Iormulas developed each year, 569 patents Iiled in 2006 and 100 active
cooperation agreements with leading academic, and research institutions. Then, L'Oreal Malaysia
have do research on skin, hair, and colour to gain knowledge and provide tool that solve the
problem.
4.1.6.1 Research & Development Center Activities
The Research and Development oI processes interIaces between Iormulation and
manuIacturing. This department works in cooperation with the Research Department to
implement optimum large-scale production oI Iormulas developed in L'Oreal laboratories. The
Packaging Research Department creates the packaging Ior tomorrow`s products L'Oreal ability
to innovate keeps at the IoreIront oI progress in packaging technology. L'Oreal sees its approach
to packaging as one oI the elements that set the Group's products apart. L'Oreal packaging is saIe
to use and saIe Ior the environment. The Group registers about 70 packaging patents a year.
Then, L'Oreal opens more research center to conduct activities that improve L'Oreal product.
Established in 2000, The L'Oreal Institute Ior Ethnic Hair & Skin Research is the Iirst
and only research Iacility operated by a beauty company whose sole mission is to conduct and
promote basic science research to better understand the unique properties oI the hair and skin oI
people oI AIrican descent worldwide. L`Oreal plans to open similar institutes in other countries
to study hair and skin speciIic to that region.
Other than that, L'Oreal has opened in September a new research Iacility in China, the
L'Oreal Research Center in Pudong. Its main mission will be to conduct and support basic
science research to vastly improve present understanding oI the structure and behavior oI
Chinese hair and skin. The decision to invest in China is part oI a long term global strategy and
commitment to Iormulate cosmetic products that meet consumer needs the world over, whilst
continuing to respect cultural diversity.
Furthermore, L'Oreal have been do research on skin, colour and hair to do survey on
consumer expectations, assess the saIety and the eIIiciency oI products and measure perIormance
as perceived by consumers and design tools and methods Ior measuring physical parameters in
order to assess the eIIiciency and appropriateness oI hair and colour products.

4. 2 The Internal Factor Evaluation (IFE) Matrix
A summary step in conducting an internal strategic-management audit is to construct an
Internal Factor Evaluation (IFE) Matrix. This strategy- Iormulation tool summarizes and
evaluates the major strengths and weaknesses in the Iunctional areas oI a business, and it also
provides a basis Ior identiIying and evaluating relationships among those areas. Regardless oI
how many Iactors are included in an IFE matrix, the total weighted score can range Irom a low
oI 1.0 to a high 4.0, with the average score being 2.5. Total weighted scores well below 2.5
characterize organizations that are weak internally, whereas scores signiIicantly above 2.5
indicate a strong internal position.
Table 4.1: IFE Matrix
Key Internal Factors Weight Rating Weighted Score
Strentgh
1. In business Ior a century
already a veteran
cosmetics company in the
world.


0.07

3

0.21
2. t15.8 billion
consolidated sales in 2006
(worldwide).



0.04


3


0.12
3. 19 global brands a
sustainable business model

0.05

2

0.10
(as L'Oreal continues to
acquire other cosmetics
companies and made their
brands under L'Oreal.

4. In Finance (worldwide):
Strong growth in 2006
annual results such as
Sales: 8.7 , t 15.8
billion, Operating proIit:
12.1, Net earnings per
share (1): 14.7,
Dividend (2): 18 , t
1.18 per share.
(1) Diluted net earnings
per share based on net
proIit excluding non-
recurrent items aIter
minority interest.



0.03


3


0.09
5. Each brand beneIits
Irom the considerable
investments in research
made by the L'Oreal
Group.



0.15


2


0. 30
6. The Group's research
eIIorts, unique in the
beauty industry, permit
each brand to beneIit Irom
Iormulas.
0.08 4 0.32
7. In Human Resources
(worldwide) L'Oreal has
60,851 employees in 58
countries, 140 close
partnerships with
universities around the
world, 4 Management
Development Centers,
L`Oreal rated the employer
oI choice in 2006 Ior
European business school
students according to
Trendence European
Students Barometer and
L`Oreal employees


0.05


3


0.20
worldwide have been
involved in social
commitment actions Ior
over a decade.

8. In Human Resources
(Malaysia) L'Oreal
Malaysia employs over
500 employees and has a
strong track record sales
growth posting double
digit increase Irom the
previous year.






0.08



3



0.24
9. L`Oreal Malaysia, like
the L'Oreal group, is
organized in Iour operating
divisions such as
Consumer Products
Division, Luxury Products
Division, ProIessional
Products Division and
Active Cosmetics
Division.

0.07 3 0.21
10. 94 oI output Irom the
group`s Iactories is
certiIied to comply with
ISO 9001/2000.
0.05 4 0.20
11. A monthly SaIety,
Hygiene and Environment
report covers more than
100 key indicators at our
sites. Water and energy
consumption as well as
waste and waste recovery
are among their main
concerns. Most oI their
Iactories are ISO 14001
certiIied Ior the
environment and OHSAS
18001 or OSHA VPP Ior
saIety.

0.04 3 0.12
12. In R&D (worldwide)
L'Oreal has 2,961
employees oI 60 diIIerent
nationalities working in 30
diIIerent disciplines, t533
million dedicated to
cosmetic and
dermatological research in
2006, 16 research centers
across the world, 1/3 oI the
R&D budget devoted to
Advanced Research, 120
molecules designed and
patented over the last 40
years and 4,000Iormulas
developed each year.

0.06 2 0.12
13. In Production and
Technology (worldwide)
L`Oreal has 42 Iactories
around the world, 14,800
employees, 4.4 billion
units manuIactured in
2005, 94 oI our products
manuIactured in our
plants, and Iactories
manage to reuse, recycle or
recover the energy Irom
93.8 oI their solid
wastes.

0.05 2 0.10

Weakness
1. There are too many
brands under L`Oreal
Group which are
competing in the same
market.


0.12


4


0.48
2. Too many brands can
cause conIusion among
consumers.


0.03


1


0.03


The most important Iactor to being weakness in this L`Oreal Malaysia is there are too
many brands under L`Oreal Group which are competing in the same market as indicated by the
0.12 weight and by a rating 4. This causes market share Ior each competing brand under the
Group to shrink.
L`Oreal Malaysia strongest on the Group's research eIIorts, unique in the beauty industry
and 94 oI output Irom the group`s Iactories is certiIied to comply with ISO 9001/2000 as
indicated by a rating oI 4 is the strength oI L`Oreal Malaysia.
The Group's research eIIorts, unique in the beauty industry permits each brand to beneIit
Irom Iormulas. This is because Iormulas speciIically adapted to the needs oI women and men
worldwide, within each market or distribution circuit that is present.

94 oI output Irom the group`s Iactories is certiIied to comply with ISO 9001/2000.
Because the L`Oreal Quality systems such as conception and conIormity ensure that the same
strict standards are complied with at all the production sites in all parts oI the world.
Finally, note that the total weighted score oI 2.87 is above the average (midpoint) oI 2.5,
so this L`Oreal Malaysia is doing pretty well, taking advantage oI the internal strengths and
improving the weakness Iacing the L`Oreal Malaysia. There is deIinitely room Ior improvement,
though, because the highest total weighted score would be 4.0.
As indicated by ratings oI 1, this L`Oreal Malaysia needs to improve more on the too
many brands can cause conIusion among consumers. . For example, every brand that L`Oreal
owns is categorized into 4 operating divisions. Lancome is categorized in Luxury Products
Division catered to the upmarket and thereIore pricing Ior its products is higher compared to
Maybelline which is categorized under the Consumer Products Division. Consumers would be
3. In Malaysia, there is no
local Iactory which
produces L`Oreal products.
Nearest Iactories
Bangkok and Jakarta.


0.03

1

0.03
%otal 1. 2.87
conIused and doubtIul towards the quality and value oI Lancome as both brands are
manuIactured under the same Group. ThereIore, Loreal need to standardize all product and price
so that the customers do not conIuse.
Then, in Malaysia, there is no local Iactory which produces L`Oreal products. Nearest
Iactories is a Bangkok and Jakarta. L`Oreal Malaysia needs to build local Iactory in own country
to produce L`Oreal products. In addition, L`Oreal Malaysia can distribute L`Oreal products to
customers Malaysia easily.
4.3 Conclusion
As conclusion the L`Oreal Iinance annual result shows t15.8 billion consolidated sales in
2006 (worldwide). L`Oreal Malaysia has Iour criteria production and technology such as
consistent quality worldwide, workplace saIety and environment and making own products
locally. L'Oreal have own research and development and has opened a new research Iacility in
China, in September the L'Oreal Research Center in Pudong to conduct more research activities.
Internal Factor Evaluation (IFE) Matrix Ior L`Oreal Malaysia shows that total weighted score oI
2.87 is above the average (midpoint) oI 2.5, so this L`Oreal Malaysia is doing pretty well, taking
advantage oI the internal strengths and improving the weakness Iacing the L`Oreal Malaysia.
L'Oreal Malaysia use management inIormation system to gathers data about marketing, Iinance,
production, and personnel matters internally, and social, cultural, demographic, environmental,
economic, political, governmental, legal, technological, and competitive Iactors externally.
Chapter 5 Strategies in Action
5.0 Introduction
Strategies in Action discuss about long-term objectives, types oI strategies such as
integration strategies, intensive strategies, and deIensive strategies. Then, also discuss about
Michael Porter`s Iive generic strategies and means Ior achieving strategies use by L`Oreal
Malaysia.


5.1 Long Term Objectives
Long term objectives represent the results expected Irom pursuing certain strategies.
Strategies represent the actions to be taken to accomplish long-term objectives. Objectives
should be quantitative, measurable, realistic, understandable, challenging, hierarchical,
obtainable, and congruent among organizational units. Each objective should also be associated
with a timeline. According to Pearce and Robinson long term objectives is a statement oI the
results a Iirm seeks to achieve over a speciIied period, typically three to Iive years.
Long term objectives L`Oreal Malaysia is a produce environmental Iriendly product
means that L`Oreal Malaysia produce product without using any chemicals. Second, L`Oreal
Malaysia need invest more in research to come up new product to satisIy customer`s needs.
Third, L`Oreal Malaysia need to identiIy potential company Ior example Body Shop that bring
proIits Ior L`Oreal group and then L`Oreal acquired with Body Shop.
6.2.3 The BCG Matrix
The BCG Matrix was created by the The Boston Consulting Group (BCG) and it became
on oI the most well-known portIolio management Decision Making Tools in the early 1970's. It
is based on the product liIe cycle theory, and it is used to prioritize the product portIolio in a
company or department. There are two dimensions - market share and market growth. The basic
premise in using the Matrix is that the higher the market share a product has, the higher the
growth rate and the Iaster the market Ior that product grows. (Decide-Guide.Com, 2008)









Figure 4.2: BCG Matrix

Division Revenues Percent
Revenues
Profits Percent
Profits
Percent
Market
Share
Percent
Growth
Rate
ProIessional
Products
t 623300000 15 t 519000000 17 3.3
Consumer
Products
t 2052800000 49 t1578000000 51 49 0.9
Luxury
Products
t1275700000 30 t 767000000 24 6.2
Active
Cosmetics
t269300000 6 t 259000000 8 3.3
Cosmetic
total
t4246500000 100 t3110000000 100 2.8

L`Oreal Malaysia BCG Matrix composed Iive divisions with annual sales ranging
Irom t269300000 to t 2052800000. Consumer Products has the greatest sales volume, so the
circle representing that division is the largest one in the matrix. The circle corresponding to
Active Cosmetics is the smallest because its sales volume (t269300000) is least among all the
divisions. The pie slices within the circles reveal the percent oI corporate proIits contributed by
each division. As shown, Consumer Products contributes the highest proIit percentage, 51
percent. Then, ProIessional Products is considered a Cash Cow, Consumer Products is a Star,
Luxury Products is a Question Marks, and Active Cosmetics is a Dog.
O Question Marks- Luxury Products in Quadrant I have a low relative market share
position, yet they compete in a high-growth industry. Generally these L`Oreal
Malaysia cash needs are high and their cash generation is low. These businesses
are called Question Marks because the L`Oreal Malaysia must decide whether to
strengthen them by pursuing an intensive strategy (market penetration, market
development, or product development) or to sell them. For example, L`Oreal
Malaysia can use this recommended tactics such as requires a lot oI cash to
maintain market share. In addition, L`Oreal Malaysia need invest more cash or
divest.
O Stars- Consumer Products in Quadrant II businesses represent the L`Oreal
Malaysia best long run opportunities Ior growth and proIitability. Consumer
Products with a high relative market share and a high industry growth should
receive substantial investment to maintain or strengthen their domain positions.
Forward, backward and horizontal integration; market penetration; market
development; and product development are appropriate strategies Ior these
divisions to consider. L`Oreal Malaysia is likely to generate enough cash to be
selI sustaining. For example, recommended tactics is an L`Oreal Malaysia need to
promote their business more aggressively; L`Oreal Malaysia need expand their
product or services, and invest in Research and Development to come out with
new products.
O Cash Cows- ProIessional Products positioned in Quadrant III have a high relative
market share position but compete in a low-growth industry. Called Cash Cows
because they generate cash in excess oI their needs, they are oIten milked. Many
oI today`s Cash Cows were yesterday`s Stars. Product development or
diversiIication may be attractive strategies Ior strong Cash Cows. However, as a
Cash Cow division becomes weak, retrenchment or divestiture can become more
appropriate. For example, L`Oreal Malaysia can use this recommended tactics
such as business can be used to support other business units. Because L`Oreal
Malaysia can use as deIend and should be managed to maintain their strong
position Ior as long as possible.
O Dogs- Active Cosmetics in Quadrant IV divisions oI the L`Oreal Malaysia have a
low relative market share position and compete in a slow-or no-market-growth
industry; they are Dogs in the L`Oreal Malaysia portIolio. Because oI their weak
internal and external position, these businesses are oIten liquidated, divested, or
trimmed down through retrenchment. When a division Iirst becomes a Dog,
retrenchment can be the best strategy to pursue because many Dogs have bounced
back, aIter strenuous asset and cost reduction, to become viable, proIitable
divisions. Under the Dogs division represent that business is a cash trap. For
example, L`Oreal Malaysia can use this recommended tactics to apply in their
business such as L`Oreal Malaysia should Iocus planning or project on short term,
do not conduct any risky project and reduce take any project in Iuture.












Chapter 1
Financial strengths
In an environment made very diIIicult in 2008 by the economic crisis, L'Oreal is proving
resilient and is continuing to grow in terms oI sales, net earnings per share and market share.
With annual sales growth oI 3.1 like-Ior-like and 6.6 at constant exchange rates, L`Oreal
continued to strengthen its positions in 2008 and increased its worldwide market share. In a year
when the downturn in markets was combined with the adverse impact oI currency Iluctuations
and costs in raw materials, the group's net proIit held up well, and growth in net earnings per
share oI 3.8 based on reported Iigures and 6.8 at constant exchange rates is practically in
line with the target announced in October.
Then, L'Oreal Iour divisions shows growth oI each division are not growing very well
such as the ProIessional Products Division achieved like-Ior-like growth oI 1.3 in 2008,
7.3 at constant exchange rates, aIter a Iinal quarter aIIected in the developed countries by the
impact oI the economic crisis on salon visits. Despite this slowdown, the division has
signiIicantly strengthened its worldwide leadership with market share gains in its 3 main zones.
The Consumer Products Division achieved annual like-Ior-like growth oI 4.1, Iollowing a 4th
quarter Iigure oI 2.5, in a market which has slowed slightly since September. The division`s
three worldwide brands perIormed well, consolidating the division`s worldwide market share. In
the context oI a very clear slowdown in the selective market in the Iinal quarter, the sales oI the
Luxury Products Division contracted by -6.3 in the 4th quarter, but increased by 0.7 like-
Ior-like in 2008. AIter the consolidation oI YSL Beaute Irom July 1st 2008, and at constant
exchange rates, sales grew by 9.9. With this acquisition, three oI the division's brands are
now in the top ten oI the selective market, and the division ranks world leader in its distribution
channel. The sales oI the Active Cosmetics Division at December 31
st
grew by 4.2 like-Ior-
like. These results reIlect market share gains across the world, achieved through growth in new
market positions

L'Oreal sales is very low compare to Body Shop increased by 4.6 and Galderma achieved
record sales, with a like-Ior-like increase oI 17.1.

quarter sparking fears of a slowdown in the beauty industry.
The world's largest cosmetics company Ielt the eIIects oI the US downturn as like-Ior-like sales
in North America Iell 3.9 per cent.
L'Oreal's poor perIormance on the other side oI the Atlantic held back the group's overall sales
which grew 2.1 per cent to t4.359bn Ior the quarter.
Commenting on the sales in North America, L'Oreal CEO Jean-Paul Agon said: e had been
anticipating a lacklustre 1
st
quarter, in fact, it turned out to be more difficult because of lower
footfall in department stores and larger than expected inventory reductions by our distributors.
Industry implications
In the trading day aIter the announcement oI the sales Iigures shares in L'Oreal Iell by over 7 per
cent but concern extended beyond the company.
AIter the results were released a Deutsche Bank analyst downgraded shares in Procter & Gamble
(P&G) Irom "buy" to "hold" citing worries about an industry-wide slowdown, according to
Associated Press.
The strength oI the Euro against the Dollar is exacerbating worries among European
manuIacturers with a signiIicant presence in the US.
Impact of weak dollar
Looking at the L'Oreal Iigures, currency Iluctuations had a major impact as reported turnover Ior
the quarter rose 2.1 per cent while like-Ior-like sales increased by 5.1 per cent.
Meanwhile reported sales in Western Europe were unexceptional increasing 1 per cent compared
to the same period last year.
Despite these weak Iigures, L'Oreal continued to perIorm strongly in emerging markets with
"rest oI the world" sales up 12.1 per cent on a reported basis.







References

http://www.brs-inc.com/models/model14.asp
http://www.occ.treas.gov/handbook/mis.pdI
http://www.decide-guide.com/BCG-matrix.html
http://www.12manage.com/methodsbcgmatrix.html
Brigham, E.F And Ehrhardt M.C (2005) inancial Management. Theory And Practice: South-
Western. 443-452.


Appendix
4.1.3 Finance and Accounting
For example, a church would monitor the ratio oI dollar contributions to number oI
members, while a zoo would monitor dollar Iood sales to number oI visitors. A university would
monitor number oI students divided by number oI proIessors.
4.1.4 Production/operations
For example, the average hourly pay oI employees can signiIicantly aIIect total
production costs and as evidenced in the 'Global Perspective, there is great variation in average
employee pay among countries.
4.1.5 Management Information Systems
For example, the company motto oI Mitsui, a large Japanese trading company is
'InIormation is the liIeblood oI the company. A satellite network connects Mitsui`s 200
worldwide oIIices.
4.1.6 Research and development
For example, companies in the United States are expected to spend about $ 219 billion on
R&D in 2007, a 3.4 percent increase over 2006. Analysts expect annual increases oI about 3 to 4
percent in R&D spending among U.S. companies through 2010. U.S. Iirms on average and
collectively spends more on R&D than any other country in the world, although China`s R&D
spending is increasing at an annual rate oI about 17 percent. U.S. corporate spending alone on
R&D is 64 percent more than all R&D spending in China, including corporate, government, and
academia combined.

4. 2 The Internal Factor Evaluation (IFE) Matrix
An example oI an IFE Matrix Ior a retail computer store. Note that the two most
important Iactors to be successIul in the retail computer store business are 'revenues Irom
repair/services in the store and 'location oI the store. Also note that the store is doing best on
'average customer purchase amount and 'in-store technical support. The store is having major
problems with its carpet, bathroom, paint, and checkout procedures. Note also that the matrix
contains substantial quantitative data rather than vague statements; this is excellent. Overall, this
store receives a 2.5 total weighted score, which on a 1-to-4 scale is exactly average/halIway,
indicating there is deIinitely room Ior improvement in store operations, strategies, policies, and
proceduAres.
Table 4.3:A Sample Internal Factor Evaluation Matrix for a Retail Computer Store
Key Internal Factors Weight Rating Weighted Score
Strentgh
1. Inventory turnover
increased Irom 5.8 to 6.7.

0.05

3

0.15
2. Average customer
purchase increased Irom
$97 to $128.



0.07


4


0.28
3. Employee morale is
excellent.


0.10

3

0.30
4. In store promotions
resulted in 20 percent
increase in sales.


0.05


3


0. 15
5. Newspaper advertising
expenditures increased 10
percent.
0.02 3 0.06
6.Revenues Irom
repair/service segment oI
store up 16 percent.



0.15


3


0.45
7. In-store technical
support personnel have
MIS college degrees.




0.05



4



0.20
8. Store`s debt-to-total
assets ratio declined to 34
percent.

0.03 3 0.09
9. Revenues per employee
up 19 percent.
0.02 3 0.06

Weakness
Weaknesses
1. Revenues Irom soItware
segment oI store down 12
percent.

0.10

2

0.20
2. Location oI store
negatively impacted by
new Highway 34.



0.15


2


0.30
3. Carpet and paint in store
somewhat in disrepair.


0.02

1

0.02
4. Bathroom in store needs
reIurbishing.


0.02


1


0.02
5. Revenues Irom
businesses down 8 percent.
0.04 1 0.04
6.Store has no Web site.



0.05


2

0.10
7. Suppliers on-time
delivery increased to 2.4
days.



0.03



1


0.03
8. OIten customers have
to wait to check out.
0.05 1 0.05
Total. 1.00 4 2.50


5.1 Long Term Objectives
For example, table 4.4 shows a particular organization could tailor these guidelines to
meet its own needs, but incentives should be attached to both long-term and annual objectives.
Table 4.4: Varying Performance Measures by Organizational Level
Organizational Level Basis Ior Annual Bonus or Merit Pay
Corporate 75 based on long-term objectives
25 based on annual objectives
Division 50 based on long-term objectives
50 based on annual objectives
Function 25 based on long-term objectives
75 based on annual objectives

6.2.3 The BCG Matrix
An example oI BCG matrix is provided in Figure 4.5, which illustrates an organization
composed oI Iour divisions with annual sales ranging Irom $ 4,000 to $80,000. Division 1 has
the greatest sales volume, so the circle representing that division is the largest one in the matrix.
The circle corresponding to Division 5 is the smallest because its sales volume ($5000) is least
among all the divisions. The pie slices within the circles reveal the percent oI corporate proIits
contributed by each division. As shown, Division 1 contributes the highest proIit percentage, 39
percent. Notice in the diagram that Division 1 is considered a Star, Division 2 is a Question
Mark, Division 3 is also a Question Mark, Division 4 is a Cash Cow, and Division 5 is a Dog.





Figure 4.5: BCG Matrix











Division Revenues Percent
Revenues
Profits Percent
Profits
Percent
Market
Share
Percent
Growth
Rate
1 $60,000 37 $10,000 39 80 15
2 40,000 24 5,000 20 40 10
3 40,000 24 2,000 8 10 1
4 20,000 12 8,000 31 60 -20
5 5,000 3 500 2 5 -10
Total $165,000 100 $25,500 100 - -