European & Global Factors

In this report, I will be exploring the European and global factors that occur within the economic environment. The business I have chosen to refer to is L’Oreal. The European Union is a union consisting of 27 countries that have an agreement of free trade. This is when the countries within the EU can trade with each other without any tariffs. They all use the same currency which is Euros apart from the UK and Gibraltar who use GBP (Great British Pound). The advantage of this for L’Oreal is that it allows them to expand in other countries such as France, Spain and Italy without being charged any extra fees for selling and trading within that country. It also allows L’Oreal to invest in other EU countries if they wanted to when the interest rates are higher for a larger return. On the other hand, because they would be trading and selling in other countries, they would have more competition within their market. So if L’Oreal were trading and selling in Spain, there may be a better known and more established hair care brand that L’Oreal would have to compete with.

Another disadvantage is that some EU countries may have a weaker currency or could be in debt so L’Oreal would need to invest at a good time. L’Oreal may need to use marketing techniques such as using a Spanish celebrity to promote their products in order for them to appeal to the Spanish. Globalisation is the process of the world becoming interconnected due to increased trade and cultural exchange throughout different countries. I will now explore the advantages and disadvantages of L’Oreal globalising their brand. The advantage of globalisation is that L’Oreal would have an increase in sales and more purchases since they would be expanding to a different country. They would also become globally recognised as a brand which will also contribute to an increase in sales. However, if the state of the economy in the country they have chosen to expand to may fail which would mean that their business would fail too since all of the countries would be interdependent.

In 2009 the USA economy failed and because of this the countries that relied on the USA also failed such as the UK, Germany, France and Spain. Another advantage of globalisation is that there would be increased skills and more choices for labour work which may be more efficient but cheaper which would benefit L’Oreal’s turnover. L’Oreal could look into outsourcing which is when the manufacturing process is moved abroad to other countries. The advantage of this is that production costs would be a lot cheaper but there may be issues regarding rules and regulations within that country such as child labour issues. This would create a negative image on a luxury company like L’Oreal if they were to have children working in their factories or just people working under bad conditions. China may encourage customers to purchase from only Chinese brands which may make it harder for L’Oreal to succeed in selling in China. Emerging economies such as Brazil, India and China presents opportunities for L’Oreal to sell products.

So since these countries are emerging, the richer the country becomes, the more likely people within that country will spend on luxury products that L’Oreal sell. This means that L’Oreal would benefit from investing in emerging economies such as Brazil and China. However, L’Oreal would have to decide on different prices depending on where they decide to invest because if they set the price too high for that country then less people would be willing to purchase their product. However, if they were to make their prices low then L’Oreal would make less profit and it could also affect their image as a luxury brand. If they set their prices too high then customers would seek elsewhere for a cheaper alternative which would be L’Oreal’s competitors: Paul Mitchell or Moroccan Oil. In conclusion, the European Union and globalisation would benefit a company such as L’Oreal because it allows them to trade in other countries so they are now recognised in all of the countries within the EU as well as globally. However, they may need to compete with other major brands within the EU in order to be more recognised which would then generate more profit.