Sephora's Expansion into Vietnam

2895 words (12 pages) Essay

8th Feb 2020 International Business Reference this

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Overarching Information

This research will provide an insight into Sephora brand and how Sephora can expand its business into other potential markets such as Vietnam- Ho Chi Minh city.

Sephora is a leading company in the retail, teaching and inspirational world-renowned customers to play in a beauty world. Owned by LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury goods corporation, Sephora has earned a reputation as a beautician with expertise, innovation, and entrepreneurial spirit. Sephora revolutionary retail beauty concept was established in France in 1970 by Dominique Mandonnaud, defined by its unique environment, open to the public with a growing product range from well-known brands.

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Today, Sephora is not only the leading retailer of perfume and cosmetics in France but also a strong presence in the rest of the world thanks to the prestigious products of all genres and services. Even Sephora appear in China, Hongkong, Indonesia, Malaysia, Thailand, etc.… Sephora still not have a store in Vietnam – one of the most developing countries in the ASEAN group.

Located in South East Asia, Vietnam is known as a beautiful country with a glorious history and much magnificent landscape. More than that in these years, Vietnam show to the world outstanding economic development. There are three big cities in Vietnam: Hanoi, Da Nang, and Ho Chi Minh city but the most suitable for Sephora expanding to are Ho Chi Minh City. Ho Chi Minh city or as known as Saigon in the past was named “Pearl of the East’’ by French with a lot of potencies. Due to the past with many years suffer settlement of others foreign countries, Ho Chi Minh city seems like a “westernization area.” English is used commonly as Vietnamese (main language in Vietnam), and some old people from the previous generation can speak French. Vietnam has risen 14 places to 68th out of 190 economies in the World Bank’s Easy-to-do 2018 Business Rankings. Depend on these number; we can conclude that doing business in Vietnam is not hard and lots of opportunities for Sephora.

According to statistic, Vietnam stands for 47th position measured by GDP and 35th by purchasing power, considered as 35th-largest in the world. Since the mid-1980s, through the changing to a mixed economy, Vietnam’s economy proliferates. Service was one of the highest percentage composition compared with Agriculture, Industry and Manufacturing.

In the 21st century, Vietnam is in the process of integration. Taking part in Asia-Pacific Economic Cooperation, ASEAN and WTO association, Vietnam got a lot of chances and opportunities on import and export industry. In the same ASEAN block, Vietnam has outstanding on high literacy rate and cheap labor and is growing strongly ahead of its rival.

Attractive Aspects for Sephora

Ho Chi Minh city where Sephora should be expanded to has various attractive aspects. In the view of expertise, Ho Chi Minh City is one of the most dynamic cities and ranked number two. The World Economic Forum recognizes Ho Chi Minh City as a highly potential city that can compete with economic growth and technological growth, as it is driven by low cost and high levels of foreign direct investment. Sephora is considered as a company in Service field and that is why Ho Chi Minh is the most suitable location. Services in Ho Chi Minh City can be said to be the best in comparison with all cities in the country.

The culture was one of the most critical components for the investor when they decided to start to establish something in a new place. With a French company as Sephora, culture in Vietnam can be more complicated with other western countries. Vietnam is the country from the east, so there are vast differences between the two countries. Comparing the cultural component can help Sephora analyze and prepare for all the situation and creating the working environment for all employee feel good. Depending on six compositions of Hofstede to determining the same and differences between France and Vietnam, Sephora can conclude the pros and cons to develop and minimize all problems

As we can see in the chart comparison between the two countries. Just two dimensions: Individualism and Uncertainty avoidance have vast differences. All the left aspects, the differences between Vietnam and France is not too much. So, the rate between same and different is approximately 50%/50%. This can be seen as advantages for Sephora when there are not too many differences between the two countries. In both France and Vietnam, Power distance is so significant. People in these societies living under inequalities and people working in the hierarchy structure. Everything must be done in order, and everybody must know precisely what to do and their responsibilities. Vietnam got 40 and France got 43 on this dimension. This number can indicate that these societies are feminine cultures. People in Vietnam and France tend to work to live. Managers who are working in these societies must know how to balance the value of everyone and working quality. But one distinctive characteristic of France is the upper-class score Feminine, but the working-class scores Masculine. This is their unique does not find in any other country. Long-term orientation aspect in both countries is the same. The difference between Vietnam and France is not too much (57 and 63). This score on long-term orientation dimension can tell that there is the pragmatic culture in both. People in societies which got the score like this prefer to believe in truth on different situation, each situation they will have different views. They can easily to change and adapt to new things. Last but not least is Indulgence. France got 48 and Vietnam got 35.  With score 48, it implies that French are concerned Indulgence versus Restraint. People in France are less relaxed and enjoy life. A low score on this dimension can show that Vietnam is characterized as Restraint. Vietnamese tendency to cynicism and pessimism.

 Next to the differences between the two countries. First of all is about Individualism factor. Even France got high score 71, Vietnam just got 20. It can be seen that the opposite between two societies. French prefer to work by individuals, and they are supposed to look after themselves and their direct family only, but Vietnamese tend to work as a team, group and they take care of them in exchange for loyalty. Next, to Uncertainly avoidance, France got 86, and Vietnam got 30. This score can reflect the significant differences between France and Vietnam. French do not like the surprise. They need preparation in everything and planning are required. They always want things must be stable and all information is so necessary. Completely opposed with French, Vietnamese work with a more relaxed attitude. The schedule can be flexible and hard work is undertaken when necessary. They do not need policy or principle; practices count more than that. If someone who is ambiguous at the workplace, they will be abandoned or changed. This dimension is so essential for Sephora because Sephora still uses foreigner manager (an expatriate worker from France) and most of the employee is Vietnamese, so they need something to unified rules.

Market Analysis

Sephora sells products that are considered part of the cosmetic industry, the beauty industry, and the personal care industry. Their beauty products are the makeup and makeup tools and other accessories. However, it also sells products that are a part of the personal care industry such as their acne and other skin regimen products. The focus will be Sephora as a part of the Cosmetic industry because personal care broadly incorporates products from baby products such as wipes and diapers also to deodorant and razors.

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The global cosmetic industry has seen and will continue to see growth over the next few years. In Vietnam specifically, the Cosmetic Market has valued at US$2 billion dollars (Chi, 2018). In fact, the average Vietnamese woman spends approximately $6 on cosmetics (Chi, 2018). This may seem like an insignificant amount but $6 is equivalent to about $140,000 Vietnamese dongs. As for the market potential in Vietnam, a foreign country has a great opportunity when trying to penetrate the market. In fact, there are not many direct competitors for Sephora in Vietnam. Many of the sellers of cosmetics in Vietnam are considered drugstore cosmetics (Van, 2018). Drugstore cosmetics is equivalent here in the United States to makeup that is sold at Walmart, Target, Walgreens, or Rite Aid; they are the lower end in terms of value and quality of makeup. Sephora, on the other hand, is a seller of high-end high-quality makeup, and they do not sell any generic brands. Therefore, they will be quite successful in Vietnam as there is a market for these high-end (Spencer, 2018). Furthermore, the makeup industry, as mentioned before, in Vietnam is worth US $2 billion, and it’s expected to see significant growth in the next two years (Chi, 2018). While US $2 billion is small for an industry, it is quite large when you consider the size of Vietnam.

Concerning entry into the Vietnamese cosmetic Market, it would be relatively easy for a foreign investor. Vietnam is one of the least difficult places to do business in the world as it is ranked 68th out 189 countries in the Ease of Doing Business Index. In fact, in the Vietnamese cosmetic industry, most cosmetic sellers are from foreign countries (Chi, 2018). Japan and Korea are the top sellers of cosmetics in Vietnam currently (VOV, 2017). Also, it is relatively easy to conduct business in Vietnam through other routes such as joint ventures and wholly-owned subsidiary not just for investment; Vietnam’s cosmetic market is very attractive to foreign brands because of the large market share (Van, 2018).

Trends

There are several trends occurring in the Cosmetic Market. The first trend is vegan or natural and organic products. The term vegan does not necessarily refer to food anymore. Vegan can apply to all sorts of products such as clothing, meaning you refrain from wearing leather from cows or furs from rabbits and foxes. Veganism in beauty products refers to makeup and makeup tools being made entirely without anything from animals. It refers also to not testing on products on animals. This was practiced widely in the industry, but it was not until the late 1990s and early 2000s that testing on animals was realized to be inhumane and immoral. As far as using natural and organic ingredients in makeup this trend really sparked in 2015 where consumers and customers were demanding that companies have these options (source).

The second trend is men using makeup and other beauty regimens. In the United States and in Western culture in general, men using makeup products and other beauty treatments has had a negative stigma. Currently, it is widely accepted for men to take care of themselves through personal care. This trend, however, is not new to the Asian culture as the men in popular culture use makeup and take care of their skin using skin treatments, serums, lotions, etc. Sephora currently has expanded their stores to include a men’s section to follow this trend (CB Insights, 2018).

The last trend is retail technology. Sephora is at the forefront of the cosmetic industry as they have installed new technology in their store that allows consumers to essentially try on makeup before buying them (Holson, 2017). Customers, both online and in-store, are able to see what the foundation, the eyeshadow, or the mascara from various brands will look like on their faces before purchasing. Basically, this technology will show the customer what shades will look best with their complexion. A technology called color IQ matches the foundation for the customer without having to physically use the tester foundations in the store that was previously available. Additionally, Sephora has features on their websites that allow you to quickly reorder products that you purchased in the past as to make shopping easier (CB Insights, 2018).

Segment, Target, Position (STP)

When a company is entering a foreign market, it is important for them to discuss who their target market will be, what the primary identifiers for those market segments are, and how they will market themselves for the target market. Segmentation, targeting and positioning for Sephora in Vietnam involves using the strategy they already use globally. For Sephora one of the ways they already segment the market is by age. Sephora’s target is 18 years to 34 years of age. Deborah Yeh is Sephora’s SVP of marketing, and she says that all the new retail technology is geared toward younger consumers (Holson, 2017). Furthermore, Sephora targets middle-class and upper-class consumers as it sells high-end makeup brands. When targeting their niche market, Sephora’s strategy always stays the same no matter the geographic location. Sephora aims to only be associated with quality; therefore, it only sells high-quality and much more expensive makeup brands. In the Vietnamese Market, Sephora will maintain their high-quality position. Sephora will also continue their try-before-you-buy philosophy.

Sephora in Vietnam

In Vietnam, Sephora will operate as a wholly owned subsidiary. Sephora has maintained its universal image of quality because it refuses to franchise its stores or yield control to companies outside of its conglomerate. In fact, many of the brands offered at Sephora are owned by the LVMH conglomerate. While Sephora will maintain complete control over its stores and concepts, the company can still form alliances. In the US, Sephora partnered with the department store JC Penney to by using the “store within a store” concept (CB Insights, 2018). Sephora can partner with Vietnamese department stores or malls that add to its brand. The current leadership of Sephora contains the president and CEO Calvin McDonald (Sephora, n.d.). Currently, for a has a chief operating officer of Sephora Americas that predominantly focuses on Latin America. The plan proposes that Sephora promote someone from within to run “Sephora Asia” when they open stores in Vietnam. Sephora currently operates in China, Singapore, Malaysia, Philippines, and more. They even have a flagship store in Shanghai, China (LVMH, n.d.). The actual stores in Vietnam will of course be managed by local Vietnamese citizens as they best understand the culture and language.

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