Harvard Case - KOSÉ: The New Challenges in China
"KOSÉ: The New Challenges in China" Harvard business case study is written by Yuri Taira, Chunhua Wu, Rui Jorge B. Basto da Silva. It deals with the challenges in the field of General Management. The case study is 21 page(s) long and it was first published on : Feb 7, 2024
At Fern Fort University, we recommend that KOS' implement a comprehensive strategy to address the challenges it faces in the Chinese market. This strategy should focus on leveraging its existing strengths, adapting to the evolving consumer landscape, and building a sustainable competitive advantage. This will involve a multi-pronged approach encompassing innovation, digital transformation, and a strong commitment to corporate social responsibility.
2. Background
KOS', a Japanese cosmetics company, has enjoyed significant success in the Chinese market for decades. However, recent years have seen a shift in consumer preferences, increased competition, and a more demanding regulatory environment. The company faces challenges in maintaining its market share and adapting to the evolving needs of Chinese consumers.
The main protagonists of the case study are:
- KOSɒs management team: They are tasked with navigating the company through the challenging market conditions in China.
- Chinese consumers: Their changing preferences and increasing demands are driving the need for KOS' to adapt its strategy.
- Competitors: The growing number of domestic and international brands are putting pressure on KOSɒs market share.
3. Analysis of the Case Study
To analyze the case, we will utilize a framework that combines Porter's Five Forces and SWOT Analysis to understand the competitive landscape and KOSɒs internal strengths and weaknesses.
Porter's Five Forces:
- Threat of New Entrants: High. The Chinese market is characterized by a low barrier to entry, attracting numerous domestic and international brands.
- Bargaining Power of Buyers: High. Chinese consumers are increasingly sophisticated and demanding, with access to a wide range of products and information.
- Bargaining Power of Suppliers: Moderate. KOS' relies on a diverse range of suppliers, but the availability of raw materials and packaging can impact its production costs.
- Threat of Substitute Products: High. The cosmetics industry is highly competitive, with numerous substitutes available, including local brands and online retailers.
- Competitive Rivalry: High. The market is saturated with established players and new entrants, leading to intense competition for market share.
SWOT Analysis:
Strengths:
- Strong Brand Recognition: KOS' enjoys a long-standing reputation for quality and innovation in the Chinese market.
- Established Distribution Network: The company has a well-developed distribution network across China, reaching a wide range of consumers.
- Experience in Emerging Markets: KOS' has a proven track record of success in navigating the complexities of emerging markets.
Weaknesses:
- Limited Digital Presence: Compared to competitors, KOS' has a relatively weak online presence, hindering its ability to reach younger consumers.
- Product Innovation: The company's product portfolio may not be as innovative or diverse as some competitors.
- Price Sensitivity: Chinese consumers are highly price-sensitive, and KOSɒs products may be perceived as relatively expensive.
Opportunities:
- Growing Middle Class: China's expanding middle class presents a significant opportunity for KOS' to capture new customers.
- E-commerce Growth: The rapid growth of e-commerce in China provides a platform for KOS' to reach a wider audience.
- Demand for Natural and Organic Products: Increasing consumer awareness of natural and organic ingredients presents a niche market for KOS'.
Threats:
- Economic Slowdown: A potential economic slowdown in China could impact consumer spending on non-essential items like cosmetics.
- Increased Competition: The entry of new players and the rise of domestic brands continue to intensify competition.
- Regulatory Changes: The Chinese government's evolving regulations on cosmetics could impact KOSɒs operations.
4. Recommendations
To address the challenges and capitalize on opportunities, KOS' should implement the following recommendations:
1. Digital Transformation:
- Enhance Online Presence: Invest in a robust e-commerce platform and expand its digital marketing efforts to reach younger consumers.
- Leverage Social Media: Utilize social media platforms like WeChat and Weibo to engage with consumers and build brand loyalty.
- Develop Mobile Apps: Create mobile applications that offer personalized product recommendations, loyalty programs, and access to exclusive content.
2. Product Innovation:
- Develop New Product Lines: Introduce new product lines catering to specific consumer needs and trends, such as natural and organic skincare, targeted treatments, and innovative makeup products.
- Focus on Customization: Offer personalized product recommendations and allow consumers to create customized skincare regimens.
- Collaborate with Influencers: Partner with key opinion leaders and influencers to promote new products and generate buzz.
3. Strategic Partnerships:
- Collaborate with Local Brands: Partner with established Chinese brands to leverage their local expertise and reach a wider audience.
- Develop Joint Ventures: Explore joint ventures with local companies to expand its market reach and access new distribution channels.
- Strategic Alliances: Form strategic alliances with other international companies to share resources and expertise.
4. Corporate Social Responsibility (CSR):
- Environmental Sustainability: Implement sustainable practices throughout its supply chain, from sourcing raw materials to packaging and manufacturing.
- Community Engagement: Engage with local communities through charitable initiatives and support for social causes.
- Transparency and Ethics: Maintain transparency in its operations and adhere to ethical business practices.
5. Talent Management:
- Hire Local Expertise: Recruit experienced professionals with deep knowledge of the Chinese market and consumer behavior.
- Invest in Training: Provide training programs to equip employees with the skills and knowledge needed to navigate the evolving market.
- Promote Diversity and Inclusion: Foster a diverse and inclusive workplace that values different perspectives and experiences.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of KOSɒs strengths, weaknesses, opportunities, and threats in the Chinese market. They consider the following factors:
- Core Competencies and Consistency with Mission: The recommendations align with KOSɒs core competencies in product development and innovation, while also supporting its mission of providing high-quality skincare products to consumers.
- External Customers and Internal Clients: The recommendations aim to meet the evolving needs of Chinese consumers while empowering employees to contribute to the company's success.
- Competitors: The recommendations focus on differentiating KOS' from its competitors by leveraging its strengths and adapting to the changing market dynamics.
- Attractiveness ' Quantitative Measures: While specific financial measures are not provided in the case study, the recommendations are expected to contribute to increased market share, revenue growth, and profitability.
- Assumptions: The recommendations are based on the assumption that KOS' has the resources and commitment to implement the proposed strategies.
6. Conclusion
KOS' faces significant challenges in the Chinese market, but it also has the potential to thrive by adapting its strategy and embracing innovation. By focusing on digital transformation, product innovation, strategic partnerships, and corporate social responsibility, KOS' can strengthen its brand, expand its reach, and build a sustainable competitive advantage.
7. Discussion
Alternative Options:
- Exiting the Chinese market: This option would be a significant strategic shift and would likely result in significant financial losses.
- Maintaining the status quo: This approach would likely lead to a decline in market share and profitability as competitors continue to innovate and capture market share.
Risks and Key Assumptions:
- Economic slowdown: A significant economic slowdown in China could impact consumer spending and negatively affect KOSɒs sales.
- Regulatory changes: The Chinese government's evolving regulations on cosmetics could create new challenges for KOS'.
- Competition: The emergence of new competitors and the increasing popularity of domestic brands could erode KOSɒs market share.
8. Next Steps
- Develop a detailed implementation plan: This plan should outline specific actions, timelines, and resource allocation for each recommendation.
- Conduct market research: Gather data on consumer preferences, competitor activities, and market trends to inform decision-making.
- Pilot test new initiatives: Before launching new products or services on a large scale, pilot test them in smaller markets to gather feedback and refine the strategy.
- Monitor progress and adjust as needed: Regularly monitor the progress of the implementation plan and make adjustments as needed to ensure that the strategy remains effective.
By taking a proactive approach and implementing these recommendations, KOS' can navigate the challenges and capitalize on the opportunities presented by the dynamic Chinese market.
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Case Description
In May 2023, KOSÉ Corporation (KOSÉ) was facing three ominous factors in the Chinese market: declining sales due to weak consumer spending in China following a surge in the number of COVID-19 cases after Beijing ended its zero-COVID-19 policy, new regulations requiring beauty manufactures after January 2024 to label all ingredients that constituted more than 0.1 per cent of a product in descending order (thereby risking disclosing trade secrets), and Chinese consumers' preferences shifting to local Chinese beauty manufacturers. About 30 per cent of KOSÉ's net sales came from the Chinese market, where it focused on its major brands, Sekkisei and Decorté. Yet the market was becoming more saturated with giant European beauty manufactures and local enterprises. Should KOSÉ keep focusing on the Chinese market as its pillar strategy?
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