External Environmental Analysis

The report is prepared for evaluating and analyzing the external and internal environment of chosen company. Selected company for evaluation of its environment is Natura. External analysis is done by evaluation of the general, industry and competitors environment. Internal analysis of company is explained in terms of their strength and weakness such as resource and capabilities, core competencies and capabilities, sustainability advantages and core competencies. Natura Brasil is the leading cosmetic manufacturers of Brazil that was established in 1969 and is leader in direct sales sector. Company is based in Cajamar, Sao Paulo and have sustainable development as the guiding principles (Naturabrasil.fr 2018). The main commercial strategy of company is its passion for adopting direct sales for building customer relations. Some of the brand of Natura are Natura brasil chromos, Natura brasil EKOS, Natura brasil Tododia and mamae e bebe (Naturabrasil.fr 2018). Report demonstrate the analysis of external and internal environment by considering several aspects and summarizing into the strength and weakness.

External environmental analysis of Natura is done by focusing on its general environment, industry environment and competitor’s environment. General environment is analyzed using PESTLE and industry environment is analyzed using Porters five forces model. Competitor’s environment is analyzed by identifying the strength and weakness of capabilities and resources.

PESTLE analysis:

Political factors- The political system of Brazil is stable and the cosmetic distributor in the country is affected by implementation of tax on industrialized products. Therefore, the political system and federation of company affect the cosmetic company.

Environmental factors- Brazil have sufficient natural resources having the largest reserves of niobium in the world with 93% total global reserves. 

Social factors- Country is facing some social challenges in recent years such as rising level of corruption and increasing crime rate. This might create hurdle in operations of business of Natura (Steger and Meima 2016).

Technological factors- In order to develop the competitiveness of organization, technology are considered as one of the essential factors. In science and technology, Brazil is a leader, although Natura faced some challenges in finding innovative technology solutions for providing testing that guarantee safety level for products (Wheelen et al. 2017). 

Legal factors- Federal government of Brazil has responsibility for legislating on business related matters. Any changes in legal factors have considerable impact of financial situation of company, operating results and business models.

Economic factors- The economy of Brazil is dominated by service sector that have contributed to 66% of total value of gross domestic product in year 2013. Brazil being the largest economy of Latin America is regarded as the largest cosmetic and beauty products market in the world. Cosmetic market of country is projected to grow at CAGR 7.56% by 2020. Macroeconomic situations of country have improved as the inflation rates are under control along with reduction in internal debt and have built foreign relations. Improvement in economic situation of country would have positive impact on operation of business of Natura (Zito 2017).

PESTLE Analysis

Threat of substitutes- E commerce is emerging as competitors to direct sales for all premium and mass brands. Increasing e commerce trend might be challenging to direct sales strategy of Natura.

Threat of new entrants-  Brazil is the fourth largest market for cosmetic products and has become the trendsetter in the global industry. It is required by new entrants to have high degree of quality assurance and certification for selling into Brazilian market. Therefore, threat of new entrants ranges from low to medium.

Suppliers bargaining power- The largest cosmetic supplier for cosmetic company in Brazil is United States and they import all sorts of cosmetic products. Hence, it can be said that UUS is the major supplier for Natura and with fewer suppliers for the leading cosmetic company, it can be said that they enjoy low bargaining power of suppliers (Dornela et al. 2016).

Buyers bargaining power- Customers are increasingly looking for value of money products that are beneficial and natural for skin. They are looking for products that provide them with combined benefits of high premium products. Number of substitutes available in the market and the level of competitions determine the barging power of buyer (Charter 2017). Since, Natura is the leader in the cosmetic market, therefore, barging power is power is considered lower.

Rivalry amongst competitors- The key players in the cosmetic industry of Brazil include both international and domestic brands such as Loreal, Unilever and Mary Kay. Competition amongst rivals can be regarded as high for Natura. 

Competitor’s environment analysis:

The operational pathway of Natura is innovation and the process of learning and it is the first company to employ model of direct sales. In order to improve the product features, company make continuous investment in research and development. Success of Natura at the international level is contributed to its innovation and learning activities. On other hand, Group Boticario is a powerful cosmetic chain due to its powerful campaigns that involves women of all colour, ages and sizes. This particular cosmetic company sells multiple brands in a small format store of boutique style and has strong e commerce presence. Avon products on other hand are making aggressive improvement by implementing e commerce platform (Chun 2016). Therefore, it can be seen from the analysis of competitor’s environment that Natura should employ e commerce platform for marketing its products.

Strength:

• Natura is the biggest domestic cosmetic company operating in Brazil having expected gross revenue of around US $ 1,5 billion.
• In recent years, Natura had grown into international operations. Company along with opening flagship store in Paris established a new direct selling operation in Venezuela, Mexico and Colombia.
• Natura is considered as one of the best cosmetic brand in Brazil as it made the best sustainable use of bio diversity of country (van Rensburg 2015).

Weakness:

Cosmetic manufacturers have not been able to properly explore and fully emphasize the sustainability efforts and eco consciousness as perceived by Brazilian consumers.

• The weakness of Natura is mainly identified in going green in some region.
• Enhancing the specific attributes of products is the main challenge faced by organization, as they are poor in some specific region or countries.
• Natura weakness comes when expanding at international level as it requires adaption of Brazilian model to other countries (Frynas and Mellahi 2015). This makes operation of company somewhat difficult.

Industry Environment Analysis

Natura is a producer direct

Resource and capabilities contributing to competitive advantage:

Redefinition of corporate strategy emphasizing on innovation by Natura is considered as the growth driver and as one of the core capabilities. Incorporation is the culture driver of company that has incorporated encouragement of innovation in the products manufactured.

One of the crucial factors to the marketing strategy of Natura is continuous reformulation and reinvention. The products of Natura are wrapped in a stylish natural fibre bag that is presentable and this differentiates other products present in the market. Catalogue based retailing of company was non-existence in Brazil and it became an important sales tool. Use of this particular tool provided Natura with competitive advantage. Products of Natura are based on being well/well being concept that refers to pleasant and harmonious relationship between one’s body and oneself along with combining the concept of empathetic and rewarding relationship with others and with nature. This particular approach has helped in strengthening relationship with suppliers in value chain and is regarded as key differentiation factor for the products offered.

Strength-

• Biggest domestic cosmetic company of Brazil and considered as one of the best brand.
• Acquisition of Body shop from Loreal has helped in solidifying Natura efforts to become a multi brand, global and multi channel cosmetic groups.
• Enhanced international operations of Natura are one of its strength.
• Wide range of product lines such as high margin cosmetics, natural sold premium and personal care products to upper and middle class customer segments (Suganya et al. 2016).

Weakness-

• Transition in economic policy and changes in government make it difficult to perform their operations.
• Difficulty in sustaining the growth rate of international operations of company (Grant 2016).

Opportunities-

• World of beauty is finally waking up to Brazil and the market has huge potential to offer. Over the next few years, this rising force is set for global domination.
• Population of Brazil is fashion forward and they have greater interest in personal care and beauty products. Investment made by company in innovative marketing and new products would guarantee growth of company (Dornelas et al.2016).  

Threats-

• There is a change in marketing structure due to recent shift from direct to store based retailing.
• Moreover, rising intense competition due to prevalence of international brands along with change in market structure is the reason for struggling of direct sales companies such as Natura.

The relevant strategy employed by Natura are as follows:

Business level strategy- Such strategy is an integrated and coordinated set of commitments that is used by organization for gaining competitive advantage. It deals with superior capabilities and resources of organization that provide competitive advantage over their rivals along with providing value to customers. Capabilities of organization have been strengthened for operating in mature markets. Cosmetics and relationship form the fruits of two passions that have sought to create value to society that has led to generation of triple bottom lines.  Innovation is one of the main drivers of development and core competencies of Natura that has helped in gaining competitive advantage over its competitors (Morden 2016). The movement names “Innovation Innovation” was the turning point towards reshaping innovation and it has been the differentiating factor. Redefinition of innovation differentiators is one of the transforming changes at Natura.  Process of product development was revised by focusing on maturity of classical product development stage-gate with process specifications, updated requisites and training of employees. Innovation process of Natura makes use of sustainable bio diversity in the product formulization. Implementation of alternative productive model and focusing on renewable packaging and renewable ingredient are some of the features providing value to customers (Sahota 2014).

International strategy- The internationalization process of Natura has been increasingly making investment in innovation. Increasing investment has been witnessed at international level and in recent years, the international operations of Natura have increased. Some of the strategic issues concerning international expansion have been overseen by organization and has led to several initiatives on international process. Considerable potential for international expansion was the main reason for expanding in different countries. International expansion was started by implementing the model of direct selling business. Products of company were placed in international brands in terms of value perception and pricing. However, the biggest challenge faced by organization while expanding internationally was in terms of successfully adapting Brazilian model in different countries.  The bottleneck in the international strategy is the lack of professional pool of talent (Rothaermel 2015).

Competitor’s Environment Analysis

Acquisition and merger strategy- Natura relied on the acquisition strategy for enhancing their business growth. Company completed 100% acquisition of equity of Australian brand, Aesop in year 2016. Business model of firm is advanced by the practices of technology acquisition. The fundamental strategic issues such as skill acquisition are faced by organization if control over the scare resources is the economic profit source (Rothaermel 2015).

The identification of strategic challenges faced by company is done by considering threats, weakness and risk of strategies. Development of strategies by organization would require a systematic analysis of strength, weakness, opportunities and threats. Such analysis and recommendation of strategies is done by the application of TOWS model.

Internal factors/ External factors	Strength (S) Natura is best-known brand for cosmetics, shampoos, and cream and beauty products. One of the sources of competitive advantage for Natura is strong ethical and environmental commitments (Pervin et al. 2014).	Weaknesses (W) Sustaining growth of international operations of company is the weakness of Natura. In the home market of Natura, some of the widely known companies and brands are already participants. This might create difficult for organization to operate seamlessly in the industry. Operation in Brazil is experiencing unprecedented growth and the organization does not have sufficient in house talent.
Opportunities (O) Market of Brazil is fast growing market of beauty products. Big improvement in purchasing power of middle and low income Brazilians is providing opportunities for expansion. There exists expansion of relationship selling in market of Latin America.   One of the great opportunities is digital environment for expressing the concepts of vision.	S-O strategies For enhancing the development opportunities available to the network of Natura, Natura should implement offer segmentation strategies and there should be extensive use of technology. It is also recommended to Natura to make intensive use of customer relationship tools and business intelligence. This will enable organization to provide customers with highly customized options. The aim of business should be create an entrepreneurial environment for taking advantage of opportunities available in the cosmetic industry (Baker 2014).	W-O strategies It is required by Natura to strengthen their position in domestic and international market by coming with strategies that is different from their competitors. Products of Natura should be tailored according to broad range of customer requirements more technologically advanced in an extremely competitive environment. The key role in the market development of Natura for keeping them ahead of its competitors is development of products. It should increasingly target products by ethnic group, gender and specific age profiles.
Threat (T) Change in market structure of Natura and increased opening of store based retail chain is posing a threat to direct sells business.	S-T strategies Capabilities for operating in mature markets should be strengthened. In the initial stage, the direct selling model was the main strength of Natura that helped in gaining market share. Therefore, efforts should be taken for recovering the strength of direct selling model by the introduction of new value models.	W-T strategies Natura should give emphasis on building in house talent at international level so that they are able to prevail in international markets and increase market share. Implementation of strategies creating a kind of social pack on customers, suppliers and employees.   Company should adopt new sales paradigm. In addition to relying on direct sales model, there should also be opening of retail chain stores for increasing selling of products and competing with the competitors using retain chain model (Hill et al. 2014). Therefore, there should not be pure direct selling model, but also employment of retail chain model.

Conclusion:

The external and internal analysis of Natura depicts that several strength of company that has helped in gaining market share. However, some weakness of organization at international level has posed some challenges in their operation. It is ascertained from the external analysis of organization that technological factor is one of the considerable factor in the era of fastest growing technology. Natura has adopted several strategies that have helped in gaining overall strength at both domestic and international level. Therefore, Natura should take efforts for creating technological innovation. Moreover, there should also be adoption of retail chain stores along with recovering direct sells model strength.

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