Case 3.2 Shiseido: Becoming an insider in the perfume business in France[i]
Initially founded as a pharmacy in Japan in 1872, Shiseido expanded into the cosmetics business in 1897 by introducing a skin lotion. Shiseido then gradually expanded its product offerings in the makeup and skin care business. It also started to expand internationally, entering the Taiwan market in 1957. By the 1970s, Shiseido had established itself as the market leader in the makeup and skin care business in Japan.[ii]
However, Shiseido was still weak in the fragrance business. At that time, Japan had a limited tradition of perfume use: the fragrance market in Japan accounted for only 1 per cent of the entire cosmetics market, much lower than the 30–40 per cent characteristic of most Western countries. Because of its limited tradition of perfume use, Japan lacked domestic fragrance experts and senior management with fragrance business experience.
Shiseido’s small domestic fragrance market did not prepare it adequately to compete in the international market. In 1964, Shiseido launched the perfume Zen in the US. Driven primarily by the marketing concept of ‘oriental mysteriousness with a subtle fragrance’, Zen’s US sales increased rapidly because of its novelty, but then quickly declined.
Because the fragrance market represented about 30–40 per cent of total cosmetics sales in Europe and America, Shiseido’s lack of a significant position in the fragrance market also created barriers for the firm to secure strong distribution networks internationally. Thus, in spite of its limited domestic experience with fragrances, Shiseido felt it had to develop strengths in the fragrance business in order to become a truly world-class cosmetics company.
In the late 1970s and early 1980s, Shiseido decided to learn more about the international fragrance business. The lack of a favourable domestic environment in Japan pushed Shiseido to seek solutions in the very markets it wanted to penetrate.
France was identified as the ideal place to gain expertise, because it was the heart of the international fragrance industry. However, simply being in France did not ensure that the firm would automatically gain access to the local knowledge network. In fact, Shiseido had to spend a long time learning how to become an insider in this industry.
Shiseido’s initial failures
Following expansion into Italy and Germany through 100 per cent subsidiaries, Shiseido chose a different strategy for its entrance into France.[iii] In order to absorb French perfume development techniques, especially the subtle interactions between laboratory development and consumer tests, Shiseido established in 1980 a 50/50 joint venture with the French cosmetics company Pierre Fabre S. A. Faced with substantial market hostility in France at that time, Shiseido chose a joint venture as its entry mode in order to reduce risks, especially in terms of potential financial losses. At the same time, in order to collect information related to the fragrance industry, it also established the Shiseido Europe TechnoCentre as the ‘eye’ of its headquarters in France. Japanese expatriates were sent to the centre to collect vital local information and transmit it to headquarters.
Unfortunately, the Japanese expatriates did not have access to the social networks required to gain deep insights into the complex and tacit knowledge aspects of local perfume development and exploitation. Consequently, the information transferred back to Shiseido’s headquarters tended to be superficial and did not truly help product development in Japan. Gradually, Shiseido realized that its strategies so far had not made it a player in France. Shiseido learned that, in order to learn the intricacies of perfume development, it would have to become an insider in the French fragrance industry.
Becoming an insider
To access the required tacit local knowledge, Shiseido decided to establish wholly owned operations in France to develop and sell perfumes, rather than simply collecting information there. This also involved, within the context of the firm’s multi-brand strategy, a focus on acquisitions and the creation of new, non-Shiseido brands.[iv]
Local operations (plants and salons)
In 1990, Shiseido established a 100 per cent subsidiary in Paris called BPI (Beauté Prestige International) to develop and sell fragrances in France. In 1992, Shiseido also set up a plant in Gien, a town south of Paris.
Shiseido also ran salons in France to learn how to provide beauty services. In 1986, Shiseido acquired two high-end French beauty salons, Carita and Alexandre Zouari. Carita and Alexandre Zouari were among the top five salons in Paris, the other ones being Alexandre Paris, Maurice Franc and Claude Maxim. In 1992, Shiseido opened a prestigious parlour called Les Salons du Palais Royal (‘Les Salons’) in Paris. These operations helped Shiseido understand the world of sophisticated French customers and the importance of local adaptation. At that stage, Shiseido’s products were of high quality from a manufacturing perspective, but they lacked the cultural dimension of a fragrance as a story/concept, which was a crucial element driving French customers’ tastes.
In 1992, BPI launched two perfumes branded after the names of their designers: Eau d’Issey and Jean Paul Gaultier. The former was designed by the famous Japanese fashion designer Issey Miyake and the latter by the well-known French fashion designer Jean Paul Gaultier. Both products were manufactured at the Gien plant and marketed to French customers.
Building local relationships
Shiseido used several techniques to build relationships with major stakeholders in France, including celebrities, journalists, bankers and local communities.
First, Shiseido invited leading celebrities in Parisian high society to its receptions held at ‘Les Salons’. For example, the celebrations at the 1992 opening of ‘Les Salons’ lasted two days, with numerous parties, including a reception for journalists, a reception for VIPs and a reception for bankers. Such events at ‘Les Salons’ were not only covered by articles in newspapers and magazines, but also widely discussed in Parisian high society. The exposure in the media connected ‘Les Salons’ and Shiseido’s brands with sophisticated customers and supported the firm’s efforts to establish its brands as premium fragrances. More importantly, this exposure helped Shiseido build strong linkages with beauty and fashion journalists, local celebrities and bankers.
Second, Shiseido became actively involved in local communities, especially by sponsoring various cultural events in France. For example, Shiseido was active as a patron for the Festival International de Sully-sur-Loire, where Shiseido’s Val de Loire factory was located. Such activities with local communities increased the connection between Shiseido and French consumers.
Local hiring
Rather than sending Japanese expatriates to direct its French operations, Shiseido hired local experts to manage several important positions throughout the value chain.
First, Shiseido hired a French creator, Serge Lutens, to craft Shiseido’s overseas brand image. Before joining Shiseido in 1980, Lutens had worked for Christian Dior for 14 years. Serge Lutens contributed substantially to Shiseido’s becoming an insider in France, by designing ads and posters that created a mysterious and artistic image for the firm. Even though his work was viewed as too indirect and artistic in Japan, he achieved his goal: his work became well accepted in Europe and America.
Second, a French CEO, Chantal Roos, headed BPI. Involved in launching the famous Opium perfume when she was marketing vice-president of Yves Saint Laurent, she was an expert in creative marketing and fragrances, and well known in the French fragrance industry. It was very rare for a Japanese company to hire a local person to head a strategically important subsidiary, but it was a wise move. Chantal Roos brought to the company a much-needed creative and artistic culture. She led Shiseido’s credible entry into the French fragrance industry by leading the development of Eau d’Issey in 1992. Moreover, she insisted on creating a separate BPI division in each host country to distribute BPI’s high-end fragrances.
Finally, Shiseido hired locally at its Gien plant. The plant, though managed by a Japanese president, had a French vice-president. In 1998, the plant employed only 6 Japanese expatriates out of 180 local full-time staff and 80 temporary workers. By 2005, Shiseido operated 12 organizations in France, with 12 Japanese nationals out of 1,300 employees. By 2010, France had become Shiseido’s central operational platform for Europe and had more than 1,000 displays throughout the country. To celebrate 30 years of activity in France, Shiseido created a contemporary art installation at the Hôtel de l’Industrie in Paris. With over 1,400 employees throughout France in 2012, Shiseido’s local hiring policy helped the firm truly to become an insider in the French market.[v]
Local success
Although the major objective of the French operations was to plug into the local fragrance knowledge, Shiseido did not assess its success simply based on the amount of knowledge transferred back to Japan.
Rather, success was assessed by the company’s competitiveness in France itself. Perfumes such as Eau d’Issey and Jean Paul Gaultier were launched first in France and marketed first to French customers. These premium fragrances did very well there. For example, Jean Paul Gaultier Le Mâle produced by BPI became the leading brand among men’s premium fragrances in France, with a market share of 4.8 per cent in that country in 2005. Among all fragrances in France, Jean Paul Gaultier Le Mâle was ranked tenth in 2005 with a market share of 1.2 per cent. This was good penetration, considering that the leading (down market) brand Yves Rocher had a market share of only 2.6 per cent in the same year.[vi] In 2011, Jean Paul Gaultier Le Mâle received the Fragrance Hall of Fame award from The Fragrance Foundation, a highly regarded award within the industry. That same year, BPI’s Eau d’Issey Pour Homme was nominated for the same award.[vii] In 2012, Jean Paul Gaultier Le Mâle was the leading men’s fragrance in the European Union based on sales and achieved high market shares in Australia and the United States.[viii]
Similarly, the quality of the perfumes produced at the Gien plant was also evaluated against the French standard of perfume quality. In this context, Chantal Roos was very satisfied with the quality of Shiseido’s products when benchmarked against high profile French rivals such as Christian Dior’s Svelte.
Local decisions and autonomy
Shiseido granted substantial autonomy to BPI, because it realized that Japanese headquarters lacked sufficient understanding of the French artistic style in the fragrance industry. Therefore, product development, packaging and labelling of BPI products were all performed by BPI and the Gien plant’s R&D division, without intervention from Shiseido.
The subsequent autonomy of the French branch of Shiseido led to a successful, but very ‘locally rooted’ perfume house.[ix] From the outset, executives at Shiseido had consciously allowed their French operations to apply their expertise in the local environment freely. As a result, there were limited channels in place to facilitate cross-cultural knowledge sharing. Knowledge gained in France was not supposed to be readily adapted and applied to other markets, since formal channels had not been established. The integration of knowledge gained from the French market has remained a strategy issue at Shiseido.[x]
Subsequent developments
Brands such as Eau d’Issey and Jean Paul Gaultier have given Shiseido a solid position in Europe, and some of the knowledge learned by the expatriates has been transferred back to Japan for the development of future perfumes. However, in 2011, Spanish competitor Puig Group acquired 55 per cent of Jean Paul Gaultier. Puig assumed control over the production of Jean Paul Gaultier Le Mâle when BPI’s licence expired in 2016.[xi]
In 1997, Shiseido decided to spend US $30.5 million building a new plant at Ormes, France, to meet the expected rising demand in Europe for its fragrances and skin care products.
In 2004, Shiseido ranked 14th in the fragrance business with a market share of 1.8 per cent – still far behind L’Oréal Groupe, the market leader in fragrances with a market share of 8.9 per cent.[xii]
Shiseido has continued to increase its presence in the European market and has expanded its businesses with a wholly owned subsidiary in Switzerland and a joint venture in Greece in January 2010. Furthermore, in the months after, the brand Shiseido was launched in three Balkan Peninsula countries, namely Albania, Kosovo and Macedonia, via a distribution network and in Moldova, Armenia and Belarus via Shiseido Europe S. A. S. Shiseido also internationalized into countries outside of Europe and, in May 2010, it acquired 100 per cent of the shares of Shiseido Dah Chong Hong Cosmetics Ltd., its previously consolidated subsidiary in Hong Kong. In addition, the Japanese firm partnered with distributors in order to enter into emerging markets such as Mongolia, Georgia, South Africa, Columbia, Panama, Brazil, and Tunisia. In early 2012, Shiseido started operations through the joint venture company Shiseido Kozmetik Anonim ¸S irketi in Turkey and established a Shiseido representative office in India for market research.[xiii]
In 2012, Shiseido’s products were being sold in 88 countries.[xiv] In terms of Shiseido’s continuing expansion, the company began selling its cosmetic products in Argentina from May 2012 and had ambitions to develop greater market presence in European, North American and Chinese markets.[xv] Hisayuki Suekawa, Shiseido’s President and CEO at that time, commented that Europe and North America had high potential for the company’s luxury business, while China’s rapid market growth was also a draw for the company. Moving forward, Suekawa hoped to strengthen Shiseido’s position as a global brand beyond Japan; “In the past, we tended to be very Japancentric … That was fine back then, but as we move forward we need to have a global standard that is common to all markets in which we operate.”[xvi] In 2012, Japan still accounted for 55.7 per cent of Shiseido’s sales.[xvii] Suekawa had intentions to decrease dependence on the Japanese market to 50 per cent by 2017.[xviii]
Moving forward: Shiseido’s medium- and long-term strategy VISION 2020
Suekawa became President in 2011 and resigned in 2013 for health reasons (not for poor financial results, as asserted by Shiseido). Shinzo Maeda, who was Shiseido’s President in 2005 before Suekawa, and paved the way for Shiseido “to become a ‘global player representing Asia with its origins in Japan’”[xix], came back as president for one year and was then replaced by Masahiko Uotani as President and CEO. In contrast to his predecessors, Uotani was an ‘outsider’, joining Shiseido after having held various executive positions, among others at Coca-Cola Japan Company, Limited[xx].
Under Uotani’s leadership, Shiseido formulated a new corporate strategy for 2015 throughout 2020 called “VISION2020”[xxi]. To support its medium- and long-term strategy VISION 2020, Shiseido focused on re-structuring and made multiple changes. To give a few examples: First, it established the function ‘Business Development Department’[xxii], as well as the ‘Regional Business Steering Department’ in the Global Professional Business, aiming to enhance business promotion in each region[xxiii]. Second, it increased its investment into R&D, opening a new research facility in Yokohama and expanding the existing innovation centers in America, Europe, China and South East Asia[xxiv]. Third, it founded the ‘Shiseido Group EMEA (Europe, Middle East and Africa)’, with the clear goal to make Shiseido a key prestige player, comments Louis Desazars, President and CEO of Shiseido Group EMEA: “We cannot become a global player if we are not strong in fragrance which is a strategic category in the western world. Fragrance is part of your DNA in Europe, you need to lead that transformation. … As we stand today the Group owns a global market share of 5.8% in fragrance, my target is to get to 9% market share”[xxv]. Fourth, it announced the creation of an internal venture capital organization, ‘Shiseido Venture Partners’, aiming at the acceleration of the VISION2020 strategy by investing in promising ventures[xxvi]. To sum it up, Shiseido increased the investment in marketing and innovation while strengthening the brand portfolio with acquisitions.
In September 2019, Shiseido re-appointed Masahiko Uotani as President and CEO, renewing his term until 2024. The reappointment confirms the success of Shiseido’s VISION2020 medium-to-long-term strategy. As of 2021, Shiseido serves 120 countries and regions, clearly meeting its ambitious plan to increase its market presence[xxvii].
QUESTIONS
- How did Shiseido finally become an insider in Paris? What factors had been instrumental to its initial failure?
- What does Shiseido’s experience imply for those companies not born in a cluster?
- Which patterns of FSA development did you observe in the case?
- Drawing on the discussion of Porter’s single diamond framework versus the double diamond framework, what suggestions would you give Shiseido to help it to develop further its perfume business?
Notes
[i] Kazuhiro Asakawa and Yves Doz, ‘Shiseido France 1998’, INSEAD case 04/2002–4934 (2002); Yutaka Goto, ‘How Shiseido succeeded in Europe: history and international strategy’, Japan Society Lecture (12 January 2005); Yves Doz, Jose Santos and Peter Williamson, From Global to Metanational: How Companies Win in the Knowledge Economy (Boston, Massachusetts, USA: Harvard Business School Press, 2001), 65–7; Tara Rummell, ‘What’s new at Shiseido?’, Global Cosmetic Industry 165 (1999), 20–3.
[ii] Shiseido company information, 2006.
[iii] Yutaka Goto, ‘How Shiseido succeeded in Europe: history and international strategy’, Japan Society Lecture (12 January 2005).
[iv] Ibid.
[v] Invest in Francy Agency, ‘Shiseido in France – celebrating 30 years of success’, The IFA Blog (1 October 2010), http://blogs.afii.fr/en/2010/10/shiseido-in-france-celebrating-30-years-of-success, accessed on 15 April 2012.
[vi] Euromonitor International, ‘The market for cosmetics and toiletries in France’, August 2006.
[vii] 40th Anniversary FIFI Awards, ‘Fragrance hall of fame – Men’s’, (2011) http://fifiawards.wordpress.com/finalists/fragrance-hall-of-fame/fragrance-hall-of-fame-mens/ accessed on 15 April 2012.
[viii] Wikipedia, ‘Jean Paul Gaultier’, Wikipedia (2012).
[ix] Keeley Wilson and Yves L. Doz, ‘Agile Innovation: A footprint balancing distance and immersion’, California Management Review 53 (2011), 6–26.
[x] Ibid.
[xi] Vanessa Friedman, ‘Spain’s Puig Group succeeds by swimming against the stream’, Financial Times, (6 June 2011), 6.
[xii] Euromonitor International, ‘The market for cosmetics and toiletries in the world’, August 2006.
[xiii] Shiseido, ‘Shiseido to exhibit corporate culture in Greece and Switzerland to mark the 140th anniversary of the company’s founding’, Shiseido (29 March 2012).
[xiv] Shiseido, company information 2012.
[xv] Shiseido, ‘Shiseido to commence sales of cosmetics products in the Argentine Republic’, Shiseido (25 April 2012).
[xvi] WWD, ‘Shiseido’s global growth blueprint’, Women’s Wear Daily, 202 (5 August 2011), 7–1.
[xvii] Shiseido company information 2012.
[xviii] Ibid.
[xix] Shiseido, ‘Shiseido Co., Ltd. Appoints Masahiko Uotani Its 16th President’, Shiseido Press Release (2013), https://corp.shiseido.com/en/news/search.html?k1=&ca=ALL&pa=ALL&yf=2013&mf=1&df=1&yt=2013&mt=12&dt=31&p=1 accessed on 02 September 2021
[xx] Ibid.
[xxi] Shiseido, ‘Shiseido Formulated Medium to Long Term Strategy “VISION 2020”, Shiseido Press Release (2014), https://corp.shiseido.com/en/newsimg/archive/00000000001750/1750_r0l77_en.pdf accessed on 02 September 2021 and Kelly Wetherille, ‘Shiseido Outlines New Strategy, Sets Three-Year Sales Target’, WWP Press, 5 March 2018
[xxii] Shiseido, ‘Notice of Administrative Change and Transfer of Personnel, Shiseido Press Release (2016), https://corp.shiseido.com/en/news/detail.html?n=00000000000044 accessed on 02 September 2021
[xxiii] Shiseido, ‘Notice of Administrative Change and Change in the Responsibilities of Corporate Officer’, Shiseido Press Release (2016), https://corp.shiseido.com/en/news/detail.html?n=00000000002009 accessed on 03 September 2021
[xxiv] Shiseido, ‘Shiseido Enhances Global R＆D Structure’, Shiseido Press Release (2016), https://corp.shiseido.com/en/news/detail.html?n=00000000001922 accessed on 02 September 2021 and ‘Shiseido’s New Research Center, “Shiseido Global Innovation Center (S/PARK)”Starts Full-Scale Operation in April 2019’, Shiseido Press Release (2018), https://corp.shiseido.com/en/news/detail.html?n=00000000002554
[xxv] Shiseido, ‘Shiseido Group EMEA on the move, from challenger to leader’, Shiseido Press Release (2016), https://corp.shiseido.com/en/news/detail.html?n=00000000002046 accessed on 03 September 2021
[xxvi] Shiseido, ‘Shiseido Establishes “Shiseido Venture Partners” for Operation of Corporate Venture Capital’ Shiseido Press Release (2016), https://corp.shiseido.com/en/news/detail.html?n=00000000002083, accessed on 03 September 2021
[xxvii] Shiseido, ‘Key Figures’, (2021) https://corp.shiseido.com/en/company/glance/ accessed on 02 September 2021 and Shiseido, ‘Reappointment of President and CEO’, Shiseido Press Release (2019) https://corp.shiseido.com/en/news/detail.html?n=00000000002764 accessed on 05 September 2021