Student Essay

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Teaching Note

AMORE PACIFIC

Case Synopsis

AmorePacific, the leader in the Korean market for beauty products, was established in 1945 with a strong focus on researching and developing products based on Korean home remedies. The company 1959, listed its shares in the Korea Stock Exchange in 1973, and changed its name to AmorePacific Corporation in 1993.
Industry dynamics and pace of development at Amore Pacific accelerated greatly during the 1990s. Domestically, anticipated entry by multinationals forced major changes in corporate and business strategy with a rigorous refocus on cosmetics by the mid-1990s, slashing of affiliates and reduction of headcount.[At the business level, it repositioned itself and its brands
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Multinationals entering the market was relatively difficult due to the government division and depreciation of the dollar. This was magnified with the fact that the multinationals like L'oreal had to import their products due to a lack of investment in production infrastructure. This lead to a higher cost of goods sold mainly due to high tariff rates of 8%. Consequently leading to a high priced product to the consumer and this availability and distribution was restricted to high priced departmental store channels.

We can see that LG HHC was losing money, and was never very profitable in economic terms, after allowing for cost of capital. This was mainly due to limited access/scale of distribution; cosmetics was not the main business for LG HHC. On the other hand Amore Pacific enjoyed a strategic advantage over LG as all their efforts were centered around the cosmetics business and they had greater advantages to leverage and typically get trade and consumer on their side; thus share of specific market winning over total size of business.
AmorePacific had been earning healthy (20%-plus) operating margins on the Korean cosmetic
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