BU491 Lecture Notes - Lecture 3: Beiersdorf, Nivea, 2011 Fifa Women'S World Cup
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9B13M016
BEIERSDORF AG: EXPANDING NIVEA’S GLOBAL REACH
1
Vanessa C. Hasse wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission.
Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request
permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western
Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-03-04
On April 26, 2012, Stefan F. Heidenreich walked into the conference center in Hamburg, Germany, for
Beiersdorf’s annual stockholder meeting. There, he would officially be introduced as the new chief
executive of the NIVEA producer and take the reins in a time of transition and complex challenges. His
predecessor, Thomas-Bernd Quaas, was to give his farewell speech in front of 800 shareholders. Quaas had
been the CEO for the past seven years and had led the company’s international expansion. The company’s
flagship brand, NIVEA, had turned 100 years old last year and consumers around the world were familiar
with the cream in the signature blue tin. The expansion was not only geographical but also categorical: a
number of innovations had resulted in a broad product range under the NIVEA brand.
However, this expansion was hurting profitability. While competitors like Henkel, Unilever, and Procter &
Gamble had recovered from the economic recession and were expanding rapidly, Beiersdorf’s revenues
were still lagging expectations. As a consequence, the company had announced a major restructuring project
costing €270 million in March 2010. Under the slogan “Focus on skin care. Closer to markets,” Beiersdorf
aimed at reorganizing its consumer division to boost revenues again. The objective was to increase
profitability by downsizing structures and streamlining the expansive product range, while remaining
responsive to local tastes by granting foreign subsidiaries more responsibility.
As Quaas spoke about the progress of the restructuring project, it became clear that it was far from complete.
Although most measures were on target, operating margins were still not satisfactory.1 Just a few months
earlier, Beiersdorf had announced a plan to cut up to 1,000 jobs worldwide. The progress of restructuring
had been slower than planned because the challenges had been bigger than expected.2 In fact, the last quarter
1
This case has been written on the basis of published sources only. The interpretation and perspectives presented in this
case are not necessarily those of Beiersdorf or any of its employees.
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of 2011 had ended with a loss. Thus, an investor at the annual stockholder meeting voiced his opinion: “The
management has been asleep for the past few years instead of setting the course for the company’s future!”3
This outcry raised numerous questions: Was Beiersdorf’s restructuring approach the right way to get back
on track? Would the company be able to compete against the big players in the industry again? And was
downsizing really the right path to international growth? Heidenreich had certainly taken on a major task.
BACKGROUND
In 1882, Paul C. Beiersdorf, owner of a pharmacy in Hamburg, Germany, filed a patent for the
manufacturing process of medical sticking plasters, which he had developed in collaboration with leading
dermatologists. Through academic publications, the company acquired popularity among doctors and
pharmacists, which helped to increase revenues. In 1890, the associated laboratory was sold to the
pharmacist Dr. Oscar Troplowitz, who turned the small enterprise into a rapidly growing consumer products
manufacturer with a consumer care and a sticking plasters/adhesives division. In accordance with the
company’s medical and academic background, Dr. Troplowitz continued to focus on a highly scientific
research and development process.
Around 1900, a chemist at Beiersdorf discovered the emulsifying agent Eucerit, which allowed for a stable
combination of oil and water. This discovery laid the foundation for the unique skin moisturizing formula
of the NIVEA cream. The first NIVEA cream tin was sold in 1911. It provided good results at low cost and
quickly became popular among a broad range of consumers. Beiersdorf was quick to continue to deliver
innovations such as Labello, a creamy colorless lipstick, and other care products. The sticking plasters
segment grew as well, with innovations such as Hansaplast and Leukoplast.
In 1922, Beiersdorf was turned into a public company. The success of the young company’s brands,
especially NIVEA, gave it the opportunity to expand internationally. By the beginning of World War II,
Beiersdorf had 34 representative offices abroad (in countries including the United States, Mexico, Brazil,
and Thailand) and subsidiaries in England and Austria. As a result of the war, the trademark rights for
NIVEA in these international locations were confiscated by the respective countries. It took years for
Beiersdorf to regain all the rights, a process that ended in 1997 with the repurchase of the rights in Poland.
These setbacks, however, did not stop Beiersdorf from expanding internationally again after the war. By
the end of the fiscal year 2011, the company employed 17,666 people, owned more than 150 subsidiaries
worldwide, and earned 85 per cent of its total revenues (€4.75 out of €5.6 billion) outside of Germany.
Throughout its 130-year history, Beiersdorf repeatedly emphasized traditional values such as trust,
reliability, and quality. This was in accordance with the tradition of the “Hanseatic merchant” — in the old
trading town of Hamburg, businessmen took pride in the fact that they concluded reliable contracts with a
simple handshake. Thus, the company built on its traditional foundations and continuous innovations to
attain its vision: “To become the best skin care company in the world.”
Company Structure
Divisions/Regions
Due to its origins, Beiersdorf was divided into two rather unrelated divisions. The main division, consumer,
generated the lion’s share of the company’s revenues at 84 per cent, or €4.73 billion, in 2011. In this
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division, about 13,870 employees worked to serve three segments: the mass market, the dermocosmetic
segment, which offered medical care products, and the premium segment. Each segment had very successful
brands: the leading global brands were NIVEA for the mass market, Eucerin for the dermocosmetic
segment, and La Prairie for the premium segment.
The other division, tesa, was named after its main brand and became a legally independent subsidiary in
2001. About 3,795 employees developed adhesives for industrial and consumer clients. In 2011, the tesa
division contributed 16 per cent of Beiersdorf’s total revenue. After major restructuring efforts, which ended
in 2010, as well as the recovery of the auto industry, which was one of the main buyers of adhesives, the
tesa division outperformed the consumer division in terms of growth rates: while the consumer division
grew by 1.1 per cent in 2011, tesa reported growth of 7.9 per cent.
In 2011, the consumer division generated 59 per cent of its revenue in Europe (of which 15 per cent came
from Germany), 12 per cent in Latin America, 7 per cent in North America, and 22 per cent in Africa, Asia,
and Australia combined. A network of more than 150 subsidiaries ensured that these markets were served
reliably (see Exhibit 1). Moreover, Beiersdorf exported to 200 countries, making it a company with a truly
global reach.
In an earlier effort to reduce costs and become more profitable, Beiersdorf closed many of its 20 European
facilities between 2006 and 2008.4 By 2012, Beiersdorf owned 16 production facilities including locations
in Germany, Spain, Poland, Argentina, Chile, Brazil, Mexico, Indonesia, India, China, Thailand, and Kenya.
Throughout Beiersdorf’s current restructuring project, even more production facilities were either closed
(e.g. in Germany and the United States) or put up for sale (e.g. in Switzerland).
For years, much of Beiersdorf’s internationalization strategy focused on securing profits in mature markets
such as Europe. Among these, Germany continued to be one of Beiersdorf’s most important. In 2011, sales
within the consumer division were €717 million, which accounted for 34 per cent of all sales in the European
market. At the same time, Beiersdorf invested in exploring new opportunities for growth in some of the
BRIC nations (Brazil, Russia, India, and China). In fact, between 2010 and 2011, consumer sales in Latin
America and Eastern Europe (including Russia) grew by 15.2 and 5.2 per cent, respectively — as opposed
to a 3.7 per cent decrease in Western European sales (excluding Germany, which decreased by 3.2 per cent).
However, not all of the internationalization strategy worked as smoothly as Beiersdorf had hoped. Despite
its long experience with international expansion, Beiersdorf faced difficulties, especially with regards to
entering new emerging countries. In 2007, the company acquired 85 per cent of the shares of C-Bons,
China’s third-largest hair care producer, for €269 million. The objective was to enhance awareness of the
NIVEA brand in the Chinese market by benefiting from C-Bons’s distribution and sales network. However,
the returns on this investment were slow in coming. In 2011, the investment resulted in a €50 million loss
because the Chinese brand could not prevail over international competitors who had entered the Chinese
market. As a result, unsold products filled C-Bons’s warehouses. Moreover, the distribution and sales
network turned out to be heavily focused on non-target areas, whereas Beiersdorf’s initial intention was to
use C-Bons’s network to distribute the NIVEA brand throughout the large Chinese market, mostly to
metropolises. As a consequence of this unsuccessful acquisition, Beiersdorf had to lay off about 4,000
Chinese workers and report massive write-offs, and the newly appointed executive board member James C.
Wei left the company by the end of 2011.5
The U.S. market was identified as another area with major potential for growth. Despite intensive marketing
efforts, profits remained sluggish6 and revenues increased by a meager 2.1 per cent in 2011. After pursuing
Document Summary
Vanessa c. hasse wrote this case under the supervision of professor paul w. beamish solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard ivey school of business foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact ivey publishing, richard ivey school of business foundation, the university of western. Ontario, london, ontario, canada, n6a 3k7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey. uwo. ca. Copyright 2013, richard ivey school of business foundation. On april 26, 2012, stefan f. heidenreich walked into the conference center in hamburg, germany, for.
