International Flavors and Fragrances Inc. Best in France Case Study September 2004 By: ES2-H (Tracy ANG, Francisco GARCIA, Gudrun THORGEIRSDOTTIR)

Executive Overview What is IFF? Company products and clients Why IFF came to France? Company values Constraints in France Adaptation to France (HR Practices) Key constraints costs Essential Advice

IFF Inc. Key Figures IFF is a worldwide leader in the creation and manufacture of flavors and fragrances. IFF Inc. came to France in the 1950s. Key figures: Worldwide sales $1,902M Sales in France € 84M Worldwide market share 12% Net income after tax worldwide $ 173M R&D costs worldwide $ 159M R&D costs France € 17M Source: 2003 financial statements

IFF Inc. Market Share

Company Products Personal Wash Toiletries Hair, Skin, Deos FoodBeveragesDairyFabric Care Oral Care & Pharmaceutical IngredientsSweetsHome Care Fine Fragrances Flavors and Fragances used in the following industries:

Company’s Operations In France, IFF has a sales office, manufacturing and creative laboratory. IFF focused in France because of the country’s history and tradition in fine fragrances and flavors. In 2004, IFF closed a manufacturing facility in Dijon as part of its optimization and cost reduction strategies.

Company's Clients The company’s clients are fast moving consumer goods companies (eg. Unilever) and luxury brands (eg. LVMH, L’Oreal, Estée Lauder). The company’s clients expect exceptional quality and consistency in IFF’s products. An office in Paris helps IFF to be closer to its major clients in France and Europe. However, French clients may work with perfumers from all over the world.

Why IFF came to France Is almost impossible to be in the fine fragances business without a French presence providing proximity to its clients. France has a long history and tradition in fine fragrances. France has an excellent perfumery school in Versailles. French people have strong technical knowledge for extraction and recuperation of fragances. The French creative culture develops high level talent in the fragrance industry. Many employees in IFF Inc. were French already, so coming to France was a natural next step. IFF continually looks for global expansion and growth opportunities. The current emerging markets are Latin America and Asia.

Company Values “The Constant Pursuit of Excellence” is in the centre of IFF’s core values. "At IFF, we are in the process of reinventing ourselves...of reaffirming our preeminence in terms of customer service and technological superiority. The guiding principles helping us achieve our goals are the same ones that made IFF the undisputed leader in the first place. Our founding Chairmen built our Company on The Pursuit of Excellence. And they cast the net wide...we define our playing field not merely in terms of flavors and fragrances. Our job is to be anywhere the senses of taste and smell are or can be involved. That is visionary. That is how leaders think.” —Richard A. Goldstein, Chairman and Chief Executive Officer, September 2002

Company Values IFF always strives to be a company with which it is “easy to do business.” IFF’s American culture emphasizes teamwork and team spirit influences the way of working in IFF France. For example, French perfumers work with perfumers in other countries in the creation of new fragrances. IFF is committed to being an outstanding corporate citizen through strong corporate philanthropy initiatives. IFF considers the protection of the environment as a critical part of its Pursuit of Excellence.

Constraints in France What are the principle constraints the company foresaw before coming to France? The working language is French which is a problem in the beginning for non-French speaking employees. The organization must be careful about stricter labor laws and union relations compared to other countries. Existence of high social security and tax rates. Dismissal procedures are longer and imply higher costs than in other countries. It is difficult to unify corporate compensation, bonus, and tax systems to comply with French regulations.

Investments in France Only American company that has made major investments in the flavors and fragrances industry in France. In year 2000 IFF bought a French company: Laboratoire Monique Remy (LMR), a leader in the recovery and commercialization of natural fragrances and flavors. The acquisition of LMR strengthened IFF’s already leading position in the production and use of natural ingredients.

Adaptation to France (HR Practices) Workforce Planning Conform to French labor laws. (eg. 35-hour work week) Recruitment/Selection French is a pre-requisite in recruitment and selection. Job Design, Job Assignment Mindset with emphasis on team work rather than individual effort. HR Management Adaptation of HR Managerial systems to French regulations. Additional expenditure to improve employee’s English proficiency Training of corporate management on regional business practices.

Adaptation to France (HR Practices) Communication Policies Working language is French but English is the company’s official language. International Transfers, Use of Expatriates No need for extensive expatriation because the use of IT enables a global working platform. For example, the perfume Pure Poison was developed in close collaboration between 2 perfumers in France and 1 in New York, they just send the formulas to and fro over . Ease of air transportation reduces the need for employees to be permanently located in one place.

Key Constraint Costs The key costs of operating in France are higher than operating in other countries, specifically in the following areas: Tax: Corporate tax is high (35.4% in France vs. 19% in USA) Labor cost: A 35-hour workweek yielded 1,820 workable hours per full-time staff equivalent, but since the French had more holidays and vacation, an employee provided 1,500 to 1,600 workable hours, compared with approximately 1,912 hours in the U.S for a full-time equivalent. Social Security costs are also significantly high (45% vs. 18.7% in NY, USA) Dismissal: Dismissal is a challenging process. It is necessary a very good cause (eg. breach of duty) and careful documentation of the process.

Essential Advice High cost of entry to the flavors and fragrances market. Necessity of high investment in R&D. Excellent consumer insights available in France. Working language is predominantly French. New entrants have to find their niche in the market if they want to be successful. Central Offices must give more freedom and power to local people, with clear objectives, and verify results at the end of the exercise. Organizations should have flexible bonus systems to allow the optimization of tax rates. To be located in France improves client´s perception of quality and know-how.

We Thank Judith GROSS Global Marketing Director Fine Fragrances & Toiletries Tel: +33 (0) Francois Thieffry Human Resources Manager Tel: +33 (0) Rob J.M. EDELMAN Vice President and Regional Manager - Europe

Our Team (ES2-H) ANG, Tracy GARCIA, Francisco THORGEIRSDOTTIR, Gudrun