Internationalization of Procter & Gamble (P&G) - Case Study Example

___________ ____________ ____October 2006 Internationalization of Procter & Gamble (P&G) P&G-The Company Head quartered in Cincinnati, USA, Procter & Gamble (P&G) is one of the largest manufacturers of fast moving consumer goods (FMCG) in the world. P&G maintains significant market share in several product categories: paper goods (Bounty, Charmin, Pampers), laundry and cleaning (Tide, Cascade, Dawn), food and beverages (Folgers, Pringles, Duncan Hines), beauty care (Pantene, Olay, Cover Girl), and health care (Crest, Scope, Metamucil). An article in the Fortune Europe edition (April 17th, 2006) wrote that Procter & Gamble (number 24 in their Fortune 500 list) owned as many as 22 brands with each exceeding 1$ billion in sales. P&G had acquired 5 of these brands during the course of its $61 billion acquisition of Gilette (which was acclaimed as the largest merger of the year 2005). The popularity and acceptance of P&G was well certified by ACNielsen, which surveyed and found that 99% of U.S. households use one or the other P&G product. P& G completed the acquisition of The Gillette Company for approximately $53.43 billion on October 1, 2005. Gillette is a leading consumer products company that had $10.48 billion of sales in its most recent pre-acquisition year ended December 31, 2004. (Annual Report 2006). Concepts in Internationalization Globalization has brought about intense competition for global markets amongst the major multinational companies. These companies have been looking outwards to reorient their organizational structures and strategies to capture the global markets by positioning their products strategically. A recent study of the US and European companies revealed that 75 percent were taking up the above strategic reorganization in order to stay competitive and staying competitive was considered the single most important external issue on their agenda. Past experiences have shown that poor planning further embattled by rudimentary understanding of the cultural aspects of the global market places had ruined the huge marketing campaigns of even the multinational companies. Coke CEO stated," Coke has had to come to terms with a conflicting reality. In many parts of the world, consumers have become pickier, more penny wise, or a little more nationalistic, and they are spending more of their money on local drinks whose flavors are not part of the Coca-Cola line up. (Rance, 2000). In 21st century international marketeer should seek solution to choice problem between standardization and adaptation. (Ghemawat, 2003). A vital challenge for the international marketing strategy of a firm is the need to understand the different milieus the company needs to operate in. That is comprehending different cultural, economic, and political environments is necessary for the success of a company. Culture is one of the most challenging and devious elements of the international marketplace. These challenges encouraged numerous researchers to take up international marketing studies concerning behavioral differences in consumers across nations (e.g. Lynn, Zinkhan et al. 1993; Nakata and Sivakumar 1996: Brass 1991; McCarty and Hattwick 1991; Hafstrom, Chae et al. 1992; Steenkamp, Hofstede et al. 1999; Chu, Spires et al. 1999; Husted 2000).P& G has also been adopting a strategic globalization stance and has been a forerunner in this race as explained below. Internationalization at P&G P& G is patently a multinational corporation (MNC) with substantial direct investment in foreign markets which is in addition to its normal lines of exports.P& G is also involved in the active management of this portfolio of foreign investments without being just a passive financial investor of funds. Through its various business unit structures it has adopted an integrated management of its operations. On July 1, 2006, nine months after closing the (Gillette) acquisition, P&G completed the largest wave of business systems integration so far. P&G integrated systems in 26 countries, spanning five geographic regions, representing about 20% of sales. This brought the number of integrated countries to 31; P&G is now taking orders, shipping products, and receiving payments as a single company in these countries (Annual Report, 2006).A unique organizational structure comprised in independent but organically controlled clutch of international companies has made this internationalization possible at the P&G." P&G is the only consumer products company with global business unit profit centers, a global Market Development Organization, and global shared business services, all supported by innovative corporate functions. P&G is essentially running a number of highly focused companies that share common go-to-market operations and business services. P&G made it possible for each business unit to focus on its individual consumers, customers and competitors while capturing all the capability, knowledge and scale of a $70 billion global company. (Annual Report, 2006) SWOT Strengths The main strength of P&G appears to be its unique organizational structure put in place after the acquisition of Gillette. This structure is organized around three types of organizational units." Global Business Units (GBUs) focus solely on consumers, brands and competitors around the world. They are responsible for the innovation pipeline, profitability and shareholder returns from their businesses; Market Development Organizations (MDOs) are charged with knowing consumers and retailers in each market where P&G competes and integrating the innovations flowing from the GBUs into business plans that work in each country and Global Business Services (GBS) utilizes P&G talent and expert partners to provide best-in-class business support services at the lowest possible costs.(Annual report,2006).The main advantage of focused orientation of business units towards consumers, customers and competitors in their individual categories is reflected in the growth of P&G's Skin Care, Oral Care, Feminine Care, and Home Care businesses." These four businesses have delivered 11% average sales growth over the past six years, adding nearly $1 billion per year in sales since the beginning of the decade".(Annual Report,2006) Another major strength of P&G is its stupendous global efforts in coming to an understanding of consumer behaviors and demand. The R& D function at P&G is also inordinately strong and it utilizes the consumer research outputs to the hilt in developing successful products."P&G interacts with more than four million consumers a year in nearly 60 countries. P&G conducts more than 10,000 research studies each year, and invests more than $200 million per year in consumer and market understanding. P&G research spans more than 25 product categories, providing a more complete understanding of consumers than companies focused more narrowly on a few categories. P&G sees innovation opportunities that others fail to. (Annual Report, 2006) Weakness The main weakness of P&G was observed first in 1990s when a survey conducted by the consulting firm, Kurt Salmon Associates Inc, had startlingly found that nearly one fourth of P&G's products recorded sales of less than one unit a month in a standard supermarket .As against this, its other 7.6% of the products accounted for 84.5% of sales. Even as of date the revenue generated from product lines remains highly skewed. Its 22 star brands have clocked $1 billion and more of sales but quite a few of the others lag behind severely. These remaining products go almost unnoticed by consumers. Complex product lines and pricing cause many problems for retailers who have to work hard with rebates and discounts to push sales.Ex P&G CEO Durk Jager had once remarked: "We created a whole plethora of allowances and deals and conditions which were just simply confusing and added cost to the system." Starting late 1990s, P&G took various measures to rationalize the above problems. However given a heavy products menu its complications simply would not go. The company is coming to terms with these problems since then by streamlining many of its marketing practices and pruning costs through the new organizational structure. P&G has also achieved a considerable success in reducing complexity from its product line essentially through standardization of product formulas and packages worldwide and floating marginal brands. Opportunities Globalization is the buzzword. However act local and think local is also becoming a popular byword in global markets. The major global markets are represented by developing countries particularly Asian and Latin American countries.China,India, Mexico, Brazil and Argentina present the juiciest chunks of global markets not only for P&G but also for most global marketeers. P& G has already made a concerted attempt at penetration of the developing market; the business results speak for themselves. P&G found the developing market profit margins to be comparable to those derived by it from the developed markets. P&G sales in developing market rose at an astounding rate of 16% per year. Nearly one-third of total-company sales growth from developing markets." In the categories in which P&G competes, developing countries represented a $200 billion market and it was expected to approach $250 billion by 2010. P&G currently competes in only about 10 of P&G's top 25 categories in most developing countries. There is more than $20 billion of growth opportunity over the next several years through expansion of P&G's category presence and increased share growth".(Annual Report,2006)This opportunity is unprecedented given the wide USP of P&G inherent in its other popular brands in such markets. A concerted internal marketing plan which has at its core carefully researched localization of products can help P&G skim these markets. Threats Competitors presented the largest perceived threat. P&G competes not only competes against some of the best run multinational companies in the world, who have great brands and strong marketing capabilities but also faces a very strong competition from domestic manufacturers -both small and large scale- in domestic markets of developing countries. The latter category is utilizing their understanding of the local culture of domestic consumers in putting up products that have larger appeal.P&G must make more initiatives in locating its R&D facilities in developing markets so that localization of its products is prompt to competitor launches and innovation. In addition, many retailers are creating retailer brands and product lines that compete more directly with manufacturers' brands. Thus P& G has to be reoriented to be more local and low-cost in developing countries. Works Cited Annual Report.(2006).Procter & Gamble. Rance Crain.(2000).Agencies Press Get Global Plans but Clients Face Local Realities.Advertising Age.February 14,2000. Ghemawat,Pankaj.(2003).Semiglobalization and International Business Strategy.Journal of International Business Studies.34. Lynn, Michael, George M. Zinkhan and Judy Harris.(1993).Consumer Tipping: A Cross-country Study. Journal of Consumer Research. 20(Dec): 478-88. Nakata, Cheryl. and K. Sivakumar.(1996).National Culture and New Product Development: An Integrative Review. Journal of Marketing.60(1): 61-72. Brass, Paul. R.(1991). Ethnicity and Nationalism: Theory and Comparison. Newbury Park: Sage Publications. McCarty, John. A. and Patricia Hattwick, M.(1991).Cultural Value Orientations: A Comparison of Magazine Advertisements from the United States and Mexico. Advances in Consumer Research. Eds. J. Sherry and B. Sternthal. 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