Beginning of Procter & Gamble's International Business - Case Study Example

Procter & Gamble's International strategy Company overview P&G is a global company which operates in 160 countries around the world with a global turnover of over $35 billion. Its main activity includes manufacturing of consumer, pharmaceutical and household products for diverse target audience. The main products of the company can be divided into 6 categories: laundry and cleaning products, beauty care, paper goods, food, feminine and health care. Most products of P&G became a universally recognized brands such Head & Shoulders and Pantene, Tide and Ariel etc. Today, P&G is dynamically evolving corporation operating within a rapidly evolving global environment. Marketing around the world allows P&G to reach global target audience and increase sales. Beginning of international business After the Second World War, P&G had started its international and global expansion in manufacturing and sales. In 1954 P&G has started its international activity in Europe leasing a detergent manufacturer.In 1980 P&G became a global company, and after a period of successful mergers and acquisitions with such brands as Noxell, Max Factor and Ellen Betrix, P&G expands its global presence. In 1993, the 50% of sales came outside the USA (P&G history, 2003). Transnational challenges Recent years, P&G has shifted its global focus to core brands and price reduction measures. This strategy has helped P&G to maintained high-speed growth through continuous optimization of its product mix and constant technological innovation. For instance, "Procter & Gamble were able to secure a significant amount of unhindered time to capture sales whilst Hindustan Lever was scrambling to adjust prices on its newly released stocks" (Executive summary, 2005). Today, P&G follows a differentiation strategy and ensures that the higher price it charges for its higher quality is not priced too far above the competition or else customers will not see the extra quality as worth the extra cost. According to company's executive P&G's main business strategy include: - four core businesses -54 per cent of sales and 60 per cent of profits; - big, established leading brands - 10 brands with sales ranging from $1 billion to $4 billion. - top ten countries - which represented 80 per cent of sales and 95 per cent of profits - and on our leading retail customers (Lafley, n.d.). Focusers help P&G to achieve better differentiation or lower cost in separate market segments (Latin America), but they also lose to broadly targeted competitors when the segment's uniqueness fades or demand disappears. Changes to one area of the value chain has knock-on effects in other parts of the business. P&G "shut down under-performing businesses and exited non-strategic businesses and discontinued product lines like Olay Cosmetics and geographic expansions like tissue/towel into Asia" (Lafley, n.d.). This strategy helps to concentrate on core brands and create customers loyalty. The global strategy is to aim at a particular target (international) market. One of the main functions of global and international promotional activity is of course to influence the perceptions of the consumer. P&G maintain policy of product standardization in order to sell them around the world under the same brand. The business strategy of P&G is "value pricing strategy" during which it boosted advertising while simultaneously curbing its distribution channel deals (in-store displays, trade deals), and significantly reducing its coupon promotions" (Thomas, Bollen, 2004). The stronger each of these forces is, the more P&G is free in its ability to earn greater profits. This strategy was successful because the bargaining power of buyers had a strong influence upon the business. P&G, producing differentiated products, is brand loyal, and potential new entrants encounters resistance in trying to enter the industry. Value pricing strategy is also an important factor in increasing the costs for customers of switching the products of new competitors. Value pricing strategy had the following impact: "From 1990 -1996, the net price paid by consumers of P&G products increased 20.4% (due to the decrease of coupons use by 54.3%, and reduction in price cuts)" (Thomas, G., Bollen, 2004). International challenges and strategy Another successfully strategy used by P&G was positioning. It was used in conjunction with the segmentation variables and targeting strategies. This technique is explained by Lafley: "Instead of just toothpaste, for instance, Crest now includes whitening products and the low-price electric SpinBrush line. The cheap, fun-to-use brush, Lafley says, has created a new and positive vibe around the whole Crest brand. "People remember experiences," Lafley notes. "They don't remember attributes." (Welcome to Procter and Gadgets, 2005). It is one of the most important infrastructure requirements, which was essential for the expansion of opportunities and plays an important role in making or breaking the competitive positioning. Recent years, P&G announced "Western Europe Distribution Strategy" based on supply chain challenges which are aimed to maintained a "network of Regional Distribution Centers to support growing customer requirements for delivery of a broader range of products with increased flexibility and responsiveness" (Western Europe Distribution Strategy, 2003). This strategy helped to save about $25 million for P&G and maintained more close relations with national partners and customers. Increased competition The first group of competitors includes local companies; the second group involves international companies and international competition, and the third one is global competition: Johnson and Johnson, Kimberly-Calrk. In this case, P&G develops multidimensional strategy to cover three competitive segments: local (national), international and global. This strategy involves brand positioning, market segmentation, strategic alliances and value pricing strategy. New P&G competitors may find it difficult to gain access to delivering service, which will make it difficult to provide their service to customers or obtain the inputs required or find markets for their outputs. Increased competition forces P&G to find new methods for promotion activity (including Internet resources). "To integrate both global and local reporting needs on one platform, the team updates ARCHIBUS/FM with summary building details for all smaller sites via an automatic monthly transfer from the company's real estate system" (Procter & Gamble: Think Globally, n.d.). In order to protect themselves, local and international companies are constantly against international acquisitions policy. This year, P&G was claimed in anticompetitive action. "According to the complaint, P&G's acquisition of Gillette would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended". (FTC Consent Order Remedies, 2005). This complaint can have an extremely negative impact on further global expansion of P&G preventing the company to enter new markets and countries. Global challenges Global strategy for P&G is the determination of the basic long-term goals and objectives, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. "Finding ways to get better results with lower expenditures is going to be absolutely crucial" (Bob's River View, 2002). A new global strategy of P&G is "linked with other companies to extract as much value from its brands as possible"(Corporate watch, n.d.). In 2001 P&G "announced a $4bn alliance" with another global brand, Coke (Corporate watch, n.d.). It allows P&G to receive the input from those who actually involved in this business, giving a "real world" perspective. This essential input often gives us insider accounts of a contemporary world which companies are not normally privileged to see. Strategic alliances include: Clairol in 2001 and German hair care giant Wella in 2003. This brought P&G US$100 million includes Axion and Gama in France, Dinamo in Italy, Ajax in Sweden and Dynamo in Denmark. The advantage is increasing "regional share by two percentage points to nearly 36% in value" (Moglia, 2003). Another important alliance linked up P&G with the Wrigley Company. The role of Strategic Alliances is made all the more complex and thought provoking because of the competition of ideas between different academic and political standpoints. P&G proves that Strategic Alliances are the best form to reach global dominance and reduce competition. According to the report, "breath-freshener market is bigger than the toothpaste market and equal in size to the shampoo or skincare sectors" (Corporate watch, n.d.). So, it creates new opportunities for P&G on the global scale. Joint venture is another important part of P&G's international strategy. Procter & Gamble has several joint ventures in China, primarily domestic firms. "Many international firms consider that strategy to be an efficient way in the post-WTO era to enhance investments and increase their shares of China's promising market" (Jingjing, 2004). P&G has also realized rapid expansion through capital injections. In 2000, P&G Chief Executive G. Lafley announced: 'We continued to drive our big North America business, and at the same time, mobilized for a major turnaround in Western Europe - our second biggest market. We also continued to invest in growth markets like Central and Eastern Europe and China" (Lafley, 2000). This strategy resulted in 10.4% sales growth per year, and brought $7,257.0 ml net income. Today, it is one of the most important infrastructure requirements, which is essential for the expansion of opportunities and plays an important role in making or breaking the competitive positioning of P&G. Also P&G acquired the Dinamo (Italy), the fourth largest laundry detergents market in Europe. This new brand helps P&G to maintain leading role by 1.3% "warding off intensifying competition from rival Henkel and Reckitt Benckiser brands" (Moglia, 2003). Ajax and Dynamo brands open a new era of international market, namely Scandinavian countries. P&G "share of laundry detergents will go up by 6% to reach over 23% against Unilever's dominant 33% share of the market (Moglia, 2003). Boycotts play a negative role on P&G international and global operations costing P&G 5 million a year. P&G has been accused in killing animals in the development of new products. This campaign became an international one appealing to global consumers stop to buy P&G goods. P&G was also accused in promoting homosexual lifestyle, which reduce sales in 0,5% each year. Constraints of Global Economic Environment Many European countries restrict access to those goods which do not meet their requirements. This means that products can be barred access on the grounds that they infringe local rules on health, safety and environmental protection. P&G designed and developed all the products (packaging, labeling) in order to meet international and local requirements. "Net sales growth includes a positive foreign exchange impact of three percent driven primarily by continued strength of the euro, British pound and Japanese yen. Mix reduced sales by one percent due to the effect of strong developing market growth" (The Procter & Gamble Company, 2004). Operating on a pan-European basis involves P&G addressing the issue of cultural difference and consequently developing a balance between standardisation and adaptation in Asian, Latin American and European countries. References 1. Bob's River View. 2002. Available at: http://www.reveries.com/reverb/packaged_goods_marketing/wehling/ 2. Executive summary Available at: http://www.euromonitor.com/Household_Care_in_India 3. FTC Consent Order Remedies Likely Anticompetitive Effects of Procter & Gamble's Acquisition of Gillette. 2005. Available at: http://www3.ftc.gov/opa/2005/09/pggillette.htm 4. Jingjing J. P&G, Yue-Sai Deny Merger Pending. Available at: http://www.chinadaily.com.cn/en/doc/2004-01/13/content_299414.htm 5. Koning A. Reach for Regional Strategies for Global Competitive Advantage. (n.d.) pp.128-127. Available at: www.blake.montclair.edu/cibconf/conference/DATA/Theme1/reach.pdf 6. Lafley, A.G. (n.d.) Getting Procter & Gamble Back on Track .Available at: www.rotman.utoronto.ca/integrativethinking/Lafley.pdf 7. Procter & Gamble creates a collaborative community (2005). http://www.ugs.com/about_us/success/pg.shtml 8. Procter & Gamble: Think Globally, Act Locally. (n.d.) Available at: http://www.archibus.com/success/proctergamble.htm 9. "Procter & Gamble". Cisco success stories: Customer profile. 2002. Available at: www.cisco.com/warp/public/779/ ibs/solutions/optimization/pgcasestudy1.pdf 10. "Procter & Gamble". (n.d.). Corporate watch. http://www.corporatewatch.org.uk/lid=247 11. P&G. History. 2003. Available at: http://www.pg-ca.com/english/about/history.shtml 12. The Procter & Gamble Company. 2004. Available at: media.corporate-ir.net/media_files/ irol/10/104574/pdf/PG_1Q05.pdf 13. Thomas, G., Bollen, B. Scott Neslin on Procter & Gamble's Value Pricing Strategy. 2004. Available at: http://www.zibs.com/neslin.shtml 14. Welcome To Procter & Gadget The consumer giant is leading the way in building brands with mechanical gizmos 2005. Available at: http://www.businessweek.com/magazine/content/05_06/b3919119.htm 15. Western Europe Distribution strategy. 2003 Available at: http://www.eu.pg.com/sustainability/actions_waterandenvironment_eu-wedistributionstrategy.html Read More