Research and Analysis on Proctor & Gamble (p&g)

Executive Summary

Procter & Gamble (P&G) is a multinational consumer-product company which operates in nearly 80 countries with more than 300 brands. With its core competency in development and commercialization of products and brands such as Pampers, Tide, and Wella which are part of P&G’s 22 billion-dollar brands, P&G has been highly successful in the market with sales of $68 billion and a net profit of $8 billion in 2006. Its aggressive international expansion and innovation-driven strategy enable the company to achieve economies of scale as well as to differentiate itself from strong competitors like Unilever, and Kimberly-Clark. Due to its large size and complexity, the organizational structure tends to be centralized. The standardization process in the early 2000s, resulted in significant cost-saving and speedy new product roll-outs. Given the nature of the consumer-product industry, however, local responsiveness and flexibility are the key to survive and stand out. Therefore, P&G coordinated a new matrix structure in which market development divisions complement product sectors, and added a supporting service unit to enhance horizontal linkages.

While the efficiency-oriented organization design has thrived resulting a record of 25 percent net profit growth throughout last three years, P&G faced a serious organizational challenge in expanding its market to developing countries. Effective international operation must apply its successful brand management techniques, while at the same time adapting itself to the multiplicity of national cultures, many requiring different sales approaches. However, P&G’s approach to local markets showed fundamental pitfalls. In China, which is emerging as one of the most potential markets with low-cost labors and huge population, at least seven brands of the company, including Zest and Ascend, have failed and exited the market since P&G commenced its operations in 1988. At the outset, one reason for this failure is attributed to P&G’s wrong expectation of Chinese people’s upgrade to western products. The company incautiously incorporated western lifestyle into the Chinese market, which ended up finding that consumption behavior was more stubborn than the company had estimated. Ultimately, the intrinsic limits in current organizational structure are mainly to blame for the failure. Overemphasis on standardization caused a naпve approach toward detecting cultural differences. As a result, some of P&G’s strongest brands failed in China.

P&G’s business in China is a long learning journey and its leading position is not unassailable. To further penetrate the Chinese market, a set of actions are suggested to be taken to rectify the weaknesses and drawbacks identified. Most of all, the fundamental change in the structure is required: firstly, to reorganize the New Product Development (NPD) division into the cross-divisional team; and secondly, to assign at least two local market experts into each NPD team and give them official authorities. Also P&G should segment the Chinese market based on variances in wealth, geography, and preferences and tastes of Chinese people. Both professional teams and its joint venture partners can help the company conduct extended market survey and analysis, and communicate with each segment. P&G should localize its products further to overcome consumers’ resistance to foreign goods and affection for familiar domestic ones. Moreover, managers from China as well as other developing markets can discuss common issues and barriers they encounter in developing countries and bring along solutions together.

Introduction

The overall objective of the project is to apply text-based knowledge to the real world situation, analyze the organization chosen, and thereby develop further discussions. In this paper, we will examine the current situation of a global consumer-products company, Procter & Gamble (P&G). P&G is widely renowned and is a leader in markets of cosmetics, pharmaceuticals, household care products and so on. As the company itself states, “Three billion times a day, P&G brands touch the lives of people around the world.” Despite its overall success, P&G has experienced several critical failures in some regions, largely because the company fails to understand the local market and, consequently, fails to adapt. Due to its nature as a transnational corporation, it must deal with consumers from various cultural backgrounds and respond to different customer needs, both vitally important in international business. Thus, we chose P&G’s international operations as the focal area of our project. More specifically, China was chosen to conduct a detailed and sophisticated analysis. China, as an emerging and competitive market, has caught increasingly more