Answered: Source: Adapted from Hill, CWL & Hult,…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Transcribed Image Text:1. Evolution of Strategy at Procter & Gamble Procter & Gamble was founded in 1837 in Cincinnati, United States of America. Today, Procter & Gamble is one of the biggest international companies in the world with annual sales in excess of $70 billion, more than 50% of which are generated outside the United States of America. Procter & Gamble sells more than 300 brands including Ivory soap, Tide, Pampers, IAMS pet food, Crisco, and Folgers to consumers in 180 countries in the world. Historically, the strategy at Procter & Gamble was well established. The company developed new products in Cincinnati and then relied on semiautonomous foreign subsidiaries to manufacture, market and distribute those products in different nations. In many cases, foreign subsidiaries had their own production facilities and tailored packaging, brand name and marketing messages to local tastes and preferences. For many years, this strategy delivered a steady stream of new products and reliable growth in sales and profits. However, sales growth at Procter & Gamble has been slowing and even declined in recent years. Procter & Gamble's costs were too high because of extensive duplication of manufacturing, marketing and administrative facilities in different national subsidiaries. The duplication of assets made sense in the 1960s when national markets were segmented from each other by barriers to cross-border trade. Products produced in the United Kingdom could not be sold economically in Germany due to high tariff duties levied on imports. By the 1980s and 1990s, barriers to cross-border trade were falling rapidly worldwide and fragmented national markets were merging into regional and global markets. Also, retailers such as Walmart, Tesco and Carrefour through which Procter & Gamble distributed its products were grower larger and more powerful and were demanding price discounts. In recent years, P&G has embarked on a major reorganization in an attempt to control its cost structure. The company shut down some 30 manufacturing plants around the globe, laid off 130,000 employees and concentrated production in fewer plants that could better realize economies of scale and serve regional markets. The company tore up its old organizational structure and replaced it with one based on self-contained global business units, ranging from baby care to food product. Each business unit was to rationalize production, concentrating it in fewer large facilities thereby eliminating marketing differences between countries. As a result of this new initiative, Procter & Gamble announced that it would close another 10. factories and lay off another 15,000 employees, mostly in Europe where there is still extensive duplication of assets. The annual cost savings is estimated to be about $800 million. Procter & Gamble planned to use the savings to cut prices and increase marketing spending in an effort to gain market share, and thus further lower costs through the attainment of economies of scale. The new strategy seems to be working as Procter & Gamble reported strong growth in both sales and profits at a time when its global competitors such as Unilever, Kimberly-Clark and Colgate- Palmolive were struggling. Source: Adapted from Hill, C.W.L & Hult, G.T.M (2019), International Business: Competing in the Global Marketplace, 12 Edition, McGraw Hill Education) a. Identify and explain the international strategy that Procter & Gamble pursued when it first entered foreign markets. b. Explain two merits and two demerits that the company experienced while using this strategy. c. Identify and explain the new strategy that Procter & Gamble appears to be moving towards. d. Explain two benefits and two potential risks associated with this strategy.

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