The essence of the problem was simple: P&G’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 world of the 1960s, when national markets were segmented from each other by barriers to cross-border trade. Products produced in Great Britain, for example, could not be sold economically in Germany due to high tariff duties levied on imports into Germany. By the 1980s, however, barriers to cross-border trade were falling rapidly worldwide and fragmented national markets were merging into larger regional or global markets. Also, the retailers through which P&G distributed its products were growing larger and more global, such as Walmart, Tesco from the United Kingdom, and Carrefour from France. These emerging global retailers were demanding price discounts from P&G.
In the 1990s P&G embarked on a major reorganization in an attempt to control its cost structure and recognize the new reality of emerging global markets. The company shut down some 30 manufacturing plants around the globe, laid off 13,000 employees, and concentrated production in fewer plants that could better realize economies of scale and serve regional markets. It wasn’t enough! Profit growth remained sluggish so in 1999 P&G launched its second reorganization of the decade. Named “Organization 2005,” the goal was to transform P&G into a truly global company. The company tore up its old organization, which was based on countries and regions, and replaced it with one based on seven self-contained global business units, ranging from baby care to food products. Each business unit was given complete responsibility for generating profits from its products, and for manufacturing, marketing, and product development. Each business unit was told to rationalize production, concentrating it in fewer larger facilities; to try to build global brands wherever possible, thereby eliminating marketing differences between countries; and to accelerate the development and launch of new products. P&G announced that as a result of this initiative, it would close another 10 factories and lay off 15,000 employees, mostly in Europe where there was still extensive duplication of assets. The annual cost savings were estimated to be about $800 million. P&G 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 scale economies. This time the strategy seemed to be working. For most of the 2000s P&G reported strong growth in both sales and profits. Significantly, P&G’s global competitors, such as Unilever, Kimberly-Clark, and Colgate-Palmolive, were struggling during the same time period.
Sources: J. Neff, “P&G Outpacing Unilever in Five-Year Battle,” Advertising Age, November 3, 2003, pp. 1–3; G. Strauss, “Firm Restructuring into Truly Global Company,” USA Today, September 10, 1999, p. B2; Procter & Gamble 10K Report, 2005; and M. Kolbasuk McGee, “P&G Jump-Starts Corporate Change,” Information Week, November 1, 1999, pp. 30–34.
Using the above article answer the following question from Chapter 12 in Global Business Today (Hill & Hult)
Chapter 12 Question 4
Reread the Management Focus, “Evolution of Strategy at Procter & Gamble,” and then answer the following questions:
• a. What strategy was Procter & Gamble pursuing when it first entered foreign markets in the period up until the 1980s?
• b. Why do you think this strategy became less viable in the 1990s?
• c. What strategy does P&G appear to be moving toward? What are the benefits of this strategy? What are the potential risks associated with it?
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Chapter 13 using attached TESCO Article
TESCO ARTICLE “TESCO GOES GLOBAL ATTACHED
Review the Management Focus on Tesco. Then answer the following questions:
a) Why did Tesco’s initial international expansion strategy focus on
b) How does Tesco create value in its international operations? c) In Asia, Tesco has a long history of entering into joint venture agreements with local partners. What are the benefits of doing this for Tesco? What are the risks? How are those risks mitigated? d) In March2006, Tesco announced that it would enter the United States. This represents a departure from its historic strategy of focusing on developingnations. Why do you think Tesco made this decision? How is the U.S. market different from others Tesco has entered? What are the risks here? How do you think Tesco will do?
Chapter 14 Question #1
Question 1- A firm based in Washington State wants to export a shipload of finished lumber to the Philippines,. The would-be importer cannot get sufficient credit from domestic sources to pay for the shipment by insists that the finished lumber can quickly be resold in the Philippines for a profit. Outline the steps the exporter should take to affect this export to the Philippines.