MNC - Proctor & Gamble

Founded in 1837, Cincinnati-based Procter & Gamble has long been one of the world’s most
international of companies. Today P&G is a global colossus in the consumer products business
with annual sales in excess of $50 billion, some 54 percent of which are generated outside of the
United States. P&G sells more than 300 brands—including Ivory soap, Tide, Pampers, Iams pet
food, Crisco, and Folgers—to consumers in 160 countries. Historically the strategy at P&G was
well established. The company developed new products in Cincinnati and then distribute those
products in different nations. For this, they added an international division to their existing
structure and continue to use same control system till 1950’s. Later from 1950’s to 1980’s, P&G
duplicated all value chain activities in their foreign subsidiaries that were set up in every world
area (United states, United Kingdom, Germany, France, Japan) thereby having their own
production facilities and tailored the packaging, brand name, and marketing message to local tastes
and preferences. For years this strategy delivered a steady stream of new products and reliable
growth in sales and profits. By the 1990s, however, profit growth at P&G was slowing. The essence
of the problem was simple: P&G’s costs were too h igh 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. Thus, structure based on five self -contained global business
units (baby, feminine and family care, fabric and home care, food and beverage and health and
beauty care) ranging from baby care to food products was designed. 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 a ssets.
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. It was not enough, P& G further
restructured its operations in 2000. Framed around the objective of having an organizational
structure that would allow the firm to “think globally and act locally”. This structure, which P&G
officials believe is a source of competitive advantage for the firm, features previous five global
business product units (GBUs) and three market development organizations (MDOs), each formed
around a region of the world, such as Northeast Asia, Europe and N. America. Using the five
global product units to create strong brand equities through ongoing innovation is how P&G thinks
globally; interfacing with customers to ensure that a division’s marketing plans fully capitalize on
local opportunities is how P&G acts locally. Information is shared between the product-oriented
and the marketing-oriented efforts to enhance the corporation’s performance. Indeed, some
corporate staff members are responsible for focusing on making certain that knowledge is
meaningfully categorized and then rapidly transferred throughout P&G’s businesses. Those
working to achieve this objective are part of P&G’s Global Business Services (GBS) group. Last,
the Corporate Functions group is essentially a set of consultants ready to assist those working in
the global business units and the market development organizations in their effort to use “best
practices” in terms of organizational functions, such as external relations, information technology
management and human resources practices. In summary, P&G’s structure uses GBUs to define a
brand’s equity, MDOs to adapt a brand to local preferences, the GBS group to support operations
through infrastructure services such as accounting and employee benefits and payroll, and
Corporate Functions to assure that the latest and most effective methodologies are being used to
conduct the firm’s product and marketing oriented operations. 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.

What global strategies were Procter & Gamble pursuing from the period it first entered
foreign market till 2000s. with justification? Explain the reason for changing its strategy
with time, quoting advantages / disadvantages of one over the other?