Title : Individual Assignment FIN4224

Name : Seow Young Thye

ID Number : J12010245
Session : F1
Subject : Corporate Financial Strategy
Lecturer : Mr Lim Lay Kong

I declare that this assignment is my own work entirely and suitable acknowledgement has been made
for any sources of information used in preparing it
It is mentioned in the article that P&G has been acquiring many smaller businesses
to boost their growth. Apart from that, P&G has the intention to penetrate the
important developing markets, such as Brazil and China, where it faces stiff
competition from rivals such as Unilever and Colgate-Palmolive.

Part 1

Critically evaluate the competitive strengths of P&G and the opportunities and
challenges of increasing growth through merger and acquisition.

Introduction
As time progress, the world has grew exponentially from company doing local
business to international business within clicks away. Procter & Gamble (P&G) as
one of the biggest manufacturer and market consumer packaged goods in the whole
world has ended their business in the food industry in order to focus on their beauty
and health products. These changes has brought the company more potential growth
in the future. There are more than 20 products of P&G has earned the company
billions of dollars worldwide and it is also ranked the first in Soaps and Cosmetics
Industry. P&G has a history of growth by acquiring smaller businesses, and desire to
break through the wall-cities in developing countries such as Brazil and China. But
there is challenges from the local competitors of those countries. However, consumer
in developing countries are now more willing to purchase pricey items and this would
help P&G in their penetrations of market since P&G offers quality goods with slightly
higher price than those local competitors. They have also put a big lump-sum of
money into their Research and Development which is more than 50% of their closest
competitor. So now the problem arises from the growth strategy of P&G. They may
acquire or merge smaller companies in the developing countries in order to penetrate
the market, but what will be the challenges and opportunity? What is the strength
possess by P&G to compete in a new market? And should or shouldnt P&G penetrate
the market through merger and acquisition?
Competitive Strength
P&G is going to be 179 years old soon and the company will not last this long unless
changes has been made in anything or everything except for their core value and
purpose. Their purpose is to provide branded products and services with superior
quality and value that improves the lives of the worlds consumers (P&G, 2016).

P&G is now in several sectors, beauty, grooming, health care, fabric and home, baby,
feminine and family care in which fabric & home and baby, feminine & family care
has the highest % for net sales and net earnings. However, this 2 categories is highly
competitive in the markets and P&G are competing against similar product from other
large and small companies, including global well known company. P&G are well
positioned in the highly competitive industry segment and market and is always
holding a significant portion of market shares. They support their products with
promotions, advertising and other marketing instruments to build awareness among
the consumers. P&G believes that this combinations of marketing strategy with their
extensive sales force is the most efficient strategy of marketing for the type of
products they are selling. Besides, quality of the products, performance, value and
packaging is also one of the factors that differentiate P&G with the others (P&G,
2016).

Apart from that, P&G has spent more than their competitors in research and
development. It enables them to develop technologies and obtain patent across all
categories to meet the needs and improves the lives of others. They have spent 1.9
billion in 2016, 2 billion in 2015 and 1.9billion in 2014, which is a big lump-sum of
money (P&G, 2016). The effects are significant too, which they have more quality
and varieties of products. In the latest financial report of P&G, the CEO has stated
that they has been working on a balance for top-line growth, bottom-line growth and
cash generation. They increased their investment in innovation, sales coverage and
also advertising to enhance long term prospect for a more sustainable growth. They
have also make one big leap in their portfolio transformation which is completing a
sales of 41 beauty product to Coty. Inc (P&G, 2016).
P&G has its competitive strength of good market portion in every industry they are in
and they have a good ahead of innovations product. Besides, they also acquire small
businesses previously to boost their raw sales and growth and have experience dealing
with the pros and cons such as, talents fear, leaderships, and culture. All this has
given P&G a good competitive position in their strategy of merger and acquisition to
grow.

Opportunities
Mergers and acquisitions (M&As) has becoming a more popular business strategy for
companies to expand and grow into a new territory or markets and gain a competitive
position in that market or to gain new sets of product line or skills. Karolis(2015), has
stated that the global economy outlook of 2014 suggests there is an unseen growth of
M&As. Although the global economy has been challenged, for example rapid decline
of oil price, currency weakening, and the uncertainty of geopolitical of middle east
conflicts. This situation has further indicates that despite all the uncertainty and risk,
companies are implementing strategy to gain access to other geographies.
(Andriukeviius, 2015)

M&As offers a solution to different types of business problems. Perhaps, the

company is looking for a new line of products or add some new facilities or even gain
access to a new market. For P&G to penetrate into the market of a developing
countries such as China and Brazil and competing with the main market players there
such as Johnson and Johnson, Colgate-Palmolive and Kimberly-Clark; M&As seem
like the only answer. It allows them to access to the market, gain talents and people
that understand the cultures there and also quickly gain any intellectual property.
(FREDERIKSON, 2016)

P&G has a lot of experience in acquiring smaller businesses to boost their growth and
products. For example, Natura Pet Products and Ambi Pur Air refresher by Sara Lees
Corporation. Besides, they had also gain access to the coffee business by acquiring
Folgers Coffee. P&G are also in the cosmetics and fragrance industry after they
acquire Noxell in the year 1989. All this acquisition has increase the global presence
of P&G and also boost their growth by a significant amount.

Apart from that, M&As has two synergies which is cost synergies and revenue
synergies. The cost synergies are taking advantage of the overlapping operations or
resources to cut the cost by consolidating them into one entity (FREDERIKSON,
2016). In revenue synergies, it create an opportunities to change market dynamics,
raise price or sell more products. This is also where company can open new
territories, access new market, expand customer base and develop sales opportunities
by marketing complementary product and services.

There is a lot of opportunities from mergers and acquisitions but every light comes
with a shadow and the challenges might limit the access of company into M&As.

Challenges
With mergers and acquisitions (M&As), a company can gain a larger market shares
and assets immediately, access to new skills and market can be easier through M&As.
However, this sudden increase in company size may result in a significant
management challenge because of the increase in size and complexities (Forbes,
2016).People issues and branding issues will arise and sales will have to adjust to
meet new demands. M&As might be a very good business strategy for accessing into
new environment and market yet it still pose threats to businesses that arent prepared
enough. If the culture of company couldnt blend effectively it might cause the
mergers or acquisitions to fall short (Forbes, 2016). The labour turnover rate will be
higher due to M&As that causes a big changes in the culture and structure of a
company. If its not managed well, the company will lose most of its talents and
resulting an empty company or even worse, the talents will go over to their
competitors company because of the local branding.

Besides the cultural and structure clash, there might be a loss of differentiation.
Rather than adding critical value to the company, the acquired firms might dilute the
brand and competitive advantage of the acquiring firms (FREDERIKSON, 2016).
Apart from that, M&As will also cause marketplace confusion. For example if a
manufacturing firms acquire a cyber security firms that are specialize in helping
retailer, it might be a good combination for the manufacturing firms to add retailer as
their specialization but it can also cause confusing to the mass. When the only
rationale for the M&As is growth the confusion might be even worse. Indirectly the
brands name will be affected too. A bad M&As can diminish a brands name of both
the acquiring or the acquired company (FREDERIKSON, 2016). For example, the
company well known in US doesnt mean it is well known in China and when the US
company acquire a China company, its overall brand strength is diminished from the
M&As.

The challenges of merger and acquisitions is huge and small in different perspective
depending on the company position in the market. P&G with a good acquisitions
history will certainly have the manpower and leadership in dealing with the cultural
and structural difference. Besides, through the increase in advertisement and
marketing investment, the brands name are strong in the global.
Part 2

With the above, critically evaluate whether P&G should penetrate the developing
markets through merger and acquisition.

After years of stagnation in the wake of the financial crisis, merger and acquisitions
(M&As) is now on the rise again (Andriukeviius, 2015). Merging and acquiring is
the best way to gain significant of boost in the revenue and access to a new region
market. For P&G to expand into the developing market, M&As seem like a good
option for them. Either through horizontal acquiring or vertical acquiring, which is
acquiring a company similar to the current company or acquiring another company
along the supply chain. In addition, by acquiring the right type of business, there will
by synergies. Synergies are the characteristic or capabilities that can complement and
work well with those of the current company (FREDERIKSON, 2016). This idea is
to find the right target to acquire and synergies so the new entity will be better than
either the business is alone.

Although there is good sides of M&As, there is always a downside of it. The cost of
M&As from both financial and time perspective is not a thing that can just put aside.
The transaction cost is heavy depending on the company that P&G will choose to
acquire but anyhow it still wont be a small number (FREDERIKSON, 2016).
Besides, the impact on the existing operations will also have to be consider before
jumping into the boat of M&As. It is also critical to ensure that the culture and
structure will be compatible in both the businesses.

The main purpose of P&G using M&As is to penetrate the developing market and
share a portion in the market. The pros and cons stated above has stated that M&As
are not just a simple paper deal but involves a lot of operations, cost, labor and time.
Therefore, the questions arises, is the revenue of penetrating into the developing
market going to offset the cost of penetrating it through M&As?

P&Gs 2010 Regional Revenue has shown that the main portion of the revenue comes
from North America with a 42% rate and Asia is only 15%. Whereas in 2016, North
America still holds a big 44% from the total revenue and China and IMEA is all less
than 10%. In order for P&G to grow, penetration into the developing market is
essential (P&G, 2016).

M&As seem like the only answer for P&G to enter the market effectively. It open the
door for P&G to sell their products in the countries with a company that are in the
market for sometimes. By acquiring a company in the country of developing market,
it allows P&G to have the employees and top management that are used to the culture
and structure of the market. Though it might have people issues like the leaving of
employees and managers, but those that stay are those with a better adaptability and
skills.

P&G has been one of the biggest company in the world that are in these industries, its
closest competitor Johnson and Johnson has a net income of 13.2 billion compare to
P&Gs 10.9 billion. J&J has a revenue of 61.5 billion and its consumer division is
competing closely with P&G (FREDERIKSON, 2016). J&J seem like a very big
problem to P&G if P&G attempt to gain access into the developing market, but during
2010 J&J had encounter 2 major recalls. This seem like a good opportunity for P&G
to penetrate the market with their products.

P&G have the highest ranking in the worlds consumer good production means that
they are the top marketers in the world and they are strongly incorporated with the
best sellers across the world. Their products of different innovations are taken into
functionality and welcome by consumers. As the world has becoming easier for
people to connect with each other throughout the world, P&Gs fame will have a good
effects on their journey to penetrate developing markets. As stated above, one of the
downside of M&As is that it might cause confusion and affect the brands name. In
P&Gs case, this wouldnt be a problem because of their intensive marketing and
advertising. Their global presence is also one of the factors that can contribute to the
success of their M&As (kasi, 2011). Since people in the developing market is now
more willing to spend more on quality products, P&G can grab hold of this
opportunity to force their presence into the developing market through acquiring a
business that synergies with them.

M&As can give a fast and straightforward result to P&G for their penetration of new
market in developing countries. It wasnt just about the access to the market but also
the potential growth that can bring towards the company (Skondin, 2015). The cost
might be something to bear at first but it can be save through combining the resources
of two operating entity.

However, P&G has a very sensitive position in the global market as it has a number
edged and direct competition with a few big companies like the top competitors
Johnson and Johnson, Colgate-Palmolive, Kimberly Clark Corporation and Unilever
(kasi, 2011). The competition is very tough among this few companies as their
figures are near and the business perspective is almost the same. This highly
competitive situation might be a problem for P&G to acquire a seats in the developing
market and start sharing the big cake in China or Brazil as the other local company
wont be sitting around to let P&G start to gain its paces in the market.

Besides, P&G has underestimate the consumers in China and their willingness to pay
top dollars for quality household goods (Wahba, 2016). They have misread the local
appetite for its premium products and hurt P&Gs ability to move further in the
market (Wahba, 2016). The sales of P&G in China has fell by a high single digits
percentage and is a painful drop of performance. So the company is now expanding
higher-priced premium goods into the market like premium diapers, upcoming
upgrades to Tide, and Oral B Gum care, a new premium line of toothpaste. They have
been doing intensive advertisement to boost the sales back (Wahba, 2016).

Apart from competitors and misread of local appetites, P&G are also not doing well in
the online sales. One of the weakness of P&G is the online media advertising, and
their presence in the online world (kasi, 2011). One of the analyst has warned that
P&Gs rival have been quicker in the online sales, and P&G will take a few year to
adjust back from their losses which will then lose out the opportunity in being the
pioneer. One of the competitors that have made more progress in the online is
Kimberly-Clark (kasi, 2011).

There are so much reason for P&G to use M&As as a mean to penetrate the market,
for brand advertising, global presence, and also synergies with local companies in
developing market. But there are also barriers that might causes a major failure to the
company if the strategy fails. To recover back from the failure, it will takes a lot of
times and effort which by then the revenue is unable to offset the cost.

Conclusion
By concluding all the above research and findings, P&G should be using merger and
acquisition to gain access to the developing market in China and Brazil. This is
because the known failures to penetrate the markets are the competitors and the
misread of local appetite. This can be solve by acquiring a local companies that
understand the needs and wants of the locals and also help the company to gather
more information regarding the local market and sell products that actually suits the
local taste.

The strength of P&G is significant yet their weakness can also be seen. The lack of
presence in the online world is their weakness but can also be the opportunity of their
growth. They can start researching on the businesses that they can acquire and can
synergy well with them. Besides a throughout research on the businesses, a target has
to be set for the amount of cost involves and time for management to do that and also
the impact that will cause to the ongoing projects.

M&As is a very good strategy for P&G as its fast and effective and the problems that
arises afterward wouldnt be much of a problem to P&G as the company is experience
enough to deal with the people and structure difference. Therefore, M&As is a good
business strategy for P&G to penetrate the developing market.
Reference
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Merger and Acquisitions in Cyclical Economies. Procedia - Social and Behavioral

Sciences, 213, pp.764-769.

Forbes. (2016). EYVoice: Organic vs. Inorganic: Which Way To Grow?. [online]
Available at: http://www.forbes.com/sites/ey/2014/01/14/organic-vs-
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FREDERIKSON, L. (2016). Mergers and Acquisitions as Part of Your Growth

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