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Procter & Gamble Internationalization Process

Diane Alalouf Stefanie Koll Didier Gonzalez Mario Carlos

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Content
Introduction ................................ ................................ ................................ ............................. 3 Abstract ................................ ................................ ................................ ................................ ... 4 Company presentation................................ ................................ ................................ ............. 5 History ................................ ................................ ................................ ................................ . 5 Today ................................ ................................ ................................ ................................ ... 6 Environmental Sustainability ................................ ................................ ................................ 8 Accomplishment of internationalization process and its difficulties over time. ......................... 9 Conclusions and Recommendations ................................ ................................ ....................... 17 References ................................ ................................ ................................ ............................. 18 Appendix 1................................ ................................ ................................ ............................. 19 Appendix 2................................ ................................ ................................ ............................. 20 Appendix 3................................ ................................ ................................ ............................. 21

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Introduction

The following report is aimed to deal mainly with the internationalization of a specific company. As the topic of internationalization is supposed to build the base of this work the company Procter and Gamble was chosen to be elaborated. This choice was taken as the company is a multinational corporation and one of biggest consumer Products Company worldwide. The paper starts with a short Abstract summarizing the most important facts of Procter & Gamble. After that a more detailed company presentation is elaborated. This entails firstly a historical overview about the company s foundation, and then goes on with the actual situation of the company including its basic purpose, goals and objectives. Furthermore, the question How the company accomplished it s internationalization process over time will be discussed followed by the difficulties Procter & Gamble had to face during that process and what they did to cope with them. Finally a short Conclusions and Recommendations will be given.

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Abstract
Procter & Gamble is a US Global company that provides consumer products in the areas of pharmaceuticals goods founded in 1837. The company is divided into the following three global parts: y y y Household care Beauty and grooming Health/well-being

Everybody knows P&G products, which represents billion -dollar sellers. For example, Febreze, Always, Bounty, Gillette, Pampers and Pantene are only few to name of the many products of Procter & Gamble. The biggest buy of the company was Gillette in 2005. Nowadays Procter & Gamble is one of the largest consumer product company in the world, with an annual revenue of US$ 68.2 billion in 2007: It was ranked 74th fortune on the list of 500 world`s largest corporations. Furthermore, P&G processes operations in more than 80 countries thanks to 300 brands on market. The principal competitors of PG are: y y y Johnson and Johnson Kimberley-Clark Uniliver

The company perspectives are simple to understand; Provide products and services of superior quality that improve the life of the world`s consumers. In 20 years P&G had made important achievements. The most important achievement is Building Leading Brands , indeed P&Gis the largest consumer products company in China, with annual sales of US$2 billion . However P&G has a lot of difficulties and it is considered as a company with an aggressive strategy, which eats other company also called cannibalism strategy.

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Company presentation

Procter & Gamble is a multinational corporation with more than 300 successful brands worldwide. The company is earning trust of its clients in every part of the world and famous for its steady innovations in all areas of the company. More than 4 billion people use the products of Procter & Gamble daily.

History
The company started as only a small family run business producing candles and soaps and developed through continuously innovations to become the biggest consumer goods company in the entire world. The firm was founded in the year 1837 by William Procter and James Gamble in Ohio. Procter an emigrant from England started to work as candle maker in Cincinnati first as this industry was very popular in the beginning of the 19 th century. Gamble an Irish man toughed himself to be a soap maker at about the same time. The luck they met was due to their marriages with the sisters Olivia and Elizabeth Norris. Their father was it who convinced them both to become business partners which resulted in the foundation in 1837. Procter first started working alone producing, selling and delivering candles by taking advantage of the fat and oil products that where byproducts of a large meatpacking industry situated in Cincinnati. There he also met Olivia who was the daughter of the famous candle maker Alexander Norris. Gamble who first stared his apprenticeship as a candle maker later happened to marry Elizabeth Ann, the second daughter of Alexander. As the father in law recognized the two were competing for the same raw materials he suggested a partnership which was then after several years founded on October 31, 1837. They signed thepartnership agreement that founded the Procter & Gamble Company with a total assetof $7,192.24.Although companies were going through a harsh time Procter and Gamble survived and had in 1890 its first President with Procter s eldest son William A. Procter.

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His other son Harley T. was the first Advertising and Sales Manager who also named Ivory Soap. Gambles eldest son James N. Gamble invented Ivory soap and invented the first laboratory in the company s history.

Today
Today the company is well known and it can be said it is a force in the world. The company s market capitalization is bigger that some countries Gross Domestic Product and consumers in 180 countries are served with its products. Procter & Gamble is not only that large in its visible products and assets but tries to be responsible respectively. They have a shared purpose that attracts and unites an amazing group of people, around the world which includes the most varied workforce in P&G history on behalf of around 145 nationalities. Procter & Gamble s recruiting and development philosophy is build from within and fosters a well-built culture of trust and shared experiences. As stated by Procter & Gamble themselves their responsibility is being an ethical corporate citizen but their opportunity is something far bigger and therefore embodied in the firms Purpose Statement. P&G s Purpose Statement articulates a common goal that inspires us daily:

(www.pg.com) This purpose of Procter and Gamble is a tool to strengthen the internal situation. In some way it aims to unify the company in a common grounds and their growth
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strategy. The purpose of Procter & Gamble is that powerful as it combines its professionalism with a simple idea namely; the improvement of the world consumers lives constantly. The statement on the one hand defines the company s commercial opportunities and on the other hand reflects its culture based on improving lives through their products and s ervices. This is true for an important fact. Procter & Gamble in deed is an especially important company as P&G brands supply about 4.2 billion of the 6.5 billion people on the planet today. This does not only shows that the company is extremely successful but also that it somehow affects and influences most people in the world. This fact also means that Procter & Gamble can improve the lives of most of the people in ways that enable them to prosper, to increase their quality of living. Therefore, the company has an so called overall Live, Learn & Thriveprogram which are initiatives such as Children s Safe Drinking Water and Pampers 1 Pack = 1 Vaccine. Those are examples of how Procter & Gamble are improving the lives of millions of people every day. (www.pg.com) The purpose, values and principles are the foundation for P rocter &Gamble s unique culture. Through the company s history of over 170 years its business has developed and altered while these elements have endured. (see below)

Our Purpose unifies us in a common cause and growth strategy of improving more consumers lives in small but meaningful ways each day. It inspires P&G people to make a positive contribution every day. Our Values reflect the behaviors that shape the tone of how we work with each other and with our partners. And Our Principles articulate P&G s unique approach to conducting work every day.

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(www.pg.com) The company s unique organizational structure brings with it global scale benefits of an international company on the one hand and the local focus to be appropriate for consumers in approximately 180 countries on the other hand. Its corporate structure provides astructure that allows tapping the benefits of a global organization with speed and efficiency.

Environmental Sustainability
Another important aspect at Procter & Gamble is their attempt to be sustainable. A part of the company strategy is to mature responsibly while working toward a longterm environmental sustainability vision. This sustainable vision according to Procter & Gamble includes the following points.

y y

Powering our plants with 100% renewable energy Using 100% renewable or recycled materials for all products and packaging

y y

Having zero consumer and manufacturing waste go to landfills Designing products that delight consumers while maximizing our conservation of resources

(www.pg.com) As mentioned before, the program Live, Learn and Thrive is P&G s corporate root.As the focus on helping children in need around the world is of mayor importance this programs allow children to get a strong start as well as receive ways in to education in order toconstruct skills for life. Furthermore, to deliver environmental and social programs, Procter & Gamble pays special attention to their employees and stakeholders. Their objective is to equip all P&G employees to assemble sustainability thinking. Additionally, the firm aims t o work transparently with stakeholders to facilitatenonstop freedom to innovate in a responsible way.

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Finally in order to reach the long-term environmental vision and social responsibility programs Procter & Gamble recently added ten year duration goals that will be accomplished by 2020. (www.pg.com)

Accomplishment of internationalization process and its difficulties over time.

The first steps of the internationalization process of Procter & Gamble started at the beginning of the 1930s with the e purchase of the Thomas Hedley & Co. Ltd. In England, and the acquisition of the Philippine Manufacturing Company, the first appearance of the company in the Far East, it continued with Venezuela, Mexico and Puerto Rico in 40s and 50s, but the company had two main markets at the end of the 40s: The multicultural, diversified, with different laws and costumer behaviours in Western Europe, and the quite homogeneous market in the U.S., for each of the targets, the company had developed a different organizational structure. In order to keep up with the increase of product lines in the United States, P&G created in 1954 an individual operating division that focused on brands and

functions (Figure1). It was a symbiotic relationship between the brand managers aiming for marketplace but shared access to strong divisional functions , who

collaborate with the brands by sending the talents and best practices to the brands.

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By the end of the 1980s U.S. division transformed the management system established more than 50 years ago; each brand became part of a portfolio of products, divided in 39 categories and managed by a general manager. Each category was independent from each other (production, manufacturing, sales, finance, etc), despite this, each functional leader not only reported to his manager, but also to his functional leader, creating by this a reporting structure. Across the pond, the strategy was divided geographically, each division was segmented in three dimensions: brand, country and function, the result of his was a package of independent and self -sufficient subsidiaries in each country, directed by a general manager who used the technology and know-how and expertise of the U.S. division, adapt it and apply it to the local market. For a while the 80s geographic management proved effective, until the brands and innovations started a stagnation phase, a good example of this was the time it took P&G to launch Pampers in Germany and France (12 and 18 years respectively), also the one of the main objectives wasn t being accomplished: The R&D in Europe had barely contact with its American counterpart, as a result, the manufacturing process skyrocked, due to not-standardized products (little changes were done to the products adding cost, but not value) and unreliable process.

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Having lost 92% of its Pampers market share in Japan in only 6 years by the hands of Kao and two other local companies, and the more diversified customer needs and income levels, P&G pushed to develop a new corporate structure. With the positive results obtained with the cross-border category management, the company created the global matrix in which each countries function was directly connect ed and responded to the regional business manager, but also to the functional leader, then the president of each category president (who was in charge of the complete corporate R&D) reported directly to the CEO. This was also applied to the rest of the other world divisions: Asia, Latin America, North America and Europe/ Middle East/ Africa.

The clear advantages the matrix brought to the company were the complete integration of the engineering, distribution, purchasing and manufacturing processes into one single function, standardization of the IT systems, a better relationship between them and the big costumers like Wal -mart, thanks to the Costumer Business Development (CBD), and the elimination of 20.4% of their plants. These changes were transformed into results, taking new ideas into global projects in four years instead of

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ten or more, application of new technologies to beauty/care brands, increasing their value from US$600 million, to a valuable $7 billion. Not everything was sweet as candy; the matrix showed it true colours, the connection between the function and functional management led to defining the career paths of their employees instead of letting them made their own way, It isolated each function, who turned to increase its profitability, red uce its costs and kept them from cooperating with the other units of the company as a whole entity, generating a divergence in the objectives among the entity (while product supply tried to decrease the amount of raw material for the production, R&D looked for the top quality ones, without caring where they came from). Other down side was the focus and responsibility of regional managers who take care of the financial results and the launch of new product from the company portfolio, the R&D division focused on globalize new technological and brand innovations quickly , had to face the approval from each regional manager to introduce a new product, and in certain cases the idea had to be also filtered by a large country manager, as a result of this, managers try to keep the profits as high as possible and reject new risky projects, leading to a cease on brands and company innovation. What they believed was their biggest strength in fact was Achilles ankle; they had a heavy weight structure. By mid 90s they f ound a dozen general managers only in Germany. The sales had fallen 5.9% by 1998, from average 8.5 in the 1980s. The solution was a restructuring plan named Organization 2005 or O2005, with a cost of US$1.9 billions, designed to increase the innovation speed and globalized innovations, grew sales between 6-8% and profit growth of 13-15%. It was divided in two parts, first; consisted in a annual after-tax cost savings of US$900 million by year 2004, a voluntary job separation of 15,000 employees (70% from overseas), axing seven on the thirteen management layer. Second: Get rid of the matrix structure and establish Global Business Units (GBU) that was in charge of products, Market Development Organization (MDO) focused on markets and Global Business Services with primary responsibility for internal business processes. Global Business Units
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Global Business Units (GBU) must take care of brand design, business strategy, new business development and product development. The president of each BGU reported directly to the CEO, there was a total of seven GBUs. In order to share tech innovations, each unit had an R&D VP in charge of making this happen; adding a product supply organized by category and not by geography will lead to global standardization and eliminate part of the launch approval process from regional managers. Market Development Organization Market Development Organizations (MDO) was responsible for tailoring the

company s global programs to local markets and their knowledge for local costumers and retailers to help P&G develop market strategies to guide the entire business . The president reported directly to the CEO, the organization was compensated on sale growths. Global Business Services Global Business Services (GBS) were designed to standardize, streamline, and

ultimately strengthen business processes and It platforms between BGUs and MDO (this will lead to scale economies), as well as letting them focus on their core abilities. To do this the GBS had to relocate the company into a single shared SAP software system, after that they established a three service centres in Costa Rica, England and Philippines to keep business running 24/7. As part of the new program was a new CEO, DurkJager, who was involved in the development process of O2005 with the hope of change P&G risk -averse regionally managed structure so that it could launch new blockbuster brands rather than incremental improvements of existing products . The results came by October 1999, at the end of the first fiscal quarter that showed up an increase of annual revenue of 2.6% and a 5% in sales, this was well received by the stock market where the price of the stock reached a price of $118.38, this was followed by a grew of 7% i n earnings and 13% in core net earnings by the end of January 2000. Two months later the stock price hit rock bottom loosing 30 percent of its value (US$57.25) as a result of the
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announcement of a 10 percent lower core earnings (8 percent increase was expe cted). FDA delay approvals, intense international competition and higher than expected raw material price were blamed. This situation repeated two more times in that year; April 25, 2000 when core net earnings had fallen 18 percent, another price dropped of 10percent of its value. The last one was in June 8, 2000, according to market research companies, P& had lost market share in 16 out of 30 categories during that year, after that the stock lost another 7 percent, CEO DurkJager, had no other option but q uitting the job. The new CEO, Alan George Lafley (A.G. Lafley, MBA from Harvard) came in, the same date Jager resigned, and he kept the structure everyone thought was the main weakness of the company. Despite most of the comments out there were anything bu t optimistic: When [Lafley] took over in June 2000, on the same day as CEO DurkJager's sudden resignation, the company was the sort of ink stained mess you'd find in a Tide commercial. It had slammed four profit warnings into two quarters. . . . Its stock had dropped by half in the previous six months losing a crushing $70 billion in market value. And the combative Jager, whose 17 volatile months on the job had made his the shortest CEO tenure in Procter & Gamble's grand 165-year history, had left the company unsure of its footing. The day Lafley got the keys, no one had high hopes .

Fortune, September 2002

He stated:

we have a focused plan to drive both sales and profit growth . This

changes weren t restructuring the company, they only changed the way money was spend, for example, the most profitable brands were out of sight, P&G tried to introduce the most possible brands, leaving behind the true core brands, where they had reduced their spending in the top 10 26 percent. With this in mind the company s new motto were cost control and profit margin, followed by revenue growth and market shares. The strategy was to reduce long-term growth sales (from 5-7 to 3-5 percent) and earning target (13-15 to 10 percent) by cutting investment until they
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clearly see it fitted in the core areas, combining every innovation program into a single Global Business Development, consolidating the GBUs into three. This was not enough, they still had costs 20 percent higher than the competition, so Lafley had to call another voluntary separation of 22 percent of the workforce, this action will save US$600-US$700 millions, that will go to marketing, speeding brand innovations and reducing prices. Bounty paper towels price was one of their first that took part of the changes, a promotion on price change resulted in a 22.4 percent in sales increase. In seven months market share I the U.S. had grown from 3 to 8 from the 10 categories. The next step was to focus on asset-efficient categories (health and beauty-care) costumers and largest countries and developing markets. The CEO got into the account that GBUs and MDOs had the great task of joining forces, where the MDO was responsible for the first moment of truth , the first contact of the costumer with the product, when he/she sees it on a shelf, and GBU take care of the second moment of truth , when the costumer uses the product. The problem was, for example in pricing, MDO felt it was its responsibility because it affected retail costumers margin, market share potential, and sales growth (it was compensated on sales growth), GBU felt it was their decision because if affected costumer margin, perception, and sales growth (GBUs were profit compensated). The most important changes weren t only in the formal structure of the organization, but also in the minds of all the persons involved, from CEO to the last employee, every effort was important. For example, preferred parking slots for executives were axed. [Lafley s] efforts to rip down barriers separating honchos from hired hands are not merely symbolic. In the fabled 11th-floor executive suites at P&G's Cincinnati headquarters Lafley is having the oak panelled walls torn down and donating the 19th -century oil paintings to a local art museum. The CEO and his top brass will sit in cubicles on half the floor. The other half is being transformed into an employee-learning centre. Katrina Brooker, Fortune.

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This change wasn t well received by all the executives, by the end of 2005, o nly 28 percent of the ones who started in 1999 stayed in the company. The final results were impressive; P&G kept on with the growth despite the lower investment in R&D and reached the organic sales/growth forecast for every quarter since June 2002 (Exhibit 4), GBS was responsible for US$500 millions due to standardization and business process consolidation, but also scale advantages; flexibility and focus were responsible for the success. Now functions were a general responsibility, and helped every unit to reach its goals, (ex. R&D and manufacturing had balanced the optimal balance between cost and product performance), this brought faster product launches, taking one and a half years in 2003 instead of the usual four in 1999, reengineer diap ers production process (that gained 4 percent of global market share in 3 years), the development of new strategies and practices that helped entering new developing economies with products like shampoo, diapers and laundry that tended to be the most desir ed ones, then having established the bases, the introduction of new products by the distribution network established, allowing them sell better margin articles. As part of their changes P&G generated connect and develop , a strategy giving certain executives the power to find new project ideas no matter where they came from, in order to create a new product/venture and turn it into a new brand (La conexin de Osaka, Appendix 1). By year 2006, they raised the value of their brands from US$10 billion to US $22 billion, which represented 2/3 of the grown volume and revenues. Company kept a double-digit earnings growth for fifth consecutive year, reduced its costs so much it established as the lowest one of its peer group of 30 competitors.

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Conclusions and Recommendations

Procter & Gamble has established itself as a market leader which is a result of its unique purpose and certain strategies applied on its products supply chains. As was explained in the report P&G is involved in redevelopment and consolidation of existing products to expand its customer base with the same products. The company had to face to a lot of difficulties during the internationalization process, with technology and social difficulties. Nowadays P&G must additionally to other problems face the very important issue of environment sustainability in the world. P&G is denounced for its practices on animals and therefore has to deal with boycotts against the company products. However, the company continues to show that it grows with ever more responsibly. The last challenge is to show that it takes care about the environment, thanks to long term vision in which the company faces a lot on sustainability aspects and even put emphasize on those in its company purpose and objectives. The last environmental end-points aredivided into 5 strategies: Strategy 1: Product Using 100% renewable or recycled materials for all products and packaging Strategy 2: Operation Improve the environmental profile of P&G s own operations, in order to reduce CO2 emission

Strategy 3: Social Responsibility Improve children s lives through P&G s social responsibility programs in order to prevent of disease and save lives.

Strategy 4: Employees Engage and equip all P&G employees to build sustainability thinking and practices into their everyday work

Strategy 5:Stakeholders Shape the future by working transparently with our stakeholders to enable continued freedom to innovate in a responsible way

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References
y

P&G. A company history. 1837- Today. Procter and Gamble. 2006. http://www.pg.com/translations/history_pdf/english_history.pdf P&G Japan: The SK-II Globalization Project. Harvard Business School. March 4, 2004. Christopher A. Bartlett. http://studentoffortune.com/question/451730/ASAP-PLZ-5-InternationalMarketing-questions/791102-SK-II.pdf

Managing Across borders. The transnational solution. Harvard Business School press. 1989. Christopher A. Bartlett and SumantraGhoshal http://hbr.org/products/8494/8494p4.pdf

Procter & Gamble: Organization 2005 (A) Harvard Business School. Rev: October 4, 2007. MIKO AJ JAN PISKORSKI. ALESSANDRO L. SPADINI. ftp://89.208.23.230/share/research/hbr/707519 -PDF-ENG.PDF

Conectar y desarrollar dentro del nuevo modelo de innovacin de Procter & Gamble. Harvard business review. Marzo de 2006 Larry Huston y Nabil Sakkab

Procter & Gamble: Organization 2005 (B) Harvard Business School. November 20, 2006. MIKO AJ JAN PISKORSKI. ALESSANDRO L. SPADINI. http://es.scribd.com/doc/50579823/org -2005-b

Biographical Data Sheet. ALAN G. (A.G.) LAFLEY Chairman of the Board, President and Chief Executive www.pg.com/content/pdf/04_news/mgmt_bios/Lafley-AG.pdf

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Appendix 1

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Appendix 2

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Appendix 3

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