A major change throughout the past few decades has been the increased globalization of business. Procter
and Gamble (P&G) has reorganized its business model to succeed in a world where businesses strive for competitive
advantages in new markets and countries. In order to maintain its competitive advantage, maximize profits and
remain efficient, P&G has transformed from a strictly national brand, to a global brand and now to a transnational
brand.
The international market offers P&G a great demand (Appendix 1). Currently, P&G sells its products in 180
countries across six continents and still desires to build 20 new factories worldwide to meet the demand of its
customers in different parts of the world. Because the population is growing quickly in Asia, Africa and Latin
America, its opportunities lie in those faster developing countries (Appendix 2). In Europe, North America and other
developed countries, the high unemployment rate and slow-to-no GDP growth will not contribute to the the future
growth of P&G. For example, within the last three years P&G has advanced its net sales by $6.1 billion in
developing nations while receiving flat sales in the United States. Globalization also has helped P&G control its
costs; P&G has established a Corporate Standard System used to standardize materials and processes around the
world. The Corporate Standard System helps determine the best quality product for the best price. With this system,
P&G saves $250 million in spending each year. Additionally, with factories located worldwide P&G can receive
benefits from low labor costs in Asia, Latin America, and other countries, while at the same time reduce the
transportation cost of its raw materials and finished products.
P&G has not always been successful with regards to globalization. The company admitted that in 2012 it was
too aggressive in pursuing increased globalization. Chief Financial Officer Jon Moeller explained, “In retrospect we
may have overextended ourselves a bit with the pace of our portfolio and geographic expansions… Had we
anticipated the commodity cost increases and markets contractions in developed markets that we ultimately
experienced, we might have chosen a slightly slower pace” (3). As a result of the increasing commodity costs, P&G
was forced to raise prices leading to losses across its businesses worldwide. These results demonstrate the
unpredictability of future events and the extent to which such events can impact a company. P&G at the time
believed the right thing to do was expanding quickly and entering into markets across six continents. Nevertheless,
the company was forced to slow the pace of its expansion into emerging markets and instead focus on its already
existent, successful product lines.
P&G originally faced global challenges when attempting to differentiate itself from its competitors. At first,
when P&G expanded from a national to an international business, the company was fairly standardized on a global
scale and consequently only appealed to a specific group of consumers. To counteract this, P&G’s reformed business
model became a “transnational” business taking into account the various aspects of different geographic regions and
cultures when marketing its products, therefore giving the company a much more personal relationship with its
consumers. This demonstrates that P&G’s reformed business model not only allowed the company to become very
successful worldwide but also to overcome some of the challenges associated with global business.
In today’s market-oriented society, it is essential that a business take the time to analyze its capability to
compete within its external environment. Through the recognition of its strengths, weaknesses, opportunities and
threats, P&G has effectively been able to gain a slightly competitive edge over other companies essentially vying for
the same consumer-base. While strengths and weaknesses are aspects of a business that are internally controllable,
opportunities and threats are considerably controlled by any company’s external market. The understanding P&G
has gained through its lengthy experience in the business world has allowed it to focus on the fact that there is the
potential for failure around every corner, therefore it is essential for a company to always work to protect its
strengths and capitalize on its opportunities to improve while, at the same time, attempt to correct its weaknesses and
reduce its potential threats to maintain long term sustainability in a competitive market.
The strengths of P&G are numerous and impressive. The company not only retains strong brands names and
recognition, but also boasts 25 brands with annual sales over 1 billion dollars and also has 50 “leading” brands that
contribute to over 90% if its overall sales and profit (2). Selling its products in 180 countries, P&G is a company
with global exposure mostly unmatched by other competitors sharing its market. With wide ranging distribution
channels, mass merchandisers and even grocery stores, P&G is able to prosperously uphold over 300 brands
worldwide with the help of over 125,000 employees. After spending nearly $2 billion dollars on research and
development annually, P&G has learned to develop products in each of its categories through multiple brands to
garner a gross profit margin 15 times the industry average (2). The fact that P&G’s products are typically considered
“non-cyclical” also has allowed for the business to become strongly integrated and connected with the largest
retailers in the United States and around the world. Such strengths have been recently demonstrated in the Chinese,
Brazilian and U.S. markets with Oral-B and Crest brands for P&G. With local tastes constantly shifting, the
company has learned to adapt and drive sales through new products such as the “Crest 3D White Line… an Oral-B
pulsing toothbrush, a paste-gel hybrid toothpaste, an alcohol-free whitening mouth rinse and whitening strips”
(Appendix 3). While P&G enjoys the success it has amassed over many years throughout its sphere of influence,
there are still many areas of weakness the company encounters and must work to correct to remain profitable.
P&G continues to rely heavily on mature, or aging, markets. Over time with more and more emerging
markets, the new markets will begin to outperform the mature markets and put P&G in an exposed and likely
vulnerable position. Throughout the past few years with competitors such as Unilever, the business has also
experienced the beginning of some market share disintegration within particular product areas. Specifically,
companies such as Unilever have been gaining momentum in shower and deodorant brands while L’Oreal has
increased its presence with skin care brands in China. If P&G allows these companies to establish strong distribution
channels abroad, the business should expect that it will have to tap into non-traditional distribution channels to
remain competitive (6). Currently P&G also faces a dilemma in regards to fake products being sold under the name
of its brands and matching the affordability in emerging markets. If this continues, the trust many customers place in
P&G will slowly evaporate and the company will loose an incredible amount of its value.
While P&G has worked to maintain its strengths and improve in its areas of weakness, the company
understands there are always ways to exploit new business opportunities. One of the ways P&G can improve in the
near future is through venturing into emerging markets. By doing so, P&G can shift consumption in such areas as
beauty and personal care while also take advantage of growth in new markets such as hair and skin care. Tapping
into rural markets, increasing penetration in urban areas, and focusing on core operations that include resources for
the “40 largest and most profitable businesses” accounting for 50% of sales and 70%” of the company’s net
earnings, could also improve the overall productivity of the company (6). If P&G focused on extending its existing
brands into “sub-ranges” more so than launching new brands, made some more mergers and acquisitions to
strengthen its brand, became eco-friendly in its production and distribution channels, and increased its online social
networking and internet marketing presence, there is a large chance the company could see an increase in profits and
sustain itself for a longer period of time. Opportunities for improving business are everywhere, and it is merely a
matter of taking advantage of these chances that allows a company such as P&G to be prosperous.
With new opportunities for companies comparable to P&G come new threats in the external market. Not
only does business experience both global and local competition with companies that have similar brands and
compete in related markets, but it also has to deal with the fact that consumers are fickle and their tastes have the
ability to change at any given moment. In emerging markets, P&G has to learn to deal with consumer price
sensitivity. The threat of substitution for P&G products worldwide at cheaper prices and through private label
growth provide two of the more serious threats to P&G’s current market shares (1). Other threats include the current
recession and inevitable decrease in global consumer spending for the past few years as well as the increasing price
of raw materials and therefore cost to P&G’s businesses (Appendix 4).
Through the analysis of Porter’s five forces for the cosmetic and household goods industry, one can see the
ways in which P&G manages its present and how it can measure its foreseeable future. The fact that rivalry and the
threat of substitute products are high makes it essential for P&G to differentiate its products as much as they can
from their competitors, attracting the customers in the market away from their competitors. It’s also important for the
company to continue its relationship with its suppliers and retail stores, exercising the use of futures and forwards,
and sell and put options in order to keep its own costs down and its revenues constant or increasing. Presently, P&G
needs to keep the connotation of it’s brand name positive, because for a company like P&G much of the competitive
advantage lies in brand loyalty and the customers belief that what they know is always better than the unknown. As
long as P&G is associated with reliability in its customer’s eyes, it’ll be able to keep those customers (Appendix 5).
As of now, choosing to buy the company’s stock at its current price is a wise decision. P&G is multinational
consumer goods company. It picked up $13.11 billion in net income for the year 2013 and has a financial leverage of
2.046. 26 of P&G’s brands had more than 1 billion dollars in annual sales in 2011 and those sales are presently still
increasing. More importantly, its stock price has been steadily climbing up since the trough in 2008; at the beginning
of 2013, P&G’s stock price rose dramatically (9). Its current stock price is $85.21, which is nearly double the price
of such stock in 2008 (7). Also, financial information about foreign and domestic operations suggests that P&G is
gradually becoming more and more globalized and looks forward to great potential in future competition. P&G
increased its net sales by 1% from 2012 to 2013 while increasing operating income by 9%, which implies a growing
maturity in the operating process (9). Core earnings per common share increased by 5% from 2012 to 2013 (7).
Appendices 6 and 7 demonstrate that P&G is becoming more profitable year by year. The well-organized and
tremendous business scale of P&G as a transnational brand and business ensure the company will create sustainable
value in the future.
Works Cited
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On my honor as a UVA student I have neither given nor received aid on this assignment/project/exam.
Mollie Brach
Kun Fang
Michael Gallagher
Honglei Li
Katrine Rummelhoff