UNIVERSITY OF ZAMBIA
SCHOOL OF HUMANITIES AND SOCIAL SCIENCES
DEPARTMENT OF ECONOMICS- BUSINESS ADMINISTRATION
BBA 4111: STRATEGIC MANAGEMENT
Assignment 3 (individual)
Evolution of Strategy at Procter & Gamble
Founded in 1837, Cincinnati-based Procter & Gamble has long been one of the world's most
international 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 brandsincluding Ivory soap, Tide, Pampers, IAM 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 relied on
semiautonomous foreign subsidiaries to manufacture, market, and distribute those products in
different nations. In many cases, foreign subsidiaries had 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 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 crossborder 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 Wal-Mart, 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 difference 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.
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?
Specifications
Your answer should be typed
Font type, size and space: Times New Roman, 12, 1.5
Remember to cite authority.
Due: 10th June, 2020
