Procter & Gamble's market entry and expansion in China

Procter & Gamble

P&G is one of the largest consumer products company in the world with operations in more than 80 countries. It manufactures about 300 products that is distributed to 160 countries spanning across several continents. Among other countries, it has a big presence in China because of the huge market for its products.

History of P&G in China

P&G made its entry into China during the 1980s when the communist Government began to open the market to foreign companies. Despite all the problems that were a part of China then like a communist Government, a high percentage of people living in the rural areas and the relative underdevelopment of the urban areas, P&G decided to take a risk because of the rich rewards that can come many years later.

After a lot of market research and deliberation, P&G entered mainland China in 1988 by establishing a subsidiary called P&G (Guangzhou) Ltd. To make its entry possible, the company partnered with a Hong Kong-based company called Hutchison Whampoa that had an active role in the Chinese market. Later, it identified a company called Guangzhou Soap Factory and started a joint venture with this company to form its subsidiary (Chief Executive, 2004). It started with headquarters in Guangzhou and expanded operation to other cities in China namely, Beijing, Shanghai, Chengdu, Tianjin, Dongguan and Nanping.

After making rapid strides in the Chinese market for more than 20 years, P&G today has ten wholly-owned plants in the cities of Beijing, Shanghai, Chengdu, Nanping, Tianjin and Guangzhou. Besides it also has nine regional distribution centers in Beijing, Shanghai, Changsha, Chengdu, Shenyang, Tianjin, Xian and Guangzhou.

Sustainability issues in China

Though P&G has a big impact in China, it is not without problems. It faces intense competition from other FMCG companies. It has to constantly innovate and use good product lines and PR tactics to continue its domination in the Chinese market. A case in point is the expensive SK-II line of beauty products. In 2006, a Chinese consumer found traces of two substances called neodymium and chromium in these products and these substances are known to cause acne and eczema in users. So, the Chinese Government banned this product and P&G had to withdraw it from all the stores. However, the ensuing PR debacle tarnished its name in the eyes of the Chinese public. The press releases denied the problem and this infuriated the Chinese public. As a show of their mistrust, Chinese consumers posted on blogs and BBS about these products and some of them even got physical in stores (Rein, 2006). This example is a reminder to P&G that they have to tread cautiously and cannot take the Chinese market for granted.

Environmental problems

Another significant problem facing P&G is the environment-related issues like pollution and improper disposal of wastage. Their products and, the chemicals and substances present in it cause large-scale pollution of the Chinese environment.

An example of their contribution to the problem is the introduction of diapers in China. Prior to this, Chinese babies wore split pants and were potty-trained early (Frazier, 2010). After the introduction of diapers, there was a problem of disposing them safely. The diapers were not bio-degradable and this added more garbage to the already over-flowing landfills. Though P&G's profits soared on the sale of diapers, it created a garbage nightmare and China is still scrambling to find a solution for its huge garbage pile-up.

P&G has also polluted oceans and rivers with its industrial waste. The fish in the rivers are being exposed to hazardous chemicals used in the detergents manufactured by P&G. This company has constantly let its waste run into the rivers and other water bodies near the industries, thereby polluting the water and making it unsafe for habitation. Some of the chemicals found in fishes are banned in other parts of the world, but unfortunately in China, they are unregulated. This has led the company to use these chemicals which in turn creates a major health hazard for the people.

The oceans are also becoming polluted due to the chemicals found in some of the products manufactured by P&G. When these chemicals reach oceans through rivers and other water bodies, they cause the fish to die. The levels of oxygen in the water go down and this makes it difficult for other organisms to continue living in these waters. This is another problem faced today and it indirectly affects human beings in many ways. Firstly, the fish contains some of the toxic materials and when humans eat fish, there is a likelihood that it can get passed on to them. The global economy makes it easy for goods to flow easily from one part of the world to another. So, the fish in Chinese waters can reach other parts of the world like the U.S., Canada, Europe and other parts of Asia and it can trigger a massive health problem.

Another problem is the wages and the increasing exploitation of human labor including illegal child labor. The average wage is $2,000 per year and it is hard for people to get a raise. There are also reports of child labor in some manufacturing plants. Unfortunately, there are very little regulations in China pertaining to environmental protection, labor and human rights abuse. This has made it all the more easy for multinational companies like P&G to exploit the natural resources and the abundant human labor that is available for cheap.

Also, the manufacturing plants consume a lot more water and this affects the agricultural farming in China. The farmers have less water for irrigation and it is placing a big burden on the production of food in the country. The country needs more food and clean water for its increasing population and when this is used by companies like P&G, there is a shortage. This can affect the livelihood of farmers and can spread to the other parts of the society thereby creating a catastrophe of huge proportions in the future.

The section below will contain an in-depth analysis of these issues plaguing P&G's continued sustainability in China.

Conclusion

China is a booming economy with a big market for all kinds of products and services. P&G is one of the first companies that set-up operations here after the Chinese Government opened its market to foreign companies. Though it had a rosy beginning that led to windfall profits, today's economic and social outlook for P&G is anything but rosy.

As mentioned in the paper above, there many environment and social challenges facing P&G today. The company makes good use of the unregulated aspects in China like labor and the disposal of waste. The company has polluted the rivers and oceans of China to a large extent from its chemicals that are used in the manufacture of detergents. In fact, there is even a possibility that phytoplankton can be completely eliminated from the oceans of China if the practice continues unabated. This is an environmental disaster because many organisms like fish depend on it for survival.

P&G has to handle these environmental problems quickly. Some of the measures mentioned above like the implementation of waste control measures can go a long way in making the rivers and oceans safer for humans as well as the other organisms that depend on it for survival. They are the market leaders and when they implement certain standards, the rest of the industry has to follow suit. P&G has to use its position to make the environment cleaner and safer for the people of China. It is their moral duty and responsibility to give something back to the country that has helped them to make billions of dollars in profits.

Another aspect that should be given importance is the usage of labor including child labor. The demand for wages also has gone up in China and it can no longer depend on its low-wage policy. The average income earned by the employees in P&G China today is $2,000 with little chance for a raise. However, the awareness to this problem of low wages in slowly surfacing, thanks to the media propaganda and the increased use of Internet. Blogs have become very common in China and more and more people are resorting to express their opinions through these blogs. In the near future, there is going to be a demand for more wages and the way P&G handles this problem will pave the road for its continued dominance of the Chinese markets. Also, P&G has to be more conscious and careful about its PR policies. The debacle of SK-II caused an uproar among the Chinese public and such situations should be avoided in future.

There are many solutions that can be undertaken by P&G. Though a handful of it is already implemented like the Safe Drinking Water program, there is a lot more that the company can do. To start with, it can work in conjunction with the Chinese Government to create and enforce regulations towards usage of certain chemicals and disposal of waste. This will make it easier for other multinational companies to follow. They should set an example for the others to follow because they are the market leaders.

They should also work towards providing a better work environment for its employees. The company as a whole should be a safe place for the employees and they should be paid a fair amount of money in return for their labor. Though the wages need not be on par with the United States, nevertheless a fair sum according to Chinese standards should be offered. They can even offer medical insurance as part of the terms of employment for their employees.

Besides environment and employee working conditions, P&G should do everything in its power to lessen any negative impact that has affected the Chinese economy and environment due to its operations. This can be a perfect example for companies from the U.S. And other developed countries that are looking to establish their operations in developing countries like India and China. It will show them how to operate in a mutually beneficial manner for the company, people, environment and the Government of that country.

These measures are important to improve the trust of the company in the eyes of the public. One good deed always leads to another and this is what P&G should keep in mind. When they work towards the development of the environment and the society in China, there is no doubt they will be rewarded with better trust and leverage in the Chinese business. Also, more and more people will tend to buy products from such an environment conscious company and this will definitely lead to better business and larger profits for the company. In fact, it can be used as an opportunity for the company to gain an edge over its competitors in China. All these will undoubtedly augur well for the company in the long-run and this should be kept in mind by the company's executives.