Procter & Gamble International Development Strategy Analysis

Introduction to International Development Strategy

Every organization wishes to keep its operations growing continuously within its industry (Barnes, Blake, & Pinder, 2009). As part of its business expansion strategies, a company may also aim to target international markets if it possesses the core competencies and financial resources required for such expansion (Bamford & Forrester, 2010). International development strategies require business organizations to formulate policies and procedures that not only enable them to compete with top-level competitors, but also ensure high sales volume and profitability (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

To do business in an international market successfully, an organization needs to analyze that market from all environmental perspectives (Ryals, 2008). A situational analysis can be performed to assess the impacts of economic, social, political, and technological forces, while the Five Forces Model can be used to analyze competition in the market (Kotler, Brown, Burton, Deans, & Armstrong, 2010). Moreover, the organization needs to prove itself a socially responsible corporate citizen in the international market. Doing so strengthens its public image and contributes toward a sustainable future in the industry (Bamford & Forrester, 2010). A company should also define measures for its competitiveness and core competencies so that they can be leveraged to operate in the industry in the most profitable way (Hill & Jones, 2007).

Procter & Gamble is an American multinational corporation primarily engaged in the manufacturing, marketing, and selling of a large number of consumer goods. Headquartered in Ohio, United States, P&G has been serving more than four billion customers worldwide with high-quality products and exceptional customer service (Horovitz, 2010). It was established in 1837 by William Procter and James Gamble as a manufacturer of personal care products, and it has since emerged as one of the leading brands across numerous product categories (P&G, 2012).

Among the most highly regarded products offered by P&G are Head & Shoulders, Ariel, Gillette, Olay, Pantene, Wella, Crest, and Dawn. These products are considered highly competitive in the worldwide consumer market and contribute significantly to the company's overall sales volume (P&G, 2012).

P&G has been pursuing an international expansion strategy since its establishment (Horovitz, 2010). However, it has seen tremendous changes in its international business operations over the last three to four decades (P&G, 2012). The following sections discuss the international development and expansion strategies of Procter & Gamble since 1980, covering all the key strategic business decisions P&G has made to establish a strong presence in international markets.

Situational Analysis: Environmental Scanning

P&G is present throughout the world with an established brand image and a high level of consumer acceptance. Before entering any new market, P&G formulates effective business expansion strategies and implements them in a well-organized manner. To ensure the success of its international expansion strategies and to compete with the leading players in the target market, P&G performs a careful situational analysis of that market (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

An environmental scan of P&G examines the impact of economic, cultural, social, political, legal, and technological forces on the business. Because P&G sells its products in many markets, it is exposed to diverse environmental factors (P&G, 2012).

Economic Conditions and Trends

The most important analysis in implementing international expansion strategies is the assessment of economic conditions and trends in the target market (Horovitz, 2010). This analysis helps to determine whether the company's business will be profitable in both the short and long run (Bamford & Forrester, 2010). Several unfavorable economic factors pose a significant threat to P&G's international operations, including steadily rising raw material prices, fuel costs, and inflation, all of which directly affect business profitability (Hill & Jones, 2007).

Political and Legal Issues

Since the 1980s, P&G has seen rapid growth in its international operations. During this period, it has encountered both favorable and unfavorable government behavior in target countries (P&G, 2012). For example, some governments continuously amend laws and regulations governing manufacturing and trade for international corporations while exercising little control over rising raw material and fuel prices in their own countries (Bamford & Forrester, 2010).

For P&G, this is an unfavorable dynamic because it increases production costs (Horovitz, 2010). A lack of support from local regulatory authorities also makes it difficult for P&G to manage inflation and control its selling, distribution, administrative, and promotional costs (P&G, 2012). Additionally, political instability in a target country can arise at any time, posing a further threat to its international business (Hill & Jones, 2007).

Technological Factors

As a manufacturer, P&G is exposed to significant technological costs. Production plants, equipment, and machinery represent major capital expenditures (Horovitz, 2010). Packaging, labeling, and printing on product wrappers also require expensive machines and printers (Hill & Jones, 2007). These costs place a heavy burden on the business and consume a significant portion of profits that must be reinvested (Kotler, Brown, Burton, Deans, & Armstrong, 2010). Rapid technological advancements over recent decades have imposed increasing financial burdens on the profitability of P&G's international business (P&G, 2012).

Competitive Analysis

Although P&G faces many competitors in both local and international markets, its biggest rival offering similarly high-quality personal care and consumer products is Nestlé (Horovitz, 2010). Nestlé is a leading global brand currently engaged in the manufacturing, packaging, selling, and marketing of various consumer products. Since the 1980s, Nestlé has provided stiff competition to P&G in its international operations (Hill & Jones, 2007). Nestlé distributes and promotes its products across a wider range of locations around the globe than P&G (Thull, 2006). Other major competitors include Unilever and Amway, which have also offered strong competition since the 1980s (P&G, 2012).

Industry Analysis: Five Forces at P&G

Analysis of Potential New Entrants

The consumer goods industry has not matured, nor is it likely to. Any new manufacturer attempting to penetrate the market must capture market share from existing competitors while simultaneously building its own customer base (Thull, 2006). Over the last few decades, many new competitors have entered this industry, but P&G has successfully maintained brand loyalty among its customers (Barnes, Blake, & Pinder, 2009). As part of its international expansion strategies, P&G works to prevent new entrants from encroaching on its market share in countries beyond its home market (P&G, 2012).

Analysis of Existing Competitors

The global consumer goods industry comprises a few large manufacturing companies and numerous small-scale manufacturers (Horovitz, 2010). P&G faces direct competition from a small number of top-tier rivals producing similarly high-quality products, but it also encounters significant competition from small-scale manufacturers offering lower-quality products at cheaper prices (Hill & Jones, 2007).

Analysis of Substitute Products

P&G offers a wide range of products, all of which have substitutes available in the market. Some substitutes are readily available and considerably cheaper than those manufactured by top producers like P&G (Barnes, Blake, & Pinder, 2009). These substitute products represent a major threat, as they account for a significant portion of the overall global consumer market (P&G, 2012). To counter this threat and ensure a sustainable future in the consumer goods industry, P&G continually introduces new products and improves its existing product ranges (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

Analysis of Suppliers

P&G has maintained strong business relationships with all supply chain members. To ensure the best quality and reliability of its products, P&G has strictly required suppliers to provide high-quality raw materials. Because suppliers recognize P&G as a strong brand, they hold some bargaining power and can command good prices for their supplies, knowing that brand image is more important to P&G than cutting costs by reducing product quality (Bamford & Forrester, 2010).

Analysis of Buyers

Every leading competitor in the consumer goods industry is perpetually seeking the best suppliers to produce the highest-quality products (Kotler, Brown, Burton, Deans, & Armstrong, 2010). Therefore, competitors are willing to pay premium prices for the best raw materials (Horovitz, 2010). Since its inception, P&G has never compromised on product quality. As a result, it has entered into agreements with top suppliers in all target countries, ensuring consistent quality and reliability for consumers over the years (P&G, 2012).

Conclusion

P&G has instituted strong business strategies to compete effectively in its international operations. Due to globalization, P&G faces stiff competition in both local and international markets (Kotler, Brown, Burton, Deans, & Armstrong, 2010). Since the 1980s, P&G has pursued a continuous growth strategy to become one of the most admired companies in the consumer goods industry. To implement its international development strategies effectively, P&G performs a comprehensive situational analysis of target countries. This analysis helps the Board of Directors assess the impacts of different environmental factors on the company's products, operations, and sales (P&G, 2012).

Following this analysis, P&G conducts marketing research for the target market by establishing marketing strategies and objectives and identifying constraints and limitations in their implementation (Thull, 2006). P&G also employs the Five Forces Model to analyze competition (Bamford & Forrester, 2010). This analysis helps assess the competitiveness, core competencies, potential, and weaknesses of existing competitors as well as new entrants planning to enter the market (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

P&G uses a Multinational Organizational Model across all its international operations, while allowing certain units to operate largely independently of Headquarters-defined policies and procedures (Horovitz, 2010). To ensure a sustainable future in the consumer goods industry, P&G has taken numerous steps over the last three decades, with environmental protection measures forming the most important component of its sustainability efforts (Barnes, Blake, & Pinder, 2009). Furthermore, it has maintained strong relationships with supply chain members who are responsible for delivering the best-quality raw materials on a consistent basis (P&G, 2012).

References

Bamford, D., & Forrester, P. (2010). Essential guide to operations management: Concepts and case notes. John Wiley and Sons.

Barnes, C., Blake, H., & Pinder, D. (2009). Creating & delivering your value proposition: Managing customer experience for profit. Kogan Page.

Hill, C., & Jones, G. (2007). Strategic management: An integrated approach. Cengage Learning.

Horovitz, B. (2010). Procter & Gamble looks beyond U.S. borders. USA Today.

Kotler, P., Brown, L., Burton, S., Deans, K., & Armstrong, G. (2010). Marketing (8th ed.). Prentice-Hall.

P&G. (2006). A company history: 1837–Today. Procter & Gamble.

P&G. (2012). Brands. Procter & Gamble.

P&G. (2012). Sustainability. Procter & Gamble.

Ryals, L. (2008). Managing customers profitably. John Wiley & Sons.

Thull, J. (2006). Exceptional selling: How the best connect and win in high-stakes sales. John Wiley & Sons.