BM1917
QUIZ ON THE STRATEGY OF INTERNATIONAL BUSINESS
NAME: SECTION: DATE: SCORE:
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 over $70 billion, more than 50
percent of which is generated outside the United States. P&G sells more than 300 brands— including Ivory soap, Tide,
Pampers, IAMS pet food, Crisco, and Folgers—to consumers in 180 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 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 strong
growth in sales and profits. However, sales growth at P&G has been slowing and even declined in recent years.
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 cross-border trade. Products
produced in the United Kingdom, for example, could not be sold economically in Germany due to high tariff duties
levied on imports. By the 1980s, 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 Walmart, 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! Sales 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 differences 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 another 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 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 period.
Unfortunately, since 2014, P&G has again seen a decline in sales, rendering the future for P&G up in the air. Some argue
the recent decline is a function of currency hits, but surely that cannot be the full story. What will happen to the usually
reliable consumer giant in the future?
08 Quiz 1 *Property of STI
Page 1 of 2
Questions (3 items x 5 points):
1. What strategy was Procter & Gamble pursuing when it first entered foreign markets? Why do you think this strategy
became less viable later on?
2. What strategy does P&G appear to be moving toward?
3. Recommend a different strategy that you think is better suited for Procter & Gamble. Justify.
Rubric for grading:
CRITERIA PERFORMANCE INDICATORS POINTS
Provided pieces of evidence, supporting details,
Content 3
and factual scenarios
Expressed the points in clear and logical
Organization of Ideas 2
arrangement of ideas in the paragraph
TOTAL 5
