A critical analysis of P&G’s Chinese competitiveness

Contents iiSummary 11.0 Introduction 22.0 P&G’s Competitive Operation in China 63.0 P&G’s Competitive Position in Markets 63.1 Using Porter’s five forces model 93.2 SWOT analysis 93.3 Strategic group Analysis 104.0 Cross-Cultural Management 104.1 Hofstede framework 124.2 Trompenaars' cultural dimensions 144.3 Edward Hall' cultural dimensions 155.0 Corporate Social Responsibility of P&G 155.1 Triple bottom line of P&G’s CSR 165.2 Carolls pyramid of P&G’s CSR 175.3 Michael Porter Model of Value Chain Analysis 186.0 Conclusion 18Reference A critical analysis of P&G’s Chinese competitiveness Summary This article analyses P&G, one of the largest fast moving consumer goods provider in China. The article firstly offers the achievements of the company as well as the brief history. There are also tough times for P&G in the development history and the strategies adopted by the company help P&G to get through these difficulties and give birth to today’s distinguished international company. The success of P&G’s international business cannot be isolated from the success of Chinese marketing. Therefore, the article makes analysis on P&G’s competitive operations in Chinese marketing with its success factors. Also, the completive positions of P&G, the CSR, corporate social responsibility of P&G is to investigate the situation of P&G with the usage of SWOT, Porter’s five forces model and strategic group analysis. As one of the international corporation, the cross-cultural management is another perspective to be studied with the usage of Hofstede frame. Finally, the article summarizes the achievements of P&G and its experience in the enlargement of business. 1.0 Introduction P&G is the short term for Procter & Gamble, one of the most distinguished international daily consumer goods companies. Since the establishment in 1937, P&G has experienced rapid development in both the hometown, USA and the abroad marketing. Right now, P&G has established its branches in more than 80 countries and regions with 127, 000 employees. It has more than 300 different brands covering the fields such as beauty & grooming, household care and so on. It is stated that in 2011 P&G has achieved the net sales of $82.6 billion and net earnings of $11.797 billion. For the different segments of the total net sales, the beauty takes on 24%; grooming is about 9%, health care is 14%; snacks and pet care is 4%, fabric care & home care is 30% and the baby care & family care takes on 19%. Though the net sales has increased in 2011, the operating cash flows and the diluted net earnings, both decrease. For the operating cash flow, it is $13.2 billion; while in 2010 the operating cash flow is $16.1 billion. For the diluted net earnings, it is $3.93 per common share; while in 2010, it is $4.11 per common shareP&G Annual Report,2011,15() . The looking back of P&G’s development history shows that the company has encountered many challenges during its grown-up procedures. The year of 1837, the founding year of P&G, was not considered to be a good year for launching business. It is the year that American was hovered by the panic of economical slowdown and the breakdown of banks. Though Cincinnati, the birth place of P&G’, was still the business centre, the economical condition was in the same shoes with the national economical condition, the economical crisis. However, Procter and Gamble insisted to open their own business to compete with the other candle and soup production companies. The history shows that Procter and Gamble succeeded even in this tough period. One of the most recently crises of P&G was in 2000. The crisis forced the CEO of that time, Durk Jager to resign. With the implement of new business strategies, the P&G has finally come back to the right track of development. Therefore, the analysis of the success of P&G in the tough time is rather useful. In 1987, P&G came to China and launched its first branch and the first China research centre in Guangzhou. In 1998, P&G opened its second China research centre in Beijing to offer the technical support for China, Asia and other parts of the world. Right now, P&G has successfully introduced more than 70 brands into the Chinese market. No doubt P&G has made great achievements in China during three decades. As one of the international corporations, how P&G could develop at such rapid speed and make such a great amount of accomplishments in the comparative short time is rather worth for investigation. This essay makes the insight analysis on the competitive positions of P&G in China with the support of relative theories and frameworks. The competitiveness of P&G, the challenges and chances for P&G’s development in China as well as the efficiency cross-culture managements are the main parts of this essay. 2.0 P&G’s Competitive Operation in China Fast moving consumer goods are the main and central products that P&G offers to the world. Fast moving consumer goods are used to distinguish the durable goods, and they are “purchased for personal reasons and generally involve relatively low financial outlays” Perry 2008,80() The consumers habitually buy the fast moving consumer goods and the life cycle of the products is rather short. It is reported that there are mainly five stages for consumers to take decisions on the purchasing of fast moving consumer goods. The first one is the process of figuring out the problem so that they would understand what they would be to solve these problems. This process needs the product suppliers to offer service and information to the consumers to convince them that the products are the solutions. The second process is the period that consumers are searching for the answers. In this period, consumers would go back to the experience and information shared or offered by other people to consider which products are the keys to the problems. The third process is the evaluation for the alternative products which means that the basis for consumers to choose one products instead of another. The fourth process is the decision-making process, and the last one is the evaluation of the products after usage. There are also several factors impacting the choice of the goods, such as personal, psychological, social and cultural factorsLancaster and Withey 2005() . The success of P&G’s in Chinese fast moving consumer goods markets is contributed to its understandings on the essence of the marketing, consumers as well as products. By the year 2005, P&G has introduced around 9 categories products with more than 20 subcategories products shown in Table 1. Among the products, Pringles is the product not made in China. Table 1: P&G’s Product Categories in China (1987-2005) Categories Products Hair products Rejoice, Head & Shoulders, Pantene, Vs, Clairol, Wella Personal cleaning Safeguard soups and shower gels, Olay soups and shower gels, ZEXT shower gels, Camay shower gels Cosmetics Olay, SK-II Women products Whisper Oral care products Crest toothpaste and toothbrush, Oral-B Household products Ariel, Tide, Lenor, Duraceli Baby products Pampers Food and drink Pringles Tissues Tempo The first key point of P&G’s success is P&G’s multi-categories products. The figuring out the problems of the consumers, also the primary perspective of the fast moving consumer goods characteristics, depends on the self-discovery and the pointing out by others. The problems may cover different aspects even in one simple daily aspect. Taking hair care, for example, for both men and women, the problems of consumers may cover dandruff, itchy scalp, hair loses and so forth. For women, there are unique needs such as detangling conditioner, repairing hair conditioner, split end users et cetera. For men, there are special shampoos catering for the needs of male consumers. All these products imply that consumers have different problems with hair, and they need P&G’s products to take care of the hair. When consumers are in the trouble of pointing out the problems, these products function as the underlying answer for consumer’s troubles. The multi-categories of products of P&G cover many aspects of needs that people would meet in daily life. Therefore, when the consumers have problems, and they would like to choose a certain product of P&G at random without consciousness. The second key point for the success of P&G is its multi-brand products of one category. This is helpful when the consumers encounter the second characteristics of the fast moving consumer goods characteristics, the searching for the answers. This is because that when the consumers, under the influence of the advertisements and other factors, have a general idea about the problems, they would initially go to the general product's levels for the fuzzy brands of solutions. The sub-categorization of the products with different brands of one category offers clearer solutions to the problems that consumers have. Taking shampoo, for example, when a female has a perm, and she figures out that her hair condition is getting worse, she would like to seek for one product that would offer nutrition specialized for the hair after perm. P&G has different shampoo brands for different needs, such as Pantene for offering general hair care, Head & Shoulders for dandruff and so on. Therefore, the choice of products with different brand names assures the consumers that the products with different brands have different functions and would solve the problems. P&G has six brands for shampoos and the numbers of the products of each brand shampoo are in Table 2. Table 2: P&G’s Shampoo Product Numbers in China (1987-2005) Brands Number of products Rejoice 28 Head & Shoulders 25 Pantene 44 Vs 32 Clairol 32 Wella 8 Besides, the multi-branding strategy is useful in nurturing the loyal consumers to the sub-categorized products brands instead of the general parent brand Capon and Hulbert 2007,306() . This means that consumers may choose the brands that belong to P&G without even knowing that, and the preference of one brand is lending a hand on fostering good portfolio of the parent brand and the parent Corporation. It is also one of the good measures to encounter the hot competitions from other corporations. The multi-brand with different emphasized functions sub-categorizes the marketing and the potential needs of the consumers. This helps the corporations to fulfil the moles of the market and leave little chance for the competitions to snatch the market. This confirms the P&G’s brand strategies that if there is a chance for the existence of another brand in one filed, that brand should belong to P&G. This strategy assures that P&G has more market allocation Decker 1998() . The third factor that is helpful for P&G’s success is its influential advertisements. This caters for the third and the fifth characteristics of the fast moving consumer goods characteristics, the evaluation of products before and after the purchase. When the consumers come to the evaluation stage of the products before them purchasing the products, the advertisements and the advices from other people, such as friends, shopping assistants and so on are rather valuable and influential in consumers to choose the brands. Acquiring the information from the external part is hard to be clear. The more hopes on the products, the more chance to be disappointed. This means that the contents of the advertisements should exaggerate appropriately. Too much blowing up on the functions of the products leads to the high expectations of the consumers and enlarges the gaps between the evaluation of products before buying the products and after usages. The contents of P&G products are not too exaggerated. For example, the contents of Head & Shoulders advertisements in China are usually emphasized the function of dandruff are usually with the film stars apprising the clear scalp after the usage of the shampoo or the comparisons of effects on the scalp condition between the period before the usage and after the usage. Seeing the specialization functions, it would be of great possibility that consumers would choose this brand if he has the problem of dandruff. The evaluation of the products after usage is under great influence of psychological factors, which include factors such as learning, values, beliefs, and attitudes Lamb et al. 2012() . The contents of advertisements have positive influence on the consumers’ psychological impressions before the usage. The believing and trust on the stars and scholars initially leave the good and scientific impression towards the products. And this further enhances the impression after usages only if there are any improvements. If the improvements are hard to measure, the pre-impression will imply the good effective at the products towards the brands. Innovation is also important for the success. It is a tradition that P&G has spent a great amount of money on the research of the improvements of the products as well as the new advanced products. In China, there are two research centres located in Guangzhou and Beijing respectively. What’s more, P&G has established cooperative relationship with Chinese universities for the backing up of the researches of the new products. Every year, P&G employs many graduates from distinguished universities and offers good salaries, benefits, career path and so on to grab good students to join the corporation. The good human resource management and enjoyable working conditions assure that the research and development department to be the booster of the swift development of P&G in China. 3.0 P&G’s Competitive Position in Markets 3.1 Using Porter’s five forces model Porter’s five forces model is proposed in 1979 in the Harvard Business Review and it is put forwarded from the perspective of the existing organization for its strategic business. The strategy makes researches from the following five forces: “ (1) the threat of new entrants; (2) bargaining power of buyers; (3) bargaining power of suppliers; (4) threat of substitute products or services; and (5) intensity of rivalry among firms in an industry” Henry 2008,70() . For the first force, the threat of new entrants, in China, the two heads of the fast moving consumer goods suppliers, P&G and Unilever have already taken the great proportion of Chinese marketing. Due to the multi-category strategy proposed and implemented by the P&G, P&G has offered various products closely related to daily lives. With the good portfolio of the company and the positive influences in China, P&G has already earned the Chinese consumers’ trusts. This trust is helpful in cultivating the loyal consumers to the products of P&G. However, this trust is not the elixir for all the brands that P&G put out. One example is the failure of Ascend. For the existing brands of shampoo of P&G, the introducing of Ascend is one new entrant. In 2000, the Ascend came to the spotlight of China Mainland with the promotion logo of herbal shampoo. The target of the Ascend was the women aging from 18 to 35 and the product position is “the beauty of the black hair of the Asian women”. In order to impress the consumers, P&G has held several public atvities such as the sponsor of the film In the Mood for Love and the media press conference in Zhouzhuang. However, these promotional methods fail to assure the success of the Ascend and finally, in 2002, Ascend has to fade out of the market. The failure of Ascend, though has other reasons, but exemplifies that it is hard for the new entrants to grab the market even with the strong and the hot promotion activities. What’s more, the building of the brands and portfolio is time-consuming and costs lots. The failure of the self-born products set alarms for the competitors that the new entrant to the existing market is rather difficult due to the rooted consumer habits and other factors. For the second point, the bargaining of the consumers include the consumers power for lowering prices, requiring more and better services and so onHenry 2008() . As Chinese market is not fully transparent and it is hard for consumers to get the total information on the products, consumers are in the backward position in purchasing products and it is hard for them to bargain the prices with the suppliers. Also, as a great amount of market is under the control of P&G, it is also hard for consumers to find out substitute to replace the habitually used products offered by P&G. It is risk for consumers to seek similar products’ effects by pursuing the other product. Therefore, the bargain power of consumers is rather low. The third force, the bargaining power of the supplier is rather low as P&G has its own research and development centres to support the innovation of the existing products. Also, as one of the international corporation, it is easy for P&G to use the raw material with lower price from the less developed and poor countries whose economy relies heavily on the export of simple raw material. Therefore, the bargaining power for knocking off the prices of the suppliers is not so strong when facing such big international corporation, especially the one who has the organized purchasing and researching teams. On the substitutes of the products aspect, due to the multi-brand strategies proposed by P&G, even the choosing of the products of another brands, it is of great possibility that the products is produced by P&G. The multi-brand strategy is useful when preventing the consumers to choose the products of other companies as the long time usage of the products has left positive impression on the company. When one product does not work well, the consumers would like to choose another brand which is more specialized for the problems. Even facing the similar products of Unilever, the consumers would not like to try because the long confidence on the similar products of P&G. The loyalty to the brand and further to the suppliers would block consumers to choose substitutes of other corporations. For the threat of the rivalry, P&G has practiced the strategy of multi-brand and multi-category which has set up barriers for the new corporations to enter into the markets as it is of great possibility that the products of P&G cover most fields of daily lives. Taking Clairol of P&G and Hazeline of Unilever for example (in Table 3), on the product deep perspective, P&G has succeed in blocking the development of Hazeline. Hazeline has the same formula for both conditioner and shampoo while for Clairol, it has more choices. The strong price advantages and the brand promotion prevent consumers to buy the products of the rivalry company. Table 3: Comparisons of Product Deeps between P&G’s Clairol and Unilever’s Hazeline (1987-2005) Clairol Hazeline Shampoo Dry skin formula Natural black Neutral skin formula Long-time dandruff Oil skin formula Damage therapy volume boost Dandruff skin formula Oil free 2 in 1 dry skin formula Silky smooth 2 in 1 neutral skin formula Conditioner Dry skin formula Natural black Neutral skin formula Long-time dandruff Oil skin formula Oil free Silky smooth 3.2 SWOT analysis SOWT analysis is useful for the analysis of the strength, the weakness, the opportunities, and the threats of the corporation. As the model has overlapping parts with Porter’s five forces model, the overlapping parts are not discussed in this part. P&G has its strength in its great financial and human resources for the innovation of new technologies and business strategies as the benefits and the salaries are attractive for the recruitment of elites to join the company. With the rising of living conditions, more and more people pay attention to the quality of the daily products and this means that the demanding for the products is increasing. Therefore, it is