The PESTEL analysis found out that government taxes/ corporate tax and global economic downturn become the issues of the P&G changes its business to merging market. And the SWOT analysis evaluate that P&G have the strong financial position and strong branding makes it success in this new markets trend. The efficiency and effective of supply chain also is the strong point for P&G innovation.
The report also evaluates and concludes that would be an ideal to meet the challenge which presented by the market and could satisfy the consumer demand since it uses open innovation- “Connect and Develop’ program outsourcing the raw- materials and technologies and through acquisition of domestic and foreign competitors. But it also has the barriers on this program and acquisition.
Since carriage out the Obama’s foreign tax proposals, foreign rivals pay less in taxes in their home countries, foreign-based competitors would be able to reinvest more, expand faster and sell their products at lower prices than U.S. companies and this affect P&G. The tax changes put P&G at a cost disadvantage, P&G gain a 15% to 20% cost disadvantage compared with other rivals. This will make P&G unable to effectively compete against foreign corporations in the future (www.msnbc.msn.com).
The heavily of IRS (Internal Revenue Service) fees is a burden of P&G. This will reduce the profit of P&G. For the example, P&G valued artwork donated Cincinnati Art Museum in 2003 at $8.5 million but the IRS allowed P&G subtract $6.4 million of the income taxes because the company states that in the lawsuit that P&G is uses third-party appraisers to value its donations, so the company not allow P&G subtract the full amount of the donation. And, P&G had paid more than $6 billion of federal income taxes over the six years that were audited (www.usatoday.com).
The national income and GDP growing will increase buying power. It will course P&G raised its consumers especially in developing markets such as China and India. According to the report, GDP growing helps the Procter & Gamble gain the premarket; it was gained from 2.2 percent to $58.51 after it reported results (www.reuters.com). Today, according to The New York Times (2009) reported that “the sales from developing countries are doubling every four years. The sales from developing markets represent 32 percent of P& G’s $78 billion in annual revenue, up from 23 percent four years ago.”
Global economic downturn- merging markets
In the world’s four most populous nations, three are state in emerging markets; there are China, India and Indonesia. According to the Capital Group’s estimation, it found that 70% of the world’s economic growth under the next 10 years will move towards from emerging market countries (Delfeld Carl T, 2009). Delfeld Carl T (2009) defines that “Emerging markets now account for half of global economic growth, 33% of world GDP, and nearly 20% of world stock market value.”
After global economic downturn, P&G trend to focus its growth strategy on emerging markets, it has opening about 20 new manufacturing facilities outside its established markets (www.wikinvest.com). It makes P&G raising its capita sales in India and China more than 1 billion residents each and added $40 billion a year in Mexico (social.forecastfocus.com). And Delfeld Carl T (2009) also defines that “P&G now gains 32% of total sales from these merging markets and this is doubling every four years.”
P&G have a large scale of operations and strong financial position in the domestic and foreign markets. P&G serve 4 billion customers around the world and it has operations in over 80 countries (Procter & Gamble, 2010). In the year 2008, P&G was the 8th largest corporation in the world by market capitalisation and 14th largest US Company by profit. Now, it is 6th in World’s Most Admired Companies in year 2009 (America’s Most Admired Companies 2009). In the Fortune 500, the company was the 20th in annual ranking of America’s largest corporations in the year of 2009 (CNN Fortune ranking). This strength helps P&G gain opportunities in merging markets with the successful result.
P&G brings many new innovations to the market around the world. This is one of the strengths that P&G success its business in the world. P&G products innovation are very popular around the world, it gain a lot of awards, example, SymphonyIRI Group recognizes P&G in its annual Pacesetters list and with the Outstanding Achievement in Innovation award (Procter & Gamble, 2010). According to Business week, it reported P&G is ranked 12 among the “World’s Most Innovative Companies” (Procter & Gamble, 2010). This is the marketing strategic that P&G used to present around the world.
P&G provides well- known, trusted brands touch the lives of consumers in over 180 countries allows P&G to efficiently and effectively to serve more consumers at more price points and gain the switch off markets advantages, for example “Tide is the clear leader in the U.S. laundry detergent market with approximately 38% value share. Ariel is the leading detergent in Western Europe with about 16% value shares” (2009 Annual Report).
According to the IRI New Product Pacesetter Report, it ranks that “P&G products are the best-selling new products in the U.S. every year. Over the past 14 years, P&G has had 114 top 25 Pacesetters. In the last year alone, P&G had five of the top 10 new product launches in the U.S. and 10 of the top 25.” (www.marketingweek.co.uk)
Gillette acquisition, Ambi Pur acquisition
After Gillette acquisition, P&G believe that will create a group with annual sales of GBP 32bn, pushing its rival Unilever turn into second position in the UK toiletries market (Business Services Industry 05, 2010 CBS Interactive Inc). The P&G’s Gilette brand expend its market enters a new era in male personal care. That is a great opportunities to P&G to expend it markets to male markets and gain more market share. There have many advantages to P&G acquire Ambi Pur. Ambi Pur brand was rich history in innovation, if P&G acquire with Ambi Pur success, it can enjoy millions of consumers which come from air care market. Beside that, Ambi Pur brings new technologies and high-performance products to P&G current Air Care portfolio (Procter & Gamble, 2010). This will increase the markets share of P&G and brings P&G go future.
2. Innovation and IT means to P&G
Innovation and IT become most and most importance in markets to every company. According to the Bob McDonald’s speech which presented at the Innovation Institutes of India Global Conference (2008, p.4), claim that “the innovation means at P&G is the conversion of a new idea into consumer delight and, ultimately, into revenues and profits.” In P&G, the innovation very roughly, they innovate at every point of brands and innovate in every part of business. It’s cover in terms of product or packaging innovation, and to innovate include design, media, communications, business models, cost structures and organizational structures (Bob McDonald, 2008).
“Open Innovation” has significantly increased P&G’s innovation speed. Bob McDonald define that “open innovation not as a form of out-sourcing but, rather, as a way to “in source” the creativity of the world.” Nowadays, over half of the ideas and technologies innovations that P&G bring to market are come from foreign countries (CASE III-5 by DeHayes, 2009). For examples, P&G’s Swiffer brand works together with Unicharm, Royal/Dirt Devil, and IDEO for the innovation of product, commercial and design. P&G’s Febreze partnerships with KJK, Givaudan, and GK Design for the package design, technology and perfume development. A Pringles potato chip is a successful example of the P&G’s open innovation effort (www.business-strategy-innovation.com). In this case, P&G taking the innovation in, at the same time it’s also taking innovation out, for example: P&G licensing P&G’s food technologies and packaging capabilities to ConAgra Foods (www.pg.com), in order to gain the licensing fee (CASE I-4 by Lyn Denend and Burgelman).
Procter & Gamble try to maintain its competitive advantages by focusing on product innovation, it’s always look for innovation ideas by its total portfolio of businesses and technologies. Its use its internal capability with an external network of innovation partners through “Connect and Develop” program. There’s a global network provide potential innovation partners for P&G with about researchers, scientists and entrepreneurs doing work in areas relevant to P&G businesses (www.pg.com). Through its “Connect + Develop” initiative, P&G bring in new product ideas from outside, allows others developers to obtain their concepts and designs into P&G’s product pipeline. For example, they helped P&G launch Olay Regenerist Eye Derma-Pods, and become its top-selling skin-care item in the year 2008 (www.fastcompany.com, 2008). According to the wiki analysis, it found that “P&G will launch a “flurry” of new products globally, using innovation to boost sales in fiscal 2010 coming out of the global recession” (www.wikinvest.com, 2010).
Acquisition of domestic and foreign competitors
P&G management had adopted another innovative play-to-win strategy by acquisition of domestic and foreign competitors. P&G acquired other companies that helped in innovation its products, diversified its product line and increased its profits (knol.google.com knol.google.com). For example, the cases of Gillette acquisition, and Ambi Pur acquisition. After Gillette acquisition, P&G gain the innovation in male personal care products, for example the Gillette Fusion ProGlideâ„¢ razors and ProSeriesâ„¢ male skin care products, there are innovation products which combine Gillette technologies (Procter & Gamble, 2010). After acquisition of Gillette, P&G increase its position in faster growing, higher margin, and more asset efficient businesses. The P&G gain 22 brands with sales of $1 billion or more and 14 brands with sales between $500 million or $1 billion (Rick Ciccone, 2006). Besides, Ambi Pur brings new technologies and high-performance products to P&G current Air Care portfolio, (Procter & Gamble, 2010). This will increase the product innovation, expands P&G’s market and gain more market share. (CASE II-17 by Burgelman and Meza).
JIT inventory control
Just-in-Time inventory control, can save costs, save time, reduce waste and move products and services to customers on time. In this case, P&G is using this method and partnership with Wal- Mart. Wal-Mart linked with P&G’s inventory management system, provides information sharing and opened its consumer information to P&G. After received the sales data directly from the checkout of Wal- Mart, P&G used JIT inventory control on time deliveries to Wal-Mart and deliver the stock to the stores to meet the contracted customer service level. The just-in-time process works well for Wal-Mart and helps P&G reduce the waste and more efficiency; P&G’s sales have increased significantly to Wal-Mart and directly to the consumer (Handfield and Nichols, 1999; Simchi-Levi, et al, 2000).
TQM the process
Total Quality Management (TQM)’s principle provides many guidelines for P&G to support its management approaches. Each principle will create their procedure to help P&G in continually improving with training, practice and education (hubpages.com). The Five components of P&G’s TQM programs that primary to the improvements are:
1) Plant and division waste assessments to track discharges by site and set goals for improvement
2) Process assessments
3) Lifecycle assessments
4) Research on product impacts
For example, the case at the Lima Ohio facility had success reduced 77% of air, water, and solid energy over four years using the TQM method. The other success example that is paper plant in Mehoopany, P&G has created an innovation reduced 75% of the solid waste going to the landfill (www.future500.org).
3. The ways to improve and change
The several ways that innovation and IT aspects of the organization/ supply chain of P&G might be improved; there are supply chain reinventions, eStore website, products innovation and logistics.
3.1 Setting Up the Web Store
Early in this year, P&G ran e- commerce in USA, e Store provide a wide range of potential consumer to P&G. EStore allow P&G to monitor sales volume. World Wide Web allows P&G to sell products directly to the consumer and it also allows P&G get the relationships with customer. P&G can get the comment and suggestion or advices directly to the consumer and take the action to change and improve faster. In addition, P&G can overcome geographic barriers to reach a global markets and customer- base. In this case, P&G can continue use e- commerce to expand its Web Store to another country, such as Western Europe, Asian countries, because online shopping is not new news to the world, people can accept this marketing method.
The P&G also can set up its eStore in the lower cost places or overseas, for overseas P&G can set up the web store office at merging market such as India or Taiwan because, India is IT developed country can provide good IT with low prices. And in Taiwan, the online shopping market is mature and popular, there have a mature market to P&G expands its market to South Asian and China. Beside that, consumer on the Internet do not care where are the web store built. If P&G built in the low- cost places, it can gain more profit and reduce the cost. This method that have used by CASE II-4 by DeHayes (2009), they move their offices from high- cost New Jersey to lower- cost Indiana.
Supply chain reinvention- supply network
In the P&G’s existing supply chains, it was limit its ability to reduce material use in P&G’s packages. The existing supply chain in P&G is: Supplier manufacturer retailer consumers. After reinventing to the supply networks the P&G’s supply chain method will be change to Supplier manufacturer consumers. The supply chain has shorter the journal and also giving many benefits. The supply network is more focus on external market and consumer, using supply chain will help P&G in expand its market to merging markets. So using the supply networks, P&G can more focus on the consumer- driven especially external consumer, it also help P&G run its business more fast and flexible. The table 3.1 below has shown that the effective when P&G after using the supply networks in P&G (Rick Ciccone, 2006).
Long and slow
Fast and flexible
Designed from product forward
Designed from shelf back
Value and growth creation
Table 3.1, source by : Ciccone, R. (2006) ‘AMR Supply Chain Conference’, Reinventing the Supply Chain and Manufacturing’s Role
Improve product innovation- health medicines combine with Chinese herbal
According to the research of University of Maryland Medical Center (UMMC), (2009) reported that “Recently, the World Health Organization estimated that 80% of people worldwide rely on herbal medicines for some part of their primary health care. In Germany, about 600 – 700 plant-based medicines are available and are prescribed by some 70% of German physicians. In the last 20 years in the United States, public dissatisfaction with the cost of prescription medications, combined with an interest in returning to natural or organic remedies, has led to an increase in herbal medicine use.”
Nowadays, Traditional Chinese Herbal Medicines (TCHMs) have been modified into solutions, soluble granules and tablets by extracting the plants’ natural ingredients. Due to the fact that TCHMs are natural and with very little side effects, its usage has been increasing significantly throughout the world. Research has shown that, similar medicinal plants are being used for the same purposes around the world (Chen, 2009). In this case, P&G can change the health- care products’ ingredients to Traditional Chinese Herbal such as facial products, shampoo products. This is a good idea for the products innovation that can bring P&G into another business level and markets.
3.3 Partnership with foreign countries company
Today, the merging markets are developing so fast, many businesses tries to invest in this market to gain the competitive advantages. In order to survival in the market, P&G can choose partnership entry mode to entry foreign countries to avoid distribution system and high cost of inputs problems. This can help P&G invest to overseas save more cost, share risk with others and easy to entry the market. Partnership Company will provide the supply chain information to P&G, help P&G run the business smoothly. For example, P&G partnership with Darlie which is a toothpaste brand of the Taiwan of Hawley & Hazel company. This product is very popular in Asian countries, including Malaysia, Thailand, Singapore and the China (www.darlie.com). If P&G partnership with this company, it will increase the market share significant. At the same time, P&G also can gain the innovation and IT technology. But the Hawley & Hazel company may less international business experience. This makes collaboration has a little difficult to manage because of their inexperience in the global business arena (CASE III-3, Christensen and Anthony).
4. Overcome the barriers
It might be very difficult to overcome the barrier indicated above, unless the organization appropriate financial resources and human resources in:
Building global network in different language
Although the online marketing has given P&G a lot of advantages but the cost and logistics of delivering goods to consumers have been the biggest barriers to P&G, this barrier is around this supply chain and cost-effective thing. The cost of logistics and packaging fees are costly, it will affect the profit of P&G. Another problem is the delivery problem; some of the rural places there have no convenient transportation for transport. So P&G have to create the solutions to reduce the cost of packaging fees and logistics fees.
The language and cultural differences also are the barriers of supply network in P&G. P&G want to expand its business in the merging markets, its has to change the its website page language to multi- languages specially Chinese language because Chinese language popular in Asian including China, Singapore, Taiwan and Malaysia. Those are big developing markets to P&G, P&G have to improve this services in order to gain the competitive advantages (CASE III-8 by DeHayes, 2009)
The program for building a global network of professionals requires a lot of time and resources. P&G had taken many years to identify and build its network of technology entrepreneurs, suppliers and scientists (www.business-strategy-innovation.com). Another barrier in building global network that may face is online advertising. Using search engine advertising also is a costly media innovation, because the GoTo search engine charge for the list position. In order to solve these problems, there have “two ways that let P&G Web store may appear on search engine results, which are sponsored links and relevancy ranked listings” (CASEII- 4 by DeHayes, 2009, p 329). Beside that, in order to remove the barriers in Chinese markets, P&G has to spend the money and human resources to create a Chinese language website or software (CASE III- 8 by DeHayes, 2009).
Using 3PL to remove logistics barriers
For the case which improve product innovation to low- income market, normally the facility such as transportation in low- income countries not that develop and convenient especially in the rural places. The problem of delivery to the rural places problem might be very difficult to overcome, besides the organization appropriate financial resources to solve the problems, the another way is using 3PL to remove the logistics barriers, because 3PL helps company to save costs, reduce waste, reduce financial risks.
Relationships with Asian retailer
In Europe, P&G partnerships with Wal- Mart retailer to serve the consumer needs and market. The P&G also can use the same method to entry Asian market, it can relationship with Watson, Tesco, The Store, Guardian, Giant etc. Those are famous retailer in South Asian, partnership with them P&G can gain more competitive advantages and market share. It also help P&G invest to Asian easier. The Asian retailer can give the feedback from the Asian consumer comment and suggestion; this will help P&G to improve and benchmark with others company and continue improve itself, same with CASE III-3 by Christen and Anthony (2009) relationship with outside, take the knowledge from others.
Stay focused on its customer’s need, Kanban continue improvement strategy
In order to overcome the barriers from competitor, P&G should stay focused on its customer’s needs, continue improve in technologies and also product, using the Kanban continue improvement strategy to maintain its business strategy and competitive advantages. At the same have to benchmark itself and competitor. Benchmarking helps P&G opens organizations to new methods, gives ideas and tools to improve their effectiveness. P&F can get more innovation from this management method, and this management has been used by many companies, such as Toyota, Nissan etc.
Continue the “Open innovation” activities
Innovation is P&G business strategy, it cannot survival without innovation, P&G come out many ideas to remove the barrier. And the “open innovation” is the way that P&G use to remove the “lack of innovation” period in its business and this activities run (CASE III-3 by Christensen and Anthony, 2009). The “open innovation” activities need a lot of money and human resources such as scientist, chemistry, engineering, materials science, biological sciences, designer to develop the technology or innovation products and also packaging design. To overcome the barrier indicated above, P&G has appropriate financial resources in place and the appropriate human resources to operate the equipment. For example, the Summer Camp program, that is a way to search for the best or brightest innovation group (Procter and Gamble, 2010). Company has to appropriate financial resources to organize this program to keep the open innovation run. That is hard to find a talented and creative scientist, chemistry and engineering, and also costly to hire (CASE IV- 2 by Matthew C. Verlinden).
According to the research of University of Maryland Medical Center (2009) there are still some Europe countries which do not widely accept the usage of Chinese Herbs medicines, they classified the Chinese Herbs as drug that are not fully regulated. In order to overcome the problem, the company should mass advertise Chinese Herbal products to the public, by introducing its health benefits and the little side effect it has on people. To do that a company has to invest a large sum of money in promoting and advertising these products to gain consumer’s trust which then leads to an increase in its market share.
Human resource is one of the main resources that need most. Training system uses to provide company human resources such as expert skills and knowledge. P&G training system provide a set of session to train all its leadership team and subject matter experts including cultural, language, and religious differences with the organization. People can use the knowledge which they learn in the training system to manage the implementation of innovation and change (www.business-strategy-innovation.com). In order to run this system successful, the financial resources have been providing by P&G (CASE II- 1 by DeHayes, 2009).
The findings indicate that P&G is now looking for more innovation and IT that can move the supply chain more efficient and effectiveness. Recently P&G has used the outsourcing method, there is “open innovation” and through the acquisitions other company to increase the innovation and IT. JIT and TQM to confirm the supply chain run smoothly, and meet the consumer demands on time. Open online web store helps P&G expand its business without geography barriers, increase its market share. Change to supply network is to reinventing its Supply Chain and Manufacturing’s Role.
However, there have a lot of barriers, such as “lack of innovation” problems, Website’s language problems, logistics problem and the quality control barriers of the innovation and IT in the supply chain become the burden of P&G to improve and reduce its benefit.
In order to overcome the barriers, it can be concluded that the organization must appropriate financial resources and human resources in “open innovation” program, training system to overcome the “lack of innovation” barriers. Focus on merging market to gain the competitive advantages and overcome the competition barriers and using the 3PL to remove logistics barriers in low- income market.
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