As old ways of doing business become redundant, many companies have to overhaul their global strategy to survive in today's decentralized market. The transnational strategy, adopted by Procter and Gamble, allows the company to focus on the individual needs of different cultures while also focusing on low cost strategy and cooperative learning. This is an evolved approach compared to their once centralized global strategy where cost of Research and Development began to exceed profits.
Using this adopted approach, Procter and Gamble began to focus on the largest emerging market in the world: China.In order to succeed P;G had to focus on China's cultural and governmental differences and similarities to the rest of the world. Success is better understood only when a company's past is fully explored. Based in Cincinnati, Procter and Gamble is one of the largest manufactures of fast moving customer goods in the world.
In 1837, William Procter, a candle maker, and his brother-in-law, soap maker James Gamble merged their small businesses. Their shop made candles and soaps from leftover swine fats recycled from slaughterhouses.Within 20 years of hard work and dedication to quality, P;G became one of the largest companies in Cincinnati, sales reached over $1 million. With the introduction of Ivory, a floating soap caused by the accident of stirring swine fats too often during soap production, and Crisco, the first all-vegetable shortening, they began to open their eyes and market share to the rest of the globe. Their first attempts; Canada, Cuba, Indonesia, and the Philippines; were simply extensions of its U. S.
operations. It wasn't until the early 1960's that P;G began expanding internationally by building its overseas organizations around global markets.This expansion did not take into account the diverse tastes and habits of different markets. To counter this, Subsidiary Managers were gradually given the freedom to develop, modify and promote products to suit local consumer needs while top management carefully reviewed major investment decisions. A saturated market with cost rising faster than revenues was established and P;G decided it could no longer allow product development to be driven by the local interests of each national subsidiary: duplication and overlapping efforts were no longer tolerated.Instead of coordinating strategy through headquarters, it delegated responsibilities to centralized teams while keeping key headquarters managers in marketing, manufacturing, and logistics.
This sharing of knowledge across subsidiaries led to ideas that could be replicated in other countries. This strategy was first seen in the Southeast Asian market when Joy detergent, a highly concentrated version of American dish washing detergent, was developed in Europe specifically for Japan.Marketing was then created around the Japanese culture and was so successful that it was later extended to the Philippines and other Asian markets. Realizing the complexity of the Asian culture, P;G saw Japan as a stepping stone to the largest growing world market, China. In order to keep a hold on the Japanese market P;G made a joint venture with a small Japanese company named Nippon Sunhome.
P;G eventually bought out its partner, took complete management control, and fell into a huge blunder. Cheer was marketed in Japan as a multi-temperature laundry detergent even though Japanese women simply use cold tap water.By introducing the product with a lemon scent, packaged in a space saving format, and marketed with a cold water bleach activator, also developed by P;G, the Japanese market opened its arms. One would think a lesson was learned here, unfortunately that was not the case. The next blunder dealing with the Asian culture was P;G's idea that Pampers would sell in Japan without any modifications from its American design.
Due to the smaller birth weight of babies and simple lack of space in the community, the product failed until a smaller, cheaper diaper and package was designed.These lessons were finally realized and carried over to the ever growing, untapped Chinese market, a market with a billion potential customers that were ignorant of modern day conveniences. Disposable diapers were used in only 2%, 98% in America, of diaper changes and only 5. 4 rolls, 53. 3 rolls in America, of toilet paper, per capita, were utilized. P&G saw a gold mine before them.
If only P&G could understand the cultural and governmental nuances of China? To do this, P&G needed to change their marketing strategy by determining a more reliable way to target and distribute product samples through the Chinese Communist Party.Retail outlets were very small, made their own decisions regarding the assortment of brands to sell, and sold only a couple of units per month. P&G pinpointed the location of all of the retail stores and locally hired personnel to sell and service each outlet. Next they focused on the needs of the people to develop products to stock in theses outlets.
Dandruff was a large problem that few locally sold hair products could solve. By adding Dandruff control to Head and Shoulders, Pert, and Pantene P&G gained 50% of the market in Chinese Major cities.Many cultural specific products and advertising campaigns, developed from the years 1988 to 1999, increased sales in China at an astounding rate of 50% per year to a $1 billion high. Whenever possible, P&G used existing packages, product formulas, and advertising campaigns in as many markets as possible, rather than customize the brand for each market. Pampers and Pantene were global brands whose products had more similarities than regional differences.
Vidal Sassoon, for example, used the same fragrance worldwide, with variations only in amount (less in Japan and more in Europe).This knowledge led to a structural change in P&G called the Organization 2005 program. Under this program, P&G changed from a system where high penalties for failure, internal inspections plaguing the workforce, victory only narrowly defined, complexity delegated down, caused a slow moving organization that lacked stretch, innovation, and high tempo. After the structural change the organization aligned on common goals with trust as foundation, a focus on coaching and teaching enabled informed risk taking and team collaboration, victory was defined as stretch with trust and candor, and leaders must take on complex challenges.P&G now is an organization driven by stretch, innovation, and speed toward breakthrough goals. In order to maintain its foot hold in the southeast Asian market P&G used Organization 2005 to identify a number of restructuring projects including consolidation of manufacturing facilities, standardization, and cost reduction.
They streamlined and standardized business services such as accounting, employee benefits management and information technology services. This evolution from a global approach to the closest example of a transnational approach took over a century of blunders, pitfalls, and disasters.P&G learned to customize products and marketing strategies to local needs and demands, transferred competencies, and took advantage of cost savings. It has come a long way from standardizing its products and marketing worldwide. The Southeast Asian market responded very well to P&G's evolution.
Their understanding of the Chinese Communist party, medical concerns, and cultural limitations have enabled P;G to have a corner on the ever growing Chinese Market. The flexibility afforded by the most ideal transnational strategy will aid in Procter and Gambles future success.
