Case Introduction

Founded in $1837,$ Cincinnati$-$based Procter & Gamble $($P&G$)$ has long been one of the world$$s most international companies. Today, P&G is a global colossus in the consumer products business with annual sales in excess of $$80$ billion, some $54\%$ of which are generated outside of 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 own 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 reliable growth in sales and profits. By the $1990$s$,$ however, profit growth at P&G was slowing.

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 $1960$s$,$ when national markets were segmented by barriers to cross$-$border trade. Products produced in Great Britain, for example, could not be sold economically in Germany due to high tariff duties levied on imports into Germany. By the $1980$s$,$ however, 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 globalized. Wal$-$Mart, Tesco $($from the United Kingdom$),$ and Carrefour $($from France$)$ were demanding price discounts from P&G$.$

In the $1990$s$,$ 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$$t enough$>$ Profit growth remained sluggish, so in $1999,$ P&G launched its second reorganization of the decade, $$Organization $2005,$ with the goal of transforming P&G into a truly global company. P&G replaced its old organization, which was based on countries and regions, 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 a few large facilities; to try to build global brands wherever possible, thereby eliminating marketing differences among 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 $15,000$ employees, mostly in Europe where there was still extensive duplication of assets. The annual cost savings were estimated to be about $$800$ million. P&G planned to use the savings to cut prices and increase marketing spending in an effort to gain market share, and thus further lower costs through the attainment of scale economies. This time, the strategy seemed to work. For most of the $2000$s$,$ P&G reported strong growth in both sales and profits. Significantly, P&G$$s global competitors such as Unilever, Kimberly$-$Clark, and Colgate$-$Palmolive were struggling during the same time period. Write a $300+$ word post on the Blackboard Discussion Board for this assignment. In that post, evaluate the information from the reading, form conclusions and provide evidence in support of your conclusions, and apply at least three numbers from the reading when evaluating and$/$or when forming conclusions.