P&G International Expansion
In the pre-1990’s era P&G found their international expansion through the use of a localization strategy. They did develop many of their products in Cincinnati, but they relied on their semi-autonomous subsidiaries to manufacture, market and customize many of their products for the local markets their served.
This model started to show signs of strain when many of the trade barriers that existed, specifically between European countries were lifted. This created an increase in competition, and for P&G exposed their now unnecessary duplication of assets and processes. Also the creation of the “big box” retailers (such as Wal-Mart and Tesco) were causing the competitive factors driven by purchasing power to put pressures on lowering P&G’s prices even further.
Due to the increase in competition and the changing market conditions P&G closed some of their local plants and asked their subsidiaries to exploit as much economies of scale as possible in their production lines. They also asked their local centers to create and use global brands whenever possible to try and reduce marketing costs. While these cost savings were effective, they were still not enough and P&G then reorganized the company to be a pure Transnational Strategy, with more control occurring in the regional centers than ever before and using as little local responsiveness as possible to reach their customers so they could compete on price as much as possible.
The benefits of the transnational strategy include:
• Cost reduction
• Reducing duplication of assets
• Creating global brands
• Manufacturing in places that have a comparative advantage in the production of that product
• Increase market share by beating your competitors prices
Risks
• Very difficult to implement & manage
• Organizational Structures have to be very complex and it can lead to o Performance ambiguity o Confusion over corporate goals o Culture
This model started to show signs of strain when many of the trade barriers that existed, specifically between European countries were lifted. This created an increase in competition, and for P&G exposed their now unnecessary duplication of assets and processes. Also the creation of the “big box” retailers (such as Wal-Mart and Tesco) were causing the competitive factors driven by purchasing power to put pressures on lowering P&G’s prices even further.
Due to the increase in competition and the changing market conditions P&G closed some of their local plants and asked their subsidiaries to exploit as much economies of scale as possible in their production lines. They also asked their local centers to create and use global brands whenever possible to try and reduce marketing costs. While these cost savings were effective, they were still not enough and P&G then reorganized the company to be a pure Transnational Strategy, with more control occurring in the regional centers than ever before and using as little local responsiveness as possible to reach their customers so they could compete on price as much as possible.
The benefits of the transnational strategy include:
• Cost reduction
• Reducing duplication of assets
• Creating global brands
• Manufacturing in places that have a comparative advantage in the production of that product
• Increase market share by beating your competitors prices
Risks
• Very difficult to implement & manage
• Organizational Structures have to be very complex and it can lead to o Performance ambiguity o Confusion over corporate goals o Culture