Case 5-2 - P&G Japan: The SK-II Globalization Project
Due date: 12/03/12
This case describes how SK-II which is a fast-growing skin care product is becoming very popular with a price to match its performance. After being introduced in Hong Kong and in Taiwan, P&G believes that this brand has a strong global potential. At the conclusion of this case, the company is left thinking whether or not to grow into both the European and the Chinese market. Statement of problems:
In the year 2005 P&G went through a system of restructuring and strategic emphasis on innovation instead of geographic growth giving all powers to their global business management team. * In the middle of the 1980s there was a difficult beginning in Japan because this country was a very small contributor to the international growth of P&G. * By the middle of on the 80s, and twelve years after entering Japan, they had accumulated losses of over $200 million and the number was growing. * The company was suffering a negative operating margin of about 75% * There was a large decrease in sales going from 44 billion yen to about 26 billion yen in five years. * Company management wondered if they were doing the right thing by staying in Japan. Obstacles:
* In the later part of the decade P&G began to see growth and economic improvement that led to increasing numbers. This did not last long because troubles came back during the early 90s. * In Japan, P&G’s strong performance began to slow down. * Japan’s economy collapsed in 1991.
* P&G lost market shares to competitors.
* Sales decreased by 4% each yeah and by 1996 this totaled to about 20%. * They were not a strong competitor in Japan because they only sold 300 million in cosmetics giving them only 3% of the total cosmetic market shares. * In the mid-1990s Japan lost over $50 million in sales on top of the all-time low 300 million yearly sales.
Local Adaptiveness Meets Cross-Market Integration
Through P&G’s early expansion it adhered to a set of principles set by the first Vice President of overseas operations – Walter Lingle. His business process was: * “We must tailor our products to meet consumer demands in each nation.” * “But we must create local country subsidiaries whose structure, policies, and practices are as exact a replica of the U.S. Procter & Gamble organization as it is possible to create.” This in turn built a portfolio of subsidiaries run by general managers (GMs) who grew their companies by adapting P&G’s technology and marketing expertise to their knowledge of local markets. By the 1980s, this methodology created two problems: 1. The cost of running all the local product development labs and manufacturing plants was limiting profits. 2. The ferocious autonomy of national subsidiaries was preventing the global rollout of new products and technology improvements. Local GMs resisted such initiatives due to the negative impact it had on local profits for which the country subsidiaries were held accountable. As a result, new products could take a decade or more to be introduced worldwide.
The Birth of Global Management
During the late 1980’s, the “hands off” regional headquarter began to take a more proactive approach to management of the local subsidiaries: * Teams were formed to eliminate needless country-by-country product differences * Reduce duplicate development efforts
* Gain consensus on new technology diffusion
This in turn formed region-wide coordination with Euro Brand Teams which became an effective forum for: * Purchasing
* Coordination of region-wide product strategy and new product rollout
These coordinated processes became formalized when the regional European VPs were given...
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