1. Evolution of Strategy at Procter & GambleProcter & Gamble was founded in 1837 in Cincinnati, United States of America. Today,Procter & Gamble is one of the biggest international companies in the world with annualsales in excess of $70 billion, more than 50% of which are generated outside the UnitedStates of America. Procter & Gamble sells more than 300 brands including Ivory soap,Tide, Pampers, IAMS pet food, Crisco, and Folgers to consumers in 180 countries in theworld.Historically, the strategy at Procter & Gamble was well established. The company developednew products in Cincinnati and then relied on semiautonomous foreign subsidiaries tomanufacture, market and distribute those products in different nations. In many cases, foreignsubsidiaries had their own production facilities and tailored packaging, brand name andmarketing messages to local tastes and preferences. For many years, this strategy delivered asteady stream of new products and reliable growth in sales and profits.However, sales growth at Procter & Gamble has been slowing and even declined in recentyears. Procter & Gamble's costs were too high because of extensive duplication ofmanufacturing, marketing and administrative facilities in different national subsidiaries. Theduplication of assets made sense in the 1960s when national markets were segmented fromeach other by barriers to cross-border trade. Products produced in the United Kingdom couldnot be sold economically in Germany due to high tariff duties levied on imports. By the1980s and 1990s, barriers to cross-border trade were falling rapidly worldwide andfragmented national markets were merging into regional and global markets. Also, retailerssuch as Walmart, Tesco and Carrefour through which Procter & Gamble distributed itsproducts were grower larger and more powerful and were demanding price discounts.In recent years, P&G has embarked on a major reorganization in an attempt to control its coststructure. The company shut down some 30 manufacturing plants around the globe, laid off130,000 employees and concentrated production in fewer plants that could better realizeeconomies of scale and serve regional markets. The company tore up its old organizationalstructure and replaced it with one based on self-contained global business units, ranging frombaby care to food product. Each business unit was to rationalize production, concentrating itin fewer large facilities thereby eliminating marketing differences between countries.As a result of this new initiative, Procter & Gamble announced that it would close another 10.factories and lay off another 15,000 employees, mostly in Europe where there is stillextensive duplication of assets.The annual cost savings is estimated to be about $800 million. Procter & Gamble planned touse the savings to cut prices and increase marketing spending in an effort to gain marketshare, and thus further lower costs through the attainment of economies of scale. The newstrategy seems to be working as Procter & Gamble reported strong growth in both sales andprofits at a time when its global competitors such as Unilever, Kimberly-Clark and Colgate-Palmolive were struggling.Source: Adapted from Hill, C.W.L & Hult, G.T.M (2019), International Business: Competing in the GlobalMarketplace, 12 Edition, McGraw Hill Education)a. Identify and explain the international strategy that Procter & Gamble pursued when itfirst entered foreign markets.b. Explain two merits and two demerits that the company experienced while using thisstrategy.c. Identify and explain the new strategy that Procter & Gamble appears to be movingtowards.d. Explain two benefits and two potential risks associated with this strategy.

Question

Accepted Answer

The case of Procter & Gamble (P&G) follows the organization's essential advancement from its…