In 2008, P&G has become a company with the 6th biggest market value, and has a sale of approximately $45 billion. In 1988, P&G entered the market in the Great China Area due to the potential customers and profits hidden behind it. Up to this date, P&G has established 0 joint ventures and proprietorship in major cities like Guanos, Beijing, Tannin, Shanghai, etc. In this dissertation, we will carefully analyze its international operations in the Great China Area and examine the factors that made its success. We will first analyze the reasons why it entered China in the first place by looking into different aspects of China’s overall image.
Then, we are going to look further into the operational strategy it uses to keep itself functioning. We will also examine the procedure of how it manages its staffing across the sea and hires local employees. Besides, we will talk about TTS marketing strategies in the Great China Area market by looking into the ops (Products, Price, Promotion and Place) of P China and P Hong Kong. Reasons to enter the Great China Area It is reasonable and necessary for international corporations such as P to enter the Great China Area market. Reasons as following: Increase the sale; Decrease the cost; Increase the popularity; Meanwhile, it is also really important to analyze the risks for entering the market.
Here is the risk assessment for entering the great China market. The risk assessment based on following six elements: political stability–the stability of politics and overspent, the more stable the better; market chances–the number of customers and the purchase power of customers, the higher the better; economic development and achievement–the growth of economic and the expectation for the future, the higher the better; legal impediment-?the restriction from the law, the less the better; physical impediment–the restriction from resources, the less the better; differences in terms of culture- -to what extent is the domestic culture different from foreign cultures.
The political stability in China: China is a socialist country and always controlled by en regime–the communist party of China. The government has high control in the country and do not need to worry about other regime within the country. Therefore, the political stability in China is good for investing. The market chances in China: China owns the biggest population in the world. The potential market in China is huge, especially when the need for imported goods grows so fast in recent years in China. The economic development and achievement in China: China keep growing fast in recent year and the growth rate keeps rising. In 2007, the GAP growth rate was 1 1. 4, and the GAP as 24. 6619 trillion dollars.
In 2008, the GAP rise to 30 trillion dollars. According to the data in terms of GAP and the growth rate, the economic environment in China is appropriate. The legal impediment in China: China’s legal system is new in the world after the reform. There are some bugs on laws exist in China and some people or company utilize it, and there are some unreasonable laws exist. However, the Chinese legality system keeps improving and the relative laws to foreign company are always good for investors. In terms of legality system of China, it is good for entering and investing. The physical impediment in China: the land area in China is 960 million square kilometers which ranks 4th in the world.
China is also a main energy import and export country in the world, with the north temperate zone having the most. Overall, China owned lots of resources and has potential. The difference in terms of cultures: There are many differences between the eastern culture and the western culture. China is a socialist country and most western countries are capitalist country. The language is also a problem, Chinese is one of the most difficult languages in the world ND the Chinese culture is the oldest culture olives in the world. Nowadays Chinese are willing to touch new culture and lean new technologies. The culture difference could be a problem meeting in China.
Overall, China as a stable-politics country with high growth rate is a talented market and the risk for entering is acceptable. Operational strategies of P&G China Procter & Gamble (P&G) entered Chinese market in 1988, P&G and Hutchison Hampton LTD. Had a joint venture together and invested Procter & Gamble China LTD. Company with 70% and 30% company share respectively. P&G takes advantages from the joint venture P&G china Ltd. The company has more stable financial resources and larger economies of scale. More importantly, could share risk with its partner initially in an unfamiliar international market. P&G China set its headquarter in Guanos. It cooperated with its first partner for operation—–the Guanos soap factory Ltd.
P&G China kept the factory core product, Joshua brand shampoo, and bought out its rest products and stop the production. This local partner is very helpful to P&G. Guanos soap factory has its own production factory, mature supply networks, good local brand reputation, some profitable reduces and local distribution and sale networks. Moreover, Guanos soap factory has connection with Guanos government which helps receive supports and benefits from government. From the current point, this is one successful case for international cooperation. P&G China did adequate marketing research for Chinese market. The company firstly chooses some product categories which has lower entry restrictions such as hair care products, skin care products.
Meanwhile these product categories are very profitable and have huge growth space with perspective of market development and product development. This is one of the important reasons why China could continue growing in a fast speed after it entered China. In order to save cost, increase profit and better control operation, P&G was looking for more local partners to produce its products. So far, P&G owns or controls more than 1 0 subsidiary corporations around China area especially in big cities such as Beijing, shanghai, Changed etc. P&G learnt a lot from its first partner—- Guanos soap factory, the company selects its partners with requirements.
That is the partner company should be in small size but could fill gaps in P&G’s value chain. In this way, first of all, P could use its size and brand reputation easily control or take the major part in the corporation to keep its operating stability. Then, P could use partners resources for local production, distribution or even social networks and more. Two companies could arrange a co-specialization situation. However, P also had problems from its partners especially in the area of washing powder. For example, the cooperation with Beijing second daily chemical factory. The factory used to have its panda brand washing powder products.
After the factory joined P and became P panda washing powder factory, the reduce and brand were kept. During the operation, the factory campaniles that P smaller its brand logo image on the product which may affect its brand reputation and consumer reputation. On the other hand, some employees left the factory and set up their own Company to produce similar products as panda brand washing powder product which involves within copyright issues. Similar problems happened when P China cooperate with Changed oil chemical factory. P china should do more research about the culture of Chinese companies. They are very protective about their own brand and reputation.
They are afraid of losing control, and lots of facts show that they may use illegal methods to “protect” their profits. The lessons P learnt from failure cooperation will help them gain experience and better collaborate with Chinese companies. China could not be successful without its efficient and effective distribution and sale strategies. We mentioned, P has many local partners around China and the company used its size and big brands take over the control in the corporation. In this way, P can fully use local partners distribution network resources without influence. P has different progress and use different methods for underside market and urban market.
The marketing teams are better specialized and tasks are more specific. The operation will be more efficient and effective for different markets. Work with distribution partners. The company has both whole sale partners and retailer partners. P formulates concrete policy to benefit both types of partners. And the company is currently seeking corporation with big franchisee retailers such as Walter. P has a complete and mature system to manage its distribution network. Logistics Management P has a chosen a reliable third party logistics service provider to be in hare of almost all of its products’ distribution-?Bagging Logistics Group.
With the special “door-to -door” service and the principle Of “Customer comes first”, Bagging has built a big logistics operating network throughout China for P&G, and by having thousands of well-trained workers performing the “door-to-door” service to consumers, it saves P&G 6 million every year of cost on logistics. Inventory Management Fist of all, having a good sale on its products implies that it has to control every kind of its goods at an acceptable quantity, for example, P&G cannot increase the production of Durable intensively just because it is earning none, because it has a high externally cost to the environment, which government will raise the price of it. If P&G is having too much inventory of Durable batteries while the price of it is increasing at the same time, the sale will see an instant drop, and this gap between production and consumers’ will to purchase it would even lead to diminishing of the brand.
Therefore, P has to conduct very serious speculation and forecast before it decides how much inventory it is going to have. Vendor-Managed Inventory is the strategy P prefers to use when it comes to dealing with inventories in Great China Area, a market with tens of thousands of suppliers. The vendors has an agreed inventory of P’s products kept in their through the communication with the provider through a information system, EDI (Electronic Data Interchange). In this information system, effective and useful information is exchanged between the producers(I. E. , P&G) and the vendors, so P&G will know when a vendor needs more inventory in his store and can make quick adjustment to it.
In this process, a third party logistics providers can also be involved and adjust and demand and supply to ensure the vendors has the squired level of inventory, which greatly reduce the cost of the transferring of the inventory. Human resource management of China Richard Duper, the former CEO of P&G, once said: ” If you leave our warehouses, money and our brand here, but take away our men, we will be nothing; however, if you take away all our warehouses, money and our brand but leave our men, we will rise again. ” P&G has entered Chinese market since 1988, more than 25 years. It currently has more than 7000 employees around great China area.
Effective human resource management is one of the keys that made P&G China’s success. But how exactly does P manage its staffs exactly? Systematic Advantage Localize its team: back in 1 988, P China has more foreign employees than Chinese, but now 98% of P China’ employees are local people. Local teams could help better fit into local market and save labor costs. However, P&G still keeps its core positions for foreign employees. For example, the research and develop department, most positions in top management. In this way, P&G ensure it fully control the company and make strategy decisions. Efficient training system: P&G has standard and complete training system for its employees globally.
The training helps every local employee understand the job itself and the company. Therefore, employee could better understand how could they contribute the company and have better career opportunities. Nice working environment and transparent rewards and punishment system: P&G try to build nice working environment for its employees. The company set standard for employee treatment and try to build friendly and fair company culture to raise its employ satisfaction. Therefore, employees are more motivated and they have higher loyalty for the company. Meanwhile, has a transparent rewards and punishment system in order to keep employees’ motivation.
Selection system: P has very complete employee selecting system and the company is willing to train inexperienced youths. It has connections with various education institutions around great China area. International Staffing Local hiring P owns more than 50 branches in China, and every branch is open for the first round of employment. P does not need the person to have the matching experience for the job position that he is applying for, however, basic concept and professional skills is required. After filtering the original applicants, the remaining applicants will be sent to P’s headquarter in Guanos for the second round, and also the last round of the interview.
In order to make sure that the interview is unbiased and legitimate, at least 3 managers from headquarter in China are required for every interview. Also, given the fact that all the applicants need to spend a considerable amount of money, not matter living near or far from Guanos, all the expenses for every applicant are covered by China. The interview can be broken into four parts: Icebreakers, Questioning, Information Exchange and Final Appraisal. The Questioning stage is when the famous P&G’s Eight Questions re asked. The questions are made by Human Resource Department in P’s headquarter in US, however, the way they are tested is different in the Great Chain Area.
According to our interview in P&G Hong Kong, the facial expression and the logics behind an applicant’s answer are what matter the most while in the IIS the completion and structure of the answer are major considerations, as P is trying to make its employees match to standard for even surpass the standard P set for its employees around the world.. In the Great China Area, the hiring of staff also follows the same principle that he company is always trying to emphasize: The quality and moral of the person comes first. Fresh graduates from a first-class university in China, due to their flexibility and competitiveness, are the type of applicants that P China adores the most. The data has shown that 90% of the new employees are university graduates from all over China.
Expatriate Once an applicant is officially an employee of P China, a series of complicated and motivating training await for them. Due to the flexibility of college students, it is usually very easy for them to absorb the management mode and thinking model quickly. As a result, spends an average Of $30 million on over 1 00 expatriated staffs every year from US in order to better instill the values of the company into employees’ mind. For the expatriated employees, most of them are native American workers at managerial level, they are transferred to China mainly to train the “new born” employees, give managers at positions suggestions and be in charge of the interviews of applicants. Due to the great staff welfare policy P&G has, managers from U.
S are given a big increase on their salary for “compensation”, as they have to be exposed to a completely different culture ND pay more tax give that they are working in two places. However, because of the increasing caliber and standard of Chinese managers, a lot of them are actually being sent to headquarter in Ohio, U. S for further development. Data has shown that an average of 100 Chinese managers and 10 managers from Hong Kong are sent to U. S every year. Marketing strategies of P&G China Products The products of household care category that P&G offered in the Great China Area vary according to different regions. For example, in the mainland market and Hong Kong market, the following items are available as shown: China Hong Kong
Detergent Ariel, Tide FAA Battery Durable Diaper pampers Pampers Indoor Fragrance Iambi Purr As can be seen from the data given, the types of household care products are quite different be;en China and Hong Kong. After our analysis, the following factors can give rise to this situation. Demographical Difference As a country With a huge population, China generates a great demand for basic household care product, I. E. , detergent. As a result, more kinds of detergent are expected in the Chinese market. Also, with more people from rural areas entering the city nowadays, detergents with a lower price (Tide, Ariel) compared to FAA are more accepted. Beside this, the increasing variety of people in China mainland indicates a more diverse demand when it comes to daily-use products.
Hong Kong, on the other hand, tends to have a much smaller and less diverse population, therefore the need generated for many kinds of detergent is not very intensive. Also, Hong Kong has launched some of its own local brands ( e. G. , FUD(Axe), Lagoon) for batteries and detergent that already established great trust among consumers, making it harder for P&G to have many brands to compete with them. Psychological Difference As said before, with the increasing variety of Chinese population, people are starting to have different demands and options on the kind of detergent they purchase as a result of the different kinds of fabrics and clothing materials they have. The increase of the demand implies that there need to be a more complex system of commodities, especially in detergent.
However, when it comes to Hong Kong, as said before, the small population has somehow unified people’s need for multiple brands; besides, it is worth-mentioning that as a city that represents the modern culture and financial business activities, Hong Kong folks tend to care more about their personal image appearing to others, and this is mainly why there exists the demand for an indoor fragrance product (Iambi Purr) in Hong Kong. Price Price is an extremely important and most uncertain factor in the market. A setting of a price is to increase a product’s sale and generate profits for it. A good pricing strategy combines both the consideration of its own cost and consumers’ affordability, and is a reflection of the variable market as well. Being a company known for its reasonable prices, P has unique pricing strategies for its household care products.
First of all, having segmented the market, P launched different sizes of detergent and charge them with different price to cater needs for detergent and batteries from different levels. For Tide 360, three kinds of package are being introduced to the market: 2. 9 for egg(an average of Y 0. 97 /keg) ; YE. 9 for egg (Y 10. 5 /keg) and 15. 9 for 1. Keg (Y 9. 6 /keg). To capture the market in less developed areas, P has produced an “economical package” of 34. 8 for 5 keg ( 6. 96 / keg). What is more, due to the wider spread of thriftiness, P uses odd-even pricing more intensively in the Great China Area than it does the North America. In a supermarket, prices like Y 2. 9 , *11. 9 can often be seen when we look at some of the batteries and detergents sells, in order to make consumers consciously think that the price is collaboratively set after a series of considerations, and thus view the items as cheaper and a lot more worth- buying. Also, for products like Pampers, aims to use skimming pricing strategy to maintain its market place. Targeting at groups with higher income, this strategy makes Pampers more expensive than the rest, thus creating the feeling among consumers that Pampers are better than other reduces in terms of quality standards, effects and values. It is also worth- mentioning that with this strategy applied to shampoos such as Heads , Swanson, P has made an instant success, gathered larger group of consumers and increased the customers’ loyalty by a great deal.
Last but not least, P&G sets its price by paying a great deal of attention to the moving direction of its competitors, mostly from Milliner, to say in other words: is constantly adjusting its price according to the movement from Milliner in order to remain competitive in the field. In 2013, due to the economic downturn in the Great China Area, Milliner has been forced to lower its price in order to keep the original consumers they have. The price of a egg package Mom, a leading brand in detergent owned by Milliner, has decreased from YE to Y 33. 4 , half as expensive as it used to be. As a result of this practice, P&G decreases the price of Tide of the same package from 38 to Y 32 , a little bit less than Milliner, just to keep getting hold of the market.
As we can see from above, low price strategy is also an important strategy that helps P&G to stay firmly in the business. Note: American Dollar 1 = Y 6. 206; Canadian Dollar $ 1= *5. 780 Promotion As one of the strongest and most competitive commodity company in the world, what sort of promotion techniques should P&G have in order to generate new demand and face the challenges from the variable Chinese market? Increasing the number of its brands. Up to this date, P&G has over 300 brands covering fashion industry, health, household care products, cosmetics, perfume and food, etc. With a large coverage in the market, P&G does a great job in bringing in everyone’s attention.
Also, Sometimes, the brands in competition with each other are tooth from P, making profit for What is more, due to the trust built in customers in Chinese market, it is very easy for P to sweep out other local brands and develop at a steady pace. Advertisement For large companies aiming for the whole market, advertising is without a doubt a very useful “weapon” for the company’s growth In long stand. A good advertisement cannot only bring the company massive profits, but can also build a good brand image for the company as a whole. Large amount Of investment In 2011, P&G spent Y 33. 26 billion in the Great China Area, over six times than what it had spent ten years ago.
Besides, it is worth-mentioning that the total expenditure on advertisement in 2011 was *55. 89 billion , indicating that views the Great China Area as a very important market. It is shown that among ten brands with the most advertising expenditure in 2005, half of them are P&G’s brands. Appropriate and effective content The common technique it uses is by comparison: the person in the clip will usually show the difference between P and other brands. Tide and Durable are typical examples for this; Also, P will have a professional presenting the daily problems, and then provide the solution by introducing a ewe product. Oral-B in the health category is an example of this technique.
Both techniques successfully capture consumers’ needs and make them want P&G’s products even more. Good choice of people Having a person everyone loves in the advertisement certainly means more people will start thinking about the products, and P is always wisely choosing the person in the advertisement to make sure it generates a great effect in its potential market. Philanthropy as another advocating method In 2007, donated *7. 5 million to China Education Development Foundation, initiating the “Quantifications]ahoy” (National Healthy Education Plan); In 2010, spent another million on aiding China Social Welfare Foundation, mainly for letting children from less developed area have a better Children’s Day (Novo. 10th); From 2007 to 2009, P&G has donated 4 million three times consecutively to Project Hope in order to help kids who cannot finish school in China; In total, P&G has donated to build 131 elementary schools in China from 1 991 to 2008, and it has been planning to build 200 by the end of 2010. Etc. Place On Gag 18th1988, entered China as a join venture with two soap companies and a foreign trade corporation in Guanos. After two months, Head& Shoulders, the first brand P&G has in the Great China Area, was launched, and in only two months, more than 95% Of the population in Guanos has known the brand. After twenty years of development, P&G has now become the biggest commodities company with a sale of almost 18 billion every year in the Great China Area, making China the second largest market throughout P&G’s global operation.
When P first entered China, China was still going through the stage of reformation and opening up. Gudgeon Province, where Guanos is at, was one of the few regions that darted trading with other countries, which provided a great deal of opportunity for foreign companies like and Milliner. Studies have shown that an estimated value of 26. 2 billion dollar per year is created solely from foreign direct investment during the period between 1979 and 2007, while in 2007 the FED was even increased to 74. 8 billion dollar. Also, it cannot be denied that the caring policies towards the infrastructures and resource allocation are another major reason why P chose Guanos.
With the construction of industrial areas and the introduction of less tax to companies, P saved a great amount of money on the start up cost, and thus was able to develop at a faster and steadier pace. Besides these, Guanos, as a terminal in the Peking- Guanos Railway, Guanos can provide P with a convenient distribution system and provide guarantee to the allocation of P’s products throughout coastal areas in China. Summary P&G chooses enter China, an emerging market and place of resources. P&G keeps the growth of its economies of scale, increases revenue and decreases cost.
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