Procter & Gamble in India

Introduction

Procter and Gamble (P&G) is a private limited company that is established within the Personal Products industry. According to P&G history, the firm has been in existence since 1837 operating on a global scale. Its founders were William Procter and James Gamble (Anon., 2001). The firm’s headquarters are located at Cincinnati, Ohio in United States of America. According to Procter and Gamble Company description, the firm operates within the consumer goods sector. It is involved in the manufacturing and distribution of diverse consumer products (2009, p.1). On daily basis, the firm touches million of people’s lives through its products.The firm is divided into three main units depending on the products manufactured. These business units are referred to as the Global Business Units (GBUs). The three main GBUs include well being, beauty, and household care products. The beauty unit produces products such as hair care, skin care, deodorants and a variety of cosmetics. On the other hand, the wellbeing and health care products GBUs produces a variety of feminine care, pharmaceuticals, and oral care products. Other operations that the firm is involved with include the production of pet food, soap operas and water filters its operation involves the production of diverse consumer products. Procter and Gamble has a total of 135,000 employees. The firm has been very effective in its operation making it to be the global market leader in relation to house hold products. This is due to the fact that the management has incorporated a strategy aimed at increasing its operation scale through foreign direct investment. This is evident from its high level of revenue it generates annually. For instance, during the fiscal year that ended June 2009, the firm’s total sales amounted to $ 79,029 millions. One of the market destinations that the management of the firm considered venturing is the Indian market. The discussion of this paper is aimed at analyzing the progress that Procter and Gamble Company has made in Indian market.

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Entry strategy and progress

The management of Procter and Gamble formulated a number of strategies aimed at increasing the scale of operation. Amongst these strategies include conduction of foreign direct investment. According to Aruna and Ryan (n.d, p.609), the management’s target is mainly the emerging economies that are experiencing a high rate of growth such as India. In venturing the foreign market, the management of Procter and Gamble has employed different entry modes. These modes include joint venture, greenfield, and acquisition. In entering the Indian market, Procter and Gamble Company employed the joint venture method of entry (Aruna &Ryan, n.d). According to Johnson and Gerald (2008, p.2), joint venture refers to a foreign market entry strategy that involves formation of partnership between two firms where one of the firms is situated within the host country.

The initial joint venture involved P&G and Richardson Vicks in the 1980s. Richardson Vicks Company was already established in the Indian market. The firm was prominent in the manufacture of cold and cough medicaments. Through this joint venture, P&G was able to buyout the local competition and successfully venture into the largest foreign soap market (Aruna &Ryan, n.d, p.609). In 1985, P&G formed a joint venture with Richardson Hindustan. This resulted into formation of the Procter and Gamble India. To be able to compete effectively, P&G increased its stockholding in the new firm formed (Procter &Gamble India) to 100%. This gave P&G absolute control of P&G India. In 1989, Procter and Gamble developed Whisper and in 1991, Ariel detergent was launched.

Through joint ventures, Procter and Gamble Company achieved a number of benefits. One of them is that the firm was able to access India’s distribution networks. The firm was also able to adhere to India’s soap manufacturing requirements. This is through accessing the necessary technology in soap production since tallow is banned in India in the manufacture of soap. With time, Procter and Gamble divested the soap business resulting into formation of Procter and Gamble Home Products. Procter and Gamble India Limited Company changed its trade name in 1991 to Procter and Gamble Hygiene and Health Care Limited (Aruna & Ryan, n.d p.610).

The firm has undergone a series of development by increasing the level of innovation and venturing new market categories. According to Procter & Gamble India, the firm entered the hair care category in the Indian market in 1995 by launching the Pantene Pro-V shampoo (Anon., 2007). In 997, the firm launched the Head and Shoulder shampoo while the Tide Detergent was launched in 2000. In 2003, the firm launched the Pampers brand which is the current diaper brand leader in the global market. Through these innovations, Procter and Gamble has become successful within the Indian market.

Business environment in Indian market

Personal product industry

India is characterized as an emerging economy. According to Simon (2008, p.1), the Indian personal products industry is not saturated. This is evident from the fact that the personal products only account for 33% of the entire Indian market. This shows that there is a potential of the market growing. Simon (2008, p.1) asserts that the Indian personal product market is experiencing a high rate of growth. The overall growth in this market has exceeded the world average rate of growth. This presents an opportunity for P&G in relation to establishment of new product categories. This would enable the firm to meet the needs of consumers in this market in relation to consumer products thus increasing its level of revenue. According to Simon (2008, p.1), it is estimated that the size of India’s cosmetic market will grow from its current level of $ 950 to a high of $1.4 billion in terms of sales within a period of 2-3 years. The rapid rate of growth in this market is also enhanced by the changes in India’s demographics. For instance; India is experiencing an increase in the size of middle class population. This has had an impact to the personal product industry. This category of consumers (middleclass) has resulted into an increase in demand in relation to care products such as soaps, skin and hair care products and dentist powder (Simon, 2008).The increase in demand results from the fact that there has been an increase in the level of disposable income amongst these consumers.

According to SWOT analysis of the Fast Moving Consumer Goods (FMCG), the personal care product industry has experienced intense consumer boom in the past decade (Anon., 2009). This is due to the change of lifestyle amongst the population as a result of increased awareness. The deodorants market is amongst the markets that is undergoing a high rate of growth in the recent past. This growth results from increased emergence of new service firms such as information technology and the consumer goods. According to Simon (2008,p.1),growth in new industries such as information technology means that there is a potential increase in the amount of consumer spending on products related to personal care.

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Increased economic liberalization

According to Business environment (Anon., 2002, p.1) Indian economy has experienced a sustained rate of economic liberalization since 1991. The increase in the rate of economic freedom has been enhanced by the democratic nature of the country. According to Johnson and Gerald (2008, p.2), India is characterized by minimal country risk due to political stability. This enhances economic policy formulation. The effect is that the countries business environment has been enhanced through an increment in the level of private investment within the country. Increase in economic liberalization and economic reforms have also resulted into an increase in the level of foreign direct investment (Nirupan & Nadita, 2004, p.5). This is due to the fact that the government has reduced the level of regulation and control to with regard to foreign direct investment. The liberalization included relaxing some of the regulations such as those related to licensing and control of foreign trade and foreign direct investments (FDI).

The liberalization also included removal of ceilings in relation to equity ownership by the Transnational Companies (TNCs) (Balasubramanyan &Mahambare, 2003). Due to economic reforms and increased liberalization, a number of foreign firms have ventured the Indian market. According to Business environment (anon., 2002) examples of these firms include Hewlett Packard, General Motors, Johnson and Johnson, General Electric and Procter and Gamble.

Competitive environment

Due to the increased economic liberalization, there is an increase in number of investors who are venturing the Indian market. These investors comprise both the domestic and foreign investors. According to the Personal Care Industry in India (Anon., 2009), the multinational firms comprise the largest percentage of players within the personal product industry in India. There is also emergence of entrepreneurial culture within the consumer goods market in India due to its lucrative nature. The effect is that there is an increase in the number of producers of consumer products. The increase in the level of competition also results from the fact that there is a reduction in entry barriers within the personal products industry. This is due to the fact that there are minimal capital and technology requirements. The increased investment in the personal product industry is culminating into a change of the competitive environment in India. Despite the facts that the multinational firms have the largest percent of market share, the small companies in this sector are vying to attain a significant proportion of market share.

The competitive environment is also enhanced by the increased disinvestment of public sector and a high rate of privatization (Raj, 1999). On the other hand, the legal environment is enhancing the competitive environment in India. This is through formulation of the new competition policies in 2002. The policy is aimed at stimulating the level of competition. One of the elements that the policy considers is the prevention of monopolistic trade practices. This has resulted into effectiveness of the India’s competitive environment.

Due to the intense competition in the Indian personal product industry, market has been heavily segmented. This is in an effort of firms in this industry to increase their sales volume. This is through formulation of different strategies such as the price point strategy. To cope with competition, firms are launching new products in different niche markets. Alternatively, firms are undertaking a re-launch of products that already exist in the market.

International business strategy

Procter and Gamble competes on international basis. In its operation P&G has incorporated the transnational strategy. This is evident from the fact that its operation is dividend into three main Global Business Units. In this strategy the individual units have the capacity to undertake their own research and development. This enables them to customize their production process thus meeting the needs of the local consumers more effectively. Through this strategy P&G has integrated two main elements which include global and the multi-domestic strategy. Through the global strategy, there is centralization of authority. On the other hand, multi-domestic strategy enhances decentralization of authority. This means that the individual firms are able to conduct their operation in different countries more effectively. This is due to the fact that resources are globally dispersed where the individual firms conduct their operation. For instance, by venturing the Indian market, Procter and Gamble was able to conduct the production of soap since it had access to raw materials.

In this strategy, the management of the individual firms has the authority to make their own decision in relation to the mode of operation (David, George & Jim, 2008). Through the transnational strategy, Procter and Gamble Company is able to attain the benefits related to both global and the multi-domestic strategies.

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Conclusion

Procter and Gamble has been efficient in its operation due to adoption of effective operational strategies. This has result into it being the global market leader in relation to the different consumer products it manufactures. Through foreign direct investment strategy, the firm has been able to penetrate the global market. In the recent past, the firm ventured the Indian market. The method of entry into this foreign market that the firm used was through joint ventures. This enabled the firm to market its products effectively. This is due to the fact that the partner within the foreign market had sufficient knowledge in relation to distributional networks and production technology. The firm has conducted a series of innovation. This has enabled it to effectively progress within this market.

India is an emerging economy and hence there is a potential of the firm succeeding. This is due to the fact that the personal product industry in India has not been fully exploited. Currently, the personal product industry is undergoing a rampant growth. Market potential is also enhanced by the demographic changes within the society. This results from an increase in middleclass population whose consumption is relatively high due to their level of income.

The level of competition within the personal product industry is very high. This is due to an increase in the number of domestic and foreign investor due to ease of entry. This has made the Indian consumer product market to be heavily segmented.

Business environment is also enhanced by the economic reforms being undertaken by Indian government. These reforms are related to liberalization and privatization. In its operation, the management of Procter and Gamble Company has adopted the transnational strategy. This has enabled the firm to customize its products thus meeting the needs of the local customers more effectively.

References list

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Aruna, C.& Ryan, J.C. n.d. US foreign direct investment in India: emerging trends in MNC entry strategies. Journal of intentional business.[On-line].38(5): 600-610. Web.

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Balasubramanyam, V.N. & Mahambare,V., 2003. Foreign direct investment in India. (Cengage Learning). Web.

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Raj.M, 1999. Impact of liberalization and privatization in India. Boston: Economy seminar publishers Research and Markets.n.d. Personal care industry in India. (Guinness centre).Web.

Sribd, 2009. Competitive environment. (Scribd article ).

Simon, P., 2008. India market brimming with up-market potential. (Cosmeticdesign.com article).

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