According to Achilles, when competitors emerge, if managers do not take steps to reduce their costs, efficient global competitors might outride them.
For example, let us consider the evolution of international business strategy at Procter and Gamble(P&G).
P&G was founded in 1837. Today, P&G has annual sales in excess of $80 billion, out of which about 54% are generated outside the U.S. P&G sells more than 300 brands like Tide, Pampers, Crisco to about 180 countries.
Initially, P&G developed new products in Cincinnati and relied on semi autonomous foreign subsidiaries to manufacture, market and distribute those products in different nations.
In many cases, foreign subsidiaries had their own production facilities and did the packaging, brand name, marketing message to local tastes and preferences. For years, this strategy delivered a steady stream of new products and reliable growth in sales and profits.
By 1990s, profit growth at P&G was slowing. This was mainly because the costs were too high due to duplication of manufacturing, marketing ad administrative facilities in different national subsidiaries.
For example, products produced in Great Britain could not be sold economically in Germany due to high tariffs on imports into Germany. Also, retailers who bought from P&G, like Walmart, Tesco, were demanding for low prices since they were growing.
Thereby, in 1990s, P&G embarked in a major reorganization in order to control its cost structure. About 30 manufacturing plants were shut around the globe and 13000 employees were laid off. With this being not successful enough, P&G launched another re-organization with the goal of Örganization 2005″”.
In this new re-organization, the company replaced the old organization which was based on countries and regions and replaced it with one based on seven self contained global business units, ranging from baby care to food products.
Each business unit rationalized production, concentrating in fewer larger facilities, trying to build global brands wherever possible. This eliminated marketing differences between countries and accelerated development and launch of new products. In the meantime, the costs savings from the factories they closed and employee lay offs, were used to reduce prices and increase spending on marketing. This strategy worked out.
For most of the 2000s, P&G reported strong growth in both sales and profits. Significantly, P&G’s global competitors like Unilever, Colgate were struggling during the same period.
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