Strategic Management - Procter And Gamble (P&G)’s Business Expansion In Egypt Case Study Examples
As influenced by increasing pressures from the rise of global marketplaces, many organisations are tempted to expand their operational activities to other economies to diversify their activities and underlying risks. One such organisation is Procter and Gamble (P&G), publicly traded company in the United States. This research paper is written to outline one episode related to Procter and Gamble (P&G) when it entered the boundaries of Egyptian market in 1986 due to its rapid industrial development .
All such expansion activity was carried out by international trade and foreign investment concept named internationalisation. Apart from highlighting the episode by P&G entering the Egyptian market for growth and diversification, the reason for such an activity is also mentioned. The research also makes it apparent the kind of enormous challenges P&G faced during internationalisation in Egypt and means by which such concerns were addressed or solved. This paper also mentions some core competencies which P&G developed in light of this international trade activity.
Business Background of Procter & Gamble Company
Procter & Gamble Company is publicly traded American business organization which markets consumer goods and is headquartered in downtown Cincinnati, Ohio of United States. This company was by William Procter and James Gamble whose wide variety of product line includes cleaning agents, pet foods, and personal care products. In 2014, Procter & Gamble Company (P&G) posted approximately $83.1 billion generated through sales revenue. On the first day of August 2014, the management of Procter & Gamble Company (P&G) made an announcement that due to streamlining the company, the business activities of 100 brands will be dropped down or abandoned forever. However, this publicly traded business, these days, focuses mainly on marketing of 80 major brands which helps Procter & Gamble Company generate ninety five percent of the total profit on an annual basis.
As far as this research paper is concerned to make a decision about the internationalisation of Procter & Gamble Company (P&G) in Egypt, it has come to light that P&G is so much competitive in this country that its brands serve at least none out of ten homes in Egypt and brings improvements in lifestyles of its citizens . In Egyptian market, P&G continues to follow its mission of “Touching Lives, Improving Life” for users of consumer goods all across the Egypt. With such a mission in mind, P&G delivers superior value-based products with support from hardworking workforce by always keeping company’s purpose, corporate value and mission in mind.
An Episode of International Expansion for Procter and Gamble (P&G)
In this research, there was an instance when Procter and Gamble (P&G) expanded its business operations in Egypt in 1986. Since then, this publicly traded company has been the largest exporter of packaged goods in the Egyptian market. In the year 2006, Procter and Gamble (P&G) celebrated its first twenty years of operational activities in this country. Much of the detailed information is provided in the latter sections of this research paper. However, the next section makes a detailed review of an episode in which Procter and Gamble (P&G) expanded its operational activities in Egyptian market through internalisation. Such section highlights the major reasons behind or the driving forces that motivated this publicly traded company under review to enter the Egyptian market and become a market leader in the consumer goods industry.
The Rationale for International Expansion by Procter and Gamble (P&G) in Egypt
The main rationale or reason behind the operational expansion in Egypt by Procter and Gamble (P&G) was mainly driven by Egypt’s economic growth and progressive developments in the industrial sector during the early 1980s. In the year 1986, Procter and Gamble (P&G) Egypt was established as a limited liability company and set up its factory in the industrial city on 6th October of the same year. The factory was efficient enough to manufacture only two soap brands on its production floor namely Crest and Camay. This factory was built with a modest capital investment of around 12 million Egyptian pounds supported by a labour force of fifty people only. P&G, driven by Egypt’s industrial development, entered this market in an attempt to competitively position its products in a new economy and benefit from increased economies of scale as well as diversification of business activities. It also wished to acquire new set of skills and access new technologies.
These days, Procter and Gamble (P&G) is one of the leading Multi National Enterprises (MNEs) operating in the consumer products industry of Egyptian market . Procter and Gamble (P&G) entered this market because of industrial developments in Egypt during 1980s and was motivated to establish own subsidiary. A third decade is about to end in 2016 concerning business operations of Procter and Gamble (P&G) in Egypt, the manufacturing activities of Procter and Gamble (P&G) are growing and fetching more than 1.3 billion Egyptian pounds in sales revenue. Due to this fact, Procter and Gamble (P&G) has become a market leader in Egyptian market as a most promising Foreign Direct Investor .
Procter and Gamble (P&G) entered the Egyptian market with a vision to serve at least nine out of ten homes in Egypt which has already been mentioned in this paper previously. When the financial crisis, which originated from the United States, damaged the global marketplace in 2008, majority of the publicly traded companies witnessed a sharp negative influence over the bottom line of their financial statements. Many companies felt the need to diversify the geographical location and markets in which they were and could run the business.
Procter and Gamble (P&G) saw an opportunity to enter the boundaries of Egyptian market because of many economic reasons. The major motivation was that the United States and Egypt have always been bilateral trading partners to each other for decades. Egypt, now-a-days is around fourth largest lucrative export market for products having origin in the United States. At the global level or in a worldwide marketplace, United States is the biggest bilateral trading partner to Egypt and the latter remains a fourth largest market for Exports from the United States .
Procter and Gamble (P&G) expanded its operations in Egypt because of increasing pressures of globalisation which helped it alter its business strategy of international expansion. Procter and Gamble (P&G) made its motive to maximize its business exposure across different marketplace, including that of Egypt to not only remain in competition but also benefit from competitive advantages, economies of scale, maximization of sales revenue, improvement in capital gains and provide more return on invested capital by shareholders.
Because of industrial developments in Egypt, Procter and Gamble (P&G) was able to find efficient and effective resources in the market at cheap prices which helped minimizes and costs and operating expenses. More technological advancement and solutions to manufacturing concerns was also accessed by Procter and Gamble (P&G) in the Egyptian market. Entering the Egyptian market was another step by Procter and Gamble (P&G) to diversify its product line and generate more revenue. A recession in any country of operation could easily be offset by financial and non-financial progress in the Egyptian market.
Effectiveness of Procter and Gamble (P&G)’s Internationalisation Strategy in Addressing Global Efficiencies, Local and Regional Differences
The internalisation strategy of Procter and Gamble (P&G) in Egypt has become so successful that it has become a leading trade in packaged goods industry in the said country by exporting these goods to more than thirty four countries including some important regions like Asia, Africa and Europe. The success of internationalisation over a period of twenty nine years of Procter and Gamble (P&G) in Egypt could be felt from the fact that manufacturing activities expanded rapidly to cover an area of more than 100,000 square meters. This activity was started with an initial investment of 1.25 billion Egyptian pounds which become the largest Foreign Direct Investment (FDI) ever made in Egypt.
Organisational Issues Faced During the Internationalisation and How They Were Addressed
It is important to keep in mind that Procter and Gamble (P&G) expanded its business operations in Egyptian market to save major portion of production costs in manufacturing activities. The first organisational issue which Procter and Gamble (P&G) faced during the process of setting up a factory was internationalisation of business processes. If such processes were mismanaged, they would have resulted in a dramatic increase in operational costs and expenses instead of saving the cost structure and may have lead to failure of Foreign Direct Investment (FDI). This problem was mitigated by the management of this publicly traded company by employment of strategic risk management techniques such as financial derivatives.
When Procter and Gamble (P&G) decided to enter another marketplace for operational expansion, this internationalisation strategy enabled this company to diversify its business activities and underlying risks. The very first concern which the management of Procter and Gamble (P&G) faced before it entered the Egyptian market was analysation (market analysis). Procter and Gamble (P&G) had the challenge to make analysis of the attractiveness of the potential in the market and its own capabilities. Such an enormous challenge was addressed by investigating into different market dynamics such as market size, growth potential, target market and its buying habits/preferences, intensity of competition as well as different risks (such as sovereign, operational, technology, price and regulatory uncertainties etc). The company before staring its operations in Egypt analysed all external triggers to change management which included change in mart dynamics, different technological advances and uncertain cultural, economic as well as political environment to determine any vulnerabilities to new business operations. The challenge to deal with various operational risks or vulnerabilities was mitigated by a detailed review of economic, financial and political situation of Egypt. To overcome the challenge of identification of Procter and Gamble (P&G)’s own capabilities to operate in Egypt, the strengths and weaknesses of the company was deeply analysed by the management. Different opportunities and threats in the target market in light of existing competition were also investigated to determine any competitive advantage Procter and Gamble (P&G) may have in Egyptian market. For this, P&G employed a change management trigger by sending its own employees as expatriate to fill senior management positions. These managers helped and facilitated the local employees to learn new skills through training so that global business operations could be in synchronisation with that of Egyptian activities. Such activities helped the company to position its market entry strategies effectively.
The next biggest challenge which Procter and Gamble (P&G) faced against the decision to enter Egyptian market was implementation of operational activities in such marketplace as well as selection of selective market entry mode which was nearly solved be designing a position strategy depending on local market dynamics. To deal with such concerns, the whole organization (Procter and Gamble - P&G) went under a significant structural change which gave rise to another challenge known as introduction of change and its management. The management used continuous learning and corporate growth as one of the major approaches to change management. As per the Dunphy/Stace change matrix, P&G employed strategic incremental strategy to operate in the local Egyptian market because minor adjustments were needed to align local operation to global activities of P&G and the whole Egyptian subsidiary supported the implementation of structural change. This allowed management to experiment with different corporate strategies and pass judgements on their feasibility for adoption.
Change was inevitable because Procter and Gamble (P&G) was about to structure the organization in the new market full of multicultural challenges, language differences, currency differentials, Legal and administrative differences etc . Such differences and challenges are discussed below because it was expatriates and their families who had to adjust in the new and unknown culture as well as lifestyle. When Procter and Gamble (P&G) entered Egypt, its expatriates faced number of concerns and barriers which also exposed the company to face such enormous amount of challenges. To help them deal with the change, Theory “O” was employed by P&G by redesign of corporate culture, building of employee skills through training, and to further strengthen the new corporate culture.
Another challenge which made the management of P&G very concerned was diversity in human capital employment and management. Since P&G was dealing in a completely different market, it had to deal with diverse stakeholders. It was quite challenging to hire those employees having understandings of different cultures which were solved by hiring a team of diverse personnel having experience in different cultural backgrounds.
There were other challenges which P&G had to face while it was entering the Egyptian market through internationalisation. When it sent its employees to Egypt to work in the guest country, they were known by a term an expatriate or expat . There was challenge for the human resource manager to facilitate expats in overcoming language differences which have potential to raise conflicts and confusions. This problem was solved by keep the American English language as a standard language to be spoken in the parent and Egyptian subsidiary because most of the Egyptians understood and spoke English language fluently.
As P&G was operating in a very different economy, one major challenge which directly influenced the Egyptian market was the difference in foreign currency and exchange rates. There was a challenge to translate currency from American dollar to Egyptian Pound and Egyptian Pound to American dollar. P&G had the concern that the currency rates against each other may fluctuate unfavourably at any time which could mean millions of losses. It may also directly impact the forecasting of financial statement increasing the uncertainty about what the revenue and costs of P&G will be. This problem was somehow solved by employment of currency swaps and other derivatives such as currency options etc.
Differences in lifestyle and work ethics, as dictated by cultural differences, were another biggest challenge P&G faced when it entered Egypt through internationalisation strategy. The management had to predict the buying behaviour and habits of Egyptians as well as implement work ethics adhering to local standards. One major challenge in this category was to make arrangements for effective business and non-business communication. There was a greater need to blend an Egyptian and Western culture for navigation of delicate business negotiations which solved the problem of cultural clash. Another solution implemented against this challenge was creation of international team who could act as facilitating bridge between western and Egyptian differences. Expatriates were encouraged to undergo training programs and learn local culture as well as lifestyle so that P&G could acquire another set of skills to have cultural sophistication for grasping the market complexities in Egypt.
Because occupational safety and health standards were quite different in both the countries, this challenge was overcome by designing and implementation of common workplace requirements by following international standards. To motivate and retain key employees in Egypt and to encourage local employees to accept international assignment of working in Egypt, it was very challenging task which was solved by closely monitoring personnel work, interests, achievements, redesign of compensation packages and related creativity etc.
The challenge before the management of P&G was that the business culture in Egypt was completely different than in the United States. The same business model of United States could not be implemented in Egypt. This problem was solved by bringing flexibility to corporate model and it was adjusted to suit Egyptian marketplace. Apart from following international standards, some global benchmarks were abandoned and pure Egyptian models were followed to suit local needs.
Implications of the Internationalisation on the Core Competencies Development in P&G
When P&G, by internationalisation strategy, entered the Egyptian market being driven by rapid industrial development, the company had to integrate global operations (including in Egypt), business processes and corporate strategies into varieties of product offerings, diverse cultures, and different traffic of business ideas. As P&G was emphasising more on language differences and cultural diversity in Egypt, it felt the need to effectively manage its human resources or capital working in Egypt.
Therefore, much of the focus was placed on development of core competencies that could address the business needs of Egyptian marketplace. Greater emphasis was placed on training not only the Egypt-based employees but also expatriates as well for their professional development. To develop core competencies, training programs were customised and broken into small sessions to suit the professional needs and job descriptions of local employees and expatriates. The major emphasis of such training programs was on understanding local languages, diverse cultures and lifestyles as well as standard work ethics etc. This provided employees of P&G working in Egyptian market competitive advantages in the global marketplace.
Skill development in communication was another area where the core competencies needed to be developed to operate efficiently in Egyptian market and attain leadership in the competitive business arena. It was felt that, in absence of internet based facilities, managers and employees can no longer afford to understand and communicate with their own culture. At that time, for P&G to acquire market leadership in Egyptian market, core competencies were developed to enable managers in understanding the dynamics of multi-cultural collaborations. For this, they were exposed to training programs that addressed the influences of culture on communication skills of any individual and which media could be used for what communication purpose etc.
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