PROCTER & GAMBLE in Singapore

PROCTER & GAMBLE in Singapore: Critical examination of a firm that entered into a foreign country through foreign direct investment

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1. INTRODUCTION

The decision of how to enter a foreign market can have a significant impact on the corporation’s future results. Expansion into foreign markets can be achieved via the following four mechanisms: exporting, licensing, joint venture and direct investment. The purpose of this report is the critical examination of a firm that entered into a foreign country through foreign direct investment. In order for the previous task to be completed, both the analysis of the business environment in the foreign country and the detailed description of the facts resulted in the firm’s

entry into the foreign market are needed. Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology and personnel. A firm that makes foreign direct investment and owns or controls production activities in more than one country is a multinational or transnational enterprise. Procter & Gamble Company seems to be a great choice of such an enterprise since it meets most of multinationality criteria concerning the number and the size of the subsidiaries in foreign countries, the number of countries where the firm is involved, the share of assets, turnovers, profits from the subsidiaries, the internationalization degree of the management along with research and development. It is also important that P&G operates more than 100 years and is a leader in its sector. Though P&G through the years entered many markets, Singapore has been







Singapore is one of the Asian emerging markets, which attracts not only many investors’ but the whole business world’s attention.

2. PROCTER & GAMBLE

The Procter & Gamble Company (P&G) is an American multinational manufacturer of product ranges including personal care, household, cleaning, laundry detergents, prescription drugs and disposable nappies. It is headquartered in downtown Cincinnati, Ohio. P&G is the world’s largest and m ost profitable consumer products company

with nearly $84 billion in sales and 25 billion-dollar brands. In 2012, Fortune magazine awarded P&G a top spot on its lists of “Global Top Companies for Leaders” and “America’s Largest Corporations” and ranked the company at fifth place of the “World’s Most Admired Companies” list. Chief Executive

Magazine named P&G the best overall company for leadership development, while Forbes magazine includes P&G in the top 30 “World’s Most Innovative Companies”.

P&G markets its products in more than 180 countries. The interesting thing to be mentioned is that the company’s market capitalization is greater than the

GDP of many countries. P&G seems to acknowledge the fact above along with the responsibility that derives from it. The company’s purpose is to provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come.

They also believe that as a result, consumers will reward them with leadership







Most of P&G’s billion-dollar brands are global products available on several

continents. More specific, P&G products are available in North America, Latin America, Europe, the Middle East, Africa, Asia, Australia and New Zealand. However, manufacturing operations are based in the following regions: United States, Canada, Philippines, Mexico, Latin America, Europe, China ( 31 wholly owned factories) and other parts of Asia, Africa and Australia. Some of the most famous P&G’s brands in Beauty and Grooming are: Always, Camay,

Clairol, CoverGirl, Crest, Fusion, Gillette, Head and Shoulders, Herbal Essences, Mach 3, Olay, Old Spice, Oral-B, Pantene, Tampax, Venus, Vidal Sassoon, Wella and many fine perfumes, while in Household Care are: Ace, Ariel, Bounty, Charmin, Dawn, Downy, Duracell, Febreze, Gain, Iams, Pampers, Swiffer , Tide and Vicks. Net sales in the United States account for approximately 35% of total net sales, while in Western Europe and Asia account for 19% and 18%, respectively. Operations outside the United States may be affected by changing currency values, different rates of inflation, economic growth and political and economic uncertainties and disruptions.

3. BUSINESS ENVIRONMENT IN SINGAPORE

Singapore appears to be a global business magnet that offers an amazing quality of life to its residents, and has only just become to assume its position as a world leader in business and finance. The reason why those above are true is going to be revealed by a series of data concerning not only the







levels and segments. Singapore is a republic with a Parliamentary system of government based on the Westminster model. The people of Singapore are largely descendants of immigrants from the Malay Peninsula, China and the Indian sub-continent. It is important to mention though that from its total population (5,18 million people), only 63% of them are citizens. The remaining 37% are either permanent residents or foreign workers. Another fact of great importance is that the main language of instruction in Singapore is English, which was officially designated the first language within the local education system in 1987. From the point of economic performance, Singapore outranks the world as an investment destination, after coming in second for sixteen consecutive years according to BERI (Business Environment Risk Intelligence) Report 2011 in a ranking that assesses operations, politics and foreign exchange. Additionally, according to the Globalization Index 2012, Singapore scores third in the world for foreign trade and investment. As far as competitiveness concerns, concerns, Singapore is considered considered to be the world’s

easiest place to do business as declared in the Doing Business 2012 Report by the World Bank. The World Economic forum ranks Singapore the second most competitive country in the world, through the Global Competitiveness Report 2011-2012. Regional “titles” have also been given to Singapore by other similarly respected authorities and fairly is considered to be the best business environment in Asia Pacific and also Asia’s most network -ready







knowledge-based economy and that is why the Global Economic Forum ranked the country World’s No.2 and Asia’s No.1 for best intellectual property protection. Another interesting recognition given is the one of Asia’s least

bureaucratic place to do business. In addition to the pr evious evious fields of excellence, government’s transparency when it comes to business along with regionally good enough rankings as far as skilled labor and motivated workforce concerns complete the overall idea of Singapore being a heaven in starting up, expanding, investing or generally doing business. Even though all the aspects described above can be measured and compared through rankings, Singapore’s strategic location cannot. Singapore is located at the crossroads of the main trade and shipping routes of the world, including the major sea route between India and China. While examining the business environment in Singapore it would be necessary to analyze also culture, through Hofstede’s scope using the five

dimensions of culture: Power/Distance (PD), Uncertainty Avoidance (UAI), Individualism vs. Collectivism (IDV), Masculinity vs. Feminity (MAS) and Long term orientation vs. Short term orientation (LTO). Singapore is a high PD country which means that inequality exists among people with and without power and is accepted. The extremely low UAI score indicates that the society enjoys novel events and values differences. There are very few rules and people are encouraged to discover their own truth. Singapore people form a society with low IDV score and as a matter of fact









each other’s well being. As far as MAS scores concerns, they are neither high nor low, which means that society doesn’t stick with, but values traditional

male and female roles. Judging by the high LTO score, society values longstanding traditions and values. Both, delivering on social obligations and avoiding “loss of face” are considered very important. Though the addition of the sixth dimension (Indulgence vs. Restraint) won’t be helpful enough since

an intermediate one, it shows that people can satisfy freely their basic needs and desires as long as the social norms are followed.

4. ENTRY INTO SINGAPORE’S MARKET

In 2007, P&G chose Singapore as the location of its first perfume manufacturing facility in Asia. The 6500-sq-metre-plant situated along the coastal part of the country, in Tuas, is also the first perfume plant opened by a multinational consumer goods company in the region. The opening of the Singapore plant was part of a long-standing relationship between P&G and the Economic Development Board (EDB). Through that partnership, P&G works closely with A*Star’s Institute of Materials and Engineering (IMRE), under which P&G gets preference to look at IMRE’s new

research and P&G similarly shares its innovations.







production control systems that monitor the production process and reflect changes instantly. After P&G’s entry into Singapore’s market, the company continued enriching its activities in the country. Since 2010 Singapore hosts P&G’s Asia

Leadership Development Centre. The centre aims to train 500 managers from the region annually while exposing them to a wide perspective of global issues and giving insights to both the Eastern and the Western culture. One year later, the company decided to invest about 200 million dollars to build a mega innovation centre at the Biopolis, which will conduct end-to-end innovation in beauty and is expected to be completed this year. In addition, P&G signed a Master Research Collaboration Agreement with all fourteen Research Institutes under A*STAR, in order to strengthen the already existing partnership with Singapore’s research community, allowing the company to

leverage the strong research capabilities in the country. Another smart move from P&G’s side took place in 2012. The company opened the P&G Purifier of Water plant in Singapore to support P&G’s Children’s Safe Drinking Programme. Through this P&G not only reached out

to its Asian consumers but also gained access to non-government organizations and government partners around the world.







5. CRITICAL ANALYSIS

Summing up the data given until this point about P& G’s entry in Singapore, it wouldn’t be exaggerating to characterize the market entry as a flawless one.

However, it is also important to mention that as entry in this case it is considered the whole series of events and investments through those five years that result in establishing leadership in the foreign market. Those steps followed by P&G can’t be anything else but a carefully designed and executed overall “intrusion” strategy not only in Singapore but Asia in general.

More specific, the preparation through alliance making before the formal entry into the foreign country not only strengthens the company’s name in the

region but it is also a kind of an advertisement and as a result the local community expects the desired entry to happen. After a three year establishing time in the area, P&G improves its multinational character by training more local managers via the Asia Leadership Development Centre. It can also be characterized as an attempt to combine two differentiated enough cultures (Table 1) in order to be reformed and maybe create a new more efficient and even innovative corporate culture.







The initial investment follows another, more “fancy” one accompanied by an

official partnership with local intelligence centers, which makes P&G a “big player” in the region as far as authorities, governments and institutions

concerns and also a leader in the industry. In order to both satisfy its purpose, empower its position and appeal more to the public, P&G decides to open the P&G Purifier of Water plant and also move one segment’s headquarters from U.S. to Singapore.

6. CONCLUSIONS

In conclusion, for an entry in a foreign market to be successful and also profitable for the company a detailed strategy should be formed by its managers, designing the steps not only after but also before the entry. As reported above, P&G clearly understands the new world and also appreciates the importance of adapting its strategy to the new global environment. Through a great evaluation of Singapore’s market and culture, P&G satisfied

its purpose, expanded geographically, enriched its intellectual property and set the foundations of dominating in the industry in all Asian emerging markets.







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PROCTER & GAMBLE in Singapore

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