Hey Chegg, please help me with this question. What strategy does P&G appear to b
ID: 2782317 • Letter: H
Question
Hey Chegg, please help me with this question.
What strategy does P&G appear to be moving toward? What are the benefits of this strategy? What are the potential risks associated with it?
This is what I got so far:
It appears that Procter & Gamble is transitioning toward a transnational strategy, considering that the company launched “Organization 2005” in 1999, with the goal of transforming unquestionably into a global corporation. Procter & Gamble destroyed its old organization, which was based on nations and regions, and replaced it with seven self-contained global business units, ranging from baby care to food products. Each of the seven global business units was held responsible for manufacturing and marketing the products and generating profits from its products being sold. Also, each of the seven global business units was told to update production, concentrating it in fewer larger facilities to try to build global brands. The actions that Procter & Gamble executed point to a transnational strategy because in an attempt to control its cost structure and realize the reality of global markets emerging right before the company’s eyes, the company has redesigned its organization of products (ranging from baby care to food products) and invested in a few large-scale manufacturing facilities, sited at favorable locations, to fill global demand and realize scale economies. The benefits of the transnational strategy that Procter & Gamble resorted to eliminated differences in marketing between nations and accelerated the developmental and launching phase of new products along with cost reduction from economies of scale, competitive advantage in aggressive pricing market and production, marketing and research and development are concentrated in a few favorable locations.
Based on what I have written so far, please explain to me what are the benefits of this strategy (I mentioned it a bit) and what are the potential risks associated with it? The more benefits and risks with detailed explanations you provide, it will help me understand it.
Explanation / Answer
A transnational strategy has the following pitfalls:
1. Since the operations expand to large scales, a minor breakdown in operations could lead to huge amount of losses.
2. Since the market of the host country is new, there may be lack of knowledge about the current trends, present competitors etc
3. There is high amount of political and economic risk involved. The firm is exposed to changes in the political structure and may be at risk due to change in the financial and economic policies of the host country.
4. There is a great risk of lack of effective communication and coordination between the functions performed in the host country and the management functions performed at the centralised location rendering the entire strategy worthless.
Benefits
1. Since the operations are at huge scales to meet the global demand, the firm can reap economies of scale. This refers to appropriation of the fixed costs across a greater number of products manufactured which ultimately reduces the cost of production per unit.
2. It builds a distinguished and highly specialized labour force. Since the products are differentiated, the human capital engaged in the production of these products is also specialized.
3. The firm tends to start gaining and holding enormous economic power in the host country. The firm gains due to the locational advantages offered at the place of production, availability of material and manpower.