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Individual Assignment FIN4224



Tan Chin Loon

ID Number








Corporate Financial Strategy



Mr Lim Lay Kong

I declare that this assignment is my own work entirely and suitable acknowledgement has been made for any
sources of information used in preparing it

Due to the rapid increase in competitive. Apart from that. there are also challenges from the countries they plan to penetrate as well. Introduction As time goes by. In developing countries. Procter & Gamble (P&G) is one of the largest manufacturer and market consumer goods in the world where they decided to put an end in their food industry business and concentrate more on their health and beauty products (Kasi. P&G have also invested in their Research and Development department in order to make their products better. However. Moreover. Part 1 Critically evaluate the competitive strengths of P&G and the opportunities and challenges of increasing growth through merger and acquisition. whether P&G should penetrate the market through merger and acquisition. So in this assignment. P&G has an aim to penetrate in developing countries such as China and Brazil. As we know that. 2011). P&G has more than 20 kinds of different products which has helped the company worldwide to make a profit of more than billions of dollars where they are also ranked the first in Soaps and Cosmetics industry. where it faces stiff competition from rivals such as Unilever and Colgate-Palmolive. Besides that. P&G has the intention to penetrate the important developing markets. such as Brazil and China. I will have to evaluate the competitive strength of P&G and also what are the challenges and opportunities if they merge with smaller companies in order to penetrate the market. the business world has grown quickly for companies from doing businesses which is local to international business. consumer rather to buy higher price goods with good quality rather than lower price goods with decent quality so this will help P&G in their market penetration since they are offering good quality goods with kind of higher price.It is mentioned in the article that P&G has been acquiring many smaller businesses to boost their growth. .

However. For the current products that P&G are selling.Competitive advantage For organization that only focus on the effectiveness of the operation is not sufficient. those comments and feedbacks by consumers are overflow where P&G established a platform named as “Consumer Pulse” which uses Bayesian analysis to scan over all the comments that consumers had made and categorize them into separate products (Kimberly Amadeo. feminine & family care. Apart from that. . they will need to have competitive strategy to deliver a different or special value by carrying out various set of activities. Instagram and many others. they consider as this combination of marketing strategy with their extensive sales force is the most efficient strategy of marketing. Over the years with the activities that happened. P&G is in numerous of sectors such as health care. consumer can now easily give their feedback or service of a product by using social media such as twitter. blog page. nowadays with the help of technologies many things had changed as P&G also bring their understanding of consumer’s behaviour into the digital age. the quality of products. P&G support their products using strategies such as advertising. packaging. hence in order for them to be successful they are require to provide a different or special value which can sustain long-term in the market (Kimberly Amadeo. Nevertheless. P&G became a very solid and good reputation brand between consumers where this is a very rare intangible resource which is tough for competitors to compete with in a short period of time. fabric and home. promotions and other marketing strategy. With the help of technology. This year P&G is going to be 179 years old. Moreover. grooming. performance and value which shows that P&G are different from other competitors. if a company not willing to change anything excepting for its purpose and core value then it will not last long. So in order to attract and build awareness of the consumers. 2016). However. Then they will apply marketing strategy and in the meantime they will have a great chance to create a positive and solid branding of their products. baby where the highest percentage for net earnings and net sales are feminine & family care. For instance. in the market these 2 categories are extremely competitive where P&G is competing against comparable products from other large. in order for an organization to sustain long-term in the market. This advantages have helped P&G to understand more on their consumer’s behaviour towards a product. beauty. small and even global wellknown companies. 2016).

mergers and acquisitions are one of the most discussed events. There are several purposes of mergers and acquisitions but the general purposes of mergers and acquisitions are to generate more profit for the newly built companies and to diversify their operational domains (Andriuškevičius. P&G also has their own cosmetic industry after acquiring Max Factor in year 1991.S.S. China and Brazil as well as competing with Johnson&Johnson. the company are seeking for new product line or even add some new services as well as gain access to new markets. P&G has acquired many smaller businesses such as Ambi Pur Air refresher and Natura Pet Products to boost up their business growth because they have much more experience in acquiring compare to others. 2015). P&G also acquired coffee business such as Folger’s coffee which has been an iconic American brand that has made great-tasting coffee for more than 150 years (Andriuškevičius. sales coverage and advertising to improve long-term plan for continuous development. 2015). And U. Kimberly-Clark and Colgate-Palmolive which 3 of these companies in the market are main players. In the recent report shows that they have spent an amount for about 1. K. companies have spent $219 billion on mergers and acquisitions so far in 2013. a sharp increase from 2012. When organization are facing some business problems. when firms spent just $85 billion during the same period. K. M&A offers a variety of solutions to overcome it.9billion in year 2014 and 2016 and 2 billion in year 2015 which this indicate that they have a better quality and different types of products. P&G has . Besides that. Not only that. According to data from Deallogic. M&A seems like the only solution for P&G to penetrate into the markets of developed countries for instance. expanding the company’s business in different geographical regions is also a reason of mergers and acquisitions. firms are on pace to have the biggest year in M&A activity since 2000. And also this will let them to access to the market as well as gain talents who understand cultures in different countries. For example. P&G have also invested in the research and development more than their competitors. they also rise their investment in innovation. Furthermore. Besides that. U. At the same time. Opportunity In the current business world.Moreover.

it became negative from year 2015 to 2016. Challenges Based on the provided article that I have read through. it is all about the ability to sell more products/services or raise prices due to the merger. develop sales opportunity by marketing complementary products or services as well as expanding the base of customers. . From the figure below shows the calculated P&G annual sales growth: As we can see from the figure above. companies are able to get larger market shares and assets as well as accesses to new skills and market. access to new markets. P&G has an aim to boost up their sales faster than the market growth globally. during the year 2012 to 2014 it was at a positive percentage however. This will allow P&G to open up new territories. This shows that the M&A strategy for P&G does not work for long term sales growth due to the increased of advertising investments. Even though there are some opportunities from M&A but still there are also challenges that might prevent the access of company into M&A. in M&A there are two basic types of related synergies which are the cost synergies and the revenue synergies.02% from year 2012 to 2016.acquired many of the companies and with all the acquisition. this has increased their presence globally as well as help them to growth by a lot. Benefits of Mergers and Acquisitions are the main reasons for which the companies enter into these deals (mapsofworld). hence they have to merge with another company in order to add value to the company. This has resulted that the average annual sales growth rate that has been calculated is low which standing at -3. Nevertheless. However. Moreover. Cost synergies whereby is all about cost cutting by overlapping operations or resources to cut the cost by consolidating them into one entity. When time passes. and foreign-exchange headwinds. Through M&A. For revenue synergies. the revenue will definitely increase back after the problems are solved or reduced. a higher tax rate. this will not last long.

M&A can either be a strength or a threat to a brand depending on the decision made by the company (Andriuškevičius. it shows clearly that the challenges are difficult to handle and overcome. then it will cause the company to lose its reputation and also talented employees and resulting the company’s share price fall or even worse. Another challenges in M&A is that there will be a loss of differentiation. 2015). it will also cause the brand image to be weaken as well as causing the reputation of the company to be bad. Then many of the employees will start leaving the company due to M&As that causes a big change in the culture and structure of a company. For example. . K. primarily due to continued focus on different customer bases. working style. When it comes to challenges for businesses after M&A. So as a conclusion. It will lead to mergers or acquisitions fail to reach a standard if the company’s culture could not blend efficiently. Y is a company that is well known in Malaysia but doesn’t mean that they are well known in other countries. If the company is not managing well. culture of different companies from different countries may conflict each other as they do not have the same concept of time.if a company size increases suddenly this will lead to challenges of management because of the sudden increase in difficulties. First of all. Daimler Chrysler's USD 36 billion mega merger failed due to cultural differences. If company Y in Malaysia acquired an Indonesia company. For some company the challenges of M&As is huge for them but for some company it is small depending on the company position. For instance. and language could probably become a barrier. then it will lead to the overall brand strength to be damage. M&A not only will cause loss of differentiation. Furthermore. P&G with strong manpower and leadership in the market will definitely able to deal with the cultural and structural difference since they have a pleasant acquisition in the past. Besides that. The reason why company wants to merge is because they want to reduce the impact of a particular industry's performance on its profitability. P&G also exposes themselves through advertising and increases in marketing investing which will lead their brand name to be strong and recognize by the whole world.

Pestle analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental factors that have an impact on an organisation. Organic growth occurs when a business grows by selling more products or services. the growth that the company achieved may be dependent on the growth of the overall market. Organic growth is the increase in sales of a business generated by those of its operations that were in existence at the beginning of the measurement period. after years of financial crisis merger and acquisition rises again. they can accomplish more together than they can separately. which is sometimes referred as PEST analysis. Nevertheless.Part 2 With the above. The concept is used to differentiate between sales generated from existing operations and those operations that were acquired during the measurement period (Forbes. Besides. critically evaluate whether P&G should penetrate the developing markets through merger and acquisition. The purpose of company to merge or to acquire another company is to form a synergy. merger and acquisition is the best way for companies to help them to increase their revenue and access to new region market. Merger and acquisition out of other options is the best way for P&G to expand their business into developing market such as China and Brazil. For example. Synergy is the benefit that results when two or more agents work together to achieve something either one couldn't have achieved on its own. There are 2 ways for a company to penetrate into the new market. there are also negative side for organic growth. Using the organic growth is a much for safer method because it is a tested business model. is a concept in marketing principles. Pestel analysis. it has effectively put the brakes on merger and acquisition in many sectors. Moreover. 2016). when two or more people or organizations combine their efforts. Due to the financial crisis happened back in year 2008. As for now. it is also harder to build market share if a business is already a leader. it also less risky than taking over other business. For instance. . One of the strategy is the M&A strategy and another one is the organic growth method. Other than that. However.

For merger and acquisition. Moreover. P&G has developed a lower quality version of diapers instead of a unique one. It is crucial for companies that choose to use M&As to ensure that the cultural challenges and structure are adaptable in the business. 2010). The main reason why P&G uses M&As is to penetrate the developing countries such as Brazil and China. the existent of competitor is also an issue for merger and acquisition. acquire a company in developing countries will enable P&G to save cost as well as have workers and top management that understand the culture and the framework of the market. Based on the annual report of P&G in year 2010 (Appendix 1). it also requires a lot of time and labour power to make M&As successful. It provides P&G the opportunity to sell their products in the countries. L. babies wore cloth diapers or even no diapers because it is their cultural norm. Besides. their total regional revenue from North America is standing at 42% and Asia at 15% (Pginvestor. for instance. although there are positive side for it. So. . it also will have negative side. Besides. Back in year 1998. In China. In addition. in year 2016 (Pginvestor. L for Legal and E for Environmental. E for Economic. they finally made it to the top 1 selling diapers in China today. However. 2016). after years of research P&G has done. daily operation will be distracted and there will be problems in internal development. S for Social. it is critical to penetrate into developing market in order for P&G to grow. 2010) their total regional revenue from North America still stand at 44% and IMEA is less than 10% (Appendix 2). unfortunately parents still wouldn’t buy it even it is cheap enough (Wahba. 2016). P. M&As seems like the best choice for them to penetrate into the market efficiently. So that it gives a clear view that whether P&G want to penetrate into China or Brazil. however they faced intimidating culture challenge. T for Technological. However. Therefore.Pestle is a mnemonic which in its expanded form denotes P for Political. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while contemplating on a certain idea or Organizations will receive great benefits if M&A were planned as it was. M&As is a strategy where it has to be plan carefully and assist with experienced experts. P&G had launch their first disposable diapers business in China. nevertheless it will cause an organization to loss in financial and less workforce productivity if M&As is not working as it was planned (FREDERIKSON. it will also able to increase their efficiency by a lot.

2 billion. businesses won’t stop competing with each other because for instance.5B. P&G boosted its annual sales growth target to a range 5% to 7% from a prior target of 4% to 6% due to the desire from deal. P&G able to compete with existing competitors together with the company that they merge and acquire with. after they have acquired a local company which understand the culture of the market. P&G has been providing trusted brands that make every day a little better for the world’s consumers. In the business world.Out of so many other companies. I recommend P&G to use merger and acquisition to enter into the developing market such as China and Brazil. P&G has made a big leap in year 2015 where they have acquired Gillette company for 57 billion and this will enable them to rapid growth than separated. P&G got a big push by Gillette where it has helped them to boost up their product line such as female and male grooming products. P&G consider as the most highly competitive company to compete with in the market because they are the biggest company in the world. . Besides. So as for P&G. it will help P&G to enter into the market such as Japan and China while Gillette bring P&G some product segments that are increasing quicker than the organization’s overall portfolio of products. In developing country.9 billion of net income in year 2010 compare to Johnson & Johnson with standing of an amount of 13. Additionally. Gillette is the most well-known and success company which this will help P&G to enter the market easily. P&G has only 10. During the year 2010. Besides. Johnson & Johnson able to compete closely with P&G because of their revenue with an amount of 61. Johnson & Johnson had encountered some issues in their manufacturing and they have recall back their products where this is a good opportunity for P&G to penetrate into the market and promote their products. Conclusion As a conclusion. Moreover. the closest competitor who compete with them is Johnson & Johnson. they want to make more revenue and get bigger than others. it will benefit to the company such as help the company to analyse the needs and wants of the local consumers where sell products which are right for them. based on the above research and findings that I have proposed. Brands that are among the most trusted in the industry. and that together give P&G the industry’s largest lineup of leading brands.

M&As overall is consider as a very good strategy where it is fast as well as effective.Although there are positive side of M&A. Thus. If in the future there are problems arises. P&G will be able to handle it because based on their company experience they can deal with the structure difference. M&A is the best choice for P&G to penetrate inti the developing markets. Appendix Appendix 1 . Still. however negative side also cannot be unseen.

P&G 2010 Annual Report. 2016]. Procedia . (2016). Procter & Gamble Marketing Plan. 2016]. Available at: https://www. P. Available at: growth-strategy [Accessed 15 Oct. [online] Available at: http://www. Pginvestor. plan.Social and Behavioral - Sciences. L. Kimberly Amadeo (2016). What Is Competitive Advantage? 3 Strategies That Work.pginvestor. Inorganic: Which Way To Grow?.com/what-is-competitive-advantage-3- - strategies-that-work-3305828 [Accessed 13 K.thebalance.PDF? - O=PDF&T=&Y=&D=&FID=1500090608&iid=4004124 [Accessed 18 Oct. Available at: http://finance. pp. Forbes. (2015). [online] Hinge Marketing. 2016]. . (2016). EYVoice: Organic vs.html [Accessed 16 Oct. Available at: https://hingemarketing.PDF? - O=PDF&T=&Y=&D=&FID=1001174635&iid=4004124 [Accessed 18 Oct. P&G 2016 Annual Report. Andriuškevičius. Mergers and Acquisitions as Part of Your Growth Strategy | Hinge Marketing.pginvestor. [online] Fortune.Appendix 2 Reference - Mapsofworld Benefits of Mergers and Acquisition. [online] Marketing Available at: - http://marketingmixx. 2016]. (2016). 2016]. (2010). (2011). 2016].com/merger-acquisition/ - way-to-grow/#202aec7b2ac0 [Accessed 15 Oct. Opportunities and Challenges of Value Creation through Merger and Acquisitions in Cyclical Economies. Wahba.html [Accessed 13 - 2016]. How P&G Plans to Fix Its China Business. 2016]. (2016).com/2016/02/18/procter-gamble-china/ [Accessed 20 Oct. [online] Available at: http://www. Kasi. FREDERIKSON. [online] Available at: http://www.forbes.764-769.mapsofworld.