Procter & Gamble is one of the world’s largest producers of consumer goods and it was founded in 1837. Recently, Procter & Gamble is operating in 50 countries and serving nearly five billion customers with a series of brands across beauty, healthcare and food industry which generate which create more than 1 billion revenue annually.
The purpose of this essay is to discuss how the diversification strategy changed Procter & Gamble in Singapore over the last ten years. The main position in this essay is that diversification can be considered as one of the main strategies used to assist Procter & Gamble build up business competitive advantage. This essay will use ...view middle of the document...
(Helfat and Eisenhardt, 2004)
This essay will focus on the business running of Procter & Gamble in Singapore from 2005 to 2012. In 2005, P&G announced an acquisition of Gillette Company. (P&G annual report, 2005) After the acquisition, P&G acquired several new products from Gillette Company such as razors and blades and it obtained several new production lines from Gillette without the expenses on research and development. As a result of acquisition, the growth rate of net earnings of P&G in personal beauty area in 2005 was much higher than previous year. (P&G Annual Report, 2005) In this case, P&G used a related diversification strategy to increase its economics of scope. Meanwhile, since the Gillette Company is also one the most well-known company in personal beauty area, the market power of P&G had an obviously increasing in that year. According to Johnson, Scholes and Whittington (2008), synergy means that the activities or asset are more effective together than apart. Based on this acquisition, because of both P&G and Gillette had similar product in one area; so that the impact of acquisition to market was much stronger than the impact of sum them up separately. In additional, due to the acquisition of Gillette Company the distribution channel of P&G have to be operated more efficiently to meet the increasing demand. It means the diversification of help the P&G improve the efficiency of distribution channel at same time.
Even though diversification strategy generate a series of benefits for the company, but it still have several limitations. First of all, the using of diversification strategy increases the pressure of management. The more the business activities, the more difficulties in management, and related research indicated that the multi-tasking decrease the productivity of manager. (Singh, Davidson & Schard, 2003) Secondly, diversification seems to reduce the business innovation. In general, the implementation of diversification need reallocate financial and human resource, this source reallocation not always efficient so that the company would face inadequateness of resource on particular business plans if the company diversifies too widely. (Joao & Livdan, 2004) Recent research indicates that the relationship between different level of diversification and firm value is curvilinear which means the diversification not always creates anticipative value of company. (Lamont and Polk, 2007) Since there are two type of diversification: related diversification and unrelated diversification, according to the survey which conducted by Martin and Sayrak (2003), the unrelated may provide negative synergy which means the diversification affect the core industry of firm due to the shifting of resource.
The performance of P&G in Singapore during 2006 to 2009 had a dramatic change. Because of the world-wide financial crisis in 2008, consumer’s purchase behavior had an obvious change,...