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Cumulative Knowledge In Strategic Management

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Discuss about the Cumulative Knowledge in Strategic Management.
 
 

Answer:

Introduction

P& G is the world renowned consumer goods company which was founded in the year 1837.  The organization has more than 300 brands with a diverse product portfolio including beauty care products, Gillette products and household care products. P & G established joint venture with P&G (Guangzhou) Ltd. Headquartered in Guangzhou and entered Mainland China in the year 1988.  The greater China business of P& G includes Mainland China, Taiwan and Hong Kong.  The Unilever Limited is also a reputed consumer goods company which is headquartered in London, United Kingdom and Rotterdam, Netherlands. The organization has a diverse product line and product width which includes personal care products, beverages, food, products, cleaning agents and various other products in fast moving consumer goods section. Unilever entered China in the year 1986(unilever.com. 2017). The jointly owned enterprise of Unilever in China is Shanghai Unilever. The business operations of Unilever extend to Macau, Hong Kong, Taiwan, Mongolia and mainland China.  Both P& G and Unilever are global fast moving consumer goods companies which have established lucrative market operations in China. The core competencies, capabilities and how these two companies have achieved competitive advantage in China have been analyzed in this report by reviewing the strategic actions undertaken by the two companies (pghongkong.com. 2017).

Strategy, Structure and System- Unilever has focused on strategies like building robust supply chain, reducing cost by outsourcing operation, penetrating in emerging markets like China which has a huge population, adopting market penetration strategies by developing a diverse range of umbrella product portfolio with help of its strong R& D division.

An open communication model and supportive structure at workplace and leaders of the Company deliver faster decision (Priem and Carr 2012). The same is followed by Unilever.

Skills and Staff- Unilever has a talented pool of scientists who work in R& D division of the company. Apart from this, Unilever has product development experts, professionals like hairdressers and chefs, marketers and employees in supply chain department who work in China.

Shared Value and Style-The Unilever brand has centered its business model not only to create profit for shareholders but also to create long term value for its stakeholders. Unilever focuses on accelerating growth in its business in China while enhancing the social impact and implementing sustainability factors by taking measures like reducing environmental footprints (com. 2017).

 

Failure of Decision Chosen by Unilever

Initially Unilever faced difficulty to establish its brand in the Chinese market. From 1980s to 1990s the Company entered into large number of joint ventures which failed in China. The organization spent almost $ 800 million in China and each of the 12 ventures had their own product line, sales staff and distribution system. Later the organization integrates all its business units under one holding in China. Apart from this, Unilever hired local employees in China, has set up R& D division to develop products which will suit the needs and preferences of Chinese consumers, for instance, Unilever China focused on creating local brands like  Hazeline and Lao Cai soy in China and local professionals of China managed global brands of the Company like Dove and Lux.

Strategy, Structure and System- P & G entered the Chinese market with focus on market research and advertising. The Company entered China with a Joint Venture with Hong Kong Company, Hutchison Whampoa. Another joint venture business was established with Guangzhou Soup Factory.

Skills and Staff- P& G has skilled staffs across all its divisions in China like R&D, supply chain, marketing and human resource. The organization has a program called Connect and Develop which helps P&G to stay connected with stakeholders like suppliers (Grant 2016).

Shared Value and Style- An organization should focus on values like integrity, ownership and leadership, innovation and passion for winning and trust (Keupp, Palmié and Gassmann 2012). P & G adopts the same approach. The organization shows respect for all its stakeholders, boosts the process of innovation and develops superior understanding of customers and their needs in China.

The different departments of P&G act like one unit in China and send only one invoice to retailers. However, Unilever send different invoices and sales people to retailers in China who compete with one another. Thus P&G dominates shelf space of retailers more than Unilever in China.

Failure of the decision chosen by P&G

Initially P & G failed to gain market share and earn enough revenue in China because the Company developed less quality products for the Chinese market to reduce cost. For instance, P & G’s disposable nappies Pampers were a flop in China in the year 1998. Initially the organization supplied nappies of poor quality to reduce cost with the apprehension that Chinese parents will buy them. However, later P & G had to add extra softness to the nappy, increased the absorption capacity and moved manufacturing capacity for Pampers in China to reduce cost. Also, the Company made huge investment on advertising campaigns and associated nappies with longer sleep for babies.

Thus the strategy, structure and system of P & G focuses on customizing products for Chinese consumers and investing on open communication, heavy advertisement and promotion strategy to create awareness among Chinese consumers(pghongkong.com. 2017).

The Porter’s 5 forces Model will help in the analysis of the five forces which will help to determine the competition within the industry. The five forces for P & G and Unilever Ltd. which will be analyzed are Threat of New Entry, Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of Substitutes and Competitive Rivalry (Gamble and Thompson 2014).

  • Bargaining Power of Supplier- The buying power of suppliers of Unilever is low as the organization adopts a policy of local buying and local manufacturing. Unilever has signed blanket agreement with its suppliers which supplies products to the Company for a certain period of time at a certain rate.
  • Bargaining Power of Customers- The bargaining power of customers of Unilever is medium high because customers have low switching cost for fast moving consumer goods.
  • Threat of new entrants- The brand image of Unilever acts as a strong barrier for new entrants to compete with the organization.
  • Market Rivalry of Unilever- The major competitors of Unilever are Nestle, P& G and Chinese local brands like Dali Group and Haday.
  • Threat of Substitutes- The threat of substitutes for Unilever is quite high because of the fast moving consumer products which are easy to imitate (com. 2017). 
 

Porter’s 5 forces Analysis of P & G

Bargaining Power of Suppliers- Suppliers of P & G in China need key customers like P& G for generating profit. The suppliers of the organization in China have low bargaining power because P & G is a reputed brand with a huge customer base.

  • Bargaining Power of Consumers- The bargaining power of consumers of P & G is medium high, for instance, P & G has to rely on supermarkets of China and online giant Alibaba to sell its products in China. Alibaba will have more bargaining power. Moreover, the products of P& G are in fast-moving consumer goods section where consumers have lower switching costs and thus P&G has to price its products competitively.
  • Threat of substitutes- For P & G, threat of substitutes is quite high. The organization manufactures products in consumer goods section like shampoo, detergent, soap. These fast-moving consumer goods products can be easily substituted.
  • Threat of new entrants- For P & G, threat of new entrants for the Chinese market is low. This is because the organization has significant amount of market shares. Thus, a new entrant would require huge investment on marketing, promotion and R & D to compete with P&G.
  • Market rivalry of P & G- The rivals of P & G in China are Unilever, Nestle, Chinese brands like Yili and Mengniu, Liby, Dali Group and Haday (com. 2017)

iii) The Porter’s Generic Strategy Model of P& G and Unilever Ltd are analyzed to contemplate the various ways by which these two companies gain competitive advantage (Wheelen and Hunger 2017). The different strategies of Porter’s Generic Strategy model are Cost Leadership, Differentiation and Focus.  The Focus Strategy can be subdivided into two parts Cost Focus and Differentiation Focus (Hitt, Ireland and Hoskisson 2012).

Unilever uses the Porter’s generic strategy of broad differentiation. The organization focuses on product development approaches by adding more features in the products based on specific market needs of consumers. For Unilever, the products are specially designed to suit customer’s needs (unilever.com. 2017).

The generic strategy adopted by P & G is also differentiation like Unilever. The organization highlights value and quality in consumer goods products in China. The organization invests on R&D to build a diverse product portfolio with highly differentiated product ranges and P&G adopts marketing strategies that create customer awareness about the uniqueness of each product line (pghongkong.com. 2017).

 

Blue Ocean Strategy of Unilever and P&G

The Competitors in the marketplace create a red ocean for companies resulting in cutthroat competition. In order to sustain in the marketplace for a longer period of time, Unilever and P&G have explored untapped market opportunities free from competitors thus adopting a Blue Ocean Strategy for them(Hill, Jones and Schilling 2014). 

The Blue Ocean strategy is adopted by both Unilever and P&G as they try to gain competitive advantage by penetrating into untapped markets. Both the companies utilizes revenue generated from well established brands to venture into new markets and build an umbrella of diverse product categories, for instance, Unilever entered into water purifying business in China by acquiring Qinyuan Group and P&G changed views of consumers of China who relied on cloth diapers by introducing Pampers disposable diapers in China which initially failed but was a huge success in future due to marketing campaigns like ‘Golden Sleep’ in 2007 which associated disposable diapers with longer sleep in China and thus P& G gained first mover advantage in diapers market in China(pghongkong.com. 2017).

The Ansoff Matrix will help in the analysis of growth strategies of P & G and Unilever Ltd. The four strategies of this grid are Market Penetration (existing products for existing markets), Product Development (new products for existing markets), market development (existing products for new market) and Diversification (new products and new markets)( Harrison and John 2013).

Product Development- Unilever constantly focuses on new product development in China. The organization focuses on extending the product line and adding more product width within each line. Amora, Clear, Dove, Knorr, Lipton, Lux, Magnum, Rexona, Pond’s, Domestos, Hellman’s, OMO are some of the brands of Unilever in China (com. 2017). 

Market Penetration- Unilever adopts Market Penetration Strategy in China by selling existing products for existing market with competitive pricing, sales promotion and advertising. For instance, Unilever has Dove and Lux in the same product line of soap with different pricing strategy. Dove targets upper segment of market with a premium price whereas Lux is more reasonably priced which is a market penetration strategy of Unilver.

Market Development- Unilever constantly develops new market for existing products. Apart from selling its products in Macau, Hong Kong, Taiwan, Mongolia and mainland China, Unilever also sells products in various countries like the United Kingdom, the United States, Netherlands, and India Unilever sells products.

Diversification- R& D divisions of Unilever help the company to diversify its product range. For instance, the organization has umbrella product portfolio ranging from personal care products, beverages, food, products, cleaning agents and the company sells these products to new markets (com. 2017).

Product Development-The R & D division of P& G helps the company to extend its product line and add more products in the range of hair care, skin care, baby care, powder detergent. For instance, the company developed like Campbell’s soup and Pampers which initially failed in China but later gained popularity.

Market Penetration- P& G adds more product width within the same product line with products priced differently to target different markets segments and for penetrating in the market. For instance, P& G has products Tide and Ariel in the same category of detergents for market penetration.

Market Development- The different pricing policies for the umbrella product range of a company helps in market development (Bettis et al. 2016).P & G adopts similar approach.

Diversification- P& G has diverse range of product portfolio like Olay, Safeguard, Pampers, Rejoice, Tide, and Gillette which are in different product categories like skincare, personal cleansing, baby care, powder detergent range. P& G has entered new markets in different parts across the globe like America, Asia, Western Europe, and Africa apart from China (pghongkong.com. 2017).

One of the noteworthy acquisition of Unilever in China was acquisition of Qinyuan Group Co. Ltd.- a water purifier company in the year 2014 which will compliment its Pureit wate water purification business. Unilever also purchased hair product business of TIGI and Sara Lee’s Personal Care Business. Alliances and acquisitions are thus important strategies for business (Rothaermel 2015). 

The most famous acquisition of P& G was in the year 2005, when the organization acquired Gillette.  The well known products of Gillette were Oral-B, Duracell, March 3 razor, Barun. This acquisition gave P&G access to new markets in the male grooming segment. The global sales of the company rose to $76.5 billion in 2007 due to this acquisition (pghongkong.com. 2017).

 

Conclusion

It can be concluded that P&G and Unilever are both fast moving consumer goods with many common strategies like both has adopted differentiation strategy of Porter’s Generic Strategy Model. Both the companies started operations in China in the second half on 1980s, Unilever began its operations in Sanghai and P&G started operations in Guangzhou. However, in 1999, revenues of P&G in China reached almost $1 billion while that of Unilever was around $300 million. This was because Unilever entered into 12 ventures in China which had equal number of Chinese entities.  But P&G focused on gaining trust of Chinese partners and has just one partner in Mainland China which was a unit of the Ministry of Foreign Trade and Economic Cooperation. China is a home of more than a billion people, but the Chinese people do not readily accept foreign brands. P& G was more successful in gaining trust of local partners and products like Rejoice shampoo, Crest toothpaste of P&G dominated the shelf-space of China more than Lux and Close-Up toothpaste of Unilever.

Recommendations

It is recommended that Unilever must try to integrate its business processes. The different joint ventures of Unilever should not have different product lines and staffs. The organization should try to gain trust of Chinese partner and should have a unified corporate culture and brand identity in China. The distribution system for the different product lines of the joint venture of Unilever in China should be centralized. For P&G it is recommended, that the organization should focus on market research and improving the quality of its products. The Pampers diapers failed in the market because P&G provided poor quality diapers for Chinese market to cut cost. The organization should not compromise on quality. Instead, P& G can cut cost by shifting manufacturing divisions in China. Also, P&G should focus on R&D and innovation to develop new products customized for Chinese customers.

 

References

Bettis, R.A., Ethiraj, S., Gambardella, A., Helfat, C. and Mitchell, W., 2016. Creating repeatable cumulative knowledge in strategic management. Strategic Management Journal, 37(2), pp.257-261.

Frynas, J.G. and Mellahi, K., 2015. Global strategic management. Oxford University Press, USA.

Gamble, J.E. and Thompson, A.A., 2014. Essentials of strategic management. Irwin Mcgraw-Hill.

Harrison, J.S. and John, C.H.S., 2013. Foundations in strategic management. Cengage Learning.

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases: competitiveness and globalization. Cengage Learning.

Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia.

Keupp, M.M., Palmié, M. and Gassmann, O., 2012. The strategic management of innovation: A systematic review and paths for future research. International Journal of Management Reviews, 14(4), pp.367-390.

Lasserre, P., 2012. Global strategic management. Palgrave Macmillan.

Morden, T., 2016. Principles of strategic management. Routledge.

Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international management. Springer.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

Stead, J.G. and Stead, W.E., 2013. Sustainable strategic management. ME Sharpe.

Wheelen, T.L. and Hunger, J.D., 2017. Strategic management and business policy. pearson.

Priem, R.L., Li, S. and Carr, J.C., 2012. Insights and new directions from demand-side approaches to technology innovation, entrepreneurship, and strategic management research. Journal of management, 38(1), pp.346-374.

unilever.com. 2017. unilever. [online] Available at: https://www.unilever.com/about/innovation/our-r-and-d-locations/shanghai-china/ [Accessed 29 Oct. 2017].

pghongkong.com. 2017. p & g china. [online] Available at: https://www.pghongkong.com/en-US/Company/China.aspx [Accessed 29 Oct. 2017].

unilever.com. 2017. china unilever. [online] Available at: https://www.unilever.com/news/news-and-features/Feature-article/2016/Unilever-China-Recognition.html [Accessed 29 Oct. 2017].

Grant, R.M., 2016. Contemporary Strategy Analysis Text Only. John Wiley & Sons.

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