P Japan Skii Case

P&G Japan SK-II Globalization cuticle SK-II is a extravagantly-end skin c ar merchandise, which has stirn to be a winner in the exceedingly discriminating and competitive Nipp atomic number 53se cosmetics grocery. It fits in the Japanese environment nicely. For starters, the wealthy Japanese society gives P&G a whopping securities industry to target. Also, the uniquely sophisticated habits of Japanese women means they are lots in each probability to accept the more than complicated procedure required by SK-II. SK II involves six to eight steps, which is more than the number of steps of any former(a) skin care harvest-feasts employmentd in the rest of the sphere (1, p. ). Overall dodge of the of the organization Given this products success in Japan for 1999 ($cl million in sales), P&G is considering offering its SK-II into a spheric brand. When doing this, management has to consider how the Japanese food market compares to the other markets be proposed ( china a nd Europe) as part of their world-wide expansion. They should too do a thorough abridgment of each of the markets being considered for this product, and an analysis of their competitors fast wide worldwide schema.Beca physical exertion the Japanese market is very divers(prenominal) from these other markets, the same aim of success can non be guaranteed. This includes the distri andion channel and the supporting industries, e. g. , TV publicize is relatively cheaper in Japan than in Europe. Models and Theories P&Gs International line of descent-Level Strategy. porters feigning suggests that foreign condescension-level strategies are usually grounded in one or more of these home-country featureors (1, p. 274).Based on Porters model, the firms dodging, structure, rivalry and demand conditions seem to be meaningful for P&Gs international line of work-level strategy. Firm strategy, structure, and rivalrySK-II is the result of the combined ingenuity of P&Gs most knowing technologists from its worldwide labs, as swell up as the specific expertise from a Japanese group. This combination worked well because it reflected the best of P&Gs consolidated RD while catering specifically to the needs of the Japanese market (2, p. 8).Being a global company headquartered in the U. S. makes it easier for PG to bring its global genius to its home-country so that it can improve its RD capabilities and thitherof live with a competitive profit. Having a pre- populateing global structure may also make it easier to adapt this product to the needs of those other countries where PG does business. When considering expanding the SK-II market, this competitive advantage should be considered. Demand conditions. The initial product opportunity for SK-II came virtually from U.S / global demand for an improved facial cleansing product (2, p. 8). That spawned the creation of SK-II as well as other products developed to meet these needs. Because SK-II was developed in re sponse to the demand conditions in Japan, it became a exceedingly regarded cosmetics product and survived the ferocious competition in the Japanese market and then proving to be a competitive advantage. Furthermore, having a certain amount of understanding of the emerging Asian economic powers, PG recognize that fashionable people in countries like Korea, Taiwan, Hong Kong, etc. closely follow the fashion trends in Japan. Therefore, by encloseing the Japanese market and securing a substantial level of market share, PG could know also created further competitive advantage for sneak ining those emerging Asian markets. This strategy may up to now prove true in the case of entering the Chinese market. However, one may argue that mainland China is a poorer country, and the populations in Hong Kong, Taiwan and Singapore are basically ethnically Chinese. Therefore, their habits should be much closer than that in the midst of Japanese and Chinese.Hence, with the successful entry in to the Hong Kong market, Taiwan markets can be used as a direct test of the level to which Chinese women entrust accept the demanding procedures of SK II (2, p. 6). PGs International Corporate-Level Strategy International Corporate-level strategy can be classified into three incompatible types multidomestic, global, or transnational (1, p. 277). November, 1999 was an interesting point of time for PG because the firms corporeal level strategy appears to be shifting from a multidomestic strategy to a transnational, or perhaps global, strategy.This is being through through the O2005 initiative, and explains whatsoever of the struggles PG may face hard to expand the SK-II product globally. As discussed in the case analysis, PG was in the midst of a bold but disruptive Organization 2005 restructuring program. As GBUs took over profit obligation historically held by P&Gs country-based organizations, management was still trying to negotiate their new working similarityships. (2, p. 1) This quote explains PGs international corporate level strategy, both where it was, and where its trying to go.A tell rumor sign of a multidomestic corporate level strategy was for PG to vex profit obligation held by their country-based organizations. A multidomestic strategy has strategic and operating decisions decentralized to each country to ply products to be tailored to each local market (1, p. 277). The opposite is true for a global corporate strategy. low an international global corporate strategy, products are standardise across all markets and economies of carapace are punctuate (1, p. 280). This was the direction PG was headed in when GBUs took over profit responsibility.In fact, this structure is very exchangeable to a worldwide product divisional structure which supports the use of a global strategy (1, p. 280). However, during the SK-II victimisation through the expansion proposal, PGs international corporate strategy appears to be a transnational strategy , which combines aspects of the deuce aforementioned strategies. This is done in influence to emphasize both local responsiveness and global integration and coordination. This is true with the SK II project. When the SK-II product was first created it was done so on a global level to meet a global demand.The product was then localized for the Japanese market. For instance, bankrupt marketing teams were used in the U. S. and in Japan to develop this product for each market (2, p. 8). By first creating one product to meet global demand rather than expanseal demand, PG was able to achieve economies of scale and efficiencies by having one RD team working on a product that would meet many regions needs. However, PG then brooked each region some flexibility in how they marketed, priced, and distributed this product.This was a big reason for SK-IIs success in Japan. It is apparent that PG has adopted a transnational strategy. In ancestry with the characteristics of that strategy, PG i s considering expanding a product proven to be successful in a demanding (Japanese) market in to other markets. By doing so, PG will need to rely on aspects of a global strategy that uses a standardize product for the global market such that the competitive advantages in the home-country (Japan) can be leveraged out globally, thus achieving economies of scale.PG will also need to rely on aspects of a multidomestic strategy that pays great financial aid to various unique features of polar markets. For the Greater China market and the European market, PG will need to make an effort to fit into the local environment in order to achieve success in a different culture from Japan. In order for this transnational strategy to work for the SK-II expansion, the PG corporate structure must have good communication and flexibility. Without that, a transnational strategy will not be as effective, and the SK-II expansion may not succeed. persistence environmental analysis Porters The Five Force s of arguing Model Paolo de Cesare knew there were significant risks in his proposal to expand SK-II into China and Europe. This skin care line from PG has been a huge success in Japan, a country where customers, distribution channels and competitors were different from those in most other countries. The Model of The Five Forces of Competition helps describe the current situation of SK-II in Japan as well as analyze the Industry Environment in PGs target market for its skin care line.This study can be used by PG when deciding whether or not to pitch SK-II in China and the United Kingdom. JapanIn this special market, where the worlds leading per capita consumers and bluely sophisticated users of beauty products are, the threat of a new entrance seems to be very low. There exist entry barriers that make it difficult for new firms to enter this particular market. Among these barriers is the difficult access to the complex Japanese distribution system and the product differentiation of the very competitive companies that already share the market (3, p. 1).Companies as Shiseido, Lion, Kao, and Kanebo compete for market share, suggesting that with few big players in a slow growing market there is whole rivalry (4, p. 1). Furthermore, the low switching costs of the skin care products makes easy for competitors to attract buyers from the rivals, thus enhancing the competition. The threat of convert products for SK-II in Japan is steep because of the high innovative capacity of PGs competitors, Kao and Lion (5, p. 1). These Japanese companies spend huge amounts in research and development to be on top of the technological altercate.The dicker power of the buyers is not the main factor to set the price, but competence for market share among competitors is. This lets customers have many options to choose from. Additionally, the bargaining power of suppliers doesnt seem significant for this industry as well. ChinaJust the opposite of the Japanese market, the Chine se market has a high threat of new entrances. The Chinese prestige-beauty segment is growing fast, at 30% to 40% a year and is very attractive for new firms to enter. Almost all-major competitors are already there Lancome, Shiseido, and Kao are examples of companies selling products in China (6, p. ). The intensity of rivalry among the competitors is still low, because this growing market reduces the pressure for firms to take customers from competitors. However, the threat of substitute products is high, because the big players in the Chinese market are mostly global firms, with high innovative capacity. The bargaining power of suppliers and buyers is low. EuropeWell-respected companies including Estee Lauder, Lancome, Clinique, Chanel and Dior crowd the field of high profile skin care products, resulting in high competence among existing competitors and a low threat of new entrances.The brands prestige and the loyalty of their sophisticated and beauty-conscious customers are high entry barriers. As in Japan and China, the threat of substitutes is high because of the brands globalization, and the fact that those companies can easily legally imitate their competitors new products. The bargaining power of the buyers is high because of the multiple options they have to choose from. As in the previously described markets, the bargaining power of suppliers is not significant. Five forces vs. market table Japan China United KingdomThreat of new entrants let out steep Low Bargaining Power of suppliers Low Low Low Bargaining Power of buyers naughty Low High Threat of substitute products High High High Intensity of rivalry among competitors High Low High The I/O and Resource Based Models of Above-Average Returns Regardless of what geographic market follow Gamble plan to enter with SK-II, they need to carefully observe and learn from those companies already in that market. They have to find out what it is that successful firms are doing to gain and maintain mark et share.The I/O model of above-average returns dictates that firms in the same industry generally possess the same resources and pursue similar strategies in order to achieve high returns (1, p. 14). On the other hand, PG has to utilize its own resources and capabilities which are not similar to competitors in the high-end cosmetics industry. This theory is based on the resource model of above-average returns. The resource model maintains that firms in an industry generally do not have similar resources and capabilities, and that a firms unique resources provide a competitive advantage (1, p. 6). The best strategy for PG to pursue in taking SK-II to the global marketplace is to congruously use these two models. In Japan, where PG had a large market share in this industry, they utilized their extensive technological resources and extensive research and development. spot these resources were spreadhead over the cosmetics industry (each firm has extensive research and development an d technological resources), PG had the advantage of being a large corporation with deeper pockets than many competitors.With the decision of taking SK-II into the global marketplace looming, these two models serve as effective tools in determining which geographical markets SK-II can flourish. In some cases, as with the U. K. market, the application of these two models can reveal that it might be a better decision to enter a particular market. In the U. K. , many firms are fiercely competing for share in a modify market. The firms resources and capabilities are spread thinly across the market. This makes it difficult to establish and maintain a competitive advantage. untoward to the U. K. arketplace, the Chinese cosmetics market is still growing. PG has the opportunity to leverage its own competitive advantages to enter this market with full force. small-arm SK-II has little visibility outside of Japan (2, p. 6), PG could use their Japanese market experience to develop an effecti ve strategy for entering other markets such as China, Europe, and eventually the United States. They had established market share in Japan, but the other geographical markets constitute of different environments and different competitors who possess different resources and capabilities.As of 2004, PGs most recent challenge is entering the very competitive U. S. cosmetics market with SK-II. It is planned for release in America for February 2004, sold only if at Saks Fifth Avenue. Comparison to other organizations Loreal Comparison. Loreal has been one of P&Gs major global competitors in the cosmetics industry. Loreals transnational strategy has led them to bethe number one in(1 what? ) the world. In 1994 P&G was number two but they have since dropped to number four.Part of the reason for this has been Loreals ability to capitalize in the international markets. Loreal has steadily become the leader in cosmetics by their ability to adapt their products to the global market and achiev e a high level of efficiency. Loreals transnational strategy has allowed it to build a strong global structure while still leaving room for different adjustments that might be needed at a local level. For example, Loreals Free Hold line (a neaten) was originally priced on the high end of the market, targeted for a higher class of consumer.Once it was realized that the market for their mousse products could be aimed at a younger or less affluent target, Loreal released a studio apartment line that was less expensive than the Free Hold line (7, p. 1). This example shows that Loreal is willing to use different price levels in different regions or demographics. Loreal has also adjusted its management structure by specific job function. For example, both U. S. and Europe have a VP of operations. This type of management allows for the businesses to implement undeniable changes at the local level that might not be needed throughout the entire corporation.These factors allow for the conti nued success that Loreal has when utilize a transnational business strategy on an international level. Proctor and Gamble is trying to go in a different direction than Loreal when trying to expand their international business. P&G mostly uses a global strategy where seven global business units that would take control and implement changes into the local businesses (2, p. 5). This approach uses the SBUs to makes changes at the local level while still maintaining the best interest of the corporation.With SK-II, P&G seems to be completing their transition from a transnational strategy to this global strategy. In a global strategy a company offers standardized products with strategies dictated from the main headquarters. This type of strategy produces less risk for P&G, but it also lowers the mishap for potential growth by letting local markets dictate their own strategy. With a global strategy, a business does not take into consideration the local demand by adapting their products to the needs of the people in that area.The global strategy essentially theorizes that whatever the main company decides is best for the company no way out where it is located. (this is already mentioned above, and may be repetitivealso, no reference is made to the text where this was taken from) P&G has a different corporate structure than that of Loreal based on their different business strategies. P&G has fewer managers that are in charge of the phases of business. For instance, P&G does not have multiple people holding the same positions in different countries where they do business.This structure does not allow for as much adaptation to the regional needs of the consumers. Estee Lauder. The Estee Lauder Company prides itself on being one of the worlds leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products (9, p. 1). Under the Estee Lauder name there are many brands and line divisions including the self-titled Estee Lauder division. Si milar to SK-II, Estee Lauder has a large international forepart(SKII is still only in Japan.. at least at the time of the caseshould this be changed to say PG? and sells principally through limited distribution channels to compliment the images associated with its brands (10, p. 1). By using a combination of global and multidomestic strategy, Estee Lauders strategy is much like the previously mentioned transnational strategy (1, p. 282). There are several top level executives that have a large responsibility to global operations. For example, Patrick Bousquet-Chavanne is a Group President and is responsible for marketing, sales and financial direction of all brands at heart The Estee Lauder Companies in Europe, the Middle East, Africa, Latin America, and the Asia/Pacific region.However, he has also established consolidated regional Product Development Centers in Paris and Tokyo (10, p. 1). The Estee Lauder Companies believe in a strong central philosophy typically found in organiz ations that use a global strategy but also show the willingness for ideas to come from all areas of the business. Their multiple research and development sites in New York, Belgium, Japan, Ontario, and manganese prove this(this just proves that headquarters has opened multiple centers for RDit doesnt really prove that decisions are made in regional areas of their business).In order to keep their product responsiveness quick, Estee Lauders company website speaks of manufacturing sites in the U. S. , Belgium, Switzerland, the UK, and Canada. Estee Lauder has found a successful mix of upper-end cosmetic products withEstee LauderandClinique. While both products are priced with high-end cosmetics, they are differentiated enough to each bring in significant market share. From these results, The Estee Lauder Companies do well at mixing both a multidomestic and global strategy into a successful transnational strategy.Current State of PG Currently the CEO of PG is A. G. Lafley, a 1969 gradua te of Hamilton College (not Harvard), who was previously in charge of the Beauty Care GBU. Under Lafleys leadership, PG has drastically changed its corporate structure and focus. Within the last year or two, PG has outsourced all of its back-office operations, including $3 billion worth(predicate) of IT business outsourced to IBM (13, p. 1). This recent outsourcing trend also includes many of the Global Business Services (GBS) that were a major part of the corporate structure in 1999.Now GBSs like finance and HR have been outsourced so that PG can focus on concentrating on its incumbrance products and competencies (14, p. 1). According to its most recent annual report, PGs core competencies are branding, innovation, and scale, and this focus can be seen in the business decisions made by Lafley (11, p. 6). PGs corporate structure has gone through a restructuring that consists of more than just the reduction of unnecessary GBSs. The international corporate strategy of PG has clearly become transnational.There are currently 5 GBUs which work to provide speed to market, as well as centralized product control for PG. The GBUs work closely with seven Market Development Organizations (MDOs) who work with the local customers and country business teams to develop the right product mix for over 160 countries that PG does business. (11, pp. 5 7) The coordination between these two groups shows PGs focus on using a transnational strategy to become a profitable global business in the 21stcentury. Recommendations ChinaWe recommend PG enter the Chinese market.As was previously discussed, the tremendous growth potential of this market is well worth the high import tariffs and government delays in the import process. If anything, these delays only further stress the importance of outset the process of entering China now, rather than later. There is also a risk of profit issue due to counterfeiting in China. However, because competition has already begun to enter the market, it is extremely important for PG to also enter to take advantage of the increased growth rate while it exists. EuropeWe recommend PG do NOT enter the European market.This market appears to already saturated, and growth in the region does not appear to be very strong. We are also concerned with the modest forecasted gains in relation to the expected losses incurred entering this market. PG does not have expertise dealing with the perfumeries in Germany and France, and so we recommend that they look to acquire/partner with another company who has proven success in this region, should they decide to expand into these markets. Perhaps the recent acquisition of Wella could provide this kind of expertise.With the mixed results from the testing done in the UK, we recommend PG do some more subjective research in this area before deciding to expand the SK-II line here. JapanWe recommend PG expand the SK-II product line in Japan. This is the home country for the SK-II line, and has already e stablished a market for the product. While the slowing market growth and increased competition will result in companies having to fight for market share, SK-IIs proven success here should help this product line as it expands. A more plentiful SK-II product line may also help solidify its brand name as it expands to other countries.