Procter and Gamble Company’s (PG) Indian unit has decided to manufacture Indian goods locally, shifting from its age-old policy of importing popular brands like Olay and Pampers into the Indian market.
The retail giant, who holds second position to Hindustan Unilever in the Indian market, has decided to go by the forerunner’s style that will not only save cost but will also be more readily accepted by the Indian consumers.
Henceforth, P&G has stressed on producing and marketing premium products like Head & Shoulders, Ariel and Pantene, which generates over 60% of its total revenue, in India. Through this, the company will be able to produce goods at a lower cost and sell them to the Indian mass at an affordable price.
With the world economy crashing and western countries including U.S. and Europe undergoing deep economic crisis, multinationals are banking on emerging markets like India and China for generating revenues.
The move to manufacture the products locally is part of the company’s strategy to acquire one billion additional consumers by 2014-15 in India and China. To achieve this goal, the company has launched lower-priced product extensions of its global premium brands such as Tide and Gillette.
These products will target consumers in the lower end of the social pyramid in these economies. The company also aims to expand its distribution network to cover the previously inaccessible rural areas.
P&G’s relationship with India dates back to 1985 when it acquired Richardson Hindustan Limited (RHL), who held an Industrial License to manufacture of Menthol and de mentholised peppermint oil and VICKS range of products such as Vicks VapoRub, Vicks Cough Drops and Vicks Inhaler. RHL became an affiliate of The Procter & Gamble Company, USA, and its name was changed to Procter & Gamble India.
Since then, Procter & Gamble kept growing in the country, and presently has two subsidiaries, namely P&G Hygiene and Health Care Ltd. and P&G Home Products Ltd. P&G Hygiene and Health Care Limited is one of India's fastest growing Fast Moving Consumer Goods Companies in the Asian subcontinent.
In 2009, P&G launched Tide Naturals, targeting the lowest income consumers in India and drew market share from the regional players. The P&G entity ‘Future Works’ partnered with ‘Health point Services’, a small startup to improve and scale the Health point model in India. ‘Future Works’ is specifically devoted to developing and scaling new business models and new category innovations for the company, primarily via external partnerships.
Despite all its efforts, P&G, which generates 30% revenue from developing markets, lurks behind its rival Unilever Plc. (UL), which earns more than half of its revenues from India, Brazil, Indonesia, South Africa, China and Vietnam.
Currently, we prefer to be Neutral on P&G’s stock. Furthermore, P&G holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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