P&G To Produce Locally

Though Procter and Gamble (P&G) is a world leader in FMCG, its market share in developing countries like India, China, Vietnam, Brazil etc. is meager in comparison to that of its archrival, Unilever. It is always anticipated that P&G will come out with a strategy which will make its products more affordable and competitive in the developing countries than its competitors. The recent decision of the company to stop the imports of major chunk of its products in India and to manufacture these products in India itself is one such step towards the goal mentioned above.

                                               

Till now, P&G imports most of its premium products manufactured in other countries to India for sale. The imports add an additional overhead to its products which put them on an unaffordable premium product shelves. The decision of P&G is to invest Rs. 700 crores to enhance the production capacity of P&G firms in India so that they can cater to the demands of its products and distribute them through its 1.3 million outlets across the country.

The localized production will help P&G in many ways. Firstly, it will save huge amounts of duties that it has to pay to the Government of India for importing its products. Secondly, the availability of large workforce at low price will further reduce the cost of production and will maximize the profits. Thirdly, it will also protect P&G from the fluctuation in the foreign exchange markets. It is obvious that when the currency of a country depreciates, it is the importers who have to bear the maximum loss as they could import only few items with the given amount in comparison to when currency appreciates. Fourthly, India has signed free trade agreements with many countries in Asia and Africa. P&G can take advantage of this to pump its products manufactured in India to these countries without any difficulties. In addition, it will also make P&G's Supply Chain more responsive by reducing the lead time for replenishment. As a result of which, the different elements of the Supply Chain i.e. retailers, dealers, manufacturer, suppliers etc. will have to maintain lower inventory levels, thus reducing inventory holding cost. All these factors will help in increasing the market share of P&G which in turn will improve its revenues.

But the biggest challenge for P&G would be to maintain the quality standards. Even the slightest degradation in the quality of its products might severely hurt its entire market shares in India. Moreover, it is a general perception among the Indian consumers that the imported products are better in quality. It would be a challenge for P&G to change this perception of the general Indian consumers.

No doubt that P&G has made a well calculated move by deciding to enhance the production of its premium and mass premium products in India. Whether it is going to be successful or not remains to be seen.

Reference

Article “P&G Plans Big Move, to Make More Locally” by Mr. Sagar Malviya in The Economic Times dated 14^th November 2011

The writer of this article, Abhay Shankar is a PGP student of Indian Institute of Management, Raipur and has done his B. Tech (Chemical Engineering) from BIT Sindri. Prior to joining IIM Raipur, Abhay was working at Vedanta Aluminium Ltd. Abhay can be reached at pgp11001.abhay@iimraipur.ac.in