Page 120 - DMGT545_INTERNATIONAL_BUSINESS

Unit 6: Modes of Entering International Business

The P&G Godrej alliance became operational in April 1993. Around this time, P&G increased notes
its stake in its Indian subsidiary P&G (India) from 51% to 65%, while Godrej, after having
operated for several years as a private company, went public. P&G engineers introduced
new systems such as Good Manufacturing Practices and Material Resources Planning in
Godrej plants. The two companies seemed to show a considerable amount of sensitivity to
the cultural differences between them. For about a year, it looked as though things were
going fine. Thereafter, elements of distrust began to surface and the two companies found
the differences in management styles too significant to be brushed aside. By December,
1994, rumours were rife that P&G and Godrej did not see eye to eye on many key issues.
One of the main problems that the joint venture faced was that performance did not match
up to expectations. In 1992, Godrej had sold 29,000 tonnes of soap. After increasing to 46,000
in 1994 the figure declined sharply to 38,000 tonnes in 1995. While sales volumes did not
pick up as expected, costs began to rise. Due to the cost plus agreement, Godrej had little
incentive to cut costs. Informed sources felt that Godrej was charging ` 10,000 more per
tonne than the accepted processing costs. Godrej, on its part, was unhappy that P&G was
not doing enough to promote brands like Key and Trilo that it had nurtured over the years.
It was also uncomfortable with P&G’s methodical and analytical approach as opposed to its
own instinctive method of launching brands at breakneck speed. P&G, on its part, felt that
there was little logic or coordination in Godrej’s brand building exercises. Its multinational,
worldwide policy set its own priorities, as explained by a P&G executive: “We believe in
introducing long-term brands with sustainable consumer propositions. Without that, we
just don’t know how to sell.” By mid 1994, sharp differences had developed between P&G
and Godrej. A senior Godrej executive, H.K. Press, on deputation to the joint venture, was
quietly eased out and sent back to a Godrej group company.
A report in a leading Indian magazine aptly summed up the situation: “In an atmosphere
of fraying trust, the advantages of the alliance faded into the background.” P&G realized
it had gained distribution strengths but found itself locked into an unsustainable
manufacturing agreement and a loss making joint venture. Godrej felt let down on two
counts. “The capacity was not being utilised as guaranteed and more crucially, P&G’s
manufacturing process was not delivering any benefit to Godrej’s painstakingly built
portfolio of brands.”

In late 1996, P&G and Godrej announced that the alliance was being terminated. The two
companies would have little to do with each other, except for Godrej continuing to make
Camay on behalf of P&G for two more years and providing office space to P&G at its Vikhroli
complex. PGG would be taken over by P&G, which would also retain the detergent brands,
Trilo, Key and Ezee. Most of PGG’s 550 people and the distribution network consisting of
some 3000 stockists would stay with P&G. Godrej would absorb about 100 sales people and
get back its seven soap brands, which had been leased to PGG.
Both P&G and Godrej felt that the amicable parting of ways made sense. Adi Godrej
remarked: “This will enable us to pursue business expansion opportunities that have
occurred as a result of liberalization.” David Thomas explained that the parting of ways
would enable “both parties to independently pursue the broad array of growth prospects
offered by the strong pace of economic reform.”
Source: www.vedpuriswar.org/.../GoingGlobal/Chapter%2006_...

6.7 summary

This unit attempts to give an overview of the functions in as simple manner as possible.

lz Basic entry decisions include identifying which markets to enter, when to enter those
markets, and on what scale.

lovely Professional university 115