P&G Lost Championship in China
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In the past year， the household chemical companies really sensed the sheer winter in China.
Procter & Gamble （p&g） and Unilever， the two international giants， coincidentally chose the same time to cut jobs to deal with the crisis. This is a hard choice， but the most direct way to reduce the cost.
Unfortunately， the winter won’t be ended just by some lay-offs.
Compared with Unilever’s lay-offs， P&G’s cutting jobs has drawn much more attention. This is because the layoffs included some management trainees， who used to be considered precious treasure in P&G China.
“At the beginning of this January， some management trainees who were recruited from the universities were invited to the offices of their bosses for a long time. They were given two choices： to resign from the company on their own or to get fired with the reason of underperforming internships，” said an anonymous insider of P&G. So far as he knows， the laid-off management trainees could be found in Guangzhou， the headquarters of P&G in China， as well as the branches in Beijing， Shanghai and Changsha.
In fact， apart from the loss of people， P&G is reported to be seeking a new CEO to replace A.G Lafley， the current CEO and President of P&G. Lafley once doubled the sales of P&G in the first nine years of the 21st century.
One year before that， Lafley returned to the position as P&G’s CEO after a respite， hoping to save the continuously dropping business. However， P&G’s performance in the past year told us that his efforts were not met with good results.
Behind this is the dropping busi- ness of P&G. In the late January， P&G issued the Q2 financial report for its 2013-2014 Financial Year. The net profits of the company went down 16% to US$343 million. In the same period of last financial year， P&G also witnessed the 7% drop in its net profits.
Actually， P&G is gradually sliding away from the crown in the Chinese household chemicals market. According to the data from EuroMonitor， the share of P&G in the toothpaste market of China dropped from 20.8% to 19.7%.In the market of washing powder and soap， Chinese local companies Liby and Cnnice have taken a 27.6% market share. P&G takes 7.6% of the market while Unilever， 6.6%.
Therefore， it is reasonable for P&G to reduce the cost through lay-offs.
The Loss of People
The lay-off plan was initiated by Robert McDonald， the predecessor of Lafley. In the first half of 2012， McDonald， who then was the CEO of P&G， proposed a restructuring plan worth US$10 billion. The core of the plan was to cut 5，700 jobs globally. By January 2013， P&G had cut 5，850 nonmanufacturing jobs， realizing the goal of laying off 5，700 five months earlier than the goal. P&G also plans to reduce the number of non-manufacturing jobs by 2%-3% annually before the 2016 Financial Year. This plan， according to McDonald， can reduce the expenditure of the company by 10 billion yuan in the 2016 Financial Year.
Obviously， the leaving of McDonald did not slow down P&G’s job of cutting jobs. “The cutting jobs happened every year， but things got more intense in the first few months of this year，” said an insider from P&G China. It is known that Lafley said in a meeting at the beginning of this year that the company is going to lay off people in this year to keep the business development.
“This January was when the management trainees finished their half-year internships. Most of those who were invited to the office chose to leave on their own in order to evade the mark of‘underperformance in the internship’on their resumes，” the aforementioned insider said. According to him， these trainees were recruited by P&G after graduating from universities last year and they started their traineeships in August 2013.
“They just told us： leave on your own and fired by us. But how our half- year internship is reviewed remains a secret to us，” said a management trainee who “actively” resigned from P&G. She said that there were evaluations about the performance and attendance in her internship， but she knew nothing about the standard. The standards are fixed by P&G and there was no special data provided as the reference for the review of interns’ performance. “Each branch in China had at least two or three management trainees that left at the end of this January. The same thing happened last year， but the number was not that large then. Some old employees also chose to leave as well，” said the young girl.
Along with the leaving of the old management trainees， P&G also reduced the number of newly-recruited management trainees. “Last year there were about 200 people joining in P&G as management trainees. This year， only half of the offers have been sent by now （March 2013），” she added.
Change the Boss Twice a Year
When the massive lay-offs are going on， the change of CEO once again placed P&G under the spotlight.
The possible candidates to replace Lafley include Fabrizio Freda， the current CEO of Estee Lauder and a former 20-year veteran in P&G， and Susan Arnold， the former director of P&G’s global business and now the operating partner of PE fund Carlyle Group. They are expected to have the ability to save P&G’s business.
Lafley is said to pay close attention to those senior executives that directly reported to him to see whether they have the potential to lead P&G in the future. These people include Melanie Healey， President of P&G North America， David Taylor， President of P&G’s Global Household Care， Deborah Henretta， President of P&G’s Beauty， Martin Riant， President of P&G’s Baby Care and Giovanni Ciserani， President of P&G’s Global Textile Care.
Lafley， 67， resumed the positions as CEO and president of P&G in May 2013. At that time， he was expected to create the miracle again. From 2000 to 2009， Lafley was the CEO of P&G before his retirement. In those nine years， he turned P&G into a global household chemicals giant with his wisdom and diligence.
However， his return in 2013 was not accompanied by the legends. He divided P&G’s business into four sections to improve the enterprise’s efficiency. In 2013， he said that the 2014 financial year is going to be a transitional year while the 2013 financial year is the start of the change.
The change did not gain expected outcome， though. The dropping profits have forced P&G to seek a new CEO， though P&G has not officially confirmed it. This is going to be the second time P&G planned to change CEO from last May， when Lafley replaced McDonald.
McDonald had been working as the CEO of P&G for four years before the replacement. He joined in P&G in 1980 and once worked in Canada， Japan， the Philippines and Belgium. When he became the CEO， the annual revenue of P&G was US$75 billion. McDonald boldly forecast that the revenue would increase to US$102 billion by 2013. But when he retired in 2013， the revenue of P&G only increased to US$83.7 billion， far from the promised amount.
Meanwhile， according to A.C. Nielsen， Pantene Shampoo under P&G saw its market share in the U.S. drop from 17.3% in 2009 to 13.8% at the end of 2012. The washing products of P&G also have their market share drop 2.1 percent in the past few years.
The Waning Market
During the reign of McDonald， the drop in P&G’s profit margin brought its rivals the opportunities of grabbing a larger market share.
In 2012， P&G admitted its stra- tegic mistakes in Latin America， India and other emerging markets. After the European debt crisis， these emerging countries became the most important business growth source for household chemical giants. Take Unilever and Colgate for example： the revenues from these areas account for 50% of their total sales. But for P&G， the income from emerging countries takes less than 40% of its total revenue.
In the cosmetics market of China， L’Oreal took away the championship from P&G in 2012， before which P&G has been keeping the title as the largest cosmetics company in china for eight years. The data from Euromonitor shows that 15% of the skincare market of China belonged to L’Oreal in 2012 while P&G only had a 10% share.
“The rise of competitors is an important reason for P&G to lose the market. Among the foreign brands， L’Oreal takes the biggest part of market away from P&G. The French company did this through the localized R&D of products， channel expansion and more advertising. In addition， the fast rise of Chinese local cosmetics brands， such as Chcedo and Inoherb， won a lot of consumers with their advocacy for the natural products，” Chang Yizhi from Euromonitor said.
Actually， P&G is being pushed away from the top in the Chinese market. Since P&G chose to decentralize its distribution channels to a wider area， many products are now cheaper than ever before. It is no longer considered to be a high-class name like it once had during its first few years in China. Now， it is hard to find any P&G’s brands in the high-end market. Its Olay products are on the verge of being driven out by Estee Lauder and Lancome， which rose very fast in recent years.
For this， Chang Yizhi said that P&G’s glory in the skincare market was taken by L’Oreal because of its inadequate categories of products and lack of innovation in the product.
P&G also noticed that problem. In the first press conference after his return last year， Lafley said that P&G was going to pay attention to the innovation on the products， the reduction in cost， the operation of core brands and the most important market.