Colgate-Palmolive International Business Strategy
As representatives of the Colgate-Palmolive Company, we are pleased to tell you more about the success story of our company through this report. In the first part, we will show how CAP slowly internationalization and expanded globally by adapting various strategies to become one of the most powerful Mac’s, to then in the second part, give you details from an academic point of view with regards to the adopting in order to most efficiently survive in and take over the very competitive market. 2. Internationalization Strategy of Colgate-Palmolive 2. The assessment of the internationalization of the company In 1806, William Colgate started a starch, soap and candles company in New York City and, after 207 years, Colgate-Palmolive stands as one of the oldest and truly global consumer product company. Colgate-Palmolive owns 75 wholly owned subsidiaries in 75 different countries, and operates in more than 200 (Colgate. Com, 2013). Colgate had a slow start – after founding the company in 1806 they remained in the American market for more than 100 years.
During that time, they were expanding their operations and developing their strategies for the local market, and then in 1914, Colgate opened their first international subsidiary in Canada, a neighboring
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To mention briefly; in 1920 Colgate established operations in Europe, Australia, Asia and Latin America, eight years later, Colgate merged with Palmolive-Pet, and became Colgate-Palmolive-Pet, thus Joining forces with another company aspiring for global dominance. In 1985, Colgate- Palmolive entered into a Joint venture with Hawley & Hazel in Hong Kong, and ten ears later, in 1995, after the end of the communist regime, Colgate entered Central Europe and Russia, thus expanding its operations into the fast growing countries of the region (Colgate. Com, 2013).
Figure 1 . The expansion and internationalization timeline of Colgate-Palmolive As we can see from Figure 1 Colgate internationalization slowly at the beginning, but picked up a faster pace in the following years. Penetrating geographically close regions or markets that have similar culture and then expanding within that region identifies the company’s pattern for internationalization. First, they entered into Canada. Canada is the closet country to the USA, which is very similar culture wise. In addition, after the Canadian market, Colgate went to Europe and Australia.
Europe presented a challenge since each country there had a completely different cultural preference. Thus, Colgate went on with the strategy of “think global, act local”. This gave the company an added advantage, thus enabling Colgate to understand the market needs, and therefore develop suitable products, different logistics/ distribution chains, and different production systems than what originally they founded in their home country. Moreover, Colgate was acquiring different companies innovative and had a selling potential in different global markets.
In addition to mergers and acquisitions, Colgate went for Joint ventures, especially in the countries to Far East; these countries are China, Hong Kong, Taiwan, and India. Therefore, Colgate-Palmolive has slowly progressed in its internationalization process, starting from neighboring countries, moving to farther geographical locations that had similar cultural preferences, and expanded accordingly. 2. 2 The assessment of geographical characteristics of internationalization Colgate- Palmolive geographic segmentation is formed mainly on the basis of each region’s economic, cultural and climatic conditions.
Approximately 75% of Colgate-Palmolive sales derive from international operations; therefore succeeding in markets outside of the United States is of great importance. The first country outside the US borders, where CAP decided to launch their operations and sales was the closest, both geographically and culturally, Canada. The next step in their internationalization process was to reach more distant countries, yet still of cultural and economic similarity – Australia and Western European countries, such as France, Germany and the United Kingdom (Colgate. Mom, 2013). After acquiring a strong market position in these markets Colgate recognized that the competition between the three main business actors in the field, which are Milliner, Procter & Gamble, and Colgate (Hauser Frustrate, Inc. , 1994), is becoming extremely fierce, that is why CAP decided to shift the focus of their competitive advantage and target the, internally so called, ‘high growth markets’ (CAP Annual Report, 1996).
High growth markets, according to Cap’s understanding, are the developing countries that possess a potentially high customer base. Colgate-Palmolive decided to enter Latin America (Mexico, as the geographically closest high growth market), expanding then to Asia (India in 1937, after the country’s independence from the colonization by the UK in asses, and Philippines – currently the 5th biggest Colgate market in Asia), Africa and Central and Eastern Europe (Poland, Baltic States).
Colgate was one of the pioneers in recognizing that following the multi-domestic or international strategy of internationalization is not enough to maintain their competitive advantage and that the company has to allow a certain degree of adaptation in order to comply with each country’s customer deeds. Colgate-Palmolive is extremely dedicated to their worldwide brand, and does broad research in order to introduce the most accurate products into the right countries.
For instance, in the ass Polish CAP product developers came up with the idea of the Colgate Herbal toothpaste and the Palmolive Naturals series after finding out that Polish customers prefer more natural cosmetics – after a successful introduction to the Polish market, CAP decided to expand these lines of products further internationally (Broadening, 1997). Currently CAP sells sixteen different kinds of toothpaste in the US, while in the I-J they are selling twenty-two distinctive varieties (Colgate. Com, 2012). 2. The outline of the main foreign market entry modes employed by the company As mentioned in previous paragraphs, after developing the business into a successful one in the US, Colgate decided it is time to become a NC and conquer the market (Economists. Initiatives. Com, 2013), over a hundred years after the company was first established, with a neighbor country, Canada. The choice was a safe one given the fact both countries are very similar culturally, politically, and are known to have he largest trade relationship in the world, hence there wasn’t much risk in this move (Chaffinch’s, 2013).
Next, after the company’s first successful installation in a foreign (although similar) country, they got hungry for the success and wanted to continue the expansion. However this time, given the present strong competition in the industry in North America, CAP decided to target other, mostly less developed countries in Europe, Asia, Latin America and Africa in order to take advantage of the “new entrant’s” position (New York Times, 2013). The ass’s were the years of considerable expansion into other continents.
The first country was France, oldest ally of the US to its role in the American Revolutionary War, plus presenting an attractive and economically similar market. Perhaps the Canadian experience with Quebec, which is a French speaking/cultural province, enticed Colgate to move to France, where the firm’s second subsidiary was opened in 1920. Further that year, now having the courage to enter further (for the moment westernizes) markets, CAP expanded to Australia, the United Kingdom, Germany, and Mexico (Answers. Com, 2013).
We can observe that Colgate opted in expanding in culturally or economically animal countries in the first place (which reflects the Pascal Model) to then have the strength and courage to enter further countries like Mexico. After the successful moves, they finished the year by expanding to more distant (physically/economically/ culturally) countries: the Philippines, Argentina, Brazil, South Africa, and waited till 1937 to move to India. It is clear to see that location, culture and economy, were essential criteria in deciding which countries CAP would enter.
In addition, Politics have also played its role as one of the main determinants of entry choices. For instance, Poland and other eastern European countries have been entered in the late ass’s, due to political reason that strongly affected the market’s availability in previous years. In 1995, CAP entered Russia and other central European/fast growing markets (Colgate. Com, 2013). Taking the example of Poland, Jerry Stark, an energetic entrepreneur played a key role in developing the business in that new part of the world.
He agreed to set a Joint Venture with CAP (Stark initially owned 49% of shares, whereas CAP owned 51%) as he thought the business had a huge potential. Colgate- Palmolive chose to set a JP in Poland as it didn’t have much knowledge and social ties in the eastern European market, rather than going for a WOOS, which would have been risky due to the lack of familiarity with the market, lack of information about the cultural and business practices, and very different turbulent, still communistic political and economic system.
This strategic move allowed CAP to gradually attain the necessary skillet to further penetrate the ICE countries – when CAP decided to enter the Baltic states (Estonia, Latvia, Lithuania), the company was able to establish a holly owned subsidiary in Riga, Latvia and then export CAP products to Estonia and Lithuania through local distributors – all this could be possible due to the learning process of operating in the eastern European region (Allude. Whoops. Pl, 2013). Colgate-Palmolive has a hierarchical organizational structure.
In the top of this organizational structure is the chief executive officer, Mr.. Ian Cook, who has a bird eye view of the organization in all parts of the world. Five continental senior executives follow the CEO. These executive officers are in charge of different notational block Market, which are European, North American, African, Asian, and South American. Below the continental managers are the country managers who are in charge of respective countries in which Colgate-Palmolive has a presence.
The company’s organization structure has also the human resource managers and the information technology executives. The Justification that Colgate-Palmolive has a hierarchical organization structure is that all decisions are made by the strategic managers at the top of the organizational structure. The graphical analysis of Cap’s organizational Truckee is presented below. Figure 2. Colgate-Palmolive Organizational Structure Colgate-Palmolive has a divisional organizational design.
The international divisions of Colgate-Palmolive face diverse legal and cultural constraints in different continents of the world. Grouping international divisions develops specialized skills and abilities for dealing with international questions that do not arise in domestic operations. This divisional organizational design helps Colgate-Palmolive respond and adapt to differences in product types, product marketing and cultural differences of its various international locations.
Divisional organizational design emphasizes people’s decision-making autonomy throughout the organization. An individual at various levels can become more involved in organization’s basic activities. Organization by following this structure puts more demands on individuals to deliver the highest level of business performance. On the other hand, the divisional organizational design has its shortcomings – it very often leads to repetition of services like local marketing and international marketing, local finance and international finance.
This TTS more financial pressure on the organization as it leads to greater operational costs and higher complexity of the entire system within the company. Based on the internal materials from Cap’s employee workshop on the company’s strategy it can be stated that Colgate-Palmolive has harnessed a control analogy in five main areas, which can be further divided into two parts namely Strategic Thrust and their Management Process. The depiction of Cap’s control structure is presented in Figure 3. Below. Figure 3. Control Structure of Colgate-Palmolive 3.
Evaluation of academic strategy frameworks for Colgate-Palmolive 3. . Overview of In order to facilitate the understanding of the internationalization strategy of Colgate, it is essential to get oneself familiar with the Bartlett and Shoal’s generic strategies framework. According to the theory, in order to survive firms must do all that they can to respond to cost pressures affected by global integration and to the diverse customers needs which affect the demand for a greater degree of the local responsiveness.
Bartlett and Shoal emphasize that the core competencies and skills of a company do not necessarily have to reside within the company’s home entry; instead, multinational enterprises should develop their strategies from any of the worldwide operations (Hill, 2011). The two scholars developed four distinct strategies of entering a foreign market, which are: multidimensional, international, global, and transnational.
Multidimensional strategy focuses on high level of local responsiveness and low level of global integration, whereas the global strategy has an opposite approach of focusing on maintaining high level of global integration without taking into account the local responsiveness aspect. The international treated does not require a great need for neither global integration nor local responsiveness. International strategy can bee seen mainly in the paper, textiles and machinery industries (Hill, 2011).
Figure 4. Bartlett and Shoal’s generic strategies framework (Hill, 2011) Part of Bartlett and Shoal’s theory on multinational enterprises strategies, which we would like to focus on is the transnational strategy model. This model is an organized approach to internationalist into global markets while the firm works very hard to be responsive to local demand while holding necessary central control over he global operations to ensure efficiency and learning within subsidiaries (Hill, 2011). . 2 Evaluation of the Bartlett and Shoal’s framework on the company’s example After a thorough analysis of the internationalization process of CAP, it has been found that the company followed in overall three out of four generic strategies, namely international, multidimensional, and transnational. At first, CAP operated within the international strategy. CAP entered markets which were of geographic or cultural proximity (Canada, France, Australia, etc. In order to reduce the cost pressures, infinite from adapting and leveraging parent company competencies and have greater control over the foreign subsidies. The level of local responsiveness was relatively low, since the foreign customer base had similar taste and preferences, as well as the economic, legal and political structure of the host countries did not differ significantly from the ones in United States.
As the competition in the industry was growing, CAP realized that in order to maintain their strong position on the market they had to tap the market of high growth countries instead of focusing only on the f offerings became inevitable. At that point CAP focused on developing a more multidimensional approach to sense and exploit the local opportunities by building flexibility through resourceful and adjustable national operations. At the same time, Colgate-Palmolive never resigned from their international approach and headed slowly towards being a truly transnational business entity.
After Collage’s initial development in foreign markets through the international and multidimensional strategy, they eventually followed the transnational strategy where the company tried to achieve low sots through location economies, economies of scale, and learning effects, thus differentiating their products within different geographic markets and supporting the flow of information and skills between subsidiaries within the firm’s global network (Hill, 2011).
CAP recognized that entering the high growth markets is more challenging and simply replicating the company’s products will not suffice, but a huge NC like Colgate-Palmolive could not allow a complete shift from international to multidimensional strategy, that is why in order to develop global efficiency Colgate- Palmolive had to adapt the transnational model. We can observe that strategy in the degree of flexibility given to country managers and the fact that the company is always encouraging employees to share their ideas.
A good example of that are the Colgate Herbal toothpaste and the Palmolive Naturals series introduced by Polish specialists on the Polish market and then introduced further worldwide. Figure 5. Bartlett and Shoal’s strategy framework of Colgate-Palmolive To conclude this part, in Bartlett and Shoal’s model the transition of expansion theory is basically from multidimensional to transnational OR international to transnational or global. In Colgate-Palmolive case the situation presents itself differently.
The transition of Chips internationalization strategy started from the shift from international strategy to the multidimensional one and then transformed naturally to the transnational strategy. Even though the company did not follow exactly the same scheme as presented in the Bartlett and Shoal’s framework, we can still assume the validity of the theory and present Colgate-Palmolive as one of the best examples of how to pursue the idea of ‘thinking globally, acting locally’ through the implementation of the transnational strategy. Conclusion Colgate-Palmolive can’t be seen as a simple business, but more as a symbol of a successful NC, where generations have struggled throughout history with changes strategy that permitted the company to get where it is now. We saw that Colgate didn’t Just apply one model and succeeded straight away, but started by developing a solid base for the company in the US, and then slowly expanded internationally to similar countries where they could replicate their initial western products, to then expand further into other countries and continents by adopting a more locally aware strategy.