Developing a Global Brand

As more and more firms internationalize to reach a larger consumer base, they increasingly face the dilemma of how to internationalize their existing brands. Their choices could range from utilizing their existing brands and introducing them to overseas markets or developing new brands tailored to each country they have a presence in. In this paper we will attempt to analyze one such decision faced by Procter & Gamble. Procter & Gamble has historically been a company that tailored its products to meet the consumer demands in each of the nation it had a presence in. The company has been going through a restructuring program, where the profit, product development, manufacturing, and marketing responsibilities have been moved from regional organizations to global business units. During this restructuring, the company's Japanese division came across the "SK-II" brand which he believed had the potential to be a global brand. The discussion of the case revolves around the internationalization of the brand "SK-II".

The primary issue concerning this case is the transformation of "SK-II" from a local brand to a global brand. As mentioned earlier, this case allows us to evaluate how companies can "internationalize" their brands, and the obstacles and issues that they face while addressing this issue. The case allows us to see that the components for the "internationalization of a firm" do not just involve market entry decisions, structure decisions, but also how the company addresses the issue of globalizing its existing product portfolio. The evaluation of this case at this particular point in time also shows us how globalization of products fit into the various strategies, firms pursues in their effort to internationalize their presence.

As said earlier, the main issue grappling the management of P&G is whether the SK-II is a product that can be "internationalized". Until now, the market range of "SK-II" can be characterized as an emerging local product in Japan, with a sizable regional customer base in Hong Kong and Taiwan. The "SK-II" brand is positioned at the upper-end of beauty care and provides high margins for the firm. As is the case with most cosmetics products, SK-II brand was sold through special stores by well-trained beauty counselors.

In order to figure out whether SK-II is a product that can be "internationalized", we need to take into consideration whether "SK-II" brand is a strategic fit to Procter & Gamble's product line. This is an important consideration because even if "SK-II" as a brand has an international potential, the lack of being a strategic fit to Procter & Gamble's future strategy would relegate it to non-importance. An additional issue also requires a change in the mindset of the members in Global Leadership Team, as the views of the members in the Global Leader Ship Team, and the beauty case cosmetics Global Business Unit (GBU) is based on based on the company's Olay brand. If the decision of the Procter & Gamble's beauty care global business unit is based on its member's experience of Olay product line, SK-II brand would be less likely adopted as the global leadership would team see the brand as rival to establish Olay brand, and a strategic misfit to the company's mass marketing strategy. Any success of the internationalization of the SK-II brand will require thorough education of these key individuals on the SK-II product line. As such, one of the key ingredients for the successful internationalization of SK-II brand involves changing the existing viewpoint members of global leadership team have about the SK-II brand.

After taking into account internal obstacles to the "internationalization" of SK-II brand, we need to evaluate the external environment that would hinder or assist in the globalization of SK-II brand. Currently, the SK-II brand enjoys success in Japan, Taiwan, and Hong Kong and is in the process of expanding into various South East Asian markets. The company is also considering the introduction of SK-II brand into China and Europe. For South East Asian region, SK-II brand is in process of being expanded into Singapore, Malaysia, and South Korea. Because of its presence in these varied countries, the SK-II brand can be described as a "regional" brand. It can be assumed that the success of SK-II brand in Taiwan or Hong Kong foretells a positive possibility of success of SK-II brand in mainland China. Although China is a poor country compared to Japan, it is important to note that the target market of SK-II product is not the entire Chinese female population, which would not be able to afford the product anyway, but rather the affluent consumers who live in Beijing, Shanghai, Guangzhou, and other urban areas. For the European market, the brand would meet heavy competition as the market is heavily fragmented with a number of established players, and as such the company will have to invest significant resource to gain market share. In addition, the distribution strategies in France and Germany require extensive utilization of beauty consultants in thousands of specialty stores, which would likely mean that the company has to wait for a significant amount of time to breakeven. If Procter & Gamble considers the SK-II brand a strategic fit for the company, it can introduce the brand to Europe. Since Japanese consumers are the biggest users of cosmetic products, and are considered the "most" sophisticated users, the company could appeal to European consumers by utilizing SK-II's origin of being a Japanese brand. The company could run ads similar to the ones aired by Volkswagen, which boast of German engineering. This tactic could raise awareness of SK-II brand among the Europeans consumers as a premium cosmetics product.

I do believe that SK-II brand can transform itself into a "global" brand. SK-II brand has already been a success in Taiwan and Hong Kong, and is being introduced in markets of Malaysia, Singapore, and South Korea. It can be said that SK-II is a "regional" brand, and some might even consider it to be a "global" brand already. To me a "global brand" seems to be a matter of perspective. SK-II brand is already being sold in East Asia and South East Asia regions, and a brand being catered to such a large audience already warrants its consideration as a "global" brand. If consideration of a "global brand" requires a brand to be accepted in different cultural clusters (Western European, Middle Eastern, East Asian), SK-II can still become a global brand provided that the management of Procter & Gamble is convinced of the value of internationalizing SK-II brand.

As mentioned earlier, one of the primary questions arising out of the case is whether SK-II brand has the potential of being a global brand. I believe that the question being asked instead should be whether SK-II as a brand with premium positioning is the right fit for the company to internationalize. In my opinion, Procter & Gamble executives should also be asking themselves whether or not the niche that SK-II brand is targeting matches the strategic intent of the company, does the brand exploits the company's competitive advantages, and is it worth the time and effort in internationalizing such a brand. As it stands, SK-II brand can potentially be internationalized, but it doesn't seem to match with Procter & Gamble's vision of selling high volume products cheaply. As such, to me it is not a question of SK-II's international potential, but rather a mismatch between the brand's target market and Procter & Gamble's target market. Procter & Gamble is better off internationalizing brands which exploit its strongest core competencies, rather than attempting to internationalize brands that do not even match the direction or strategy the company is moving towards.

Before recommending the path Procter & Gamble should take regarding the fate of SK-II brand, de Cesare needs to consider numerous factors that could affect the prospects of SK-II's internationalization efforts. Factors that are needed to be taken account include the heavily western based composition of Global Leadership Team, the new organizational changes envisioned in O2005, costs of introducing SK-II in Europe, the competitive nature of Japanese market, and the success of SK-II brand in regions culturally similar to mainland China.

For starters, the Global Leadership Team (GLT) of Beauty Care Global Business Unit seems to be heavily western based. As such, their experiences regarding skin care products heavily derive from the Olay brand. As said in the case study, numerous executives considered SK-II as nothing more than a Japanese version of Olay. It is imperative that de Cesare explain to the Global Leadership Team what SK-II brand is, and where it stands in comparison to Olay. De Cesare needs to clearly explain the differences between Olay and SK-II, and that both of them target different market segments. By clearly explaining SK-II brand positioning, de Cesare would be able to clear the misconceptions the overwhelmingly European or North American executives have of the SK-II brand. After distinguishing Olay brand from SK-II brand, de Cesare needs to explain why SK-II is a strategic fit for the company and how its internationalization is essential for the future of the company's Beauty Care Global Business Unit. As Jager, the company's CEO himself doubted the strategic fit of SK-II brand with its fashion-linked and promotion-driven sales model compared to P&G's high-volume low-price model, de Cesare needs convince the GLT team that SK-II brand exploits company's core competencies rather than being a distraction or misfit to the company's existing product portfolio.

Since one of the reasons for the implementation of O2005 was the lack of risk taking culture in Procter & Gamble, along with being perceived as slow and conformists. De Cesare could argue that internationalization of SK-II brand would fit comfortably in with the risk taking culture that Jager so advocated in his O2005 vision. Introduction of SK-II brand would encourage risk taking in Procter & Gamble and could pave way for other "rebellious" or outside the box thinking ventures by the firm.

While considering recommendations to the Global Leadership Team, de Cesare also needs to consider that any investment in the Western European market is going to be costly. The Western European market is already fragmented with highly well established players, who have very high brand awareness and respect among consumers. In addition, the distribution channels and the additional education (extra steps in skin care regimen) the European consumers will require to fully appreciating the SK-II brand will eat into company's profit margins. As such, introducing SK-II product in Europe is going to be a costly affair for Procter & Gamble, and the executives might not be recipient to the idea of investing in a brand that they do not even consider to be a strategic fit to the company.

The competitive nature of the companies in Japanese cosmetics market is also an important factor for de Cesare to consider. The high level of competition and innovation by Japanese competitors forces P&G Japan to be constantly innovative and bring out new products. This constant innovation by P&G divisions is one of the visions of O2005. A global expansion of SK-II brand will help channel the innovative ideas from Japanese market to world-wide market. Expansion of SK-II brand would encourage the Japanese division and other GBU to take a stronger look at new innovations and risk taking. The internationalization of SK-II brand could be perceived as a reward for risk-taking and innovation, and encourage other Global Business Units to follow suit - thereby paving the way for change in Procter & Gamble's organizational culture.

Since expansion into China is one of the choices for the internationalization of SK-II brand, de Cesare can take into consideration the success the brand already has in Taiwan and Hong Kong. The company's target market of affluent consumers in Chinese urban areas is likely to have similar tastes as consumers from Hong Kong and Taiwan. As such, the probability of SK-II brand's success in China can be considered a strong possibility. The erosion or cannibalization fears that some have expressed can be offset by maintaining that Olay is a mass market product, while SK-II is a premium brand. As said earlier, some of the fears stem from the misguided beliefs that SK-II is a Japanese version of Olay brand.

Of the 3 alternatives that de Cesare is considering to recommend to Global Leadership Team, I would advise de Cesare to consider 2 of the alternatives. De Cesare should consider expanding SK-II brand into China, and at the same time invest significant resources in increasing the current market share of SK-II in Japan, and build on the brand's success. I would recommend against introducing SK-II brand in Western Europe because the market is already fragmented with well established players, and as such the company would have to invest significant resources in establishing a foothold in the European market. On the other hand, if the Global Leadership Team is fully convinced that SK-II brand is a strategic fit to the company, Procter & Gamble could eventually launch the brand in Europe at a later time. This could be after the brand has achieved success in China which would strengthen SK-II brand position within the company, and strengthen de Cesare's case for introduction of the product in Europe, along with the high costs involved in the launch of such a product.

I would strongly suggest that Procter & Gamble introduce SK-II brand into China. The Chinese market possesses a significant profit potential for the SK-II brand. The brand is already accepted in culturally similar regions of Hong Kong and Taiwan. It is very likely that the affluent Chinese consumers in urban centers share a similar outlook in regards to cosmetics care. As such, the affluent Chinese consumers would be likely receptive to SK-II brand. The company should nonetheless test SK-II brand's viability as suggested by Shivesh Ram. The company could experiment with a few counters in Shanghai, and if successful expand the brand to other urban areas. As said earlier, a large majority within Procter & Gamble viewed SK-II brand as a Japanese version of Olay, and as such are resistant to the idea of introducing SK-II to China. They fear that SK-II would cannibalize Olay brand, and lead to erosion of company's profits. By convincing the Global Leadership Team that SK-II targets a different market segment than
Olay, and the probability of SK-II brand's success due to its success in similarly cultural regions, de Cesare should be able to ease those worries. By introducing SK-II brand into China, the company would be able to tap the large Chinese market that could significantly raise the company's profitability. Entrance into the Chinese market would also allow the company to learn how its products operate in a large developing country. The company would gain marketing skills and other knowledge from the Chinese market that could be implemented in other developing nations. This would provide the company with the knowledge of how to target affluent consumers in other developing nations. Essentially, introduction of a high-end product in China can prove to be a testing ground for Procter & Gamble's in introduction of their top-tier brands to other developing countries. A success in the Chinese market would also bolster the confidence of the company in SK-II brand. The company would be able to introduce the SK-II brand in other regions knowing that the brand was successful in a large market, thus providing the backers of SK-II brand with enough evidence of the merits of SK-II brand within the Procter & Gamble. If SK-II brand fails in China, it could destroy the risk taking initiative the company has strongly been encouraging. A failure would discourage future executives from suggesting brands or product line for internationalization that could have otherwise been successfully globalized. A failure of SK-II brand could also mean that R&D personnel that so far have been involved in new global product development activities would now limit themselves to only Japanese product development. These R&D personnel, discouraged from SK-II's failure might now focus only on producing products that match Japanese consumers and ignore other opportunities that could be utilized elsewhere. This could deprive the company of highly skilled personnel that could have been utilized in bringing new and innovative products.

The recommendation for the Global Leadership Team would be to expand SK-II brand within Japan. The company should continue to build on SK-II's success in Japan. By building on brand's success in the proven domestic market, Procter & Gamble would be able to fully utilize the company's competitive advantages. The company has achieved only 3% of the market share of the $10 billion beauty product market, and in addition the Japanese skin care market is forecasted to grow at 28% two-year growth rate. Given these opportunities, de Cesare is well advised to strongly expand SK-II brand within Japan. There are other attributes that make Japanese market attractive; these include brand name recognition and development of new products such as anti-aging and skin whitening that could expand the SK-II product line. Since the Japanese market is highly competitive and requires constant innovation, the Japanese division would constantly introducing new products that could possibly be introduced to other markets as well. Increased market share and profitability of SK-II brand would also increase the brand's standing among various Procter & Gamble brands; this increased awareness of SK-II brand could potentially pave the way for brand's internationalization later on. The Japanese market is also one of the biggest markets for prestige skin care products, not only that, the country is also expected to see the skin care market (both main and prestige) grow by 28% over the next 2 years. There are some risks if the de Cesare chooses to only expand into the Japanese market. This could potentially make P&G Japan isolated from the rest of the world markets. P&G Japan could be oblivious to changes in the world market, and miss opportunities that could have allowed collaboration in R&D with other divisions that could have led to introduction of new and innovative products.

As mentioned earlier, de Cesare should recommend against introducing SK-II brand into Europe. Europe is already a highly fragmented market; the executives at Global Leadership Team might be hesitant in introducing an unknown brand. As such, it would be my recommendation to not introduce SK-II into Europe. By not introducing the product in Europe, the company would be able to focus its energy on introducing the brand in China, South East Asian region, and the Japanese market. Success in these regions would strengthen the case of SK-II brand's entrance into the European market. De Cesare would be able to argue in the future that SK-II has proven itself as brand in Japan, China and South East Asian regions, and as such its introduction would warrant the high costs and risks involved in introducing such a premium brand. De Cesare would be in a better position to justify use of expensive TV ads or distribution channels. By not introducing SK-II into Europe, de Cesare does risk losing growing opportunities in the high-end cosmetics markets. Besides losing a lucrative European market by not introducing SK-II to Europe, SK-II could risk being perceived as a "regional" brand or at best a Japanese Olay. It could also mean that the company might have to introduce a new brand to compete in other world regions, essentially duplicating the function of SK-II and thereby leading to increased costs for the company.

I would also recommend that de Cesare take into consideration other markets that might be promising for SK-II brand. De Cesare is currently evaluating only Europe, China, and Japan. It would be prudent for him to take into consideration other markets, such as Eastern Europe, and Latin America. These regions although not as wealthy as Western Europe or Japan, still have a large populace that can buy SK-II products. Procter & Gamble need to take into consideration which of these alternate markets it could invest in. It should conduct psychographic and consumer behavior research of these various markets. The company also needs to take into consideration how well entrenched foreign companies are within these markets. One of the problems introducing SK-II brand in Europe was that there were already numerous brands that were well established, and well-respected. Procter & Gamble needs to take into account the competitive environment or the interplay in the industry in these alternative markets, and whether the introduction of the brand would be a worthwhile investment considering the costs it would require launching the product. De Cesare should also consider the United States as a possible region of interest for the introduction of SK-II brand. The US market is about 26% of the world's prestige market, thereby making it the largest market for premium beauty care products. The US market also has the second highest two-year growth for beauty care products, only behind Japan. As such, introducing SK-II brand to US provides a lucrative opportunity for Procter & Gamble.

As stated earlier, de Cesare should recommend 2 of the alternatives that he has been evaluating. First, Procter & Gamble should expand SK-II market share within Japan, and second, the company should introduce the SK-II brand to China where there is a strong possibility of acceptance.

For increasing the current market share of SK-II brand in Japan, de Cesare should consider expanding SK-II product line. For example P&G Japan developed a new beauty imaging system (BIS) that helps beauty consultants in carrying out accurate skin diagnosis. This new product can be utilized by the beauty consultants to help customers better evaluate their skin condition. This would increase customer loyalty and increase further brand awareness. As Japanese consumers were quite analytical, they would be more inclined to purchase items that have more scientific data attached to them or can easily help them evaluate the results. P&G Japan could also add skin-whitening and anti-aging products to SK-II brand, thus expanding the brand's product line. Since Japanese consumers are already familiar with SK-II, introduction of these new products under SK-II brand would be low. In terms of implementing the strategy to expand its market in Japan, de Cesare should evaluate the strengths and weakness of the current market leader - Shiseido. The company should find out what needs and wants are currently being unmet by Shieseido's product line. If the company finds particular wants or needs the consumers desire are not being addressed, de Cesare should attempt to incorporate those attributes to its products or introduce a new product that addresses those attributes. The company should evaluate its existing value chain and see if any changes are required to be made in order to maximize its profit potential. For example, one of the strengths of P&G Japan has been its ability to identify potential wants of its consumers, and then carrying out the necessary R&D to bring out these products to market. Beauty Imaging Systems (BIS) can be demonstrated as one of the examples of P&G's ability to deliver new products. Since R&D is one of the core elements of P&G Japan's value chain, the company should look at the possibility of increasing marginal value through externalizing of its production process. The externalization can either involve
contracting production to a local cosmetics firm, or utilizing Procter & Gamble's various subsidiaries. By utilizing other subsidiaries of Procter & Gamble in other nations for production process or other parts of the value chain, P&G Japan would be in a better position to maximize production and profit efficiencies. As the company already has an established presence in Japan with a highly innovative R&D department, I would recommend against alliances with other Japanese or foreign companies. I do not believe such an alliance would significantly benefit P&G Japan; it would more likely benefit the alliance partner more than P&G Japan.

Although the Chinese market represents a large untapped potential for SK-II brand, I would not recommend Procter & Gamble enter in any green field investments. Although the Chinese market is expected to be the second-largest market in the world, the growth rate of skin care market in the immediate future is quite low at 2%. As such, any significant investment could bear significant risks if bureaucracy, inflation, and other political risks affect the investment climate. Since SK-II brand is a premium market, with market potential being small at the beginning, I believe Procter & Gamble should export its products directly to China. Once the revenues are significant enough, the company should first attempt to localize the value chain by bringing the production process to China. By bringing the production process to China at a later date, Procter & Gamble would be able to lower its costs, and increase profit margins. The lower cost production base in China can also be utilized in increasing product and cost efficiencies throughout global value chain, thereby reducing labor and production costs. In terms of distribution, the company should pursue a similar strategy it used in promoting Olay brand. SK-II brand should be promoted through state-owned department stores staffed by qualified beauty counselors. This would ensure that these qualified beauty consultants are able to educate the Chinese consumers about the numerous steps that required to fully utilizing the benefits of SK-II brand.

The restructuring program that is being implemented at Procter & Gamble poses numerous problems for the internationalization of SK-II brand. One of the issues that arose out of the restructuring program has been that the responsibility for product development, manufacturing, and marketing strategies has moved away from regional organizations to global business units. These global business units were assigned a particular product category, and were responsible for profitability of that particular product category. As each GBU was responsible for profitability of their product category, the head of GBU might be hesitant in introducing an untested brand throughout the world that would consume significant resources of his division. Since he would be responsible for the profitability, any failure in the introduction of the product would mean that he would be blamed for it. The restructuring program has also led to a lot of confusion as most personnel are unsure of what their responsibilities in the new structure are, or are still trying to develop new working relationships in the post O2005 organization. These could also mean that no executive might want to risk losing their jobs or lower their profitability by engaging in risky ventures that could have negative consequences.

The new Global Business Units would nonetheless allow each Global Business Unit to concentrate on their own product category. Prior to the restructure, the GM of each country or the head of the regional organization was required to overlook a variety of product categories, product categories that might require decisions that the head GM might not truly understand. With the new global business units, P&G management would be focused on making decisions for products where their greatest expertise lies. The restructuring of the company could also reduce the headquarters-subsidiary difference, as they have now been replaced by global business units. The restructuring would also allow for upward mobility of employees from different parts of the company thereby reducing any us-vs.-them feeling. I do believe that the increased focus the management is able to devote to their particular category would allow them to identify new products that consumers want, and have it delivered to the market as quickly as possible. These new streamlined changes will certainly increase profitability of the company, provided that the company is able to retain its talent, and is able to carry out the restructuring process without damaging employee morale.

The greatest area of resistance for the restructuring program would probably be headed by the regional organizations that would fear that their autonomy is now suddenly being undermined by the restructuring program. Regular employees would also be unsure of how they fit in to the newly restructured company, and might resist the new changes. Other resistance the company could expect to face includes local governments that welcomed investments from Procter & Gamble through tax incentives might fear that the company might close plants or move jobs elsewhere due to the restructuring program. The company could probably expect strong support from R&D departments who might see their importance increase in divisions that directly overlook their respective product categories. Employees who can expect to see increased revenues and stock options from better performance can also be expected to support the changes in the organization.

The company would be well advised to assure the regional and country heads that they are not being relegated to obsolesce and that their job functions have been transformed to other still relevant functions of the company. Those executives that the company believes are a key to the success of the company should be give important responsibilities so that they could drive the vision of the company. Employees should be made understood that the reorganization is also meant to benefit them, and that it is not merely a cost-cutting program.

The greatest area of resistance for the internationalization of SK-II brand would probably come from the head of beauty care globally business unit, who might be less inclined to take on such a risky endeavor that would put the profitability of his unit in jeopardy. The supporters of Olay brand would also resist the internationalization of SK-II brand as they would see it as a rival product from within the firm that would cannibalize Olay sales.

For Olay brand supporters, de Cesare could show them that SK-II brand doesn't overlap with Olay's and as such will not pose a threat to the sales of the brand. For the head of beauty care global business unit, de Cesare could convince him of the viability of SK-II brand, and the success it has achieved in Japan, Hong Kong, and Taiwan. De Cesare could use these to justify the merits of internationalization of SK-II brand.

The internationalization of SK-II brand faces a few obstacles. The SK-II brand doesn't necessarily seem to be a strategic fit to Procter & Gamble's existing product line. Even if the company comes to see SK-II as a fit to the company's strategy, SK-II has a perception of being a Japanese version of Olay that restricts its ability to expand to world-wide markets. Barring these obstacles, Procter & Gamble shouldn't have any problems in globalizing the "SK-II" brand, and the major thing required in the brand's globalization is the initiative by Procter & Gamble to internationalize the brand.