Colgate-Palmolive International Business Strategy Essay
Colgate-Palmolive International Business Strategy
What a “Colgate Smile” is a phrase commonly used as a compliment about one’s smile. It has been popularized throughout the whole world, due to Colgate’s good reputation as a successful business. Colgate, today being one of America’s most successful Fortune 500 companies, has a long history of evolution and complex adoption of various business strategies, which led to its current solid powerful position. 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 CP slowly internationalized and expanded globally by adapting various strategies to become one of the most powerful MNC’s, to then in the second part, give you details from an academic point of view with regards to the Bartlett and Ghoshal’s transnational strategy framework which the firm ended up adopting in order to most efficiently survive in and take over the very competitive market.
2. Internationalization Strategy of Colgate-Palmolive
2.1 The assesment of the internationalisation 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 country, with both geographical proximity and cultural similarities.
The company’s international growth was slow during the 1800’s but with all the technological developments that took place during the 1900’s and with the need to enlarge their global market share, Colgate went on its internationalization process. To mention briefly; in 1920 Colgate established operations in Europe, Australia, Asia and Latin America, eight years later, Colgate merged with Palmolive-Peet, and became Colgate-Palmolive-Peet, 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 years 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 internationalized 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 that presented a competitive advantage, or had products that Colgate thought were 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 internationalisation Colgate-Palmolive’s geographic segmentation is formed mainly on the basis of each region’s economic, cultural and climatic conditions. Approximately 75% of Colgate-Palmolive’s 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 CP 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.com, 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 Unilever, Procter & Gamble, and Colgate (Hauser Furstace, Inc., 1994), is becoming extremely fierce, that is why CP decided to shift the focus of their competitive advantage and target the, internally so called, ‘high growth markets’ (CP Annual Report, 1996). High growth markets, according to CP’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 1930s, 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 needs. 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 90s Polish CP 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, CP decided to expand these lines of products further internationally (Broniewicz, 1997). Currently CP sells sixteen different kinds of toothpaste in the US, while in the UK they are selling twenty-two distinctive varieties (Colgate.com, 2012).
2.3 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 MNC and conquer the market internationally. The first international cooperation was made in 1914 (Economictimes.indiatimes.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 the largest trade relationship in the world, hence there wasn’t much risk in this move (Kafchinski, 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, CP 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 20’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 westernized) markets, CP expanded to Australia, the United Kingdom, Germany, and Mexico (Answers.com, 2013). We can observe that Colgate opted in expanding in culturally or economically similar countries in the first place (which reflects the Uppsala 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 CP 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 80’s, due to political reason that strongly affected the market’s availability in previous years. In 1995, CP entered Russia and other central European/fast growing markets (Colgate.com, 2013). Taking the example of Poland, Jerzy Starak, 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 CP (Starak initially owned 49% of shares, whereas CP owned 51%) as he thought the business had a huge potential.
Colgate-Palmolive chose to set a JV in Poland as it didn’t have much knowledge and social ties in the eastern European market, rather than going for a WOS, 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 CP to gradually attain the necessary skillset to further penetrate the CEE countries – when CP decided to enter the Baltic states (Estonia, Latvia, Lithuania), the company was able to establish a wholly owned subsidiary in Riga, Latvia and then export CP 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 (Ludzie.wprost.pl, 2013).
2.4 The overview of the enterprise structures and controls used by the company 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 continental 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 CP’s organizational structure is presented below.
Figure 2. Colgate-Palmolive’s 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 puts 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 CP’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 CP’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
3.1. Overview of the Bartlett and Ghoshal’s generic strategies framework
In order to facilitate the understanding of the internationalization strategy of Colgate, it is essential to get oneself familiar with the Bartlett and Ghoshal’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 Ghoshal emphasize that the core competencies and skills of a company do not necessarily have to reside within the company’s home country; 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: multidomestic, international, global, and transnational. Multidomestic 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 strategy 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 Ghoshal’s generic strategies framework (Hill, 2011)
Part of Bartlett and Ghoshal’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 internationalize into global markets while the firm works very hard to be responsive to local demand while holding necessary central control over the global operations to ensure efficiency and learning within subsidiaries (Hill, 2011).
3.2 Evaluation of the Bartlett and Ghoshal’s framework on the company’s example
After a thorough analysis of the internationalization process of CP, it has been found that the company followed in overall three out of four generic strategies, namely international, multidomestic, and transnational. At first, CP operated within the international strategy. CP entered markets which were of geographic or cultural proximity (Canada, France, Australia, etc.) in order to reduce the cost pressures, benefit 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, CP 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 developed ones, thus the shift of strategy towards greater localization and adaptation of offerings became inevitable. At that point CP focused on developing a more multidomestic 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 Colgate’s initial development in foreign markets through the international and multidomestic strategy, they eventually followed the transnational strategy where the company tried to achieve low
costs 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). CP recognized that entering the high growth markets is more challenging and simply replicating the company’s products will not suffice, but a huge MNC like Colgate-Palmolive could not allow a complete shift from international to multidomestic 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 Ghoshal’s strategy framework of Colgate-Palmolive
To conclude this part, in Bartlett and Ghoshal’s model the transition of expansion theory is basically from multidomestic to transnational OR international to transnational or global. In Colgate-Palmolive’s case the situation presents itself differently. The transition of CP’s internationalization strategy started from the shift from international strategy to the multidomestic 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 Ghoshal’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.
Colgate-Palmolive can’t be seen as a simple business, but more as a symbol of a successful MNC, where generations have struggled throughout history with changes in the market, politics, and different economies, in order to adopt the most suited 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. After the second expansion phase, the company couldn’t just replicate it’s products internationally as the cultures, and political systems of the other nations were too different; CP had to sense and exploit local opportunities.
The production and management demanded more local awareness, hence the shift towards a multinational strategy. After over almost 200 years of developing the business and taking over the market internationally, CP seems to have found the “golden strategy”; Transnational. The national units contribute to the world wide integrated operations, and knowledge is developed by all actors, and shared amongst them. Global efficiency has been slowly but safely reached by Colgate thanks to its flexibility and reflex in capturing the market’s demands and opportunities, while staying cautious about cultural and political risks throughout history.
5. List of Figures
Figure 1. The expansion and internationalization timeline of Colgate-Palmolive (page 4)
Figure 2. Colgate-Palmolive’s Organizational Structure (page 7)
Figure 3. Control Structure of Colgate-Palmolive (page 8)
Figure 4. Bartlett and Ghoshal’s generic strategies framework (Hill, 2011) (page 9)
Figure 5. Bartlett and Ghoshal’s strategy framework of Colgate-Palmolive (page 10)
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