Procter & Gamble boosts investment in China

20 August 2010

BEIJING: Procter & Gamble, the FMCG giant, has outlined plans to invest $1bn (€781m; £643m) in China over the next five years, with innovation set to be one key focus of this spending.

The owner of Tide and Pampers unveiled a dedicated R&D centre in Beijing earlier in August, which cost around $70m and employs 520 people from 16 countries.

P&G's sixth innovation facility around the world will focus on core categories including baby care, fabric care, oral hygiene, beauty, hair care and snacks.

Alongside identifying goods aimed at Chinese customers, and potentially for other emerging nations, if appropriate these offerings could be rolled out in areas like the US and Western Europe.

"P&G is shifting more innovations to Asia because more growth comes from here," said Robert McDonald, the company's chief executive.

"In the future, substantial growth will be realised in China and driven by China."

P&G delivered $5bn worth of sales in China during the 2009 fiscal year, 7% of its global revenues, which came in at $75bn in this period.

While China has rapidly assumed a primary role in the organisation's efforts to grow its international customer base by a billion people between now and 2015, average outlay remains relatively low.

More specifically, the typical individual spends $3 annually on items in P&G's portfolio every 12 months in China, measured against a total of over $100 in the US.

"China is P&G's second-largest consumer market in the world following the United States, but per capita consumption is still far less than that of the US," said McDonald.

New product development is likely to make a vital contribution to P&G's strategy in China, where the firm is active in 15 sectors, compared with 35 in the US.

"In the Chinese market, we're also planning to introduce more product categories to appeal to every consumer here," McDonald argued.

A further benefit provided by the country is the sheer weight of well-qualified science and engineering graduates it currently generates.

"One of the reasons we ... [chose] to establish the innovation center here is we can take advantage of China's universities, research and development technologies and scientists," said McDonald.

Engaging residents in rural regions constitutes another part of P&G's approach, and it is working with the Chinese government on an initiative called "10,000 Villages" to help build a distribution network in the countryside.

Based on a similar model as implemented elsewhere, P&G has segmented its target audience in China into three main groups.

Only 5% of China's 2bn shoppers fit into the "Level 1" cluster, made up of high-earners that would be interested in P&G ranges like the SK-II premium cosmetics line.

It is estimated that P&G now reaches 1bn consumers in China, having created a local arm in 1988 and invested approximately $1.5bn in resources since then.

Among the products the company has recently launched in China are Naturella, Crest Pro-Health, Olay Skin Care for Men and a variety of extensions to Gillette, such as an entry-level "shaving system".

Data sourced from Shanghai Daily/People's Daily; additional content by Warc staff