Rethinking globalism

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As executives of various global units of Nestle gathered three years ago near Los Angeles for a product development session, most of them were meeting for the first time.

The world's biggest food and beverage company was a loosely knit empire where even U.S. units rarely collaborated. As the executives began sharing ideas for new foodservice products, some were openly envious of the ability the more centralized global powerhouse Procter & Gamble Co. had to move products and brands from country to country.

DIFFERENT DIRECTIONS

What a difference a few years make. P&G, now undergoing a reorganization to make it even more globally integrated, is recovering from a stock slump caused in part by poor overseas results. Nestle, still a collection of largely independent businesses, has seen sales jump nearly 10% in the first half of 2000 to $22 billion and earnings soar 35% to $1.6 billion.

Other globally integrated heavyweights, such as Coca-Cola Co. and Gillette Co., have faced earnings surprises and stock stumbles over the past two years similar to P&G's.

Coke's problems led Chairman-CEO Douglas Daft to publicly announce a new "think local, act local" edict for his company earlier this year. Even the once bullet-proof Wal-Mart Stores has faced unexpected difficulty expanding in Germany. And smaller players that have tried to go global, ranging from Drypers Corp. in the old economy to Boo.com in the new, have been pushed to the edge of survival -- or beyond.

It all raises the question of whether global branding and marketing are delivering on their promises. While industry-watchers are far from putting global marketing management on a death watch, they are increasingly questioning the wisdom of smaller players trying to go global on their own.

Despite prominent examples of globalized players in trouble, Mc-Kinsey & Co. consultant Kathleen McLaughlin said she hasn't seen enough evidence to show clearly that global marketing management is flawed. "There certainly are examples," she said. "But it's still kind of the law of small numbers."

STILL WORKING

Global product rollouts and positioning clearly do still work. While Japan-focused Kao Corp. never got its Quickle mop outside Japan, P&G moved its Quickle-inspired Swiffer into about two dozen countries in the past year, and S.C. Johnson & Son, a smaller player with its own global reach, beat P&G into such markets as the U.K. by licensing Quickle for its own brands.

While P&G's regional results have been inconsistent of late -- sales were up nearly 10% in North America and Japan last year but the company's overall currency-adjusted sales increased only 5%. P&G Global Marketing Officer Robert Wehling blames the differences on execution, rather than strategy or structure. "When you bring the consumer in every part of the world what they want and you're presenting it in an arresting and persuasive manner, success will follow. And when you don't, the consumer will be first to tell you to fix it."

P&G's troubles with not reaching forecast earnings numbers more likely stemmed from setting expectations too high and spending too much to meet them than from any flaw in its global marketing strategy, said Bill Steele, analyst with Banc of America Securities. Gillette's problems, Mr. Steele added, also stem more from earlier unrealistic growth goals and disappointing results of its Duracell battery business. In the mid-1990s, Gillette was projecting brisk 13% to 15% growth in earnings annually, but growth has averaged only 4% to 5% over the past four years. He said P&G, Gillette and other global players do face one common problem -- virtually every global category now has a full complement of strong multinational and regional competitors. The relatively easy gains P&G, Gillette and Coca-Cola had only five to 10 years ago in such new markets as Eastern Europe or China are largely over, replaced by a zero-sum struggle almost everywhere.

ALMOST IMPOSSIBLE

For smaller players trying to expand globally, winning such battles is almost impossible, he said. "Dial gets into Argentina and they're competing with Unilever and Procter," he said. "There's just no way." A price war can easily cost a smaller company like Dial eight times or more proportionally what it costs a P&G or Unilever, he said.

"One thing we're not is a global company," conceded Dial Corp. Chairman-CEO Herb Baum to analysts in September. He replaced ousted CEO Mal Jozoff a month earlier after a series of three earnings disappointments caused in part by a price war over laundry detergents in Argentina and Chile as Unilever defended its turf against P&G. Dial will stay in Latin America, Mr. Baum said, but said the experience doesn't argue for expanding elsewhere.

Drypers, which expanded into Argentina, Brazil and Mexico in the mid-1990s, has sold its Latin American operations in the past year, but not before incurring losses that helped trigger a more than 90% drop in its stock this year, most recently to 19› last week.

Drypers has had plenty of other problems, too, including plant expansion to handle global private-label business for Wal-Mart that never materialized. And the company was sued by P&G last month for patent infringement and $4.1 million in back payments allegedly owed from a licensing contract. Losses and the P&G suit triggered violations of its debt covenants, prompting Drypers to retain investment bank Wasserstein Perrella late last month to consider alternatives that include "court-supervised restructuring," the company said.

"When you go up against somebody's core business [as Drypers has against P&G and Kimberly-Clark Corp. in diapers] anywhere in the world, it's a death match," Mr. Steele said. "Companies will do whatever it takes to defend that share, and you'd better have the financial resources to compete."

SOME RELUCTANCE

Even somewhat bigger players are now reluctant to go global in some cases.

Though Fort James Corp. ranks as Europe's biggest tissue producer, Georgia-Pacific Corp. is considering selling the European business once its acquisition of Fort James closes, Georgia-Pacific Chairman-CEO Alton Correll said in July. While Wal-Mart has urged Georgia-Pacific to join it in going global, Mr. Correll said he's not sure his U.S.-focused company is ready.

And even in new businesses, going global hasn't been easy, as U.K.-based online fashion retailer Boo.com found earlier this year when it shut down after attempting a multinational launch.

"Dot-coms are expanding globally before they get their home turf tackled," said Peggy O'Neill, director and principal with Nielsen

NetRatings at a recent ACNielsen conference. She pointed to Amazon.com, which has moved to expand globally even though its household penetration among Internet users in Atlanta is half the 20% rate it has in more developed U.S. markets, such as San Diego. "Good luck conquering Paris if you can't handle Atlanta," she said.

Questions aside, global marketing and branding aren't going away.

Even Unilever, long one of the most decentralized multinational players, moved toward global management in August, for the first time reorganizing itself globally along food and non-food lines and appointing executives with profit-and-loss responsibility for each.

But Unilever remains a "multi-local multinational" with executives mainly rising from the ranks of indigenous populations in each region, said Tony Romeo, chairman of Unilever's North American Interactive Brand Center.

OLD AND NEW

He also said the globalism of a so-called "old economy" company like Unilever can help in the new economy. Experience in Europe, with its greater use of wireless Internet applications, for example, will help Unilever develop wireless marketing capabilities in the U.S., he said. Even Internet applications in India, where public Internet kiosks are common, could be applied in the U.S., he said.

"The people we want to work with [in interactive partnerships] have global ambitions, too, and rightly so," Mr. Romeo said. "When we're talking with an AOL or a Microsoft, although we've done the initial deals in the U.S., the context of the discussion is that we'll start here but think about taking this together on a larger global scale."

Colgate-Palmolive Co., one of the more successful U.S.-based multinationals in recent years, retains its regional management structure. It was one of the first multinationals to appoint a single global ad agency, Young & Rubicam, in 1995, pointed out James Dormer, analyst with PaineWebber.

SURPRISING DIVIDENDS

Such globalism pays surprising dividends in the U.S. While Colgate has only about a quarter of the U.S. toothpaste category, just ahead of P&G, the brand beats Crest by a roughly 2-to-1 margin globally, analysts said.

Colgate's overall sales in Latin America are actually higher than in North America. And Latin American immigration has helped give Colgate a market share of about 50% among U.S. Hispanics, an edge that easily accounts for Colgate's thin leadership margin over Crest in the U.S., said one former executive.

"I think most companies still believe there are huge advantages to globalizing their processes and they're learning about how to position brands or best practices on marketing spending," Ms. McLaughlin said. "But I think that they're more carefully thinking about tailoring to local market differences than they did a few years ago."

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