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Only seven years ago, package-goods executives titillated analysts with projections of the billions of tubes of toothpaste and bars of soap they could sell if only per capita consumption in emerging markets like China and Argentina approached that of the U.S. and Europe. Their presentations showed colorful ad campaigns, such as one for Procter & Gamble Co.'s Crest toothpaste that drew heavily on imagery of Mao's Long March-the grueling year-long journey of 6,000 Chinese Communists, pursued by nationalist forces, as they sought to relocate their headquarters across China in 1934. The parallel to their brands' own victorious marches into new geographies was clear.

But after three major economic crises in five years, including most recently one in Brazil, emerging markets are starting to look more like another conflict-Vietnam.

Six household and personal products companies covered by Alliance Capital Management's Sanford C. Bernstein, including Gillette Co., Clorox Co. and Kimberly-Clark Corp., have in the past five years written off a whopping $4.3 billion in currency-related losses from emerging markets. The effect has been muted by the fact that currency write-offs don't show up on the top or bottom lines. But they're equivalent to a tenth of the companies' net incomes over the period and in the case of one company, Colgate-Palmolive Co., have cut book value by more than half.

hype amongst the hope

The write-offs, combined with suspicions that economic growth and consumption of package goods in emerging markets may never match initial rosy projections, has Sanford C. Bernstein analyst Jim Gingrich and other industry observers beginning to smell hype amid what was once hope.

"In part, it was wishful thinking," said former Procter & Gamble Chairman-CEO Durk Jager. "We all needed growth, and these markets provided the convenient answer. ...We have now learned that these markets are volatile."

Though still a believer in the long-term potential of emerging markets, Mr. Jager says the focus on them in the 1990s may have come at the expense of fortifying or launching brands in developed markets. "Our growth for the next five to 10 years, at a minimum, will have to come from growing the mature North American and European markets," he said. This will require focus on innovation, resulting in new-to-the-market products. "That's the course I tried to put P&G on."

It's a course P&G still is on, Mr. Gingrich said, noting that Mr. Jager's successor, A.G. Lafley, has focused on the 10 countries where P&G already does the most business-a list that excludes most emerging markets.

A P&G spokeswoman noted that P&G's top 10 countries do include China and Mexico, adding that the company views the wave of economic crises in the past five years as "a temporary challenge and setback." She added, "We have developing regions as a portion of our growth, but they're certainly not the emphasis as far as our growth."

Currency-related asset write-offs may simply be an unavoidable cost of doing business in emerging markets for the foreseeable future, said Banc of America Securities analyst Bill Steele. "But for companies to turn their backs on 80% of the world's population would be shortsighted," he said.

Mr. Gingrich sees signs that marketers are tempering their enthusiasm. Beyond P&G, others are taking a harder look at emerging markets.

closing shop

A few weeks after his company reported $62 million in Argentine currency write-offs, Dial Corp. Chairman-CEO Herb Baum, discussing with analysts and investors a list of restructuring steps, joked: "I wish we could just close Argentina." Dial also recently restructured its Mexican business to license its brands rather than sell them directly. Kimberly-Clark, meanwhile, ended talks with a Venezuelan papermaker earlier this year prior to last week's currency devaluation there. Even Colgate, despite dominant shares in Latin American toothpaste and household-products categories, is picking fights more selectively in emerging markets-it last year sold its laundry detergent brands in Mexico to Germany's Henkel.

Michael Hoye, president of consultant Hoye & Partners, Stamford, Conn., and a former Colgate executive, expects more companies to focus on only their strongest brands in emerging markets. "If somebody ends up with a relatively weak market position [in an emerging market category]," he said, "I think the days of trying to change that are just about over."

Colgate in china

But companies are still pushing abroad. Few have been so transformed by emerging markets as Colgate, which now draws more personal and household-products business from Latin America than North America. Colgate Chairman-CEO Reuben Mark recently told investors Colgate toothpaste has developed a leading 35% share in China, despite competing with a state-owned brand marketed by Unilever and P&G's Crest. Colgate will branch into other personal and household products in China, he said.

In some ways, emerging markets offer a return to the glory days of U.S. package-goods marketing in the 1950s through 1970s. TV in emerging markets is still cheap and effective while retailers are still relatively small and weak.

But the retail landscape is changing. In Brazil, the market share held by the top five retailers climbed from 26% in 1997 to 43% in 2001, and six of the top seven now have some form of foreign ownership, compared to only one 10 years ago. As global retailers gain power in emerging markets, Mr. Gingrich expects private-label development to accelerate, noting that Clorox has already cited private-label development in Argentina as a factor slowing sales there.

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