1.

Does SK-II have the potential to become a global brand within Procter & Gamble’s
worldwide operations? Why or why not?
Please give a detailed answers for both why/why not.

SAMPLE ANSWER
SK-II is a cosmetic product that was developed by the P&G Japan local company to
address the consumer taste and preference in the country. This product was adopted
since the company lacked any good product that would suit the Japanese’s women way
caring for their skin. It used in like 8 step procedures though its impact was found to be
marvelous in Japan. The product was anticipated to be highly accepted in other global
market, but after the women of other markets understand how it is used and its
tremendous impact on their skin. In this regard, its expansion to other international
market was always hindered by a long familiarization period before breaking even. This
was witnessed in China and was still predicted to happen in Europe. However, after this
period the product could be very profitable in any part of the world since it was result
based (Bartlett, 2004).
In my opinion, the SK-II product has the potential of becoming the world cosmetic
product. However, this may require time and patience from CEOs in the new market.
The product can easily turn into an international cosmetic brand due to its quality and
efficiency in restoring beauty in women. It effective use in Japan and China
demonstrates the product ability to return good and desirable impact to its users. The
fact that it brings changes gives it the potential to sell in any market. However, to
manage that, the international market has to take it to spread customer awareness and
to make the customers understand its use. This gives it a longer market entry and
introduction period after which the company is assured of total profit. The fact that it
guarantee great profit after creating awareness and making its use understood to the
customers gives it a great potential as a global product (Bartlett, 2004).

P&G Japan: The SK-II Globalization Project

SK-II

is high-end product that succeed in Japan, Taiwan, and Hong Kong. Then, P&G
management would like toexpand the market to other regions, which have three
possible alternatives. First, expand SK-II market in Japanthat already acquired market
share. Second, to penetrate to new market in China, which other P&G products areexist
and going well and China is a high growth market. Third, expand products in European
market. From theanalysis, SK-II should expand to only Japanese market and it is not a
right time to penetrate into either China orEurope. As seen in
Exhibits 1
, P&G highly invested in R&D to gain superior technology, they do consumer research
toidentify unmet customer need. A researcher center has to develop new product
innovation that respond the needand roll new products out rapidly worldwide via
marketing expertise, in order to survive in the business. Moreover,P&G also
restructured their organization (O2005) by setting profit responsibility based on seven
global businessunits and consolidating transaction activities based on global business
service unit. The change of organizationrestructure would increase the efficiency by
standardize manufacturing processes, simplifying brand portfolios andcoordinate
marketing activities. However, the negative impact of restructure organization caused a
lot of best localmanager left the company and mislead the team to focus on maximize
sale volumes rather than profits.SK-II already had brand awareness and loyal
customers in Japan. SK-II also had succeeded in launching thefoaming massage cloth.
Therefore, there was a significant opportunity to success in expand into new
productsegment. Moreover, SK-II technology and marketing teams had developed an
innovative beauty imaging system(BIS) which would help SK-II to become the brand
that solved individual skin care problem. It could attract moreJapanese customers,
which was the most sophisticated users of beauty products and build more loyalty for
SK-IIJapan is also the biggest in skin care
’s
market size ($6,869 million in retail sales). De Cesare predicted that SK-IIwill double
sales over the next six or seven years. This mean, SK-II will have sales of more than
$300 million in thenext six or seven years. Moreover, SK-
II is such a high margin product and its’ operating income will increase $16.5
million ($150 x 11%). Therefore, the expansion in Japanese market is very
appropriate.Some of P&G products (such as Olay) are huge success in China and
some of Chinese customers alreadypracticed three-step cleansing and moisturizing
process. Chinese market has very high growth rate. These factorsshould help SK-II to
success in expanding into Chinese market. Unfortunately, SK-II is prestige products and
mustsell through counter in department stores with beauty consultants and Chinese
market open department storesonly in Beijing and Shanghai. Moreover, Chinese market
also has many risks such as the risk that Chinese womenwill not develop their discipline
to six- to eight-step ritual, the counterfeit prestige products and especially highimport
duties (35% to 40%), which cause SK-
II to price its’ product above the retail level in other markets. These
factors may damage the attractiveness of SK-II. For sales forecast, they expected to
generate $10 million to $15million of sales over the first three years, so they will have
$1.65 million of operating income ($15 million x 11%).However, they have initial
investment $1.5 million (10% of sales), so as they expected the brand to break
even.From this information, it is not the right time to expand into ChinaEuropean market
is a huge market and has

moderate growth rate. Customers already practiced a multistepregimen but de Cesare

was not sure whether a significant group willing to adopt the disciplined six- to eight-
stepritual or not. Moreover, the biggest problem, some people think SK-II is like Olay for
Japan. SK-II has to make clear
of its’ positioning

but the cost of advertising in Europe is very high. European market has many high-
profilecompetitors like Estee Lauder, Clinique, Lancôme, Chanel and Dior. It is very
difficult for SK-II to create more brandawareness. The projection of operating income is
also loss $1 million to $2 million annually. Therefore, expandinginto European market is
not attractive enough. As the reason mentioned, SK-II should

focus on expanding in Japan. Although Chinese market and Europeanmarket are very
interesting but there are many risks and their return on investment is still low. Therefore,
it is notthe right time to develop into these two markets
Exhibits 1: SWOT Analysis for P&G and SK-II
Strength

P&G had strong team for technology and marketing expertise, that they could work so
well together and P&G couldearn synergy from these two team. From the case, SK-II
had Beauty Imaging System (BIS), which could make SK-IIbecome the brand that
solved individual skin care problems.

P&G management understood issues so quickly and flexible to adjust themselves to

solve the issue. From the case,P&G had restructured organization many times when
they faced issues. In 1990, P&G replaced international divisionsby four regional entities
after experiment model in European.

P&G highly invested for Research and Development (R&D). They had strong
R&D team, and superior technology.Therefore, they had more opportunity to expand
their product line, moved into new segments such as anti-aging andskin-whitening
products.

P&G was highly adaptive for change. They were ready to change structure,
process, and culture as they believedthese changes increase their ability to
develop new product and rolled the out rapidly worldwide as mentioned inorganization
2005: Blueprint for global growth.

They believed that superior technology is their strength.

P&G is customer centric, they had consumer research to identify unmet customer
need and implemented new globalproduct development process to find out how P&G
could respond to the need. They used their superior technology andexpertise markets to
design and adapt the core technology or product to local market as you can see from
the case 10-micro fiber with SK-II.
Weakness

To use SK-II, customers must develop at least a four- to six-step regimen.

It’s not fit for unsophisticated customer.

Doubt on P&G capability to leverage their superior technologies and marketing skill
for luxury products, as they are wellplayed in high-volume products
The implementation of O2005 was causing a good deal of organizational disruption and
management distraction.

To Swing from local to global plan made new people not understand the competitive
and trade differences acrossmarket.

The O2005 make country subsidiary GMs focus more on maximizing sales volume than
profits.

Pressure and not able to prioritize work between launching new product of the month
and sale effort on cosmetics, howto balance.

Only few outside Japan understand SK-II, so they may think SK-II was like Olay
for Japan. SK-II has to make clear of
its’ positioning

and create more brand awareness

Q1.
1.

First of all, organizational factors in which the decision will be implemented should
beconsidered. The GLT champion and P&G CEO, Durk Jager is skeptical about
expansion of premium beauty care business and put in question whether this
business fit in the P&Gportfolio. That means that Jager, probably, would not
appreciate massive SK-IIexpansion to foreign markets and huge investments that
would be required byexpansion.2.

SK-II had slowed its market growth in main Japanese market.3.

O2005 concepts must be taken into account. Which are: new products
development,concentration on market share but not on profitability, innovations,
and more risktaking.4.

It is the first attempt to expand Japanese product worldwide by P&G. Which

means thatthis project will be more risky. Japanese consumers, distributors and
competitorssignificantly different from those in most countries.5.

SK-II is already successful In Taiwan and Hong Kong and had encouraged
managementto begin expansion into Singapore, Malaysia, and South Korea. That
means SK-II has aglobal potential
Q2.
Before accessing the potential of SK-II to act in the global arena, P&G worldwide
strategyshould be analyzed. According to
Ghemawat’s AAA Triangle framework P&G
was originallyusing adaptation strategy until 1990. In 1990 P&G moved to
adaptation and aggregationsstrategy by changing their organizational structure by
aggregating their markets in four mainblocks. Than, after the 1999 reorganization
Durk Jager announced the formulation of globalbusiness units that were
responsible for profit generation and eight market developmentorganizations that
ran the sales force, thus moving even further to aggregation. Moreover,increase in
the budget for R&D by 12% while cutting marketing expenditures by 9%
wereannounced. Finally the 1999 P&G AAA Triangle was built were it is clearly
illustrated that themain strategy focus is at Adaptation and Aggregation (Figure
1).
Note: Approximate value was given for the Arbitrage

After defining the P&G strategy the SK-II Globalization options should be
identified. All theinformation was summarized in the
Figure 2 thus moving even further into Ghemawat’s
framework. It is can be seen that SK-II strategy is heavily based on Adaptation
and has somesignificant signs of Aggregation. Particularly, it must be noted that
global expansion of SK-IIbegan to aggregate in East Asia markets borrowing
Japanese counselors model. Next, SK-IIsignificantly spends on advertising and
R&D, which are the main attributes of Adaptation-Aggregation model. Following
that, though SK-II is not a main portfolio brand of P&G, itperfectly suits P&G AA
international strategy.
Q3.
Paolo DeCesare had three different market options where he could focus the
activities of SK-II brand: expanding in Japan, delve into the Mainland China or
introduce the brand in the UK.The benefits and risks of each option would be
presented as follows
Japan:
SK-II has a good position on massive Japanese market and the most attention
should be paid toit. The brand slowed growth rate could be overcome with the
more attention on developing of new innovative products and well-coordinated
marketing.
Mainland China:
SK-II should be expanded at least to the main cities- Beijing, Shanghai and
Guangzhou wherethe wealthy Chinese consumers have the highest concentration.
Moreover, SK-II is successfullypresented Japanese counselor model in Taiwan and
Hong Kong and there is a little doubt thatthis model will not applied to above
mentioned mainland cities.
The UK
The UK expansion is the least likely to be approved by the GLT. To get consumers
loyalty SK-IIwould need to make massive expenses on advertising and adapting to
the Europeandistribution model.Finally, SK-II is recommended to concentrate on
the core Japanese model and expand toMainland China market. This strategy will
perfectly suit the P&G AA path and will lower the SK-IIrisks by expanding
distribution to a new market.
Q4
The implementation of Jager’s strategic change was totally failed. P&G
incurred massivefinancial and operational losses. In 2000 January-March quarter,
the 18% drop of the P&G netprofit was announced, company lost significant number
of senior managers. Moreover marketcapitalization of P&G decreased by $40
billion. As a result of such a fail, Jager was departedafter less than a year.The
strategic model O2005 could be changed in some ways. Firstly, the organizational
changeswere implemented too quickly and sharply. In such a big company
adjustments should beapplied more incrementally. Than, the balance between
adaptation and aggregation was notachieved effectively. GBU should not take the
full budget responsibility of the markets, theymight not know thoroughly. Finally,
O2005 concept must be changed in which companybecame more risk taking and
concentrated more on new product development. P&G is not aventure organization;
core businesses should not take big risks and concentrate more heavilyon well-
established brands.