Gillette Targets Emerging Markets' As it entered the twenty-first century, Gillette faced a difficult choice. Should...

Gillette Targets Emerging Markets'

As it entered the twenty-first century, Gillette faced a difficult choice. Should it continue targeting emerging markets or not? Its strategy to move aggressively into markets in the developing world and the former Soviet bloc had been hailed as a success only a few years before. Recent poor earnings, however, had management considering whether this choice had been a wise one.

The Boston-based firm was founded in 1895 and is still best known for its original products, razors and razor blades. By the end of the twentieth century, Gillette had grown into a global corporation that marketed. Its products in 200 countries and employed 44,000 people worldwide.

In the mid-1990s, Gillette targeted several key emerging markets for growth through product diversification. Among them were Russia. China, India and Poland. Russia was already a success story. Gillette had formed a Russian joint venture in St.Petersburg and within 3 years Russia had become Gillette's third-largest blade market.

Gillette's move into the Czech Republic had prospered as well and in 1995 Gillette bought Astra as a private Razor Blade Company. Astra gave Gillette expanded brand presence in the Czech market. Astra's relatively strong position in export markets in East Europe, Africa and Southeast Asia proved a boon to Gillette in those markets as well. Just as in other markets in the developing world, 70 percent of East European blade consumers used the older, lowertech double-edge blade. In more developed markets, consumers appreciated product innovation and the shaving market had moved to more high-tech systems such as Gillettes Sensor.

Then disaster struck. A financial crisis that began in Thailand quickly spread across Asia. Many wary investors responded by pulling money out of other emerging markets as well depressing economies across the globe. Bad economies meant slower sales for Gillette, especially in Asia, Russia and Latin America. In Russia, consequently, these products disappeared from retail stores and Gillette's Russian sales plummeted 80 percent in a single month. Gillette found it could not meet its projected annual profit growth of 15-20 percent. The price of Gillette shares tumbled 36 percent in 6 months. To save money, Gillette planned to close 14 factories and layoff 10 percent of its workforce.

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Despite its recent bad experience in developing countries and in the former Soviet bloc, Gillette was still moving ahead with plant expansion plans in Russia and Argentina that would total $64 million. Some even suggested that this was a good time to expand in the emerging markets by buying up smaller competitors that had been hurt even worse by the crises. Meanwhile, back in the developed world, another large global consumer products firm, Unilever, announced that it would be entering the razor market.

Questions

Why Companies such as Gillette engage in international business? Give some reasons.
What are the global strategic issues to be considered by the managers of Gillette when expand their operation in emerging market? Briefly explain.
How the external environment affects the Gillette’s international operations in emerging market?

Expert Solution

Companies such as Gillette engage in International business for finding growth opportunities, lowering costs by economies of scale, building the brand as a global brand increasing its value and customer base, diversifying the risks associated with limited market size, competition.

Global strategic reasons that managers at Gillette should consider expanding their operation in emerging markets are the local culture and customer preferences, cost of establishing business operations and network compared to other markets, local regulations and economic conditions for long term business. Gillette's managers should consider the competition and other brands already existing in the market , demand, marketing costs and scope of growth in the newer markets.

External environment influences Gillette's operations in emerging markets as it is important to consider political, legal, economic factors for long term strategy making for business development and growth in the market. Depending on the technology, the brand will plan its manufacturing, marketing and adapting to local customer preferences. The local social cultural factors will decide the popularity of the brand. The local culture and traditions need to be considered to find out consumer needs and preferences. Based on the economic factors, the brand will plan its business in short or long-term as it will affect the profitability of the brand.

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