Q1. 1. First of all, organizational factors in which the decision will be implemented should be considered.

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&G portfolio. That means that Jager, probably, would not appreciate massive SK-II expansion to foreign markets and huge investments that would be required by expansion. 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 risk taking. 4. It is the first attempt to expand Japanese product worldwide by P&G. Which means that this project will be more risky. Japanese consumers, distributors and competitors significantly different from those in most countries. 5. SK-II is already successful In Taiwan and Hong Kong and had encouraged management to begin expansion into Singapore, Malaysia, and South Korea. That means SK-II has a global potential.

Q2. Before accessing the potential of SK-II to act in the global arena, P&G worldwide strategy should be analyzed. According to Ghemawats AAA Triangle framework P&G was originally using adaptation strategy until 1990. In 1990 P&G moved to adaptation and aggregations strategy by changing their organizational structure by aggregating their markets in four main blocks. Than, after the 1999 reorganization Durk Jager announced the formulation of global business units that were responsible for profit generation and eight market development organizations 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% were announced. Finally the 1999 P&G AAA Triangle was built were it is clearly illustrated that the main strategy focus is at Adaptation and Aggregation (Figure 1).
Adaptation

Arbitrage

Aggregation

Figure 1. P&G AAA Triangle in 1999 Note: Approximate value was given for the Arbitrage

After defining the P&G strategy the SK-II Globalization options should be identified. All the information was summarized in the Figure 2 thus moving even further into Ghemawats framework. It is can be seen that SK-II strategy is heavily based on Adaptation and has some significant signs of Aggregation. Particularly, it must be noted that global expansion of SK-II began to aggregate in East Asia markets borrowing Japanese counselors model. Next, SK-II significantly spends on advertising and R&D, which are the main attributes of AdaptationAggregation model. Following that, though SK-II is not a main portfolio brand of P&G, it perfectly suits P&G AA international strategy.

Adaptation Competitive advantage national economies)

Aggregation standardization of a products)

Arbitrage

Configuration

perations are located in countries that are similar to a home base) (International operations are connected within single country) (Cultivating presence) innovation) local any backlash)

Coordination

Controls Change blockers Corporate Diplomacy Corporate Strategy

Figure 2. Globalization options for SK-II

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: Benefits Japan SK-II has already a strong position in this market, good brand awareness Japanese beauty market has a high capacity High potential of modified BIS High potential of the market Diversification of risks Max Factor counselor model approved (SK-II has similar model) Risks Brand growth rate had slowed over the past years Customers are very demanding and unpredictable

Mainland China

Import duties in China might raise the price of products Such expansion does not suits O2005 strategy (might not agreed by GLT) Customer might not be ready for SK-II six-step regimen Beauty-conscious consumers High risk to fail Such expansion does not suits O2005 strategy (might not agreed by GLT) SK-II model should be changed dramatically High losses would occur during start-up period (pressure on SK-II budget)

The UK

Access to a massive market

Figure 3. Benefits and risks for main market expansion options.

Japan: SK-II has a good position on massive Japanese market and the most attention should be paid to it. 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 where the wealthy Chinese consumers have the highest concentration. Moreover, SK-II is successfully presented Japanese counselor model in Taiwan and Hong Kong and there is a little doubt that this 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-II would need to make massive expenses on advertising and adapting to the European distribution model. Finally, SK-II is recommended to concentrate on the core Japanese model and expand to Mainland China market. This strategy will perfectly suit the P&G AA path and will lower the SK-II risks by expanding distribution to a new market.

Q4 The implementation of Jagers strategic change was totally failed. P&G incurred massive financial and operational losses. In 2000 January-March quarter, the 18% drop of the P&G net profit was announced, company lost significant number of senior managers. Moreover market capitalization of P&G decreased by $40 billion. As a result of such a fail, Jager was departed after less than a year. The strategic model O2005 could be changed in some ways. Firstly, the organizational changes were implemented too quickly and sharply. In such a big company adjustments should be applied more incrementally. Than, the balance between adaptation and aggregation was not achieved effectively. GBU should not take the full budget responsibility of the markets, they might not know thoroughly. Finally, O2005 concept must be changed in which company became more risk taking and concentrated more on new product development. P&G is not a venture organization; core businesses should not take big risks and concentrate more heavily on well-established brands.