Saturday, February 25, 2012

Do players in your industry manufacture overseas? What aspects of their operations to the outsource?

It's not uncommon for companies in the Household and Personal Products industry to manufacture outside of the US. We've already established that the industry has to price competitively and rely on brand names to ensure profits, and a large part of how they do this is cut costs in production. This can mean cheaper packaging, or just automating as much of their process as possible.

Take, for example, Procter & Gamble. Like many brand name companies, they have been hit hard by the economic downturn. Many of their customers in developed markets had switched over to the cheaper private-label alternatives. However, in their international market, they saw the most growth, and as a result, they are opening 20 new manufacturing plants in Brazil, China, South Africa, Romania, and Poland. This is added to their 140 other internationally based manufacturing plants. As a matter of fact, their most recent US plant was in Utah (2011), and it was the first US-based plant since 1971. For P&G, they are expanding their overseas manufacturing process in order to maximize overseas profit.

One of P&G's main competitors, Colgate-Palmolive also manufactures overseas. In their 2010 Annual Report they discussed their plant in China, which they claims is the biggest toothpaste factory in the world. They also acknowledged their presence in Brazil, where they purchase a key ingredient for soap. Like P&G, their presence overseas is mainly to cut down costs. In their China plant, they hope to produce toothpaste efficiently to sell cheaply in markets all over the world. In Brazil, they work to get an ingredient for cheap, so they can cut down production costs.

The Clorox company also has an international presence in manufacturing. They have plants in 17 countries, including the US, Saudi Arabia, China, and India. Once again, their reasoning all narrows down to money. Having plants internationally can help with distribution for an international brand as well. And for this industry, it's hard not to find a brand that's not international.

When it comes down to it, these three companies find the most growth in an international market. Furthermore, the production of these products can be made cheaper internationally. With a market that depends on competitive pricing and brand names, a few cents off of a detergent can make a different in the long run.

1 comment:

  1. I did not realize that companies also had a large market in countries where they find cheap materials. It is very often that you see a shirt label marked "made in China", yet it is not sold in china as well, do to lack of profits. I guess it makes sense if these products are being sold in Brazil though, where prices are still lower than the U.S, but probably high enough to generate profit.

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