07 P&G in China.pdf

MICHAEL J. ENRIGHT

PROCTER & GAMBLE IN CHINA We’ve been in China since 1988. We’re only in about 14 categories. We lead all of them but one. But the spending per capita in China is only $3 a year on Procter & Gamble products. That compares to the United States, where we are in over 35 categories, and the per capita spending a year is $100. So we’ve got a long way to go, but we’ve started the journey. Procter & Gamble CEO Robert McDonald1

Procter & Gamble (“P&G”) had indeed made substantial progress since its entry into China. China had become P&G’s second largest market by volume, and P&G had come to lead in several important product categories in China. However, competition from foreign and Chinese companies was mounting, costs were increasing in China, and the Chinese government was appearing to take a dimmer view of foreign companies. Despite extensive investments in corporate social relations in China, P&G was still viewed as a foreign company and had at times been criticised for its supposed insensitivity to concerns of the Chinese government and the Chinese people. China was poised to become a much more important market for P&G as the company moved to expand its business among less affluent customers in emerging markets. In 2010, P&G had said it planned to add one billion customers to its estimated base of four billion over a fiveyear period, and a large portion of these customers would have to come from China. This would require the company to dramatically expand what was already viewed as a successful business. At the same time, events had shown that even a company like P&G could run into issues in China.

P&G Procter & Gamble was founded in April 1837 in Cincinnati, Ohio, to produce candles and soap. P&G started adding further products and reached sales of US$1 million in 1859. P&G introduced Ivory soap in 1879 and Crisco shortening in 1911, brands that were still prominent 1

Robert McDonald (28 January 2010) conference call with analysts.

Professor Michael J. Enright prepared this case from public sources for class discussion. This case is not intended to show effective or ineffective handling of management decisions or business processes. © 2012 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise (including the Internet) - without the permission of The University of Hong Kong. Ref. 12/524C

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in 2010. P&G started expanding outside of Cincinnati in 1904, opened its first non-US factory in Canada in 1915, and formed its first European subsidiary in the United Kingdom in 1930. P&G introduced its brand management system, which became a model for other consumer packaged goods companies, in 1931. By 2010, P&G had sales of US$79 billion to customers in 160 countries, with roughly a third of its sales coming from the developing world, and roughly 100,000 employees. Twenty-two of P&G’s 300 brands generated US$1 billion in global sales. P&G was a leader in detergents, cleaning products, paper products, beauty products, food and beverages, and personal products.

P&G in China In 1980, China started the process of opening up to foreign companies and set up Special Economic Zones in Shenzhen, Zhuhai, Shantou and Xiamen. By 1984, a total of 14 cities had been opened to varying extents. However, imports were still restricted to special foreign currency shops. At that time, many within P&G thought that it was premature to address China, as Chinese consumers did not have much purchasing power, and there were no channels for foreign companies to sell consumer products. Others felt that staying out of China might give competitors an early mover advantage in what could become a major market. In 1985, P&G began market studies in Beijing and Shanghai. It also began advertising in China, even though it was not selling any product there. According to Edwin Artzt, who would later become P&G’s CEO, P&G was building name recognition and testing the effectiveness of its ads. “We went into the market two or three years before we actually started selling products, and started advertising to build up a reputation for the company,” Artzt later said. “It was very, very effective. Every commercial ended with the words P&G. . . . We must have said that a billion times.”2 P&G entered China in a joint venture with Hutchison Whampoa, a Hong Kong company controlled by Li Ka-shing. P&G Hutchison Ltd, which was created in 1988, was 69% owned by P&G and 31% owned by Hutchison Whampoa of Hong Kong. P&G’s China operation was headquartered in Guangzhou, where it could draw upon P&G management and technical support from Hong Kong. The new company formed a joint venture with Guangzhou Soap Factory and began producing shampoo. P&G increased its stake in P&G Hutchison Ltd to 80% in 1997 and 100% in 2004. Facing uncertain markets, province-by-province regulatory regimes and limited infrastructure in China, P&G initially focused its efforts on the Pearl River Delta region (including Guangzhou) near Hong Kong, the Yangtze River Delta region (including Shanghai) and the Bohai Rim (including Beijing and Tianjin). The company opened a subsidiary and factory in Shanghai in 1995. By 2005, it had factories and subsidiaries in Guangzhou, Shanghai, Beijing, Chengdu (the capital of Sichuan in western China) and Tianjin. By 2008, P&G had added operations in Dongguan (in Guangdong Province next to Guangzhou), Nanping (in Fujian Province, the province next to Guangdong) and Beijing (a technical centre). P&G gradually introduced several product categories into China. It had planned to start with laundry detergent, but its research indicated that Chinese consumers did not appear to value the superior performance of P&G products. On the other hand, the research suggested that Chinese consumers placed great value on personal appearance and might opt for P&G shampoos if they were available. P&G also found it difficult to find willing partners among 2

Dyer, D., Dalzell, F. and Olegario, R. (2004) Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble, Harvard Business School Press: Boston, p. 387.

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China’s detergent manufacturers and found officials reluctant to have P&G enter that sector of the market.3 As a result, the first product P&G introduced in China (in 1988) was its Head & Shoulders brand shampoo. It was introduced in a variety of product sizes, down to single-use sachets costing Rmb 0.5.4 P&G realised that even poor people would buy P&G shampoo for special occasions if given the opportunity. Within a year, Head & Shoulders had roughly 15% of the Guangdong market. P&G introduced the Oil of Ulan (elsewhere Oil of Olay) skin care brand and added the Rejoice shampoo brand in 1989. Pantene shampoo and Safeguard soap were introduced in 1991. The Crest toothpaste brand was introduced in 1997 after an extensive ad campaign to raise awareness of cavity prevention and dental hygiene. The Pampers brand of disposable diapers was introduced in the same year after another large ad campaign. By 2005, P&G had added the Clairol, Vidal Sassoon, Zest, Whisper, Pampers, Ariel and Tide brands. P&G’s China sales grew rapidly from a modest start. Sales went from US$50 million in 1991 to US$100 million in 1992, US$800 million in 1996, US$1.8 billion in 2003, US$2 billion in 2005 and US$5 billion in 2009, making P&G the leader in the consumer products industry in China. Rejoice (shampoo), Safeguard (soap), Olay (skin lotion), Pampers (diapers), Tide (detergents) and Gillette (men’s toiletries) were the leading brands in their categories in China. P&G Greater China (including Hong Kong, Taiwan and the PRC) had become P&G’s second largest market globally in terms of volume and fifth largest in terms of value.5 Creating Product Categories P&G was involved in introducing a number of product categories and segments into China. In parts of China, for example, shampoo was not known as a packaged product. People either used normal soap or took their own containers to a local store to be filled from a bulk container. P&G was among the first to introduce shampoo as a separately packaged product in China, and the first to introduce anti-dandruff formulated shampoos and shampoos with conditioners added. While forerunners of toothpastes existed in China as early as 500 B.C., and there were Chinese toothpaste factories dating to the early years of the 20th century, P&G was among the first to introduce special cavity-fighting toothpastes into China along with modern mechanised production techniques. At that time, chalk-based toothpastes were still dominant in China, while silica-based toothpastes dominated in developed economies. P&G advertised heavily to bring modern dental hygiene to parts of China where daily tooth brushing was not the norm.6 When the Pampers disposable diaper brand was introduced into China in 1997, disposable diaper use in China was non-existent. Most diapers in China were cloth rags. In poorer locations, no diapers were used at all. Baby and toddler clothes had slits to allow waste to pass. In some places the issue was not so much affordability as cultural, as some in China apparently believed that disposable diapers would cause infertility or bowed legs. 7 P&G entered the business in 1997 and by 2010 had roughly 30% of a rapidly growing US$1.4 billion market.

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Ibid., p. 386. The average official exchange rate was RMB 3.7221 to 1 US dollar in 1988. 5 Chief Executive (June 2004) “China, Seen with P&G’s Eye”. 6 Personal Care (January 2006) “Market Dynamics of Toothpaste in China”. 7 Katz, R. (14 November 2005) “How P&G Switched to the Low-Income Customer”, Financial Times. 4

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Developing Products and Segments In 2000, CEO A. G. Lafley had P&G embark on a program to dramatically expand its position in developing markets. Historically, P&G had focused on just the top 5% to 10% of consumers in many developing markets and had virtually ignored the rest. Lafley concluded that if P&G did not enter mid-tier and even lower-tier markets, eventually its growth would be constrained. By 2010, CEO Robert McDonald had re-affirmed this approach, noting that developing economies were growing on the order of 6% per year while developed economies were growing at 1% to 2% per year. China became a major focal point of P&G’s developing country strategy. As elsewhere, P&G had entered Chinese markets with either premium products for the affluent, or with “watered down” products with as much cost removed as possible to serve mid-tier markets. P&G had been successful in the former approach in China, with brands such as Crest, Head & Shoulders, Pantene, Ariel, SK-II and Olay. Head & Shoulders, for example became the bestselling shampoo in China even though it sold at a price three times that of the competition. But P&G recognised that selling just to the top tier had its limits. 8 The “watered down” product approach often did not work. The disposable diaper P&G had first sold in China did not sell well because efforts to reduce costs resulted in a product that was not appealing. P&G shifted to an approach that attempted to study and understand the Chinese customer in detail and to develop and market products specifically for the needs and price points that would make sense to customers. Thousands of P&G personnel were sent to live with and observe consumers or potential consumers around China, and special product-testing programs were initiated. P&G personnel discovered that in some parts of China shampoos were used with only a few cups of water because of shortages, that soaps were often lathered and wiped off due to privacy concerns in homes without bathrooms, that salt was considered good for tooth cleaning, that tea was considered a remedy for bad breadth, that hand washing required different detergent characteristics than machine washing, and so on. A complication was the fact that China’s rapid development was creating huge income disparities. Affluent Chinese in first-tier cities started developing consumption patterns like those seen in Hong Kong and other advanced economies, while those in lower-tier cities and the countryside had very different characteristics. By the mid-2000s, P&G estimated that in most categories the company sold in China roughly 15% of unit volume and 30% of value were in premium segments, 30% of volume and 40% of value were in middle segments, and 55% of volume and 30% of value were in low-end segments. Given the size of these segments, each was difficult to ignore. In addition, an individual or a single household might purchase premium skin care products, mid-tier toothpastes and low-end detergents. Thus P&G had to figure out how to serve the same customer in different segments for different products.9 In detergents, P&G decided to have a brand focused on the top tier (Ariel), a brand focused on the middle tier (Tide) and local brands (sometimes in conjunction with local partners) for the lower tier. In toothpaste, it decided to leverage the success of the Crest brand in the upper tier, with a different formulation called New Crest for the middle tier. According to P&G managers, the key was having a different value proposition at different price points so that the top-tier brands were not diluted. Addressing mid-tier and lower-tier markets required a different type of product development. Instead of developing the best product and then trying to figure out how to reduce costs, P&G began focusing on developing products for particular price points, such as a disposable diaper that would cost US$0.10. According to one P&G executive, “We changed our standard of innovation so we can serve more of the world’s consumers. So it’s a better brand experience 8 9

Penhirin, J. (July 2004) “Understanding the Chinese Consumer”, McKinsey Quarterly, pp. 46–57. Ibid.

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for the target consumer and a lower product cost structure than the competition can deliver.”10 By 2010, P&G was actively engaged in its “US$2 a day” project, a project to figure out how to serve consumers in developing countries that lived on incomes of US$2 per day.11 The question, of course, was whether catering to such consumers could ever be profitable for the company. Manufacturing and Supply Chain P&G was known globally as a world-class manufacturer and manager of supply chains. This gave it a sizable advantage when it entered China, although the company had to invest heavily to develop production capability and import equipment in its initial China operations. It also worked extensively with local and foreign suppliers in China to develop the quality and consistency of inputs that were required for world-class operations. As it began to compete in mass market segments in China, P&G found that it had to reduce its costs on the order of 30% to 50% from its historical global norms in order to compete. Over time, as capabilities in China and the developing world in general improved, and as cost pressures to serve less affluent consumers and to meet competitive challenges increased, P&G realised it would have to take a completely different approach to manufacturing and manufacturing cost control. Instead of importing supplies and inputs from high-cost countries into China, P&G developed extensive supply networks in the developing world. P&G had invested heavily to develop a China supply base for various inputs, but sourced wherever it made the most sense, obtaining toothpaste tubes for the China market in India for example. Given its size, P&G was also able to source inputs at a 20% to 30% cost advantage compared to medium-sized Chinese competitors.12 To reduce the cost of equipment, it developed a network of low-cost component suppliers in Asia and Latin America, plus an assembly facility in Shanghai. The system had allowed P&G to reduce the cost of production lines by up to 30% and had been so successful that P&G began exporting equipment back to the United States and Europe. According to a P&G executive, “We brought our approach to high-speed, sophisticated manufacturing and combined it with a low-cost supplier network to create a technology base that allows us to be much more efficient from a cost of capital and production basis than what’s typically available off the market in these low-cost operations.”13 By 2010, P&G had gone from its single plant in Guangzhou to 10 plants around China. Its new Tianjin facility would be its largest in the world. P&G also brought its most advanced plant designs and concepts to China. In February 2011, it broke ground for a new plant in Taicang. This was P&G’s first plant globally to be registered under the US Green Building Council’s Leadership in Energy and Environmental Design standards. This entailed minimising water consumption and maximising water reuse, cutting energy consumption and using renewable sources such as onsite solar cells, and maximising recycling to generate zero waste for landfills. The plant was the first in of a global plan to use only renewable energy, only renewable or recyclable packaging materials, and no landfill space, and to design products to minimise their environmental impact while maximising consumer impact.14 Marketing P&G started advertising years before it actually sold any products in China. The introductions of new product categories was usually preceded by an extensive advertising campaign. This 10

Katz, R. (14 November 2005) “How P&G Switched to the Low-Income Customer”, Financial Times. Reingold, J. (6 January 2011) “Can P&G Make Money in Places Where People Earn $2 a Day?”, CNN Money. 12 Personal Care (January 2006) “Market Dynamics of Toothpaste in China”. 13 Katz, R. (14 November 2005) “How P&G Switched to the Low-Income Customer”, Financial Times. 14 GreenerBuildings (25 February 2011) “P&G Commits to LEED for Factory in China and All New Facilities”. 11

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was particularly important in the cases where P&G was creating product categories. In its early years in China, P&G was helped by the fact that its product launches received national news attention in China. The result often was queues of people waiting for stores to open to buy the new P&G products.15 As P&G category and product launches became more common, and less newsworthy, P&G ramped up its marketing campaigns. In the process it found that advertising in China had its own idiosyncrasies. Chinese consumers, for example, took advertising very literally. As a result, ads from other places reshot with a Chinese cast did not work in China. P&G also found that ads that were aspirational in nature tended to work well in China. P&G did its best to make its global brands be seen as local brands. P&G became the largest television advertiser in China, using national as well as provincial and city television stations to market its products. According to CTR Media Intelligence, P&G spent an estimated US$5.18 billion in China on advertising on television, in newspapers, in magazines, on the radio, and in outdoor media in 2010. 16 This figure was based on published rates, without considering discounts or free advertising. Number-two L’Oreal came in at an estimated US$2.01 billion. 17 Advertising Age estimated that P&G spent US$1.1 billion on advertising in China in 2009.18 In 2010, P&G announced that it would be the title sponsor of the Chinese version of the British television show “Britain’s Got Talent”. The new show would be called “Head & Shoulders: China’s Got Talent”. P&G’s Oil of Olay and Gillette brands would also be featured. P&G indicated that the sponsorship was designed to allow the company and its brands to form a strong emotional bond with Chinese consumers by being part of the show. P&G also made extensive use of print and other forms of media in China, including online media. P&G made extensive use of Tencent Weibo, an online microblog from China’s Tencent company. It also had a flagship store on Taobao Mall, China’s largest online marketplace. P&G also used Weibo to promote its Hope Schools projects in China. Despite the use of other media, P&G still viewed television as the best way to reach a national audience. Distribution When P&G entered China, there was limited national distribution for consumer goods. Most retail purchases were made in small local shops that were supplied by state-owned distributors. Most brands were local, logistics expertise was limited and distribution was often on a transaction basis rather than through relationships. P&G endeavoured to build a collaborative set of relationships with distributors while teaching them the techniques of modern distribution and inventory management.19 P&G even set up shadow management structures for its major distributors, supervising daily activities as well as training the distributors in modern distribution management. The approach helped create and cement relationships with what became some of China’s most effective distributors.20 Relations with distributors and retailers were considered a key advantage for P&G. In 2005, according to Li Fei, professor at Tsinghua University, “Amid a batch of disputes and conflicts between commodity providers and supermarkets in China, P&G is running smoothly and harmoniously with various retailing

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Dyer, D., Dalzell, F. and Olegario, R. (2004) Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble, Harvard Business School Press: Boston, p. 390. 16 CTR Media Intelligence (11 February 2011) Media Momentum. 17 Ibid. 18 Wentz, L. (30 November 2009) “Top 100 Global Advertisers Heap Their Spending Abroad”, Advertising Age. 19 Dyer, D., Dalzell, F. and Olegario, R. (2004) Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble, Harvard Business School Press: Boston, p. 391. 20 Hexter J. and Woetzel, J. (2007) Operation China: From Strategy to Execution, Harvard Business School Press: Boston, p. 140.

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companies, due to the establishment of … a mechanism, which manages the goods supply and co-ordinates relations with retailers directly.”21 P&G focused initially on leading cities like Guangzhou, Shenzhen, Shanghai, Beijing, and Tianjin, and on the regions surrounding these cities, China’s most affluent areas and largest regional markets. However, the company eventually pushed out beyond these centres into second, third and fourth-tier cities, as well as rural China. P&G built a distribution network covering over 500,000 stores in cities of various sizes in China, and then addressed the countryside. By 2007, P&G was engaged in training people in 10,000 Chinese villages in retailing in an arrangement with China’s Commerce Ministry. The idea was to bring more consumer goods to China’s villages and rural areas to improve local quality of life, while presumably opening further outlets for sales. P&G was viewed as having a superior distribution system in China when compared to its foreign rivals. In addition, extending distribution was seen as improving P&G’s ability to compete with local brands that had long been entrenched in China’s villages.22 By 2010, P&G had nearly 150 distribution centres in China. The company announced the opening of a major distribution centre in Guangzhou in 2010. The centre was P&G’s largest in Asia and second largest worldwide. It was expected to be a major hub that would be able to handle local increases in volumes for the next several years. P&G funded the equipment and systems, while the Guangzhou government supplied the land and was responsible for warehouse construction. P&G equipped its China distribution centres with the latest in mobile technologies to ensure smooth operation. Research Centres P&G opened a US$10 million research and development (“R&D”) facility in Beijing in 1998. The initial goal of the facility was to adapt existing P&G products to local circumstances. Eventually, it also sought to capitalise on local ideas for product improvements. On the order of 80% of the 200 scientists employed initially at the centre were from China. The centre was located adjacent to Tsinghua University in Beijing, one of China’s leading centres for scientific research. The initial mandate of the centre was to ensure that global products were meeting the needs of Chinese customers, to gain access to China’s scientific and technological resources and to work toward improving products for global markets. In addition, a technical team on the ground made it easier to demonstrate product compliance with health and safety standards to local officials.23 The Beijing lab came to specialise on detergents (particularly for hand washing) and oral care products. In 2010, P&G opened a new US$80 million R&D centre in Beijing, reportedly its largest such centre anywhere. By that time, the China lab had developed many formulations tailored for the China market and had become a centre of excellence world-wide within P&G for detergents and toothpastes. The new centre, which employed more than 500 scientists from 16 countries, was expected to become a major node in P&G’s worldwide network of R&D centres, with global responsibilities. In fact, it was expected to be the only centre worldwide that would work on all of P&G’s product categories. Even before the opening of the new centre, several products, including detergents and toothpastes that had been developed in the existing Beijing facility, were being sold elsewhere as well as in China. Building the Organisation P&G focused a great deal of attention on building the China organisation. From its initial entry into China, P&G focused on building up a local employment base and was among the earliest among foreign firms to actively recruit at major Chinese universities. It also 21

People’s Daily (29 March 2005) “P&G Working to Consolidate Market Position”. Roberts, D. (24 June 2007) “Scrambling to Bring Crest to the Masses in China”, BusinessWeek. 23 Walfish, D. (2001) “P&G China Lab Has Global Role”, Research-Technology Management, 44 (5). 22

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developed extensive programs for its China staff that provided general business training, training in specific business disciplines, and training in P&G’s operating procedures and style. P&G followed a similar pattern in China as in the United States and elsewhere, tending to hire people at an entry level and then promoting from within. This approach was viewed as the best way to instil a strong corporate culture and to build loyalty in the organisation. While foreigners were sent to fill key positions in P&G’s early days in China, as time went on, Chinese increasingly occupied senior positions in P&G China. By 2010, only around 2% of P&G China’s 6,500 employees were non-Chinese. P&G China had become a net exporter of managerial talent, that is, more Chinese from P&G China were in P&G management in other countries than there were foreigners in management inside of China. P&G was known as one of the most desirable employers in China. In 2008, 51Job, a leading human resources company in China, gave P&G its top prize for “best campus recruiter”, second place for “best new-hand trainer”, and a place within the “2008 Top 100 HR Companies in China”. 24 In 2008, P&G announced that it had become the first foreign company in China that had obtained permission from the China State Administration of Foreign Exchange to grant foreign listed shares to Chinese employees. Reportedly, the approval came after a five-year negotiating process. The idea was to afford Chinese staff the same opportunity to share in the company’s growth as employees in P&G’s other operations enjoyed. According to one P&G China executive: Building an organization is also about superior recruiting, retention, and competitive compensation packages. Chinese people—especially the younger ones—do aspire to succeed. In addition to seeking material success, they see their personal development as critical; thus, working for a company like P&G is very important. Being successful in China as a company is a great recruiting, retention, and motivation tool. I have noticed how much our young Chinese employees want to work for a winner. This is terribly important for them.25 Government Relations and Corporate Social Responsibility P&G paid close attention to government relations and corporate social responsibility in China. Senior P&G managers visited with national and local government officials regularly and kept government officials apprised of investment plans in China. P&G worked with the central and local governments in areas such as education, public health, and rural development, and participated in other programs and projects of importance to China’s leaders. In 2010, P&G was named a member of the Hurun Institute’s “Corporate Responsibility Top 50.” It was the fourth consecutive year that P&G appeared on the list. It also ranked ninth in terms of the “Most Respected CSR Projects” among foreign companies. P&G was one of only two consumer packaged goods companies in the top 50.26 In the same year, the magazine Southern Weekend named P&G one of the “World’s Top 500 Company Contributors in China”. P&G was ranked first in the fast-moving consumer goods sector for the fourth consecutive year, eighth overall and second in the “Corporate Philanthropy” sub-list. P&G was honoured for its ongoing efforts and contribution to society, including work on education, health and sustainability.

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Procter & Gamble (23 October 2008) “P&G China was crowned the "’2008 Best HR of China’" press release. Penhirin, J. (July 2004) “Understanding the Chinese Consumer”, McKinsey Quarterly, pp. 46–57. 26 Procter & Gamble (5 August 2010) “P&G Again Ranks in 2010 Hurun CSR Top 50”, press release. 25

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By mid-2010, P&G had built 200 Hope Schools in China, more than any other foreign company. Over 150,000 children were studying in or had graduated from P&G Hope Schools. P&G initiated a school health program in 1997, had donated Rmb 300 million to the program by 2007, and expected to spend another Rmb 200 million between 2008 and 2012 in support of health and dental programs as well as education in health, dental, sanitation and adolescent health matters. By 2010, P&G estimated that more than 160 million students in over 600 cities in 31 provinces in China had been helped by the school health program. To support its programs, P&G donated a portion of its sales in China to the programs. By 2010, P&G was also collaborating with Chinese officials on the “10,000 Villages Project”, which was “designed to create distribution networks for household products in rural areas in China”.27 P&G was also concerned about sustainability and environmental protection in China, areas that featured prominently in the 11th and 12th National Five Year Programs, the documents that provided the Chinese government’s plans for China’s economic and social development.28 P&G was named as one of the “China Green Companies Top 100” at the Annual China Green Companies Summit in 2010. P&G was ranked fourth among foreign companies operating in China and first in the fast-moving consumer goods category. In the same year, P&G was awarded the “Green Gold” Platinum Award by Chinese online portal Sohu and A.T. Kearney. P&G ranked first among consumer goods companies in a selection process that included input from 21 sustainability experts from government, academia, media and NGOs, as well as online voters. According to the committee judging the awards: P&G has embedded its sustainability in its Purpose and embodied in all aspects of its operation, no matter on products innovation for environment friendly, on operation sustainability to improve energy efficacy and cut carbon emission, and on employee engagement to save one piece of paper in offices. P&G is a role model company to drive sustainability.29 P&G also participated in high-profile events and forums. China’s leaders viewed the 2010 Shanghai World Expo as an important event in gaining China its rightful place on the world stage. P&G signed on to be an Official Premier Sponsor of the USA Pavilion, exclusive in the Wellness, Beauty and Household Care categories. According to Chris Hassall, P&G Global External Relations Officer: This sponsorship represents a perfect fit with our corporate purpose of touching and improving more consumer lives in more parts, in more parts of the world, more completely. We accomplish this through our quality products and our involvement in the social responsibility causes in the communities where we work and live.… And with our partnership with the USA Pavilion, we are gratified by the thought that we are making a humble contribution to bringing Chinese and American people even a little closer.30 Chinese officials voiced praise for P&G’s contribution to China. Speaking at the opening of P&G’s new R&D centre in Beijing in August 2010, Vice Minster Wang Chao of the Ministry of Commerce stated:

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Business Daily Update (19 August 2010) “P&G Promises ‘Full Court Press’ in China”. The 11th Five Year Program period was 2006–2010; the 12th Five Year Program period runs from 2011 to 2015. 29 Procter & Gamble (11 November 2010) “P&G China Wins Platinum Award for Sustainability”, press release. 30 Procter & Gamble (15 November 2009) “P&G Joins as Official Premier Sponsor of the USA Pavilion at the Shanghai World Expo”, press release. 28

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P&G is an excellent example of Sino-US economic cooperation. I am very optimistic about P&G’s future in China. Foreign companies are an important part of China’s national economy. Advanced technology, management expertise and philosophy have had a profound impact on every aspect of China’s economic and social life. They have positively facilitated the development of China’s high tech, labor intensive and service industries, furthering China’s economic development and China’s integration into globalization. China will adopt a more open approach in conducting economic cooperation internationally and create a better environment for companies investing in China.31 Top Management Attention One of the hallmarks of P&G’s activities in China was the attention that China received from top management. John Smale, who led P&G from 1981 to 1990, was credited with spearheading the movement into developing countries in general, and China in particular. Edwin Artzt, CEO from 1990 to 1995, was one of the senior executives who championed entry into China in the 1980s and then provided continued support after becoming CEO. John Pepper, CEO from 1995 to 1998, while company president in 1991 spent two weeks in China visiting facilities, consumers, officials, and retailers to learn more about China first-hand and to show P&G’s commitment to developing the China market. According to Pepper at the time, China represented “one of the significant strategic growth opportunities for the company over the next 10, 20, 30 years”.32 He went on to state that P&G’s success in China would depend on its ability to introduce world-class products and technology to the market, strong relationships with officials at the national and local levels, and developing a strong China organisation. 33 A. G. Lafley, CEO from 2000 to 2009, had spent a number of years in Asia prior to being named CEO, building the China business among others. During his tenure as CEO, Lafley dramatically expanded P&G’s emphasis on developing countries, including China. Lafley’s successor, Robert McDonald, also had extensive experience in Asia before taking over the top job. While attending the opening of P&G’s new innovation centre in Beijing in August 2010, McDonald had stated that P&G was moving the footprint of the company more toward Asia and China, and that there was no reason that P&G should not reach every Chinese consumer. He also used the visit to continue P&G’s tradition of having its CEOs and top managers meet extensively with national and local government officials in China.34 In addition to top management’s involvement, P&G provided global interaction and support. It was reported that the presidents of operations in developing nations met regularly with each other and with the heads of global business units in a collaborative process to develop new markets. This received support from top management, which had many times repeated its commitment to do what was necessary to expand business in the developing world.35 The SK-II Incidents SK-II, a premium brand of skin care products, was initially developed by Max Factor Japan and launched in the Japanese market in 1980. P&G acquired the brand when it purchased Max Factor in 1994, and introduced it in the Chinese mainland in 1999. By 2005, China was 31

Procter & Gamble (23 August 2010) “P&G Makes New Stride in Innovation in China Ministry of Commerce Highly Commends P&G’s Contribution to China”, press release. 32 Dyer, D., Dalzell, F. and Olegario, R. (2004) Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble, Harvard Business School Press: Boston, p. 392. 33 Ibid. 34 China Daily (23 August 2010) “Interview with P&G CEO”, http://www.youtube.com/watch?v=g6D49NBw6N4 (accessed 26 September 2012). 35 Penhirin, J. (July 2004) “Understanding the Chinese Consumer”, McKinsey Quarterly, pp. 46–57.

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estimated to account for around 7% of SK-II’s global sales.36 At that time, a 25-gram package of some SK-II products could cost Rmb 840 or US$100. In 2005, Nanchang (Jiangxi Province) resident Lu Ping filed a lawsuit against P&G claiming that instead of “reducing wrinkles by 47%” and making her “look 12 years younger” as claimed in P&G advertising, the products caused burning and skin rashes. She posted material related to her complaint on the Internet, and soon the question of the safety of SK-II products became the subject of blogs, web forums, national headlines and official investigations. P&G issued statements asserting that the product was safe and that its advertising was supported by research carried out in Japan. While product liability claims were eventually dismissed, the Nanchang Commercial and Industrial Bureau found that the claims had come from a laboratory experiment involving 300 women in Japan and “lacked authoritative proof”. P&G was fined the equivalent of US$24,000 for false advertising. P&G paid the fine and withdrew the advertising material. A P&G official was quoted as saying that the incident hurt SK-II sales in China.37 On 14 September 2006, the National Quality Inspection Department of the State General Administration of Quality Supervision, Inspection and Quarantine (“AQSIQ”) announced that several SK-II products imported from Japan had tested positive for trace metals banned from cosmetics under Chinese law. P&G questioned the results of the tests, said that a large amount of research indicated the products were safe and announced its intention to cooperate with Chinese authorities. The Chinese media ran numerous articles indicating the substances could cause liver disease, blindness, skin sensitivity and a range of other afflictions, without discussing whether the amounts found in the samples could do so. Two days later, the AQSIQ affirmed the initial findings and issued a statement that the Japanese government should ensure that Japanese skin care producers meet Chinese standards for safety and health. Some speculated that SK-II was being made a scapegoat for troubled Sino-Japanese relations. Notably, the fact that similar products from other countries that were found in independent tests to have the same substances was not picked up by media or officials in China.38 Department stores began removing SK-II products from their shelves, and customers began demanding refunds. P&G responded with a conditional refund offer requiring some evidence of a history of allergies, a signed statement absolving P&G of any responsibility, the original unused or partially used product, and bank information for the refund. SK-II counters were swamped with customers who became increasingly angry and even violent. On 22 September 2006, P&G closed all of its SK-II counters in China and withdrew the products from the market. Editorials in Chinese newspapers criticised the “arrogance” of a foreign company that had been making good profits in China. At the time, the People’s Daily estimated that SK-II sales in China were on the order of US$66.2 million (Rmb 523 million) per year.39 On 24 October 2006, the AQSIQ and China’s Department of Health released a statement indicating that upon further investigation SK-II products were found to have only trace amounts of the banned substances, that these were by-products from original ingredients and that they had not been added in the production process. The Department of Health also found that the products were not illegal and were safe for consumption in China. By November 2006, SK-II counters were re-opened around China, though substantial damage to the brand had already been done, with trade estimates that SK-II had seen a 40% fall in sales in Q1 2007 as compared to sales before the incident.40 36

Associated Press (22 September 2006) “P&G Halts SK-II Cosmetics Sales in China”. Hung, K. (2008) “SK-II: Damage Control in China”, University of Hong Kong Case HKU697. 38 Ibid. 39 People’s Daily (26 September 2006) “SK-II Stops Selling for 1 Day; Lost More than RMB 1 Million; Majority of Shopping Malls Have a Wait and See Attitude”. 40 BrandWeek (1 May 2007) “Procter and Gamble Takes a Slight Licking and Keeps on Ticking”. 37

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The Challenges In addition to government and public relations, P&G faced several challenges in China. Further developing the mid-tier and lower-tier segments into profitable markets was an ongoing challenge, as was expanding P&G sales into its existing customer base. In addition, P&G faced competition from its traditional international competitors—Unilever, L’Oreal, Kao, Colgate, SC Johnson and others—as well as competition from Chinese competitors like the Nice (detergents), Hengan (tissue and hygiene products), Guangzhou Liby (detergents), Guangdong Strong (teas), Shanghai Jahwa (cosmetics) and numerous others. What is more, Chinese competitors had been entering upscale as well as mid-tier and low-tier markets, in some cases with prices even higher than their foreign counterparts. According to executives in the relevant industries, Chinese companies were learning to market in a more sophisticated fashion. Rising costs were also a challenge. In early 2011, reacting to rising materials, transport and labour costs, Unilever announced that it might have to raise prices in China by up to 15%. The result was a run on shops by consumers buying up products before the prices could be increased. The Chinese government, which had made fighting inflation a top priority and had announced that it would rein in price increases, fined Unilever two million yuan (US$308,000) and criticised Unilever for “intensifying inflationary expectations among consumers” and “seriously disturbing market order”. Premier Wen Jiabao had set the national inflation target at 4% and said that “excessive increases in consumer prices would not only affect people’s lives but could also even undermine social stability”. 41 The National Development and Reform Commission Price Department had reportedly met with industry associations and companies in more than a dozen sectors, urging price restraints. P&G indicated that it did not rule out raising prices, but that this would be a “last resort” 42 and managed to avoid being fined. Counterfeiting was another challenge in China for branded goods producers. However, by the early 2000s, the development of more modern retail chains, improved cost control and tough price competition meant that the actual branded product bought through the modern trade was often as cheap as counterfeit products purchased through traditional channels. Even so, P&G viewed counterfeiting as a major issue, because substandard products sold with its brand names attached had the potential to damage the actual brands. In addition, P&G was also becoming worried about counterfeit products being exported from China to other markets.43

P&G China in 2010 P&G’s 2009 China sales were US$5 billion, or over 7% of global corporate sales. According to retail consultants Kantar Media, P&G sold at least one product to 98% of Chinese households in 2009, while Unilever reached 85% of households. In the same year, P&G was estimated to account for 3% of China’s grocery sales. P&G was seen as having penetrated different tiers of cities to a greater extent than its competitors.44 However, per capita spending in China on P&G goods was US$3, while that in the United States was US$100, and that globally was US$11.50. During a 2010 visit to China, CEO Robert McDonald indicated that P&G had invested US$1.5 billion in China since 1988 and planned to invest an additional US$1 billion in China by 2015. The year 2010 saw the opening of the US$130 million distribution centre in 41

China Daily (11 May 2011) “P&G: Price Hike ‘Last Option’”. Ibid. 43 Penhirin, J. (July 2004) “Understanding the Chinese Consumer”, McKinsey Quarterly. 44 Kantar (2010) Who Are Winning the Chinese Consumers?. 42

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Guangzhou, the US$80 million R&D centre in Beijing and the first phase of the US$248 million manufacturing facility in Tianjin. P&G wanted to serve one billion additional consumers by 2015, or approximately 500,000 new customers per day. These would have to come overwhelmingly from emerging markets, mostly China and India. P&G’s sales in the developing world had increased from 20% of its total in 2000 to 34% in 2010. According to McDonald, the goal was not so much to push product as to improve people’s daily lives. 45 Meanwhile, the household and personal care markets in China were growing at 20% to 30% annually. The question was what P&G would have to do to capitalise on that growth.

45

Reingold, J. (6 January 2011) “Can P&G Make Money in Places Where People Earn $2 a Day?”, CNN Money.

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EXHIBIT 1: PROCTER & GAMBLE CONSOLIDATED STATEMENT OF EARNINGS Amounts in millions of US$ except per share amounts; Years ended June 30

2010

2009

2008

$78,938

$76,694

$79,257

Cost of products sold

37,919

38,690

39,261

Selling, general and administrative expense

24,998

22,630

24,017

OPERATING INCOME

16,021

15,374

15,979

Interest expense

946

1,358

1,467

Other non-operating income/(expense), net

(28)

397

373

15,047

14,413

14,885

4,101

3,733

3,594

10,946

10,680

11,291

1,790

2,756

784

$12,736

$13,436

$12,075

$ 3.70

$ 3.55

$ 3.61

Earnings from discontinued operations

0.62

0.94

0.25

BASIC NET EARNINGS PER COMMON SHARE

4.32

4.49

3.86

Earnings from continuing operations

3.53

3.39

3.40

Earnings from discontinued operations

0.58

0.87

0.24

DILUTED NET EARNINGS PER COMMON SHARE

4.11

4.26

3.64

$ 1.80

$ 1.64

$ 1.45

NET SALES

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income taxes on continuing operations NET EARNINGS FROM CONTINUING OPERATIONS NET EARNINGS FROM DISCONTINUED OPERATIONS NET EARNINGS BASIC NET EARNINGS PER COMMON SHARE: Earnings from continuing operations

DILUTED NET EARNINGS PER COMMON SHARE:

DIVIDENDS PER COMMON SHARE

Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 2: PROCTER & GAMBLE CONSOLIDATED BALANCE SHEET, PART 1 Amounts in US$ millions; June 30 2010

2009

$ 2,879

$ 4,781

5,335

5,836

1,692

1,557

604

672

Finished goods

4,088

4,651

Total inventories

6,384

6,880

990

1,209

3,194

3,199

18,782

21,905

6,868

6,724

29,294

29,042

850

885

37,012

36,651

(17,768)

(17,189)

19,244

19,462

Goodwill

54,012

56,512

Trademarks and other intangible assets, net

31,636

32,606

85,648

89,118

4,498

4,348

$ 128,172

$ 134,833

Assets CURRENT ASSETS Cash and cash equivalents Accounts receivable INVENTORIES Materials and supplies Work in process

Deferred income taxes Prepaid expenses and other current assets TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT Buildings Machinery and equipment Land Total property, plant and equipment Accumulated depreciation NET PROPERTY, PLANT AND EQUIPMENT GOODWILL AND OTHER INTANGIBLE ASSETS

NET GOODWILL AND OTHER INTANGIBLE ASSETS OTHER NONCURRENT ASSETS TOTAL ASSETS

Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 3: PROCTER & GAMBLE CONSOLIDATED BALANCE SHEET, PART 2 Amounts in US$ millions; June 30 2010

2009

$ 7,251

$ 5,980

Accrued and other liabilities

8,559

8,601

Debt due within one year

8,472

16,320

TOTAL CURRENT LIABILITIES

24,282

30,901

LONG-TERM DEBT

21,360

20,652

DEFERRED INCOME TAXES

10,902

10,752

OTHER NONCURRENT LIABILITIES

10,189

9,146

TOTAL LIABILITIES

66,733

71,451

Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)

1,277

1,324

Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)

—

—

4,008

4,007

Additional paid-in capital

61,697

61,118

Reserve for ESOP debt retirement

(1,350)

(1,340)

Accumulated other comprehensive income (loss)

(7,822)

(3,358)

(61,309)

(55,961)

64,614

57,309

324

283

61,439

63,382

$ 128,172

$ 134,833

Liabilities and Shareholders’ Equity CURRENT LIABILITIES Accounts payable

SHAREHOLDERS’ EQUITY

Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2010— 4,007.6, 2009—4,007.3)

Treasury stock, at cost (shares held: 2010—1,164.1, 2009—1,090.3) Retained earnings Noncontrolling interest TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 4: PROCTER & GAMBLE CONSOLIDATED STATEMENT OF CASH FLOW Amounts in millions of US$; Years ended June 30

2010

2009

2008

$ 4,781

$ 3,313

$ 5,354

12,736

13,436

12,075

3,108

3,082

3,166

453

516

555

36

596

1,214

(2,670)

(2,377)

(284)

(14)

415

432

86

721

(1,050)

Change in accounts payable, accrued and other liabilities

2,446

(742)

297

Change in other operating assets and liabilities

(305)

(758)

(1,270)

196

30

(127)

16,072

14,919

15,008

(3,067)

(3,238)

(3,046)

Proceeds from asset sales

3,068

1,087

928

Acquisitions, net of cash acquired

(425)

(368)

(381)

Change in investments

(173)

166

(50)

TOTAL INVESTING ACTIVITIES

(597)

(2,353)

(2,549)

Dividends to shareholders

(5,458)

(5,044)

(4,655)

Change in short-term debt

(1,798)

(2,420)

2,650

3,830

4,926

7,088

Reductions of long-term debt

(8,546)

(2,587)

(11,747)

Treasury stock purchases

(6,004)

(6,370)

(10,047)

721

681

1,867

(17,255)

(10,814)

(14,844)

(122)

(284)

344

CHANGE IN CASH AND CASH EQUIVALENTS

(1,902)

1,468

(2,041)

CASH AND CASH EQUIVALENTS, END OF YEAR

$ 2,879

$ 4,781

$ 3,313

$ 1,184

$ 1,226

$ 1,373

4,175

3,248

3,499

Assets acquired through non-cash capital leases

20

8

13

Divestiture of coffee business in exchange for shares of P&G stock

—

2,466

—

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR OPERATING ACTIVITIES Net earnings Depreciation and amortization Share-based compensation expense Deferred income taxes Gain on sale of businesses Change in accounts receivable Change in inventories

Other TOTAL OPERATING ACTIVITIES INVESTING ACTIVITIES Capital expenditures

FINANCING ACTIVITIES

Additions to long-term debt

Impact of stock options and other TOTAL FINANCING ACTIVITIES EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

SUPPLEMENTAL DISCLOSURE Cash payments for: Interest Income Taxes

Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 5: PROCTER & GAMBLE SEGMENT RESULTS

Global Segment Results

Net Sales

Earnings from Continuing Operations Before Income Taxes

Net Earnings from Continuing Operations

Depreciation and Amortization

Total Assets(2)

Capital Expenditures

BEAUTY AND GROOMING GBU BEAUTY

GROOMING

2010

$ 19,491

$ 3,648

$ 2,712

$ 503

$ 11,825

$ 534

2009

18,924

3,558

2,664

454

11,987

526

2008

19,666

3,673

2,827

450

12,760

462

2010

7,631

2,007

1,477

625

21,259

259

2009

7,408

1,900

1,359

721

22,205

294

2008

8,103

2,154

1,582

743

23,302

308

2010

11,493

2,809

1,860

385

7,142

383

2009

11,288

2,786

1,835

369

7,206

372

2008

12,087

3,030

2,021

372

8,088

420

2010

3,135

499

326

92

1,237

86

2009

3,114

388

234

100

1,123

72

2008

3,204

409

261

102

1,303

78

2010

23,805

5,076

3,339

604

9,650

766

2009

23,186

4,663

3,032

578

10,419

808

2008

23,714

5,060

3,411

599

11,387

763

2010

14,736

3,270

2,049

612

6,406

852

2009

14,103

2,827

1,770

570

6,259

902

2008

13,898

2,700

1,728

612

6,821

763

2010

(1,353)

(2,262)

(817)

287

70,653

187

2009

(1,329)

(1,709)

(214)

224

75,634

264

2008

(1,415)

(2,141)

(539)

181

80,331

252

2010

78,938

15,047

10,946

3,108

128,172

3,067

2009

76,694

14,413

10,680

3,016

134,833

3,238

2008

79,257

14,885

11,291

3,059

143,992

3,04

HEALTH AND WELL-BEING GBU HEALTH CARE

SNACKS AND PET CARE

HOUSEHOLD CARE GBU FABRIC CARE AND HOME CARE

BABY CARE AND FAMILY CARE

CORPORATE (1)

TOTAL COMPANY

Notes: (1) The Corporate reportable segment includes the total assets and capital expenditures of the coffee and pharmaceuticals businesses prior to their divestitures in November 2008 and October 2009, respectively. (2) Prior years’ total assets have been updated to reflect a change in management accountability for certain items, primarily accounts receivable, from the reportable segments to Corporate. (3) Amounts in millions of US dollars except per share amounts or as otherwise specified.

Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 6: PROCTER & GAMBLE LEADING BRANDS GBU

Reportable Segment

%of Net Sales*

% of Net Earnings*

HOUSEHOLD CARE

Cosmetics, Female Antiperspirant and Deodorant, Female Personal Cleansing, Female Shave Care, Hair Care, Hair Color, Hair Styling, Pharmacy Channel, Prestige Products, Salon Professional, Skin Care Beauty Electronics, Home Small Appliances, Male Blades and Razors, Male Personal Care Feminine Care, Gastrointestinal, Incontinence, Rapid Diagnostics, Respiratory, Toothbrush, Toothpaste, Water Filtration, Other Oral Care

Beauty

24%

23%

Grooming

10%

13%

Health Care

14%

16%

Snacks and Pet Care

4%

3%

Fabric Care and Home Care

30%

28%

Additives, Air Care, Batteries, Dish Care, Fabric Enhancers, Laundry, Surface Care

Baby Care and Family Care

18%

17%

Baby Wipes, Diapers, Paper Towels, Tissues, Toilet Paper

BEAUTY AND GROOMING

HEALTH AND WELLBEING

Categories

Pet Care, Snacks

Billion Brands

Dollar

Head & Shoulders, Olay, Pantene, Wella

Braun, Fusion, Gillette, Mach3

Always, Crest, Oral-B

Iams, Pringles Ace, Ariel, Dawn, Downy, Duracell, Gain, Tide Bounty, Charmin, Pampers

Note: * Percent of net sales and net earnings from continuing operations for the year ended June 30, 2010 (excluding results held in Corporate). Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 7: PROCTER & GAMBLE GEOGRAPHIC SALES BREAKDOWN, YEAR-END JUNE 2010 Region

Percent of Global Sales

North America

42%

Western Europe

21%

Central and Eastern Europe, Middle East, and Africa

13%

Latin America

9%

Asia

15%

Total

100%

Market Maturity

Percent of Global Sales

Developed

66%

Developing

34%

Source: Procter & Gamble (2010) “Annual Report”.

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EXHIBIT 8: CHINA GDP, CURRENT US$, 1980–2010

7,000 6,000 5,000 4,000 3,000 2,000

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

0

1980

1,000

Sources: Calculated from data in China Statistical Bureau (2011) China Statistical Yearbook 2011.

EXHIBIT 9: CHINA, REAL GDP GROWTH, 1981–2010, PERCENT

16 14 12 10 8 6 4

2007 2009

2005

2001 2003

1997 1999

1995

1991 1993

© Copyright Michael J. Enright, 2011

1989

1985 1987

0

1981 1983

2

Source: China Statistical Bureau (2011) China Statistical Yearbook 2011.

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5950.68 5253.23 4900.56

18858.09

17174.65

12264.55

2.49

40.12

51.56

1.94

1.32

1.49

4256.81

4197.58

4935.81

2.70

36.97

1.22

3.30

4.96

3248

Poor Households (first five percent group)

6743.09

8162.07

8956.81

2.21

45.20

1.46

3.23

10.02

6563

Low Income Households (second decile group)

© ACRC, The University of Hong Kong. It is illegal to copy or post this document.

Source: China Statistical Bureau (2011) China Statistical Yearbook 2011.

22

Notes: (1) Just under half of China’s population was in urban households in 2009. (2) Average exchange rate in 2009 RMB 6.831 = 1US$.

Per Capita Annual Income (yuan) Per Capita Disposable Income (yuan) Per Capita Annual Consumption Expenditure (yuan)

Number of Dependents per Employee (including the employee himself or herself) (person)

3.29

9.95

6518

Lowest Income Households (first decile group)

2.89

100.00

Proportion (%)

Average Household Size (person) Average Number of Employed Persons per Household (person) Proportion of Employment per Household (%)

65506

National

8738.79

11243.55

12345.17

1.99

50.33

1.53

3.04

20.05

13132

Lower Middle Income Households (second quintile group)

11309.73

15399.92

16858.36

1.91

52.46

1.49

2.84

20.05

13137

Middle Income Households (third quintile group)

14964.37

21017.95

23050.76

1.82

54.98

1.49

2.71

20.03

13122

Upper Middle Income Households (fourth quintile group)

Grouped by Percentile of Households

19263.88

28386.47

31171.69

1.73

57.85

1.51

2.61

9.96

6526

High Income Households (ninth decile group)

29004.41

46826.05

51349.57

1.62

61.75

1.55

2.51

9.93

6508

Highest Income Households (tenth decile group)

Procter & Gamble in China

EXHIBIT 10: INCOME AND CONSUMPTION BY INCOME LEVELS, URBAN HOUSEHOLDS, CHINA 2009, RMB

Number of Households Surveyed (household)

Item

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Item

46.81 9.36 11.81 4.61 7.40 8.06 9.33 2.63

36.52 10.47 10.02 6.42 6.98 13.72 12.01 3.87

47.96 8.85 12.11 4.08 8.08 7.29 9.17 2.45

4256.81 2041.55 254.36 458.41 61.14 99.05 77.62 376.60 249.96 515.70 60.83 173.77 42.57 343.96 310.28 390.56 68.30 104.39

Poor Households (first five percent group)

© ACRC, The University of Hong Kong. It is illegal to copy or post this document.

Source: China Statistical Bureau (2011) China Statistical Yearbook 2011.

23

44.63 10.15 10.90 5.43 7.48 8.64 9.88 2.90

6743.09 3009.48 292.15 691.17 79.22 182.38 128.10 684.18 466.34 735.23 123.92 366.43 138.72 504.09 582.28 665.96 151.82 195.43

Low Income Households (second decile group)

Notes: (1) Just under half of China’s population was in urban households in 2009. (2) Average exchange rate in 2009 RMB 6.831 = 1US$.

4900.56 2293.82 265.32 520.85 66.06 121.94 89.09 458.48 306.87 578.93 84.73 226.04 70.10 362.60 394.80 457.22 82.96 128.67

12264.55 4478.54 334.29 867.49 92.78 301.42 196.14 1284.20 923.99 1228.91 396.95 786.94 358.98 856.41 1682.57 1472.76 381.32 474.21

Average

Lowest Income Households (first decile group)

41.66 11.01 10.08 5.97 7.23 9.86 10.91 3.28

8738.79 3640.22 316.34 787.04 86.34 231.55 158.45 962.45 675.04 880.76 178.48 521.47 217.97 632.03 861.44 953.75 225.50 286.68

Lower Middle Income Households (second quintile group)

39.00 11.17 10.00 6.20 7.38 11.36 11.41 3.48

11309.73 4410.49 339.81 904.41 97.09 293.71 200.96 1263.80 900.29 1131.03 301.37 701.08 307.95 834.48 1285.03 1290.09 335.78 393.73

Middle Income Households (third quintile group)

35.87 10.70 9.98 6.53 7.16 13.68 12.08 4.00

14964.37 5367.01 366.04 1010.77 103.87 383.04 241.65 1601.19 1156.29 1493.31 526.36 977.07 453.89 1072.01 2047.83 1807.73 483.42 598.21

Upper Middle Income Households (fourth quintile group)

33.02 10.31 9.21 6.88 6.86 16.52 12.78 4.42

19263.88 6360.33 380.85 1095.79 109.96 472.06 283.40 1986.16 1465.42 1775.08 659.61 1325.54 632.98 1322.40 3181.88 2461.10 682.50 851.39

High Income Households (ninth decile group)

28.05 9.59 9.87 7.29 6.02 20.20 14.19 4.79

29004.41 8135.04 407.44 1178.21 114.09 571.42 341.63 2782.30 2092.69 2863.28 1482.11 2114.20 1085.97 1745.91 5858.67 4116.41 1116.97 1388.59

Highest Income Households (tenth decile group)

Procter & Gamble in China

EXHIBIT 11: CONSUMPTION EXPENDITURES BY INCOME LEVEL, URBAN HOUSEHOLDS, CHINA 2009, RMB

Total Consumption Expenditures (yuan) Food Grain Meat, Poultry and Processed Products Eggs Aquatic Products Milk and Processed Products Clothing Garments Residence Housing Household Facilities, Articles and Services Durable Consumer Goods Health Care and Medical Services Transport and Communications Education, Culture and Recreation Services Consumer Goods for Recreational Use Miscellaneous Goods and Services Total Consumption Expenditures (%) Food Clothing Residence Household Facilities, Articles and Services Health Care and Medical Services Transport and Communications Education, Cultural and Recreation Services Miscellaneous Goods and Services

12/524C