[ Investment > Korea Success Story ]

t started with a bar of soap. Ivory Soap, to be precise. Perhaps no better choice could have been made by Procter & Gamble as the first of its products to be introduced into the Korean market. This flagship product of P&G, one of the world¡¯s best known and most admired consumer goods companies, grabbed the attention and loyalty of Korean consumers in 1989 in much the same way Americans took to the inexpensive but high-quality creamy white soap after it was first developed by James Norris Gamble, a trained chemist and son of co-founder James Gamble almost 110 years earlier.

  It is this desire to improve the lives of consumers the world over, coupled with powerful brand imaging that has propelled Procter & Gamble to the position of a major corporate presence globally, with 100,000 employees in 70 countries and a turnover of $40.2 billion in 2002. In the process, its 300 brands have become household names. The company¡¯s worldwide success has been mirrored in Korea, where products such as Ivory, Pantene and Pampers have become bywords for convenience and personal hygiene. With over 900 workers the company ranks as a major employer and with more than $800 million spent on capital, a major investor. The company operates three plants at Chonan, Chochiwon and Osan where it manufacturers products that serve its six major business areas: infant products, hair preparations, feminine napkins, foodstuffs, household items and paper products. Sales amounted to a colossal 550 billion won (then $460 million) in 2000, a staggering amount for a company that had been in the market a bare 11 years.

  The company¡¯s decision to enter Korea through a joint marketing venture signed with STC Corporation in 1988 was an appropriate one. Seoul had successfully hosted the Olympic Games that year, and after three decades of authoritarian rule when even foreign travel was barred, Koreans were more open to foreign influences and products than ever. What¡¯s more, Koreans were voting with their pocketbooks for change, demonstrating a taste for luxury goods in the wake of big wage increases and mounting personal savings. Aware of rising market demand, the Economic Planning Board began to switch emphasis from export goods to cater to the demands of Korea¡¯s nascent consumer market. The time was right for P&G, and its progress in Korea was rapid.

   STRONG MARKET POSITIONDirectly after the introduction of Ivory Soap, P&G-STC launched Whisper feminine napkins, and the Pampers brand of diapers followed the following year by Blendax toothpaste and the Blend-a-med range of oral hygiene products. The original investment of 11 billion won in 1988 was bolstered by an augmentation of 22 billion won in 1992. The same year, the joint venture¡¯s Cincinnati, Ohiobased American parent formed P&G Korea Inc. with a capitalization of 13.5 billion won, and subsequently bought out STC¡¯s interest in P&G-STC. Thus P&G¡¯s Korean operation became a 100-percent owned subsidiary. Under the new name of P&G Korea Inc., the company introduced Pantene styling products and Rejoice dandruff shampoo in 1993 and began work on its Chonan factory the same year. The plant came on stream in 1994 with the production of the Pantene line, Whisper sanitary napkins and Pampers. This latter item was intended for export to regional as well as the home market, as were later napkins and hair care products, a development that would become a hallmark of P&G¡¯s presence in Korea. P&G introduced a variety of products over the next few years including Vidal Sassoon shampoo and styling products and Pringles potato chips.
  In October 1997, Procter & Gamble Co. made local history by becoming the first foreign investor to take over a South Korean company with its $350-million purchase and integration of Ssangyong Paper Co. A unit of the Ssangyong group, the paper producer was one of Korea¡¯s leading makers of disposable diapers and toilet tissue and industrial wrapping paper, recording sales of $330 million and a net profit of $7.2 million in 1996.

  Under pressure to reduce its $5.5-billion debt just as the country was sliding into financial crisis, the group was anxious to find a buyer. P&G seized the opportunity that presented itself and instantly gained strong domestic positions in its leading product groups of diapers, bathroom tissue and paper towels, largely through acquisition of Ssangyong¡¯s Chochiwon factory. The group¡¯s other major asset acquired by P&G through the takeover was its Osan kraft paper plant.

   AN ASIAN EXPORT PLATFORM P&G Korea¡¯s export efforts intensified as the company looked to its investments to build a production base for the whole of Asia. Two years later in September 1999, the company announced plans to invest $400 million to expand its factory in Chochiwon, South Chungchong province to expand tissue and diaper production from 70,000 tons at that time to 140,000 tons by 2007 in order to meet rising demand for P&G products across the region. Up to this point, the company had invested a total of $700 million in Korea. The company¡¯s position as a major exporter was officially acknowledged the same year when it received an Export Tower award in recognition of shipping some $70 million worth of product in 1999 to 10 countries throughout Asia. Top export brands that year were Ivory, Pantene, Whisper (notably to Japan and Taiwan), Vidal Sassoon, Pringles, Frebreze (odor-eliminating fabric spray), and Joy dishwashing detergent.

   BREAKING THE MOLD Perhaps one of the most visible symbols of P&G Korea¡¯s commercial success and its corporate citizenship is its former general manager, Al Rajwani who was reassigned within the P&G group at the time of going to press.
  A native of Tanzania, Africa, Mr. Rajwani began his career with P&G as a project engineer at its Grande Prairie plant in Canada and occupied a series of high-profile tissue/towel marketing positions at company head office in Cincinnati and in Taiwan before arriving at P&G Korea. From the very beginning of his appointment as CEO, Mr. Rajwani sought to put an indelible stamp on the company by introducing initiatives that would at once boost internal efficiency and heighten operating transparency. After launching a company wide survey, he put in place 100-day plan to address the problems faced by P&G Korea and certain of its product lines. He then formed a series of teams and empowered them to achieve management goals of greater organizational efficiency, managerial capability and maximized business performance.
   Mr. Rajwani sought to break the traditional mold of an authoritarian Korean CEO to promote more open managerial practices, listening to employees¡¯ personal and professional problems and in the process becoming dubbed ¡°Mr. Pringles¡± because of his preference for the P&G potato chips. He also pursued a ¡°customer-first policy¡± visiting retail outlets where P&G products are stocked and even appeared on a television ad to promote Joy detergent.

  P&G Korea has been prominent in a number of social projects that have deservedly ranked it high in public estimation and serve to reinforce its company mission of improving the lives of its customers. Under its ¡°Whisper and Cutie¡± campaign, donations of the napkins and diapers are made to charity bazaars, orphanages or homes for the handicapped, while in April through May it coordinates the ¡°Hope for the Flowers¡° campaign that raises money to treat children stricken with cancer.

  A relative newcomer on the domestic corporate landscape, P&G has built its success in Korea on identifying with the needs of the consumer and capitalizing on the location and productive capabilities of its host country. The growing sophistication of the Korean market and affluence in Northeast Asia generally will serve to deepen the roots of this innovative corporate in its adopted country and at the same time, consolidate the central position of Korea in the economy of the world¡¯s most dynamic region.