Higher duties thwart P&G’s expansion

March 27, 2012

Procter & Gamble high official speaks about the constraints his company faces in Bangladesh
Procter & Gamble (P&G) plans to introduce more of its products to Bangladesh to tap the market potential, as the steady economic growth of the country is fuelling demand for consumer goods.
But higher import duty for personal care goods acts as a barrier to the world’s largest consumer goods company to launching more of its items in the market of 16 crore people.
Samuel S Kim, vice president for Asean and Asia development markets of P&G Asia, shared this view with The Daily Star in an interview during his recent visit to Dhaka. Import duty and supplementary duty together stand as high as 110 percent for shampoo, he said.
Higher duty also becomes a bottleneck for P&G to offer products at prices affordable to a large number of consumers here, Kim said.
“It makes Bangladesh ironically one of the places in Asia with the highest duties. Therefore, it’s difficult for us to be able to provide products (to consumers) of great value and benefit at prices that can be lower,” he said.
“Supplementary duty is the key challenge to reduce prices. It makes me feel bad that we are not being able to provide consumers with these products at prices that they should pay.”
Kim said supplementary duty on top of basic import duty ranges 20-60 percent.
Out of 304 brands in different categories, the USA based multinational P&G markets its hair care brands Pantene and Head & Shoulder, shaving razor and foam under Gillette brand, skin care product Olay, Oral-B toothbrush, baby diaper Pampers and feminine napkin Whisper.
Of the products, the 175-year-old company enjoys leadership in the razor segment in Bangladesh where it has been selling its products through agents since 1996.
Its anti-dandruff shampoo — Head & Shoulder — sells well along with Pantene in Bangladesh’s $500 million common consumer goods market, where another multinational firm Unilever is the main player.
Kim said the company does not flaunt its country-based sales figure. But P&G’s business in the country is still ‘quite modest’, he said.
“It’s modest in that it’s one of the smaller businesses in our portfolio with a lot of growth potential,” he said, adding that the market is rapidly changing.
“I need to offer more of P&G products and we will continue to grow with the growth of Bangladesh economy.”
But much of the prospects of increasing sales lies in the hands of the government, for which the company is awaiting a reduction in duty, particularly supplementary duty.
A cut in duty will lead to wider emergence of the P&G products in the market, enabling higher number of consumers to get more choices within their purchasing capacity.
The company will thus create a more competitive environment in consumer goods segment, creating competitive pressure on marketers to improve qualities of their products.
“It’s not so much important about winning against competitors. It’s about winning for consumers. Consumers will only win when they have choices,” Kim said.
“Think about anything in life — if there are more choices, then through competition there will be more improvements. If retailers have more products to sell, you will be creating a more competitive environment where everybody will win.”
P&G presses for reduced duty in shipments of its products from its base to Bangladesh at a time when rising per capita income fuels consumer spending for personal and household care products here.
An around 6 percent annual economic growth now leads to a gradual change in lifestyle and tastes of consumers living in urban and semi-urban areas.
According to the official, common consumer goods market that includes hair care, skin care, feminine care, baby care and male grooming stuff is growing by 5-10 percent annually in Bangladesh.
“This is a vastly growing market and we look forward to seeing continued and faster growth and providing more brands to the consumers. I am particularly impressed with the economic development here,” said Kim, who has been visiting the country from time to time in the last two years.
Bangladesh, one of the most populous countries in the world, offers a good market potential, he said.
“It means that we have to be here. And frankly, keeping the development and current economic progress in view, we believe we can do good jobs in improving the lives of people here.”
The P&G official said the company having operation in 80 countries also looks to reach all consumers, including those with low incomes.
But providing products to poor people at prices within their capacity is a challenge, he said.
“It’s a constant challenge to figure out how we reduce the costs that can enable us to provide products of benefits, that can meet most consumers’ needs and improve their lives. That is an ongoing challenge and ongoing journey.”
Now P&G market experts travel the outskirts of the cities of developing markets to see how most people live to better understand their needs.
Kim said Bangladesh economy is growing fast and there are different levels of needs and consumers in the country.
P&G wants to do business here by creating a long lasting relationship with all segments, he said.
“We are just at the beginning phase here. We want to create a long term relationship, trust and connection with the Bangladeshi consumers.”
“Our purpose is to touch and improve people’s lives. And when we do better jobs of touching and improving people’s lives, we can generate sales and profit,” he said.

-With The Daily Star input

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