Scale or strength?

Date: 2015-10-07; view: 457.

Others may now be interested in buying these companies. But Sylvain Massot, an analyst at Morgan Stanley, an investment bank, says European consumer-goods groups will first have to decide whether size is really so important. The jury is still out on whether firms focused on a few core brands will inevitably lose out to cross-category giants. Advocates of size think that a big company can leverage scale to cut costs, use these savings to invest more in advertising and innovation, and so gain even more scale.

But there are also diseconomies of scale. Giant firms can find it more difficult to move quickly, and their costs can balloon. In particular, mergers take discouragingly long to complete. P&G is still far from finished integrating Wella, for example, and may need many months, if not years, to do the same with Gillette. In any case, strong brands are more important than scale, argues Klaus-Peter Nebel, a spokesman for Beiersdorf, a company less than one-tenth the size of the new P&G. (Beiersdorf's skin cream, Nivea, is one of the strongest brands in the industry.)

Indeed, some of the most successful consumer-goods companies over the past decade have tried to become leaders in just a few product categories, relying on focus rather than scale. Reckitt Benckiser, for instance, is thriving with a limited product range. L'Orйal sold its pharmaceutical business to focus on hair and skin care. In the food industry Danone is selling only water, biscuits and yogurt, but is a world leader in all three.

Mr Lafley's latest deal is aimed at capturing the benefits of both scale and focus, creating a business that is both larger and more reliant on a smaller portfolio of stronger brands. Barring objections from American or European competition authorities, P&G's acquisition of Gillette should achieve this. Whether the new merged firm will then be able to rekindle the consumer-goods industry's dreams of youth remains to be seen.

Special report (no author), Hong Kong, New Yirk, Paris, the Economist, Feb 3rd 2005

Ex 1 Finish up the following statements:

1.Mr Clean, the bald, rugged sailor who …

2.The firm that was founded in Cincinnati in 1837 by …

3. On January 28th, he announced his company was buying Gillette …

4.Even more fulsome in his praise was Warren Buffett, whose …

5. Commodity prices have risen sharply recently …

6. Along with other consumer-goods companies, P&G is …

7. P&G is hoping that this growing stable of superbrands will …

8.P&G, meanwhile, has turned the humble floor mop into …

9. Another trumpeted benefit of the merger is …

10. For L'Orйal, which was founded in 1907 by …

Ex.2 Fill in the gaps using the following vocabulary (Text 3):

1. The company's largest ________________is the purchase of Broadcast.com, an Internet radio company, for $5.7 billion. (acquisition)

2. It's been three years since General Motors could claim to be ________________________ as an automaker. (the world's top seller)

3. In 2008, Wal-Mart racked up $30 billion in additional sales -- the equivalent of adding the ________________________of a Fortune 75 company. (annual sales)

4. A marketing and advertising blog focusing on studies performed on _____________ behavior and psychology. (consumer)

5. International trade association of ­­­­­­­­­­­­­­­­­­­­__________________and suppliers of store brand food and non-food products to supermarkets, drug stores, and mass media. (manufacturer)

6. In the past, _________________could easily buy some space that targeted the people that they wanted to buy their products.(advertiser)

7. Reliable sources familiar with Apple's upcoming product release have said that the company is in fact _____________ a new Apple TV. (launch)

8. Major donors' aid to ____________________fell by nearly 3% in 2011, breaking a long trend of annual increases. (developed countries)

9. Small and medium enterprises have expressed worry of __________________ or identity once their products were vended under the hypermarket's name. (losing brand)

10. The geographically dispersed stores that form __________________ are organized centrally, with ____________________ managing the most important business processes (2). (retail chain; headquarters)

11. There was the growth of a huge African slave ___________to satisfy the needs of the sugar plantations. (workforce)

12. Find and chart the latest ______________and futures___________, including precious metals, energy, agriculture and cattle from the Financial Times (1). (commodity prices)

13. Lebanon's largest listed company, posted a 17 percent fall in 2011 ______________to $162.6 million, hit by declining sales and an unstable regional political climate. (net profit)

14. The Kremlin, like all self-serving _____________, has a golden rule: If you're faced with tough questions about _______________ and corruption, you simply create more _______________to chase the tails of the people who do the creative work (1). (bureaucracy)

Ex 3 React to the statements: true \ false. If it's false, correct it:

1. Lafley, a dapper beauty-products specialist who became boss in June 2010 (f: 2001).

2. British companies have grown at a compound annual rate of just 4.7% (f:American).

3. Retailers have begun plugging their own discounted, “private label” brands that compete with the pricier, higher-margin products from Unilever and P&G (t).

4. P&G is the Europe's biggest advertiser, with a budget of around $5 billion last year (f: world, 3).

5. The average supermarket shopper spends just a few minutes pondering each purchase (f:seconds).

6. P&G has also been quick to understand the importance of advertising on China's national television network (t).

7. The growth has elevated China to P&G's sixth-biggest market in 2003(t).

8. P&G is already Unilever's biggest partner in health and personal care (f:rival).

9. Advocates of size think that a small company can leverage scale to cut costs, use these savings to invest more in advertising and innovation, and so gain even more scale (f:big).

10. Some of the most successful consumer-goods companies over the past decade have tried to become leaders in just a few product categories, relying on focus rather than scale(t).