Throughout its history, Colgate-Palmolive had relied heavily on expatriates to establish and manage foreign subsidiaries, and in the asses plopped an explicit policy regarding international assignments. By 1993, it had 1 70 expatriates in key management positions all over the world. International experience was considered central to career development, and virtually a requirement for anyone aspiring to senior management.
By the early 1 9905, however, an increasing number of talented young managers were becoming reluctant to accept international assignments, often because their spouses had careers of their own and could not easily move abroad. As dual-career families became more and more common, C-P began to reconsider its approach. Perhaps, some suggested, greater efforts should be taken to address the concerns of dual-career families. Others wondered if less emphasis should be placed on international experience as a condition for advancement.
Don’t waste your time!
Order your assignment!
By the spring of 1994, managers at Colgate- Palmolive were thinking carefully about whether to adjust their approach toward international career development. Colgate-Palmolive Company Background Colgate-Palmolive was one of America’s first major consumer products companies. It traced its roots to two firms founded in the 19th century: Colgate and Company, based in New York City, was the nation’s leading toothpaste manufacturer, and the Palmolive-Pet Company was a prominent Professor Philip M.
Rosenstein prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 0 1994 by the President and Fellows of Harvard College. To order copies, call (617) 495-61 1 7 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval System, used in a spreadsheet, Or transmitted in any form or by any means-?electronic, mechanical, photocopying, cording, or otherwise-?without the permission of Harvard Business School. . Colgate, Palmolive, Ajax, Irish Spring, Hill’s, and Science Diet are registered trademarks of Colgate-Palmolive Company. This document is authorized for use only by Abaft Header at Iberia University until February 2014. Copying or posting is an infringement of copyright. [email protected] Harvard. Du or 617. 783. 7860. 394-184 Colgate-Palmolive: Managing International Careers soap maker based in the Midwest. In 1928 the two firms merged to form Colgate Palmolive-Pet Company, and in 1953 the present name of Colgate-Palmolive Company was adopted.
Following the 1 928 merger, Colgate-Palmolive prospered in the United States and expanded abroad. By the late asses, the firm had subsidiaries in several European countries, as well as in Argentina, Brazil, India, Mexico, South Africa, and the Philippines. In 1938, foreign sales accounted for 28% of company revenues and 41% of its profits. Over the next 23 years, under the direction of president E. H. Little, C-P consolidated its position in Europe and further developed its presence in Latin America and Asia. By the time Little retired in 1961 , C-Up’s products were sold in 85 countries around the oral.
Overseas activities had grown to more than 53% of company sales and accounted for fully 78% of profits. A description of the Colgate- Palmolive international expansion is detailed in Exhibit 1. During the asses, Colgate-Palmolive undertook a series of acquisitions and became a more diversified company. Revenues grew to $49 billion by 1984, but profits lagged. Under the leadership of Reuben Mark, CEO since 1984, the company divested several businesses and focused on five product lines: personal care, oral care, household surface care, fabric care, and pet dietary care.
A list of major brands is provided in Exhibit 2. Although Colgate-Palmolive strategy shifted during the asses and ‘ass, as it acquired and then divested several companies, its commitment to a strong international position never wavered. C-P continued to found new subsidiaries in Latin America, Africa, and Asia, including in several populous countries such as China, Indonesia, and Pakistan. In the late asses C-P entered Eastern Europe, setting up subsidiaries in Poland, Hungary, Russia, Romania, and the Czech Republic.
In the early asses it expanded many of its existing subsidiaries, starting to manufacture toothpaste in China and Tanzania, enlarging its bar soap factory in Thailand, and producing detergents and bleach in Malaysia, Thailand, and the Philippines. In 1992, Colgate-Palmolive acquired Men, a private firm best known for its line of deodorant products. Bolstered by the Men acquisition, worldwide sales topped $7 billion for the first time (see Exhibit 3 for a summary of financial performance).
The acquisition also shifted C-Up’s product mix further toward personal care, as shown in Exhibit 4, and reinforced the company’s presence in Latin America, where Men had a sizable market share. 2 International sales were more important than ever, accounting for almost two-thirds of 1993 revenue, with Europe contributing 27%, Latin America at 21%, and Asia and Africa at 17%, as shown in Exhibit 5. Managing International Expansion Colgate-Palmolive had consistently taken a measured approach toward entering foreign markets. Initially it entered a new country by importing its toothpastes, soaps, and other products.
If sales were strong C-P would set up a country subsidiary and begin to manufacture locally. New subsidiaries were run by experienced C-p managers, .NET in from headquarters or from other subsidiaries. The general managers of foreign subsidiaries, known as country managers, enjoyed a great degree of independence, in part because difficulties in travel and communication in the asses and ‘ass 1. Bruce Hager, ‘Colgate: Oh What a Difference a Year Can Make,” Week, March 23, 1992. 2 Business This document is authorized for use only by Abaft Raider at Iberia University [email protected] Arvada. Du or 617. 783. 7860. Colgate-Palmolive: Managing International Careers 394-184 made close contact with headquarters in New York impossible. Some us bestiaries were visited by executives from headquarters only once every two or three years, giving country managers wide latitude for decisions about product offerings and marketing strategies. Following World War II, despite improvements in airplane travel and communication technology, Colgate-Palmolive retained a highly decentralized management style, and continued to allow its country managers to exercise great autonomy.
Colgate-Palmolive initially organized its activities on a country by country basis, with each foreign subsidiary reporting directly to corporate headquarters. In the asses, a regional structure was adopted, with subsidiaries reporting to regional presidents, who in turn reported to the COO and CEO. With increasing global competition in consumer goods during the asses and ‘ass, C-P began to seek some of the benefits of worldwide coordination, and shifted away from a strictly geographic approach.
In 1981 it created a new unit, Global Business Development, which was responsible for management of certain key equities on a worldwide basis. Global Business Development acted as a global headquarters, gathering consumer and competitive information, developing global strategies, guessing opportunities and risks around the world, and transferring knowledge among countries. Global Business Development also coordinated the worldwide development and launch of certain new products.
During the first stage of product development, regional and country managers worked together to devise a coordinated three-year launch of the product, managing everything from procurement of raw materials to manufacturing to distribution to media advertising. Roll-out took place following a process of concurrent test marketing in multiple countries. At that stage, a manual referred to as a ‘Bundle Book” was repaper which contained all key information about the product: its concept, formula, packaging marketing strategy, and advertising.
Whereas Global Business Development managed a number of equities on a global basis, many other products continued to be tailored to the needs or tastes of specific countries, and differed from country to country in terms of pricing packaging, and market positioning. In 1 994, Colgate-Palmolive organizational structure could best be described as a hybrid. As shown in Exhibit 6, the primary axis of management remained geographic, with the presidents of the four major regions-?North America, Europe, Latin America, and Asia Pacific-?reporting to the COO.
Developing regions of the world, including Africa, Eastern Europe, and the Middle East, reported to International Business Development. Other units, including Global Business Development, Worldwide Sales and Marketing Effectiveness, and Corporate Development, provided a complementary structure, coordinating specific activities around the world. With this hybrid structure, Colgate-Palmolive sought the advantages of local responsiveness as well as the benefits Of worldwide coordination. The Role of Expatriate Managers
From its earliest days of international expansion, Colgate-Palmolive made extensive use of expatriate managers. Experienced managers from one country were dispatched to new markets where they were instrumental in founding the subsidiary, hiring and training local employees, introducing C-P products and marketing techniques, and adapting company products and methods to local conditions. After a few years, these expatriate managers usually moved to another country, transferring nag their expertise and helping to disseminate C-s management approach.
By the asses, Colgate-Palmolive had scores Of managers working in overseas assignments, including not only Americans posted overseas, but managers from Australia, Holland, Great Britain, and many other countries. 3 As expatriate managers rose through Colgate-Palmolive managerial ranks and assumed executive positions, international experience became seen as an essential part of management development. E. H. Littlest successor, George Leech, became CEO in 1961 after heading C-Up’s European operations and, before that, spent 15 years in C-Up’s Mexican subsidiary.
The CEO during the late ‘ass and early ‘ass, Keith Crane, was a New Zealand who began his career in Colgate-New Zealand, became the dead of Colgate-Palmolive operation in South Africa, and then ran Colgate- Australia before moving to headquarters in New York. Before his promotion to CEO in 1984, Reuben Mark served as the Marketing Director for Europe, General Manager of Canada, General Manager of Venezuela, and Vice President of Asia/Pacific. Kathy Wide, Director of Human Resources Planning for Global Human Resources, commented: “Most Of our top executives have worked and lived abroad.
Overseas experience is recognized as a path to the top-?it’s hard to get to top management without international experience. ” For most of its history, Colgate-Palmolive handled foreign assignments informally, without any clear policy. John Steel, Senior Vice President of Global Business Development, was an Australian who joined the company in the asses and had worked in several subsidiaries. He recalled: For many years we really didn’t have any formal expatriate policy. We would just send a manager in, and give him a salary and an annual bonus. There was no help with housing, with education for children, or with ml_ACH Of anything else.
The length of the Stay was 22 months, with a two month leave at the end. During the first year, the manager took two weeks for local leave, but got no home leave. Once in the foreign country, expatriate managers did their best to adapt to local conditions. Diet, climate, and standard of living were often very different from what they were used to. John Steel recalled the conditions he faced when founding Colgate-Palmolive Thai subsidiary: meat and dairy products were in short supply, and the Bangkok heat was oppressive. Although air conditioning was available, Bangkok suffered from frequent power outages.
He recalled: “l had to keep the lights down low in order to keep the air conditioning on. ” In spite of these discomforts, Steel and many other managers relished the challenge of building a foreign subsidiary. They were committed to Colgate-Palmolive, thrived on the variety and stimulation of expatriate life, and often found life overseas to be rewarding personally and for their families. Colgate-Palmolive informal approach toward international career management seemed to work well. Alt not only placed capable people in key overseas positions, but developed for the Company an abundance Of experienced managers.
Over time, however, the lack of a formal expatriate policy became a drawback. One problem had to do with differences in the cost of living. An American salary would allow an expatriate to live very well in some countries, but would not be sufficient to maintain an acceptable standard of living in others. Some foreign assignments were not attractive as managers feared a financial sacrifice-?and conversely, other assignments became attractive as a way to save money rather than for the merits of the job. Neither situation was desirable. A second problem had to do with pension planning.
If a manager worked for a few years in one country, for several years in another, and for several more in still another country, he or she might not become fully vested for pension purposes in any one. No system existed to credit overall C-P experience, regardless of country, toward a single pension-For these and other reasons, the company decided in the early asses to establish a single corporate policy regarding international assignments. One manager remembered: “Colgate-Palmolive had done individual deals with people, but in the early asses we wanted to have some consistency.
The objective was to eve some structure and consistency in our expatriate policy. ” 4 Colgate-Palmolive International Assignment policy Colgate-Palmolive International Assignment Policy was developed in 1983 to provide a standardized set of procedures and entitlements for its expatriate managers. According to a company document, the Policy was intended to be “progressive, comprehensive, and sensitive to employee and family needs. ” Upon selection to C-Up’s global management team, the manager-?whether an American or a citizen of another country-?was formally shifted to “IS.
S. Status” and considered to be an American employee for purposes of pension and benefits. That way, no matter where the manager moved or how long the assignment lasted, he or she received a consistent, U. S. -based compensation and benefits package. 3 The International Assignment Policy had several important components. (See Exhibit 7 for an abridged version of the 1993 Policy). Before accepting an overseas assignment, managers were allowed to take a 5- day trip, with expenses paid, to visit the assignment location.
Upon acceptance of the assignment, the manager and his or her spouse were offered language courses at company expense. Medical examinations ere provided for all family members prior to departure and while abroad. While overseas, Colgate-Palmolive reimbursed the cost of private school tuition for children ages 4-19. Employees also received annual home leave so they could return to their home country for an extended visit each year. Some of the Policy most important provisions were designed to ensure that expatriate managers had a similar level of disposable income as did their counterparts at corporate headquarters in New York.
To ensure financial parity, the firm introduced a goods and services allowance, a housing supplement, and a tax equalization program. The goods and services allowance was calculated by comparing the cost of a standard market basket of goods and services in New York with an equivalent basket in the foreign country. The difference was given to expatriate employees in a cash payment. The housing supplement was calculated to reimburse employees for the amount by which housing costs, including utilities, were expected to exceed housing costs in the metropolitan New York area.
In some countries, such as Hong Kong, the housing supplement could amount to several thousand dollars per month. Finally, tax equalization ensured that expatriate managers were not adversely affected by higher tax rates in the foreign country. Colgate- Palmolive calculated the employee’s hypothetical tax obligation in New York and, if the tax liability in the foreign country were greater, paid the difference. Len countries where the marginal personal income tax rate could reach 65% or more, such as Denmark, C-p had to make hefty equalization payments.
In addition, the company paid for moving and relocation expenses at the beginning and the end of the assignment, provided a relocation allowance, paid temporary living expenses upon arrival, and protected employees against losses in real estate transactions. Colgate-Palmolive International Assignment Policy addressed a wide range of concerns, both personal and financial. Compared to what he had experienced as an expatriate manager, John Steel noted: “We have come light years in dealing with major issues facing expatriates. Industry observers, too, recognized C-As expatriate policy as a leader among American firms. 4 Yet the policy was also Very costly. Taking all Of the Policy components into consideration, the cost of sending 3. Colgate at times sent employees on overseas assignments of shorter duration, often lasting a few weeks or even a few months, but these assignments were usually to solve specific technical problems or to meet short-term staffing needs, and did not qualify under the International Assignments policy. 4.
See, for example, Michael Monomania, Global Manager: Recruiting, Developing, and Keeping World Class Executives, New York: McGraw Hill Inc. , 1993. 5 [email protected] Harvard. Du or 617783. 7860. A manager overseas for a five-year assignment ranged from 150% to 400% of the cost associated with a manager in the United States. Thus, for an American manager with an annual salary of $100,000, the total annual cost o Colgate-Palmolive of an expatriate assignment would be many/here from $1 50,000 (for a relatively inexpensive country, perhaps in Latin America) to $400,000.
There were, in addition, substantial administrative expenses associated with the policy, since goods and services indices and tax equalization had to be calculated for dozens of foreign countries. Colgate Palmolive New York headquarters employed approximately five full-time professionals to administer the policy. One manager in New York summed it up: “It’s ridiculously expensive to send expatriates abroad. ” A Profile of Colgate-Palmolive Expatriate Managers Managers were chosen for the International Assignment Policy if they had distinguished themselves in their initial assignments and were judged to be of high potential.
A managers career might begin at age 25 with an entry-level position, followed by advancement through the ranks until a first functional management position was achieved. Once selected for the International Assignment Policy, the manager’s career might include a series Of overseas assignments, typically for One of the top four positions in a foreign subsidiary: country general manager, director of finance, director f marketing, or director of manufacturing. After three to five years in one expatriate position, the manager might be offered a new position in another country, either as a promotion or as a rotation.
The marketing function had been the most common route to general management, but in recent years, more and more managers were rising to executive positions through the finance and manufacturing functions. Indeed, the promise of advancement to senior management was an important reason why the International Assignment Policy was attractive to professionals in finance and manufacturing. During the late asses, Gap’s International Assignment Policy included roughly 150 managers in scores of countries around the world.