As a key player in the US-China relationship, P&G’s Robert McDonald hopes closer relations between the two countries will result in economic growth and higher living standards for Chinese citizens.
With annual revenues of more than $6 billion in greater China, the Procter & Gamble Co. (P&G) is the largest consumer products company in China. Robert McDonald, the company’s president, chairman, and CEO, was recently elected to lead the US-China Business Council’s (USCBC) Board of Directors, and aims to build on the company’s growth in China while helping to advance US-China relations in his new role. The Cincinnati-based company first entered mainland China in 1988, and it is now in the process of constructing its 11th manufacturing plant there. It has operations in Beijing; Shanghai; Tianjin; Guangzhou and Dongguan, Guangdong; Chengdu, Sichuan; and Nanping, Fujian. P&G has operations in about 80 countries, and it sells its brands in more than 180 countries. McDonald, who has been with P&G since 1980, has extensive experience in Asia. He previously led P&G’s business in the Philippines, Japan, and South Korea in the 1990s. McDonald recently spoke with CBR Editor Christina Nelson about his new position and outlook for his tenure as USCBC board chair.
What is your short- and long-term vision for USCBC?
McDonald: The past 40 years have been marked by a remarkably stable, collaborative, and dynamic relationship between the two great nations. However, there are challenges ahead. Chief among them is to ensure that the next 40 years deliver the same track record of relative success. The stakes are high, and the outcome has enormous implications for the global economy. We need the next 40 years to be marked by our two nations working more closely together to tackle global problems and develop deeper economic bonds. As members of USCBC, we are in a unique position to help shape this relationship. We will speak openly and honestly with both US and Chinese leaders about the policies they are shaping and the language they are using. We will help influence agendas and communication between government officials to ensure they are effective at reducing tensions and solving mutual problems, and we will show that sanctions, protectionism, and counterproductive regulations and legislation are the wrong approach. We want to see problems addressed with solutions that advance the interests of both economies, not policies that would hinder trade, discourage future investments, or disrupt the bilateral relationship. We will develop stronger ties with our Chinese business leader counterparts with the belief that the engagement of the business community in every country makes for better informed policies and legislation.
What do you hope to achieve during your tenure as USCBC board chair?
McDonald: Clearly, one important task is to ensure we continue the progress achieved by outgoing USCBC Chair [and Coca-Cola Co. Chairman and CEO] Muhtar Kent. I hope to hand over to my successor an organization that has made further advances in US-China relations. There is real opportunity to make a big difference in the lives of the Chinese people and, in turn, in the lives of the people of the United States. It is our responsibility as members of USCBC to stand together and remind the governments and citizens of these two great nations just how important our future is together. We are no longer separated by culture or economy. We are tied together. The future growth of our nations, and our world, depends on us.
I firmly believe that it is only through more engagement, not less, that we’ll continue to find common ground on key issues and build greater confidence.
How big of a role does China play in P&G’s overall strategy? What are the company’s future plans for China?
McDonald: Perhaps the place to start is with the importance China plays in the world economy. China has risen to become the world’s second largest economy and America’s third largest export market, and it continues to grow. American businesses and American workers continue to benefit from expanding opportunities to trade with and invest in China. Over the last decade, China has emerged as a top export market for US products and has consistently delivered annual growth of 15 percent. It has been almost 25 years since P&G started its business in China. Now, P&G China is the largest consumer product goods company in China with 10 manufacturing plants and annual revenues of more than $6 billion. As such, we are fully committed to improving the lives of the Chinese people. We broke ground on our 11th plant earlier this year, and it will become one of our most technologically and environmentally advanced manufacturing platforms in the world.
What are some of the top challenges P&G currently faces in the China market?
McDonald: I think that is really a matter of perspective. What some see as challenges, we view as opportunities. China has a breathtaking range of demographic, cultural, and geographic diversity. Viewing it as just one single market would be a mistake. You need to understand that diversity and bring in products and services that meet those often unique needs. Trying to provide a one-solution-fits-all approach would be yet another error of judgment.
It has been almost 25 years since P&G started its business in China. Now, P&G China is the largest consumer product goods company in China with 10 manufacturing plants and annual revenues of more than $6 billion.
The other major opportunity is the sheer pace of change in China. China has a rapidly expanding middle- and upper-income population, and we need to serve every consumer, from the individuals that live on just a few dollars a day to the super rich and everyone in between.
While there are many other opportunities, I want to focus on one final area and that is protection of intellectual property rights. This remains problematic for both Chinese as well as multinational companies, and the Chinese government continues to work hard at addressing this major issue. We look forward to continuing that work and that dialogue so we can make further progress.
How do you see those challenges intersecting with the issues USCBC member companies in other industries face?
McDonald: As I said, I see these as opportunities, not challenges, and I think they are applicable to the vast number of our members. It is critical that we work together as a group with US and Chinese leaders to forge closer links and remove barriers that hold not just both economies back, but the economic welfare of the world.
USCBC member companies consistently rank employee recruitment and retention as one of their top challenges in China. How has P&G addressed human resources issues in China?
McDonald: Attracting, developing, and retaining the best talent is an issue the world over, and China is no different.
We pioneered the concept of campus recruitment in China and now have strong relationships with the top 20 universities across China. Ninety-eight percent of our employees in China are Chinese nationals, and we have created a career management process that balances work and life commitments with the need to learn and develop. China is now becoming an exporter of talent into the rest of the P&G organization across the globe. That is perhaps why our retention levels are high and we are considered among the most preferred employers in China.
P&G entered mainland China in 1988. What are the most important lessons the company has learned about operating in and selling to China in that time?
McDonald: Fundamentally, it is about understanding your consumer and that is where we spent a great deal of time and investment. We take those insights and create products that not only meet their needs but delight them. On an operational side, when we entered China in 1988 as one of the earliest multinationals to set up business in the country, we were very fortunate to have excellent local partners. Their local connections, insights, and knowledge were critical to ensuring that we had a relatively short learning curve in China. This was a critical aspect of ensuring long-term success.
What has P&G done to adapt its products to the China market, and what products have been most successful?
McDonald: Again, it all starts with deep consumer understanding and an unrelenting passion to meet their needs. Also, importantly, we need to meet the needs of all consumers from low income to high-earners. For example, we created Rejoice Daily Care shampoo for lower income Chinese consumers; Olay Natural White and White Radiance skin care products, which were specifically designed for Chinese consumers; Pampers diapers specially designed to fit Chinese babies; and Crest Herbal and Crest Salt White toothpastes based on traditional Chinese herbal remedies.
We recently opened a state of the art innovation center in Beijing with a mission to further our understanding of the needs of Chinese consumers. Beijing is part of a network of dozens of P&G technical centers that share knowledge and expertise. The revolutionary Crest Pro-Health oral care system is a product of the innovation from Beijing. Moreover, Olay White Radiance was produced with the support of Nanjing Medical University, and Crest Herbal was designed using local consumer insights and formulation expertise.
How should future executives prepare to meet the challenge of the China market?
McDonald: Be prepared for the extraordinary pace of change in China. We feel that the world today moves quicker than ever before, but we often measure that change in months and years. In China, that pace is sometimes measured in days. China should never be considered just ‘one market’ but a complex collection of different socioeconomic levels and needs. Understand them and you will understand your consumers. And finally, take a long-term approach. That comes easier for P&G since we instinctively look to the long-term. For others it will be a change of approach, but it will nonetheless be critical to take this long view if you are going to truly succeed in China.