P&g Mexico

THE P&G COMPANY: MEXICO 1991

Table of contents

Introduction...................................................................................................................................2

History of P&G................................................................................................................................3

Global financing at P&G.................................................................................................................4

Mexico.............................................................................................................................................5

P&G in Mexico................................................................................................................................6

Case questions

1. As Dick Duffel, which financing option do you recommend and why?.................................8

2. What importance does Mexico tax law play?...................................................................12

3. Is there a link between financing risk and foreign exchange risk? Business risk?...............12

Bibliography.................................................................................................................................14

Introduction

Dick Duffel, associate director of P&G Mexico suggests, in order to increase manufacturing facilities in Mexico, to borrow an average of $ 55 million of dollars for over three years. As the borrowing would represent the 20% of the investment needed, the total investment required would be $ 750 millions of dollars.

All investment proposal would have to pass through the board of Cincinnati and therefore Mr. Duffel was asked to prepare a complete written analysis to be presented to the board, considering the Mexican economic stability.

In order to be able to evaluate the situation, there may be presented some notes:

- History of P&G with highlighting of expansion and financial information

- Indication of the financing attitude at P&G

- Outline of the Mexican market

- Presentation of P&G Mexico

The information given in these notes will help to evaluate:

- P&G communications corporate identity and goals

- Possibility of interaction with local authorities and Mexican government stability

- Evaluation of the risks and outline for the specific pro and contras

- Forecast of Mexican political situation, playing a vital part in this decision

History of P&G

October 1837 James Gamble and William Procter started the company contributing each one $ 3,596.

Production: soap and candle

Location: Cincinnati (Ohio)

n.d. P&G bought some land near Cincinnati

1848 P&G is gaining an annual profit of $ 26,000

n.d. P&G Prospered through the civil war

1878 introduction of IVORY SOAP: absolute success

1913 P&G start to sell directly to retailers. Business grows steadily

1937 centennial of foundation celebrated with

- sales of $230 millions

- 16 manufacturing plants (11 in the United states and 5 in foreign countries such as Canada, England, Cuba and the Philippines)

- 12 cottonseed mills

- 1 processing plant in Memphis

- implementation of the brand management

1955 - sales of $ 966 millions

- net earnings of $57 millions

- was organised into three separate divisions:

a) food

b) drugs

c) soaps

1970 P&G has operations in 20 countries

late 1970s company has:

- 10 operating division worldwide for consumer products

- 5 operating divisions worldwide for industrial products

products moved through grocery stores and the drugstores

1980 P&G has operations in 22 countries

late 1980s broadening product range gave way to a strategy of geographical

expansion

1981 company competes in 26 product categories

1990 - company competes in 41 product categories

- P&G has operations in 46 countries

- P&G total sales have grown to $24.1 billion

- international sales exceeding $ 9.6 billion

- net earnings $ 1,602 million (33% more than 1989)

- company's return on shareholders' equity exceeded 20%

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