P&G to Build Huge Plant in China

The world’s leading consumer product giant Procter & Gamble (PG - Analyst Report) is set to further spread its roots across China, the world’s fastest growing market. P&G has started construction of a manufacturing plant in Luogang, Guangzhou that is being hailed as one of the largest manufacturing sites in Asia.

The new manufacturing plant is expected to add $490 million of production value to the consumer giant every year. The plant, which will come up in 3 stages, is set to begin its first-stage operations by the second half of 2013. The first stage will produce a variety of goods including its signature Pampers diapers.

The new initiative is a part of the company’s goal to invest as much as $1 billion in China by 2015. As the western world is becoming increasingly saturated, the retail giants are looking more and more towards the eastern world for finding emerging untapped markets.

P&G’s hardcore rival Unilever Plc. (UL - Analyst Report) is also not leaving any stone unturned to capture the fast growing market in China. Almost simultaneously with P&G, Unilever has started constructing one of its largest production operations, covering nearly 27 hectares, in the Binhai New Area, a business district in Tianjin. The new plant will make liquid laundry detergent and fabric softeners.

In 2009, P&G announced its goal to bring one billion new customers to the firm by the 2014-15 fiscal years. P&G’s relation with China dates back to 1980, when, in spite of huge skepticism, the retailer introduced its anti-dandruff shampoo ‘Head & Shoulders’ in the country. Till then there was no anti-dandruff shampoo in the Chinese market. P&G’s launch of the anti-dandruff shampoo was a huge success and thereafter the company launched diapers in China.

P&G has announced plans to add around 20 manufacturing plants between 2010 and 2015 in countries like Brazil, China, South Africa, Romania and Poland.

However, last month P&G announced its decision to slash over 4,000 non-manufacturing jobs in US during the current fiscal year. This declaration follows the already planned 1,600 job cuts, announced by the company at the beginning of February 2012.

P&G anticipates that by trimming down 5,700 jobs, it will save up to $10 billion of cost, including $1 billion in marketing costs and $3 billion in overhead costs, by the end of the fiscal year ending in June 2016.

P&G also managed to shed its Pringles potato chips business by striking a $2.7 billion deal with Kellogg Company (K - Analyst Report), after its earlier plan fell apart when Diamond Foods (DMND - Analyst Report), the original buyer, became embroiled in some accounting problems.

Currently P&G holds a Zacks #4 Rank (short-term Sell rating). Over the long-term, we maintain a Neutral recommendation on the stock.