As President and then CEO of Procter & Gamble, I helped lead the entry of Procter & Gamble into what was then the Soviet Union in 1990. What followed was the greatest political and economic change in a major country that I have witnessed in my lifetime. There was great uncertainty. Yet those of us at Procter & Gamble believed that with all the uncertainty, the Soviet Union – soon to become Russia – would become a market in which we could build a business. Our objective from the start was clear: To be as fine a consumer goods company in Russia as a company could be, measured by what matters: offering products that truly satisfy consumers, being a fine place of employment, achieving financial success and contributing to the community and the development of ethical business practices.
The first years were a great struggle. Our sales in our third year were still less than $25 million, and we were losing a lot of money. Most people found our brands too expensive. Yet we never doubted the rightness of our mission.
Today, Procter & Gamble Russia is the leader in almost all of its categories. It has sales of well over $2 billion per year, it is profitable, and employs over 3,000 men and women, almost every one of whom was born in Russia or one of the countries of the former Soviet Union.
So what advice do I have for any company or entrepreneur wanting to do business in Russia?
1. Find a product or service that really offers something distinctive, unique, of higher quality than what exists now.
We had to create brands that Russian consumers would love. We did research even before we entered the Soviet Union to find out what products consumers most needed. We found that toothpastes were not very effective and shampoos far less effective than women and men would like. We knew we could make detergents better, and disposable diapers hardly existed. We learned what consumers wanted and we learned how to present our brands to them in ways that they would appreciate.
2. Look for a Russian partner of high ethical standing to help you start the business.
At the start, we formed a partnership with the University of St. Petersburg. The men and women whom we met there, Stanislav Merkuriev, Ludmila Verbitskaya and Valery Katkalo, among others, became our friends. They informed us on how to do business. Graduates of the school became among our first employees. We became engaged with the school in many ways, including helping support the development of what ranks as now one of the finest (if not the finest) business schools in Russia.
3. Be sure you have really thought about your product supply: How you will produce it? How you will distribute it?
We found that there was no substitute for local production. The cost of imported products, in the main, was much more than Russian consumers could afford. That is why we were one of the first companies to engage in the privatization process. In the early 1990s, we undertook a commitment that reached $50 million to partner with, and eventually acquire, the largest and highest quality production facility of laundry and household care products in the former Soviet Union. It was tough. We had to understand the people who were there, and they needed to understand us. But today that plant, located near Tula, is one of the largest and highest quality plants in the entire P&G world. That only came about because we trusted each other.
4. Go in with the commitment that you are in there for the long term. Establish the ethical standards with which you are prepared to operate and the lines you are not prepared to cross.
We knew we wanted to do business the right way, avoiding corruption, from the outset. This was a tough one. We were faced with requests for special payments many times. We simply kept saying “no.” It was easy. That had been our policy from the very beginning of Procter & Gamble, 175 years ago. Yes, we knew sometimes there would be an aberration; somebody would succumb. But we knew, everyone knew, if that happened, we would have no alternative but to have that person leave the company. After a while, people came to know that we had no choice but to say “no.”
Read more about John Pepper’s experiences in his book Russian Tide.
Post new comment