Yinwei (Desmond) Wang

P&G is traditionally known as the industry leader in the personal care and cosmetic market. It owns so large market share so that there are little competitors can compete with them in these market; while, Gillette was the largest shaving products in the world. In 2005, P&G acquired Gillette, a strategy that helped P&G to diversify its product lines, and at the same time, enlarged its bargaining power against mass-market retailers such as Walmart and Carrefour.
This deal reflects the concept—Boundaries of the Firm. Boundaries of the firm depend on two questions: 1.What set of assets or activities should be coordinated to deliver value to customers that can be captured as profits? 2. What is the most profitable way of combining and coordinating these activities?
My thoughts about question 1 is: As the leader of the industry, P&G owns great assets such as its huge market share, decent products quality, more than 300 brands with great reputation and human talents. The activity here is P&G’s acquisition of Gillette and its other brands. This activity helped P&G to gain market share in new market—men care, and strengthen its clout against huge retailers thus guarantee its sales and profit performance. These result of the activity increases bargaining power, which can be its advantage over other competitors and also be a new asset of P&G its own.
Actually, we can evaluate this deal through the concept of synergy. Synergy reflects both the expected benefits of coordination and the costs of coordination. Synergy= (How big are the gains?)*(How achievable are they? )- Costs of coordination. The potential gains here are huge.
First, the Gillette’s stock price got a 17.6% increase, which is a financial benefit. Although
P&G’s stock price will somehow drop, this acquisition will increase the investors’ confidence about future