Colgate Palmolive in Mexico Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction

Colgate Palmolive is a global manufacturer of household and personal care products. The company has its presence in 54 countries in terms of manufacturing and distribution, while selling their products in 100 countries globally. The company has seven divisions, including two freestanding divisions of France and Mexico. Both of these divisions act as sales and profit hub for the company.

The divisions of Colgate Palmolive are healthy in terms of revenues and profitability. The products offered by the company are not only good in terms of quality, but are considered as standard when compared with the products of other manufacturers. This is the main reason that Colgate has the biggest market share in terms of products and revenues.

Colgate’s divisions are not only working smoothly, but are reporting profits as well. However, unlike other subsidiaries, Colgate’s Mexico subsidiary is operating in an environment where the economic conditions are different as compared to that of other subsidiaries’ environment. Therefore, their policies are different and they have to make strict decisions because of the prevalent economic conditions.

The economy of Mexico has not been good since 1982 when Peso took the first shock of currency devaluation, which resulted in a devaluation of 45% in its value.Since then a series of events only pushed the Mexican economy towards a decline. The policies of Mexico were proving to be failure in terms of results and therefore, the Government went for external help from the IMF. The package only sustained the economy for a while, after which it again started moving towards the decline.

Since Colgate Palmolive is operating in the Mexican economy, therefore, it needs to make strategies and plans accordingly, which can help it to not only survive but prosper in the economy. They need to take decisions while considering the current and forecasting the future economic conditions of the country.

Despite the poor economic conditions of Mexico in terms of hyperinflation, devaluation of currency and rising interest rates, Colgate Palmolive has been performing efficiently. These economic issues are not only affecting the citizens, but also the business in the Mexican economy. Their costs are rising and therefore, they are forced to sell their products at high prices. This is affecting the company in terms of profitability and their survival in the market. These economic issues are important to be addressed, as their presence is a great threat to the existence and survival of the company.

Macroeconomic Challenges

The Mexican economy is facing various macroeconomic challenges that are affecting the business of companies operating in the economy. Therefore, Colgate Palmolive needs to make strategies not only to face these challenges effectively, but to survive and grow their business accordingly. The different macroeconomic challenges that are prevalent in the economy and their mitigatation strategies are discussed as follows:

Unanticipated Hyperinflation

Issue

Unanticipated Hyperinflation is a situation where inflation rises to the extreme level. This causes the citizens of the economy to spend more to buy a product and therefore, the value of the currency diminishes. Hyperinflation is not an independent issue, however it is linked to and initiates a series of multiple events and issues.

The devaluation of the currency is one of the major issues in hyperinflation where the country needs to print more and more money in order to meet the demands of the currency of citizens. This increases the supply of money, which will further increase the inflation in the economy.

This hyperinflation is linked with the business of Colgate Palmolive as well. Since they are importing the raw materials for their products, therefore, their imports and costs of production will increase, which will ultimately increase the price of their products. In order to be competitive, they will need to lower their margins, which will further reduce their profits. Moreover, the taxes, which are increased in hyperinflation, will also affect the profitability of the company. Overall, the survival of the company will be in jeopardy in the event of hyperinflation.

Strategy

Since hyperinflation is unanticipated, therefore, the first challenge for the company is to determine or project the rate of inflation. They need to anticipate the level to which the inflation can go. After determining the rate, the next step is to make a strategy in order to successfully survive in an event of hyperinflation.............................

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