Economy, Business And Markets

P&G Reengaging in Iran, Projecting Higher Sales

P&G Reengaging in Iran, Projecting Higher Sales
P&G Reengaging in Iran, Projecting Higher Sales

Like many western firms, Procter & Gamble Co. is eying new opportunities in Iran following the relaxing of trade sanctions earlier this year.

However, for a Swiss subsidiary of the US consumer goods giant, Iran already is a very familiar market.

Starting with market research in 2003 and culminating in more than $100 million in sales in the year ended in mid-2010, Geneva-based Procter & Gamble International Operations SA’s business in Iran was a success story, reads an article published by the Wall Street Journal on Wednesday. Excerpts of the article are presented below:

The operation relied on a legal exception. Until 2012, foreign subsidiaries of American firms could do business in Iran, as long as no US passport or green-card holders were involved.

Internal Procter & Gamble International Operations documents reviewed by WSJ provide a rare glimpse into the careful, behind-the-scenes efforts undertaken on behalf of US companies to do business legally in Iran several years ago, amid the sanctions—which barred trade, with limited exceptions.

While sanctions remain in place, the exceptions have expanded, following Iran’s nuclear accord with the US and other countries implemented in January.

P&G’s back story in the country of roughly 80 million people underlines why it, and other US firms, are eager to reengage. Future prospects also help: BMI Research estimates the Iranian consumer-goods market will expand by about another $100 billion by 2020.

A P&G spokeswoman said, “We are looking to increase the distribution of our existing brands and expand the portfolio of brands” in Iran, and making a related hiring effort.

P&G will be revisiting a well-worn path.

More than a decade ago, after P&G’s Swiss subsidiary realized it could legally sell products such as Head & Shoulders shampoo in Iran at a premium, the business there was contributing to a broader company unit internally projected to reach $1 billion in annual revenue by 2015, documents show.

Other US firms used the same exception allowing for business in Iran by foreign subsidiaries, such as General Electric Company and oilfield services company Halliburton.

A GE spokesman said that while the firm made use of the exception in the past, it “stopped doing business in Iran well before 2012”.

By the time the exception ended in 2012, P&G had realized sanctions would tighten, a spokeswoman said. It already had stopped relying on the exception and shifted to selling goods in Iran only under US Office of Foreign Assets Control licenses, with toothbrushes qualified as “medical devices”.

The P&G subsidiary’s revenue in Iran, which reached $115 million in the fiscal year ended in mid-2010, tumbled to $15 million the next year, P&G has said in a public filing.

Now, the exception is available again. Cincinnati-based P&G says it won’t revert to its old model in Iran, though its Swiss subsidiary aims to increase sales in the country within OFAC licenses, which permit trade in eligible products that would otherwise be prohibited.

In Iran, where P&G found women spend disproportionate amounts of income on beauty products, expensive shampoo and Braun epilators, the business “took off”, said Gregor Forbes, the former director of P&G’s Development & Export Markets unit, a part of the Swiss subsidiary that oversaw sales in Iran.

An early mission statement projected sales for Development & Export Markets could increase from $265 million in the year started in mid-2005, to $1 billion in the fiscal year ended in mid-2015, due partly to growth in Iran.