Leading US-based consumer goods firm Procter & Gamble (P&G) has been burdened with negative news recently, with global mass layoffs followed by rumors of key staff quitting at its Chinese branch.

The company announced a new round of global job cuts in November, having said in February that it would lay off 5,700 staff by the end of June 2013. On October 25, P&G released its July-September quarterly report, which revealed a 3.7 percent year-on-year decline in its global revenue.

The resignation of Zhai Feng, P&G China's sales director, in early December triggered rumors of a flood of departures by the company's key employees in China. P&G denied the rumors and said the global job cuts would not affect China.

The company told the Global Times on December 14 that its employee-retention rate is much higher than the industry's average, with a 95 percent retention rate for first-year employees.

The company said it recorded a 20 percent increase in the number of employees in China and more than 30 percent performance growth in the past two years. It will also invest more in China, such as building new plants, expanding distribution and boosting its e-commerce business.

But although P&G denied the rumors about it losing key employees, there is no doubt that it is facing fiercer competition, both from its multinational rivals and from emerging local brands.

Lack of innovation

The 175-year-old P&G, which owns about 50 brands worldwide, came to China in 1988. It has brought more than 20 brands to China since then, ranging from personal care brands such as Olay and Crest to household care products like Whisper and Pampers.

P&G holds a dominant market share in these sectors in China. However, the company has recently made little progress in product innovation and has placed too much focus on cutting costs, which has had an unfavorable impact on its development, Lu Jian, a consumer goods consultant who used to work for P&G, told National Business Daily in early December.

P&G launched a shampoo brand targeting Chinese consumers called Ascend in 2002, but sales were poor, and it has offered few targeted products for the domestic market since then. For cosmetics, it relies mainly on mid-ranking brand Olay.

At the same time, its rivals have been quicker to launch multi-brand or localization strategies.

French firm L'Oreal owns various cosmetics brands from high-end to low-end products, and it launched herbal products for Chinese consumers after acquiring local brands Mininurse and Yue Sai in 2004. Japanese firm Shiseido customized Aupres and Urara brands for the Chinese market.

Unilever brought the hair care brand Clear to China in 2007 with the innovative concept of antidandruff products for men, and invested a lot in marketing. Moreover, many members of its marketing team used to work for P&G, Lu said.

As China's purchasing power grows, an increasing number of consumers of mid-ranking brands are now trying more expensive brands such as Estee Lauder and Lancome, Lu said, noting that the profit margin for Olay, which is priced relatively low, has fallen a lot in the past few years.

Rise of local brands

Local brands have fought hard to win more market share. According to data from consulting firm Nielsen Group, the market share of foreign cosmetics brands in China declined to 44.5 percent in May 2012 from 57.9 percent three years ago.

According to Nielsen, the market share of Olay declined by 10 percentage points in the past three years to 20 percent in May 2012. In comparison, Shanghai Inoherb Cosmetics Co saw its market share rise to 6 percent in three years from 0.9 percent in May 2009.

Zhang Bingwu, general manager at marketing firm Guangzhou Taking Advertising Co, told the Global Times that P&G has to face the reality at the moment that its local competitors have grown quite fast and got much stronger in terms of quality and brand image than in the past.

Inoherb, Shanghai Jahwa and Chando, the three local brands that positioned themselves alongside P&G's skin care products such as Olay, have also chipped away at P&G's market share, Zhang said.

Yunnan Baiyao Group Co's toothpaste has also made steady gains in market share at the expense of its foreign rivals, according to research company Euromonitor International. And Heng'an International Group Co overtook P&G's leading position in the tissues and hygiene market in 2011.

Domestic brands in China have improved their product technologies and Chinese consumers are not blindly pursuing foreign brands like before, Hua Zi, an expert at the Beauty Culture & Cosmetics Chamber of the All-China Federation of Industry & Commerce, told the Global Times on December 13.

"Big companies like P&G are good at R&D, but they are used to making product plans in advance and are not as nimble as small firms in adjusting to changes in market demand," Hua said.

"I used a lot of P&G products in the past, such as Safeguard soap, Tide washing powder and Crest toothpaste, but many have been replaced by Chinese brands now," Guan Ling, a Beijing housewife, told the Global Times.

Still strong

Despite its declining market share in China, P&G is still the largest consumer goods firm in the market, and it recorded revenue of 40 billion yuan for the 2011 fiscal year that ended in June 2012, an increase of 9 percent, Feng Jianjun, general manager of Guangdong Jingshi Marketing Management Co, told the Global Times.

Its cosmetics brand Olay was still the bestselling cosmetics brand in China with sales of 8 billion yuan in the 2011/12 fiscal year, and its 20 percent market share remains a difficult target for rival brands to match.

Demand for its products is also strong. Euromonitor estimated that sales in China of personal care and beauty products will rise by 12 percent year-on-year in 2012 to 203 billion yuan, while sales of household detergents will increase 11 percent from one year earlier to 78 billion yuan.

P&G China said it is also making various innovations to current brands available in China and supplying more brands online.

P&G has strong capability in terms of R&D, Hua said, so as long as it launches more products targeted at segmented markets, it still has a chance to win back market share.