After a Taste of Doing Business in Iran, P&G Is Eager to Re-Engage

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ZURICH—Like many Western firms, Procter & Gamble Co. is eyeing new opportunities in Iran following the relaxing of trade sanctions earlier this year. But for a Swiss subsidiary of the U.S. consumer goods giant, Iran already is a very familiar market.

Starting with market research in 2003, and culminating with more than $100 million in sales in the year ended in mid-2010, Geneva-based Procter & Gamble International Operations SA’s business in “Parthia”—an in-house byword for the Middle Eastern country—was a success story.

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

Internal Procter & Gamble International Operations documents reviewed by The Wall Street Journal provide a rare glimpse into the careful, behind-the-scenes efforts undertaken on behalf of U.S. companies to do business legally in Iran several years ago, amid the sanctions—which have barred trade, with limited exceptions. While sanctions remain in place, the exceptions have expanded, following Iran’s nuclear accord with the U.S. and other countries implemented in January.

P&G’s back story in the country of roughly 80 million people underlines why it, and other U.S. firms, are eager to re-engage. 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.
It 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 U.S. firms used the same exception allowing for business in Iran by foreign subsidiaries, such as General Electric Co. and oil-field services company Halliburton Co. But the difficulty in barring Americans from decision-making at such operations limited their numbers, experts say.

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.” A Halliburton spokeswoman didn’t respond to a request for comment.

By the time the exception allowing foreign units to sell in Iran was 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 U.S. Office of Foreign Assets Control licenses; 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.

Though profitable, P&G’s historical reliance on a foreign subsidiary that barred Americans from selling products in Iran could also at times be tricky, said a person familiar with the matter. On at least one occasion, in 2007, an employee who disclosed having a U.S. green card had to leave a meeting concerning Iran operations, the person said. A P&G spokeswoman declined to comment.

Communications could be nuanced, too. A business update sent to European executive Werner Geissler in 2006 touted progress in markets including “Parthia.” The term was used interchangeably with “Iran” in internal documents, and traced its origin to an ancient region in the same area. A P&G spokeswoman said it is common practice at the firm “to use project names and abbreviations to simplify communications and manage confidentiality.”

A month after that initial memo, another containing a similar update was sent to American executives. It referred only to progress in “key Middle Eastern expansion markets.” A P&G spokeswoman declined to comment on the contents of internal documents.

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 which 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. For a global multinational with $56.7 billion in sales in the year ended in mid-2005, the Iran business was marginal, but promising. Top executives were interested in learning more.

In the summer of 2006, an internal proposal shows, P&G’s subsidiary arranged for Mr. Geissler to visit two selected women at their homes in Tehran. Mr. Geissler, who would later become special adviser to P&G’s CEO before retiring in 2014, was meant to engage with the women on questions such as: “How often do you wash your hair?” The proposal also advised on small talk to make with the women’s husbands about soccer. Mr. Geissler completed the trip, a person familiar with the matter said. Mr. Geissler didn’t respond to a request for comment.

Progress continued. A P&G consumer-research proposal from 2008 noted that Head & Shoulders and Pantene had gained solid footholds in the shampoo market, despite costing four times as much as local versions; and, one-quarter of Tehran’s estimated 1,200 gynecologists were being visited and asked to promote P&G’s Always feminine-hygiene products.

Mr. Forbes said expectations for the business were pinned to a belief that tensions between Iran and the West would ease. Instead, they worsened. “It was going to be a very different political atmosphere,” he said. “That didn’t happen.”

Mr. Forbes, who left the company in 2010, wondered if P&G would once again be able to ramp up a considerable amount of sales in Iran. “It has lost a number of years to the competition,” he said.

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