By John Letzing
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 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.
Write to John Letzing at john.letzing@wsj.com
(END) Dow Jones Newswires
July 13, 2016 05:44 ET (09:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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