Unilever Company. International Strategic Management.

Introduction to Unilever

Lever brothers, a British soap maker and Margarine Unie, a margarine producer from Holland decided to merge based on a common raw material benefit of palm oil. This was known as the modern Unilever Corporation, the world’s second largest producer of consumer products. “Last week (1929 news archive) buttery oil and sudsy oil flowed together in a merger of a great margarine company and a great soap company. The margarine company was Margarine Unie, a Dutch concern which, with its British affiliate, Margarine Union, is Europe’s largest margarine producer. The soap company was Lever Bros. (Bros 1929).

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Unilever has world wide operations. Unilever sells food, household articles and personal care products whereas its main competitor P&G does not sell food items and firms like Nestle, specialized in food items do not sell household items. According to marketing gurus, P&G has a sharper aggressive marketing strategy with respect to Unilever. Number of power brands with annual sales of more than one billion US dollars is less with Unilever when compared to P&G. The emerging economies of Brazil, Russia, India and China account for 44% of company’s sales. The company’s presence in Asia and Africa is more than hundred years old so that the company had a strong hold on the local market of these regions.

India’s biggest consumer-goods company is Hindustan Lever Ltd, a unit of Unilever, now known as “Hindustan Unilever Ltd”. They have captured the Indian market by catering to the needs of the different sections of the society, the poor, middle and affluent. They have a wide product range to fulfil the aspirations of all segments of society.

In South Africa, it has 3000 suppliers and 2000 employees and provides 0.9% of GDP. If indirect employment is also taken into account, about one lakh persons depend upon the operation of the concern. Low wages and hard working labor force in Indonesia has made Unilever to have a strong manufacturing and marketing base in Indonesia to meet the increase in demands in South Asia and Australia.

In the new era of globalization, strong roots in the local markets, once Unilever’s greatest strength turned out to be a weakness due to the unilateral strategic decisions taken by the local bosses which where not in line with the corporate goal. To make Unilever united, slimmer and efficient was a Herculean task to be more competitive they had to cut their size. So they reduced the number employees from 223000 in 2000 to 179000 in 2007. In Europe, Unilever reduced the top management tiers from 1200 to 700. This affected in a change of 1.5 million Euro dollars per year. By 2010, the company will close 50 of its 300 factories and 75 regional centres.

The present problem came into lime light in September 2004, when its share prices had a sharp fall. This was aggravated by acquisition of Gillette by P&G, the main competitor of Unilever. So, Unilever had to change drastically to meet the new challenges.

Hitherto Unilever was run by a committee of two joined chairperson, one from Britain and one from Holland. In 2005, the management structure was modified by appointing a sole Chief Executive from Britain: Patrick Cescau. The company’s sales rose significantly after the management reorganization. In China, a similar restructuring was done in 2006. When one Chief Executive was put in charge of three companies which had separate chairperson prior to this, increased the turnover form 9% to 30% annually. The company’s market segmentation was well defined to the extent that they prepared different formulations for shampoo in Hong Kong and main land China even though the washing habits of these two companies were identical. In India, Unilever has done away with conditioner and reformulated its shampoo has the women often oil their hair before washing compared to that of Western women. Such fine tuning was the specialty of Unilever to retain its market advantage.

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As observed, Unilever had to match its marketing strategy to suit the taste of the local markets. Its international operation was not a hindrance to adopt different marketing strategies for different regions. World is becoming a global village due to the technological and innovations in information technology where hyper competition goes hand in hand with new opportunities with untapped markets and new raw materials sources. As a result of globalization, managers must extent their vision beyond their national boundaries while developing operational strategies.

Unilever’s Strategy over the Years

Business strategy depends upon market requirement such as customer desire, environment like competition and technological advancement and organizational competency like core capabilities, work culture, etc. Three criteria that distinguish a business strategy are- cost leadership, product differentiation and market differentiation.

With the above criterions Unilever developed strategies for acquisitions and divestments to enable them to become market pioneers.

In the year 2000, Unilever had the vision of pioneering in the global food market. With this aim they acquired Bestfoods; the second largest cash acquisition in the history, Slim Fast Food, Ben & Jerry’s and Amora-Maille culinary business in France. Further, they launched cholesterol-lowering plant sterols like Beccel/Flora proactive spreads which won international acclaims making people health conscious. With the idea of consolidating their hold in the Food and Health Industry with further researches, they launched The Unilever Health Institute. Unilever also aimed at capturing food markets by providing foods of local tastes as in Knorr Vie.

As a cost control measure, they sold out unprofitable brands like Diversey Lever and Unipath. The number of brands was reduced drastically from 1600 to 900. As a continuation, they further generated sales proceeds of €6.3billion, in 2002, through additional acquisitions and disbanding businesses without acceptable growth or potential.

The success of brands like Rexona and Dove gave a new thrust to the Skin, Hair and Deodorant businesses. The enormous success of Dove prompted the management to use the same brand name for hair care products in Europe and Latin America.

With the launch of Our Nutrition Policy and Nutrition and Health Academy in the year 2003, Unilever further consolidated its position in Health Industry.

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With the strategy of social marketing, their Healthy Heart Brand entered into a three tie-up with World Heart Foundation led a UK cross-country initiative to reduce salt levels in soups and sauces. “The partnership was first established in 2003 and over the past three years has focused on increasing awareness of heart disease and its risk factors, to both the public and healthcare professionals.” (Unilever & World Heart Federation Continue Global Partnership to Improve Heart Health. 2006). It is also a step towards creating brand loyalty.

By purchasing fishes from sustainable sources water consumption per tonne of production was reduced by 13%, indirectly reducing their cost of production.

With the strategy of building a sense of belongingness in the minds of customers, Unilever launched a Vitality Mission in which a new logo “Our Products and Our People” came into being.

Adopting simplification strategy, a significant cost saving was affected.

In the year 2005, the management style of the company witnessed a sea change. A non-executive chairman was appointed for both Unilever NV and Unilever PLC whereas a group chief executive was made responsible for all operations. It was an attempt to simply management structure and to avoid multi-level reporting. It was also targeted to focus more on customer and consumer needs.

With the strategy of focusing more on core businesses, Unilever sold out its fragrance business, Unilever Cosmetics International (UCI), to Coty Inc, of the US. “Coty on its $800 million acquisition of Unilever’s global prestige fragrance business, Unilever Cosmetics International (UCI). Coty Inc. is one of the largest beauty companies in the world.” (Training Contracts and Summer Placements, Covington. P. 5). Further, cementing their position in the nutrition enhancement sector, a total 16000 products analyzed for fat, sodium and sugar contents.

In short, Unilever is concentrating more on their food and health sector for the reason that consumers of today are growing health conscious. Moreover, they are trying to out beat their nearest rivals in the food industry, P&G and Nestle, who have an upper hand in the same. Strategies to develop long term relations and brand loyalties are also in execution. Simplification strategy is adopted by the concern as a cost control measure. However, this may have a negative impact on the minds of the consumers that the company is running under loss or some of the brands were below par quality. Furthermore, Unilever in recent past is also investing in leadership development.

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Competitive Advantage

International Structure and Culture

The company enjoys a competitive advantage on its rivals in many sectors. Unilever is the only company that has business in house holds, food and personal care products and is expected to account for half of the world’s total consumer spending. Its gives a straight away upper hand on its rivals.

Unilever exercises proper control on its businesses. The restructuring done at the top level by appointing a single chairperson to manage all the activities and avoiding committee system with two chairpersons was the first step towards it. In South Africa, one of prime market of consumer goods; Unilever enjoys a greater advantage that about 100000 jobs depend on the company and is responsible for the equivalent of 0.8% of total employment. Unilever’s has a dominant market share in the emerging economies and can be utilized to capture market for innovations. Since Unilever takes care of the needs of all the customer segments; it has a deep influence on all the class of customers. Many of the well recognized brands of Unilever give them a head start as well as their historical backgrounds in many emerging economies gives acceptability to their products at a higher priority. Unilever is selling off their unpopular brands, but are alert enough to maintain their oldest popular brands. Hence, the legacy of the company’s product makes them a fierce competitor. Unilever is trying to build long relations with the customers by social marketing products like Healthy Heart Brand, a tie-up with World Heart Federation.

Control

The complexity of China market was simplified by bringing the market under a single controller that seems to work for the firm. The firm though has lesser power brands and less aggressive selling strategies, it adds the benefit of easy controlling of cash and business. They are also able to concentrate more on their core product and develop plans for developing it further. The strong roots in the local markets and the new strategy of “One Unilever Plan” have given them tighter grip of control of quality and sales. “Under Cescau’s “One Unilever” plan, unnecessary complexity was removed. Brands now rely on one formulation, one packaging design, and one marketing strategy, instead of the fragmented approach of the past. Local managers no longer run the autonomous fiefdoms where they were responsible for everything from marketing and sales to running factories and back-office operations.” (Capell 2008). Reduction in the number of factories and staffs has made controlling easier as well reduction in cost. The emerging economies are found to be excellent markets for Unilever’s food products. Unilever never outsource its manufacturing which enables them to ensure quality at origin and are never under any threat of substandard products.

Research and Development

Their Knorr soups and Lipton tea are qualified as healthier fare. Also by making spreads and ice-creams healthier without compromising on taste gave an added advantage to them in food industry.

The economies of sale allow them to cut down their prices than that of rivals. This is the greatest advantage Unilever has in the market.

The takeovers of Unilever give them an upper hand in the industry. The takeover of Bestfoods was the second largest takeover in the history. “Anglo-Dutch consumer goods giant Unilever has sealed a £13bn deal to buy Bestfoods, the US maker of Hellmanns Mayonnaise and Skippy peanut butter.” (Unilever Seals Best foods Deal. 2000). The takeover of Slim Foods helped them to move forward in low carbohydrate foods.

Unilever is now aiming to gobble up smaller companies that can increase their competitive advantages around the globe. By getting rid off its older unprofitable brands, Unilever is making its developing plans stronger. Unilever is now targeting the big shots like Reckitt Benckiser in Europe and Danone, a French food firm. This will give Unilever an added advantage of the latter companies’ market shares.

The shampoo products of Unilever are gaining market very rapidly. In the past six months the firm captured seven new markets. The risky strategy of high pricing Clear in the developing marketing avoiding a price war with rivals, however the introduction of sachet helped them capture the local markets also. The micromarketing technique in Makafar, Indonesia, to market hair conditioner witnessed enormous success.

Unilever’s patented technology in shampoo products gives them an upper hand on the rival’s Head & Shoulders. The company has been putting money and efforts behind the product and has reaped the success.

Unilever’s idea of setting up hair-care centres in malls from Beijing to Moscow paid off. The technology of “i-scope” has been one the most successful strategy of the firm so far in marketing area.

Unilever definitely enjoys a competitive advantage over the rivals in their structure, control measures and research and development strategies. Their greatest advantage is their long time existence in the market and a well dedicated marketing and research force. They are never hesitant to remove unpopular brands and trying out innovations. These factors really make them fearful competitor to the rivals.

Strategic Issues for 2008

“One Unilever Plan” launched in 2005 under Cescau’s new management has started yielding results. Now there is only one formulation, one packaging design for every region. To meet the ever increasing global economies of scale, they have to avoid duplication and triplication. For this, decision making process should be fast and production managers should be divesting of marketing operations and vice versa. As the process of decentralization has been successful in selected areas, more areas should be brought under decentralization to have effective and quicker decision making.

Unilever must pay special attention to the newly industrialized nations like India, China, Brazil and South Africa. There is vast market in these areas and the standard of living of people is increasing rapidly, they have surplus income to buy instant foods, cosmetics and house holds. The local brands in these areas are also fighting to survive; Unilever should not only concentrate on close rivals but also on these potential rivals. So far the policy of Unilever has been not to outsource its manufacturing activities to ensure quality of final product. Even though this was successful, a rethink is required in the context of emerging local rivals. In order to face local competition, locally based manufacturers are effective. So, it is suggested to outsource some the manufacturing activities to local producers under quality supervision from Unilever. This will ensure low cost high quality products. Another reason for this is that the emerging economies are gaining technical as well as managerial skills to be competitive.

The inflation rates around the globe; especially in emerging economies are matter of global concern. So, the operational strategy of Unilever for 2008 must be centered on this kingpin. Further takeovers, acquisitions and product innovations must be done after deep scrutiny. Since the standard of living has increased, the price factor has become less important compared to quality and reliability. However, investments not in line with market value should be avoided, like wise in acquisition of Slim Foods. Unnecessary product differentiation should be avoided as happened in China and Hong Kong.

As people of developing countries are becoming more health conscious, Unilever needs to become a part the awareness program, like in South Africa. Unilever already has a strong hold in the Health Industry and can be unchallenged in this sector by researching food products meeting the global standards.

Appointing brand ambassadors for the company’s product, at least in some countries where the competition is severe will be a good move in the right direction.

To sum up, it will be difficult for Unilever to retain its market share in the future, though the statistics favour them at present. There will be cut-throat competition in the future ahead and no one will be the market ruler forever. Unilever needs to continue its research for innovations and strategic development to meet the global challenges.

Bibliography

Bros, Lever. (1929). Archives. Time.com.

CAPELL, Kerry (2008). Unilever Lathers Up: Ambitious Restructuring Program. [online]. BusinessWeek. Web.

Training Contracts and Summer placements, Covington. [online]. P. 5. Web.

Unilever Seals Bestfoods Deal. (2000). BBC News. Web.

Unilever & World Heart Federation Continue Global Partnership to Improve Heart Health. (2006). [online]. Unilever. Web.

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