International Business Strategy
Every multi-national corporation has a business strategy that enables it to get ahead of its competitors. Unilever, as one of the global leaders that offers consumer goods including brand name foods, personal-care items and household products and owns an extensive global operation network in almost every country, has also developed its unique set of business strategies. Unilever is strong in making head start in emerging economies and has been making significant contributions to the economic growth in these countries.
Emerging economies are developing countries that in general have less compatible infrastructure, in particular, for economic activities to take place effectively and majority of their populations are living in conditions that are below international standards. At present, over 44% of Unilever’s sales come from emerging economies and further growth in consumption is expected in near future. This is in fact more than enough to take Unilever somewhere better than being the second largest in the global consumer goods market; nonetheless, as competition intensified, Unilever started losing the hang of it.
Since Mr. Patrick Cescau became Unilever’s sole Chief Executive in 2005, series of operation reforms were initiated. The strategic evolution under Cescau’s management brought Unilever out of its dreadful situation and is regarded as one of the company’s milestones. The company is finally back in position to make the most out of the fortune it was handed. The purpose of this report is to critically analyse the strategies that have propelled Unilever to succeed and the corresponding theories behind them. It will also give recommendations to Mr.
Cescau as to effectively addressing transnational theory of trade. INTRODUCTION: UNILEVER Unilever first began as a result of a merger between Lever Brothers, a British soapmaker and Margarine Unie, a margarine producer in the Netherlands, aimed at achieving cost reduction through economies of scale. The company grew by constantly acquiring businesses that produce various consumer goods. Unilever has its own plants, factories, distribution networks and supply chains, all of these added to the uniqueness of the company as none of the others in the market manufactures and sells like Unilever does.
The growth of emerging economies has made significantly impact to the growth of Unilever. They are growing so fast and dynamic. International trade analysts believe that these emerging economies will soon take up half of the world’s total consumption of consumer goods. Being the world’s second-largest consumer-goods company, Unilever operates in over 100 countries across the world and is experienced in starting businesses in emerging economies. It has approximately 180,000 employees worldwide with headquarters in Rotterdam and London.
Unilever is one of the four market leaders for ready-meals and among the top three for foods and personal-care items. More than 150 million people consume its product daily. Regardless to its great product range and in-depth knowledge of local culture, Unilever is constantly recognised as the second-largest after Procter & Gamble (P&G). The management of Unilever was forced to review its corporate strategies and has identified several issues causing this deficiency.
Unilever has allocated too many resources to addressing cultural differences and differentiating products and over-autonomous in managerial levels created unnecessary complexity and duplication of procedures, which are seen to be the core factors leading to poor performance. Unilever immediately put together a series of actions aimed at slimming corporate structure to simplify decision making process and minimise possible conflicts between the top management.
The reforms led by Cescau were very effective; the company achieved higher sales figures in the following year and growth was expected to continue further. However, the battle for emerging-economies remains tough as competition is fierce. MACRO-ENVIRONMENT & DEGREE OF GLOBALIZATION Macro-Environment – Emerging Economies Although every economy is distinctive in its own way, developing countries with emerging economies such as China, India, Venezuela in Latin America and Pakistan, do share some common characteristics.
They have large territories with high population and tend to have intensive economic developments taking place which as a result, giving them unbeatable growth potential as compared to developed countries. Similarities can be identified from the macro-environmental factors of these developing countries: Political – These emerging economies have stable governments with various international trade policies in place. In addition, they are current members of World Trade Organization which are committed to provide a free trade environment by lowering import tariffs and removing trade barriers.
A stable government and political environment are the basic criteria for economic growth; therefore, governments of the above stated developing countries strive to ensure political stability for their economic reforms to proceed effectively. Unilever has a fairly good relationship with the governments of the countries in which it operates. For example, in its South African branch, the company collaborated with a French business school to study the impact that the company has on the country. The study found that the direct jobs attributed to the company were 3000 and indirect ones were 100,000.
It was also established that 0. 8% of employment opportunities, and 0. 9% of GDP in South Africa is attributable to Unilever. This inspired Unilever to think of further initiatives that the company can take to participate in the affairs of South Africa. This fosters the relationship with the government when carrying out its business activities. Economic – All of the above countries have initiated economic reforms, such as privatization of public services, reduction of control on foreign trade and investments, promotion of free trade etc, in order to boost domestic economic performance.
Besides, these economies in recent years tend to have maintained steady growth. Among the above countries, China in 2006 has a GPD growth rate of 11. 1% recorded, while the growth rates in India and Venezuela in the same year were 9. 7% and 9. 0%. Pakistan has also achieved impressive economic gains; however the growth rate is dampened due to high inflation and growing current deficit, leaving its real GDP as 6. 6%.