Unilever and International Business Strategy - Essay Example

? International Business Unilever and International Business Strategy Overview of Unilever Global Unilever is a consumer goods industry with its base in United Kingdom. It is a multinational corporation with Anglo-Dutch roots which was founded in 1930 and product categories include beverages, cleaning agents, food products and personal care products. Unilever is the largest producer of ice cream in the world and according to the revenues of 2011, it lies third in terms of the consumer goods industry with P&G leading and Nestle following. Unilever has a dual listing on the stock exchange, both as Unilever N.V which has its base in Netherlands and one in London called Unilever PLC, which is where it started from. They are different listings; however, they are one business unit and managed by the same people. A few of the major brands out of its portfolio of more than 400 brands are: Dove Ben & Jerry’s Knorr Lipton Lux Surf Tresseme Toni & Guy Sunsilk Flora (Unilever, n.d.) Unilever is present in more than 100 countries of the world with different brands and has great global presence. They focus on local knowledge and cater to the consumer’s needs in every market and that is why consumers worldwide prefer their products. They help consumers get the most out of life and out of their products and thus they translate the vitality of life through their products. Unilever’s major competitors are P&G and Nestle. These are its direct competitors all over the world however they face competition from local competitors in places as well such as Henkel, Johnson and Johnson, Reckitt Benckiser, PepsiCo etc. (Smith, 1995) Unilever in India Hindustan Unilever Limited (HUL) was formed in 1933 however as Lever Brothers and later it came to be Unilever by a merger in 1956. It’s base was formed in Mumbai and since it’s a multinational company, 52% of the shares in the company are held by the main Unilever in United Kingdom. The product categories are the same as aforementioned. HUL employs thousands of employees directly and indirectly and it got its official name in 2007. They started as a small company selling soaps and then emerged as a company that made products for the FMCG (Fast Moving Consumer Goods) market. HUL has 6.4 million outlets all over India and many retail outlets and a majority of the Indians use its products be it personal care or foods etc. (unilever, 1976) The major brands in India are its homecare, personal care and food brands but only personal care products will be discussed. A few major personal care products are: Axe Ayush therapy products CLEAR Close Up toothpaste Dove Fair & Lovely Lifebuoy Liri Lakme Pears Rexona Ponds LUX Vaseline Tresemme Pepsodent Sunsilk Hindustan Unilever has innovated marketing of many products that cater to the local market not just in personal care product categories but all the categories which has led it to be one of the trusted companies in India. (Books, 2010) Globalization and its drivers Unilever has been focused on innovation and expanding its size ever since it started out and globalization allows it to achieve its aim. They also focus on developing markets and target bottom of the pyramid consumers as well because they see a great deal of potential in these emerging markets. Unilever is one of the largest consumer goods industries in the world and they carry out large operations and manage large supply chain procedures. They are also focused on catering to consumers and lower their costs and inventory levels by understanding them better. There are three different strategies that one can look to while going global and these are what pose a challenge for most companies. These are aggregation, adaptation and arbitrage. Aggregation is when a company or business standardizes its procedures and business practices either globally or locally or both to take advantage of economies of scale. Adaptation means catering to each market separately in order to meet consumer needs and thus boosting the business market share by offering a unique solution. Arbitration means outsourcing or exploiting different resources in different places to get the best and cheapest form of processing possible. Such as one can get cheap labor from developing countries who will be satisfied with cheaper wages and this cut down the entire cost of the production process. Unilever has used both arbitration and adaptation in its business process because it caters to each market separately with the best possible resources available. Unilever is also a multi-local multinational and thus is ventured into India as well to cater to its masses. Countries like India and China are also seen as hot spots for innovating even though they have different infrastructure and different access to technology as compared to Unilever’s original base. (Anon., 2012) Unilever also wanted to increase its revenue from developing markets which were seen as having a huge potential and had a lower share in revenues than they could potentially have. They want to have 75% of their revenue to be precise to come from emerging markets. The CEO of Unilever, Paul Polman also visited Asia and felt that a major chunk of investment was being spent on aspiring markets, more so than before, which showed an opportunity that Unilever could cash on. Innovations were being looked towards and India was one of the leaders in innovation and in global markets which made it potentially a place to expand it. Also considering the population of India, the huge population would lead to a wider customer base and an opportunity to hone into. Many companies were looking towards emerging countries and markets to enter and take advantage of and Unilever realized that it needed to be agile in their tactics and move in quickly with innovative and reliable products to get an edge over competitors that existed or were to come about in the coming years. And Unilever has seen HUL performing exceptionally and it has seen profits and a 41% increase in the price of its shares since the last year. Thus India is a place to invest in with more brands coming up and on a larger scale. Differentiation and innovation are valued and they have opened many training centers in order to train the workforce in this manner to cater to the differing needs of the market. Fair & Lovely and other personal care products have focused on differentiation and they compete against local brands as well as P&G products that are also available in the Indian market. They want to be able to outdo their competitor in emerging markets. (Prahalad, 2010) P&G has also ventured and focused on emerging markets over the years and Unilever has been able to do better in these emerging markets since their model perform better in countries like India. Unilever also aims to increase their business size and keep costs and environmental impacts low and reducing outsourcing as well. Personal products consumption has increase by 12% and the focus has increased on oral care and hair products. (Prahalad, 2010) Global expansion strategies Hindustan Unilever is a subsidiary of the parent company Unilever PLC that is located in UK. Therefore its vision and mission remain the same and they are all part of the same business unit however, employees and operations are different in different countries. A strategy used by many companies to enter into global ventures such as Unilever’s venture into India is the CAGE Distance framework. This measures the cultural, administrative, geographic and economic difference between countries which helps nations form their globalization strategies or whether a global expansion would work out or fail in a particular region due to the large amount of distance between them in the aspects mentioned above. It also helps compare one nation from the other and gather as much information as possible about the country and its market. A greater distance between countries would discourage international trade. (Judgev, n.d.) Culture is the interactions between people, the ethnicities, languages, values and norms between two nations. Both the parent brand country and the subsidiary country have a great deal of different cultures and ethnicities and languages and thus they have a small cultural distance which means that if Unilever were to expand to India (which it has) it would be able to understand its target market because it knows how to deal with multiple cultures in one nation and be culturally sensitive as well. The administrative dimension deals with the laws, policies, regulations, treaties, FDI regulations in a country etc. It may also include the currency, the political ties and openness of the economy or colonial ties. Both UK and India are open to trade hence they are open economies and they have few regulations regarding trade. They both are also part of United Nations will helps form an alliance and similarity between the two countries. Thus the administrative distance between the two economies is also less. The geographical distance looks at the communication infrastructure of the two countries including physical distance and differences in climates. Even though UK is a developed economy and India is a developing one, it is rapidly developing and is open to change and it has a sound infrastructure. However climatic condition and the actual distance between the two countries could be a hindrance to expansion since also the management is the same since Hindustan Unilever is a subsidiary of the parent company. This is perhaps alleviated due to the impact of globalization and the fact that both countries aren’t land locked and so there is freedom of movement which is needed for a consumer goods industry. This also allows for a strong network within India in urban and rural areas. (Ghemawat, 2007) Since there are untapped areas in India especially rural areas, Hindustan Unilever has managed to build a team of 50,000 ‘shakti’ or power women over the years to form a ‘shakti’ women project and these are women from rural areas who carry small SKUs or smaller versions of brands and sell them door to door. Thus due to Unilever’s flexibility as an organization, it has been able to expand but at the same time adapt to India’s local market. Economy wise, they are stable economies with low country risk as well as financial issues and a large knowledge base as well per capita income. However, research shows that the distance between the two is low and especially in terms of administration and cultural values and that aided Unilever’s globalization strategy. Most multinationals had targeted the developed world countries and were producing products that catered to their needs. Hindustan Unilever was one of its kind when it catered to all the people in India, be it the rural poor or the rich. This was shown also by the ‘shakti’ women program. They also focus a great deal on R&D as compared to other companies and their aim is to innovate all the time, globally as well as locally. In India, Hindustan Unilever also has a strong distribution network and this could be called its core competency because products are available everywhere even in the smallest of stores at all times and this is what makes it possible that 2 out of 3 consumers are using a Unilever product. Thus with its aim for innovation and rural development, its financials have improved over the past two years and with the government’s aim also towards the rural poor, they are bound to flourish. Another framework to use when considering the strengths and weaknesses of a company is the VRIO framework which is part of the overall strategy of the firm. (Thekkudan, et al., 2009) The vision statement is what reflects the main objectives of the company and the internal framework analysis is handled by the VRIO method. What is VRIO? These are the four questions that each firm needs to ask itself so that they can make sure that they have a solid position in the market place. V is the question of value which a firm asks itself by looking at their ability to seize an opportunity and how they react to threats in the market. R means the how rare the firm is as compared to competitors who have access to the same services and resources. Unilever has a strong distribution network and great deal of investment in R&D which small local firms cannot manage and other competitors may not have established and these are hard traits to imitate and therefore Unilever is rare as compared to competitors. Thus follows the question of I which is how easy it is to imitate the company and its product and the lower the chance of being imitated, the higher the company’s chance of success. Unilever’s global presence is also hard to imitate. O is the question of the firm’s organization, that is, how able it is to tackle situations and how many resources they have at hand. This reflects the inner satisfaction of customers as well and how they work together to make a company successful. The CEO of Unilever travelled to Asia and saw potential in it and that is why they expanded to India; therefore he saw an opportunity and he grabbed it and he organized a firm that was able and ready to compete in the Indian market. (Barney & Hesterly, 2006) One of the strengths of Unilever is that they have a strong and wide product portfolio that has had global presence in other countries so it has established trust all around the world. It offers solutions to every problems consumer may have, be it skin, oral, hair etc. It has its global brands available in India as well as some local brands such as Hamam and Liril in personal care products. They also have a variety in prices and packaging be it sachets or bottles so that the rural poor can consume sachets and so everyone can consume their products. They also have economies of scale because of the huge scale that they operate on globally, manufacturing and distributing and therefore due to this strong network they will have a competitive advantage. Lastly, they have a strong advertising and marketing department. However there are strong competitors in the market such as P&G, Nestle, Kraft and other local competitors such as Dabur and Amul. Also, the goods that they produce are consumer goods which have a great deal of substitutes available locally at cheaper prices which is difficult to compete with since Unilever would then not be able to cover its costs of operation. However, the health conscious population is increasing and apart from its personal care segment, Unilever can expand their food portfolio in India. People are also more aware in India because of the media and they have the knowledge to be able to pick up a good product in a sea of products. They can also increase their volumes because demands for the goods they produce are very high and everyone uses them, that is, the mass appeal. Unilever Hindustan however is operating in a world where every company faces the problem of a slow economy or an economic downturn which could be a potential threat to its existence. People don’t have the purchasing power and many companies have had to shut down their business and this leads to unemployment. Unilever has provided jobs both directly and indirectly and made this threat an opportunity but they need to be wary of this problem in the future as well. Consumers are also becoming more environmentally friendly and look to companies to do the same so now Unilever has to look at the market from a different angle and make everything environmentally friendly so consumers will prefer their products. Local companies can also flourish for two reasons. Firstly, their size is small and they have lower expenses and therefore they can enter the market and grab Unilever’s share by offering cheap similar products with a country of origin advantage. They also face lower regulations as compared to global companies and so the government is also backing them greater. (Books, 2010) Unilever also uses the Integration Responsiveness Strategy which is a framework that talks about the two main ideas along which a strategy should be based and implemented. This includes integrating the value chain of the company and supply chain and to produce goods and services that will cater to the needs of consumers. Unilever has integrated its entire process even though they have outsourced distribution to cut costs and they have several distributors including rural women. They also produce products and services that cater to the local consumer’s needs with global as well local brands that are available. Integration also refers to Unilever’s global expansion and their integration of their value chain across several markets and thus it takes advantage of synergy throughout the world. They will aim to bring in 75% of their revenue from developing countries because they see a great deal of potential in these areas. Therefore on the integration responsiveness grid, Unilever is both globally integrated and locally responsive. (Venaik, et al., 2000) (Ghemawat, 2011) Conclusion Axe, Ponds and Dove have been the major selling personal care goods that boost Unilever’s performance even in times of economic recession and they have been said to be successful all across the board. Adaptation takes into account the differences in different countries and caters to the local market, but it’s costly and it increases the complexity of the organization and can lower the advantages of economies of scale. Therefore there needs to be a limit up to which an adaptation strategy is implemented. Also there is lack of centralization in local markets and centralization at the global level which leads to confusion in operations. Also, sometimes global expansions lead to companies ignoring the differences that can be capitalized on and thus missing out on an opportunity which a local company who knows the market better can hone on. However Unilever’s success globally and in local markets is reassuring and its investment in R&D can help it understand the market better along with employees who are from India. (Ghemawat, 2011) Bibliography Anon., 2012. Unilever CEO sees 'countries like India' propping up revenues. Business Standard. Barney, J. B. & Hesterly, W. S., 2006. Strategic management and competitive advantage : concepts. s.l.:Pearson. Books, G., 2010. Unilever companies : hindustan unilever, hellmann's and best foods, lever brothers, unilever .... s.l.:s.n. Ghemawat, P., 2007. Redefining global strategy : crossing borders in a world where differences still matter. s.l.:s.n. Ghemawat, P., 2011. Cases on Redefining Global Strategy. Harvard Business Review, pp. 199-209. Judgev, K., n.d. The VRIO Framework of Competitive Advantage: Preliminary research implications for innovation management.. s.l.:s.n. Prahalad, C. K., 2010. 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