Global competitiveness of the company Unilever in Pakistan - Research Paper Example

?Table of Contents INTRODUCTION 4 COMPETITIVENESS OF COUNTRY 4 Factor Conditions 4 s 4 Infrastructure 5 Macro-economy 5 Natural Resources 6 Related and Supporting Industries 6 Demand Conditions 6 Size and Sophistication of Market 6 Appropriateness of Product Standards 7 Context for Firm Strategy and Rivalry 7 Local Context and Rules 7 Competition 7 COMPETITIVENESS OF FIRM 8 Firm’s Competitive Advantage 8 Innovation 8 Low cost of Production 9 Financial Stability 9 People 9 Community Involvement and Approach to People 9 PEST of Home Country 9 Political Factors 10 Economic Factors 10 Social Factors 10 Technological Factors 10 Fit into Global Supply Chain 10 Phase I: Manufacturing 11 Phase II: Storage/Warehousing 11 Phase III: Distribution/Retail 11 Factors Contributing to Competitive Advantage 12 Investment in Research and Development 12 International Presence and Expansion Strategy 12 Profitable Operations 12 Strong Network 12 RECOMMENDATIONS 12 Bibliography 13 INTRODUCTION This report has been created to understand the increasing global competitiveness. The country that has been selected is Pakistan and the selected company is Unilever. Unilever is one of the market leaders in consumer products industry. Through this report, I have analyzed the factors bringing competitive advantage for the company. Since Unilever is a British company therefore, I have selected Pakistan so that the operations of company in a developing state could be studied. Moreover, I believe that understanding the sources of competitive advantage in Pakistan for a company which started its operation in a developed state, would be very useful. COMPETITIVENESS OF COUNTRY Michael Porter studied 100 companies in 10 developed countries and argued that classic trade theories could not explain the comparative advantage and a firms’ competitive advantage stems from four factors, which he termed as Porter’s Diamond (Aswathappa). Therefore, to measure the competitiveness of country, Porter’s Diamond has been selected. Factor Conditions Institutions Pakistan economy is facing significant challenges because of security concerns and macroeconomic deterioration. Since private sector plays a very critical role in supporting the overall economy therefore, Pakistani government supports and attracts private sector investments. The government has developed the policies which could keep the costs of production low thereby, providing benefits to private sector. However, legal framework of Pakistan is very weak because of ineffective policies and weak regulatory structures (Asian Development Bank). Infrastructure Resources in Pakistan are limited and the country’s infrastructure needs are massive. It is because of the limited fiscal space and huge gaps in capacity of public sector to develop infrastructure (IPDF). With the increasing multinational companies, a significant development has been observed. However, infrastructure ratings are mixed such as low rank in electric supply and telephone lines and better rank on transport and railways infrastructure (Asian Development Bank). Macro-economy Table shows that GDP growth of Pakistan is 4.1 percent in 2010 as compared to 2.1 percent in 2009. In 2007 the GDP growth rate was 7.0 percent and in next few years it declined significantly which reflects the impact of global financial crisis. Exchange rate of Pakistan Rupee is Rs.86.21/1$ in 2010 as compared to Rs.60.16/1$ in 2005. It means that Pakistani Rupee has declined significantly against dollar within a period of five years. Inflation has increased from 9.3 percent in 2005 to 12.90 percent in 2010 (Board of Investment: Government of Pakistan). Pakistan economy has faced two major natural disasters in the past few years including massive flooding and earthquake. Because of poor infrastructure and construction, such disasters actually hurt the Pakistan economy. According to CEO, Ehsan Ali Malik, full-year sales target of Unilever declined by 7 percent in Pakistan because of floods (Sharm). Table: Economic Indicators of Pakistan Source: Board of Investment: Government of Pakistan Natural Resources Pakistan has abundant of natural resources including natural gas reserves, poor quality coal, salt, limestone, limited petroleum and copper (Indexmundi). Related and Supporting Industries Availability of raw material, access to various suppliers, availability of low cost production and low cost distribution network in Pakistan offers a complete network of related and supporting industries to the firms operating in consumer products industry. Demand Conditions Size and Sophistication of Market The market in Pakistan for consumer products in significantly large and the market is expanding with average population growth rate of 2.1 percent in 2009 (World Bank). According to 2005/2006 estimated, around 25 percent of population of Pakistan is below poverty line (Indexmundi). As long as sophistication of market of Pakistan is concerned people in Pakistan are usually poor and income inequality and distribution is significantly high. Market sophistication from business point-of-view is significant and Pakistan has been rated on 47th in world for its value chain presence, production process sophistication, local supplier quantity and quality and nature of competitive advantage (Asian Development Bank). Appropriateness of Product Standards Being a poor economy, product standards required for domestic consumptions are not very high however, for international exports; high quality products are being manufactured. Pakistan usually follows weights and measurement standards of Europe (Raza). Context for Firm Strategy and Rivalry Local Context and Rules The local environment and the domestic business practices in Pakistan influence the operations of foreign companies. Although there is no local rule or policy which foreign companies follow but because of the cultural characteristics, very few companies have been able to pursue ‘open culture’. Pakistan is a collectivist society and individual empowerment is low (Naeem and Saif). The management style in most of the organizations is more autocratic and bureaucratic however, many foreign companies are bringing changes. Competition The major companies in fast moving consumer industry in Pakistan include Unilever, P&G, Nestle, Colgate and Reckitt Benckiser. The competition among these companies is more based on price and less on product quality however, because of increasing consumer awareness, international companies are also shifting their focus towards product quality. Based on Porter’s Diamond analysis, it has been identified that economy of Pakistan is very weak. However, foreign companies operating in Pakistan are enjoying low production costs, cheap labor, no restrictions, low cost raw material, huge consumer market and less competition. On the other hand, high inflation, poor economic situation, weak regulatory framework, monopolistic market structure and poor infrastructure are some challenges for foreign companies COMPETITIVENESS OF FIRM Firm’s Competitive Advantage Innovation In a country like Pakistan where very few brands are recognized for their innovation, Unilever has established a strong image in innovation. In 2009, company spent €891m on research and development and company reports to introduce around 250-350 new patents every year (Unilever). Low cost of Production Company has been able to optimize cost and quality in Pakistan through sourcing raw material and packaging intelligently (Unilever). Financial Stability Company has been able to establish a strong financial position in Pakistani market. According to annual report of company 2009, the sales of company have grown from Rs. 30,957 million in 2008 to Rs. 38,188 million in 2009 and profit after tax is Rs. 3,056 million in 2009 as compared to Rs. 1,984 million in 2008 (Unliever). People Unilever has attracted and retained the best skilled labor in Pakistan. The company offers attractive salaries, flex hours to its workers (introduced in 2009), daycare centers and other international level incentives to its employees. Very few companies in Pakistan are offering such facilities therefore; most of the skilled people feel good when work in Unilever. Community Involvement and Approach to People Unilever has developed strong links by interacting different communities and groups in Pakistan. For example, company has developed a call centre “Rabta” to offer a call centre to customers where they can submit their complaints (Unliever). PEST of Home Country In PEST analysis, only those factors have been considered which have appeared as a source of competitive advantage for Unilever and brought by its home country, Britain. Political Factors Stable political conditions in Britain allowed Unilever to expand throughout Britain Standard legal framework helped the company to introduce high quality standards which helped the company to develop a strong quality image in the world Economic Factors Strong economic situation of Britain helped the company to enjoy growth and profitability thereby, achieving financial stability. A company cannot think to go global unless it attains financial stability in its home country Social Factors High quality preference and high living standards of consumers appeared as a challenge for Unilever which helped the company to introduce only quality based products Technological Factors Access to high technology and infrastructure helped the company to improve efficiency of its operations in Britain Unilever established its research and development centers in Britain which helped the company to develop new products Fit into Global Supply Chain Unilever has developed an international model for supply chain. As evident from figure, company has three phases in its supply chain including Manufacturing, Storage/Warehousing and Distribution/Retail. The strategies in global supply chain which brings competitive advantage for the company starts from first phase. Supply Chain Model for International Market Source: Srivni Phase I: Manufacturing Company has developed its own manufacturing units throughout the world and company also relies on third party manufacturing. Global supply management program of company only focuses on reducing non-production items. Phase II: Storage/Warehousing Company has established its own distribution centers where the products are stored. Moreover, company also relies on public storage facilities to reduce the costs of its facilities. Phase III: Distribution/Retail Unilever has established a strong distribution network in the world. The distributors of the company are the independent brokers, agents, agencies and wholesalers which ensure to make the products of the company available at retail outlets. The consumer products of company are available at all kinds of stores and retail outlets which offer accessibility and convenience to customers. Factors Contributing to Competitive Advantage Following factors are contributing to bring competitive advantage for Unilever. Investment in Research and Development Company has hired more than 60000 individuals which are operating in research and development centers of Unilever around the world to come up with innovative patents for the company (Unilever). International Presence and Expansion Strategy Company has established the image of an international company with more than 20,000 registered patents and patents applications (Unilever). Profitable Operations Profitable operations of company have helped it to expand across the world markets. Strong Network The company has established very close relationships with its vendors, suppliers and stakeholders which help the companies in all aspects of business and appear as a source of competitive advantage. RECOMMENDATIONS Company should increase its focus on health and nutrition products because Unilever has already established a strong position in fast moving consumer goods market and a great focus towards health and nutrition products will help the company to increase profitability and remain competitive. Unilever has been pursuing very aggressive marketing strategies. Since company has developed huge range of products and most of the customers are not even aware of the products which belong to company. Therefore, company should develop advertising strategies that promote company image with products and sales should be promoted by attracting the customers to believe in Unilever. Rather than focusing on aggressive research and development activities, company should develop products which may fulfill the needs of consumers and may vary from country to country. Bibliography ASIAN DEVELOPMENT BANK. Private Sector Assessment Pakistan. December 2008. 23 January 2011 . Aswathappa. International Business, Edition 3. International Business, 2008. Board of Investment: Government of Pakistan. Economic Indicators (2010-2011) . 2011. 23 January 2011 . Indexmundi. Pakistan Natural resources. 30 December 2010. 23 January 2011 . —. Pakistan Population below poverty line. 30 December 2010. 23 January 2011 . IPDF. Introduction. 23 January 2011 . Naeem, Hummayoun and Muhammad Iqbal Saif. "Employee empowerment and customer satisfaction: Empirical evidence from the banking sector of Pakistan." African Journal of Business Management (2010): 4(10), 2028-2031. Raza, Asmat. Food and Agricultural Import Regulations and Standards - Narrative. 8 August 2009. 23 January 2011 . Sharma, Malavika. Toyota, Unilever Pakistan Say Floods May Sap Growth. 20 August 2010. 24 January 2011 . srivni. SCM Case Study - Supply Chain Model of 'Unilever Group'. 19 June 2007. 25 January 2011 . Unilever. Innovation. 2010. 24 January 2011 . —. Supply chain. 24 January 2011 . Unliever. Unilever Annual Report . 2009. 24 January 2011 . World Bank. Population growth rate. 22 December 2010. 23 January 2011 http://www.google.com/publicdata?ds=wb-wdi&met=sp_pop_grow&idim=country:PAK&dl=en&hl=en&q=population+growth+pakistan. Read More