Global Strategic Management: Unilever Company - Term Paper Example

I. Introduction Organisation is simply defined by the neo ical theorists as a group of individuals having common set of objectives. Stinchcombe (1964), on the other hand, elaborates that an organisation is a set of social relations that are deliberately created towards an explicit intention of continuous accomplishment of some specific goals or purposes. In order for any organisation to achieve its set goals and objectives, it needs to employ efficient strategies. According to Bartlett & Ghoshal (1998), strategies are sets of organisational actions which exist either by design or by accident, and which are intended to develop resources in the delivery of services and products in a manner that the users find valuable, yet still meets the financial and other objectives required by the organisation’s key stakeholders. In the last half of twentieth century, there have been numerous barriers to international trade that fell and a number of organisations began pursuing global strategies in order to gain competitive advantage. It is, however, inevitable that some industries get more benefits from globalisation than others, as affected by the intricate interplay of various factors. It has become, therefore, very important for global managers to understand the nature of industries as well as the dynamics of global competition in order for them create successful global strategies for their own companies (Ohmae, 1999). This paper takes a look at the Unilever Company as an example of a global company which has employed continually changing global strategic management to cope with the ever-changing needs of its customers worldwide while gaining and maintaining global leadership in fast-moving consumer products. Following the guide questions provided for this course, this paper tackles on the company’s three-year financial performance trends and other key performance indicators as affected by the global financial crisis and globalisation, as well as its key strategies to stay competitive in the global market amidst the current challenges. Some key recommendations will also be provided at the end of this paper. II. The Unilever Company 1. Brief Background According to Jones (2002), Unilever has always been an organizational curiosity since its founding in 1929, as it has always been headed by two separate companies: the British Unilever Ltd. which became PLC after 1981, and the Dutch Unilever N.V., with each having its own set of shareholders, but with identical boards of directors. The two companies are bound by an Equalisation Agreement requiring the two companies to pay dividends of equivalent sterling and guilders value at all times. Conversely, there were also two head offices and two chairmen, and, until 1996, the role of the chief executive was carried out by a three-person Special Committee consisting of the two chairmen and another director. Jones (2002) continues to explain that under the two parent companies, there were several companies operating actively in individual countries bearing several names which often reflect predecessor firms or companies that had been acquired, including Lever, Van den Bergh & Jurgens, Gibbs, Batchelors, Langnese and Sunlicht, but never used the Unilever name in operating companies or in brand names. Through the years, the company underwent several organizational changes as it continued to cope with the changing times, and also diversified in its products and aggressively pursued worldwide marketing until it became a household name. Currently, Unilever N.V. (NV) is registered as a public limited company, and is registered in the Netherlands with listings of shares and depository receipts for shares on Euronext Amsterdam as well as for the New York Registry Shares on the New York Stock Exchange. On the other hand, Unilever PLC (PLC) is a public limited company registered in both England and Wales, and has shares listed on the London Stock Exchange, and also on the New York Stock Exchange as American Depositary Receipts. These two parent companies, NV and PLC, along with their other group companies, are operating as a single economic entity known as Unilever or the Group, and do constitute a single reporting entity for presenting consolidated accounts. Likewise, both parent companies present the accounts of the Unilever Group as their own respective consolidated accounts (Unilever Annual Report and Accounts 2006). Unilever is one of today’s world leading suppliers of fast-moving consumer goods, categorized under foods, home care and personal care. With the mission of adding vitality to life, Unilever prides itself for being able to meet the everyday needs of people in the aspect of nutrition, hygiene and personal care through brands that have helped people worldwide to feel good, look good and get more out of life (Unilever Fact Sheet, 2009). 2. Recent performance as affected by the global economic crisis The years 2006, 2007 and 2008, as well as the first two quarters of 2009, have been roller coaster ride for the company, as can be gleaned from its Financial Statements (Tables 1 and 2 in the following pages). In 2006, Unilever continued to benefit from the company’s strong reputation worldwide, as well as from its many businesses’ high local profiles in over 100 countries (Unilever Annual Report, 2006). However, economic downturns in the global arena during the year also affected the company’s financial performance. According to the company’s 2006 Annual Report, about 40% of its turnover during the year came from the developing and emerging economies like India and the rest of Asian countries, with which it already has long experience, and has also recognised them as important source of the company’s growth. However, such situation poses risk to the company since those emerging economies are highly volatile and therefore there is a risk of downturns in consumer demand which would redound to Unilever’s product sales reduction. Further, in the same year, there were significant increases in the prices of raw materials and commodities, which adversely impacted margins where the company was not able to pass on increased costs. The year 2007, on the other hand, also was a good year for the Unilever Group as well as its various businesses worldwide, with continued growth competitively, consistently and profitably and a positive future outlook primarily due to its clear growth strategy supported by an appropriate organizational structure (Patrick Cescau, Unilever Group Chief Executive, in Unilever Annual Report 2007). The year’s highlights include an accelerated broad-based sales growth of 5.5% from across all major regions and categories, achieving an underlying improvement in the company’s operating margin amidst sharply rising costs of commodities. Similar to the trend in 2006, this year’s turnovers come reflect the biggest growth rate in Asia- Africa with 11%. The year 2008, however, generally was not a good year for all businesses worldwide, as it was characterised by turbulence and difficulty, brought about by banking crises starting from the United States (US) sub-prime property market and quickly spreading to other asset classes as well as to other countries. Added to this were problems brought by the volatile price of mineral oil, extremely high costs of vegetable oils like palm, soy and rapeseed which are valuable materials for Unilever. Generally, however, Unilever was still able to perform well throughout the year, emerging stronger, even, as well as more competitive company, delivering good results on both top and bottom line with its strong cash flows allowing it to produce substantial returns to its stakeholders via share buy-backs or dividends. Table 1. Consolidated Income Statement (Unilever Group) AO 31 December 2008, comparing financial figures from 2006 to 2008. (Culled from Unilever Annual Report 2008). Table 2. Second Quarter of 2009 financial highlights, AO 6 August 2009, Unilever Group. (Culled from Unilever Investor Resource, Q2 of 2009 Financial Highlights). Likewise, the first two quarters of this year 2009 were not easy either. According to Unilever CEO Paul Polman (6 August 2009), the market conditions have remained difficult, but the company has continued to focus on restoring volume growth alongside protecting margins and cash flow for the year as a whole. The positive side has been from the return to volume growth across all regions, majority of countries and categories; likewise more of its brands are improving their shares again due to strong innovations, greater consumer value, as well as increased marketing support and better execution. Indicators for this quarter have been positive with underlying sales growth of 4.1% and with a volume growth of 2.0% across regions. As of this writing, the third quarter updates are still unavailable as they are due for public presentation on the 5th of November 2009 yet (Unilever Investor Centre, 2009). 3. Operational choices and challenges amidst globalisation In the face of globalisation, Unilever has been able to cope with the emerging trends in global consumer market. With the near-saturation growth in the developed markets (i.e., Europe and the United States), consumer packaged goods (CPG) companies like Unilever have began looking toward developing and emerging markets for further growth. Unilever, as early as 2002, started marketing aggressively in India, the world’s most promising emerging economy, via Lifebuoy’s Health Awakening which targeted India’s bottom of the pyramid (BoP). This initiative - which sought to promote handwashing with soap in both the rural and urban populations of India, helped prevent diseases such as diarrhea through the promotion of health and hygiene awareness among the poor communities who were infrequent users or non users of soap – succeeded in increasing its sales of Lifebuoy. Further, in 2006, the company launched the Sunsilk Gang of Girls (GoG) portal targeting the increasing number of Internet-savvy girls, which quickly caught the imagination and interest of girls in India, thus the successful turnout of the marketing strategy. With India as the company’s test market for the emerging market strategies, Unilever has been operating in the country through its subsidiary Hindustan Unilever Ltd. (HUL). Like in all other parts of the world where Unilever operates, it works through subsidiary companies, primarily to address logistical concerns which would be extremely tough and costly if they were to operate from their European headquarters. Also another concern that has come with globalisation has been the company’s quality of supply chain, as worldwide standards have been incorporated with environmental protocols and policies which look after the ‘greenness’ or ‘cleanness’ of products in the world market. In coping with this, Unilever has come up with its Sustainable Development Overview which discusses how the company and its business partners are addressing some of the critical issues in the world today, such as sustainable farming, climate change, water stress and resource use, among others. In integrating these concerns into the company’s business strategies, the company has reported the following, which are some of the company’s commitments and milestones in its Sustainable Development Overview of 2008: Commitment to source 100% palm oil only from certified sustainable sources by 2015; Commitment to buy 100% of its tea only from sustainable sources, with around 50% of the Lipton Yellow Label and PG Tips tea bags in Western Europe sourced from Rainforest Alliance Certified sources; Commitment to deliver only internationally accepted food and beverage products, wherein 100% of its 22,000 food and beverage products within the internationally accepted guidelines for saturated and trans fat, sugar and salt; Commitment to CO₂ reduction in its processes; wherein it achieved a 1.6% CO₂ reduction from energy/ton of production in its manufacturing processes from 2007 to 2008, which makes it achieve a total of 39% reduction since 1995; Commitment to reduce water use per ton of production; wherein the company reported a 3% water used reduction from 2007 to 2008, making it 63% total water reduction since 1995; and, Commitment to implement Corporate Social Responsibility (CSR) initiatives in localities where it operates. 4. Local strategy vs. global strategy Bartlett & Ghoshal (1998) explain that for companies like Unilever, especially in the face of globalisation, the dilemma is often whether to concentrate on multi-domestic strategy or go on global strategy as a way of competing and maintaining foothold on its market. Multi-domestic strategy is advantageous due to its decentralised nature which makes it easier and faster for local decision-making, as well as there is greater local responsiveness for customised products, political risks are minimal as well as exchange rate risks. On the other hand, the global strategy is characterised by having the same or similar products in all countries, with control all centralised which makes it difficult for fast decision-making at the local level and is only effective when differences between countries are small. The advantages of the global strategy are primarily its being less costly due to its coordinated activities, and also it saves time and makes it possible to have faster product development processes (Ibid.). Unilever’s strategy is both multi-domestic and global, operating through its local subsidiaries and business partners scattered in almost one hundred countries worldwide, employing a combined multi-domestic and global strategies in its value chain. Adopting this kind of strategy, Unilever was able to cushion the adverse impacts of the extremely rising costs of goods and commodities it needed for its products, especially mineral and vegetable oils. Given the kinds of products manufactured and distributed by Unilever worldwide, and considering the vulnerability of the industry to negative press releases which may be caused by pressure groups like environmental or human rights advocates, it is quite important that Unilever operates its R&D globally so that the quality control is stricter and with less exposure to probable risks. As Unilever has recognised the big potential of the emerging markets as a major contributor to its growth, it is noteworthy for the company leaders to keep in mind that emerging economies have capital markets that are relatively inefficient, and is characterised by lack of information, high capital cost and virtually inexistent venture capital, as well as a general lack of well trained people as workforce. Due to the general lack of infrastructure and communication facilities, emerging economies make it difficult for companies to build brand names, therefore the already established brands are perceived and received better, which Unilever can already bank on as one of the top brands worldwide. It is thus necessary for the company to seize the market in the emerging economies with careful planning and proper precautions. 5. Balancing profit and other stakeholder interests Unilever has a wide array of stakeholders to engage with and respond to at different levels. On one hand are the shareholders who demand for growth in the company’s profit at all times, and on the other hand are the other stakeholders who have different interests and needs which are beyond the profit and loss statements of the company. Unilever recognises that its success as a company greatly depends on good relationships with a broad range of people and organisations who claim stake in its business. As a company valuing transparency, Unilever engages its stakeholders across all its activities in order to gain support in issues identification, reporting guidance and feedback provision on specific areas of activity. Unilever also values partnerships as a crucial mechanism in developing and delivering some of its major sustainability commitments. With the consumers, Unilever engages them through brand teams who are in constant conversation the world over to have a good understanding their diverse tastes, needs and trends. Operating on consumer-care lines, Unilever provides information about its business and brands through carefully designed informative and transparent websites, as well as conducts detailed consumer research. On the other hand, with other stakeholders, like for example local governments and civil society, Unilever’s operating companies as well as its brand teams, conduct regular meetings, participate in research projects and surveys, and contribute to public policy and various special interest group activities. These decisions to engage are made at local or regional level, and the results gathered from these are provided to the business decision-making, focusing on issues that can pave the way for the company to make meaningful contributions as well as play particular roles relevant to Unilever’s own business objectives. Sustainability measures are built this way, even engaging those who may have critical views of the company, from whom the company gains better understanding of issues. Unilever is associated with various business organisations as well as a partner to several international intergovernmental and non-governmental organisations that bring expertise on specific issues and networks in the delivery of practical initiatives on ground. Considering Unilever’s principles and statement about its stakeholder engagement and involvement, it is very apparent that it is able to balance between pursuing profit versus attending to its stakeholders’ interests. As provided in the Unilever Sustainable Development Overview 2008, sustainability measures are integrated and interwoven with the company’s corporate social responsibility and corporate business plans, creating a seamless guide to its strategic directions as it continues to grow as a business giant. III. Recommendations for Strategic priorities for competitiveness in the global marketplace Unilever has come a long way as a world leader in fast-moving consumer products worldwide. It is admirable how it has managed to grow as it is today despite the seemingly difficult set-up of two separate parent companies in two different locations. Through years of expansion, operationally as well as in its product lines, the company has managed to retain the dual leadership set-up, posing no major setbacks to the whole operations. That alone is not an easy feat, and is a serious testimony to the efficient and effective systems and mechanisms at work within the organisation. That said, I must say that the foundational strengths and other qualities of a durable and resilient organisation are already in place within Unilever, which must first and foremost be preserved and enriched every now and then to serve its purpose. There are, however, key concerns that I would like to point out, as well as provide some suggestions which may help the company leadership assess and redesign, if needed, its strategies for the future: 1. Careful look at the Group’s financial statements for the past three years as well as for the first two quarters of this year tells of a bumpy ride through the challenges faced by the company as it tries to cope with its competitors, like Procter and Gamble and Nestle. The unpredictable and extremely high rise of the costs of raw materials like palm oil and other commodities necessary for manufacture has adversely affected the company’s financial performance. I suggest, therefore, that topmost priority be given to the creation of reliable supply chain which is logistically and operationally cost-efficient. The company should by now identify cost-efficient processes which it must adopt to substitute for the outdated and potentially risky ones. 2. Assess the product lines and products, already using the sustainable development framework that the company has adopted and committed to implement. The current high level of awareness about climate change and the growing pressure by international groups for companies to be ‘clean’ and ‘green’ in all its activities, as well as the call to reduce Carbon Footprint makes it seriously difficult to commit mistakes like continuing to market household products containing environmentally harmful materials. Likewise, the melamine scare a couple of years ago must also serve a lesson for the company as it tries to clean up its supply chain, both backwards and forward. References Bartlett, C., Ghoshal, S., 1998. Managing Across Borders: The Transnational Solution, 2nd Edition (Hardcover). Boston, MA: Harvard School Press. Jones, G., 2002. Unilever – A case study. Business History Review, [online] 9 December 2002. Available at: http://hbswk.hbs.edu/item/3212.html [accessed 03 November 2009]. Ohmae, Kenichi, 1999. The Borderless World: Power and Strategy in the Interlinked Economy. NY: Harpercollins Publishers Inc. Stinchcombe, J., 1964. Handbook of Organizations, in J.March, ed. Unilever. 2006. Unilever Annual Report and Accounts 2006. [Online] Unilever. Available at: http://www.unileverusa.com/Images/Annual%20report%20and%20accounts%202006_tcm23-100701.pdf [accessed 03 November 2009]. Unilever. 2008. Unilever Annual Report and Accounts 2008. [Online] Unilever. Available at: http://annualreport08.unilever.com/downloads/unilever_com_live_pdfs/report/8797_Unilever_ARA.pdf [accessed 03 November 2009]. Unilever. 2008. Sustainable Development Overview 2008. [Online] Unilever. Available at: http://www.unilever.co.uk/Images/Unilever_Sustainable_Development_Overview2008_v3_tcm28-163522.pdf [accessed 03 November 2009]. Unilever. 2009. Unilever Quarterly Highlights, Quarter 2 and Half-Year Results 2009. [Online] Unilever. Available at: http://www.unilever.com/images/ir_q2_2009_results_highlights_tcm13-181509.pdf [accessed 03 November 2009]. Read More