Market structures in practice at Unilever deviate
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Published: Mon, 5 Dec 2016
Market structure is the manner in which a corporation experience competition during the delivery of goods and services. The structures are very dynamic and both extremes do exist depending on the market in which one is operating and the type of goods being dealt with. The theoretically existing market structures are: perfect competition, monopolistic competition, oligopoly and monopoly. Out of these existing market structures, it is not possible to single out one to be prevailing in the Unilever products market. This so because there is no clear cut differentiating between them. However, perfect competition is a far much distinct structure from the other three structures. Unilever has a wide range of its consumer products in distribution worldwide. The corporation’s complexities in organizational structure coupled with an expansive portfolio of products have made the Unilever company operate in all market structures except perfect competition.
Perfect competition prevails when there are many sellers and buyers present in a market. This means that no single player will bring much influence in the entire market. The presence, withdrawal or change of strategy by a distributor in this market structure has an insignificant effect in price and demand. The market forces are left to take their full swing operation. In this market, the consumers view all products to be identical thus selection of a product to be purchased is indiscriminate. However, this is not case in most household consumer products. Consumers are very sensitive in the selection of such products, especially those that affect their health and general appearance. The earlier mentioned expansive portfolio of Unilever house hold products affects the final consumer’s health and appearance. This effects either instant or long term are evident in its advertising slogan; adding vitality to life. By considering the corporation’s profile, Unilever is not the type in which its presence in the market cannot be felt by fellow competitors as well as consumers. Therefore, saying that a perfect competition is the kind of market structure in which Unilever is operating will be a complete fallacy.
Monopolistic competition prevails when there are few restrictions to the entry of the market. The presence of a corporation in the market will therefore be determined by it creativity and ability to overcome the few existing restriction. Such restrictions may not necessarily be economic but rather anything which may retard the growth and performance of a player in that particular market. The many companies operating in this kind of market structure have little to influence since they have small market share. Unilever’s market share cannot be generalized as small globally but rather largely variable. It is dependent on geographical diversification characterized by expansion and venturing into emerging markets. The aspect of small market share may not be entirely dismissed but can be stated as a fairly potential scenario to occur. This is evident in the penetration in to the new markets already colonized by competitors as well as situations where others are proving too strong to eat into the corporation’s market share. The products in this case are very distinct thus one can easily differentiate between products of different companies. The Unilever products can easily be identified and are available in a large sea of household products from which a consumer chooses from. The marketing strategists in Unilever must therefore apply non-price competition strategies. Advertising is the most common non-price strategy available for Unilever, where fellow market players’ have close substitutes of its products. Another tool in use by the corporation is the rolling out of an ambitious research and development program which has seen it deliver the most optimal innovative designs of products. All these characteristics describe a monopolistic competition which becomes one of the prevailing market structures.
Oligopolistic market structure exists when a few firm dominate market and thus enjoys a majority of market revenue. This is evident in its market share which according to Fortune 500 list of large companies in Europe, it revenue was at $ 45,679 million which placed them at fifty-fourth slot in the year 2000. This commanding market share coupled with European Union stringent standardization rules makes it hard for new products to hit the market. The
Monopoly on the other hand means that there is only one supplier. Therefore there is no competition expected. The sole supplier dictates the prices, supply quantities and the quality control. This hypothetical structure hardly prevails unless there are influences from regulators like governments and other authorities empowered by pacts and international agreements. There are high barriers making it totally impossible for other firms to enter the market. It is hard to experience this kind of a market structure currently. It can only be seen in specialized products distributed by the government due to their nature to influence the national security. We can therefore confidently dismiss this structure to be non-existing in Unilever’s products.
To sum it all, all market structures except monopoly are in practice at Unilever. However the perfect monopolistic structure carries less weight because the cumulative market share of this corporation is big enough to shake off potential high caliber competitor. Any organization interested in the manufacture and distribution of household goods can only do best by either franchising or merging with Unilever. The consolidation of European resources through European Union’s elimination of trade barriers and restrictions has come up with far reaching opportunities as well as setbacks for main stream organizations. For Unilever, it is a great milestone as it is for other multinational organizations to see different regions get in to agreements of forming trading blocs. The usually complex management structure can be simplified through creation of regional offices. The basis of such regional offices is going to be the preset blocs.
Relationship between market forces and Unilever’s response
Market forces are the demand and supply which is a reflection of all price-conscious sellers and buyers of the products available in the market. The desires of sellers and buyers are in the two extreme ends. Sellers will want the highest possible prices while buyers want to own the goods for free if possible. Since taking goods freely is not possible they are therefore asking for minimum prices possible. The price is expected to go up with an increase in demand while an excess supply will make the price to fall. Such varied desires constitute never ending market forces. It is worth to note that the market forces are only possible when there are no external interferences.
The already mentioned rich portfolio of Unilever products can be put into the following categories: washing powder and detergents, beverages and butter and margarine. These products must attract many buyers as well as producers being the fast moving consumer goods demanded by buyers daily. In fact the demand is poised to rise given the ever rising populations of the world accompanied by rapid urbanization.
It is the dream of every organization in business to make profit and reduce cash outflows as much as possible. Unilever being no exception has put in a lot of efforts to stay up beat so as to maintain and grow its market share both in Europe and global market. We are now exploring its response to such dynamic challenges accompanying variations in market forces, the actual effects in revenue and long term reputation of the corporation.
The corporation has a deliberate effort to guard its market share. The main strength of Unilever is the expansive geographical diversification of its products. These will translate to the final returns because; the poor results of one region are likely to be cushioned by those of the other. To illustrate this, the corporation was in operation in eighty eight different countries in the year 2002. Management teams in every region were given decision making autonomy so that the products available for distribution in their respective regions are tailor made to just meet the consumer needs. This brilliant approach ensures the avoidance of obsolescence as well as delivery of the most relevant goods in the market.
Paying attention to human capital offers enormous opportunity to the long term strategy of the corporation. This global organization believes that a highly motivated human capital is going to impact positively on the general outlook. It is this reason therefore that has made the company to invest on human resources development through recruitment and training of employees from varied disciplines and qualifications. To ensure that every talent in the society is utilized one can enter the company’s amazing human resource through graduate trainee program or specialized skill direct entry.
Another notable strategy which may look more of welfare based than economic is the formulation and implementation of a well detailed safety, health and environmental policy. This has a lasting perspective and a wide focus beyond what can be immediately seen. However, there are short term benefits of this. An employee who is always safety conscious is going to deliver better results than the other who has no attention to safety. It is also worth noting that some economic blogs like the European Union cannot accept a company’s products if there is not practical move to conserve and protect the environment. The most recent example is the black tea sourcing sustainability commitment which came by through the certification by Rain Forest Alliance. Among the immediate benefits of this tea sourcing sustainably, Unilever has been able to launch its Rain Forest Alliance compliant tea in the European market.
The years of poor performances globally prompted the organization to embark on an ambitious path to growth strategy in the year 2000. The strategy has specific action points to be discussed next. First of all, the ambiguity surrounding the amorphous number of brands was eliminated through the reduction of brands to the four hundred most important core products. The unsuccessful brands were successfully removed from the market which led to the increase in sales of the top brands from 75% to 93%.
The corporation has been able to also tap from emerging markets by penetrating those which are already colonized by the competitors such as; Procter & Gamble, Nestle and Kraft Foods. Among the major advantages of Unilever is it ability to carry out research and identify the consumer trends of needs. With this information at hand, the response is efforts to cater for them. Just to illustrate this proactive approach, the major concerns in the world of late are nutrition and weight. Majority of the people are currently shifting their focus to ways of living healthier lifestyles. So as to move in tandem with this trend Unilever acquired Slimfast, an organization offering weight management services and nutritional consultancy. The intense competition faced worldwide has necessitated the Corporation’s top management to make acquisitions. The top acquisitions are Ben & Jerry, Slimfast and Best Foods among other twenty worldwide. This ability to make huge acquisitions and conglomerate firms have put itself in a position to enable itself enjoy competitive advantage. The corporation saved EUR750 in cost and operating margins rise by 15.7 per cent in the first three quarters.
The Unilever is carefully working together the Competition Commission so as to achieve a balance between their profits and legitimacy. Striking a balance has been a headache for both parties bearing in mind their varied intention of promoting competition. Competition Commission will always strive to provide a fair play ground for the players in a given industry. It ensures also that no one takes unfair advantage by punishing the final consumer. To achieve this, the commission closely monitors the interaction of competitors and partners in the market. The changes in businesses set up including concentrations through mergers and takeovers are very useful so as to eliminate the competition among the players in the market. The resent proposed acquisition of United States based Sara Lee’s body and laundry division by the Unilever is being reviewed in line with European Union Merger Regulation. The commission seeks to establish the ultimate effects of shelf prices of these products after the elimination of competing suppliers of a good number of household cleaning products. Through such a strategy, the corporation is able to wade off expenses that could have resulted from competition and huge advertisement. However, if this is viewed as move to club together and drive others out of business it will be totally unacceptable and the commission is going to advice the relevant bodies accordingly. Sanctions and license suspension may the worst penalties that the company can get if found guilty. But leaving alone this pessimistic approach of the role of competition Commission, there are a lot to be achieved.
The corporation’s expansion strategy has seen it adopt an earlier mentioned path-to-growth master plan aimed at growing it market share. Its unrivalled enormous infrastructure has played a paramount role in venturing into emerging markets. The other strategy has been the focus on the internal structures of management and building of global leadership. A well oiled management machine has been achieved through internalization of the concept of growth by every member of the management team. The history of this company shows us that it is a merger of two companies based in United Kingdom and the Netherlands. With this foundation, there has been need to cluster the two head offices resulting in a simpler organizational structure. A fast decision making and improved accountability can only be achieved through the continuous improvement of organizational structure.
Importance of foreign international trade, economic integration and global markets in Unilever’s business
International trade is the exchange of goods and services through the borders. This type of business has formed the firm foundation in the modern business world because the manufacturers and distributors attempt to gain from a wider market rather than looking at their own borders. Each and every firm intending to throw its nets wide must focus on the globalization of its marketing and distribution operations. The foreseeable constraints of venturing into international trade are deeply rooted in the standardizations and trade barriers formed through economic integrations and blocs formations. Many economies have leant that they cannot effectively compete with the do-it-alone approach. Therefore there is a rise in regional economies coming together and forming a bigger economy. This grouping and regrouping of states have a huge impact on the social, political and most important economic dimensions of organizations. There many benefits that come along side this integrations as well as demerits. Any organization in need of these benefits and willing to take the accompanying risks will surely take these challenges and reap from the goodies of global market. Just like any other multinational firm, Unilever’s presence in the global market has helped in the continuous development of new market segment. In order to benefit from the economies of scale, the corporation shakes off the saturation in the European domestic market by gathering for the needs of international buyers. International trade is also important bearing in mind the corporation’s portfolio resources and products. To tap from these undoubted benefits of international trade, Unilever utilizes the various available options of internationalization. The earlier stated concept of mergers and acquisitions has given the corporation a huge milestone in venturing into international trade. Among the many firms that has entered in a n international partnership with the corporation are: Pepsico which works together to market and distribute Lipton a ready-to-drink tea, Inmarko which is the leading ice cream corporation based in Russia and the imminent acquisition of Sara Lee division of body and laundry production. In a nutshell, the company has been able to secure a total of twenty acquisitions
Unilever can therefore be said to be a global corporation based on the attributes described before. This is justified by its presence in many nations and the use coordinated brands in global market. It however has one centralized office in the United Kingdom which manages the entire strategy.
The European Union policies which affect tariffs and free trade agreements are going to have a final trickledown effect on the revenues and operations of Unilever. The elimination of trade restrictions and barriers within the European market means that the revenues are going to rise because of easy penetration to domestic regions. The removal of all tariffs on trade is one of the major benefits enjoyed by the corporation.
Economic implications emu in the United Kingdom
The economic monetary union is the adoption of one currency by the European Union member countries. This move has been achieved through the development of one European Central Bank and formulation of a common monetary policy. Such adoption of single currency has elicited a series of mixed reactions due to the economic implications. Some school of thought may argue that the adoption of EMU is irrelevant because it focuses strictly on the financial services sectors. The critics of Economic Monetary Union claim that putting together economies of different sizes is going to be detrimental. This will mean that the entire Europe economy will be the least common denominator. In simpler terms this will mean that the economic muscle of the member states is going to be achieved through striking a balance between the participating economies. The poorly performing economies are going to pull down the perceived successful ones. Despite this pessimistic view of EMU, there will ultimately be a lot of attractiveness of euro financial assets due to eliminated exchange risk and improved liquidity. In addition the stability in macroeconomic environment is very instrumental in reduction of financing and investments risks. It is no doubt that the introduction of euro as the common currency in the European Union has improved prices transparency. There are no fears by someone using euro resulting from using different currency. The firms in the Union’s territory are able to comfortably compare prices without worry of actual value being distorted by conventional highly volatile exchange rates. From an external point of view, the consolidated EMU area is in a position to be self sufficient and independent of the Asian or American influences. Thus partnership has a political effect. The mutual relationships between nations are going to be fostered since the bad blood is eliminated by continually partnering in the formulation and improvement framework of the common market policies. The European Union firms, in which our organization of discussion is part, are going to increase their profitability through elimination of currency exchange transaction costs. Other trade focused proponents of this worth project claim that no cent will be lost on the fluctuating exchange rates. Trading as a bloc makes Europe compete effectively with other giants in the Far East and America.
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