Unilever Is A Multinational Company Economics Essay
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Globalization can be known as the integration of economics and societies all over the world. In the globalised world because of the countries highly interdependent on economies economic crisis in a part of world affects the whole world. Because of the great depression the whole world is facing a worst financial and economic crisis which is affecting social and environment in a negative and positive ways. This crisis is negatively effecting all the countries and the businesses especially the developing countries.Respnding to this Crisis is a challenge for businesses. How the selected company that is Unilever as been affected by the crisis, how it should respond will be discussed in this report
2.0)Introduction to the Company
Unilever is a multinational company which operates in 190 countries with 400 brands. It is the world's 3rd largest FMCG (Fast moving Consumer Goods). Around 2 billion consumers use Unilever products every day. Around the world more than 171000 employees works.
In Europe Unilever owns 38% of its business. In America 33% and in Asia and Africa its 29%.
Unilever is a most culturally diverse company for example Unilever top Management is from 21 countries.30% of unilever managers are women.
Product portfolio of Unilever includes Personal care, Home care, Water, food and beverage. Some of the global brands are knorr,lifebuoy,lipton,Reona,dove which brings more than â‚¬1 billion revenue for the company.
3.0)Global Economic crisis
Current global economic turmoil is slowing down growth of advanced economies. Major economic crisis held in United states and Europe. This crisis will be explained briefly as follows.
3.1)United States crisis
United states financial crisis is one of the global economic crisis. It happened because of the high demand for personal and corporate investment many people borrowed money from the government and bought properties which they cannot afford. At last because of the high demand Banks started lending money using the customer deposits. Later moved to lend money where mortgages were being issued on the bond market. When the US borrowers started defaulting on their mortgages they lost their houses as well as the investors lost their investments including banks. Banks from many countries specially form UK continental also made loans in these markets where the banking crisis affected the whole world. This crisis led to the global recession which affected the whole world.
3.2)European sovereign-debt crisis
European sovereign-debt crisis is an ongoing crisis which has made difficult for some countries in the euro zone to pay their government debt. Countries like Greece, Portugal, Ireland, Italy, and Spain failed to achieve the target economic growth in order to payback bound holders the guarantee it was intended to be. In Greece debt increased because of the public sector wage and pension commitments. To finance the expenditure Greece went of borrowing. The result was they exceeded the size of the nation's entire economy .Investors responded by demanding for higher yields for the bonds by increasing the burden .European union and European central bank necessitated a series of bailouts. European banks own a considerable amount of sovereign debt which is negatively reinforcing. Bankers were reluctant to lend money because of bad debts which led to credit crunch.
Although the above mentioned five countries are in immediate danger the crisis has effects the whole world. How it has effected will be discussed in the next topic.
4.0)Effect of crisis
The world economy has been affected by financial crisis. Many emerging economies are affected a lot.
Due to the interconnection of the financial systems a bank failure will be a start to the failure of series of banks. For example in US financial crisis series of small financial institutions collapses resulted in the failure of lehman brothers. Customers of lehmann brothers pulled out their money in order to invest in more secure way. This laid to 10000 of job cuttings around the world. Once the financial system weakness the recession began.
A recession is a situation where the economy stops growing. Recession has the effect on global trade. European debt crisis affected the financial market as well as the US government budget. International Monetary Fund's (IMF)40% of capital comes from the United States. So if the IMF has to commit cash to bailout initiatives US taxpayers have to pay more tax. This will lead to the decline in the world economy at market exchange rates.
Many countries facing negative impact such as trade balances and balance of payment, lack of public confidence in financial institutions, Collapse of housing markets, decrease revenue from tourism, reversal of private capital inflows, reduced ability to maintain social welfare such as health and education, reduction of fiscal space, falling tax revenues, growing budget deficit, reduced demand for imports.
This financial crisis led to many social crisis and challenges which are inter related. In the recession companies makes less profit and Unemployment rates increases along with the low consumer confidence. Consumer spending is less because of the unemployment. People loose their homes ,their incomes, their savings.
In the recession consumers use credit cards less and businesses also don't borrow money to expand the business. With the lower demand for loans interest rates become low.
When the interest rates become low investment of foreigners goes down. Therefore local value for currency depreciates. For example when the rupee value goes down exchange rate goes up. For example if 1 US dollar is equal to Srilankan Rupees 114 during the recession it might become 135 Rupees. Which means exchange rates goes up. This will result in increase oil price.
Oil is a very sensitive thing. If the oil price goes up lots of social issues comes into paly.Increase of food prices, energy cost, and poverty effects the social progress. Between January 2002 and August 2008, oil price changed from $19.7 to $133.4 a barrel.
As a results of the crisis over 50 million people specially women and children had driven to extreme poverty according to the world bank. According to the food and agriculture organization of the United Nations says that crisis will effect in increase number of hunger and undernourished people worldwide.
This economic crisis does not affect only the economic and financial sector. It effects the environmental protection such as clean and renewable energy, climate change because of the companies won't be able to focus more on these areas. How these crisis will impact Unilever will be discussed next.
5.0)How Economic Crisis impact Unilever
IMF Managing Director Christine Lagarde said that "the three different crises on economic, environmental, and social fronts feed off each other and cannot be addressed each in isolation."When there is an economic crisis Social problems and environmental problems arises automatically.
PESTEL analysis is a framework which reviews a situation which gives a strategic direction for the company. PESTEL also ensures that company's performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985).This analysis is carried out to Unilever Global because when there is a change in the macroeconomic environment company have to look forward implementing strategies in order to overcome the challenges.
5.1)Political and legal
Unilever is a multinational company which has to obey the operating country and regional rules and regulations. These rules cover trademarks, health and safety, patents, employment and taxes important regulatory bodies. For example Kingdom of Saudi Arabia has prohibited alcohol and pork contained food. Breach of these rules will damage the reputation of the company as well as according to the law company has to pay fine. Government changes in taxation policy to reduce unemployment will affect the company economic performance. Taxation for the imports and raw materials will affect the business negatively by increasing the price of the products.
When it comes to Europe Unilever market is full of competition. Because of the crisis explained in the previous section macroeconomic environment is highly uncertain .Due to the economic crisis consumers are looking for cheaper product. In countries like France and Nederland competition for unilever is high.
Customer and supplier default was resulted in the economic downturn. Customers purchasing power reduction has resulted in the company profits.
5.3)Social and economical environment
Unilever's vision is "to help people feel good, look good and get more out of life with brands and services that are good for them and good for others."
Unilever has a strong reputation for the focus on employees safety, environmental protection and sustainability. It focuses on utilization of renewable resources as well as producing products which are safe for consumers. Company uses environmental friendly materials for packaging. Even all the governments are focusing on green economies and forcing the companies for that. More than developing countries developed markets focus on this.
In order to increase the living standards of people Unilever Srilanka focuses on "Saubhagya" project which helps rural children for studies, For women job opportunities.
Unilever is working on safe drinking water project in India in order to make people aware about the hygiene factor.
Unilever is spending more on IT in order to improve the brand image and minimize cost through e-business.Unilever invest on research and development about â‚¬1 billion a year which will help to develop new product which meets the consumer needs. Lack of innovation will affect the reputation as well as will increase the competitor market share.
6.0)Challenge and threat for the company
Because of the crisis customers look for cheaper products.Unilever marketing channel is mainly Modern trade and General trade.Modern trade includes the supermarket chains and general trade includes retailers.Unilever has challenge because the supermarket chains comes up with their own brands. For example In srilkanka Cargills food city although it is a main retailer of Unilever Cargills has its own washing powder, jam and so many products. For them it gives big profit margin
7.0)Unilever's response to the Challanges
When responding for the global crisis focusing on economical, social and environmental factors are important.
Recession offers a lot of opportunities in the market by creating new gaps. In order to respond to the crisis around the world Unilever offers products with small packages, sachet, affordable variants of global brands for low income consumers. For example in Spain, Greece, United States small packs of knorr, dove, lipton brands are sold. In Greece mashed potatoes, mayonnaise is sold in small packages. Launched low cost tea and olive oil brand for the euro market to face the euro crisis.
In Europe, Because of recession consumers are focusing on packed lunch and home baking. Therefore stoke baking liquid is introduced in packs where customers can re-use as lunch boxes and as an alternation for the expensive butter. In Indonesia 2-3 cents value of shampoos are sold for profit. By all these strategies Unilever trying to position some brands as a value for money. All these strategies are initially started from the emerging and underdeveloped markets.
To respond to the global crisis restructuring the functions is also a strategy of the company. To reduce the staff is reduced from 223000 from 171000.This is because of the local country labor rules which increases the cost. Company planning to reduce the number of factories from 300 to 250 by merging the country operations into the region. For example in Saudi Arabian region Dubai is working as the main branch. This will save about 1 billion a year.
Brands are reduced from 1600 to 400 which don't work well. This is also a way to face the crisis. This would increase the efficiency of the company rather than focusing on less performing brands.
Focusing on innovation is also a best way to meet the global challenge. For example knorr has launched a product line in concentrated fruit and vegetable juices and ice-cream made out of yoghurt.
Unilever increase the livelihood of people by 3 main ways.Sustainabel sourcing, better livelihood and through people.
Sustainable sourcing- Helps for better living and income for farmers.Unilever sustainable sourcing is applicable for palm oil, sunflower oil, Vegetables and fruits, cage free eggs.
Better livelihood-By giving fertilizers, high quality seeds and training for the small farmers Unilever gets quality inputs as well as it helps to increase the living standards of the farmers.
Shakthi door-to-door selling in India provides works for pure people in India which helps to reduce the poverty.
People-Unilever focus on health and safety in order to reduce work place injuries. Lamplighter employee programme helps to be mentally free sand physically fit.
Focusing on heath and hygien by improving the nutrition is Unilever practicing. Through lifebuoy brand hand wash it reduced the disease diarrhea, through signal brand tries to improve oral health, pure it water filters provide safe drinking water ,through dove brand it helps people to increase the self esteem.
As a company which focuses on well being of the consumers has a nutrition strategy which tries to reduce the fat, salt and suger level and to increase the essential fatty acids in the products.
Unilever introduced hellmanns myonise with 5% fat focusing the hygien of the consumers. This would make the consumer delight.
Responding to country and social needs is also a factor where unilever focus on. For example an Indian woman uses more oil where western shampoos don't wash it away. Therefore company adopted its shampoo according to the Indians need.
In order to reduce the environmental impact company focuses on green house gasses, water and waste management
Green house gas-Unilever tries to reduce green house gas emission from shampoos and shower gels when using and from washing clothes. Company is reformulating the products to achieve this. By reducing truck mileage company tries to reduce the Gas emission from transport.
Water-Company focuses on reducing water consumption in all the stages of production and by making easier rinsing products. Comfort One Rinse fabric conditioner reduces the water consumption from 3 buckets to 1 when rinsing clothes. Washing powders like surf excel need less water .Company focuses on water reduction in the shampoos and hand wash when using. This helps in reducing the water consumption.
Waste Management and Packaging-eliminating unnecessary packaging and using lightweight material is way to protect environment. In the personal and home care products using refill will also reduce the consumption of plastics for example lifebuoy hand wash is using this strategy.
In this report current economic crisis is explained and its impact globally is discussed. It reveals that because of a crisis in a country for how far it has impact the lives of people all over the world positively and negatively. This shows how far the globalization plays a major role in people's lives.
Through PESTEL analysis how the Macroeconomic environment is effecting the company is discussed. Through this analysis some conclusion can be made.
In order to maintain the market share and the consumers always company should be sensitive for the macroeconomic environment. If there is a regulatory issues in the local country, financial crisis quickly company respond to it. Company should always focus on market research and consumer behavior pattern. Although Unilever is a multinational company it should localize its operations according to the country it operates.
Innovation and new product development plays a major role in the business. In the last part with example reports shows that how Unilever responded in the time of crisis.Even in the developed market it had to use the emerging market strategies like small packed products which is a new thing.
In order to achieve a sustainable economic situation as mentioned above focusing on Social and environmental in very important. As discussed above as a leading multinational company Unilever focuses on these matters a lot. But in order to respond to the changing environmental condition following are some recommendation.
When focusing on Environmental factors managing waste is very important. Although unilever focus on factory waste management it has to focus on post consumer waste management also. For this having good relationship with operating country government is important.
Focusing more on green economics and promoting that would bring more environmental friendly customers into the business. This segment although the price is high because of the environmental friendly products they won't think twice to buy.
Focusing more on health and hygien by introducing new products such readymade green tea,energy drink and focusing targeting young generation would bring advantage.
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