Unilever International Strategy Analysis

3983 words (16 pages) Essay

29th Jun 2017 Marketing Reference this

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1. Introduction

2.2 The main factors influencing the market strategies

2.2.1 The influence from macro environmental factors on strategy selection

Environmental factors have influences on strategy selection (Johnson and Scholes, 2002). Such factors refer to the aspects of politics, economy, society and technology. PEST analysis can be used to discover the possible tendency in external environment which may finally determine the strategy a company adopts. A multi-national company may pay special attention to the relationships between governments and the future policies a government may adopt due to the influences of political factors. The MNC may also care about the changes of labor cost and exchange rate influenced by economic factors (Johnson and Scholes, 2002). With PEST analysis a connection is established between the general environment and strategy selection. Therefore, the weak and implicit signals hidden in the general environment become critical factors explaining the changes of strategies (Henry, 2008).

2.2.2 The influence from micro environment factors on strategy selection

The macro environment affects all firms while micro environment affects the films only in particular industries. This comprises very loosely the internalities of the organization: that is, the forces over which the organization has some control, or perhaps ‘influence’ is a better way of describing the level of power the organization possesses (Jon, Peter, Patrick 2004). Micro environment factors include consumers, employees, suppliers, shareholders, media and competitors. One classic model that looks at the structure of an industry is Michael Porter’s Five Forces model (Malcolm and Dennis 2002). The challenge facing the firm is how to reach market and serve it efficiently and a socially responsible scale (Vincent 2008).

2.2.3 The ways of core competence affecting strategy selection

Starting inside an enterprise, core competency or resource-based views mainly concentrate on evaluating what special abilities an enterprise has in adapting to the business environment and acquiring the best market opportunities to exploit (Brain, 2003). Carpenter (2007) proposes that as the center of a company operating its business, core competence concerns the abilities that can be commonly applied by enterprises in their principal businesses and helps them create innovative products and services. Core competence can become the basis of establishing new strategies, and help a company to break down the old rules and create opportunities in new areas (Joyce and Woods, 2001).

2.2.4 International strategy

The enormous variety of operations embraces by the term ‘multinational’ has led some writers to distinguish between for key strategies when competing in the international business environment: a global strategy, a transnational strategy, a multidomestic strategy and an international strategy (Wall and Rees, 2004).

A major limitation is its lack of localized strategy. It can be contrasted with the multinational model. Often called a ‘multidomestic’ model, it is a ‘decentralized federation’ (Bartlett and Ghoshal, 1998:56). National subsidiaries are managed as independent units, able to adapt strategy to local conditions. Co-ordination from the centre is limited, and based on personal relationships between managers from the centre and those in subsidiary units, rather than on formal management systems (Morrison, 2009).

3. Macro and Micro Environment for Unilever

According to Stonehouse and al (2004: 142) ‘the macro environment is the part of the environment over which the business can rarely exert any direct influence but to which it must respond’.

To analyse Unilever’s external environment critically, the basic method is PESTEL, which focuses on the change in terms of politics, economy, society, technology, environment and laws. The main factors that influence Unilever’s macro environment are economy and society.

For economic factor, new emerging market is developing rapidly, such as India which stands for $300 million every year. According to the economic situation, the whole world is undergoing a revolution in the history. The economic power has transferred from developed countries to China and other emerging market. With market reform, the speed of development in new emerging economies is much faster than that of developed countries. And this discrepancy is more easily to be found. Because of such specific market, political aspect also should be taken into account. In some countries where increasing GDP and rate of employment is everything, like South Africa, negotiation and special treatment from government will become good advantages for companies.

Obviously, Unilever has done well in capitalizing this advantages into growth. In India, besides retail market in cities, Unilever also shows great interest in rural market, which is often ignored by other enterprises. The company has invested much in rural population who are the biggest potential consumers in the future though rank lowest now in global economy. Unilever has given fully play to opportune time, advantageous terrain an popular support of its subsidiary Hindustan lever ltd, exploiting rural retail market in-depth and finally gained a national vision in India.

What’s more, the economic factor in macro environment not only refers to the domestic economy. Global economy situation also influenced its development a lot. The economic crisis in 2008 has affected almost every nation, every industry in the world. So does Unilever. Take Chinese market for an example, in recent 30 years, particularly in recent ten years, the GDP has grew with an increase never under 10%, but in 2008 after September, the number dropped to 9.5%, lower than that of the second quarter.

For political factor, similarly, let’s hold Chinese market as the example. When Unilever enter Chinese market at first, it can only establish joint venture on the ground of the restricted policies at that time. The company set up Shanghai Lever Ltd with local enterprises in 1986. However, both party had divergence on development strategies and the joint venture structure leaded to decreased management efficiency. In 1999, Unilever gave up joining investment with local enterprises and turn to co-operate with its headquarter, building up Unilever Ltd, China. This change has greatly enforced the company’s control over business in China.

Besides economy and politics, social factor also affect Unilever. Since the late 1990s, Unilever has confronted a awkward situation in China. As Unilever pursue the multi brand strategy, only 14% Chinese knew what Unilever is at that time. But its competitor, Nestle and P&G has already gained well public awareness. Thus the company started marketing with social responsibility. “Unilever Hope Star” project is then designed to help 200 impoverished students for their university with financial assistance. The then president of Unilever also flied to Chongqing to meet with the first 25 students. In addition, it invested hundreds of Hope School in many parts of China. All these efficient public-service activities has increased Unilever’s reputation and fostered a positive corporate image.

Micro environment includes suppliers, distributors, customers, competitors and publics.

As to Unilever, among them the most important one is distributors and competitors weigh much as well.

Traditionally, Unilever is a multidivisional organization. Its subsidiaries in every nation take in charge of all the products in local market. But after middle 1990s, this form was longer accustomed to the dynamic marketing environment. In 1996, Unilever decided to let many divisional departments of business group focus on certain specific products. For instance, in European business group, some departments stressed on detergent business, while some focus on ice-cream or frozen food.

For the competitors, P&G, undoubtedly, is Unilever’s closest one. There are fierce rivalries between two companies in many fields like hair product. P&G has introduced Head-shoulders, REJOICE and PANTENE successively, known as professional anti-scurf, smooth hair and conditioning hair shampoos. Thus, Unilever has launched a new brand “CLREAR” in order to cover its shortage in anti-handcuff market. This has been not a small impact on P&G.

3. Industry globalisation / localisation drivers and Key factors for success

3.1 The globalization / localization of Unilever

With the development of interweaved economy, Unilever began to modify its management strategies since 1990s, concentrating on its advantageous products and brands. At the same time, Unilever pays great attention to combining globalisation with localisation. It will develop its new products’ ingredients, formulas and even advertisement and package according to the diversified habit and expectations of consumers in different regions.

For example, if the home office decides to launch a new brand of ice-cream, a united formula, ingredient list, manufacturing technology, package and advertisement will be offered globally. But it also changes the basic product slightly, like adding or reducing ingredients, so that the ice-cream can satisfy the different tastes of consumers. The producer may add more cocoa in southern Asia while reduce sweetness in China. And in different area, the local language will appear on the package, the local star will show on advertisement. However, the manufacturing technology, logo and quality standard is single. Local sales office or research institutions have no right to control or change. They can put forward suggestions but cannot make decisions.

If the company wants to introduce cosmetics, a unique local condition is unavoidable to consider. Which type of skin do they belong? Are their skins sensitive? What is the color of their color? Producers should change the formula or ingredients based on these questions. Otherwise the product will find no market and damage the producer’s reputations.

3.2 The key point for the success of Unilever

The key point for the success of Unilever mainly consists of two part: 1, promoting brand value; 2, establishing Competency Model

3.2.1 Not to create but to buy it

As analysed, in order to create a new brand, only media investment can reach at least $200 billion. If a company is going to enter a total new market or a foreign market, the cost of expanding brand publicity will be much more expensive, let alone the existed threats from other powers in the original market. In this case, many enterprises will choose to promote brand value through use of capital. Unilever is one of the representatives.

Unilever owns more 400 brands around the world but most of them is first purchased from other nations and then popularized to the whole world. Ponds originated from US but were purchased by Unilever, who has developed it as a very famous skin product in the world. Another brand is Zhonghua, which is traditional toothpaste of China. Unilever included it as one of its branches and now Zhonghua has become the top one in Chinese market again.

But potential crisis also exist behind success. Since 1996, Unilever has suffered great decline in turnover, while P&G still maintains a stable increase on the contrary. In 2004, both Unilever and P&G gained a income of nearly $52 billion. The later one’s yearly profit reached as much as $6.4 billion, but Unilever only had $2.42 billion. An indispensable reason is just the purchasing strategy although it has pushed Unilever to success.

3.2.2 Set up Competency Model

In Unilever, the values of company will tell employees “what to do” and “how to do it”. If the employee agrees with the values, he is naturally tended to behave by following it, or to restrict himself with the guidance of the values. If he does not agree, he needs to change himself by acquired learning. And here, a comparatively clear standard or instructions is necessary. Thus, Unilever established the Competency Model, which aids employees to know themselves correctly, to march on improving themselves. If employees’ quality is increased, so does the working efficiency and achievement. This has brought more profit to Unilever in turn.

4. International Strategy for Unilever and the comparisons between Unilever and P&G

4.1 International Strategy for Unilever

Unilever was once a typical MNC, but now it has transferred to operate with multinational strategies.

In the 1980s, just in Europe, Unilever had altogether 17 major brands of washing products all over the worlds, which is not only a waste of asset, but also causes market overlapping. Moreover, since subsidiaries of Unilever are widely distributed all over the world, it often takes as many as four years for them to promote a new product. Unilever is now trying to integrate its European operations into a single entity, and to the manufacture of detergents emphasizing cost-effectiveness of several plants. Unilever uses standardized packaging and advertising approaches all over Europe. According to the estimation of the company, an annual cost can be saved more than $200 million. But at the same time, because of distribution channels and brand awareness of the country-specific differences, Unilever company recognizes that it still maintains regional adaptation, and even tries to possess the best location in production and marketing to achieve its economic objective.

4.2 To evaluate Unilever’s international strategies by comparing it with P&G in Chinese market.

4.2.1The brand competition between Unilever and P&G

What are the reasons that lead to Unilever, the owner of many Chinese native brands, inferior to P&G, who only has its own brands, in Chinese market? The strategic reason is acceptable, but more important is reflection on Unilever’s marketing mix. In this section, the author will analyse Unilever’s strategies by comparing CLEAR and Head Shoulders.

Brand strategy

In terminal promotion, all related hair products has involved in it. It seems that P&G takes more finesse in this competition, no matter for the influence of single brand or the brand fitness.

Market basis

CLEAR can date back to 1973. The product has been sold in many places such as Europe, Southeast Asia and gained more 100 billion consumers in the world. However, 80% market share is occupied by Head Shoulders in anti-handcuff market.

Product mix

For the first time CLEAR segments the anti-handcuff market further. It aims at the blind point in market and introduces a new hair product specially for men.

Terminal construction

CLEAR is a new brand in Chinese market. Though it has a background of Unilever, the public awareness has not been established yet. Contrarily, Head Shoulders has been the leader in this field with many years of cultivation. On the other hand, as Unilever lacks in terminal resources and market basis, CLEAR’s coverage rate in all kinds of retail terminal is still far behind Head Shoulders.

For the reasons, we may find that CLEAR depends two much on marketing segments and advertisement, but ignores the efficiency and performance problem in sales practice. Unilever’s awkward position in China mainly results from:

Mistaken idea of co-operation

In early years, Unilever operates the management strategy as: to co-operate with some native enterprises by using their distribution network and salesmen. This strategy is ok, but Unilever hasn’t done well in coordination and management. Among the 12 joint ventures, each of them has its own production line, distribution system and salesmen. Many parts overlap together, thus increase the total cost.

Product management defect

Chinese market is very broad and complicated. Consumers’ needs varied from place to place because of the different customs and habits. In order to meet this trend, the producer has to invent some products with some unique features and right market position. But certainly Unilever is inadequate in this part.

Compared Unilever’s product list with that of P&G, we can see that, for the hair product alone, every brand has fulfilled different consumers’ requirements. These products possess clear market position that attracts large number of consumers. Relatively, Unilever hasn’t done enough in this point.

4.3 Unilever’s advantageous strategies

Yet, the failure in one part doesn’t mean the total failure. Unilever also has some distinctive strategies that stimulate the company to advance.

4.3.1 Global brands is important as well as local brands

Among Unilever’s 400 global brands, most of them is purchased from original countries first and then popularized to the whole world. Unilever’s success greatly depends on its deep root in local market and the first-hand data of regional culture. The company will change dynamically to adapt to the local conditions. Global and native brands develop together so that the company will gain maximum benefit.

4.3.2 Marketing channel of distribution strategy

Unilever’s marketing channel covers almost parts of countries, and its management and insensitive level is high. In this way, the home office can transfer its purpose clearly from level to level.

4.3.3 Market promotion

Unilever’s advertising designs embody each product’s characteristics and form an interactive effect. Conveying promotional messages through advertisement has presented the company’s positive image. This made Unilever as one of the most successful supplier of everyday use.

5. Core Competences of Unilever

Core Competency is a special ability of a company that competitors find extremely difficult or impossible to equal (Wild, Wild, and Han, 2010). As an important component of the company’s core competitiveness, brand is closely related to such categories of competitiveness as enterprises culture, core technology, and human resources, etc. Market competition comes from the previous product quality, price, variety and service. Unilever takes the brand strategy as its core competitiveness.

Unilever has a rich, mature, multi-brand management experience for a global perspective, it focuses on brand strategy, decreases the number of brands from 2000 to 400, so as to ensure the first-line brand growth. As for localization, Unilever has meanwhile sought in the development of global brands, as well as protection and development of domestic brands.

Large international brands integrated into the development process of Unilever have always been of a high priority. 75% of Unilever’s sales volume comes from 400 brands in these 2000 ones. 4.6% growth over last year. These brands have a high profit. If they focus on the development of these 400 brands, their business is bound to generate a greater benefit. Compressing the size of Unilever brand is based on the 80/20 rule, that is, the ‘golden rule’ under which 80% of the company’s sales is created from 20% of the merchandises, i.e. 400 brands selected from 2000 ones (Christopher, 2003).

6. Effectiveness of Unilever’s strategy and operation

Unilever has been the leader in everyday use market. This is undoubtedly successful. Being a multinational company, Unilever has fostered a positive image in new emerging market. Through purchasing native brands, Unilever has enlarged the popularity of its products and the market share. But compared to P&G, Unilever leaves much to be desired in recent years. In 2004, the income of Unilever dropped 6% than last year, and the profit dropped as much as 9%. In September of the same year, Unilever issued a profit warning without precedent, saying that the company may not reach the promised profit growth.

Company’s multinational strategy sounds very attractive as it hold cost and differentiation advantages at the same time. But operating this strategy is quite difficult. The press from local adjusting collides with lower cost to Unilever. Competing with other low-cost enterprises forces Unilever to improve cost reduction. Meanwhile, the different government regulations in the world require Unilever keep changing in response to the local needs. When entering a new market, Unilever prefers to seeking recourses from local environment, which reduce the cost a lot. While for the local adjusting, Unilever tries to close the gap by purchasing native brands. Moreover, localisation is the key strategy, including human resource localisation, capital running localisation, procurement localisation etc. But in the author’s opinion, the most significant aspect of localisation is decision-making localisation. The Unilever system is slow in reacting and leads to an inefficient decision-making. This is the key problem that influences Unilever’s performance.

7. Conclusion

Unilever has developed as one of the leaders in the world’s consumer product brands. The company has carried out many strategies according to factors that influence business strategies. The factors refer to both macro and micro environment. For a multinational company, glolisation and localisation play a vital role in opening new market. Unilever is good at popularizing products by purchasing them from original countries. It is skilled in adjust its strategies to different local conditions. The paper has analysed the international strategies of Unilever and put forward critical advices for its further development. For example, to focus on combination of globalisation and localisation, to insist on its successful brand strategy, etc.

It is argued to say that a strategy is absolutely good or not. A suitable strategy is more important. Any company must choose the strategies that best fit its pratical situation. Unilever’s adjustment strategies based on local market information can best explain this.

8. Further Recommendations

The development for a company cannot be smooth all the time. Even a multinational company like Unilever may face every kind of problems through the process. For example, as we have mentioned above, mistaken idea of co-operation, product operating defect, etc which lead Unilever to a awkward position in the competition. With these painful lessons, the author suggested that Unilever should sum up experiences and change its management strategies, like insisting on successful brand strategy, brands creativity strategy as well as focusing on combination of globalisation and localisation. What’s more, it should persist in training qualified employees and carrying out well-rounded localisation strategy. High qualified employees will bring unexpected profit to Unilever. And only having a thorough knowledge of market and consumers can Unilever remain unconquerable.

Besides, Unilever also must know well the dynamic environment change and response it with adjustment measures. These measures should be suitable for the environmental requirements.

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