Analysis Of Risks And Rewards

Published Date: 02 Nov 2017

ASSESMENT

"UNILEVER"

Name : Mohammad Sharafat

Course : MBA Finance

Student ID : STU32081

Module Code : UOWMBAW009G

Module Tutor : Dr. Colin Price

Word count : 3,180

1. Critically evaluate how the Ansoff matrix might be used to assist Unilever's strategic decisions. Using examples from the case study and other relevant sources, explain how the Ansoff matrix integrates with other frameworks for external environmental and competitive analysis. What do you conclude?

Strategic management is "the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organisation"(Pearce, 2001). On the other hand according to Alkhafaji (2003) strategic management is the process of evaluating the organisational environment in response to fulfil the long term goals while maximising the opportunities and minimising the threats. Therefore strategic management is simply appropriate analysis of the organisation’s situation including internal and external environment and as a result increase the chances of success and continuous development (Alkhafaji, 2003).

Mission Statement

The primary mission of Unilever is to put in vitality into life. Furthermore to improve the standard of living by meeting the demands of the people related to personal care, hygiene and nutrition, so they feel fresh and make the most of their lives.

Ansoff Matrix

Ansoff matrix was first introduced by Igor Ansoff and Harvard Business Review (1957) was the first one to publish it. This matrix has enabled many business managers and leaders to make very swift and accurate outcomes who consider growth in their organisations. Therefore in case of Unilever, continuous growth and development has been the spine of the business since it has begun its operation (Bhaskaran, 2001). Hence this model is certainly related to and crucial for Unilever and will analyse the situation of Unilever and provide the management with informed decision for further growth.

Ansoff Matrix

 

Existing Products

New Products

Existing

Markets

Market Penetration

Power Detergents

Lifebouy Soap

Packing of margarine in a tub

Product Development    

Launched the PG tips, UK's best selling tea brand.

Launch of Fish fingers

Expansion in frozen foods and ice cream

Dove soap was also launched in US

New

Markets

    

Market Development    

India as a major market

North America and major developing countries

Formation of Germany market

Diversification

Business in Europe through innovation

Launch of new products liquid detergents, shampoo etc.

First branded and packed ice cream cone cornetto in Europe

(Stone, 2001)

Looking at the above ansoff matrix which has been drawn through wide range of research conducted on Unilever and integrated use of case study. It can be analysed the following:

Market Penetration

Unilever had to change and develop their washing detergents in response to the local country needs of clothing and spent about $292 million for the purpose of marketing to challenge its competitor’s similar products. Moreover Lifebouy was for the people with low earning especially labour (Bhaskaran, 2001). It was low profit margin product but however with increased number of market share. Not just that, the packaging of the margarine was made available in tubes and was also possible to buy spreadable margarine for an ease of easy spread.

Market Development

Unilever acquired India and China resulted as key markets for the organisation where continuous growth has been seen. It also aimed to price up the products and increases the profit targets despite the hard competition in the market of India but mainly because of the quality of goods. Unilever also earlier had expanded to most of Europe and main developing countries and achieved maximum growth in North America. While on the other hand Europe scored 60% of the profit during peak. Finally it also succeeded in formation of Germany market in the early 1990s with the existing products.

Product Development

Maintenance and development of consumer goods according to people needs have always been a success for any business. Similarly Unilever launched PG tips tea which is still a top 1 of the top selling product of Unilever in UK. It further introduced fish fingers and recyclable products which were successful in US and UK. Moreover the major shift was in the extension of frozen foods and development of ice cream products during 1950s. Persil and other power detergents was developed as a key challenger for the competitors.

Diversification

Unilever launched a branded new shampoo called sun silk into several markets which later became the chief shampoo in 1950s in about 18 countries. The very first ice cream cornetto cone was launched similarly became the best choice of many consumers around the globe. However the Europe market suffered low growth where Unilever decided to improve the business strategy through innovation and thus new products were launched in major developing nations.

(Stone, 2001)

SWOT Analysis

SWOT analysis is useful in terms of watching the current trends and future opportunities of an organisation. It provide business a mirror through which strategic planning becomes a lot easier and effective.

Strengths

Strong financial position

Powerful brand name worldwide

Marketing and sales department performance on top of company standards.

Unilever consistency to make strategic changes for improvements.

Internet website ease of use, attractive and appealing.

Weakness

Rules and regulations

Criticism against the brand.

Brand reputation and feedback (Company had been alleged for sexual advertising).

Opportunities

Increase innovation through technology.

Improved and more reliable packaging, more attractive.

Further expansion into other countries.

Threats

The extra payment of foreign and national trade cost Major competitors like P&G, Nestle, Kraft

Legislations and policies in local nation.

Recession or economic downturn.

 

(Bhaskaran, 2001)

PESTLE

Pestle is one the effective tool for the environmental scanning of the organisation for the forward strategic planning. It is also called PEST but PESTLE has more components to provide clear view for strategic planning for the business.

Political/Legal

These aspects in any business have vast effect on the future strategy development. The operation of the organisation and product demand can be severely affected and more its costs. Some of the factors in these aspects consider employment laws, political issues, rule and regulations of trade, government rules, taxation issues and health & safety requirements etc. For instance political risks were rising in 1960 of foreign markets where Unilever nationalised its business in some countries. Furthermore government policies for service fees and shares affected the nationalisation methods in 1970s (Bhaskaran, 2001). Later Unilever specialised in regulations issues with its contacts with number of business and was able to negotiate with government. On the other hand the wastes of the company manufacturing plant were increasing to about 7.89 ton and legislation modified to use alternative ways of disposing of the non-hazardous waste. Thus recyclable packaging were employed for most of the products.

Economical

Another imperative factor which has significant impact on the operation and decisions of the organisation is economic issues. Fluctuation of interest rates and foreign currency exchange differ from one country to another. Furthermore economic downturn and inflation rates for instance recession in UK is the biggest threat for all the business operating in UK where consumer market begins to shrink and lower purchasing power. However in the case of Unilever wins competitive advantage over its major competitor P&G in the region of Europe. Despite the competitive advantage Unilever profitability is disturbed by EU free trade policy.

Socio-cultural

This factor includes cultural and social aspects which is different in every region. So therefore Unilever has developed its products according to the local needs and desire of the people for instance the detergents were further developed according to the local clothing material used. This factor includes the lifestyle, religion and education too. Countless consumers buy Unilever products around the globe shows that Unilever does have massive impact on standard of living. Similarly company have community programme where 91 million euros was invested in 2008. School kids about 4 million were followed by oral health programme in 2002.

Technological

Technology is another factor to be considered for the success of the organisation. It provides gain to the business in terms of globalisation and competitive advantage. Research and development is the key while innovation and information technology should not be forgotten at anytime. Any weakness in these aspects provides advantage to a competitor which is none of the businesses’ desire. Unilever since the beginning is committed to boost production and provide quality improved products through its investment in R&D in 1950s the most and a global leader in this sector. Approximately 927 million Euros were invested worldwide for R&D (Bhaskaran, 2001). Unilever further owns laboratories around the globe for research and innovation of new products and improve the existing ones.

Environmental

Environmental waste has become very crucial these days. Recycling has come to dominated when it comes to packaging. Climate change and sickness is the concern of everyone which should be collectively minimised. The primary dependency for raw material of Unilever products are on natural resources and water specifically. The waste produced by manufacturing plants includes waste from water, emission gas etc. However Unilever maintained the environmental safety by reducing the waste upto 50% on overall average during 1995-2008 and strive to reduce it further.

BCG (Boston Consulting Group) MATRIX:

Market growth

High

low

Star

Knorr noodles

Broke bond supreme

???

Sunsilk

Lifebuoy

Cash Cow

Lux

Surf detergent

Dog

Rexona

High low

Market Share

Source: www.netmba.com

Conclusion

Appropriate analysis of the organisation’s situation including internal and external environment increase the chances of success and continuous development through strategic planning. Various models and theories have been used to analyse the situation of Unilever. Ansoff reflected the existing market and new market emergence furthermore existing and new products into the market. In simple words it draws a figure of Unilever of where it was and where it going and thus enables us to make sound forward planning for the betterment and development of the company. Ansoff is the perfect model for Unilever to gain knowledge and idea about the environment of growth because since the beginning of Unilever it is consistent and committed for growth and development. Moreover SWOT analysis showed strength and weaknesses of the company where brand name is recognised worldwide and criticism being the weakness. Brand reputation is the crucial asset of any business which should be protected at all time because once lost cannot recover back. Similarly PESTLE analysis provided further insight into Unilever environment by assessing various factors. Therefore it can be concluded that there has been ups and downs in the life of Unilever but it has ever managed to survive in any conditions and compete their major competitors because they imply strict strategic planning in their systems. This strategic management should continuously be followed and further growth and development with innovation and technology should be further enhanced. This analysis can also be used by the management of the company to reflect upon the position of the company to make right decision.

References

Stone P. (2001), Make marketing work for you: boost your profits with proven marketing techniques, Edi: Ill, How To Books Ltd

Abbass F. Alkhafaji, 2003, Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment, Ed 21, Routledge.

Bhaskaran S., 2001, Unilever: Focusing on East for Growth, Amity Research Centers Headquarters.

[Online] Available at: http://www.codewit.com/Pestel_Analysis.pdf [Accessed 02 Jan 2013]

[Online] Available at: http://www.hbs.edu/research/pdf/06061.pdf#search=%22uaal%20meetingof%20osc%20unilevr%22 [Accessed 16 Jan 2013]

[Online] Available at: http://www.unilever.com/ [Accessed 15 Jan 2013]

[Online] Available at: http://www.unilever.co.uk/[Accessed 15 Jan 2013]

[Online] Available at: www.netmba.com [Accessed 15 Jan 2013]

2. Mergers and acquisitions have been part of Unilever’s growth strategy for many

years. Describe and discuss the advantages and disadvantages of this approach to

growth.

Mergers and acquisitions takes place when two or more than two companies combine together all or part of their operations. Mergers have been defined as ‘any takeover of one company by another, when the businesses of each company are brought together as one’. The owners of the pre-mergers companies have to share the ownership and the top level management of both the companies continue to hold senior positions and management in the company after mergers takes place. In mergers all the companies involved strive to structure the management functions of the merged company(Coyle, 2000). With reference to the Unilever case study, the Unilever itself was established by merging of two entities Margarine Unie and Lever Brothers in 1929. Acquisition is the acquirement of one company by another along with all its operations, stock and control. The consideration paid may take the shape of stocks in the acquiring company (Hubbard, 1999).

In contrast an acquisition is handing over the ownership as well as management control of one company by another. The main crucial component between mergers and acquisitions is the control of management. The differences between the both mergers and acquisition remains mainly to:

Ownership of the business

The size of the each company in the business combination

Management control system

Analysis of Risks and Rewards

From a legal point of view mergers are easy and straightforward to be formed. While on the other hand acquisition involves long procedure and documentation. Mergers option is the cheapest in reflection of acquisition because it require large amount of capital depending on the size of the assets and size of the company to acquire it (Hubbard, 1999).

Mergers companies take advantage of the merged companies’ personnel for building new business strategies and ideas. However acquisition lapse in this aspect as it doesn’t allow the owner and management to share idea unless external consultants are hired. Weakness of all the mergers can be discussed around and minimised or remove completely. It also increases the confidence mentally and financially of all the mergers involved. Finally the stability of the mergers provides fruitful outcomes and maximise the profitability and sustainability of the business (Coyle, 2000).

Mergers aren’t as simple as it sounds as it has some risks associated with it. The stockholders takes the authority as to merger should occur or not because if most of the stockholders are not willing that merger to happen then all the parties involved cannot form a merger. However in acquisition stockholders doesn’t play the permission authority role in this way this method is simple (Hubbard, 1999). Mergers spend wealth of time to communicate and convince the stockholders. When mergers takes place, in some situation there is 2 employees for the same position, thus redundancy occurs. Whereas acquisition is free to hire or fire the employees according to their business requirements.

After a careful analysis and research it can be seen that both mergers and acquisitions have advantages and disadvantages which should be thoroughly understood by all the parties involved while risk associated much be paid durable attention. The senior management to communicate the information and make informed timely decision according to the business needs and requirement as Unilever started through mergers and become a world known brand globally. Both the methods are beneficial for companies if selected carefully otherwise total failure for the business.

References

Coyle. B, 2000, Mergers and Acquisitions, Global Professional Publishing.

Hubbard N., 1999, Acquisition:Strategy and Implementation, Purdue University Press.

[Online] Available at: http://kastoria.teikoz.gr/icoae2/wordpress/wp-content/uploads/articles/2011/10/050.pdf [Accessed 15 Jan 2013]

[Online] Available at: http://dinarstandard.com/leadership/mergers-acquisitions-the-rationale-and-benefits/ [Accessed 15 Jan 2013]

3- Critically evaluate the factors that an organization should investigated when considering entry into emerging markets. Use relevant theories and models to support your answer?

Unilever must consider following factors when considering entry into emerging markets.

Modes of Entry

The mode of entry is an critical decision Unilever must make when it enters into emerging markets because the choice of entry automatically restrain the marketing and production strategy of the firm. The mode of entry also affects how it faces the challenges of entering a new country and deploying new skills to successfully market its product (Gillespie, Jeannet and Hennessy,2007). While entering,Unilever faces an collection of choices to serve the market. In order to increase control it may take different forms of market entry.

For instance

Alliance

Joint Venture

Franchise

It can select any of the above entry modes or some combination of them to enter into markets. The key feature that distinguishes the different modes of entry is the degree ofcontrol it gives a Unilever over its key marketing resources.

The resource based view holds that as the degree of control increases, the firm’s chances of success increases because the firm is able to deploy key resources essential to success (Isobe, Makino and Montgomery 2000; Gatignon and Anderson

1988).

Firm size:

Larger firms have been able to participate more in emerging markets than smaller firms due to their financial and managerial resources. They are more likely to possess greater marketing knowledge and are more capable of sustaining periods of negative performance upon entry into emerging markets. However size is no guarantee for success. Because of increasing bureaucracy large size firm may decrease organizational flexibility.

Economic Distance

Firms find it easy to deal with those countries that are nearer to home country then those at economic distance. Countries that are close in economic development have same market segments and use similar types of goods and services. They have similar infra structure and develop knowledge based resources related to the market they sever. These resources are best used in countries that are similar in economic development because the skill or knowledge learnt in one market can be adapted to new market. Whereas those countries that are economically different will need to adjust to the new market conditions thus decreases the chances of success.

Country Risk

Country risk can diminish entry in emerging markets in two ways. First, it can

cause firms to suddenly lose money value that leads to financial crisis and uncertainty about how long crisis would end. A fall in money value may decrease profits and revenues. Second, high country risk and past experiences of risk can lead firms to delay investments resulting in lower success over time.

Unilever was cautious and delayed entry into China "especially in view of the past difficult experiences with the Soviet Union" (Jones 2005, pp 160) – another high risk country.

Openness

While entering into emerging markets Openness could either raise or down success. It could increase success for three reasons. First, By rising the variety of products that serve the market it stimulate demand. Second, it rises the competition on quality and thus improves the level of quality supplied. Third, as the economy opens up, competition increases efficiency that leads to decrease in prices, resulting in further increase in demand. While openness makes entry easier for a firm, it also increases competition from other new foreign entrants. First, even a small degree of competition is enough to pull down prices significantly (Wallace 1998). Second, competition increases costs of purchases, hiring talent, or marketing products and services. Thus, competition increases by increasing openness.

Thus success is higher for entry into emerging markets with, lowers risk, lower openness and economically close to the home market.

References

Gillespie Kate, Jean-Pierre Jeannet and H. David Hennessy (2007), "Global Marketing," 2ndEdition, Houghton Mifflin Company, Boston.

Isobe, Takehiko, Shige Makino and David B. Montogmery (2000), "Resource Commitment, Entry Timing, and Market Performance of Foreign Direct Investments in Emerging Economies: The Case of Japanese International Joint Ventures in China," Academy of Management Journal 43(3), 468-484.

Jones, G. (2005), "Renewing Unilever," Oxford University Press, Oxford.

Wallace, William McDonald (1998), "Post Modern Management: The Emerging Partnership Between Employees and Stockholders," Quorom Books, Westport.

4- Using theory to support your answer, explain how unilever can manage the cultural issues that result from being a global player?

Culture plays important role in determining brand’s success. Many global brands have successfully deal with cultural issues and have adopted their brands to suit the diverse cultural demands of different regions in which they operate.

As brand enters diverse cultures, it becomes essential for the firm to have thorough knowledge about the cultures because different cultures have different set of beliefs and values. In order to remain successful firm must tailor their product and service offering according to the needs of different cultures and this may violates the standardization principle. Therefore, to remain competitive firm must need to develop customize product and services according to their customer preferences which in turn increases demand this will help them to make brand loyal and achieve higher profit margin.

For example if firm is serving Middle east market it needs to develop alcohol free products for its target market because their culture prohibits the use of alcoholic products. By adopting modified product which best serve the market needs helps them to increase market share and earn greater profit.

As referred to our case study Unilever is considered as most reputated global brand which had served the needs of diverse cultures by customizing their product offerings and had developed brand loyalty. As they have gained brand loyalty, customers are ready to pay the premium price for the differentiated product. For instance Unilever had built strong brands in health care, personal and food segments like Lipton Tea, Brooke Bond, Lifebuoy, Rexona, Lux, Dove, Surf and Knorr soup that serve the market according to the taste and desires of the customers. Unilever had out perform its rival by serving different cultures with modified product and services. (Bhaskaran, 2001).