Escolar Documentos
Profissional Documentos
Cultura Documentos
Submitted to the
Business School
In partial fulfilment of the requirements for the degree of
Bachelor’s of Arts in
Business Administration (Hons)
Supervised by:
Mr. Marlon Gunasekara
i
Acknowledgement
I take this opportunity to thank my Lecturer Mr. Marlon Gunasekara for the
guidance given to complete this assignment in time.
Lab Assistants, Librarians and others who have supported me in many ways are also
given gratitude for providing me necessary support.
I also wish to thank my parents and friends for all the support and kind assistance
extended by them.
ii
Table of content
ACKNOWLEDGEMENT ................................................................................... II
CHAPTER ONE.................................................................................................... 1
INTRODUCTION ................................................................................................. 1
INTRODUCTION..................................................................................................... 2
iii
CHAPTER THREE ............................................................................................ 23
4.1UNILEVER ..................................................................................................... 35
CHAPTER 06 ...................................................................................................... 42
iv
APPENDICES E - SWOT FOR P&G....................................................................... 51
v
List of Tables
vi
List of Figures
Figure 14: Sales Growth & Operating Profit in Unilever - According to Unilever .. 25
vii
Figure 25: BCG Matrix for Unilever...................................................................... 31
viii
List of abbreviations
GE General Electric
ix
Chapter One
INTRODUCTION
1
Introduction
Unilever was incorporated in late 1930s as a simple merger of soap and margarine.
However as a result of business success today Unilever operates in over hundred
countries with more than 174000 employees under its management. Also the success
has helped the company to have a strong brand portfolio of over 400 brands with
two global divisions namely Foods and Home & Personal which comes under
FMCG industry. The main success factor of the company is that, Unilever’s constant
focus on innovative product developments.
2
Chapter Two
ANALYSIS OF UNILEVER
3
2.0 Analysis of Unilever
Company
Climat (Products)
Climat
e
e
Strategic
Analysis of
the Business
Environment
Customer Competitor
(Markets) (Industry)
Climat
e
4C model is one of the most effective methods that can be utilized for analysing the
internal and external environments out of which opportunities; threats, weaknesses
and strengths can be identified. Along with the SWOT analysis of Unilever, critical
factors of each phenomenon have to be identified.
In the given period of time the world was under a recession which caused many
unfavourable influences on world economies. This was affected by almost every
country of the world where MNCs found it difficult to operate. According to
Schuelke (2004) North America, South America, Europe and Asia grew faster in
2004 than 2003 because it was recovering.
Similarly the environment of Unilever has to be investigated for a better
understanding of the company situation of that era. Thus a PESTN analysis would
be carried out.
4
EXTERNAL ENV.
GLOBAL ENVIRONMENT
SOCIAL ENV.
TASK ENV.
INTERNAL ENV.
CONTROLLABLE
Figure 3: Business Environment
In Unilever, the external environmental analysis would be carried out first where the
global, social and task environments are looked in to.
5
2.1.1 PESTN Analysis
The global environment explained in the above figure will be discussed here.
P
N E
N E
T S
T S
Figure 4: Analysing the Global Environment
ECONOMICAL there was still the effects of world recession even though it was
at the recovery stage
Accelerating Inflation of the world economy ( Prices will
increase)
reduced purchasing power parity ( directly affect to sales)
many countries faced low GDP and less economic growth
since economies trying to recover, it’s a good sign
exchange rate issues
improved globalization and urbanization ( course for high
demand)
6
increase in woman work force ( course for high demand)
Openness and Liberalization.
country risk trends have been going down
Based on the understanding of the above PESTN factors, the following Climatic
Analysis is carried out.
7
Table 2: Climatic Analysis (Weighted Average Factor Rating Method)
8
2.2 Competitor Analysis New Market Entrants, eg:
entry ease/barriers
geographical factors
incumbents resistance
new entrant strategy
routes to market
9
Table 3: Competitor Analysis
10
Bargaining Power of 10%
Supplier
11
2.3 Customer Analysis
Weighted
Weight
Factor
Score
score
Unfavorab Favor
le able
1 2 3 4 5
Market size 20% 5 5 1
Level of market saturation 10% 2 2 0.2
market growth rate 8% 2 2 0.16
market profitability 6% 3 3 0.18
market trends and 15% 4 4 0.6
discontinuities
customer expectations 15% 4 4 0.6
level of familiarity 5% 5 5 0.25
Level of Favorability 8% 0 0
Level of Satisfaction 8% 4 4 0.32
Loyalty status 5% 5 5 0.25
Overall score 100% 34 3.56
(Source: http://www.gaumina.lt/tuuletin/index.php?id=7)
12
2.4 Company Analysis
Total
Market
Sales
Time
Above PLC exhibit the Unilever position in relation to brand and its maturity in its
lifecycle. It presents an idea of Unilever. However in order to maintain the company,
brands and market; following analysis has to be carried-out.
13
Table 5: Company Analysis
Weight Likert scale Score Weighted
Unfavorab Favor score
Factor le able
1 2 3 4 5
Leadership 20% 4 4 0.8
Culture 10% 4 4 0.4
Structure 9% 3 3 0.27
System 7% 2 2 0.14
Physical Resources 15% 4 4 0.6
Financial Resources 15% 4 4 0.6
Location 6% 5 5 0.3
People 9% 5 5 0.45
Policies 4% 4 4 0.16
Procedures 5% 3 3 0.15
Overall Score 100% 38 3.87
14
2.4.1 Product Portfolio Analysis
Market Attractiveness
H
i
g
h
M
Business Strength
e
d
I
u
m
L
o
w
15
Market Attractiveness
High Medium Low
H
i
g
h
M
Business Strength
e
d
I
u
m
L
o
w
16
2.5 SWOT analysis
Helpful Harmful
Internal
S
Strengths
W
Weaknesses
External
SWOT analysis of Unilever could be carried out from the results gained by the
previous analysis conducted.
Table 6: SWOT
Type Description
Strengths
Market size Unilever posses 40-45% of market share over its operating
countries by 2004 (compared to P&G). This makes it is
one of the leaders in the industry. Only P&G is the
possible competitor to the Unilever. Thus the market share
of Unilever considered being one of its main strengths. It’s
being identified in above analysis as well.
17
Loyalty status, high Brand loyalty and loyalty status of Unilever consumers are
brand loyalty also high. Many users of those products do not change
their brand. Especially products like personal care are not
subjected to be switching behaviour. Thus this turns to be
strength.
High Brand Portfolio The Company has more than 400 brands which operate
under two main divisions, Food and Home & personal
care. As mentioned in the case study each division has
separate strengths. According to the case, “Bestfoods” is
capable of offering different tailor made products to
different markets where as Knorr is the widespread brand
in Unilever.
Diversified Case study reveals that in top 100 managers, there are 33
management structure nationalities. Even there are five nationalities in executive
across the globe board. The composition of the top management also
represents 50% out of developing nations and 40% of
women. This is a strength as this diversify staff may have
better understanding on their regions and areas.
Weaknesses
Highly complex According to the case, the causes bashing downfall of sales
organizational in 2002 was the structure of the company. The team of top
structure management and officers count to be 40 with two heads
from parent companies which ultimately resulted in added
cost of maintaining them and non focused goals for the
company.
18
Competition among Unilever comprises of several brands which consist of
company brands contradictory brands resulting duplication of effort and
money. Becel and Flora are such competing margarine
products that Unilever has.
High cost Even though Unilever has 1600 brands, only core (400)
brands gain 90% of sales. Thus the advertising and other
expenditure is wasted on other 1200 products where as the
return was only 10% of total income.
Opportunities
Globalization and The globalization and urbanization lead to separate
urbanization lifestyles which open market to the companies like
Unilever to target on. Therefore the common and high
needs such as instant foods can be introduced to the
market.
Liberalizations of Linearization of economies has been an advantage to
economises and trade MNCs. Therefore Unilever can enter in to such countries
agreements with economic liberalisation. Trade agreements also assist
companies to enter in to other new markets that direct
access is prohibited. Thus this would count as an
opportunity to Unilever.
Increase in women The world is experiencing increase in women workforce.
work force Though it leads to some social issues, it is an opportunity
for Unilever as they can fill some gaps created by this new
trend. Fast food is such product successfully implemented
to fulfil this gap.
Threats
Competition Competition is one of the main threats that many
companies would have to face. Unilever has to face huge
competition as its competitor is very strong. Further more
Unilever has many other sub competitors who provide
substitutes to their products and the closeness of such
products are also high.
19
New entrance The only direct competitor for Unilever is P&G. since both
are giant companies. Entrance to the industry is much
harder. Yet there is a possibility that new entrance may
come as just a product. For instance, Knorr is well
established soup cube. There may be a new entrance with
the same product to the market.
Social awareness of Social awareness of products is being increasing.
products Customers are also information seeking. Therefore the
market is well informed about products. Hence customers
know what is really happening. That is the reason that case
explains about customers going away from meal
replacements and embracing exercising and healthy diets.
Economic situation The economy was under recession in the given time
period. The inflation was rising and Purchasing Power of
customers has been decreasing. Thus the sales of the
products will be affected. Household items will not be
affected as those are daily consumed produces. However
personal care products would be affected by this recession.
Thus the company has to prepare for facing this challenge
and to overcome it.
20
2.7 Critical Factor Analysis
These factors are the most dangerous factors that are faced by Unilever. Unless these
factors are considered critical and strategise on those to overcome threats, Unilever
will be unsuccessful in future. Thus a critical factor analysis (CFA) is carried out.
Out of those Economic situations, Social status and Closeness of the substitutes
are the most critical factors that Unilever faces.
21
However there are factors upon which Unilever must capitalize and to gain more
success.
22
Chapter Three
Reasons Behind Unilever’s Downturn in 2004
23
3.1 Financial
Unilever was enduring severe competition by its main competitor P&G through
price war in laundry and personal care sector in India and Europe. However the
threat of loosing market share was conquered in 2004 at the cost of promotion. Thus
profitability reduced drastically.
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-
165821.pdf)
Figure 11: Advertising and Promotion Expenditure
Group Trunover
60000
50000
40000
30000
20000
10000
0
2000 2001 2002 2003
unilever P&G
24
Net Profit Growth
unilever P&G
6000
4000
2000
0 P&G
2000 unilever
2001
2002
2003
Above graphs explains that the Unilever has been performing well, yet the trend
exhibit a reduction of sales. Thus it can be predicted that the sales of 2004 will be
reduced (figures are not given in case study). Following is the real sales drop in
2004.
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-
165821.pdf)
Figure 14: Sales Growth & Operating Profit in Unilever - According to Unilever
25
3.1.1 Cross Trend Analysis
When compared to Unilever with P&G, Unilever is lagging in many areas during
2004. For instance Unilever has experience reduction of total assets, quick ratio,
Current ratio and Asset to sales ratios. Those will be demonstrated in following
graphs.
Total Assests
unilever P&G
57472
52766
44598 43706
40776 37968
34366 34387
Quick Ratio
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2000 2001 2002 2003
Unilever P&G
26
Reduction of quick ration affects company’s liquidity. Thus Unilever has faced
liquidity issues in this time and this also counted in reduction of profit.
Current Ratio
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2000 2001 2002 2003
Unilever P&G
The current ratio is also getting reduced with the time which leads Unilever from
preventing meeting its short term obligations. Hence this also can be recognized as a
factor for a low profit.
Unilever P&G
27
ROI Net Profit Ratio
0.14 14.00%
0.12 12.00%
0.1 10.00%
0.08 8.00%
0.06 6.00%
0.04 4.00%
0.02 2.00%
0 0.00%
2000 2001 2002 2003 2000 2001 2002 2003
According to facts provided in the case ROI and Net profit ratio seems to be
mounting, yet when comparing to 2004 figures, the trend is deviating to
unfavourable area.
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-
165821.pdf)
Figure 20: Profit Margins in Unilever
28
The following Trend analysis exhibit the increment of ratios in 2003. However all
these figures present unfavorable figures in 2004 with the downturn of Unilever.
Trend Analysis
(2002 & 2003)
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Equity Ratio Acid Test Debt Ratio Return on Return on
Ratio Common Equity
Equity
2002 2003
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-
165821.pdf)
Figure 22: Market Capitalization
29
(Source: http://www.unilever.com/images/ir_Charts%201998%202008_tcm13-
165821.pdf)
Figure 23: Total Shareholder Return
The downturn of returns from 2003 to 2003 caused the reduction of shares in the
market
(Source: http://www.unilever.com/investorrelations/share_price/default.aspx)
Figure 24: Reduction of Shares in the Market
Thus the share base of Unilever affected in 2004, this could be considered as one of
the main factors that geared the downturn in Unilever in 2004.
30
3.2 Non-Financial
The portfolio of Unilever comprise with 1600 brands which couldn’t be handled
efficiently. This itself adds cost to company. However in identifying this
inefficiency, Unilever reduced its brand portfolio to 400. This conversation cost and
customer attitude on this reduction may affect its sales. This was backed by the case
as it mentions that the “Unilever is boxed itself with too many targets” which cold
cause 0% growth instead of anticipated 3%. Thus an initial change was needed.
Another factor that caused inefficiency and losses is the structure inherited. Mr.
FitzGerald also accepts that the strategy was not delivered due to unwieldy structure.
Simultaneously, the cost of structure was also a burden. Dual chairmanship and high
number of senior managers also a burden to Unilever.
Another obvious factor about Unilever is their cash cows. In the BCG matrix
analysis, cash cows were identified as follows.
All brands
that were
eliminated
31
Those brands are of importance for the identification of the brand by customers and
it makes money too. However cash-cows consume some additional cost and
reducing profit margins due to not-expanding. This was one of the main causes for
the downturn in 2004. Moreover, by that time Unilever possessed about 1200 dogs.
Those were also a burden to company which counted in 2004 downturn.
In GE matrix (Figure 8) there were some brands which have less attractiveness and
less business strengths. Continuing those brands with less return is completely
burden to Unilever. (e.g.: Cif)
When evaluating the downturn of Unilever, Balance scorecard approach is also vital.
Financial aspects under this method were discussed in earlier chapter and were
identified to be reasons for the downturn. However non-financial factors would be
discussed in this chapter.
(Source: http://www.avisys.co.in/bsc.html)
Figure 26: Balance Scorecard Approach
With the support of the case study, it can be identified that Unilever is adopting
internal business process and learning strategies after it faces the downturn.
Nevertheless Unilever could adopt these approaches with proactive approach and
gain the 3% growth that is mentioned by Mr. Cescau.
32
Unilever is a worldwide organization that integrates the functions to one value added
process. In meeting customer needs, Unilever tends to follow both international and
local operations that would lead to better progress. This way Unilever could achieve
both local and international values. Creation of value is the path to growth where all
Unilever brands were treated in terms of productivity and operations. However the
application of this was not present prior to 2004. And also the supply chain can be
narrowed down in order to achieve more growth.
(Source: http://www.provenmodels.com/26/value-chain-analysis/michael-e.-porter)
Figure 27: Value Chain Analysis
33
Chapter Four
Strategic Moves in Capturing Consumer Markets
34
4.1Unilever
Since Unilever experienced downturn in 2004, company took measures for gaining
its position back. After going through evaluation process (appendix D) Unilever has
revolutionized many of its strategies.
Strategy Description
Refocusing on Main When realized that being too broad is costly, Unilever
200 Brands decides to focus on the core brands which accounted for
90% of its sales. This is wise as the expenditure on other
1000 brands is a waste due to fewer returns. However due
to this change more advertising could be done on main
brands and could be gain high profits and margins
Dropping 1000 poor This is a decision of vast importance that a company would
performing brands rarely take. The decision leads to save a lot of money that
were spent on gaining 10% of total revenue. However this
may bring in some black point to Unilever.
35
Closing down North Using the money gained from closing down these factories,
American factory plant facilities of Asia and Lathing America could be
increased where sales are maximum. This was very
effective as it is identified earlier Unilever had less assets
and reduced liquidity at this time.
Merger of two parent Even though both parent companies act alike, those were
companies two different companies. Thus issues arise. Strategies were
also hampered in delivering as the structure was improper.
Thus this merger would reduce structural issues.
While these strategies were adopted by Unilever, P&G is also adhering for some
strategies.
The strategies of P&G were adopted by carrying out its SWOT analysis (Appendix
E). Those strategies are shown below.
36
4.2 Proctor and Gamble
Strategy Description
Expanding by Acquisition of Gillette was a major strategic movement as it
Acquisition opened many foreign markets for P&G. additionally this
could save millions for P&G and those money could be
diverted for more product development. P&G expands to
wide its brands and product portfolio. Thus risk will be
minimized. Since they have a good management and
leadership, handling wide brands will not be a big deal.
Even P&G experienced high bargaining power over
powerful retailers like Wal-Mart.
Moving in to Pet care This novel idea has a high stake of being success. Pet
and Pet Insurance insurance is a blue ocean where P&G is the first mover.
Thus P&G can gain a lot from this market.
Another similar strategy was the restructuring. Both P&G and Unilever restructured
with the merger of mother companies and acquisition. However this was resulted in
high performance.
37
One of the other factors used by Unilever is to reduce brands where as P&G tends to
increase its day by day. Although these strategies are contradictory, it works well in
both organizations, basically due to strong leadership.
38
Chapter Five
Motives Behind Acquisition of Gillette
39
5.1 Motives of Acquisition of Gillette
The historical acquisition was announced in 2005 which is worth of US$ 57 Billion
to P&G. Since both companies operate in similar cultures, the acquisition was called
a perfect fit, which will create the world’s greatest consumer product company and
the greatest acquisition.
According to Mr. Egan-Joans, the main advantage over the acquisition was the
better bargaining power with retailers for shelves and gets competitive prices for
those. However the rise of the competitiveness is also a primary motive as it adds
competitive advantage that can hardly be copied. However merge of world’s largest
products would instantly brings in negotiating power with its retailers.
Another motive was to be cost effective which could be ultimately directed to the
growth of the brands of P&G. Through reduction of jobs, eliminating management
overlaps and all other modifications $14-$16 billion saving is expected which would
be redirected to advertising and all other necessary expense.
The power of P&G would be increased due to the acquisition that results in
elimination of competitors in the market. Upon the acquisition, Unilever was heavily
attacked by P&G. However P&G out beat Unilever by recording $7 billion profit.
This is one of the motives that P&G enclosed in acquisition. Similarly P&G had
access to worldwide distribution system with the new acquisition. This can be
identified as the major implication of the acquisition.
Further gaining supreme corporate image and less broadcasting cost are considered
as secondary motives of the acquisition. Moreover the integrated product lines could
attain higher number of customers that resulted in higher profits. However many
benefits of the acquisition can be identified those affect positively in both short and
long term.
40
Table 13: Benefits of Acquisition of Gillette
Short Term Benefits Long Term Benefits
Cost savings Availability of new markets
Shard risk
Due to above mentioned motives and benefits, acquisition of Gillette position P&G
in a supreme state. However this acquisition turned P&G the market leader.
41
Chapter 06
Evaluate Future of Unilever
42
6.0 Evaluate Future of Unilever
The future vision of the Unilever is based on corporate purpose that includes desire
for sustainable, profitable growth and long term value creation for stake holders.
However Unilever expects to achieve its corporate strategy through “Path to growth
programme” which focuses on natural flexibility, allocating resources and increase
margins through restructuring.
As a result of the new strategy, Unilever make huge changes on its product portfolio
by reducing it to 200 from 1000. Meanwhile Unilever goes for an Acquisition with
Bestfoods introducing new attractive brands such as Hellmann’s and Ragu. Thus the
new product portfolio is made of lot of cash cows and stars.
Thus shrank product portfolio would provide spare resources to exploit opportunities
and further creation of value. However the shrank product portfolio has cut down
huge unnecessary advertising cost which could be used for narrowing down the
supply chain. However Unilever experienced dramatic reduction of share prices in
2004. Though Unilever couldn’t out beat P&G, it could be in its track again with the
Path to Growth Programme.
The conversion of slim-fast to low-fat meals was a failure at the beginning. However
it could be converted in to success with the shifting meal side of slim-fast to slim-
fast-ice-cream. This strategic decision based on successful identification of the
market would ensure the survival and growth of Unilever in future.
In developing Unilever, the main attention was given to set clear business principles,
simplify organization, to reduce the number of targets and to be competitive in the
market. To be inline with this strategy, Unilever has taken actions such as merging
the parent companies and reduce the repetition of management and operational level
employees which increase the efficiency, reduction of cost and lead to success.
Unilever will face several risks and issues which are similar to the risks faced in the
past. Therefore the strategic management strategies of Unilever should be strong
enough to fight against the risks. However as the conclusion it can be stated that the
43
current strategy of Unilever can be implemented in a way that the company can
achieve more profits.
44
8.0 Referencing and Bibliography
Anon (2004). World Economic Situation and Prospects 2004.: United Nations.
Available from:< http://www.un.org/esa/policy/wess/wesp2004.pdf>[Accessed
10/10/2009].
Luther K.R (2004). Political Parties in the World in 2004; Australia. KEPRU
[online]. 21, , Available from:
<http://www.keele.ac.uk/depts/spire/research/KEPRU/Working_Papers/KEPRUPap
er21.pdf>[Accessed 12/10/2009 ]
Wheelen. T.L, Hunger J.D, Rangarajan K (eds). (2008). Strategic management and
business policy. DeIhi, India: Dorling Kindersly (India) Pvt. Ltd.
45
9.0 Appendices
Appendices A – Porter’s Five Forces in Different Angel
(Gunasekara. M (2009).) 46
Appendices B – Other SWOT factors of Unilever
47
Appendices C – Ratio Analysis
Net Profit Ratio 6.47% 4.43% 3.26% 2.22% 12.61% 11.96% 10.82% 7.45%
Quick Ratio 0.522783 0.572711 0.531406 0.458292 0.748503 0.528652 0.553423 0.444729
Current Ratio 0.784878 0.791137 0.774642 0.649415 1.231591 0.957651 1.106493 1.000493
Total Assets to Sales 0.889326 0.923928 1.024498 1.207852 1.007585 1.01337 0.876236 0.860204
48
Ratio Analysis Continued
Unilever
2002 2003
60
40
Days Sales Uncollected
20
0
2002 2003
49
Appendices D – Process of Taking Strategies
Strategic Analysis
SWOT
Strategy
Strategy Strategy
Evaluation and
Formulation Implementation
Selection
Critical SWOT
factor
(Gunasekara. M (2009).)
50
Appendices E - SWOT for P&G
Developing market
infrastructure
51