Strategic Position of Unilever PLC

Unilever PLC, is a public company that was established in the year 1930.It operates in the consumer goods industry and the headquarters of the company are located in Rotterdam, Netherlands. The area of operation is worldwide and the products include food, beverages, cleaning agents and personal care products. The company has experienced significant growth and as of the year ending 2017, the total revenue realized was €53.715 billion. It employs more than160,000 employees who manage the operations.

2. Strategic position of Unilever Plc:

Unilever operates in a broad market segment so that the firm can diversify the sources of revenues.

Table 1: Balanced Scorecard of Unilever:

Financial:

- Free cash flow increased to over €5 billion in 2017.

- Return on invested capital was 19.2%.

- Turnover increased from € 52,715 million in 2016 to € 53,715 in 2017.

- Operating profit increased from €7,801 million in 2017 to € 8,857 million in 2017.

- Net profit increased from €5,547 million in 2016 to € 6,486 million in 2017.

Customer:

- 58% of turnover are from the customers of new emerging markets.

- Personal care category generated a turnover of €20.7 equivalent to 46% of operating profit in 2017.

- Home care category generated a turnover of €10.6 equivalent to 13% of operating profit in 2017.

- Sales growth increased by 4.9% in 2017 from the refreshment category.

- The food category reported a growth of 18% in revenues.

Internal Process:

- Presence in more than 190 countries.

- 72% of employees believe in sustainability and its driving their growth.

- 161,000 employees received €5.4 billion in pay in 2017.

- Driving long term financial rewards and value creation for the employees.

- Mandatory online annual training on the firm Code and Code Policies.

Learning and Growth:

- Sales growth of 4.3% a year from 2009 to 2017.

- Increase in operating margin to 16.5 % in 2017

- Dividend growth by 8% over 37 years.

- By the end of 2017 the firm had enabled about 1,175,000 women gain skills aimed at empowering them.

- Between 2015 and 2017, average underlying sales growth rose 3.6% a year.

Figure1: Share price of Unilever Plc: Figure2: Uniliver Plc Adjsuted EBITDA (2014-2016

Figure 3: Uniliver Global Market Share by Priuct Share:

-Uniliver Plc increases its global market share gradually every year since 2011 to 2015.

- The gradual growth comes from the combination of various production strategies.

- The company increase the production of one or two products in the following year based on the previous year.

Table 2: Financial Ratios: Unilever vs P&G:

YEAR

2016

2015

2012

COMPANY

UNILEVER

P&G

UNILEVER

P&G

UNILEVER

P&G

Turnover

€52,713Million

$65.3 Billion

€53272 Million

$70.7 Billion

€51,324 Million

$ 83,680 Billion

Profit (Loss) before Taxation

€7,669 Million

$13.26 Billion

€7,220 Million

$13.37Bilion

€ 6,989 Million

$13,292 Billion

Net Tangible Assets (Liab.)

€16,980 Million

$90.20 Billion

€ 16,082Million

$96.37 Billion

€ 14,537Million

$87.37 Billion

Shareholders’ Funds

€16,354 Million

$55.78 Billion

€ 15,439 Million

$57.98 Billion

€14,678

$48.65 Billion

Profit Margin

10.5%

23.5%

9.9%

14.90%

8.7%

7.6%

Return on Shareholders’ Funds

23.77%

2.6%

23.06%

2.5%

22.5%

2.14%

Return on Capital Employed

€0.45

$0.14

€0.44

$0.01

€ 1.47

$0.15

Liquidity Ratio (x)

68%

256%

63%

359%

55%

87.96%

Gearing (%)

Number of Employees

169,000

105,000

171,000

110,000

172,000

126,000

Source Kaur 2013, p. 8

Table 3: STEEPLE Analysis of Unilever:

SOCIAL

- Increase in demand for healthy products

- Increase in demand for environment friendly and biodegradable product waste

- Increasing demographics and age pattern.

- Cultural set up influences the consumption patterns.

- Empowering the female gender to increase consumption and close the gender gap.

POLITICAL

-The Political environment in a country determines the business opportunity

- Issues of politics in the European Union pose danger to operations in the region.

- Development of various trade unions.

- Diverse labor laws

- Foreign trade policy

TECHNOLOGICAL

- Developed automation in production, operations, sales and distribution to enhance better business process

- Incorporation of research and development investment to boost competitive advantage in the market.

- Development in better and cost effective ways of production

- Development in better and cost effective modes of distribution.

- Incorporation of the latest methods of communication to rich the targeted markets efficiently.

ENVIRONMENTAL

-Increased concern about production of environmental friendly products

- Increasing scarcity of raw materials required for production.

- Increasing concern about environmentalism.

- Increasing efforts by business to sustainability (Patel, Pieper and Hair 2012, P.231).

- Development of complex environmental programs

ECONOMICAL

-High cost of production as a result of Increasing wages in developing countries.

- Increasing in markets as a result of growth in developing countries

- Increase in production and consumption due to economic stability in developed countries.

- Country’s economic growth determines profitability

- Disposable income of consumers and business determines demand for products (Cavanaugh 2015, p. 22).

ETHICAL

- Corporate social responsibility initiatives

- A good relationship between the companies operating in the same line of industry.

- Gender equality and racial balance

- Moral rights between the company and all the stakeholders involved.

- Adherence to the labor laws.

LEGAL

- Development of complex laws of environment.

- Enhanced consumer rights laws

- Improved international patent laws

- Change in laws relating to import and export of products

- New laws regarding health and safety of workers.

Table 4: SWOT analysis of Unilever:

STRENGTS

- Finance strong cash reserves and steady revenues

- Strong brands that are recognized across the globe

- The product range is diversified

- Economies of scale, can produce more products at a lower cost because of the size.

- Strong global market presence.

WEAKNESSES

- The products sold by the company can be imitated.

- Limited business diversification

- Too much dependence on retailers

- Business acquisitions may affect the overall profit generated by the firm.

- Expensive cost of labor

OPPORTUNITIES

- Business diversification through introduction of new products and services.

- Product innovation for health through producing sustainable products.

- The products appeal to a large market segment.

- Development of new and existing markets (Dirisu, Iyiola and Ibidunni 2013, p. 16).

- Diverse workforce with broad cultural and business experience

THREATS

- Tough business rivalry.

- Existence of different business regulations from one country to the other.

- Increasing popularity of retailers’ house brands

- Political and economic instability in developing countries.

- Priorities are given to internal businesses in countries of operation.

Table5: Porter’s Five Forces for Unilever Plc:

CUSTOMERS/ BUYER POWER (STRONG/WEAK/MODERATE)

- The buyers do not have significant influence to bring the prices down.

- Quick for customers to switch from one product to the other.

- Uniliver must be vigilant when deciding the prices to keep the consumers (Enama 2017).

- The buyers have information about other products available in the market.

COMPETITIVE RIVALRY (STRONG/WEAK/MODERATE)

- Uniliver has strong opponents, for example P&G.

- The competitors have the ability to persuade customers to switch products.

- Increased competition will decrease the revenues.

THTEAT OF SUBSTITTUTION (STRONG/WEAK/MODERATE)

- The customers prefer to try new products that are available in the markets.

-The development has reduced devotion and the life cycle of the product.

- The competitors of Unilever are investing large capital on R& D increasing the business threats (Bishop 2013, p. 80)

THREAT OF NEW ENTRY

(STRONG/WEAK/MODERATE)

- Unilever operates in different market segments so the threats vary depending on the geographical location.

- The brand image is a strong hurdle for the new entrants

-Customer loyalty also reduces the risk of the new entrants (van Dongen 2014, P.8).

SUPPLIER POWER (STRONG/WEAK/MODERATE)

- Unilever has a comprehensive agreement with the suppliers.

- Unilever Policy helps to prevent suppliers to competitors.

- Unilever takes care of its customers moderately increase trust.

- The burgaining power of supplier affects the industry competition.

Table 6: McKinsey 7S Model for Unilever Plc:

Strategy

Structure

Systems

Shared Values

Skills

Staff

Style

The largest market segment helps the organization to build a competitive advantage (Matanda and Ewing 2012, p. 8).

Unilever maintains a hierarchical structure and the junior employees are expected to report to their superiors.

All the staff members are allocated duties and responsibilities to ensure they accomplish the goals and objectives.

Unilever is guided by strong core values because the employees are from diverse cultural backgrounds

Unilever recruits employees with diverse skills and competencies to work for the company.

The employees of Unilever have outstanding capabilities. They are innovative and come up with new strategies.

The leadership style is democratic.Unilever recognizes the idea of all the employees (Westney 2011, P.377).

Table7: VRIN Framework for Unilever:

Resources

Value

Rarity

Inimitability

Non-substitutability

5 resources

YES

NO

YES

NO

-Excellent leadership

-Brand portfolio

-Strong financial position (Jane 2013).

-Innovative ideas

-Strong partnerships

The research adds value by enabling Unilever to exploit opportunities and also take precautions against the threats.

The resources are available and they can be acquired by any firm that want to engage in production (Karaszewski 2010, p.399).

The products sold by Unilever can be imitated.

The products of Unilever can be substituted.

Challenges:

-The performance of business depends on the economy that is driven by the level of income.

- Competition has increased from firms producing similar and competing products

-Technological changes require huge capital investment.

- Change in laws and regulations may affect the performance of the business.

-The change in consumption patterns may affect the consumers of the product.

Possible Solutions

- Increasing the revenue reserves to caution the business in times of recessions

- Production of new products that are in line with the needs and preference of the customers

- Consultation before investing in technology that could affect the operations of the business.

- Invest in countries that have relaxed business laws.

The chosen solution/option that it can be practically implemented at the company include:

Production of new products that are in line with the needs and preference of the customers.

Reference

Bishop, W. (2013). The Elements of Leadership in a Global Environment. Global Business and Organizational Excellence, 32(5), pp.78-85.

Karaszewski, R. (2010). Leadership in global business environment through a vision creation process. The TQM Journal, 22(4), pp.399-409.

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Patel, V., Pieper, T. and Hair, J. (2012). The global family business: Challenges and drivers for cross-border growth. Business Horizons, 55(3), pp.231-239.

van Dongen, M. (2014). Toward a Standardized Model for Leadership Development in International Organizations. Global Business and Organizational Excellence, 33(4), pp.6-17.

Westney, D. (2011). Global strategy and global business environment: changing models of the global business environment. Global Strategy Journal, 1(3-4), pp.377-381.

Kaur, M., (2013). Rural marketing: A case study on Hindustan Unilever Limited. International Journal of Applied Research and Studies, 2(6), pp.1-14.

Cavanaugh, H., Damey, M., Dillard, L., Johnsson, E., Rengifo, S. and Hardart, P., (2015). Case Study Analysis: Ogilvy and Mather.

Dirisu, J.I., Iyiola, O. and Ibidunni, O.S., 2013. Product differentiation: A tool of competitive advantage and optimal organizational performance (A study of Unilever Nigeria PLC). European Scientific Journal, ESJ, 9(34).

Enama, A., (2017). Research on Market Development Strategy in Africa. A Case Study of Nestle Nigeria PLC.

Matanda, T. and Ewing, M.T., (2012). The process of global brand strategy development and regional implementation. International Journal of Research in Marketing, 29(1), pp.5-12.

Jane, O., (2013). Brand as a Strategic Asset and Its Competition in Consumer Product Industry (Empirical Study of the Brand Earned Indonesian Best Brand Award 2011). Abstract of Economic, Finance and Management Outlook, 1.