Unilever is a British-Dutch company with its headquarters in London and Rotterdam. The company was founded in 1929 through a merger of Margarine Unie and Lever Brothers in what The Economist described as “one of the biggest industrial amalgamations in European history (Unilever, n.d). The company deals with the manufacture and sell of consumer products. It currently trades in more than 400 brands in around 190 countries. The company also employs more than 160 thousand employees in different capacities.
The general environmental of a company directly and indirectly affect its operations and performance. The general environment consist of political, legal, economic, social and environmental factors that affect the organization (Prajogo, 2016). PESTEL analysis offers an extensive coverage of these factors. Unilever is a multinational company and hence is affected by political, economic, social, technological, environmental, and legal factors in different countries. The presence of a favorable political and legal climate is of interest to Unilever. With Europe and America being its main markets, Unilever is affected by regulations of the European commission and the U.S Food and Drug Administration. The company is also subject to local and regional laws together (within Europe) and other regulations set by countries in which Unilever operates including India, China, and South Africa. Political stability is generally good for business. Political instability in countries such as Pakistan coupled with poor economic conditions and tax regulations negatively affects business.
Economic factors include levels of inflation, interest rates, exchange rates, and cost of production. Increased inflation might lead to a decline in the purchasing power of customers and hence leading to a reduction in profitability (Nelson, 2015). Lower interest rates favors investments by enabling the firm to increase its debt capital so as to expand its operations. Exchange rates also significantly affect the Unilever business since it operates in different countries. A strong Euro is good for Unilever since the company can purchase raw materials at favorable prices. The cost of production is a function of cost of labor and raw materials. Unilever faces tough competition from Procter & Gamble, Nestle among other companies. This puts pressure on the firm to reduce production cost and enhance quality of its offerings. Consistent with the law of demand, consumers tend to purchase more of a product at lower prices and less at higher prices. Unilever should therefore put in place strategies that assure competitiveness of its products against substitutes. Unilever has diversified its customer base allowing it to cash from other customer segments in case demand in other declines. The Free Trade agreements in Europe exposes Unilever to competitors in addition to opening other markets for the firm’s products.
Unilever uses technology and innovation to create competitive advantage and enhance its global power. Since its inception, Unilever has incorporated new technologies in its business strategy to boost productivity and enhance quality of its products. Unilever invests heavily in research and development initiatives aimed at enhancing innovation and competitiveness. It invests more than 1 Billion Euros annually in Research and Development. The company has established six R&D centers in different regions consisting of around 6,000 scientists, engineers, technicians, and chefs (Unilever, n.d). The team is tasked with the role of investing new products and improving already existing products with the aim of satisfying customers. The research development centers are highly specialized to explore new ideas and procedures of developing products. It’s strong and highly capitalized R&D give it a competitive advantage over its competitors in the consumer products industry. The company also uses efficient machines that increases productivity and reduces risk. The level of automation at Unilever is also higher compared to that of competitors.
The growth in the ecommerce industry has created an avenue where Unilever produces and sells its products online in its brand locations. The marketing strategy has advanced towards digital marketing and selling methods. Unilever products such as detergents can also be found on ecommerce websites such as eBay and Amazon. Advertising helps inform people about the benefits of (Scott, 2015)products and innovations. Unilever has set principles that promote responsible marketing and advertising. The principles include commitment to building trust, product safety, support of consumer rights, and verified channels of communication. The firm uses a range of marketing methods including packaging and labeling, TV and radio, promotions, social media, among other forms of marketing.
Since Unilever operates in almost every region of the world, the company is exposed to social and cultural factors. The customers happen to belong to different ages, religion, education levels. They also possess different tastes and preferences. The management therefore has to consider these demographic factors while creating new products and designing marketing strategies. Research shows that, in most countries, demographic divide is widening with older people having significant spending power over young people faced with unemployment. The millemials generation is expected to rise to 2.3 billion by 2025 and hence Unilever has to innovate its products to meet the needs of this highest spending generation (Unilever, 2017). Unilever benefits from improved lifestyles since people seek better hygiene and nutrition as their life styles improve. The rising literacy also implies increased demand for quality products. Unilever’s research and development considers all these demographic factors in creating products that surpass customer needs.
The world is witnessing a rising awareness about climate change and environmental conservation (Schwartz, 2017). This awareness can either create or destroy markets. Unilever focuses on enhancing corporate social responsibility by supporting sustainability initiatives. The firm is also aware that customers prefer purchasing products that are environmentally friendly. It has shown its commitment to reduce greenhouse emission, and preserve natural resources that would ensure sustainability of business.
Unilever operates in the First-Moving Consumer Goods industry. This industry is characterized by production of basic products that are consumed consistently by households and corporates. The industry is one of the largest industries globally. The major characteristic of this industry is large supply of low-cost fast moving products. The products traded in the FMCG industry include food, beverages, utensils, and personal hygiene products such as detergents and disinfectants. Most of these products have a short shelf life. The level of competition among firms in this industry is huge since barriers to entry is minimal. Minimal barriers to entry support the establishment of small competing firms offering nearly similar products. However, there exist large firms which command huge proportions of the market share. Firms in this market use advertising and product differentiation to separate themselves from competitors and establish customer loyalty. Products in this industry are nearly identical especially within categories and hence the industry is characterized by intense price wars. Participants also aim at lowering cost of production since a little disparity in retail prices might have significant impact on sales.
In business, change is inevitable. Organizations have to adapt to changes in the business environment. The changes in the business environment are caused by political, legal, environmental, and economic factors. Firms that are adaptive, flexible, and responsive are highly likely to succeed turbulence. Globalization has led to integration in trade, investment and technology (Ghemawat, 2016). Most governments have adopted measures that open their borders for trade. Therefore, globalization might force companies operating in the FMCG industry to make changes in their business strategy to adapt to global business changes.
Technology is an important aspect of business today. It is applied in almost every sector of business from production, supply chain management, logistics to marketing. The adoption of modern technology reduces cost of production and increases efficiency. Technology in FMCG sector can be adopted in production, packaging, distribution, and marketing (Goyal,Bagga& Bansa, 2016). Technology in the form of digital marketing has become necessary in the sector since customers have become inclined to technology. Social media channels such as twitter and Facebook hold multiple profiles since many people spend a lot of their daily time on their internet.
Competition in the FMCG industry might motivate companies to adopt changes that sets them aside from competitors. Mergers and consolidations provide companies with a competitive edge as a result of increased asset and technological base (Prajogo, 2016). A firm might also change its business strategy so as to tackle competitors and increase its market share. Differentiation business strategy involves creating a feature that sets products and services aside from that of competitors.
The five porters model is measures the competitiveness of the industry and its attractiveness. This study uses the porter’s five forces analysis to assess the five major competitive forces of Unilever.
Competitive rivalry. The firm faces tough competition from Procter & Gamble, Nestle, Colgate Palmolive, and Mondelez international.
Threat of new entrants. The barriers of entry in to the business are relatively low. However, Unilever being a highly established firm has competitive advantage over new entrants. The barriers also include lack of adequate technological and financial capital on the side of entrants to compete equally.
The customers bargaining power. When a company relies on few customers to purchase huge amounts of their product, they risk negative impacts arising from the growth of customer purchasing power. Even though Unilever serves large multinational retailers, no customer has huge bargaining power to a level of disadvantaging Unilever.
Suppliers bargaining power. Suppliers are an important component of business. Unilever has a sustainable sourcing strategy that enables it to source long term suppliers. The company focuses on creating working sustainable alliances with suppliers so as to grow its business.
Substitute threat. In the FMCG market, there are several products that can be substituted for Unilever soap and other brands. When customer tastes and preferences shift to other products or similar products produced by competitors, sales will decline. However, Unilever differentiates its products from that of competitors so as to protect itself from adverse substitution.
References
Ghemawat, P., 2016. The laws of globalization and business applications. 1st ed. Cambridge: Cambridge University Press.
Goyal, A. P., Bagga, T. & Bansa, . S., 2016. Impact of increasing trend of online marketing on consumer buying behaviour: FMCG brands in Indian scenario. International Journal of Engineering Technology, Management and Applied Sciences, 4(5), pp. 218-229.
Nelson, R. R., 2015. The rate and direction of inventive activity: Economic and social factors. 1 ed. Priceton: Princeton University Press.
Prajogo, D. I., 2016. The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics, 171(7), pp. 241-249.
Schwartz, M. S., 2017. Corporate social responsibility. 2nd ed. Abingdon: Routledge.
Scott, D. M., 2015. The new rules of marketing and PR: How to use social media, online video, mobile applications, blogs, news releases, and viral marketing to reach buyers directly. 1 ed. Hoboken: John Wiley & Sons.
Unilever, 2017. Investor Relations. [Online] Available at: https://www.unilever.com/Images/unilever-annual-report-and-accounts-2017_tcm244-516456_en.pdf[Accessed 6 October 2018].
Unilever, n.d. Our history. [Online] Available at: https://www.unilever.com/about/who-we-are/our-history/ [Accessed 06 October 2018].
Unilever, n.d. Our R&D Locations. [Online] Available at: https://www.unilever.com/about/innovation/our-r-and-d-locations/[Accessed 6 October 2018].
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