Unilever in Emerging Markets

UNILEVER IN EMERGING MARKETS

Lim Sanny Universitas Bina Nusantara. Jakarta Jalan KH. Syahdan 9 Kemanggisan Palmerah Jakarta 11480 [email protected]

Abstract Cultural diversity may enable a firm to compete more effectively in international markets. Culturally diverse top management teams often have a greater knowledge of international markets. Unilever's success has been influenced by the major events of the day – economic boom, depression, world wars, changing consumer lifestyles and advances in technology. Today, Unilever still believes that success means acting with 'the highest standards of corporate behavior towards our employees, consumers and the societies and world in which we live'. Over the years we've launched or participated in an ever-growing range of initiatives to source sustainable supplies of raw materials, protect environments, support local communities and much more. Through this timeline, the brand portfolio has evolved. At the beginning of the 21st century, Path to Growth strategy focused on global high-potential brands with mission has taken company into a new phase of development.

Keywords: strategy, global strategy, international markets

Introduction ship/differentiation strategies. Corporate- International strategy refers to sel- level strategies are dependent on the com- ling products in markets outside of the plexity and scope of product and geographic firm’s domestic market to expand the mar- diversification, and these include multi ket for their products. This is explained by domestic, global, and transnational (hybrid) Vernon’s adaptation of the product life strategies. Each business must develop a cycle concept formulated to explain interna- competitive strategy focused on its own tionalization. Accompanying these tradi- domestic market. International business- tional and emerging reasons for internatio- level strategies have some unique features. nal expansion, other opportunities available In an international business-level strategy, to firms through an international strategy the home country of operation is often the include : increasing the size of potential most important source of competitive markets, achieving greater returns on capital advantage. and/or investment in new product/process In the 1890s, William Hesketh developments, gaining economies of scale, Lever, founder of Lever Bros, wrote down scope, or learning, gaining location-based his ideas for Sunlight Soap – his revolu- competitive advantage. International stra- tionary new product that helped popularise tegies available to firms are business-level cleanliness and hygiene in Victorian and corporate-level. Business-level strategy England. It was 'to make cleanliness com- choices are generic, extending our earlier monplace; to lessen work for women; to discussion of cost leadership, differen- foster health and contribute to personal tiation, focus, and integrated cost leader- attractiveness, that life may be more en- Forum Ilmiah Volume 10 Nomor 1, Januari 2013 118

Unilever in Emerging Markets joyable and rewarding for the people who essential structural characteristic is the use unilever’s products'. degree of interrelationship among com- In a history that now crosses three petitive environments in different countries. centuries, Unilever's success has been Each firm has to devise a strategy along two influenced by the major events of the day – key dimensions: the configuration of the economic boom, depression, world wars, activities of the firm’s value chain and the changing consumer lifestyles and advances coordination of those activities. Along those in technology. And throughout we've crea- axes, four types can be determined. In spite ted products that help people get more out of the presence of the four factors and of life – cutting the time spent on household government support, the factors leading to chores, improving nutrition, enabling people national advantage are likely to result in a to enjoy food and take care of their homes, firm achieving competitive advantage only their clothes and themselves. when the firm develops and implements strategies that enable it to take advantage of Literature Review country-specific factors (Ireland, 2007). The resources and capabilities es- Barlet (1986) takes a slightly different view tablished in the home country frequently taking a less structural approach. The two allow the firm to pursue the strategy into key dimensions are here the coordination or markets located in other countries. Prahalad integration among the subsidiaries and the and Lieberthal (1998) note, in MNCs using degree of adaption to each national milieu an 'imperialist mindset' to sell existing where the firm operates. products to established upscale markets in The type of corporate-level strategy emerging economies. By focusing on weal- adopted by a firm will have an impact on thy consumers and partner organizations the selection and implementation of its who participate in the formal economy, international business-level strategy. Some however, these firms are seeing only the tip corporate-level strategies provide individual of the proverbial iceberg. country units with the flexibility to develop Four interrelated national or re- country-specific strategies, while others gional factors contribute to the competitive dictate all country business-level strategies advantage of firms competing in global from the home office and coordinate industries is factor conditions or the factors activities across units for the purposes of of production, demand conditions, related resource-sharing and product standardi- and supporting industries and firm strategy, zation. International corporate-level strategy structure, and rivalry. Perhaps the most ba- can be distinguished from international sic factor in the model, factor conditions or business-level strategy by the scope of factors of production, refers to the inputs operations, in terms of both product and necessary to compete in any industry. geographic diversification. a firm should These include such factors as labor, land, choose its international corporate strategy natural resources, capital, and infrastructure based on the need for both local respon- (such as highway, postal, and communica- siveness and for global integration. When tions systems). As described, the four basic the need for global integration is high and factors of Porter’s Diamond of Advantage there is little need for local market model emphasize the impact or influence of responsiveness, the firm should adopt a the environmental or structural attributes of global strategy. for global integration is a nation’s economy that may contribute to a low, but there is great need for local market national advantage for its firms in specific responsiveness, the firm should adopt a industries. Porter(1990) concludes that the multidomestic strategy. But, if there is a Forum Ilmiah Volume 10 Nomor 1, Januari 2013 119

Unilever in Emerging Markets great need for both global integration and sition, wholly owned subsidiary (greenfield local market responsiveness, the firm should venture) (david, 2007) adopt a transnational strategy (London, The choice of a market entry 2004) These factors can be subdivided into strategy is determined by a number of four categories: factors. However, initial market develop- 1. Basic factors, such as labor and natural ment strategies generally are selected to resources establish a firm’s products in the new 2. Advanced factors, including digital market. Exporting does not require foreign communications systems and highly- manufacturing expertise; it only requires an educated work forces investment in distribution. Licensing also 3. Generalized factors (required by all can facilitate direct market entry by industries), such as highway systems enabling the firm to learn the technologies and a supply of capital required to improve its products in order to 4. Specialized factors that are most valua- achieve success in international markets or ble in specific uses (e.g., skilled per- to facilitate direct entry. Strategic alliances sonnel employed at a port who spe- are also popular because the firm forms a cialize in the handling of bulk che- partnership with a firm that is already micals) established in the new target market and reduces risks by sharing costs with the Nations having both advanced and specia- partner. However, the entry strategy should lized factors are likely to be characterized be matched to the particular situation. In by growth in new firms that are strong some cases, a firm may pursue entry global competitors. The second factor that strategies in sequential order beginning with determines national advantage is demand exporting and ending with greenfield conditions, which are characterized by the ventures. The entry mode decision should nature and size of buyers’ needs in the home be based on the following conditions: the market for the industry’s products or ser- industry’s competitive conditions, the target vices. The size of the segment can create country’s situation, government policies and demand sufficient to justify the construction the firm’s unique set of resources, of scale-efficient facilities. Related and capabilities, and core competencies. supporting industries are the third factor of Based on the advantages discussed the national advantage model. National earlier, international diversification should firms may be able to develop competitive be positively related to firm performance. advantage when industries that provide ei- Research has shown that, as international ther materials or components, or that diversification increases, firms’ returns support the activities of the primary industry decrease and then increase as firms learn to are present. Growth in certain industries is manage international expansion. There are fostered by the fourth factor—firm strategy, several reasons for the positive relationship structure, and rivalry. As expected, patterns between international diversification and of firm strategy, structure, and competitive performance. (Jarillo, 1990) rivalry among firms in an industry vary 1. Potential advantages from economies between nations. Firms have a variety of of scale and experience alternative means of expanding internatio- 2. Location advantages nally. Five alternative entry modes available 3. Increased market size to firms for international expansion: ex- 4. The potential to stabilize returns porting, licensing, strategic alliances, acqui-

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A complex relationship exits among inter- there are limits to the advantages of inter- national diversification, innovation, and national diversification. Greater geographic performance. This leads, in fact, to the dispersion across country borders increases following circular relationship: the costs of coordination between units and 1. Some level of performance is neces- the distribution of products. Trade barriers, sary to provide the resources required logistical costs, cultural diversity, and other to diversify internationally. differences by country greatly complicate 2. International diversification provides the implementation of an international incentives (advantages) to firms to diversification strategy (London, 04) invest in R&D (innovation). Institutional and cultural factors can 3. If done properly, R&D and the present strong barriers to the transfer of a resulting innovations should improve firm’s competitive advantages from one firm performance. country to another. Marketing programs 4. Improved performance provides re- often have to be redesigned and new distri- sources for continued international bution networks established when firms diversification and investments in expand into new countries. Firms may en- R&D innovation. counter different labor costs and capital charges. In general, it is difficult to effec- Cultural diversity may enable a firm tively implement, manage, and control a to compete more effectively in international firm’s international operations. markets. Culturally diverse top management teams often have a greater knowledge of Discussion international markets. An in-depth under- Unilever products touch the lives of standing of diverse markets among top-level over 2 billion people every day – whether managers facilitates inter-firm cooperation, that's through feeling great because they've the use of strategically relevant, long-term got shiny hair and a brilliant smile, keeping criteria to evaluate managerial and business their homes fresh and clean, or by enjoying unit performance, and improved innovation a great cup of tea, satisfying meal or healthy and performance. Political and economic snack. Unilever's corporate vision – helping risks complicate the management of inter- people to look good, feel good and get more national diversification. One reason is that out of life – shows how clearly the business these risks result in competitive conditions understands 21st century-consumers and that may differ significantly from what was their lives. But the spirit of this mission expected. forms a thread that runs throughout the National government instability history. creates multiple potential problems for In the late 19th century the busines- internationally diversified firms. Economic ses that would later become Unilever were risks come up as governments react to a among the most philanthropic of their time. variety of events, reflected in uncertainty in They set up projects to improve the lot of terms of economic risks and uncertainty their workers and created products with a created by government regulation, existence positive social impact, making hygiene and of many, possibly conflicting, legal autho- personal care commonplace and improving rities or corruption and the potential natio- nutrition through adding vitamins to foods nalization of private assets. Economic risks that were already daily staples. are interdependent with political risks; Today, Unilever still believes that however, some economic risks are specific success means acting with 'the highest to international diversification. However, standards of corporate behavior towards our Forum Ilmiah Volume 10 Nomor 1, Januari 2013 121

Unilever in Emerging Markets employees, consumers and the societies and 1930s Unilever's first decade is no easy world in which we live'. Over the years ride: it starts with the Great we've launched or participated in an ever- Depression and ends with the growing range of initiatives to source Second World War. But while sustainable supplies of raw materials, the business rationalises protect environments, support local operations, it also continues to communities and much more. Through this diversify. timeline, the brand portfolio has evolved. At the beginning of the 21st century, Path to 1940s Unilever's operations around the Growth strategy focused on global high- world begin to fragment, but the potential brands with mission has taken business continues to expand company into a new phase of development. further into the foods market More than ever, the brands are helping and increase investment in people 'feel good, look good and get more research and development. out of life' – a sentiment close to Lord Leverhulme's heart over a hundred years 1950s Business booms as new ago. Building on this heritage, the priorities technology and the European now are inspiring people to take small Economic Community lead to everyday actions that can add up to a big rising standards of living in the difference for the world – from laundry West, while new markets open brands that help minimise wasted water and up in emerging economies packaging to nutritious, easily prepared and around the globe. affordable meals and snacks. 1960s As the world economy expands,

so does Unilever and it sets Timeline about developing new products, 19th Although Unilever wasn't formed entering new markets and century until 1930, the companies that running a highly ambitious joined forces to create the acquisition program. business we know today were already well established before 1970s Hard economic conditions and the start of the 20th century. high inflation make the 70s a tough time for everyone, but 1900s Unilever's founding companies things are particularly difficult produced products made of oils in the fast-moving consumer and fats, principally soap and goods (FMCG) sector as the big margarine. At the beginning of retailers start to flex their the 20th century their expansion muscles. nearly outstrips the supply of raw materials. 1980s Unilever is now one of the world's biggest companies, but 1910s Tough economic conditions and takes the decision to focus its the First World War make portfolio, and rationalize its trading difficult for everyone, so businesses to focus on core many businesses form trade products and brands. associations to protect their shared interests. 1990s The business expands into Central and Eastern Europe and

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further sharpens its focus on fewer product categories, leading to the sale or withdrawal Unilever Indonesia has grown to be of two-thirds of its brands. a leading company of Home and Personal The The decade starts with the Care as well as Foods and Ice Cream 21st launch of Path to Growth, a products in Indonesia. Unilever Indonesia’s century five-year strategic plan, and in portfolio includes many of the world’s best 2004 further sharpens its focus known and well loved brands, such as on the needs of 21st century Pepsodent, Pond’s, Lux, Lifebuoy, Dove, consumers with its Vitality Sunsilk, Clear, Rexona, Vaseline, Rinso, mission. In 2009, Unilever Molto, Sunlight, Wall’s, Blue Band, Royco, announces its new corporate Bango and many more. vision – working to create a (www.unilever.com) better future every day with brands that help people look

Conclusion From the table we can saw that Consumer research plays a vital market share unilever for liquid soap in role in our brands' development. Company Indonesia more than 50%. It’s mean constantly developing new products and Unilever is the leader in liquid soap for all developing tried and tested brands to meet segment. Throughout this time, company changing tastes, lifestyles and expectations. purpose has remained the same as we work And our strong roots in local markets also to create a better future every day; help mean we can respond to consumers at a people feel good, look good and get more local level. By helping improve people's out of life with brands and services that are diets and daily lives, company can help good for them and good for others; inspire them keep healthier for longer, look good people to take small everyday actions that and give their children the best start in life. can add up to make a big difference for the With 400 brands spanning 14 cate- world; and develop new ways of doing gories of home, personal care and foods business that will allow us to grow while products, no other company touches so reducing our environmental impact. many people's lives in so many different ways. Today Unilever employs 163 000 people, sells products in 170 countries worldwide, and supports the jobs of many Forum Ilmiah Volume 10 Nomor 1, Januari 2013 123

Unilever in Emerging Markets thousands of distributors, contractors and Ireland, R.D.; R.E. Hoskisson & M.A. Hitt . suppliers. Unilever constantly enhancing the The Management of Strategy : brands to deliver more intense, rewarding Concepts & Cases. 8th Edition. product experiences. Unilever invest South-Western Cengage Learning. nearly €1 billion every year in cutting-edge research and development, and have five Jarillo, J.C.&J.I.Martines.“Different Role laboratories around the world that explore for Subsidiaries : Case of new thinking and techniques to help Multinational Corporations in develop products. Company also committed Spain”. Strategic Management to continuously improving the way we Journal. 11, 501-512. 1990 manage our environmental impacts and are working towards our longer-term goal of London,T. & S.L.Hart. “Reinventing developing a sustainable business. Unilever Strategies for Emerging Markets : purpose sets out aspirations in running our Beyond the Transnational Model”. business. It's underpinned by code of Journal of International Business business Principles which describes the Studies. 35. 2004 operational standards that everyone at Unilever follows, wherever they are in the Porter,M.E. “The Competitive Advantage of world. The code also supports our approach Nations”, The Free Press : New to governance and corporate responsibility. York. 1990

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