Saturday, 16 July 2011

UNILEVER: AN ANALYSIS OF STRENGTHS, WEAKNESSES AND OPPORTUNITIES AND THREATS

     

             
Unilever SWOT Analysis

Strengths

n  Recognise as a Global Company
Unilever is a well known global company with presence almost in more than 170 countries and it is registered at various stock exchanges around the globe which makes it a really global company with all the privileges of a global company like economies of scale, access to global resources and above all synergy of resources and operations.


n  Strong brand portfolio


Unilever has established a very strong relationship with retailers by offering them good margins and incentives, which are very important for a company in the consumer brand market. This provides Unilever strength to reach the ultimate consumers.

             Source: Unilever financial statement

n   Strong relationship with retailers
Unilever has established a very strong relationship with retailers by offering them good margins and incentives, which are very important for a company in the consumer brand market. This provides Unilever strength to reach the ultimate consumers.

                                                         Source: Unilever Director’s report


n   Economies of scale
Economies of scale occur when increased output leads to lower long run average costs. As a global company Unilever has reach to universal cheap resources. Because of its mass scale production it has ability to overcome the bargaining power of suppliers which results in lower cost of production.     
                                           Source: http://www.economicshelp.org/blog/concepts/economics-of-scale/

l  Research and development
Unilever is an innovative company and investing a huge sum on research and development of new products and brands. Because of this ability Unilever has created high entry barriers to the global consumer market. It has more than 61 innovation centres and 4000 academic researches.
                                         Source: Unilever financial statement





l  Excellent management and human element
Unilever has a pool of very skilled managerial capabilities in the form of its human resource capital from around the world in each geographic region. Its top management belongs to 21 different countries. This also helps Unilever to understand and manage local needs of customers, employees and stakeholder
                                Source:http://www.unilever.com/images/ir_Unilever_factsheet_2010_tcm13-70889.pdf.

l  Merger and acquisitions
Unilever has a long history of mergers and acquisitions. This has enabled Unilever to break entry barriers into some very competitive markets and knock out strong competitors. This ability of Unilever has made it a local multinational company. Unilever has more than 44 companies in the Unilever group, 2 joint ventures and one UK associate. Other than that Unilever has its operation and agency relations in a huge number of countries. At present Unilever has more than 350 production facilities.
                                         Source: Director’s Report
                                         http://www.unilever.com/investorrelations/understanding_unilever/factsheet/index.aspx


Weaknesses

n  No direct connecting with customers
Because of nature of business, Unilever has no direct connection to its ultimate consumers. It has to rely on its wholesalers and retailers. In western counties retails giants i.e. Tesco, Asda and Sainsbury are very strong and have the ability to dictate big multinational retail companies. 

n   Inefficient management of brands
Unilever has almost 400 different brands which is very difficult to manage to reap ultimate benefit. This huge portfolio of brands has created inefficiency on part of Unilever to differentiate between stars, cash cows and dog brands according to Mandelows’ matrix. Top 25 brands of Unilever account for 73% of global turnover, which means rest of 375 brands account for only 27%.

Source: Unilever’s financial statements


n   Reduced spending for R & D
Unilever is trying to improve its cash flow by cutting expenditure on R&D. During 2008 R&D spending were €927m which were reduced to €891m in 2009 and similar trend during 2010. This will lead to lack of innovations and introduction of new products

                                                             Source: Unilever’s financial statements

n   Fall in revenues
Decrease in revenue has revealed weak areas and put a psychological pressure on its management to make short term decisions to cope. This is oblivious from the strategy of maintaining short term cash flow by reducing spending on R&D and investment in long term assets and projects. Decrease in revenue has directly affected profit margins and market value of shares.  

                                                                  Source: Unilever’s financial statements



Opportunities

n  Economic Crisis
Where current economic crisis have made small companies with liquidity problems to find way for exit, there it has created opportunities for Unilever to acquire these demising companies at a very cheap price and enter into new markets.    
                  Source: (http://www.darkreading.com/security/management/showArticle.jhtml?articleID=212002170)

n   Increasing need for healthy products
Consumers are more aware today and prefer healthy products, so it is a good opportunity for Unilever to introduce healthy and safe products under its brand name to increase its market share and knock out its competitors.

n  Developing markets
More than 50% of Unilever’s market share is from developing and emerging countries where market is less saturated and less competitive. Growth rate is high in these markets, so Unilever can invest in these markets to increase its market share.

                                          Source: http://www.unilever.com/mediacentre/pressreleases/2002/trade.aspx


n  Personal Care segment
Unilever’s personal care segment is fastest growing business and a key to achieving sustainable profitable growth. In 2010 Unilever reported an increase in personal care sales by 4%. The personal care segment should be a priority area for creation of future sales growth and sustaining profits from increasing raw material costs.
                                                                                              Source: Unilever Director’s report


Threats

n  Strong Competition
Unilever is not only a big multinational company in the global market. It has very strong competitors like P&G, Nestle and Kraft. These competitors always try to give tough time to Unilever and try to create high entry barriers to new and emerging markets. In developing markets like India and Spain, small low cost retailers have a big market share and competition for Unilever.
                                                           Source: Unilever Director’s report

n   Increasing store brands
Big retail store like Tesco, ASDA, and Sainsbury has introduced a plenty of their own cheap brands which have led customers to switch for cheaper products.

                                                                                     Source: Customer’s Interviews



n   Tougher Business Climate
Overall business climate is tougher today because of economic crisis, tough Government regulations and competitive environment. It has led the companies to focus more their liquidity instead of profitability.
                                                                     Source: Unilever Director’s report


n  Complex Organisational Structure
Unilever has more than 42 group companies, Joint ventures and associates. It has hundreds of agency relationships. It has more than 300 production facilities are across the globe. All this has made Unilever structure very complex. A wrong corporate strategy can be a single point of failure of business.



3 comments:

Anonymous said...

This was very useful, thanks a lot. Here and there there were some grammar mistakes or typos. Overall a really useful source, though!

Zargham said...

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