Unilever is a consumer products multinational is listed in London and the Netherlands simultaneously. The company has a highly diversified product base such that it is not dependent on any one business or market for its success. The consumer products industry in the West is a mature business, and it is a growing business in the growing economies of the world like the BRIC economies and many Asian countries.
Being a diversified multinational, Unilever faces a number of conditions in its different markets around the world. The company is mainly affected by general trends. These include global incomes -- the company's products are not necessarily discretionary but demand will still be affected by the business cycle.
Globalization is another trend that will have a high level of impact on the company. One of the main impacts of globalization is that companies have access to more markets. The trend has in general spawned multinationals like Unilever, by giving them relatively easy access to consumers in most parts of the world. Multinationals also benefit from globalization in terms of production. Unilever can produce in one country for an entire regional or global market. As a result of this, the company can achieve substantial economies of scale in production, compared to if the company had difficulty trading across international borders.
The technological forces that drive companies like Unilever are well worth considering. The company's products are not cutting edge technology products, but the multinationals' business has been dramatically affected by technological development. For example a company like Unilever can make use of satellite tracking to manage its inventory. Additionally, the logistics side of the business benefits significantly from the technological side of the business. For multinationals, process improvement and information management are the two areas where technology contributes the most to success. Information management systems help management to make better decisions. Given systems that can relay sophisticated data around the world instantaneously, the company can engage in more centralized decision-making.
Political and legal forces can play a significant role in a multinational. Multinational firms by their nature operate in dozens of different countries if not more. This means that they will need to navigate a myriad of different legal environments, with different systems and different levels of corruption. Governments in most countries have the ability to severely constrict business opportunities. One example of how regulators can affect a multinational is shown with a warning letter that Unilever received from the FDA in the United States -- the company could find itself unable to market the product in question if it commits violations against the local laws (FDA, 2010).
One of the most important aspects of the political environment is in the approach that nations take to the issue of globalization. Companies like Unilever rely on being able to access markets with a minimum of trade barriers. However, each nation sets its trade barriers according to their own desires. To facilitate trade there are bodies like the World Trade Organization that serve the needs of multinationals with respect to opening up markets and creating an environment that sees reduced trade barriers. The world's politicians have played a significant role in the trend towards globalization, which in turn has played a significant role in the improvement of the global trading environment for multinational firms like Unilever.
Socio-economic forces are also critical to the environment in which Unilever operates. One aspect of this is consumer tastes. Unilever markets a wide range of products so consumer tastes towards any one product are more or less irrelevant to the global business, but consumer tastes do determine the demand function for any given market. Perhaps most important is that Unilever needs to understand the current consumer tastes with respect so that it can develop new products to meet these tastes. In doing so, the company can improve its bottom line, by generating more revenue by making products that better appeal to consumers around the world.
Another element in socio-economic forces is that Unilever needs to understand who the core customers are for each product in each market. The company has basically adopted a matrix structure (2010 Annual Report) in order to address this -- the competency is developed between product and market so that the company can best respond to the needs of different markets. The same product may be marketed to entirely different customer groups in different parts of the world, for example, and the company needs to know that.
Economic forces are very important to the success of a company like Unilever. The company is very diversified, with a broad geographical footprint and a broad range of products (No author, 2008). Because the company is so well-diversified, it can balance off economic shocks in one region with growth in another. For example when most Western nations were struggling with economic downturn, China and other nations were still performing well. Any normal business is very much subject to economic conditions, but Unilever's diversification strategy means that, for the most part, the company only has market risk to concern itself with. The company's CEO has expressed this sentiment very recently, noting that growth for the company is a long-term issue, and that short-term shocks are not particularly relevant to the way that Unilever does business (Zekaria, 2011).
Aside from demand, there are definitely ways that the state of the global economy affects Unilever. The company's balance sheet shows that the company has a capital structure weighted towards debt. The long-term debt of Unilever is €7.258 billion. The cost of this debt is going to be affected by the global economic conditions. For example, interest rates in the UK and Europe are low, and this means that the cost of the debt that Unilever has is also going to be low. If the company's operations are not significantly affected by the recession, then the decline in the cost of debt will ultimately prove beneficial to Unilever, allowing it to be more profitable.
Strategically, the state of the global economy is actually quite important to Unilever. While the company has a high level of geographic diversification, it also has to make decision about resource allocation. As such, Unilever needs to know where the growth markets are in this world and where they aren't. Knowing this will help the company to make better investment decisions, focusing on countries that are have high rates of economic growth and avoiding investment in countries that have low rates of economic growth.
Another way in which the economic environment affects Unilever is with respect to input availability -- or perhaps more importantly input cost. The company requires all manner of resources to create its products but food products, labor and energy are perhaps the three most important and all three are affected strongly by the prevailing economic conditions. Food products are often traded as commodities on the global markets, over which even a company as large as Unilever has very little control. Without buying power on key inputs, the company may see its margins squeezed, unless it has a high level of pricing power over buyers. Consider, however, that the company also needs energy inputs. These are costly, and again the world's energy markets are subject to external forces over which Unilever has little control. Worse, global commodities are traded in dollars. The United States is an important part of Unilever's business, but globally speaking it earns revenues in a large number of currencies. To buy U.S. $ denominated goods means that the company faces foreign exchange rate risk in these purchases. That Unilever reports in euros makes this situation worse. As an example, the recent turmoil in Europe's economy has caused the value of the euro to fall against the dollar (Bennett, 2011). This raises all USD-denominated costs on the company's income statement, and if the cost of the good in question is increasing as well this is a double whammy for Unilever.
Global labor markets are interesting. Whereas globalization has brought a relatively free global flow of goods and capital around the world -- at least to WTO signatories -- the flow of labor has not happened to anywhere near the same degrees. Labor conditions vary significantly around the world, and some countries have either a strong absolute cost advantage or at least a comparative advantage once productivity is taken into consideration. What this means for a company that produces goods for a global market is that it can locate production at the cheapest source This source might be very changeable, so the company needs to build some flexibility into its labor market. For Unilever, managing its production to minimize costs and maximize productivity is something that it must do, but with global labor market conditions changing frequently the task is a challenging one.
Tied into the labor market forces are demographic forces. Globalization impacts these significantly when it opens up global markets -- when Unilever gained access to China's billion plus, this was an instant demographic gold mine. As a global business, Unilever…