BMG872 Global Strategy Development and Implementation
BMG872 Global Strategy Development and Implementation
Introduction
In this globalised world, business expansion has become one of the significant aspects for businesses to increase revenue. In this context, by considering Unilever, a renowned multinational company, the current assessment is focused on critically analysing its global strategy. Unilever has been operating in the global FMCG industry and in about 190 countries. The current turnover of the organisation is approximately €60.1billion, as of 2022 (Unilever, 2023). Moreover, the total number of employees of the company was 148,000, in 2022 (Macrotrends, 2023) (Refer to appendix). With the use of effective theoretical frameworks, international expansion and competitive positioning of the company will be critically analysed.
Analysis of the competitive structure of Unilever in its key market
Competitive rivalry
Unilever has been encountering extensive competition in the FMCG market in the USA. This is because there are several companies in this sector including Johnson & Johnson, P&G (Proctor and Gamble), Mondelez International, Nestlé, and others (Value Today, 2023). The organisation has been encountering competition in terms of several factors including the quality of products, customer satisfaction, product pricing, customer service, and others (Comparably, 2023). Hence, it is evident that the competitive rivalry for Unilever in the USA has been high.
Bargaining power of customers
Customers’ bargaining power plays an important role in determining the sales of businesses. In the USA, it has been observed that the availability of companies that are offering similar products and services has been significant, which positively influences the bargaining power of customers. On the other hand, customers can switch to other brands to buy FMCG products without any switching cost. As a result of this, customers’ bargaining power in this market for Unilever has been high.
Bargaining power of suppliers
Unilever is a globally renowned company and its global reach is significantly high, as it operates in 190 countries (Unilever, 2023). Thus, the company can effectively choose between several suppliers, which has been affecting the bargaining power of suppliers. However, a notable fact is that Unilever emphasizes sustainability or sustainable sourcing, which influences its supplier selection decisions (Unilever, 2023). Hence, in terms of collecting agricultural products or raw materials that are sustainable sources, the company needs to select suppliers who also emphasize sustainability. Considering this, it is understood that the bargaining power of suppliers of Unilever in the USA has been moderated.
Threat of substitutes
In the USA, the organisation of a diverse range of products includes several products of personal care, beauty and well-being, nutrition, and ice cream (Unilever, 2023). However, there are several alternatives to these products or brands, including nutrition and food items or personal care items. For example, people can choose to use home remedies for personal care rather than using products. On the other hand, Unilever has the ability of satisfying customers with product innovations, which are greatly focused on sustainability and the well-being of individuals (Unilever, 2023). Therefore, the threat of substitutes for Unilever in the USA market has been moderate.
Threat of new entrants
The FMCG sector in the USA has some barriers in terms of new entrants. This is because there are several recognised and established FMCG organisations exist in this market, which makes it difficult for new companies to enter the market by investing in their instructor and distribution networks (Value Today, 2023). Moreover, by entering in this market, new companies can also find it difficult to compete against an established and renowned organisation like Unilever and its brands. Therefore, the threat of new entrants in this market for Unilever has been low.
Theoretical analysis
Porter’s Diamond Model
Using Porter’s Diamond Model, the competitive positioning of Unilever in its key market, the USA can be analysed effectively. The model includes four factors, which are interrelated and have the ability of shaping the competitive environment of an industry in a particular nation (Erboz, 2020).
Demand conditions
The domestic FMCG market in the USA has been beneficial for Unilever. This is because the growing population of the nation has been increasing the demand for FMCG products, which has great importance in terms of driving the sales of Unilever. Relating to this, the population of this nation is approximately 339,996,563, in 2023, which is a 0.5% increase from the previous year (Macrotrends, 2023).
This type of growing population has been increasing the demand for consumer goods as well as consumer spending on FMCG products. For evidence, consumer spending on home food in the USA has been increasing significantly in recent years, as it was an estimated $2.30 thousand in 2021, which became approximately $2.52 thousand (Statista, 2023). In addition, consumer spending on household products or home goods has been predicted to be approximately $3.16 thousand in 2028 (Statista, 2023). On the other hand, Unilever has been able to satisfy the growing demand of customers in the USA regarding consumer goods. Thus, the organisation has been able to ensure a significant competitive position in this market,
Factor conditions
In terms of factor conditions, it has been observed that the labour conditions, availability of raw materials, and distribution networks in the USA have been significant, which have contributed to the competitive position of Unilever in this market. Specifically, there is an availability of labours or workers, as it is observed that nonfarm payroll employment in the country has increased by approximately 150,000 in this year (GOV, 2023). On the other hand, findings reveal that Unilever has been able to utilise the factor conditions of the UK market to ensure success. For evidence, the organisation has been observed to employ an average of 38,000 employees throughout the Americas in 2022 (Petruzzi, 2023). Additionally, the organisation has ensured a significant network of suppliers in the USA, which has also been ensuring its competitive position in this market (Unilever, 2023).
Related and supporting industries
The presence of related industries within the FMCG sector has been helping Unilever to maintain its competitiveness in the USA market. It is notable that several consumer goods are still manufactured in the US and Americans are willing to purchase made-in-USA products (Weber, 2023). Considering this fact, Unilever has been emphasizing manufacturing in the USA, by being attentive to the preferences and needs of the customers of this industry (Unilever, 2023).
On the other hand, in terms of related industries, the logistics industry in the USA has been observed to grow with a CAGR (Compound Annual Growth Rate) of 4.07. Specifically, the freight and logistics market size in the USA is approximately $1.27 trillion, which is predicted to be $1.26 trillion in 2029 (Mordor Intelligence, 2023). Logistics is one of the major supporting and related industries for an organisation like Unilever, which has been helping it to smoothly operate the business and manage its supply chain.
Firm strategy, structure, and rivalry
In the USA, Unilever has been operating by emphasizing its core value of making sustainable living compliance. The organisation has also emphasized the strategy of investing in research and development to foster innovation to offer customers new science-led products (Unilever, 2023). The company has been encountering extensive competitive rivalry in this market, from businesses such as Nestlé, Johnson & Johnson, P&G, Mondelez International, and others (Value Today, 2023).
However, the revenue of Unilever, in this country, was approximately 12,122 million Euros in 2022, which was significantly higher than the previous years (Petruzzi, 2023). Hence, due to the market dynamics of the USA, including supporting factor conditions related and supporting industrial support, and demand conditions the company has ensured strategic positioning in this market.
Bartlett & Ghoshal’s Framework
Bartlett and Ghoshal framework is noted to be a model that offers valuable insight for multinational corporations (MNCs) that are striving to navigate the complexities of the global business environment (Macro, 2020). Apparently, the model mainly focuses on four distinct strategic approaches, each of the approaches are tailored to address the dual challenges of achieving global integration and local responsiveness. For example, the strategic approaches are global, transformational, international and multi domestic (Mees-Buss et al. 2019). Thereby, the Bartlett and Ghoshal framework offers multinational corporations (MNCs) a conceptual framework to evaluate their worldwide strategy.
Figure 4: Bartlett & Ghoshal’s Framework
(Source: As influenced by Macro, 2020)
A more sophisticated view of the way MNCs might handle the intricate interaction between local responsiveness and global integration can be found in Bartlett and Ghoshal’s approach.
Global Strategy
In context to the global strategic approach of the framework, it mainly focuses on emphasising the global integration while downplaying the significance of local variation (Hill, 2008). MNCs that adopt a global strategic approach are noted to view the entire world as a single marketplace and aims to standardise products and processes. For example, Coca-Cola can be considered as one of the most reputable global brands, which is known to be implementing a global strategy to maintain consistent brand identity around the globe (Suprapto, 2020).
Multidomestic Strategy
In context to the strategic approach of multi-domestic strategy within the framework, it is noted to focus on the decentralisation and tailoring of products and operations to meet the unique requirements of individual markets (Lessard and Westney, 2021). Moreover, the key characteristics of this approach within the framework is to provide the ability to highly decentralise the decision-making, product adaptation to local preference as well as focus on local market needs (Lessard and Westney, 2021). IKEA has been found as one of the most renowned international organisations adopting a multidomestic strategy by customising their furniture offerings and store layouts to align with local preference (Roy, 2020).
International Strategy
In context to the strategic approach of international strategy, it enables the organisational management, the ability to focus on adapting their products and strategies to meet specific needs of each local market (Grant and Phene, 2022). Hence, this approach is noted to be characterised by a high degree of local responsiveness by limited global integration. As per the characteristics of this approach, it enables the management to focus on customising the products and services as per the local markets and focus on meeting diverse consumer demands. For example, McDonald’s is one of the global reputable brands, which is noted to implement the specific strategy of international approach to each of their markets in accordance with the local taste (Hamza and Karabulut, 2021).
Transnational Strategy
In context to the framework of Bartlett and Ghoshal, the translational strategy seeks to delicate balance between global integration as well as local responsiveness (Macro, 2020). It acknowledges the significance of utilising worldwide synergies while modifying operations and products for local settings. As for its characteristics, it focuses on decentralised decision-making, international information exchange, and an emphasis on local relevance and efficiency (Macro, 2020). Thereby, Unilever’s strategic approach aligns with this specific approach of international strategy, as the management focuses on both the global integration as well as local responsiveness (Mees-Buss et al. 2019). Unilever is a worldwide company; however, it customises its business strategies for regional markets. Known as the “transnational” strategy, this technique enables Unilever to strike a balance between responsiveness to varied customer requirements and cultural diversity and global efficiency.
As referred to in the above figure, Unilever has been found to focus on both international as well as local consumers by developing 14 different brands with sales over €1 billion in 2022 (Unilever, 2023). Apart from that, it can also be assumed that Unilever also spends around €7.8 billion to market their brand selectively to the targeted customers based on the preference of international customers or local customers (Unilever, 2023). Thereby, Unilever has been found to provide services to more than 3.4 billion people from different parts of the globe based on the customer preference as per the market around the globe (Unilever, 2023). By the application of a certain strategic strategy, Unilever has established itself as a successful global business, operating in over 190 countries (Unilever, 2023).
PESL
Political
As per the political factor, one of the primary factors is the initiative of Joe Biden as the President of the United States to alter the trade policies for successfully eliminating the challenges of the 21st century in 2023 (American Progress, 2023). Due to Unilever’s global reach, trade restrictions may raise the cost of importing and exporting goods and have an adverse effect on the business’s profitability and operations in the US market. As of September 23, 2021, the officials of EPA in the US are expected to issue a final rule that will phase down the US production and consumption of HFCs by 85% over the next 15 years as mandated by the AIM act (EPA, 2023). Hence, this could be a potential political factor that could impact the operational efficiency of brands such as Unilever in the US market.
Economical
As per the economical factor, the US market has been found to witness a significant increase of 9.0% from 2021 to 2022 within the average annual expenditure of all consumers (BLS, 2023). Hence, it might be a potential positive economic condition leading to increased consumer spending that could benefit Unilever in the US market. However, the inflation rate in the US is noted to be 8.6%, which is one of the highest rates in the world (BBC, 2022). The increasing rate of inflation might impact the performance efficiency of Unilever by increasing the cost of workforce as well as transportation that could disrupt the overall supply chain. Nonetheless, Unilever may be able to lessen the effects and continue to provide competitive prices and profitability.
Social
As per the social factor, there has been a significant increase among the awareness and emphasis on health and wellness trends in the US society (Hu et al. 2020). Hence, this might be highly beneficial for Unilever to effectively operate in the US market and achieve greater performance based on their product portfolio which includes health-conscious products. Moreover, there has been a significant increase in the mindset of customers to purchase from socially responsible brands in terms of sustainability (Wheelen et al. 2018). As per the initiative implemented by Unilever, to their CRS program, Unilever is found to be one of the most renowned brands that implement sustainable standards effectively for better sustainability.
Legal
The Fair Labour Standards Act (FLSA), which establishes the federal minimum wage of $7.25 per hour for covered non-exempt employees, is one of the stringent labour regulations that control some parts of the US labour market (Gov, 2023). It is imperative for global retail enterprises to adhere to these standards to avert legal complications, guarantee equitable labour practises, and preserve a favourable business reputation. International organisations must abide by US data protection and privacy legislation, such as the Privacy Act of 1974, due to the growing significance of data in the retail industry (Hartzog and Richards, 2020). As per the increasing worries about data breaches and privacy violations are on the rise, it is not only legally required but also essential to preserving consumer trust that customer information is secure and private.
Challenges in the current market
The Biden administration’s changes to trade policy, the introduction of uncertainty into the global supply chain, and the possibility of an impact on US market profitability are among the possible obstacles to Unilever’s performance. Furthermore, the EPA’s proposal to lower HFC production complies with environmental rules. However, Unilever may have challenges in fulfilling sustainability objectives due to the related operational modifications, which might impact product formulas and logistics. These political variables emphasise how crucial it is for Unilever to be flexible in negotiating changing trade and environmental regulations to maintain operational effectiveness and competitiveness in the market despite changes in regulations.
Maintenance of CSR practices and 17 UN SDGs within Unilever
Unilever has been observed to emphasize the maintenance of effective CSR practices that are in alignment with the 17 UN SDGs (sustainable development goals). Considering the goals of the UN regarding poverty, zero hunger, and the well-being of individuals the organisation has been observed to emphasize supporting the promotion of healthy products, fair labour practices, and sustainable sourcing. On the other hand, the fourth goal of the UN emphasizes quality education for all and the fifth goal emphasizes gender equality (UN, 2023).
The organisation has been observed to invest in education programs for not only its employees but also the communities in which it has been operating (Unilever, 2023). Even the organisation has been emphasizing the maintenance of gender equality at the workplace, along with having other CSR practices that emphasize sustainability. The company has also been using clean energy and water, which relates to SDGs 6 and 7 (Unilever, 2023). In terms of climate action, the company has been committed to its net zero target before 2039 (Unilever, 2023). Hence, it is clear that the maintenance of CSR practices by Unilever has been aligned with 17 UN SDGs.
Recommendation
To negotiate changes in US trade regulations, Unilever’s management should invest in local manufacturing, diversify sourcing, and use flexible supply chain solutions. It is essential to cooperate with regulatory agencies and keep abreast of changing data privacy rules. Enhanced compliance may be achieved by the implementation of strong data security protocols, clear customer communications, and proactive resolution of privacy concerns. Unilever’s resilience will be strengthened by taking a proactive stance in understanding and adapting to changing trade and privacy environments, which will promote sustainable growth in the US market.
Conclusion
According to the abovementioned research, it has been concluded that Unilever should deliberately engage in regional production and broaden its sourcing network to adapt to changes in US trade laws and maintain a flexible supply chain. For improved compliance, cooperation with regulatory agencies and careful observation of changing data privacy rules are essential. Resilience at Unilever will be strengthened by putting in place strong data security protocols, open consumer communication, and proactive handling of privacy issues. In order to promote sustainable success in the constantly changing US market, it is imperative to take a proactive stance in understanding and adjusting to dynamic trade and privacy environments.
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