Assignment of Strategic Business Management

STRATEGIC ANALYSIS
OF

Submitted by:

Mian Omer Hayat

MBA, 4th semester,
Roll # MBE15024
Submitted to:

Sir,Rana Waseem
Faculty of NCBA&E University
 Table of Contents
1- Introduction of UNILEVAER
2- Company Summary
2.1- Vision
2.2- Mission
2.3- Objectives
3- Internal and External Audit
4- The Input Stage
4.1- EFE matrix
4.2- IFE Matrix
5- The Matching Stage
5.1- SWOT Matrix
5.2- SPACE Matrix
5.3- BCG Matrix
5.4- IE Matrix
5.5- Grand Strategy Matrix
6- The Decision Stage.
6.1- QSPM Matrix
7- Strategic Recommendation
8- References
Introduction

Unilever is one of the world's leading suppliers of fast moving consumer goods across
Foods and Home and Personal Care categories. Unilever's portfolio includes some of
the world's best known and most loved brands.

Unilever Pakistan Ltd:

Unilever Pakistan (70.4% Unilever equity) is the largest FMCG company in Pakistan,
as well as one of the largest multinationals operating in the country. Unilever Pakistan
Ltd., a subsidiary of the Unilever Group is operating in Pakistan since 1948. The
Companys main business lines are Soaps and Detergents, Personal Products, Cooking
Oils and Fats, Packed Teas, and Ice Creams. Unilever has a long list of brands such as
Surf, Vim, Rin, Lifebuoy, Sunlight, Lux, Rexona, Sunsilk, Close-Up, Blue-Band,
Dalda, Planta, Liptons Yellow Label, Taaza and Richbru, Brook Bonds Supreme and
Kenya Mixture etc. which are common household names in Pakistan.

The Companys factory at Rahim Yar Khan was one of the first industrial units to be
constructed after the creation of Pakistan. As the consumer base expanded over the
years and the Company entered into new product lines like Personal Products and
Margarine, it invested further in the installation of modern manufacturing facilities
including a factory at Karachi. Today, the Company is using latest state-of-the-art
technology for producing high quality products.

In 1995, the Company established a new factory near Lahore to manufacture the
Walls range of ice creams, which have become popular within a short time. In 1996,
the present group Unilever UK acquired the Polka Group that produced ice creams.
In 1999, Pakistan industrial promoters (Private) Limited, owners of Polka brands of
Ice Cream were merged with Lever.

In order to leverage the synergies of Unilevers international brand strength, market

edge and corporate image, Lever Brothers Pakistan Ltd. changed its name to Unilever
Pakistan Ltd., in August 2002.
Overview of Unilever Pakistan Ltd.

The company had a turnover of Rs. 23.3 bn (Euro 309 mn) in 2007, and enjoys a
leading position in most of its core Home and Personal Care and Foods categories,
e.g. Personal Wash, Personal Care, Laundry, Beverages (Tea) and Ice Cream.

The company operates through 5 regional offices, 4 wholly owned and 6 third party
manufacturing sites across Pakistan.

Accountable to our stakeholders

Since the time Unilever Pakistan began its operations in 1948, the Company has been
closely connected to the Pakistani people and its brands have been an integral feature
in their daily lives. In fact, the nature of our business enables our brands to be the
pulse and heartbeat of the 164 million people in Pakistan.

This is a huge commitment, which makes us responsible and accountable to all our
stakeholders and society as a whole and strengthens our resolve to:

Make a positive difference to the lives of low income consumers

Create new opportunities for growth
Improve the overall quality of life in Pakistan, by promoting education,
nutrition, health and hygiene.

Our Vision

Touching Hearts, Changing Lives.

Our Mission

Mission Is To Add Vitality To Life. We Meet Everyday Needs For Nutrition, Hygiene
and Personal Care With Brands That Help People Feel Good, Look Good and Get
More Out Of Life.

Adding Vitality to life:

150 million times a day, in 150 countries, people use our products at key moments of
their day. In the future, our brands will do even more to add vitality to life. Our
vitality mission will focus our brands on meeting consumer needs arising from the
biggest issues around the world today ageing populations, urbanisation, changing
diets and lifestyles.

Scale and geographic reach:

Our deep roots in local cultures and markets around the world give us our strong
relationship with consumers and are the foundation for future growth. We will bring
our wealth of knowledge and international expertise to the service of local consumers
- a truly multi-local multinational - extract from Unilevers Corporate purpose.

Strategy and long-term financial target

At the heart of Unilever's strategy is a concentration of resources on areas where we
have leading category and brand positions and which offer excellent opportunities for
profitable growth, especially in personal care, developing and emerging markets and
Vitality. The focus is primarily on developing the business organically, but
acquisitions and disposals can also play a role in accelerating the portfolio
development.
To execute this strategy we have reorganised the business to simplify the organisation
and management structure and to improve capabilities in marketing, customer
management, and research and development. The result is better allocation of
resources, faster decision-making and a lower cost level. This transformation, known
as the One Unilever programme, allows us to leverage our scale both globally and
locally.
Unilever's long-term ambition is to be in the top third of our peer group in terms of
total shareholder return. We expect underlying sales growth of 3-5% per annum and
an operating margin in excess of 15% by 2010 after a normal level of restructuring
charges of 0.5 to 1 percent of turnover. Return on invested capital is targeted to
increase over the 2004 base of 11%. Over the period 2005 2010, we aim to deliver
ungeared free cash flow of 25-30 billion. It should be noted that previous and
planned disposals and the additional restructuring plans will have reduced ungeared
free cash flow by about 2.5 billion over this period, while enhancing the ongoing
cash generating capacity of the business.

Internal and External Audit of Unilever

Strengths:

Customers Loyalty.

Latest state of the art facilities and technology for producing high quality
products.

International brand strength.

Committed to business ethics, safety, health, environment and community.

UNILEVERs key competitive advantage over other market participants is the

retail reach of the company. UNILEVER services 500,000 outlets with 50 %
through direct distribution and remaining via wholesalers.

UNILEVER is enjoying market edge of 41% in FMCG industry. UNILEVER

is at number one in ice cream segment and having 14% market share all over
the globe.

Weaknesses:

The biggest challenge in safeguarding market position is to become cost

leader.

Operational complexity due to a large number of products in portfolio and due

to diverse work force.

Strategic alliance with other small mills for manufacturing purpose is the
weakness as well as a threat for UNILEVER. Although UNILEVER claims
that it is a part of its cost reduction strategy but it can not hide the reality that it
shows weakness of UNILEVER.

Opportunities:

Markets of developing countries can be proved a profitable segment because

people are consumption oriented rather than saving or investment oriented.
UNILEVER can gear up its market share in the untapped rural market.

Diversification in unrelated business.

 Rapid increase in world population. World population is set to grow by 800m
in 2010 and almost all increase will be in developing countries.

Threats:

FMCG market is highly responsive to economic conditions, inflation and

social disruptions resulting in variations in sales revenues and demand for the
company.

P & G is the major competitor and threat for UNILEVER. Other organized
players are Nestle and R & B.

UNILEVER is facing intense competition from unorganized players i.e.

cheaper smuggled products and Chinese products. According to industry
source, 40% of tea consumed locally and a large portion of HPC products are
smuggled into the country.

Legal, political and regulatory factors of host country. For example, supportive
Government policies for attracting FDI, 1% tax rate on corporate profit and
inability of Pakistan Government to control smuggled products etc.

Although UNILEVER has a first mover advantage in ice cream segment but
Engro has announced to enter in ice cream segment and is considering a big
rival post CY2010.

Rapid increase in raw material cost and supply disruptions from suppliers of
raw material. The unprecedented surge in palm oil, tallow prices and other
materials has resulted in declining margins. Going forward, high raw material
costs are a key risk to UNILEVERs profitability.

EFE Matrix

Weighted
Key External Factors Weight Ratings
Score
OPPORTUNITIES
Market of developing countries due to more
1. 0.15 4 0.60
tendency towards consumption
2. Rapid increase in worlds population. 0.15 3 0.45
3. Unrelated diversification. 0.10 1 0.10
4. Rural area. 0.05 4 0.20
5. Hygiene Consciousness 0.10 2 0.20
THREATS
1. Competition from organized players, P & G 0.15 4 0.60
2. Inflation Rate 0.08 2 0.16
3. Smuggled products and local competition. 0.07 2 0.14
Legal, political and regulatory factors of host
4. 0.05 2 0.10
country.
5. Rapid increase in raw material cost. 0.10 4 0.40
Total Weighted Score 1.0 2.95

Ratings:
1 Poor 3 Above Average
2 Below Average 4 Superior

Total weighted score of EFE matrix of UNILEVER (2.95) shows strong response of
company towards external factors.

Justification of ratings:

On opportunity side:
1. It is a general observation that people of developing countries like Pakistan are
more inclined towards consumption rather than saving and the major portion
of spending is on FMCG.

2. World population is increasing at an alarming rate. World population is set to

grow by 800m in 2010 and almost all increase will be in developing countries.
And increase in population leads to increase demand of FMCG sector.

3. Like Engro, UNILEVER can enter in unrelated areas of production.

4. The under penetrated rural market offers tremendous growth potential as rural
population constitutes around 60% of the total population. In the past few
years, favorable structural changes, such as double digit growth in agricultural
credit, increased penetration of television cable media have boosted demand
for FMCG products. Following table shows that rural population will be
almost 50% of total population in near future.

% of total population 1990 1995 2005 2010 2015E

Rural 31.9 34.3 37.0 43.3 47
Urban 68.1 65.7 63.0 56.7 53
Total (mn) 109.4 123.6 159.2 179.6 202.2

On threats side:
 1. P & G with 50% market share is a big threat for UNILEVER. Nestle with
roundly 30% market share is also posing a threat in near future. Engro is
planning to enter in ice cream market and a future rival in ice cream as well.

2. Rapid increase in inflation rate can increase the prices of products and hence
can reduce demand.

3. Smuggled products swallow a big part of profits of UNILEVER every year.

Almost 40% tea and 29% shampoo used in Pakistan is smuggled from
Afghanistan and China.

4. Economic system of host country and rapid increase in raw material cost are
last two major threats for UNILEVER.

IFE Matrix

Weighted
Key Internal Factors Weight Ratings
Score
STRENGTHS
1. Customers Loyalty. 0.15 4 0.60
2. Micro level retail outlets 0.10 4 0.40
3. Latest state of the art facilities and technology. 0.10 4 0.40
4. International brand strength. 0.08 3 0.24
5. Market share of 41% 0.12 3 0.36
Committed to business ethics, safety, health,
6. environment and community. 0.10 3 0.30

WEAKNESSES
1. Strategic Alliance 0.15 1 0.15
2. Costly Products. 0.15 2 0.30
3. Operational Complexity. 0.05 1 0.05
Total Weighted Score 1.0 2.80

The score 2.80 shows that company has solid internal position, its strengths are
overcoming the weaknesses.

Ratings:
1 Major Weakness 3 Minor Strength
2 Minor Weakness 4 Major Strength

Justification of ratings:

On strength side:
 1. Customers loyalty is not a hidden fact in UNILEVER case. People have
developed and adopted the taste of UNILEVERs high quality products and
there is no comprise on quality. 150 million times a day, in 150 countries,
people use UNILEVERs products at key moments of their day.

2. Micro marketing in developing countries. UNILEVER services 500,000

outlets with 50 % through direct distribution and remaining via wholesalers.

3. UNILEVERs continuous expansion and its large market share indicate their
strength in latest facilities and quality management. UNILEVER has ISO
certification.

4. Its brands are enjoying international recognition. UNILEVER is serving

almost 150 countries.

5. UNILVER is concerned about its customers as well as employee. There are

strict safety standards for employees and visitors of plants too.

On weakness side:

1. Although UNILEVER claims that strategic alliance with small firms for
manufacturing purpose is the part of its reducing cost objective but if we look
at the other side of the picture, strategic alliance is a weakness as well as threat
for UNILEVER. For example, Asad Soap Factory is manufacturing soap for
UNILEVER Rahim Yar Khan, and now Asad soap factory is searching for
buyers of soap plant.

2. UNILEVERs products are costly as compare to local producers. Although

costly goods are not posing any big threat to UNILEVER but in long run it can
be proved harmful for company. So company is responding greatly towards
covering its weakness. For this purpose, company has adopted policy of
contractual hiring, strategic alliance etc.

3. UNILEVER has a large number of products in its portfolio. It means that

UNILEVER has a large number of SBUs to control. It adds operational
complexity to UNILEVERs operations.

SWOT / TOWS Matrix
OPPORTUNITIES
1. Developing countries.
2. Rapid increase in worlds
population.
3. Unrelated diversification.
4. Rural area.
5. Hygiene Consciousness
THREATS
1. Competition from
organized players, P & G
2. Inflation Rate
3. Smuggled products and
local competition.
4. Legal, political and
regulatory factors of host
country.
5. Rapid increase in raw
material cost.
SWOT or TOWS Matrix
STRENGHTS WEAKNESSES
1. Customers Loyalty. 1. Strategic Alliance
2. Micro level retail outlets 2. Costly Products.
3. Latest state of the art
facilities and technology. 3. Operational Complexity.
4. International brand
strength.
5. Market share of 41%
6. Committed to business
ethics, safety, health,
environment and community.
S-O Strategies W-O Strategies
1. Discover new markets 4. Market Expansion in
(O1,O2,O4,S4,S3) rural areas (O4, O1, W2)
2. New quality products
(O3,O5,S3,S6)
3. Unrelated diversification
(O3, S1)
S-T Strategies W-T Strategies
5. Vertical Integration 6. Increase in manufacturing
(T1,T3,S2,S4) capacity. (W1, T1).
7. Cost leadership(W2,T5)
Proposed Strategies:

1. UNILEVER can capture untapped rural markets and markets of developing

nations by using its state of the art facilities & technology. International brand
strength is plus point which will be proved helpful while positioning.

2. UNILEVERs Commitment to business ethics, safety, health, environment and

community can be proved helpful in order to satisfy hygiene conscious
customers. UNILEVER should focus more on quality of goods.

3. Unrelated diversification is a risky decision to be taken. Loyal customer is the

major power to cope up with after effects of this decision.

4. Customers in rural areas and in developing countries usually have low income
level. UNILEVER should reduce its costs in order to capture that uncovered
markets effectively.

5. UNILEVER can use its international brand strength and wide network of retail
outlets in order to compete with organized and unorganized players of market.

6. Strategic alliance is showing the weakness of UNILEVER in particularly

manufacturing area which the competitors do not hold. UNILEVER should its
production capacity in order to compete in market and to reduce competitors
threat.

7. If UNILEVER can obtain cheaper raw material, it can reduce cost of goods
manufactured.
 SPACE Matrix

Financial Strength (FS) Ratings

10% increase in net income in 2009 as compare to 2008. +4

Net sales were 15.7% 2009 as compare to 14% in 2008. +3
Total asset turnover is 3.2times in 2009 as compare to 3.1 times in
+2
2008.
ROI has declined from 87% to 86% in 2009. +1
ROA is averaged 27% which is declined to 24% in 2009. +1

Total: +11
Industry Strength (IS)

Consumption Oriented Culture. +4

Rapid increase in raw material cost. +2
Growth potential in rural and developing countries market. +4
Profit potential is reducing due to intense competition especially from
+1
un-organized players.

Total: +11
Competitive Advantages (CA)

Committed to business ethics, safety, health, environment and

-1
community.
Customer loyalty. -1
Market share of 41%. -2
Control over supplies and distribution. -4
Latest state of the art facilities and technology. -1

Total -9
Environmental Stability (ES)

Demand in the retail industry is price elastic. -3

Smuggled products and local competition. -5
Legal, political and regulatory factors of host country -3
High rate of inflation effects demand. -4
Law and Order Situation -2

Total: -17
Average scores:

FS = 11/5 = 2.2
IS = 11/4 = 2.75
CA = -9/5 = -1.8
ES = -17/5 = -3.4
X-axis = IS+CA = 2.75-1.8 = 0.95
Y-axis = FS+ES = 2.2-3.4 = -1.2

FS
+6

CA -6 + 0.95 +6 IS

-1.2

Competitive
Strategy

-6

ES

SPACE matrix indicates whether conservative, aggressive, defensive and competitive

strategies are more appropriate for given organization. UNUILEVER should pursue
Competitive Strategies that are intensive and integration strategies.

I will suggest following two strategies:

1. Product development

2. Market Development
Company will use Product Development to increase sales by slightly modifying its
products. It would eliminate its threat from unorganized market competitors which are
selling smuggled items and hurting the market of UNILEVER quite badly.

Following are some factors that prove why I choose this strategy for UNILEVER:

UNILEVERs existing products are very much successful across the globe. Its
41% market share shows the number of satisfied customers.

There are rapid technological developments in FMCD industry.

FMCG is a high growth industry. High growth is characterized by rapid

increase in demand due to some factors like increase in population etc.

UNILEVER has both organized and un-organized rivals. Organized rivals are
competing by introducing comparable prices and un-organized rivals are
hurting UNILEVER by selling even at lower of the cost.

Market development is another strategy suggested for UNILEVER, weve seen that
UNILEVER is producing high quality products and captured the maximum market
share. But still lots of lower and middle income people are out of its user for most of
the products as they are highly priced. Rural area is also an untapped market for
UNILEVER. UNILEVER must consider about producing low-priced products as well
so company can earn maximum share.
 BCG Matrix

Market Share

High Medium Low

1.0 0.50 0.0
High +20 ?

Ice cream
Knorr
INDUSTRY
SALES
GROETH
RATE (%) Detergents Dove

Medium 0
Beverages (Tea)
Soap

Home & Personal care

Low -20

Industry Classification:

Industry Industry Classification Indicators

Tea Mature Industry growth lagging GDP growth.
Low profit margins
Reduced sales volumes
Ice cream Growth 0.5kg per capita yearly consumption
Double digit revenue growth
Large Capex and advertising spend
Soap Mature ULEVER Growth company within mature
industry
Lux sales doubled in 3 years
High profit margins
 Introduction of liquid hand wash
Detergent Growth 11% rise in Surfs market share
Low penetration, 50% population uses
laundry soap
Double digit turnover growth
Shampoo Growth Lowest penetration in Asia.
Clear Shampoo highest growth in
comparable regions

STARS - Ice cream:

Unilever has the first mover advantage in the capital intensive ice cream segment.
With around 65% market share, ULEVER is the only major operator in the industry.
The company is in the process of increasing production capacity and strengthening
its distribution channel. In CY07, sales were restricted by lost trade confidence, delay
in factory expansion resulting in plant shutdowns, and adverse weather conditions.
However, going forward with per capita consumption at a low 0.5 liters per annum
tremendous growth potential exists in the ice cream segment.
We expect segment revenue growth of CAGR 19% in CY08-CY12E.

QUESTION MARK Frozen foods:

According to matrix, UNILEVERs frozen foods like Knorr and some products of
household care business units like Dove are question marks as they are operating in a
growing market without high market share, thus holding the sales growth of the
companys 400 leading brands by 0.6%.

Therefore it can be noticed that not the whole divisions are under performing, as a
result UNILEVER needs to invest more in these business units to keep up with the
fast growing market because they are already successful but need better performance.
Brands such as Knorr and Lipton in food and Dove in the household product sector
are among the core brands that raise concern for UNILEVER. As they operate in a
growing market more investment is needed to boost sales and margin and as it is
unlikely that these units achieve sufficient cost reduction benefits, UNILEVER may
turn to its cash cow businesses to offset such investment.
As part of its path to growth strategy UNILEVER must build on these businesses to
improve performance as the market share must grow if they are to become stars
otherwise they may face alternative solutions that could include the sale of the
business, which should be the last alternative because of the growing divisions inside
the business.
UNILEVER might be better off investing more cash in frozen foods and household
care; since the market is growing it may gain more share and dominance

CASH COWS HPC:

The HPC segment continues to drive the top-line and profitability growth, and is the
key focus of the companys growth strategy. In CY09 the company posted impressive
turnover growth of over 25% attributable to higher volumes and price increases.
Among the key brands in the HPC business Lux, Surf and Sunsilk continue to be the
star performers with market leadership positions.

DOG Beverages (Tea):

The mature tea segment continues to follow a declining trend as ULEVER faces stiff
competition in the tea market. ULEVER continues to lose sales volume to Tapal in
organized sector and to small local brands in rural areas that are using cheap
smuggled tea. Supply disruptions as a result of political turmoil and drought in Kenya
ensue in squeezed margins.
The companys strategy is to defend losing market share as no growth is expected in
beverages segment. ULEVER had two production facilities for tea located in Karachi
and Khanewal. Recently, ULEVER has closed down the Karachi tea factory in view
of low demand and sales volumes.
This is expected to result in restructuring charges in the short run, however, in the
long run the company is expected to benefit in terms of cost efficiencies and reduced
overheads.

In the backdrop of losing market share, the contribution of tea business to total
turnover has declined over the years (34% in CY09). Going forward, the tea segment
is expected to remain under pressure. It is forecasted a flat outlook for the segment
with decline in turnover of 5-6% each year.

Internal-External Matrix

IFE Weighted Scores

Strong Average Weak

EFE 3.0
Weighted 2.0 1.0
Scores
High 4.0
i ii iii

3.0 iv v vi
Medium
 Low 2.0
vii viii ix
1.0

The IFE matrix score for UNILEVER is 2.80 and for EFE matrix score is 2.95
therefore our IE matrix falls more around v cell.

The company should adopt HOLD & MAINTAIN STRATEGIES and I recommend
Market Development and Product Development for UNILEVER. UNILEVER can
introduce existing products to new geographical area that are rural markets and
markets of developing nations. On the other hand UNILEVER can also modifying its
existing products and introduce variants in order raise its market share.

Grand Strategy Matrix

Rapid
Rapid Market
market Growth
Growth

Q2 Q1

Weak Strong
Competitive Competitive
Position Position

Q3 Q4

Slow Market Growth

 The grand matrix helps us to determine the strategy that firm must pursue, based on
its competitive position and market growth.

UNILEVER lies in Q1 which represents excellent strategic position of company. For

these firms, continued concentration on current market and products is an appropriate
strategy. UNILEVER has abundant resources so backward, forward and horizontal
integration may also prove effective.

QSPM Matrix

Market Product
Development Development
Attractive Attractive
External Factors Weight Total Total
Score Score
Untapped Rural area. 0.05 4 0.20 --- ---
Market of developing countries. 0.15 3 0.15 --- ---
Rapid increase in worlds 0.15 4 0.60 1 0.15
population.
Hygiene Consciousness 0.10 --- --- 2 0.20
Unrelated diversification. 0.10 --- --- --- ---
Legal, political and regulatory 0.05 4 0.20 1 0.05
factors of host country.
Inflation Rate. 0.08 2 0.16 3 0.24
Competition from P & G 0.15 4 0.60 3 0.45
Raw material cost increased. 0.10 3 0.30 4 0.40
Smuggled products and local 0.07 3 0.21 4 0.28
competition.

Total 1.0 2.42 1.77

Internal Factors
Costly Products. 0.15 --- ---- --- ---
Customers Loyalty. 0.15 3 0.30 4 0.60
Micro level retail outlets 0.10 4 0.40 1 0.10
Latest state of the art facilities 0.10 3 0.30 3 0.30
and technology.
Market share of 41% 0.12 4 0.48 3 0.36
Committed to business ethics,
safety, health, environment and 0.10 --- --- --- ---
community.
Strategic Alliance 0.15 --- --- --- ---
International brand strength. 0.08 4 0.32 3 0.24
Operational Complexity. 0.05 --- --- --- ---

Total 1.0 1.8 1.6

Grand Total 4.22 3.37

Strategic Recommendation

Appropriate strategy for UNILEVER is Market Development. UNILEVER should

remain in the present business and should introduce present products in new
geographical area.

Following are necessary factors that must be present while choosing market
development strategy:

UNILEVER has its own strong distribution channel.

UNILEVER is very successful at what it does.

Untapped rural market and market of developing countries exist for

UNILEVER to cover.

UNILEVER is a strong MNE in Pakistan. It has abundant resources both

financial and human, so it can easily expand geographically. Here we are not
concerned about expansion of operating activities to new geographical area.
We are particularly concerned about capturing untapped market. It is up to
UNILEVER whether it is decided to start operating in new areas too or just
introduce products by using its strong channel of distribution.

UNILEVER is operating globally. It means that FMCG is such an industry

which can be grown globally.
 References

www.pakistanunilever.com

www.igisecurities.com.pk