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1. INTRODUCTION OF UNILEVER PAKISTAN Ltd.
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 presentgroup 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.
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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 ourstakeholders and society as a whole and strengthens our resolve to:
y Make a positive difference to the lives of low income consumersy Create new opportunities for growthy Improve the overall quality of life in Pakistan, by promoting education, nutrition,
health and hygiene
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2. COMPANY SUMMARY
VISION STATEMENT
Unilever products touch the lives of over 2 billion people every day
whether that's through feeling great because they've got shiny hair and a
brilliant smile, keeping their homes fresh and clean, or by enjoying a great
cup of tea, satisfying meal or healthy snack.
MISSION STATEMENT
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 strongrelationship 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.
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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.
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3. INTERNAL AND EXTERNAL AUDIT OF
UNILEVER
Strengths:
y Customers Loyalty.y Latest state of the art facilities and technology for producing high quality
products.
y International brand strength.y Committed to business ethics, safety, health, environment and community.y 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.
y UNILEVER is enjoying market edge of 41% in FMCG industry. UNILEVER isat number one in ice cream segment and having 14% market share all over the
globe
Weakness:
y The biggest challenge in safeguarding market position is to become cost leader.y Operational complexity due to a large number of products in portfolio and due to
diverse work force.
y Strategic alliance with other small mills for manufacturing purpose is theweakness 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.
Opportunity:
y Markets of developing countries can be proved a profitable segment becausepeople are consumption oriented rather than saving or investment oriented.
y UNILEVER can gear up its market share in the untapped rural market.y Diversification in unrelated business.y Rapid increase in world population. World population is set to grow by 800m in
2010 and almost all increase will be in developing countries.
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Threats:
y FMCG market is highly responsive to economic conditions, inflation and socialdisruptions resulting in variations in sales revenues and demand for the
company.
y P & G is the major competitor and threat for UNILEVER. Other organized playersare Nestle and R & B.
y UNILEVER is facing intense competition from unorganized players i.e. cheapersmuggled 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.
y Legal, political and regulatory factors of host country. For example, supportiveGovernment policies for attracting FDI, 1% tax rate on corporate profit and
inability ofPakistan Government to control smuggled products etc.
y Although UNILEVER has a first mover advantage in ice cream segment but Engrohas announced to enter in ice cream segment and is considering a big rival post
CY2010.
y Rapid increase in raw material cost and supply disruptions from suppliers of rawmaterial. 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.
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The comparative profile matrix (CPM):
Success factors weight rating score rating score rating score
Quality 0.13 4 0.52 3 0.39 3 0.39
Financial position 0.15 4 0.60 3 0.45 4 0.60
Market share 0.16 3 0.48 3 0.48 3 0.48
Technology/
innovation
0.12 3 0.36 4 0.48 3 0.36
Global market 0.10 3 0.30 4 0.40 3 0.30
Price
competitiveness
0.10 2 0.20 3 0.30 4 0.40
R & D 0.14 4 0.56 3 0.42 3 0.42
Customer loyalty 0.10 3 0.30 3 0.30 2 0.20
Total 1.00 3.32 3.22 3.15
Unilever P & G Kraft
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4. THE INPUT STAGE
4-1 EFE matrix:
Key external factors Weight Ratings Weighted
score
OpportunitiesMarket of developing countries due to more
tendency towards consumption
0.15 4 0.60
Rapid increase in worlds population. 0.15 3 0.45
Unrelated diversification 0.10 1 0.10
Rural area 0.05 4 0.20
Hygiene Consciousness 0.10 2 0.20
Threats
Competition from organized players,P
& G 0.15 4 0.60Inflation Rate 0.08 2 0.16
Smuggled products and local competition 0.07 2 0.14
Legal, political and regulatory factors of host
country.
0.05 2 0.10
Rapid increase in raw material cost. 0.10 4 0.40
Total Weighted Score 1.00 2.95Ratings: 1.Poor 2.below Average 3. Above Average 4.Superior
Justification of Ratings:
On opportunity side:
1. It is a general observation that people of developing countries like Pakistan aremore 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 togrow 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.
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On Threats Side:
1. P & G with 50% market share is a big threat for UNILEVER. Nestle with roundly30% 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 canreduce 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 lasttwo major threats for UNILEVER.
4-2 IFE matrix:
Key internal factors Weight Ratings Weightedscore
StrengthCustomers Loyalty. 4 0.60
Micro level retail outlets 4 0.45
Latest state of the art facilities and technology 4 0.10
International brand strength. 3 0.20
Market share of 41% 3 0.20
Committed to business ethics, safety, health,
environment and community.
3
WeaknessStrategic Alliance 1 0.60
Costly Products. 2 0.16
Operational Complexity. 1 0.14
Total Weighted Score 2.95Ratings: 1.Poor 2.below Average 3. Above Average 4.Superior
Justification of ratings:
On strength side:
1. Customers loyalty is not a hidden fact in UNILEVER case. People have developed andadopted 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.
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3. UNILEVERs continuous expansion and its large market share indicate theirstrength 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 strictsafety standards for employees and visitors of plants too.On weakness side:
1. Although UNILEVER claims that strategic alliance with small firms formanufacturing 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 costlygoods 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 thatUNILEVER has a large number of SBUs to control. It adds operational
complexity to UNILEVERs operations.
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5. THE MATCHING STAGE
5-1 SWOTS / TOWS matrix
SWOT / TOWS
Matrix
Strength Weakness
y Customer loyaltyy Micro level retail outletsy Latest state of the art
facilities and technology.
y International brandstrength.
y Market share of 41%y Committed to business
ethics, safety, health,
environment andcommunity.
y Strategic Alliancey Costly Products.y Operational Complexity.
Opportunity S-W strategies W-o strategies
y Developing countries.y Rapid increase in worlds
population.
y Unrelated diversification.y Rural area.y Hygiene Consciousness
1. Discover new markets(O1,O2,O4,S4,S3)
2. New quality products(O3,O5,S3,S6)
3. Unrelateddiversification (O3, S1)
4. Market Expansion inrural areas (O4, O1,
W2)
Threats S-T strategies W-T strategies
y Competition fromorganized players, P & G
y Inflation Ratey Smuggled products and
local competition.
y Legal, political andregulatory factors of hostcountry.
y Rapid increase in rawmaterial cost
5. Vertical Integration(T1,T3,S2,S4)
6. Increase inmanufacturing capacity.
(W1, T1).
7. Cost leadership(W2,T5)
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Proposed Strategies:
1. UNILEVER can capture untapped rural markets and markets of developing nationsby 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 andcommunity 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 themajor 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 retailoutlets in order to compete with organized and unorganized players of market.
6. Strategic alliance is showing the weakness of UNILEVER in particularlymanufacturing 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 goodsmanufactured
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5-2 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. +3Total asset turnover is 3.2times in 2009 as compare to 3.1 times in
2008
+2
ROI has declined from 87% to 86% in 2009 +2
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 un-organized players
+1
Total +11
Competitive Advantages (CA)
Committed to business ethics, safety, health, environment
and community
-1
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
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Average scores:
FS = 11/5 = 2.2IS = 11/4 = 2.75
CA = -9/5 = -1.8
ES = -17/5 = -3.4
X-axis = IS+CA = 2.75-1.8 = 0.95Y-axis = FS+ES = 2.2-3.4 = -1.2
FS
+0.95
CA IS
-1.2
ES
SPACE matrix indicates whether conservative, aggressive, defensive and competitive
strategies are more appropriate for given organization. UNUILEVER should pursueCompetitive Strategies that are intensive and integration strategies
We will suggest following two strategies:
1. Product development2. Market Development
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Product Development to increase sales by slightly modifying its products. Itwould 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 rivalsare 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 themaximum 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.
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5-3 BCG matrix
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Industry Classification
Industry Industry
classification
Indicators
Tea Maturity Industry growth lagging GDP growth. Low profit margins
Reduced sales volumesIce cream Growth 0.5kg per capita yearly consumption Double digit revenue
growth Large Capex and advertising spend
Soap Maturity ULEVER Growth company within mature industry
Lux sales doubled in 3 years High profit marginsIntroduction 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 revenuegrowth 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.
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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.
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5-4 Internal external matrix: IFE weighted score
Strong average weak
3.0 2.0 1.0
1.0
High 4.0
3.0
Medium
2.0
Low
1.0
The IFE matrixes score for UNILEVER is2. 80 and for EFE matrix score is2 .9 5
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 newgeographical 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.
i ii iii
iv v iv
vii viii ix
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5-5 GRAND matrix:
Q2 Q1
Q3 Q4
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.
Rapid market
Strong
competitive position
Weak
competitiveposition
Slow market growth
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6.THE DECISION STAGEThe Quantitative Strategy Planning Matrix (QSPM)
Market develop Product develop
External Factors weight AS TAS AS TAS
Untapped Rural area. 0.05 4 0.20 - -
Market of developing countries 0.15 3 0.15 - -
Rapid increase in worldspopulation
0.15 4 0.60 1 0.15
Hygiene Consciousness 0.10 - - 2 0.20
Unrelated diversification 0.10 - - - -
Legal, political and
regulatory factors of hostcountry.
0.05 4 0.20 1 0.05
Inflation Rate. 0.08 2 0.16 3 0.24
Inflation Rate. 0.15 4 0.60 3 0.45
Raw material cost increased. 0.10 3 0.30 4 0.40
Smuggled products andlocal competition.
0.07 3 0.21 4 0.28
TOTAL 1.00 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 and technology
0.10 3 0.30 3 0.30
Market share of 41% 0.12 4 0.48 3 0.36
Committed to business ethics,
safety, health, environmentAnd community.
0.10 - - - -
Strategic Alliance 0.15 - - - -
International brand strength. 0.08 4 0.32 3 0.24
Operational Complexity. 0.05 - - - -
TOTAL 1.8 1.6
GRAND TOTAL 4.22 3.37
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7. 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:
1. UNILEVER has its own strong distribution channel.2. UNILEVER is very successful at what it does.3. Untapped rural market and market of developing countries exist for UNILEVER
to cover.
4. UNILEVER is a strong MNE in Pakistan. It has abundant resources both financialand human, so it can easily expand geographically. Here we are not concernedabout 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.