Introduction

Unilever is an international company that came into existences in 1930 by

the merging of two companies which are margarine union and lever
brothers. They came together with an agreement to give equal profits to
shareholders of both companies and to operate on the same structured
board. Therefore as a result of the merger Unilever became a company
that processed and bought more than a third of the world commercial oils
and fat and traded in more countries than any other country in the world.
Today Unilever is a famous name in households with total sales increasing
by 5% at constant rate to E40.19 billion for the full year 2007. Its brands
can be divided into two divisions home and personal care and foods of
which the brands under the home and personal care are pepsils, surf, cif,
comfort, dove, sunsilk, lynx, lux, sure, Vaseline, timotei and ponds while
the brands under the foods are knorr, cornetto, bertolli, liptons, Colman’s,
Bovril etc. They operate in more than 150 countries in the world with
174,000 employees globally. This makes it a multinational corporation
because a multinational enterprise was defined by hill (2007) has any
business that has productive activities in two or more countries.

The purpose of this paper is to evaluate the international strategy of

Unilever focusing on the Chinese market and in other to evaluate their
strategy the Global integration and responsiveness model (IR) by
Prahalad, C.K and Doz, Y.L (1987) would be used to analyse the business.

In addition to that the effectiveness of the company strategy and

operations in China will be analysed and compared to the strategy of their
competitor Procter and Gamble in the same market.

These papers will be divided into the various parts which are the
introduction of the company, the literature review, Internalization
Process, the SWOT analysis for both companies, PEST analysis and the
conclusion which would include the recommendations for improvements of
the company’s international strategy and operations.

Literature Review

In other to analyse the international strategy of Unilever the Integration –

responsiveness model (IR) of Doz and Prahalad, 1987 would be used
because the Integration–responsiveness model is a model used for
differentiating the international business strategies of firms. Doz and
Prahalad (1987) described the model as a way of capturing the pressures
on a given business. The model also sees strategy as a means of reducing
the overall cost and maximizing profit by exploiting the imperfections in
the various locations of the market and by ensuring that the firm adapt
their product to fit the locality. (Taggart: 1997) These models focus on
the most favourable running of the international business in the market in
which they operate. These model was chosen because it gives an
explanation on why Unilever used the strategy they used on entering the
Chinese market and the reason was that the company wanted their
product to meet the specific needs of the customers while reducing and
maximizing profit.

The Integration-Responsiveness Framework

The framework (I) Global Integration and (R) Local responsiveness

proposed that members of the global industries compete in two ways
internationally that is to operate their business through global integration
which is “a way of coordinating activities across countries in an attempt to
build operation network and take maximum advantage of similarities
across nations” (Julius H.J:1995) or to respond to the local requirement of
their host country. They would have to pick either of the two or apply
both which makes it multifocal.

According to Doz and Prahalad (1987) international business strategy can

be divided into 3 sub-groups when applied in business and they are
“global integration strategies” when there is high demand for global
integration which has to do with connecting activities among nations so as
to reduce cost and get the most out of the business, “local
responsiveness” when there is high demand for domestic affairs and
“multifocal business strategies” when there is demand for both global
integration and domestic affairs.

The stability of the integration- responsiveness model is determined by

various factors that can be grouped into organisational and environmental
factors. The integration-responsiveness model assumes that integration
and responsiveness are determined by environmental forces and that the
demand for local responsiveness are the environmental forces that leads
to strategic decision making and quick response rate in the individual
local market. This was also supported by Barlett and Ghoshal, 1989.
The internationalization process of Unilever

Internationalization was defined by the Localisation Industry Standards

Association (LISA) as “the process of generalizing a product so that it can
handle multiple languages and cultural conventions without the need for
re-design.”

Unilever became an international company after the merger of margarine

union in Netherlands and Lever Brothers in United Kingdom. Margarine
union consisted of three companies which were Jurgens, Van de Bergh
and schict which were all margarine manufacturers with interests in
England and Netherlands which was located in Holland while lever
brothers were soap makers who began producing margarine after being
asked by the British government in addition they expanded into the
United states by buying two factories which were located in Boston and
Philadelphia.

After the merger, They had two holding companies which was in United
Kingdom and Dutch and also increased their market share in the United
states by the acquisitions of two major companies in different industries
Thomas J. Lipton Company (1937) which was in the beverage industries
and a branded toothpaste Pepsodent in 1944.

In 1980s the company did some restructuring and sold all its services and
ancillary business like transportation, advertising, packaging etc and
bought about 80 companies these took place between 1984 and 1988. R
one of their major acquisitions took place within that time and it was the
acquisition of Chesebrough-Pond’s in United States in 1986. The company
owned brands as Vaseline Intensive Care, Pond’s Cold Cream and Ragu
spaghetti sauce and it was worth $3 billion in sales.

To sum it up, by 1992 Unilever comprised of 500 companies in 75

countries which included Europe, USA, Asia and Africa. In addition,
towards the end of the 20th century the company already had more than
1500 brands but in 1999 sold about 1200 brands and entered the 20th
century with 400 regionally and globally powerful brands.

Foreign market entry strategies

Unilever entered the Multinational market through wholly owned

subsidiaries. Wholly owned subsidiaries is one of the means used in
entering the foreign market and it is done in two ways. One of which is by
establishing a new operation in the chosen country and the second is by
acquiring an existing and established company in the chosen country and
using it to sell its products which is what Unilever did in most counties but
in countries where they could not enter through Wholly owned
subsidiaries they entered through Joint venture for example the Chinese
market. Joint venture has to do with establishing a company that is jointly
owned by two or more host companies.

Reasons for entering the Chinese market

The reasons why Unilever entered the Chinese market are these:

• To increase their market size that is the number of customers and

this is because the Chinese population was much and the market
was growing.

• To acquire resources and secure key supplies.

• To access cheaper factors of production and reduce cost

• To transfer technology and managerial know how.

• To increase foreign competition and protect their home market

share.

• To prevent themselves from the uncertainties of their domestic

market.

• To overcome protective devices like tariffs.

The Multi-domestic strategy of Unilever in China.

Unilever first entered the Chinese market in 1920 but went through a lot
of political crisis like the Chinese civil war, the communist movement that
allowed the public ownership of all factors of production but after years of
shutting down foreign businesses the country allowed foreigners into the
economy these led to Unilever re-entry in 1986 through joint ventures.
The joint ventures they formed was about 14 between 1986-1999 to
produce different products (Dasgupta and Dutta, 2004) and examples of
such companies are Shanghai Lever which is a joint venture with
Shanghai Soap Factory and Shanghai Daily Industrial Development
Corporation which produced toilet and laundry soap and other related
products, Shanghai Van den Bergh which was a joint venture with
Unilever and Shanghai sugar cigarette and wine corporation that started
producing Masterline bakery fats.

Also Shanghai Ponds was established and it was a joint venture between
Unilever and Shanghai No 2 daily chemical factory and Shanghai Daily
chemical Industrial Development Corporation it was formed to introduce
and market skin care products for Chinese women etc. However, in other
to operate in Chinese market they employed a multi-domestic strategy.

A Multi-domestic strategy as to do with generalizing a product so that it

can handle multiple languages and cultural conventions with locally
adapted products or service through marketing and production processes
specific to the host markets that target country-specific customer needs.
(Kedia et al:2002) These strategy enables each subsidiaries in each
country to follow its own strategy.

However the use of this strategy led to various internal conflicts in the
business and also led to each company pursuing different goals which
was different from the goals of Unilever as a whole. However as a
result of all these problems Procter and Gamble who was competitor
 to Unilever began to dominate the market between the late 1990s
and early 2000s. Which made Unilever to re-think on the way they
were doing business

Therefore they adopted a localisation strategy and it was defined by

Localisation Industry Standards Association (LISA) as a process of taking
a product and making it linguistically and culturally appropriate (country/
region and language) where it would be used and sold.

Unilever adopted the localisation strategy by restructuring their

organisation in other to meet the needs and aspirations of their Chinese
customers so as to widen their market share or base in china.

Therefore in other to succeed in china they integrated all their various

companies under one holding company and initiated a plan for
listings the company in the stock market so as to strengthen his
position in China. They also employed local employees and
professionals to manage the companies to enable easy
communication between the company and its customers. Unilever
used the traditional Chinese sciences with technological
enhancements in producing the products which included both local
and global brands.

Factors that contributed to the Unilever failure in China in 1990s

1. There was no clear focus in the sense that they had too many
companies under different management.
2. The political environment was a bit complex in the sense that China
was known to have a homogenous society but it wasn’t the case
because most of the government units acted independently.
3. The unsatisfactory cooperation with their Chinese Partners.
4. The differences in the management styles and cultural values this is
because both owners of the company come from different culture
therefore having different ways of managing and doing things.
 5. Improper planning and research.
6. Improper marketing.

The SWOT analysis of Unilever in China.

Strengths

• It is recognised as a global company and has various brand names.

• They also enjoy economic of scale because they produce in large
qualities.
• Reduced operating cost which is has a result of making use of local
employees and resources.
• Product adaptability because they made use of traditional Chinese
science

Weaknesses

• They had various leadership thereby leading to Conflict.

• Inability to maximize the various joint ventures in China.
• There was inefficiency in the management of the various brands.
• They were not connecting with the customers.
• They did not manage the cultural differences well.
• They lack understanding of the Chinese customers.

Opportunities

• The constant change in consumer preference.

• Large markets share because Chinese had a large population and
because they were among the first set of multinationals to enter the
market.

Threats
 • The political environment was too some extent confusing because it
was believed that the Chinese were operating a homogenous
society due to the monolithic communist rule that was in place but
that wasn’t the case because most times the different government
behaved differently.
• Increase competition from other multinationals and local
companies.
• The business environment was tough.

Procter and Gamble

Procter and Gamble is a international company that was established in

1837 in Cincinnati by Williams Procter who was a candle maker and James
Gamble a soap maker who came together to form the business. It
became an international enterprise in the twentieth century and began
introducing new product and brands in addition to that they started
opening new branches and diversified into various industries and other
countries some of the industries they diversified into are pet and
pharmaceuticals industries while examples of their products and brands
are Crest, Ariel, Olay, Pampers, Bounty etc. They entered the Chinese
market in 1988 with an international strategy which differentiated a few
of their product like toothpaste and cosmetics while the rest was the
same all over the world.

One of the reasons Procter and Gamble succeeded in China where

Unilever did not was because of the use of international strategy which
they incorporated which according to Hills (2007) can be has taking
products that was initially produced for their domestic market and selling
them internationally with little change for local customization. Which is
what Procter and Gamble does they set up manufacturing and marketing
functions in each country they go to but they try to make little change in
the product so that it can fit the environment.
The little change they made to the product at that time was in the product
packaging, product formulas and their advertisement which was done to
integrate the needs of the Chinese people into their growth plan

The strategy also adopted the American culture that involved the use of
bringing experienced workers from American into the host country in the
initial stage and also employing local employees from the host country to
manage the operations of the business although the local employees were
given a plan to follow and were taught to think the American way and
then promoted to senior positions. In addition, they gave placements to
students from various reputable universities in China thereby increasing
their awareness for their products and their company.

Another strategy that led to the success of Procter and Gamble at that
period was the use of a multiple brand strategy that is using different
brands of product to attract different segments of the population.

Procter and Gamble Swot analysis

Strengths

They have popular brands this is because of the belief that the Chinese
people have about international branded products which leads to
trust.
Good market research which enabled them to discover the needs of the
Chinese people.
Good coordination of the company’s activities in China which is as a result
of better management and understanding of the cultural differences.
They have the experience and technological know-how. This is as a result
of their various experiences they had gathered from other foreign
market on how to operate in international market.
• High quality and better distribution
 • Good understanding of the Chinese customers these is because they
were able to discover that the Chinese consumers were in need of a
product that would kill dandruff which gave them an edge in the
market.

Weaknesses

Large operating cost these is due to the foreign employees brought to

China and the amount spent on training the local employees.
Cultural and regional diversity.

Opportunities

The large population of the Chinese people’s which could lead to increase
in market share.
The rapid change in consumers taste and habit.

Threats

Increase competition from local companies and other multinationals.

The existences of fake products.

The PEST analysis of Unilever and Procter and Gamble

PEST analysis has a strategic tool for understanding market growth or

decline, business position and direction for operations.

The political environment

In the 80s international companies that wanted to do business in China

had to use Joint venture which is because the Chinese government
believed it was the way for doing business and that it would them control
over their economy and that it would facilitate foreign capital and
management expertise. (Wang, Wee, and Koh 1999)

These decision affected companies that wanted to operate as wholly

owned because then it wasn’t possible it was only considered in few
cases and to specific industries. But in the 90s the situation changed
that is the Chinese government began to allow it.

Another political factor that affected the multinational companies was that
China was known to operate a homogenous society but too some
extent each government were acting independently thereby creating
a confusing environment for foreign business.

Economic environment

The market environment in China was highly competitive between

international companies and local manufacturers. In addition, the
economic environment in China was affected by the Asian financial
crisis in 1996 which reduced the reduced the sales of the
international business. It also led to increase in the interest rate on
loans and it affected the value of the countries currencies.

Social-Cultural environment

Both companies embraced the differences in their cultures and that of the
Chinese people by trying to satisfy and adapt their product to fit the
consumers and by employing the local employees. They also
accommodated the cultural difference in the mode of advertisement
used in China.

Technological environment
The presence of both international companies has led to the introduction
of new technology and innovations. It has also led better quality and
variety of product for the consumers or their customers.

It has also created competition which has led each competitors carrying
out research and development to constantly improve on their
products. It has also reduced cost through information technology
efficiencies in the global market.

Conclusion

International trade performs important roles in a foreign market therefore

for it to be successful depends on the strategy put in place by the
company. Good international strategy yields good result so for a company
to be successful in international trade they have to ensure that they carry
out a detailed research about the market they want to enter into and find
out the perfect means of entry into the particular market.

Recommendation

Multinational and upcoming international companies that want to enter

the Chinese market should ensure that they have a focused plan that has
considered all the factors like the product needed in the host country, who
the consumers of the product are etc for their international strategy.

In addition they should ensure that they continually carry out research of
the market so as to always improve on their products because the taste
and habits of consumers do change.

They should also constantly familiarize themselves with the legal

requirement of conducting business in that market because laws do
change.

Multinationals entering market through acquisition should always make an

effort to acquire major brands.
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