The Association of Business Executives QCF

International Business Case Study

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Unit Title: Unit Code: QCF Level: Session:

International Business Case Study 6IBCS 6 December 2012

STRUCTURE OF PAPER Answer ALL FOUR questions Q1 Q2 Q3 Q4 20 marks 20 marks 20 marks 40 marks 100 marks

TOTAL MARKS AVAILABLE FOR THE PAPER

Question 1 Q1 Identify and evaluate the likely PESTLE factors that Unilever will face when executing their strategy to focus on the MIST nations. PESTLE analysis with direct reference to MIST (Mexico, Indonesia, South Korea and Turkey). Political All four are democratic countries and members of the international community. South Korea has the North Korean threat. Indonesia still has problems with political instability and has experienced some aspects of terrorism. Indonesia also faces problems of radical Islamism and separatism calls for Aceh and Papua. Mexico has a record of kidnappings and high crime rates and drug wars. Turkey applying for membership of the European Union; has problems with proximity to Syria. Mexico, Indonesia and South Korea have strong relations with powerful neighbours. Economic all four nations have growing economies with low labour costs and increased consumer power/ disposable income. Social growing populations with large middle classes with increasing disposable incomes and brand consciousness. Strong religious influences but democratic countries with aspiring western values. Predominantly urban populations. Mexico and Turkey popular holiday destinations for the USA and Europe respectively. Some Indonesian Islands are also attractive holiday destinations on a global level, e.g. Bali. Technological developed infrastructures. Part of the world wide web. South Korea and Turkey strong technological manufacturing sectors. Mexico used as manufacturing base for US companies. Indonesia has a growing manufacturing sector to serve markets in Asia and Australasia. Legal all countries are signatories to the major international treaties. Possible problems with trademark protection. Environment Urban pollution an issue for Mexico and South Korea. Deforestation and forest fires are an issue for Indonesia. All four nations have signed the Kyoto Protocol and the subsequent Durban agreement. Total Maximum Marks for Q1 20 marks

Question 2 Q2 Evaluate the international branding strategy of Unilever and discuss its advantages and disadvantages. Branding is a very important element of the Unilever market strategy. All its products have unique brand names although all adverts have a house logo featured. Unilever have a wide range of well tried brand names of which only a limited number currently are advertised but they have the capability to build on previous brand awareness especially with regard to re-launching products. The Ice Cream umbrella branding seems to be working, whilst creating a global brand with clear local sub-brands. This is possibly not relevant to other sectors. Advantages include global communication with economies of scale with A & P. Simple branding works well in markets where there are low levels of literacy making it easy for customers to recognise the products. In terms of global advertising, their major competitor, P & G, made significant use of the A & P opportunity that the London Olympics offered. Disadvantages include counterfeiting, with the added costs of protecting the brand particularly in the developing markets which will offer Unilever maximum growth. Brands can be the target of knocking/comparative advertising campaigns such as the Lidl campaign. Brands can lose credibility such as occurred with Persil Power, New Coke and Perrier. Overall, Unilever is a heavily branded organisation, and it seems that its policy of concentrating on a limited number of brands is working e.g. Dove. However, they may consider extending the list and aim to create more power/global brands both to combat competitor brands and to develop a strong consumer franchise from the new global middle classes. Total Maximum Marks for Q2 20 marks

Question 3 Q3 Using the Ansoff Matrix, describe and evaluate the main options available to Unilever to expand their sales and profits over the next five years. The Ansoff Matrix is an analysis tool that looks at options for filling the so-called planning gap, which exists between company sales and profit objectives and the current, often negative, trends. This exercise is particularly relevant when organisations are faced with stagnant markets and declining product sales and suggests clearly defined options to consider. For Unilever their current brands are facing increasing competition but there are opportunities to exploit developing markets such as the MIST nations and their growing middle classes (who tend to be brand conscious) In terms of the options: Market Penetration where you are trying to sell more to existing markets may not be an option for such a sophisticated marketing company as Unilever, but there is the possibility of ensuring that products have full distribution in all countries piggy-backing on others. Part of this strategy may be the purchase/development of distribution channels, for example Avon cosmetics and Kleeneze, who have direct sales operations. Product Development innovation is the key and Unilever has the proven expertise to successfully develop new products and promote brands. Market Development existing products into new markets, this is unlikely since Unilever has a global presence. Product Diversification Unilevers brands are often used by other products, such as laundry products with washing machines or for example open ice cream parlours. There may be options to move into related markets, particularly in developing markets where their brand names and reputation are valued and, thus, would greatly reduce the high risk often noted with this strategy. A fifth option exists for a company the size of Unilever and that is one of acquisition either of complete companies (SC Johnson and Beiersdorf as privately-/family-owned companies are targets) or buying individual brands from companies such as Kraft which may be looking to redefine its market space. Unilever has the resources to invest in this way. Whatever option or options Unilever choose, it would be possible to earn positive return profit on their investment within five years as long as they are started within the next few years. The easiest of the options given their strength would be acquisitions, which would certainly be less risky than product development, or company generated diversification. With regard to the MIST countries, consideration should be given to the creation of organisations similar to HUL, which has proven to have developed very close local relationships both with customers and employees. Total Maximum Marks for Q3 20 marks

Question 4 As part of a five year plan for Unilever, prepare each of the following: Q4 (i) A SWOT analysis that fully describes and evaluates the key elements of the plan. Strengths Experienced marketing department with good advertising and promotional capabilities. Strong balance sheet with good cash flows. Management has a strong global outlook and vision with a will to review markets to identify such trends as the MIST nations. Good CSR image comparable to competitors this is particularly strong with regard to developing countries as HUL have shown in India. Weaknesses Huge and growing pensions liabilities that may lead to cost-cutting, particularly with regard to A & P expenditure. If the industrial action regarding pensions spreads, the supply of products to the shops will suffer and valuable shelf space may be lost. The A & P budget is linked to sales and, if sales decline, so would marketing support, which would maintain profit levels but only in the short term There is a total reliance on branded products with no obvious and short-term actions to combat the trend to lower-priced products with no discernible difference in the product as far as the customer is concerned, as aggressively demonstrated by the hard discount retailers such as Lidl and Aldi. Opportunities Acquisitions by doing this selectively Unilever can counter competition and extend their shares in most markets. As noted in the answer to question 3, there are distinct opportunities to do this. Extend existing brand franchises new variants and new market opportunities it is easier to leverage existing brand values (as shown by Nivea) than to try to build new brands. Take advantage of the growing middle classes, particularly in the BRIC/MIST countries. Threats Competition will intensify from other global organisations, which are keen to grow shareholder returns in the same markets as Unilever are targeting. Controls on advertising of brands from countries that have less consumerist outlooks, such as Indonesia. Controls on the scale of organisations and their market share as some nations are looking to control the power of global organisations. International unrest such as the Arab Spring, which could disrupt markets particularly for branded products as the attention shifts to basic products. Maximum Marks for (i) Q4 (ii) An analysis and evaluation of Unilevers financial situation. The financial situation for Unilever has shown a fluctuating position over the last four years. 20 marks

Sales have fluctuated showing the impact of the global economic downturn. Gross profit has remained steady around 48%. Operating profit has reduced from the 2009 level but has seemed to stabilise in 2011 (although still reducing). Distribution and selling costs have increased faster than overall sales. Earnings per share have increased in line with a recent increase in ROCE. The liquidity ratio continues to be negative but is improving. Possible signs of increases in cash holdings up 1.5 billion pounds in 2010. Maximum Marks for (ii) Q4 (iii) An evaluation of Unilevers Corporate Social Responsibility strategy. Candidates should give a full evaluation of the current plans the Sustainable Living Plan (SLP) and the activities in India with relevant comments about the commitment at senior level, with reference to how this would help Unilever with developing favourable links with their markets particularly in developing countries. Other aspects to consider will include: Cost of CSR versus profits. Absolute investment, in spite of top management, may come under pressure if other business costs increase. Loss of focus from satisfying customer needs profitably but SLP recognises the need for profit. Long-term investment that may be risky given changes in the macro environment. Competitor reaction? However acknowledge that CSR is a key element with SLP targets to be achieved by 2020. Maximum Marks for (iii) Total Maximum Marks for Q4 10 marks 40 marks 10 marks