Unilever Value Chain Analysis

Introduction

Value chain analysis seeks to distinguish the activities undertaken by a firm into a sequence, whereupon value addition is done at every stage of the sequence to enhance competitive advantage. A number of broadly defined activities are identified by Michael Porter which can be disaggregated in order to offer more detailed recognition of the actual activities of the firm. This paper seeks to analyze the main activities undertaken by Unilever Company to enhance on its products’ competitive advantage against other rival players in the industry. In particular, the company focuses on research and development initiatives, high diversification, and e-business strategy.

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Value Chain Definition

Unilever has initiated specific strategies aimed at ensuring that its products compete effectively with those of its main rival in the market, Procter and Gamble. Unilever spends considerable amounts of its resources in executing and sustaining research and development activities for purposes of manufacturing high quality products, high diversification, and ebusiness strategy as it seeks to emphasize on market leadership for its numerous brands.

1. Research and Development initiative

The Unilever undertakes increased research and development activities every year in order to support innovation in as far as the company’s products are concerned. The company has established very large centralized facilities mainly for research activities in three countries, mainly the United Kingdom, Netherlands, as well as the United States of America. Additionally, other smaller development laboratories have been established in more than 40 countries worldwide where Unilever operations take place. Huge financial resources are budgeted for these research activities in order to sustain them. For instance, in 1993, £518 million were spent in R&D, which represented close to 2 per cent of the company’s total turnover (Cole 158).

Through the increased activities in R&D, consumers of Unilever products are assured of quality products with very high innovation. The integration of technology as a result of R&D also ensures that the company cuts down on its total spending on production. This effectively implies that consumers of the company’s products are able to purchase them at very affordable products. In comparison Procter & Gamble, Unilever’s main competitor, also focuses on R&D as one of its main areas of building competitive advantage. P&G, however, spends more in R&D at the tune of $2 billion annually with a very comprehensive research network (Lamb, Hair and Mcaniel 77). This implies that P&G’s level of product innovation is quite higher as compared to that of Unilever.

2. High Diversification

Unilever adopts a diversification strategy in order to enhance its market competitive position as it targets entry into new markets. Its highly decentralized structure emphasizes a multi-local orientation pursued by the company. Through this strategy, Unilever establishes local companies whose operations are substantially independent from the headquarters, adjusts international brands to fit into local markets, as well as maintains and develops local brands that truly reflect specific needs of the local consumers. Overly, the multi-local organization targets flexibility in as far as being sensitive to consumer tastes and needs is concerned (Djarova 211).

The high diversification strategy has added value to consumers of the Unilever products in the sense that they have access to products whose origin may not necessarily be their country. To further optimize on the value addition, Unilever does not force foreign tastes into particular national markets but rather blends the local tastes with the global product. The resultant high brand recognition by the global market provides Unilever a competitive advantage over its other rivals in the industry. On its part, P&G mainly expands into new global markets by pursuing acquisition and strategic partnering strategies. This provides the company with the advantage of establishing itself into such new markets without necessarily introducing new products. Thus, the company does not spend much of its resources attempting to stabilize a new product into the market because the products were already existing in the market in the first place (Sinha & Sinha 3).

3. E-Business Strategy

In order to further enhance on the value of its products to consumers, Unilever has adopted an e-business strategy that seeks to make use of the internet as well as the information technology. The e-business strategy mainly focuses on cost reduction and enhancement of efficiency while dealing with supply and distribution networks. Consumers can order and purchase their preferred product brands online, thus eliminating the additional costs of distribution that comes with physical distribution networks. The company also targets to reach a wider market through its online marketing and advertisement campaigns. The e-business strategy has also seen Unilever become a member of Transora, which is a B2B marketplace that comprises of numerous other companies (Loudon 45). Transora offers a data pool combined with solutions together with services which are cost-effective in supporting user needs as well as helping the industry to optimize on data synchronization value. This has helped consumers achieve high convenience in their acquisition and use of Unilever range of products.

Procter & Gamble has equally initiated an e-business strategy that is slightly different in focus to that of Unilever. P&G does not sell its products directly on the internet although it fully utilizes the internet to manage its supply chain efficiently. The company also uses the internet to internally share results of its R&D strategy, transportation, retail partner’s logistics, customer information, feedback mechanism, as well as video conferencing and billing and payment. All these factors significantly help in the company’s quest to lower its overall cost of operations and basically pass the benefits to its consumers (Kalakota & Robinson, 23).

Proposals on Improvement of Unilever Value Chain

Unilever is a huge global company whose operations have been grouped into very large divisions. Each of the three divisions of the company manufactures quite a range of products with related market usage. However, some range of products has not been profitable to the company and their continued existence only tends to increases operation costs of the company. This reduces the impact of the value addition efforts that the company pursues throughout in its strategy. Such products whose market value and performance are generally weak should be discontinued and instead the company needs to focus more of its attention on products with higher return value.

The company also needs to pursue mergers and acquisitions as a perfect way of attaining sustainable market growth and development. This strategy is more beneficial particularly because it cushions against the effects of exchange rate fluctuations and ensures higher probability chances of gaining access into more conservative global markets, such as China and India. Unilever also needs to increase its R&D activity in order to match those of its fiercest rivals, such as Procter and Gamble. This will lead to higher innovations, which will in turn increase product quality, and thus enhance the competitive position of the firm. The widened product portfolio is affecting Unilever’s overall value chain. Only about 20 per cent of its products produce 80 per cent of its total revenues while the bulk of its products, representing 80 per cent, are less productive. Thus, the is need for the company to further reduce on its product portfolio

Conclusion

Value chain refers to the series of value adding activities which companies subject their finished products and services as they seek to build competitive market advantages over their competitors. The Unilever particularly focuses on three main strategies as it seeks to build this competitive market position. These strategies include research and development, high diversification of company structure, and e-business. The research and development strategy helps the company to innovate highly on its range of products and consequently improve on the general quality. The highly diversified structure allows Unilever to integrate global products into local markets by accurately blending the tastes. E-business strategy involves the use of internet to execute product-related activities, such as marketing, supplies, and distribution. Customers effectively obtain value from this range of strategies mainly through reduced costs and improved quality. However, Unilever needs to adopt and utilize acquisition and mergers as a perfect way of gaining foothold into global markets, particularly in China where the economy is expanding at a high rate. Unilever’s main rival Proctor and Gamble spends more resources in research and development activities and has mainly adopted the acquisition and merger strategy for market expansion.