The case study must be handed out to the students at least two weeks before the exam. The case study is based on Unilever. This is an Open Book
Exam.
You are required to answer both questions in Section A (25 marks per question) and answer two out of four questions in Section B (25 marks per
question).
Section A
The international growth of Unilever
Unilever is one of the biggest companies in the world – it employed 234,000 people and made annual sales amounting to €43 billion in 2003 and has an
international history dating back more than a century. Its vast geographic scope and its evolution over time make it an interesting case in which
to investigate the variety of factors that have motivated the firm to expand across the world. The company was formed through a merger in 1930 of
the UK firm Lever Brothers and the Dutch-owned Margerine Unie. The marriage created a unified company with a single board of directors but with two
parent companies with joint ownership, one based in Rotterdam and one in London. The growth of both companies into other countries prior to the
merger and the subsequent international growth of Unilever itself demonstrate the variety of motivations for firms to expand across borders.
The growth of Lever Brothers in the early years of the 20th century was clearly motivated by a desire to access raw materials that were not
available in many other locations. For example, in 1910 Lever acquired W.B. MacIver and Company, a Liverpool-based firm that had significant
interests in the timber trade in Nigeria, and the following year it set up a large oil palm plantation in the Belgian Congo. The growth of Unilever
into Africa continued in 1929 with the establishment of majority control over the United Africa Company (UAC), a subsidiary that had substantial
interests in the primary sector in many countries inside and outside Africa. By the end of the 1970s it is estimated that this subsidiary alone
employed 70,000 people. Where firms such as Unilever are large enough to establish a degree of monopsonistic control over labour markets, and have
the geographic scope to switch resources from one location to another (or at least can credibly threaten to do so), then they have the potential to
use this power to downgrade terms and conditions of employment.
However, it was not only control over raw materials that led Unilever to grow internationally; access to markets has also been a key factor. For
example, during the 1950s the UAC subsidiary greatly expanded its operations in Ghana, West Africa’s richest state at the time, and in Nigeria,
which had a population of around 40 million. Geoffrey Jones (2000) argues that these large potential markets provided important growth
opportunities for the company. More recently, Unilever has expanded its food manufacturing operations in many developed nations. In this division,
proximity to the large consumer markets was crucial given the perishability of products like ice cream. This motivation has different implications
for how the firm behaves as an employer; where securing access to markets is central to explaining a firm’s growth, employment is likely to be more
secure and terms and conditions are likely to compare favourably with those of other firms in the target market.
The motivations for engaging in foreign investments has shifted over time in Unilever. In part, this has to do with the life cycle of products.
For instance, the margins that could be earned on some products that Unilever was engaged in fell as alternative, substitute products became
available. It also has to do with changes in the political and economic circumstances of the various countries in which the firm possessed
operating units. The general instability and high inflation in particular in West Africa in the 1970s led Unilever to scale down, and eventually
abandon, some of its operations in the region. The shifting motivation to engage in FDI was also shaped by changes in the financial system in
London. During the 1980s, institutional shareholders began to put pressure in Unilever to improve the returns to shareholders, and in this context
the UAC subsidiary, which has tended to prioritise growth in volume and market share, became subject to rationalisation. In 1994, Unilever disposed
of any remaining interests it still had in UAC. Though it retained some manufacturing interests in Africa, the region now represented a much
smaller proportion of the firm’s overall operations.
Today, the company is often cited as an example of a truly global firm. That is, it is organised to serve markets across the world and has no one
country to which it shows any particular allegiance. While such claims are often made about international firms, it does seem as though it is
justified in this case. Unilever’s global reach shows up in a number of respects. As we saw above, its ownership and ultimate control does not
reside in any one country, while it has operating units in almost 100 countries and sells its products in another 50. Perhaps most significantly,
its sales are widely spread across the world: 42% in Europe; 24% in North America; 17% in Asia Pacific; 12% in Latin America and 5% in Africa and
the Middle East.
