Environment and Society

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.

WE ACCEPT