by Greg Thain
How International Are They?
Both the original Unilever companies had been enthusiastic exporters almost from the very beginning. Scale was an advantage in the sourcing of the key raw materials, especially when it led to vertical integration back to the sources of supply. Also, for the Dutch companies, Holland may have been a small market but it had Germany market on its doorstep, so it was only natural that attention was soon focused beyond national borders. Lever Brothers, like most British manufacturers of almost anything, saw the British Empire countries of Canada, Australia, South Africa and New Zealand as almost one contiguous market with the UK, so salesmen were sent wherever the Union Jack fluttered.
William Lever differed somewhat from most other British businessmen in having an early and prolonged enthusiasm for selling his products, always led by Sunlight Soap, in continental Europe and the United States. By 1889 there were thriving Lever Brothers sales agencies in Belgium, Germany, France, Switzerland and Holland, each led by an indigenous manager due to William’s own personal belief that the biggest barrier to international trade was the inability to understand the needs, habits and desires of people in another country. In Holland Lever happily locked horns with the companies with which his own would eventually merge.
Lever also appreciated early on that the scale advantage in soap lay in the certainty of supply and price paid for raw materials rather than in factory manufacturing efficiencies so, although Port Sunlight was a vast and efficient enterprise, as soon as a sales office abroad had built the business to a sufficient size, he would build a factory there to increase the local responsiveness of the business. Thus, by 1906, 25% of the capital employed was in six overseas factories: Belgium, Germany, Switzerland, Canada, Australia and the US with every carton of Sunlight Soap boasting it was the largest selling soap in the world.
Lever had first visited North America in 1888 when he set up sales offices in New York and Toronto. His attention was soon back on the New York sales office as his sales figures showed him that the best-selling brand there was not Sunlight, but Lifebuoy. If there was one thing William believed in, it was the selling power of his beloved Sunlight Soap, so any salesman who couldn’t sell it no matter where was branded either useless or up to no good. With his American office manager his suspicion was the latter, so much so that William hired a private detective to follow the man’s every move, which only showed the man and his team were putting in all hours. After visiting for five years in a row to grow sales of Sunlight through the force of his personality, a dejected William Lever finally gave up in 1899 and bought an American manufacturer, Benjamin Brooke & Co., makers of the popular Monkey Brand soap. The factory was also geared up to make Sunlight and Lifebuoy but Sunlight never did make the grade, and was withdrawn a few years later. As the business prospered post World War One, Lever green-lighted the purchase of a margarine company in 1920, one of his last acts as leader of the company. Following William’s demise, the new regime at carried on exactly as before, opening up operations in Thailand, Indonesia, China, Argentina, Brazil and, in what would be the best example of any western company cracking an emerging market, India.
India, as a leading part of the British Empire, had been an export market from the earliest days, with Sunlight first sold there by 1888. This was soon followed by Lifebuoy in 1895 and then other Lever bestsellers such as Pears, Lux and Vim. Vanaspati, a brand of hydrogenated vegetable fat used in place of butter in Indian cooking was launched in 1918 and was the first Unilever brand to be manufactured in India itself, starting up in 1932. Two years later a modern soap factory was up and running in Bombay, followed by the setting up of third subsidiary, United Traders Limited. These three companies merged to form Hindustan Unilever Ltd. (HUL) in 1956, by which time they also had a Calcutta-based factory making a range of personal products such as shaving cream and talcum powder.
HUL had a local flavour from the start, having offered 10% of its equity to the Indian public, the first foreign-owned company to do so. It continued in this vein by appointing the first Indian chairman of an overseas-owned Indian company. The company would need all the local influence it could get in later years. By 1967 HUL was one of the top five companies in India, its 7,000 employees and 6 factories producing a highly diversified product range including dehydrated peas, baby foods, dried milk curd and, at the government’s request, condoms, of which it sold more than all its convenience foods put together.
Many western-owned companies who had set up in India did not survive the 1970s when oppressive government restrictions drove the likes of Coca-Cola and IBM away. But Unilever was renowned for not giving up anywhere, always believing that if there was a way to hang on, they would be in pole position when matters improved. It was an attitude that kept them in many politically unstable African countries. HUL’s Indian chairman mostly spent his time in negotiation with government officials trying to influence policy toward foreign-owned companies, or delay implementation of new measures, and he succeeded in keeping Unilever as the majority owner of HUL where most others either failed or gave up and left.
The acquisition of Chesebrough-Ponds gave HUL’s faltering personal products business a major boost, the Unilever brands being rolled into their portfolio, whereas Brooke Bond, when acquired, was kept separate: combining the two would have created monopoly problems with the government of the time. Although a dominant force in the country, HUL did not have the Indian market to itself, as local competitors sprang up to grab a share of markets HUL had largely created. A major attack on their detergents business from a low cost competitor in the mid-1970s decimated the leading Surf brand, prompting HUL to successfully launch its own range of lower-priced brands, such as Wheel in 1987, which six years later had a market share of over 20%.
Government economic policy softened in the early 1990s, enabling a merger between HUL and Tata Oil Mills Company in 1993. In 1996, HUL formed a 50:50 joint venture with another Tata subsidiary, Lakme, to market Lakme's leading cosmetics brands, which HUL bought outright two years later. HUL, as India’s leading packaged goods company, was in big demand as a joint venture partner, forming another in 1994 with Kimberly Clark to market Huggies Diapers and Kotex Sanitary Pads. HUL also set up a subsidiary in Nepal, Unilever Nepal Limited (UNL), to manufacture soap, detergents and personal care products both for the domestic market and exports to India.
In 1994, Brooke Bond India and Lipton India merged to form Brooke Bond Lipton India Limited (BBLIL), which immediately launched the Wall's range of frozen desserts along with acquiring distribution rights for other leading brands. Finally, BBLIL merged with HUL, with effect in 1996, followed by the merger of Pond's (India) Limited with HUL in 1998. In 2000 the government decided to award 74 per cent equity in the government-owned bread business, Modern Foods to HUL, HUL acquiring full control two years later.
In the immediate post-war years, while the Indian business was becoming well-established, Unilever opened up subsidiaries far and wide across Africa, Asia and South America, determined to be in on the ground floor of developing countries, with a range of brands that were among the first to be bought in any great quantities by newly emerging consumer classes -soap, shampoo and detergents - and confident it could ride out any political storms in the meantime to keep its treasured first-mover status, a position from which it could later add on more of its product categories as economies expanded, even if somewhat erratically.
A case in point is the company’s development in Brazil. Unilever’s first soap powder brand to be sold in any great quantity in Brazil had been the cheap and cheerful Rinso, which, in 1959, was supplanted by Brazil’s first synthetic brand, Omo. With the Brazilian economy, population and degree of urbanisation all booming, in 1960 Unilever bought their main local detergents competitor, trebling their business at a stroke, and, as in India, had local managers running the company. Unilever’s famed resilience would be sorely tested by Brazil’s high-inflation economy, running at 20% a year in the 1960s up to a hyper-inflatio
nary 2,500% by the end of the 1980s. But the company learned how to cope in this environment; a lesson that would prove useful elsewhere. During this time, the company had been adding extra divisions as new categories were opened up. Thus Elida Gibbs, Van den Berghs and the acquired Gelato ice cream company all ran semi autonomously alongside Unilever in developing their own categories. Further acquisitions followed, most notably the Henkel Brazilian subsidiary, such that by 1990 Unilever sales in Brazil were approaching £700 million, the company making close to a million tons of detergents a year.
By 1970, Unilever had 22 operating companies with annual sales of over £30 million a year, of which 14 were based outside the U.K. and the Netherlands. Of total Unilever sales from the rest of the world excluding North America and Europe, India was accounting for 24%, South Africa 11% and Turkey 7%. A rare failure was Mexico, where a 1960s joint venture in margarine turned rancid, forcing the company to pull out in the mid-1970s before entering again via the National Starch and Chesebrough-Ponds acquisitions.
Japan had also been a rocky road for the company. Lever had built a soap factory there in 1913, but it was sold ten years later after a decade of heavy losses. As early as 1947 a manager had been sent to prospect the war-ravaged country but it would not be until the 1960s that Unilever entered another margarine joint venture. Despite two decades of losses, Unilever persisted, slowly reaching 80% ownership in 1977 at which point the company name became Nippon Lever. The breakthrough came with the ever-dependable Sunsilk, launched in 1977, which sustained the company through failures such as Surf Sachets, Port Sunlight boffins not having realised that most Japanese housewives did their laundry in cold water, which did not dissolve the sachets to release the detergent. The storm was weathered and the company boomed in the mid-late 1980s, growing at an average of 23% a year.
The Japanese experience demonstrated that by the 1980s, Unilever’s best weapon of attack in new markets had become personal care products, Sunsilk having supplanted Rinso as the company’s storm trooper. Sunsilk initially be targeted at the rich elite who used hairdressers, positioned as a woman’s indispensable beauty aid, before being cascaded down to meet the increasing mass market of new consumers. Consequently, Unilever built up some commanding market share positions in shampoo before P&G had even entered the market. Sometimes toothpaste would be added to the initial range of brands, the deodorant Rexona following on behind. Unlike other Unilever categories such as higher-end detergents, margarine and ice cream, the advantages of these brands was that they did not depend on reliable supplies of household electricity. Margarine depended on a local culture that ate buttered bread.
Of course, the emerging market to crack was China. Unilever’s large pre-war operation there had been wiped out by a combination of the Japanese invasion of Manchuria and the coastal cities followed by the communist revolution. By the early 1980s Unilever wanted to return but was extremely nervous of a joint venture, fearful their proprietary technologies would leak through their partner to appear in a local start-up. Amazingly, Unilever’s pre-war soap factory in Shanghai, although somewhat rundown, was still going, making 125,000 tons of soap a year, a third of the nation’s supply. So Unilever formed a 50:50 joint venture, Shanghai-Lever, with the factory’s new owner in 1985, beginning with the production of Lux in 1987. This was soon followed by two more joint ventures with the same partner - a conglomerate of sorts - with Shanghai Pond’s and Shanghai Van den Bergh easing the company into the Chinese personal care and edible fats markets. By 1990, Unilever’s sales in China had reached a respectable $32 million a year, although they were still small in comparison to the company’s total overseas sales (excluding Europe and North America) of nearly £5 billion a year, Brazil now ahead of India and the single largest component. Following the fall of the Berlin Wall, Unilever completed its global rollout, opening up in 1992 in the Czech Republic, Hungary and Russia, where by 2001 the company had seven manufacturing sites including a margarine factory in Moscow, dressing, tea, home and personal care factories in St Petersburg, and food and ice cream factories in Tula and Omsk. They were employing 6,500 people with a total investment in the Russian economy that was close to $1 billion.
How Are They Structured?
An entire book could be written about the evolution of Unilever’s convoluted management structure. As described at the beginning of this chapter, Unilever was set up with two distinct, capitalised entities, which shared the same board of directors, had separate chairmen, with agreements in place to ensure dividends were paid equally. Some of the operating companies were owned by Unilever PLC, some by Unilever NV and some jointly, giving each entity around half the assets. The first board meeting of each year in each country delegated executive to the Special Committee, usually both chairmen plus one other, usually the vice-chairman of Unilever PLC. Thus, for the most part, the special committee had two British and one Dutch member who collectively acted as the CEO. There was an understanding that the Dutch side would run continental Europe and the British side the rest of the world, although as we have seen, ‘run’ is perhaps too strong a word: ‘administer’ would be more appropriate.
By the mid 60s, the boards were large - approximately 25 company executives, all Unilever lifers - and met weekly: a company with hundreds of subsidiaries required a lot of administering. Their central banking role took up a lot of time, adjudicating on new factory or acquisition proposals from any of the hundreds of operating companies, the spoils going not necessarily to the most deserving cases but to those either best argued or with the board most allies. It was a unique operating style, often bemusing to the executives themselves, who vacillated between seeing themselves as a conglomerate or a linked set of operating companies. The company wrestled endlessly to balance centralisation and decentralisation in terms of empowerment and between geographies and product groups in terms of management direction.
The free-for-all could not last forever and by 1960 there existed a structure beneath the special committee and the boards to manage around five hundred operating companies. This consisted of six management groups: UK Committee, Continental European Group, Overseas Committee, Plantation, UAC and North America. Virtually every country had a national manager who gradually accrued operational and profit responsibilities for the operating companies within his remit. The UK and North America were exceptions. Due to the number and size of operating companies there, there was no one figurehead.
However, as we have seen, the combination of geographic management centralised at the country level was proving a big restriction on Unilever’s ability to respond to competitors such as P&G, who operated regionally and furthermore had nothing like the spread of categories that Unilever had to worry about. So the 1950s and 1960 saw the setting-up of product groups - co-ordinations - whose roles were to develop strategies for their product areas. By 1960, product committees had been set up for detergents, foods, toiletries and edible fats, all based in Rotterdam. Their primary task was to identify from the vast portfolio products with international potential, then develop their specifications. Implementation was a different matter: as the co-ordinators had virtually no staff and even less executive authority. Persuasion was their only weapon.
This was looking like the worst of all worlds, so in 1966 the co-ordinators were given sales and profit responsibilities for their categories in a number of key markets, beginning with Great Britain, Netherlands, Germany and Belgium. As the shape of the company changed through acquisition, so did the number of co-ordinators: packaging and then chemicals acquired a couple. In 1972, McKinsey had recommended extending co-ordination to all the other European countries, keeping national managers in place but with reduced responsibilities. But Lever felt that the main issues in those markets were best managed by a strong local leader, influencing the political agenda, dealing with hyperinflation and so on. Post-McKinsey, the company structure looked not simpler, as it should have done, but a lot more complicated. Dotted lines ran every which way. But in fact it was a st
art. Unilever was beginning to move from chaos to national management, to product field-management where product-based competence could be accumulated and strategies developed.
The next stimulus for change came in the mid-1980s with the EEC Single Market programme, which would clearly make management on national lines somewhat redundant. The detergents co-ordination group pushed for a high degree of centralisation, not surprising given what they were up against, whereas the foods group were less keen on the idea, as the brands they managed were mostly national. The only co-ordination with global sales and profit responsibility was chemicals. In 1989 a new foods executive was formed in Rotterdam, its remit to develop a global foods strategy. The three foods co-ordinations were replaced by five new product groupings: spreads, oils and dressings; meat and meal components; ice cream and sweet snacks; beverages and savoury snacks; and professional markets. A year later, as a clearly necessary step to combat the ever-powerful P&G, Unilever Europe - headquartered in Brussels - was formed at the urging of the detergents co-ordinator.
Once the acquisitions and divestments had finally settled Unilever down into a form recognizable at last as a simple packaged goods company, the next step could be taken: structure the business along category lines. In 2001 Unilever was organised into two global divisions, food and home and personal care, with the aim of optimising synergies across the product portfolio. Within the two divisions, the majority of the categories were managed at the regional level, the exceptions being the fragrance business and Unilever food solutions, the food service arm. In early 2005, this was simplified into a matrix structure, with the two divisions responsible for strategy and brand development. The regional groups of each division were merged, with the regional level responsible for go-to-market execution.