Contemporary Issues in International Business of Unilever

This report discusses the challenges faced by Unilever in the USA market, the impact of Unilever on its home and host nations, and alternative methods related to entry into foreign markets and theories related to internationalisation. It also covers key contemporary issues in international business and the global context in which international business must function.

International Business

Table of Contents
INTRODUCTION ..........................................................................................................................2
MAIN BODY...................................................................................................................................2
Key contemporary issues in international business of Unilever.................................................2
Evaluation in which international business must function in twenty first century.....................3
Alternative method related to entry into foreign markets ..........................................................4
Companies decision to go international and alternative theories related to internationalisation 5
Impact of Unilever on home and host nations............................................................................7
Analysis of data of country markets............................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
1

INTRODUCTION
International business refers to exchange of goods and services beyond the national
geography. The international business can be classified into three types which are import, export
and entrepôt trade (Cantwell, 2017). The scope of this business is also very wide as it includes
services of import and export, licensing and franchising is done and foreign investment is also
involved. There are many features of this business which are inclusion of two or more countries,
various currencies are used, involvement of documentation work and lack of personal contact.
Factors that influence this business are culture and economic system of host country and political
risks and regulations that home country needs to face in host country (Buckley and
Casson,2019).
Unilever is a British multinational company, founded in 1929, headquartered at London,
UK. The company deals in fast moving consumer goods product like ice creams, tea, coffee,
toothpaste, beauty products and many more. It is having four hundred brands under it and its
products are available in 190 countries. This report highlights the challenges faced by Unilever
when it entered into USA market and its impact on its home nation i.e. UK and host nation i.e.
USA (https://www.unilever.com/our-company/at-a-glance/).
MAIN BODY
Key contemporary issues in international business of Unilever
Key contemporary issues are faced by every organisation when they decide to enter into global
market. These issues are related to language barriers, difference of culture, global team
management, inflation rate, exchange of currency, laws and regulations of foreign country and
many more issues.
The issues faced by Unilever in USA market are maintaining prices of the product so that
they can earn more profit. As the market is becoming volatile so the exchange rate of currencies
is also becoming volatile. Also, due to inflation the cost of producing the products is also
changing. So the company is facing the biggest issue of setting the right price of the products so
that their products are accessible to all the consumers of United States. Due to politics of the
government, company is facing another issue that is when the new government comes to power
it brings its own trade policies and laws to conduct the business in their country. As BREXIT has
happened so the trade relations between both the countries i.e. UK and USA are not so good and
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because of this Unilever does not know what will happen in future. It is because the supply chain
of UK market is not in good health after BREXIT because most of the supply chain was
dependent upon Europe market (Buckley,Doh and Benischke, 2017).
There will be different global context in which international business must function.
 Labour and employment law- Companies which are operating in global levels must
follow labour and employment laws of those countries in which they are doing their
business. Neglecting such laws can have a negative impact on overall business
functionality and will negatively affect the goodwill of firm. In the terms of Unilever, it is
operating globally in different countries. Therefore,, in order to do their business
operations successfully they have to follow labour and employment laws of those
countries in which they are operating.
 International trade compliance- This involves the import and export of products and
technology via a variety of conveyance methods from home country to host country.
These are regulated by EXIM policy of government of import country as well as
government of export country. In the terms of mentioned company, it has to follow these
rules in proper way otherwise it would create problem for doing business in another
country (Cherunilam, 2020).
 Complete Cost structure for doing business- While operating or establishing business
in another country. A business must have to calculate the cost of doing business in
another country. Different cost include like infrastructure cost, employee hiring cost.
Market research cost and many more. In the terms of mentioned company, while
approaching other countries for business must calculate these cost. By calculating these
cost it is easy for mentioned company to analyse whether that country is suitable for
doing business or not.
 Taxes- Every country has different tax rules. Therefore, business must follow all the Tax
regulations of the country in which they are establishing their business. In the terms of
mentioned company, it is doing their business in over 190 countries, there it has to follow
tax rules of all those countries in order to carry on their business operations successfully
without any trouble. For instance, Unilever is operating in US market therefore its has to
pay sales tax levied by US government.(Chiand et.al, 2019).
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 Intellectual property- These are the rights given to a person over the creation of their
minds. These are generally in the form of patents, copyrights,trademarks and trade secrets
In the terms of mentioned company, it can make intellectual property of their patents and
copyrights so that no one can use the name of their brand in their business. This will help
to develop security in the mind of business.
 Termination of Business- It means ending of business relations among parties.
Termination of business is not easy as it looks. Different countries have different laws
regarding ending of business relationship. Therefore, every business must think so many
times before entering in any business deal. In terms of mentioned company, before
establishing its business in another country it has to know its termination laws very well
in case they end their business relationship with another country due to downfall of
economy or any other reason. Termination of business contract should be simple and not
included any government intervention (McWilliam And et.al., 2020).
Alternative method related to entry into foreign markets
 Piggybacking- It is a business deal in which one company can ask another company to
represent their products in their own country in return they can promote their products in
their own country. This is one of the easiest way to get enter into foreign market. In the
terms of mentioned company, it can sign contract with another company of another
country to represent their products in their country and in return they can promote their
products in their own country. By this way mentioned company can enter into
international market in less cost.
 Licensing- It is a type of business agreement in which one business party give license to
another business party to do business on their behalf in target country. It has great
advantage because it requires less investment and will give tremendous return on
investment. In the terms of mentioned company, by giving business license to another
company of different country, Unilever can expand its business operations and can get
lucrative return on investment (Meyer, 2017).
 Franchising- In this kind of business, owner generally distribute their products and
service to another business along with proper knowledge and tools for doing business.
By adopting this model business can easily increase their sales by simply giving small
proportion to another business as a part of commission. A business who provides
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franchise is known as franchisor and person who accepts franchise in known as
franchisee. In the terms of mentioned company, by giving franchising to another business
Unilever can easily expand their business operations which would lead to increase sales
and profitability of company.
 Joint Venture- It is type of business in which two business merge together to give rise to
new business . It is commonly used business practice nowadays. Merging one business
entity with another one can sustain longer and would increase the profitability of
company also. In the terms of mentioned company, by merging with another company a
business can increase its sales and can achieve much more profitable situation.
 Foreign Direct Investment- It is a kind of business deal, in which large multinational
companies of different country can expand their business operations in another country
by investing so much capital in technology, infrastructure and many more. This helps
business to explore new market for manufacture products according to demand of
customer. In the terms mentioned company, by applying this method of investment
company can easily explore new market and can attract large quantity of customers by
fulfilling demand of them (Nambisan, Zahra and Luo, 2019).
 Buying a company- Another way to get enter into foreign market is by buying a
company of another country in which business wants to get enter. By doing this, one
company can easily explore another country market for doing business activities
accordingly. This would help to rise in profitability of business.
 Partnering- It refers to formal agreement between two or more parties of business to
manage and operate a business and share a profit among them as per agreement. In the
terms of given company, by doing partnership with another business entity, Unilever can
expand their business and share profits according to partnership agreement.
Companies decision to go international and alternative theories related to internationalisation
Companies decide to enter into international market because they get more market share
and diversification of the business which eventually leads to growth of the company. The main
reasons for the companies to enter foreign market are growth in sales, increase in profitability,
greater economies of scale, entering into new market and diversifying their risk, to pull in new
talents and offset of home market (Ratten, 2020).
Alternative theories of internationalisation can be classified into four types which are:
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 The Uppsala Internationalization Model: This model was given by researchers of
Swedish. This model helps the firm to gain entry in international market. The assumption
of this model is that firm have little knowledge about foreign market. So they should first
establish themselves in domestic market and enter in foreign market stage by stage. Four
key concepts are involved in this model which are market knowledge, market
commitment, decisions related to commitment and current activities. This model tells that
it's better to invest in one country rather than investing in many countries.
 The Transaction Cost Analysis Model: This model helps the company to decide
whether to trade in foreign nations or not on the basis of various benchmarks set by the
company for specified time period. These benchmarks are by trade date, by trade size, by
exchange, by trade price, by underlying, by trade side, by order type and by average delta
(Srivastava, Singh and Dhir, 2020).
 Born Global: The companies who adopt this model have a clear mindset that they only
want to operate in global market and not in domestic market. These are those companies
who are start ups and majorly bring new technologies. Also, they operate in international
market from their initial days.
 The network model: In this model, networks are already there of the companies in the
foreign market. This network makes it easy for them to enter into foreign market and gain
competitive advantage.
From the above four models Unilever follows the network model as they were heaving
networks in the US market already. This was started back in 1902 when lever brother opened the
factory in US. In 1929, agreement was signed between Margarine Unie and Lever Brothers to
create Unilever. So in 1930s business of Unilever grew and they started expanding. The
company used network model in US as before amalgamation factory of lever brothers was
already established in US. So lever brothers were heaving network in US market. In 1955, first
soap bar was launched by Unilever in US market and with the networks the soap was success in
that market. For further expansion in US market and makes its presence feel the company
acquired National Starch which was the leading producer of adhesive and organic chemicals in
US market. For making presence in skincare market of US, Unilever acquired Chesebrough
Pond's in 1986. Through its network Unilever again acquired Breyers ice cream in USA in 1993.
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With its network in US Unilever is coming up with more new products in US market
(https://www.unilever.com/our-company/our-history-and-archives/1800s/).
Impact of Unilever on home and host nations
Impact of any multinational company on home country has many benefits associated with
it. For instance, the benefits are that they bring foreign currency with them in the form of profit
which is very beneficial to them. They provide support to their home country in form of
development and helps in promoting bilateral trade relations between the home and host nations
(Wettstein and et.al., 2019).
Impact of Unilever in their home country, UK is that they bring excessive revenue in
terms of dollar which helps UK government to have the stock of dollars with them. These dollars
are used by them to pay back for the goods and services they import from USA and invest in the
market of USA.
Impact of any multinational company on host nations brings both the benefits and
drawbacks. The benefits are that they get the provision to train workforce of host nation by
transferring the skills and helping host country in their GDP growth. Another benefit is that,
helping host nation in their source of revenue which is given by the company to host nation in
form of tax. The drawbacks that host country experiences is that their domestic firms in the same
line of business sometimes cannot compete with these multinational companies. Also another
drawback is that multinational company may use measures of tax avoidance by not paying
appropriate tax to the host nation. This money is sent back as the the profit to home country
which can be utilised by home country for investment purposes (Hamilton, L. and Webster, P.,
2018).
Impact of Unilever at United States market is larger as it is one of the biggest market of
Unilever and to win in this market they apply various strategies. The turnover in this market in
2020 was £8.5bn which is more than UK market and employing more than 7500 people. Also
they have eleven factories, three research and development centres and nine distribution centres.
USA gets the benefit from Unilever in terms of GDP as Unilever recently paid tax of $509 to the
United States government (Bussière, Gaulier and Steingress, 2020).
Analysis of data of country markets
UNITED KINGDOM UNITED STATES OF
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AMERICA
2020 Annual GDP [+] $2,709,680M $20,893,700M
2020 GDP per capita [+] $40,428 $63,358
2020 Debt ($M) [+] 2837176 27980860
2020 Debt (%GDP) [+] 104.47% 133.92%
2020 Debt Per Capita [+] $42,330 $84,850
2020 Deficit ($M) [+] -340240 -3103620
2020 Deficit (%GDP) [+] -12.53% -14.85%
2020 Expenditure ($M) [+] 1333689.6 9495390
2019 Competitiveness Ranking [+] 9º 2º
2018 Innovation Ranking [+] 4º 6º
Labour
01/09/21 Unemployment Rate [+] 4.30% 4.60%
2015 Average Wage [+] $55,054 $60,220
2017 Human Capital Ranking [+] 23º 4º
Markets
11/30/2021 United states dollar / British
pounds [+] and British
pounds /United states dollar
0.75 GBP 1.33 USD
11/30/2021 US Dollar exchange rate [+] 0.75
Prices
01/10/21 CPI (overall index) [+] 4.20% 6.20%
Money Market
03/19/2020 Key rates [+] 0.10% 0.00%
Business
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2019 Doing Business [+] 9º 8º
Taxes
2019 Tax Revenue (%GDP) [+] 35.20% 24.50%
01/04/11 Standard VAT [+] 20.00% 0.00%
2020 Top tax rate + SSC [+] 47.00% 46.00%
Trade
2019 Annual arrivals [+] 39417975 79256267
2020 Exports [+] $403,319.4M $1,431,638.4M
2020 Exports % GDP [+] 14.57% 6.85%
2020 Imports [+] $634,710.3M $2,407,545.1M
2020 Imports % GDP [+] 22.93% 11.52%
2020 Trade balance [+] $-231,390.8M $-975,906.7M
2020 Trade balance % GDP [+] -8.36% -4.67%
2017 Remittance received ($M) [+] 4373.9 6621
2020 Inflation rate 4.20% 6.20%
From the above table, it can be analysed that GDP of USA was more than UK due to its
large population because GDP is measured as goods that are produced for consumption in the
market. [Countryeconomy.com, 2021]. Also if comparison is done on the basis of GDP per
capita than there is slight difference between both the countries. The ranking on competitiveness
index of UK and USA were nine and two respectively which means that people of both the
country were happy on their economic well being. In innovation ranking, they are ranked four
and six respectively which means that both the countries promote innovation and also they
welcome foreign company with new technology to do business in their country (Van, D.D.,
2019). For Unilever this is the best opportunity to capture more market share in both the
countries by bringing more innovative products. The unemployment rate in both the countries is
nearly same which means that companies from both the nations can come and start new business
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so that unemployment rate reduces. The average pay in USA is higher that is why more
companies of USA are doing business in UK as the workforce is cheaper there in comparison to
USA. The exchange rate affects the international business in terms of pay and in UK it is 0.75
and in USA it is 1.33 which means that UK is cheaper than USA. The CPI affects international
business also because change in prices affects the buying power and its high in USA. The
revenue collection in terms of tax was high in UK which means that foreign companies pay tax
in the UK market. The exports in terms of GDP is high in UK market which means that flow of
foreign currency is more in this market. Also imports were high in the UK market. The trade
balance was negative in both the countries which means that exports were more than imports in
both the countries (Christians and van Apeldoorn, 2018). Inflation rate is high in USA market
which means that prices of goods have increased due to rise in aggregate demand of the goods.
Both the countries received remittances also. For Unilever, doing business in USA market was
the best decision because due to trade policies of USA which are favourable and due to demand
of its goods and services in that market (Collinson, S. and et.al, 2020.).
CONCLUSION
From the above report, it can be concluded that international market means the place where
exchange of goods and services happens. The key contemporary issues faced by Unilever in
USA market are rising inflation and change in government policies. There is different global
context available through which international business can function which are labour and
employment law, international trade compliance, taxes, payment rules and termination of
business. Various ways through which company can enter foreign market is through licensing,
franchising, joint venture, partnering, piggy banking and buying a company. Also, companies
decide to go international as they get more market share and diversification of risk can be
achieved. Impact of Unilever on home and host countries are different as the policies of doing
business are different of both the countries.
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REFERENCES
Books and Journals
Buckley, P. and Casson, M., 2019. Decision-making in international business. Journal of
International Business Studies, 50(8), pp.1424-1439.
Buckley, P.J., Doh, J.P. and Benischke, M.H., 2017. Towards a renaissance in international
business research? Big questions, grand challenges, and the future of IB
scholarship. Journal of International Business Studies, 48(9), pp.1045-1064.
Bussière, M., Gaulier, G. and Steingress, W., 2020. Global trade flows: Revisiting the exchange
rate elasticities. Open Economies Review, 31(1), pp.25-78.
Cantwell, J., 2017. Innovation and international business. Industry and Innovation, 24(1), pp.41-
60.
Cherunilam, F., 2020. International business. PHI Learning Pvt. Ltd..
Chi, T. and et.al., 2019. Real options theory in international business. Journal of International
Business Studies, 50(4), pp.525-553.
Christians, A. and van Apeldoorn, L., 2018. Taxing income where value is created. Fla. Tax
Rev., 22, p.1.
Collinson, S. and et.al, 2020. International business. Pearson UK.
Hamilton, L. and Webster, P., 2018. The international business environment. Oxford University
Press.
McWilliam, S.E. And et.al., 2020. Global value chain governance: Intersections with
international business. Journal of World Business, 55(4), p.101067.
Meyer, K.E., 2017. International business in an era of anti-globalization. Multinational Business
Review.
Nambisan, S., Zahra, S.A. and Luo, Y., 2019. Global platforms and ecosystems: Implications for
international business theories. Journal of International Business Studies, 50(9),
pp.1464-1486.
Ratten, V., 2020. Coronavirus and international business: An entrepreneurial ecosystem
perspective. Thunderbird International Business Review, 62(5), pp.629-634.
Srivastava, S., Singh, S. and Dhir, S., 2020. Culture and International business research: a review
and research agenda. International Business Review, 29(4), p.101709.
Van, D.D., 2019. Money supply and inflation impact on economic growth. Journal of Financial
Economic Policy.
Wettstein, F. and et.al., 2019. International business and human rights: A research
agenda. Journal of World Business, 54(1), pp.54-65.
[Online]. Available at:<Countryeconomy.com, 2021. Available through>
[online]. Available at:<https://countryeconomy.com/countries/compare/uk/usa>
[Online]. Available at: <https://www.unilever.com/our-company/at-a-glance/>
[Online]. Available at:
<https://www.unilever.com/our-company/our-history-and-archives/1800s/>
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