Business Environment and Market Analysis for Unilever in Spain Report

This report examines Unilever's planned expansion into the Spanish market, focusing on the factors influencing the business environment, including political, legal, and economic considerations. It provides a PESTLE analysis and applies Porter's five forces model to assess competitive forces within the FMCG sector in Spain. The report also analyzes Unilever's foreign direct investment decision, incorporating market analysis specific to Spain, and discusses relevant issues, factors, and considerations impacting business operations in the country. The analysis includes recent statistics on the Spanish economy and FMCG market, enhancing the quality of the work and demonstrating the student's improved analytical and research skills. The report evaluates inflation, recession, and exchange rate impacts and assesses the bargaining power of suppliers and customers, concluding with an overview of Unilever's strategic positioning in the Spanish market.

UNILEVER IN SPAIN

Table of Contents
INTRODUCTION...........................................................................................................................1
Reflection....................................................................................................................................1
MAIN BODY...................................................................................................................................2
Main factors, issues and considerations affecting the business environment.............................2
PESTLE Analysis.......................................................................................................................3
Porter five forces model..............................................................................................................5
Foreign Direct Investment Decision of Unilever in Spain..........................................................6
Market analysis for company in Spain........................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business environment has larger influence over companies which have international
presence. Present report deals with Unilever, a giant engaged in FMCG sector planning to
expand in Spain. Report will discuss about factors affecting business environment dealing with
political, legal and related external factors. Furthermore, market analysis of Spain will be
conducted with reference to FMCG sector. PESTLE analysis and Porter five forces model both
will be applied for presenting overall business strategies and competitive force. Foreign direct
investment decision will be provided in accordance to foreign direct investment in Spain. Thus,
overall business will be analysed for giving clear picture to assess its viability to expand its
operations.
Reflection
The feedback points have strictly dealt with in order to enhance quality of work in the
best way possible. I have identified that older statistics were used with reference to Spain
economy which were inadequate up to a high extent. Moreover, by resolving this, I have
addressed all the points and included recent statistics about the Spain's FMCG market and overall
economy. Apart from this, I have enhanced my analytical skills in effective manner and also
gained how to interpret the data in effective manner. Feedback is very essential as it provides the
way to improve upon mistakes which were done previously and how it can be improved, thereby,
leading to brush up my abilities quite effectively.
I have learnt a lot about the topic being provided to me for increasing my knowledge with
ease. In addition to this, thorough PESTLE, Porter five forces model of Unilever in context to
Spain have been done which has helped me to gain increase efficiencies particularly about the
business environment in terms of global trend. This has benefited me to increase my knowledge
about the current operations of Unilever and how it manages operational activities on large scale.
Moreover, I have been able to enhance by writing skills quite appropriately by strictly following
the structure as per the brief. I have written issues, factors and considerations affecting business
environment.
Furthermore, I have followed points marked in the feedback and identified which are the
points to be included for submitting the work more professionally. Moreover, I have learnt good
lessons that work should be done properly in accordance to the guidelines provided. I'm able to
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enhance my research skills in effective manner and producing graphs and charts based on the
recent statistics. Thus, I have improved overall quality of work and enhanced my skills and
abilities.
MAIN BODY
Main factors, issues and considerations affecting the business environment
Business environment in terms of global context is an important for the company.
Especially, when it is planning to expand in other country for more growth and upscaling its
business operational activities. Unilever engaged in offering FMCG (Fast Moving Consumer
Goods) goods such as food and beverages, cleaning agents and personal care items etc. and is the
largest company in terms of revenue in 2012. Spain is the country in Europe and third largest
economic growth generator in Europe. The business environment of Spain is favourable for
company in nearly all sectors which can be analysed by factors, issues and considerations
affecting business environment.
Factors and issues affecting business environment are income, inflation, recession,
exchange rate etc. Income is the ability of consumers to spend in market to buy product (Kew
and Stredwick, 2017). It can be analysed purchasing power of people of Spain is high which
means that Unilever decision for expanding in the country will tend to be viable as large number
of people will buy products in the best possible manner. Higher demand of luxury products have
risen in recent years in Spain and company can provide them with goods for accomplishing
satisfaction level of customers. Moreover, profitability position could be enhanced in a better
way.
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Illustration 1: Inflation rate of Spain
Source: Spain Inflation rate. 2018
The above chart discloses that inflation rate in Spain has risen by 2.3 % at the end of
September 2018. The rate was 2.2 % in August 2018 higher than prior estimate of 2.2 % above
market expectation of 2.2 % gain. The main reason for highest inflation from June due to
increment in cost of housing. Annual core inflation excluding food and energy was unchanged in
September 2018. It can be referred that rise of inflation in Spain may affect Unilever as cost of
initiating business operations, borrowing of money, government and corporate bonds will be
raised. Apart from it, recession is another factor which influences country growth in terms of
GDP, capacity utilisation and household income gets lower down. Spain had already faced such
situation in 2008-2014 long financial crisis.
Unilever will have to undertake exchange rate which is another major factor and issue
which needs severe consideration (Eling and Schaper, 2017). Foreign exchange market where
aggregate demand is channelised through exports and imports involving use of foreign currency
in relation to domestic currencies. Since, Unilever has enlarged operations in 190 countries, it
will not have difficulties in facing such situations and operational activities in Spain can be
accomplished with ease. Thus, these considerations, factors and issues are to be considered by
company in establishing its market in Spain which affects global business environment.
PESTLE Analysis
Political (P)-
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Firm has its global presence and international ties in effective manner. As a result,
political factors of Spain have also to be analysed so as to inject operations in the best way
possible. Unilever has to follow European law prevailing in the country in order to establish its
market in Spain. Local and regional laws are also to be handled in a better way for smoothing
operations with ease. Restrictions in terms of exports, imports and related trade laws of country
might hinder its growth up to a high extent.
Economical (E)-
Goods which are within the reach of each and every class of consumers have great
demand. On the contrary, expensive products are not purchased as they are not economical in
nature (Vendrell-Herrero and et.al., 2018). There are several European companies which are
competitive in nature and competition is rising for Unilever in EU. The consumers directly affect
items being supplied by organisation and will have bad consequences, if products go out of
demand. This will result into negative cash flows but, it will be offset in another market if it fails
in Spain as organisation as global reach.
Social (S)-
Social factors is mainly dedicated to company's reputation. Unilever has already started
to build its strong reputation of brand so that it may be able to attract customers of Spain with
ease. In consideration to this, Unilever will focus on offering of personal and beauty care
products, food and beverages so that desired standard of living may be given to people. This will
effectively enhance reputation in the market and company will gain satisfaction level of
customers. Marketing of providing quality products will increase its position in market.
Technological (T)-
Digitisation has completely changed business leading to provide direct benefits. Unilever
produces new commodities and sells them in respective locations for gaining sales in abundant
amount. It will also practice the same in Spain by developing digital marketing and selling
methods for effectively attaining goals in the best possible manner (Vidal-García, Vidal and
Barros, 2017). Technology is key for company as automating selling and marketing methods
have direct and positive effect on overall business performance. Unilever will have strong
automation level in Spain ahead of its rivals for supplying commodities to customers in locations
in an quick manner.
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Legal (Legal)-
Legal restrictions are never ending for Unilever as different nations have distinct laws
which have to be followed for making its presence and attaining desired goals quite effectually.
Unilever owns nearly 400 brands engaged in food, personal products, beverages which have
complex regulations abided by firm for injecting its operations. It will have to follow copyright,
product safety, health and safety of workers will be followed so that legal rules are effectively
met. Furthermore, taxation structure prevailing in Spain will also be followed.
Environmental (E)-
It is another important factor for Unilever as it provides variety of goods to customers
and requires promoting sustainable resources. Company will have to abide by sustainable and
renewable resources (Schaltegger and Wagner, 2017). This will provide and promote safer
products designed to be safe for consumers in every location they will have presence in Spain. It
can be analysed that firm will offer environment-friendly goods to people and achieve customer
satisfaction.
Porter five forces model
The Porter five forces model provides analysis of competition in consumer goods market
and affecting financial performance in company. Five forces are listed below-
Competitive Rivalry-
There are high number of firms already engaged in FMCG sector and provides greater
variety of goods in the best way possible. It can be assessed that Unilever will face stiff
competition in market as high aggressiveness of organisations are found in Spain. Unilever also
faces strong competition mainly due to low switching costs. It is easy for customers to switch to
other brand affecting its market share up to a major extent (Martínez-Martínez, Aguado and
Boeykens, 2017). It will have to build sustainable differentiation of commodities so that people
are attracted to it.
Bargaining power of suppliers -
The bargaining power of suppliers is high particularly when competition is fierce in the
industry. It can be identified that suppliers are in dominant position and they reduce margins of
Unilever can gain in the market. However, Unilever has large number of suppliers such as
foreign firms which provides paper and oil and related materials. This means that one supplier
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cannot influence increment in price of raw materials. It clearly indicates that bargaining power of
suppliers has moderate force over Unilever.
Bargaining power of customers-
Consumers goods or FMCG sector is highly competitive and consumer's demand for
quality of goods as switching costs are low in this industry. One can easily shift to other
company's items, thereby, decreasing overall profits of Unilever. Since, digitisation has evolved
significantly in today's scenario, buyers have easy access to information available online and
they can compare products. It can be said that in internet era and low switching costs, bargaining
power of customers are high for company. Hence, it is essentially required that company should
maintain its quality of goods in Spain also so that customers are not in a position to switch to
other brands.
New entrant threat-
New entry in the FMCG sector cannot influence company as it has strong global presence
in more than 190 countries. If it loses in one market, it can gain in another one leading to have
low force. Particularly in countries where people likes brand name and purchase accordingly,
they will not attract to new players in any manner (Lee, 2017). This is because Unilever has great
amount of potential which newer ones cannot even reach to it. Moreover, high economies of
scale is another example of Unilever supporting competitive pricing and well-mannered
organisation's efficiencies, lacking in fresh firms.
New substitute threat-
There are variety of products which can be provided by other companies. For instance, it
is easier to get Unilever's close-up toothpaste from grocery than to obtain its substitutes such as
home-made organic dentifrice. This clearly shows that substitute threat is weak for Unilever and
they cannot influence company's strong position in worldwide market. Moreover, substitutes
available in the market have significantly difference in prices especially when compared to
consumer goods in market. This also leads to attraction to products of Unilever more and
weakening intensity of substitute threat.
Foreign Direct Investment Decision of Unilever in Spain
Foreign Direct
Investment in Spain 2015 (in USD) 2016 (in USD) 2017 (in USD)
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FDI (Inward Flows) 19560 19660 19086
FDI Stock 543883 552485 64415
Total number of
Greenfield investments 410 544 640
FDI Inward (% of GFCF) 5.1 7.6 -
FDI Stock (% of GDP) 46.7 45.2 -
In accordance to World Investment Report 2018 provided by UNCTAD (United Nations
Conference on Trade and Development), Spain is the sixth largest country for having better FDI
inflows in region of Europe. In above figure, GFCF (Gross Fixed Capital Formation) forms
direct part in investment whereby parent company starts new operations or venture in abroad by
developing operational facilities from ground. It can be analysed that FDI inflows were 19560 in
2015, increased to 19660 in 2016 and decreased to 19086 in recent financial year. This means
that a decrease of 3 % have been registered in comparison to previous year and global trend
while it was down by 23 % in 2017.
FDI stocks were 543,883 in 2015 increased to 552,485 in next year and further
significantly increase to 644,415 in 2017 which was maximised by 16 %. FDI of Spain has
elevated recently because of increase in competitiveness and strengthening of investors'
confidence in nation (SPAIN: FOREIGN INVESTMENT. 2018). The countries namely
Netherlands, Luxembourg, UK, France, Germany and Italy holds 70 % of Spain's stocks. Boom
in tourism, cultural proximity in Latin America, multinational organisations of Spain, efficient
network of transport have led to generation of good economic growth of country.
It can be analysed that Unilever can invest in Spain for expanding its operations in the
best possible manner. Flexibility and adaptability of economic operators could be flexible for
company. On the other hand, infrastructure network is also well-developed in country.
Government effectively reform policies with regards to industries up to a major extent. This will
provide company with greater avenues in Spain and can achieve its objectives with ease (Ferro
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and et.al., 2017). On the main advantage of the market of Spain is that government follows
principal of free establishment and non-discrimination on the basis of foreign and domestic
investors. This means that foreign investor can operate business of their own type and no
discrimination is done to them in comparison to local investors.
Government of Spain provides incentives such as tax relaxation or benefits, professional
training, grants and access to credit which also makes first preference for Unilever to expand in
it. Since, 2012 year, Spanish state is pursuing policy reforms for rationalising budget
management and softening work laws allowing nation to elevate access to global financial
markets. Government is also planning to increased access of credit to SME which are an integral
part of high income generating economy (Cañamares and et.al., 2017). This clearly shows that
foreign direct investment decision should be made Unilever in order to gain more growth in
terms of operations, profits and become more financially sound.
Market analysis for company in Spain
The market of FMCG in the nation is good as progressive growth has been achieved in
the recent years. It can be analysed that growth in FMCG sector is back on track as confidence of
consumers is maximised along with modern distribution. In accordance to 2017 distribution
trends report, market has effectively grown by 0.8 % in terms of value and by 0.9 % in terms of
volume. This growth can be seen in areas like packaged food, household and fresh produce item.
Among this, most prominent growth has been seen in fresh produce output as it was lower area
continuously falling down in past years (The FMCG market makes a recovery in Spain. 2017).
Moreover, business that are producing fresh output are grown, apart from it, specialist channels
have also begun to move towards modern distribution ie hypermarkets and supermarkets.
Premium, organic, gourmet and seafood have gradually increased.
With regards to Spanish market, Lidl, Mercadona and Carrefour were the market leaders
2017. Mercadona has gained larger growth by renovating shops, introducing healthier operations
which has led to improve brand image of firm. Market share of company accounts for 24.1 % in
2017 which was just 1.2 % in 2012. In simple words, it can be said that 88 % of households have
made purchase at least once from it. Lidl is leading chain in Spanish market having visit of more
than 600,000 people on per year basis. Value of money, brand image and purchases have led to
increase of organisation's share adding 0.2 % and stretching to 4.3 % in 2017. While, Carrefour
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has achieved growth and it has implemented multi-channel strategy having contact with
customers reaching 59 % of households.
Illustration 2: Economic Forecast
Source: Spain- Economic Forecast summary (May 2018). 2018
It can be analysed from the chart that after gaining 3 % growth in last three years. Spain
will have a robust growth but moderate in 2018 and 2019. GDP is set to go slow to reach 2.8 %
in 2018 and 2.4 % in next year. Private consumption will slow down as job creations will be
moderate. It is likely that unemployment has gradually come down but tends to be high.
Industrial production was above 70 in 2009 but reached to 115 in 2017 having growth nearer to
10 %. Business confidence as highlighted shows that it has come to favourable position as it was
100 in 2009 and climbed above 100 in 2017 having -10 growth.
Unilever will have better avenues in expanding operations in Spain as it will generate
good quantum of sales for increasing overall business performance (Vidal, 2018). It will not be
beneficial for only Unilever but also for youth of Spain will have ample of employment
opportunities. This is evident from the fact that unemployment has been main root cause behind
Spain's economic growth. On the other hand, company will face fierce competition as FMCG
sector has been dominant by Lidl, Carrefour and Mercadona, but will implement well-structured
strategies for establishing its position in the market successfully.
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CONCLUSION
Hereby it can be concluded that business environment has large influence on company
especially when it is expanding into different country. Unilever will be able to establish its
operations in Spain as it has international presence and economic growth of Spain is also
favourable to it. Moreover, as per the PESTLE analysis and Porter five forces model, Unilever
will have little influence of macro environment and will follow all legal norms for marking its
way in FMCG market of Spain. Furthermore, growth of the sector is progressive and adequate
sales will be achieved by firm.
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