Analysis of Unilever’s Risks and Risk Management Strategies Essay

August 24, 2018 Management

With the rapid development of modern economic system. companies are ever exposed to hazards which are perforating to all walks of life and non merely exist in the merchandises market. but besides exist in fiscal market ( Ballou. 2005 ) . It is doubtless that hazards jeopardize the company’s development in that they may increase the cost of a company’s operation and do it harder for a company to do a important determination. Consequently. it is indispensable to cognize hazards and happen out hazard direction schemes.

This essay will foremost map out Unilever’s concern theoretical account and have a brief analysis on it. Following this. it will exemplify specifically hazards Unilever is exposed to in visible radiation of the concern theoretical account. Meanwhile. it will indicate out some hazards Unilever has non pull offing plenty. Next. the essay will measure some hazard direction schemes Unilever has taken to extenuate or avoid the hazards. Finally. it will urge the company some more risk direction schemes in order to assist it extenuate or forestall hazards.

Analysis of Unilever’s Business Model
Business Model

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A concern theoretical account. purely talking. is the organization’s nucleus logic for making value ( Jane & A ; Susan. 2000 ) . After over 80 years’ development. Unilever has become one of the largest providers of consumer merchandises in the universe. Its strong portfolio of nutrients. place and personal attention trade names is trusted by consumers the universe over. Unilever’s top 13 trade names account for entire gross revenues of over EUR23 billion and top 25 trade names represent about 75 % of the gross revenues ( Unilever Annual Report. 2009 ) . Unilever is a well-operated company. and its concern theoretical account is mapped out as follows: Cardinal Spouses

Suppliers
Contractors
Distributors
Key Activities
Research
Design
Production
Sale
Value Proposition
Produce advanced and good-quality personal and family attention goods for consumers and seek to do people experience good and comfy every twenty-four hours ; Produce and sell alimentary nutrients. such as tea. ice pick. dressing to people and to do them bask a better life. Customer Relationships








Deliver goods to clients via assorted channels
Customer Sections
Huge section of clients
Customers all over the universe


Key Resources
Trade names /Labels
Employees
Production Sites & A ; Lines
Technology Information.
Intellectual Property. Embracing Diversity




Channelss
Promenades Supermarkets
Shops Grocery stores
Pharmacies
Terminal Markets



Cost Structure
Research cost. design cost. production cost. supply and sale cost. selling and promotional spend. direction cost Revenue Structure Gross saless of the consumer goods the company researches. designs and green goodss.

Analysis of the Business Model
The concern theoretical account mapped out above indicates that a multi-national endeavor like Unilever has an integrated and inseparable concern concatenation which is planetary on the one manus. and multi-level on the other manus. that is. its economic activities involve employees. providers. manufacturers. storage. terminal markets. retail merchants. clients and other donees ( Ian. 2009 ) . Such concern theoretical account enables Unilever to go a universe top provider of consumer merchandises. However. each coin has two sides. Since the Unilever’s concern concatenation connects each other so closely and relates to legion parties and factors. therefore the company’s whole operation is instead vulnerable and is easy capable to assorted hazards.

Hazards Exposed to Unilever in visible radiation of the Business Model
Market Uncertainties

As a top provider of consumer merchandises. Unilever’s concern activities are operated within a planetary. vigorous and competitory market. Its concern development is capable to the status and alteration of the whole market. First. economic status plays a important function on the development of Unilever’s concern as ingestion demand and purchase ability of consumers straight influence the sale of the merchandises. 2008 and 2009 were comparatively tough old ages for Unilever due to the planetary economic crisis ( Unilever Annual Report. 2009 ) .

The economic downswing reduces consumers’ wealth and makes them unable to purchase as many merchandises as earlier. Meanwhile. clients buying ability was greatly undermined and turned to purchase those cheap but significant merchandises instead than those high-grade merchandises. Customers’ reactions affect Unilever’s turnover. net income and hard currency flow. Following. more and more companies are aiming the market of consumer goods due to the attractive force of one million millions of consumers. Therefore. the market of consumer goods is merely like a piece of pie and is shared by more and more rivals. Therefore. the whole market is unsure and Unilever has to be good prepared for the battle against the economic uncertainnesss and the industrial fierce competition.

Fiscal Instability
The involvement rate hazard is a hazard brought to the value or the hard currency flow or profitableness of a company when the alteration of the involvement rate occurs. To clear up it more specifically. the floating involvement rate exposes the company to the hazard of the increased involvement cost and the increased adoption afterwards ; while the fixed involvement rate makes the company topic to the hazard of the loss of the just value.

Meanwhile. as a transnational company whose concern activities are operated in more than 180 states. Unilever is exposed to the hazard of the fluctuation of the exchange rate during the procedure of the alteration of currencies and the existent value of the currency may be decreased due to such fluctuation ( Unilever Annual Report. 2009 ) . Provided that Unilever does non manage the issue of involvement rate and exchange rate good. the company may be capable to the exposure of the decrease of hard currency flow. turnover. net incomes which may subsequently adversely impact the company’s recognition evaluation. ability to raise financess and assurance of investors.

Environmental Hazard
As a top manufacturer of consumer goods. some waste H2O is generated for disposal and the company besides discharges some CO2 from energy that the company uses in the procedure of the production ( Unilever Annual Report. 2009 ) . In instance the said issues are non dealt with suitably. the environment will likely be polluted.

One of the Unilever mills in Brazil discharged a great trade of malodor odor to the air due to the false operation in 2008 which impacted upon more than 100 1000 people’s normal life and Unilever was imposed a mulct of 10 million Brazilian Real by the Brazilian authorities due to such pollution ( Unilever Annual Report. 2009 ) . Similar accidents will greatly damage the repute of the company as non merely the authorities but besides common people’s consciousness of environmental protection has been greatly improved presents. Consequently. Unilever is exposed to the environmental hazard which may ensue in the heavy mulct and inauspicious repute.

Loss of Customers
Unilever’s extraordinary accomplishment obtained presents is on the one manus because of the superior merchandises it supplies and on the other manus is inseparable to the customers’ sufficient trust of the company and its trade names. However. the undermentioned three factors may sabotage customers’ trust to the company and its brands: a. Merchandises fail to run into high merchandise safety criterions. Quality inspectors in each province have set many criterions and are making tonss of review work to guarantee the safety of merchandises sold in the market.

In instance the merchandise is found insecure or with any defects. clients will experience defeated ; B. Lack of new merchandises and proficient capableness. Customers have rather high demands on merchandises. Lack of new merchandises and proficient capableness will force clients to other provider of similar consumer goods ; c. The service and merchandise provided by the competitory company is better than Unilever. Loss of customers’ trust may be caused by several grounds. while the consequence is merely the loss of the company’s hard currency flow and the harm of the company’s growing and profitableness.

Operation Hazard
Each measure of Unilever’s concern activity is dissociable to each other ( Unilever Annual Report. 2009 ) . For illustration. the company’s production of goods is conditioned by the timely and unafraid supply of the raw-material. while the successful sale of goods demands effectual storage and distribution capableness. However. the supply of the company’s natural stuff. largely agriculture merchandises. is based on the secure and sufficient agricultural production which may be influenced by conditions. H2O scarceness. and agrarian patterns. Similarly. the storage and distribution of merchandises is normally influenced by the storage and distribution capableness. the cost of it and the local societal stableness. Any issue of the foregoing may severely act upon Unilever’s normal production and sale and subsequent hard currency flow. turnover. and net income and other concern indexes.

Hazard of Employees and Endowments
Unilever is a company with more than 300 operation bureaus in 88 states. more than 1000 well-known trade names and sells its merchandises in more than 150 states. Thus the successful operation of the company non merely depends on the superior merchandises. but besides needs suitably qualified employees. In the event that the company suffers high employment turnover rate. it may be exposed to the hazard of high cost of preparation. suspended market portion and loss of some investing chances which will impact the smooth development of the company and sabotage the company’s capableness of fight in the market.

Legal Hazard
Unilever is making concern in more than 150 states. Different state has really different legal system and ordinances refering the employment. the merchandise safety. the pricing. the rational belongings rights. the revelation. the environment and other factors ( Ian. 2009 ) . Legal hazard may likely convey a suit to the company and will make harm to the company’s repute in local market.

Other Hazards exposed to but non identified or Elaborated by Unilever Unilever has found out and elaborated some hazards exposed to the company ; nevertheless. there are some hazards which have non aroused Unilever’s great attending:

Hazard of New merchandises Exploitation
In order to face the industrial competition. Unilever needs to work continually new merchandises to pull clients and consolidate the relationship with clients. The development of a new merchandise fundamentally involves following stairss: design. research. choice of the strategy. the engagement and allotment of the resources. the production and publicity of the merchandises. However. there are some unsure factors bing in the procedure of new merchandises development. such as engineering. market. fund and environment and each unsure factor may take to the unsuccessful development. loss of cost or negative repute to the company ( Michel. 2001 ) .

Physical Hazard
A company is inescapably exposed to some natural catastrophes or accidents ( Jane. 2000 ) . such as fire. windstorm or temblor which will do the belongings harm or employees’ organic structure hurt. Such harm or hurt will do the company’s normal operation affected and later. turnover. hard currency flow and profitableness will be impacted.

Other hazards
The company is besides exposed to other hazards such as financial. revenue enhancement and so on.

Interaction of Risk Factors
Economic Downturn < > Market Uncertainties ?? v^
Hazard of New Product Exploitation< > Financial Instability v^ ?? v^
Legal Risk < > Loss of Customers
v^ ?? v^



Hazard of Employees and Endowments < > Operation Risk All hazards illustrated supra do non be independently but instead influence interactively ( Geert. 2008 ) . The economic downswing will take to the fiscal instability which may do the company to run adversely and the subsequent hapless operation may do the company to confront more ferocious industrial competition and environmental hazard. The said issues are easy to take to the loss of employees and endowments which may besides later lead to hapless operation and frailty versa. To sum up. the factors function with each other and the company has to take some effectual and holistic steps to support these hazards.

Appraisal of Unilever’s Risk Management Strategies Unilever has recognized that most of the hazards exposed to it may go material obstructions to the company’s further development. Consequently. it has tried to taken some effectual and structured steps to place and so work the key hazard direction schemes for the concern ( Michael. 2007 ) . The specific hazard direction schemes it has exploited are as follows:

1. Unilever has been carefully monitoring economic indexs and consumer behaviour in different countries through extended and professional research in order to react rapidly and take new and flexible steps to run into the altering demand of clients.

2. In order to cover with the issue of fiscal instability. the company has been doing attempts to acquire entree to planetary debt markets through assorted ways such as short-run or long-run debt plans. Unilever attaches great importance to the fluctuation of involvement rate. seeking to hold different types of fiscal services and equilibrate the hazards between drifting and fixed rate involvement after a professional anticipation and appraisal of the involvement rate ; Sing to the foreign exchange rate. Unilever sets a policy which limits the operating companies’ fiscal foreign exchange exposures so as to minimise such hazard. 3. Unilever has made a series of criterions and policies for the process of design. industry. and distribution of merchandises to guarantee the high criterions of products’ quality.

Unilever besides has a “Sustainable Development Group” which is comprised of five external specializers. prosecuting in the company’s development of the scheme. Unilever besides has specific policy concerning merchandises recall in instance there’s merchandises choice incident. 4. Unilever has set complete and effectual eventuality steps and system to guarantee the material supply or to portion the production undertaking between different production sites or to utilize utility stuffs in instance of the deficiency of the stuff. The company besides calculates the cost of transit and distribution from clip to clip and to set the policy and service quickly to optimise the cost. These steps enable the company to run good. 5. Unilever needs to happen a manner to pull. develop. train and retain qualified employees.

The company has an look up toing human resource system. It has established Resource Committees to place employees’ accomplishment and capableness. specify employees’ calling waies. It besides provides legion chances for employees to better their accomplishments. leading abilities through preparation and coaching. Meanwhile. Unilever shall take steps to heighten employee’s hazard direction ability. Ballou and Heiger ( 2005 ) suggest “shifting the employee’s attitudes about hazard direction to include monitoring. measurement. and commanding certain hazards while sharing. avoiding. and accepting that other hazards will non happen efficaciously in a short period of time” .

6. Unilever has set policies to do certain employees follow policies and abide by local Torahs and ordinances in all relevant facets refering its concern and activities. Sing those important issues and activities. the anterior legal cheque and consent are needed in the company. In a word. Unilever has been doing great attempts to construct effectual. sensible and operable schemes for hazard direction. The boards have overall duty for Unilever’s hazard direction and the company has a Code of Business Principles which stipulates the criterions of concern operation and requires employees to stay by the codification. The above schemes enable Unilever to run its concern good in the planetary market.

New Risks Exposed to Unilever and Recommended Risk Management Strategies Besides hazard direction schemes mentioned supra. the author will urge some more schemes for Unilever and seek to give it some thoughts on
better proctor and pull off its hazards.

Transportation and Divert Risks
In order to avoid the amendss and losingss brought by such hazards to the development of the company. Unilever may choose to reassign hazards by using for insurance. Modern insurance system is the idealist manner to reassign hazards ( Mike. 2006 ) . For illustration. Unilever may reassign the hazards of belongings. employers’ liability and concern break by using for the insurance of Property All Risks. Employer’s Liability and Business Interruption so as to reassign hazards to the insurance company.

Establish an Effective Control System
Risk direction is non merely to set up a hazard direction for concern process. more significantly. the company shall set up a comprehensive and effectual hazard direction control system to do certain the effectual execution of the hazard direction scheme. The company can set up a Risk Management Committee in the caput office and shall be straight responsible for the board of managers. “The board needs to be consulted on affairs of hazard direction and it needs to be able to give counsel to the hazard direction commission in its deliberations. To make this efficaciously the board needs to guarantee the whole company is engaged in pull offing hazard. thereby doing it an intrinsic portion of the company culture” .

( Corporate Administration: An International Review. 2009. 546-558 ) . The map of the Risk Management Committee is to implement the hazard direction. to be particularly responsible for the hazard supervising of the whole company and to do incorporate hazard direction policy and process ; each subdivision of the company shall set up an independent hazard supervisor. responsible for the hazard direction and to describe the affair of hazard to Risk Management Committee without consent of the local director.

Establish a Database of Risk Accidents
Database of hazard accidents is a tool to efficaciously foretell and measure the hazard. The information in the database shall include both internal and external informations refering hazard accidents. “ We can seek to gauge how bad this job is by looking at the historical badness of these events in relation to any
hazard factors that we define and so analyzing the prevalence of these hazard factors” ( Michel. Dan and Robert. 2001 ) . Through right analysis of such informations. the company will larn a lesson and see its hazard direction policy and process so as to judge whether the company will forestall the happening of the hazard accident and how to take precautious steps to avoid the happening of similar accidents.

Decision
In decision. hazards exist in the whole procedure of concern operation. any company shall attach great importance to the hazard direction to efficaciously foretell and avoid the hazard. Unilever is a company which has good recognized its major hazards and taken effectual hazard direction schemes. Research on hazard and hazard direction scheme is a long journey and necessitate all employees of the company to do attempt and abide by the policy and criterions to supervise and pull off hazards proactively.

Mentions
Ballou. B. & A ; Heitger. D. L. 2005. A building-block attack for execution COSO: Enterprise hazard management-integrated model. Management Accounting Quarterly. 6 ( 2 ) :1-10.

Geert Bouckaert and John Halligan. 2008. Pull offing public presentation: international comparings. Routledge. 2008. pp221-225.

Ian Brown. Adam Steen. and Julie Foreman. 2009. Risk Management in Corporate Governance. A Review and Proposal Corporate Governance: An International Review. 2009. 17 ( 5 ) :546-558.

Jane Linder. Susan Cantrell. 2000. Changing Business Models: Surveying the Landscape. Business Publisher: Accenture. Pages: 1-15

Michel C. . Dan G. and Robert M. . 2001. Risk Management. McGraw-Hill.

Michael R. Czinkota. Ilkka A. Ronkainen. 2007. International selling. Cengage Learning. 2007. p417-422.

Mike Walker. 2006. Pull offing international hazard. International Business Briefings. The Institute of Risk Management. 2006. P 5-6.

Unilever Annual Report. 2009. Unilever Annual Report. from:
hypertext transfer protocol: //annualreport09. unilever. com/downloads/Unilever_AR09. pdf ( Accessed on May. 25. 2011 )

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