Analysis of Unilever’s Risks and Risk Management Strategies Essay

With the rapid teaching of modern economy, companies ar al moods capable to fortunes which are penetrating to wholly walks of life and not only endure in the harvest-homes grocery store, but also exist in financial market (Ballou, 2005). It is undoubtedly that bump off a chances jeopardize the social clubs ontogenesis in that they whitethorn increase the cost of a high societys feat and nonplus it harder for a confederation to make a critical decision. Accordingly, it is essential to admit guesss and find surface encounter of infection wariness st countgies.This essay allow for first of all map out Unilevers moving in model and have a brief analysis on it. Following this, it will illustrate specifically essays Unilever is undefended to in light of the worry model. Meanwhile, it will point out some pretends Unilever has not managing enough. Next, the essay will assess some insecurity direction strategies Unilever has taken to mitigate or avoid the en counters. Finally, it will commend the federation some more risk of exposure guidance strategies in allege to help it mitigate or prevent risks. synopsis of Unilevers subscriber line poserBusiness ModelA line of descent model, strictly speaking, is the giving medications core logic for creating cling to (Jane & Susan, 2000). After over 80 years knowledge, Unilever has become one of the largest suppliers of consumer products in the origination. Its strong portfolio of foods, home and person-to-personized care brands is trusted by consumers the world over. Unilevers top 13 brands account for total sales of over EUR23 billion and top 25 brands represent nearly 75% of the sales (Unilever yearly Report, 2009). Unilever is a salubrious-operated familiarity, and its origin model is mapped out as follows Key PartnersSuppliersContractorsDistributorsKey ActivitiesResearch castProductionSaleValue PropositionProduce innovative and genuine-quality personal and household care g oods for consumers and render to make people feel good and comfortable every day Produce and sell nutritious foods, much(prenominal) as tea, ice cream, dressing to people and to make them enjoy a better life. Customer RelationshipsDeliver goods to customers via various channelsCustomer Segmentsvast segment of customersCustomers all over the worldKey ResourcesBrands /LabelsEmployeesProduction Sites & Lines technology Information,Intellectual Property, Embracing DiversityChannelsMalls SupermarketsStores GroceriesP combat injuryaciesTerminal MarketsCost buildingResearch cost, design cost, production cost, supply and sale cost, marketing and promotional spend, management cost Revenue Structure Sales of the consumer goods the company researches, designs and produces.Analysis of the Business ModelThe railway line model mapped out above indicates that a multi-national enterprise like Unilever has an integrated and inseparable business chain which is spherical on the one plenty, and m ulti-level on the former(a) hand, that is, its economic activities involve employees, suppliers, producers, entrepot, pole markets, retailers, customers and other beneficiaries (Ian, 2009). such(prenominal) business model enables Unilever to become a world top supplier of consumer products. However, each coin has two sides. Since the Unilevers business chain connects each other so closely and relates to legion(predicate) parties and factors, thusly the companys whole operation is rather vulnerable and is good state to various risks. essays Exposed to Unilever in light of the Business ModelMarket UncertaintiesAs a top supplier of consumer products, Unilevers business activities are operated within a global, vigorous and competitive market. Its business development is subject to the condition and multifariousness of the whole market. Firstly, economic condition plays a crucial role on the development of Unilevers business as consumption demand and purchase ability of consumer s straightaway influence the sale of the products. 2008 and 2009 were relatively tough years for Unilever due to the global economic crisis (Unilever yearbook Report, 2009).The economic downturn reduces consumers wealth and makes them unable to buy as some(prenominal) products as before. Meanwhile, customers purchasing ability was greatly undermined and turned to buy those inexpensive but substantial products rather than those top-grade products. Customers reactions affect Unilevers turnover, mesh and cash flow. Next, more and more companies are tar stomaching the market of consumer goods due to the drawing card of billions of consumers. Thus, the market of consumer goods is just like a piece of pie and is cared by more and more competitors. Therefore, the whole market is uncertain and Unilever has to be well prepared for the fight against the economic uncertainties and the industrial pugnacious competition.Financial dissymmetryThe matter to rate risk is a risk brought to the value or the cash flow or profitability of a company when the change of the interest rate occurs. To clarify it more specifically, the floating interest rate exposes the company to the risk of the increased interest cost and the increased borrow afterwards while the fixed interest rate makes the company subject to the risk of the loss of the fair value.Meanwhile, as a multinational company whose business activities are operated in more than 180 countries, Unilever is candid to the risk of the variance of the throw rate during the process of the change of currencies and the actual value of the currency whitethorn be decreased due to much(prenominal) fluctuation (Unilever Annual Report, 2009). Provided that Unilever does not handle the issue of interest rate and exchange rate well, the company whitethorn be subject to the exposure of the reducing of cash flow, turnover, profits which may subsequently adversely impact the companys credit rating, ability to raise funds and conf idence of investors.environmental riskAs a top producer of consumer goods, some shoot a line water is generated for disposal and the company also discharges some CO2 from zero that the company uses in the process of the production (Unilever Annual Report, 2009). In sequel the said issues are not volumet with appropriately, the environment will probably be polluted.One of the Unilever factories in Brazil discharged a great deal of stink smell to the air due to the false operation in 2008 which impacted upon more than 100 thousand peoples approach pattern life and Unilever was imposed a fine of 10 million Brazilian Real by the Brazilian government due to such defilement (Unilever Annual Report, 2009). Similar accidents will greatly molest the reputation of the company as not only the government but also honey oil peoples awareness of environmental protection has been greatly modify immediately. Accordingly, Unilever is exposed to the environmental risk which may pull up s takes in the good fine and adverse reputation. loss of CustomersUnilevers extraordinary achievement obtained nowadays is on the one hand because of the superior products it supplies and on the other hand is inseparable to the customers sufficient trust of the company and its brands. However, the following three factors may undermine customers trust to the company and its brands a. Products fail to meet high product arctic standards. Quality inspectors in each state have set(p) many standards and are doing lots of inspection work to ensure the safety of products sold in the market.In case the product is run aground equivocal or with any get aroundcomings, customers will feel disappointed b. Lack of innovative products and technical capability. Customers have quite high requirements on products. Lack of invigorated products and technical capability will push customers to other supplier of connatural consumer goods c. The service and product provided by the competitive company is better than Unilever. Loss of customers trust may be caused by several reasons, while the result is simply the loss of the companys cash flow and the damage of the companys growth and profitability.Operation risk of exposureEach quantity of Unilevers business activity is separable to each other (Unilever Annual Report, 2009). For example, the companys production of goods is conditioned by the timely and cover supply of the raw-hooey, while the successful sale of goods ask sound storage and dispersion capability. However, the supply of the companys raw material, mostly kitchen-gardening products, is based on the secure and sufficient agricultural production which may be influenced by weather, water scarcity, and farming practices. Similarly, the storage and dispersal of products is generally influenced by the storage and distribution capability, the cost of it and the local social stability. every issue of the foregoing may drably influence Unilevers normal production a nd sale and subsequent cash flow, turnover, and profit and other business indexes. danger of Employees and TalentsUnilever is a company with more than 300 operation agencies in 88 countries, more than 1000 well-known brands and sells its products in more than cl countries. Thus the successful operation of the company not only depends on the superior products, but also needs appropriately qualified employees. In the event that the company suffers high employment turnover rate, it may be exposed to the risk of high cost of training, suspended market share and loss of some investment opportunities which will impact the smooth development of the company and undermine the companys capability of competitiveness in the market.Legal RiskUnilever is doing business in more than 150 countries. varied country has very different legal ashes and regulations concerning the employment, the product safety, the pricing, the mental property rights, the disclosure, the environment and other factors (Ian, 2009). Legal risk may probably bring a suit to the company and will do harm to the companys reputation in local market.Other Risks exposed to but not identified or Elaborated by Unilever Unilever has found out and elaborated some risks exposed to the company however, on that point are some risks which have not aroused Unilevers great solicitudeRisk of New products ExploitationIn order to confront the industrial competition, Unilever needs to exploit continually new products to attract customers and consolidate the kinship with customers. The exploitation of a new product basically involves following travel design, research, selection of the scheme, the involvement and allocation of the resources, the production and promotion of the products. However, there are some uncertain factors existing in the process of new products exploitation, such as technology, market, fund and environment and each uncertain factor may channelize to the unsuccessful exploitation, loss of cost o r negative reputation to the company (Michel, 2001).Physical RiskA company is unavoidably exposed to some natural disasters or accidents (Jane, 2000), such as fire, windstorm or seism which will cause the property damage or employees body injury. Such damage or injury will cause the companys normal operation affected and subsequently, turnover, cash flow and profitability will be impacted.Other risksThe company is also exposed to other risks such as fiscal, tax and so on.Interaction of Risk FactorsEconomic downturn Market Uncertainties Risk of New Product Exploitation Financial unstableness Legal Risk Loss of Customers Risk of Employees and Talents Operation Risk totally risks illustrated above do not exist independently but rather influence interactively (Geert, 2008). The economic downturn will lead to the financial instability which may cause the company to operate adversely and the subsequent sad operation may cause the company to face more fierce industrial comp etition and environmental risk. The said issues are easy to lead to the loss of employees and talents which may also subsequently lead to poor operation and vice versa. To sum up, the factors operate on with each other and the company has to take some effective and holistic measures to defend these risks.Assessment of Unilevers Risk focusing Strategies Unilever has recognized that most of the risks exposed to it may become material obstacles to the companys further development. Accordingly, it has tried to taken some effective and structured measures to identify and then exploit the key risk management strategies for the business (Michael, 2007). The specific risk management strategies it has exploited are as follows1. Unilever has been carefully proctoring economic indicators and consumer behavior in different areas by extensive and maestro research in order to respond apace and take new and flexible measures to meet the changing demand of customers.2. In order to deal with th e issue of financial instability, the company has been do efforts to get access to global debt markets through various ways such as short-term or long-term debt programs. Unilever attaches great importance to the fluctuation of interest rate, trying to have different types of financial services and balance the risks amid floating and fixed rate interest after a professional augurion and assessment of the interest rate Regarding to the foreign exchange rate, Unilever sets a policy which limits the operating companies financial foreign exchange exposures so as to minimize such risk. 3. Unilever has made a series of standards and policies for the procedure of design, manufacture, and distribution of products to ensure the high standards of products quality.Unilever also has a Sustainable Development assemblage which is comprised of five external specialists, engaging in the companys development of the strategy. Unilever also has specific policy concerning products recall in case th eres products quality incident. 4.Unilever has set complete and effective contingency measures and system to ensure the material supply or to share the production labour between different production sites or to use substitute materials in case of the lack of the material. The company also calculates the cost of transportation and distribution from time to time and to adjust the policy and service promptly to perfect the cost. These measures enable the company to operate well. 5. Unilever needs to find a way to attract, develop, train and retain qualified employees.The company has an admiring human resource system. It has formal Resource Committees to identify employees skill and capability, define employees career paths. It also provides numerous opportunities for employees to improve their skills, leadership abilities through training and coaching. Meanwhile, Unilever shall take measures to enhance employees risk management ability. Ballou and Heiger (2005) propose shifting the employees attitudes about risk management to include monitoring, measuring, and controlling certain risks while sharing, avoiding, and accepting that other risks will not occur effectively in a short period of time.6. Unilever has set policies to make sure employees follow policies and stick out by local laws and regulations in all relevant aspects concerning its business and activities. Regarding those crucial issues and activities, the prior legal check and consent are needed in the company. In a word, Unilever has been making great efforts to build effective, reasonable and usable strategies for risk management. The boards have overall responsibility for Unilevers risk management and the company has a Code of Business Principles which stipulates the standards of business operation and requires employees to suffer by the code. The above strategies enable Unilever to operate its business well in the global market.New Risks Exposed to Unilever and Recommended Risk worry Strateg ies Besides risk management strategies mentioned above, the writer will recommend some more strategies for Unilever and try to give it some ideas onbetter monitor and manage its risks. take away and Divert RisksIn order to avoid the damages and losses brought by such risks to the development of the company, Unilever may select to conveyance of title risks by applying for insurance. groundbreaking insurance system is the idealist way to transplant risks (Mike, 2006). For example, Unilever may transfer the risks of property, employers liability and business interruption by applying for the insurance of Property only Risks, Employers Liability and Business Interruption so as to transfer risks to the insurance company.Establish an Effective Control SystemRisk management is not only to establish a risk management for business procedure, more importantly, the company shall establish a comprehensive and effective risk management control system to make sure the effective carrying into action of the risk management strategy. The company can establish a Risk Management Committee in the head office and shall be directly responsible for the board of directors. The board needs to be consulted on matters of risk management and it needs to be able to give guidance to the risk management committee in its deliberations. To do this effectively the board needs to ensure the whole company is engaged in managing risk, thereby making it an intrinsic part of the company culture.(Corporate brass instrument An International Review, 2009, 546-558). The function of the Risk Management Committee is to implement the risk management, to be specially responsible for the risk supervision of the whole company and to make unite risk management policy and procedure each branch of the company shall establish an independent risk supervisor, responsible for the risk management and to state the matter of risk to Risk Management Committee without consent of the local manager.Establish a Dat abase of Risk AccidentsDatabase of risk accidents is a tool to effectively predict and assess the risk. The data in the database shall include both inbred and external data concerning risk accidents. We can try to estimate how bad this problem is by looking at the historical severity of these events in relation to anyrisk factors that we define and then examining the prevalence of these risk factors(Michel, Dan and Robert, 2001). Through correct analysis of such data, the company will checker a lesson and consider its risk management policy and procedure so as to judge whether the company will prevent the occurrence of the risk accident and how to take precautious measures to avoid the occurrence of similar accidents.ConclusionIn conclusion, risks exist in the whole process of business operation, any company shall attach great importance to the risk management to effectively predict and avoid the risk. Unilever is a company which has well recognized its major risks and taken effe ctive risk management strategies. Research on risk and risk management strategy is a long journey and need all employees of the company to make effort and abide by the policy and standards to monitor and manage risks proactively.ReferencesBallou, B. & Heitger, D. L.2005. A building-block approach for implementation COSO Enterprise risk management-integrated framework. Management Accounting Quarterly, 6(2)1-10.Geert Bouckaert and John Halligan, 2008, Managing performance international comparisons. 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 1-15Michel C., Dan G. and Robert M., 2001, Risk Management, McGraw-Hill.Michael R. Czinkota, Ilkka A. Ronkainen, 2007, International marketing, Cengage Learning, 2007, p41 7-422.Mike Walker. 2006. Managing international risk. International Business Briefings. The Institute of Risk Management. 2006. P 5-6.Unilever Annual Report, 2009, Unilever Annual Report, fromhttp//annualreport09.unilever.com/downloads/Unilever_AR09.pdf (Accessed on May, 25, 2011)