Environment and Society

The case study must be handed out to the students at least two weeks before the exam. The case study is based on Unilever. This is an Open Book Exam.

You are required to answer both questions in Section A (25 marks per question) and answer two out of four questions in Section B (25 marks per

question).

Section A

The international growth of Unilever

Unilever is one of the biggest companies in the world – it employed 234,000 people and made annual sales amounting to €43 billion in 2003 and has an

international history dating back more than a century. Its vast geographic scope and its evolution over time make it an interesting case in which to

investigate the variety of factors that have motivated the firm to expand across the world. The company was formed through a merger in 1930 of the UK

firm Lever Brothers and the Dutch-owned Margerine Unie. The marriage created a unified company with a single board of directors but with two parent

companies with joint ownership, one based in Rotterdam and one in London. The growth of both companies into other countries prior to the merger and the

subsequent international growth of Unilever itself demonstrate the variety of motivations for firms to expand across borders.
The growth of Lever Brothers in the early years of the 20th century was clearly motivated by a desire to access raw materials that were not available in

many other locations. For example, in 1910 Lever acquired W.B. MacIver and Company, a Liverpool-based firm that had significant interests in the timber

trade in Nigeria, and the following year it set up a large oil palm plantation in the Belgian Congo. The growth of Unilever into Africa continued in

1929 with the establishment of majority control over the United Africa Company (UAC), a subsidiary that had substantial interests in the primary sector

in many countries inside and outside Africa. By the end of the 1970s it is estimated that this subsidiary alone employed 70,000 people. Where firms

such as Unilever are large enough to establish a degree of monopsonistic control over labour markets, and have the geographic scope to switch resources

from one location to another (or at least can credibly threaten to do so), then they have the potential to use this power to downgrade terms and

conditions of employment.

However, it was not only control over raw materials that led Unilever to grow internationally; access to markets has also been a key factor. For

example, during the 1950s the UAC subsidiary greatly expanded its operations in Ghana, West Africa’s richest state at the time, and in Nigeria, which

had a population of around 40 million. Geoffrey Jones (2000) argues that these large potential markets provided important growth opportunities for the

company. More recently, Unilever has expanded its food manufacturing operations in many developed nations. In this division, proximity to the large

consumer markets was crucial given the perishability of products like ice cream. This motivation has different implications for how the firm behaves as

an employer; where securing access to markets is central to explaining a firm’s growth, employment is likely to be more secure and terms and conditions

are likely to compare favourably with those of other firms in the target market.
The motivations for engaging in foreign investments has shifted over time in Unilever. In part, this has to do with the life cycle of products. For

instance, the margins that could be earned on some products that Unilever was engaged in fell as alternative, substitute products became available. It

also has to do with changes in the political and economic circumstances of the various countries in which the firm possessed operating units. The

general instability and high inflation in particular in West Africa in the 1970s led Unilever to scale down, and eventually abandon, some of its

operations in the region. The shifting motivation to engage in FDI was also shaped by changes in the financial system in London. During the 1980s,

institutional shareholders began to put pressure in Unilever to improve the returns to shareholders, and in this context the UAC subsidiary, which has

tended to prioritise growth in volume and market share, became subject to rationalisation. In 1994, Unilever disposed of any remaining interests it

still had in UAC. Though it retained some manufacturing interests in Africa, the region now represented a much smaller proportion of the firm’s overall

operations.

Today, the company is often cited as an example of a truly global firm. That is, it is organised to serve markets across the world and has no one

country to which it shows any particular allegiance. While such claims are often made about international firms, it does seem as though it is justified

in this case. Unilever’s global reach shows up in a number of respects. As we saw above, its ownership and ultimate control does not reside in any one

country, while it has operating units in almost 100 countries and sells its products in another 50. Perhaps most significantly, its sales are widely

spread across the world: 42% in Europe; 24% in North America; 17% in Asia Pacific; 12% in Latin America and 5% in Africa and the Middle East.

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