An Introduction to Hindustan Unilever Limited

INTRODUCTION:

Hindustan Unilever Limited (HUL) is India’s largest fast moving consumer goods company, touching the lives of two out of three Indians with over 20 distinct categories in home & personal care products and food & beverages. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of over Rs. 13,000 crores. HUL is also one of the country’s largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India. The Anglo-Dutch company Uni lever owns a majority stake (52%) in Hindustan Unilever Limited.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as

Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co.

Ltd. and United Traders Ltd.. It is headquartered inMumbai, India and has an employee strength of over 15,000 employees and contributes for indirect employment of over 52,000 people. The company was renamed in June 2007 to ³Hindustan Unilever Limited´.

In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25

years byBusi nessworl d, one of India¶s leading business magazines.[2] The rating was based on a compilation of the magazines annual survey of India¶s Most Reputed Companies over the past 25 years. HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others with over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of HUL¶s brands featured in theACNielsen Brand Equity list of 100 Most Trusted Brands Annual Survey (2008).[3] According to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. It¶s a company that has consistently had the largest number of brands in the Top 50 and in the Top 10 (with 4 brands).

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Hindustan Unilever’s distribution covers over 1 million retails outlets across India directly and itsproducts are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets inIndia. It has 39 factories in the country. Two out of three Indians use the company¶s products andHUL products have the largest consumer reach being available in over 80 per cent of consumerhomes across India.[citation needed]

HUL was one of the eight Indian companies to be featured on the Forbes list of World¶s Most Reputed companies in 2007.

PREVIEW OF CORPORATE GOVERNANCE:

Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. (Anand, September 10,2007)

CORPORATE GOVERNANCE:

Hindustan Unilever Limited believes that for a Company to be successful, it must maintain global standards of Corporate Conduct towards all its stakeholders. The Company’s foundation has therefore been rooted to stringent Corporate Governance principles. At Hindustan Unilever, we believe that the principles of fairness, transparency and accountability are the cornerstones for good governance. The HUL Code of Business Principles reflects the Company’s commitment to these principles. It is the Company’s endeavour to continue to achieve highest governance levels.

As regards the compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchanges, the Company is in full compliance with the norms and disclosures. I believe that for a Company to be successful it must maintain global standards of Corporate Conduct towards all its stakeholders and The Hindustan lever Company’s foundation has therefore been rooted to stringent Corporate Governance principles. At Hindustan Unilever, we believe that the principles of fairness, transparency and accountability are the cornerstones for good governance. The HUL Code of Business Principles reflects the Company’s commitment to these principles. It is the Company’s endeavour to continue to achieve highest governance levels.

As regards the compliance with the requirements of Clause 49 of the Listing Agreement with the Stock Exchanges, the Company is in full compliance with the norms and disclosures.

PRE-VIEW OF CSR:

Corporate Social Responsibility (CSR) has been in existence for a while but recently it has become central to the strategic decision making of every organisation. So every organisation has a CSR policy and produces a report of its activities. It has become central to the strategic management of every organisation. It is a complex subject and there are a number of complex issues involved in developing CSR strategies and policies. (Crowther & Aras, 2011)

CORPORATE SOCIAL RESPONSIBILITIES:

Greening Barriers:

Water Conservation and Harvesting

 (linked to product Pureit)

HUL’s Water Conservation and Harvesting project has two major objectives:

1. It’s reduce water consumption in its own operations and regenerate sub-soil water tables at its own sites through the principles of 5R – Reduce, Reuse, Recycle, Recover and Renew;

2. HUL helps adjacent villages to implement appropriate models of watershed development.                     

SHAKTI – Changing Lives in Rural India

Shakti is HUL’s rural initiative, which targets small villages with population of less than 2000 people or less. It seeks to empower underprivileged rural women by providing income-generating opportunities, health and hygiene education through the Shakti Vani programme, and creating access to relevant information through the iShakti community portal.

In general, rural women in India are underprivileged and need a sustainable source of income. NGOs, governmental bodies and other institutions have been working to improve the status of rural women. Shakti is a pioneering effort in creating livelihoods for rural women, organised in Self-Help Groups (SHGs), and improving living standards in rural India. Shakti provides critically needed additional income to these women and their families, by equipping and training them to become an extended arm of the company’s operation.

Health & Hygiene Education

Lifebuoy Swastya Chetna (LBSC) is a rural health and hygiene initiative which was started in 2002. LBSC was initiated in media dark villages (in UP, MP, Bihar, West Bengal, Maharashtra, Orissa) with the objective of spreading awareness about the importance of washing hands with soap.

The need for a program of this nature arose from the fact that diarrhoeal diseases are a major cause of death in the world today. It is estimated that diarrhoea claims the life of a child every 10 seconds and one third of these deaths are in India. According to a study done by the London School of Hygiene and Tropical Medicine, the simple practice of washing hands with soap and water can reduce diarrhoea by as much as 47%. However, ignorance of such basic hygiene practices leads to high mortality rates in rural India.

Economic Empowerment of Women

The Fair & Lovely Foundation is HUL’s initiative which aims at economic empowerment of women across India. It aims to achieve this through providing information, resources, inputs and support in the areas of education, career and enterprise. It specifically targets women from low-income groups in rural as well as urban India. Fair & Lovely, as a brand, stands on the economic empowerment platform and the Foundation is an extension of this promise. The Foundation has renowned Indian women, from various walks of life, as its advisors. Among them are educationists, NGO activists, physicians. The Foundation is implementing its activities in association with state governments.

Special Education & Rehabilitation

 Under the Happy Homes initiative, HUL supports special education and rehabilitation of children with challenges.

Asha Daan:

The initiative began in 1976, when HUL supported Mother Teresa and the Missionaries of Charity to set up Asha Daan, a home in Mumbai for abandoned, challenged children, and the destitute.

Ankur:

In 1993, HUL’s Doom Dooma Plantation Division set up Ankur, a centre for special education of challenged children. The centre takes care of children with challenges, aged between 5 and 15 years. Ankur provides educational, vocational and recreational activities to over 35 children with a range of challenges, including sight or hearing impairment, polio related disabilities, cerebral palsy and severe learning difficulties.

Kappagam:

Encouraged by Ankur’s success, Kappagam (“shelter”), the second centre for special education of challenged children, was set up in 1998 on HUL Plantations in South India. It has 17 children. The focus of Kappagam is the same as that of Ankur.

Anbagam:

Yet another day care center, Anbagam (“shelter of love”), has been started in 2003 also in the South India Plantations. It takes care of 11 children. Besides medical care and meals, they too are being taught skills such that they can become self-reliant and elementary studies.

PRE-VIEW OF FDI:

Foreign direct investment, commonly known as FDI, “… refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor.” The investment is direct because the investor, which could be a foreign person, company or group of entities, is seeking to control, manage, or have significant influence over the foreign enterprise.

FOREIGN DIRECT INVESTMENT:

This article considers key issues relating to the organization and performance of large multinational firms in the post-Second World War period. Although foreign direct investment is defined by ownership and control, in practice the nature of that “control” is far from straightforward. The issue of control is examined, as is the related question of the “stickiness” of knowledge within large international firms. The discussion draws on a case study of the Anglo-Dutch consumer goods manufacturer Unilever, which has been one of the largest direct investors in the United States in the twentieth century. After 1945 Unilever’s once successful business in the United States began to decline, yet the parent company maintained an arms-length relationship with its U.S. affiliates, refusing to intervene in their management. Although Unilever “owned” large U.S. businesses, the question of whether it “controlled” them was more debatable.

Some of the central issues related to the organization and performance of multinationals after the Second World War can be illustrated by studying the case of Unilever in the United States. Since Unilever’s creation in 1929 by a merger of British and Dutch soap and margarine companies, 1 it has ranked as one of Europe’s, and the world’s, largest consumer-goods companies. Its sales of $45,679 million in 2000 ranked it fifty-fourth by revenues in the Fortune 500 list of largest companies for that year.

Unilever’s longevity as an inward investor provides an opportunity to explore in depth a puzzle about inward FDI in the United States. For a number of reasons, including its size, resources, free-market economy, and proclivity toward trade protectionism, the United States has always been a major host economy for foreign firms. It has certainly been the world’s largest host since the 1970s, and probably was before 1914 also. Given that most theories of the multinational enterprise suggest that foreign firms possess an “advantage” when they invest in a foreign market, it might be expected that they would earn higher returns than their domestic competitors. This seems to be the general case, but perhaps not for the United States. Considerable anecdotal evidence exists that many foreign firms have experienced significant and sustained problems in the United States, though it is also possible to counter such reports with case studies of sustained success.

Finally, I have learnt from the story of Unilever in the United States that provides rich new empirical evidence on critical issues relating to the functioning of multinationals and their impact. It made me understand the issue of what is meant by “control” within multinationals. Management and control are at the heart of definitions of multinationals and foreign direct investment (as opposed to portfolio investment), yet these are by no means straightforward concepts. A great deal of the theory of multinationals relates to the benefits or otherwise of controlling transactions within a firm rather than using market arrangements. In turn, transaction-cost theory postulates that intangibles like knowledge and information can often be transferred more efficiently and effectively within a firm than between independent firms. There are several reasons for this, including the fact that much knowledge is tacit. Indeed, it is well established that sharing technology and communicating knowledge within a firm are neither easy nor costless, though there have not been many empirical studies of such intrafirm transfers.  Orjan Sövell and Udo Zander have recently gone so far as to claim that multinationals are “not particularly well equipped to continuously transfer technological knowledge across national borders” and that their “contribution to the international diffusion of knowledge transfers has been overestimated. This study of Unilever in the United States provides compelling new evidence on this issue.

SWOT ANALYSIS:

SWOT analysis is a tool that originated in the business world (Learned et al., 1969) but is useful for any kind of strategic planning. It’s a relatively quick way to look at your Strengths, Weaknesses, Opportunities and Threats. Although it is not a substitute for an in-depth analysis, it can set the stage for one.

STRENTH:

HUL enjoys a formidable distribution network covering over 3400 distributors and 16 million outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most outlets. The new sales organization named ‘One HUL’ brings “Household and Personal Care” and foods distribution networks together, thereby aligning all the units towards the common goal of achieving success. HUL has been continuously able to grow at a rate more than growth rate for FMCG Sector, thereby reaffirming its future stronghold in Indian market.

Project Shakti – Rural India is spread across 627,000 villages and possesses a serious distribution challenge for FMCG Cos. HUL has come up with a unique and successful initiative wherein the women from the rural sector market HUL products, and hence, are able to reach the same wavelength as of the common man in village. Apart from product reach, the initiative also creates brand awareness amongst the lower strata of society. This has brought about phenomenal results.

WEAKNESS:

HUL’s market dominance, originating from its extensive reach and strong brand presence, allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the volumes decreased, the margins grew, and company was able to earn more profits. But higher margins attracted competition in areas of operations. HUL’s strategy remained focused on creating power brands and earning higher margins. It was not left with any other option but to try cutting down the costs in order to protect volumes, if not increase it.

The key differentiators for an FMCG player are ability to call shots and pricing power, and HUL has shown weakness over both these factors.

HUL’s weakness was its inability to transform its strategies at the right time. They continued with the same old strategy which helped them gain profits but was not genuine in this changed environment. HUL’s risk aversion and market myopia led to stagnation of business, and ferocity of competition forced it into a defensive mode. Lack of pricing power in core business and absence of growth drivers have put HUL on a deflationary mode.

OPPORTUNITIES:

India is one of the world’s largest producers of FMCG goods but its exports are miniscule as compared to production. Though Indian Cos. have been going global, their focus is more towards Asian countries because of the similar preferences. HUL is one of the top companies exporting FMCG goods from India. An expansion of horizons towards more and more countries would help HUL grow its consumer base and henceforth the revenues.

Opportunity in Food Sector – The advent of modern trade has opened up greater opportunities for HUL to diversify its brand and strength its food division. It could look at introducing products from its parents stable like margarines and could also look at expanding its Knorr range of products.

It’s well-placed to take advantage of future FMCG Growth – HUL reach out 80% of 207 million households in the country through various brands. It has a very well-defined product portfolio spread across many product categories

Penetration levels for some major categories like skin-cream (22%), shampoo (38%), toothpaste (48%) and processed foods, continue to remain low offerings but great growth opportunities products.

THREATS:

ITC has reduced its dependence on the cigarettes business – Contribution of the core business in revenues has come down from 87% in FY99 to 70% in FY05. Over a period of five years, ITC has extended its presence into areas like foods, retailing, hotels, greetings, agri, paper, etc. These are businesses that can give it growth impetus in the long run. With ITC gaining momentum in each of these businesses, it is turning into a consumer monolith, and hence, the greatest threat to HUL’s Business.

SSKI India has gone on to say, “We maintain Out performer on ITC with a price target of Rs. 2200, while our Under performer call on HUL remains unaltered (price target of Rs. 160).”

CONCLUSION:

Thus from the study of HUL it can be understood that being so large and so extensive in brands it has allocated equal importance to each of its product and services. Moreover being so evident in each of its segment which is widely used by Indian as well as world wide customers; HUL is not only focusing in major brands but also on those brands which are not performing well and new products are brought into market by viewing the importance of Innovation in this changing environment. As bees are treated as social insects, committed to prioritising the colony’s needs and working together. Such team work and a passionate commitment to achieve a shared goal is what helps HUL create milestones.