Unilever is an Anglo-Dutch company that was formed in 1929. Ever since its inception, the company has contributed to improving nutrition and personal hygiene around the globe. The company has also diversified its strategies by mostly targeting the emerging markets. One of the emerging markets that Unilever has exploited is the ASEAN (Association of Southeast Asia nations). The ASEAN is one of the oldest regional blocks that date back to 1967 when five central economies of Southeast Asia decided to sign an association agreement (Cavusgil et al., 2017). The bloc has added five more members, and this has made multinational corporations to rush there for investments. This essay will discuss the Unilever regarding its reasons to invest so much in emerging markets, its strategies, benefits, and challenges for operating business in the ASEAN countries.
Ever since Unilever was started, their core value was diversification. The company was looking forward to touching the people's lives from different dimensions. For this reason, Unilever had to be technically inclined to investing in the ASEAN countries. The ASEAN bloc is a market of 617 million people, which represents about ten percent of the world population. The region also has a GDP projected to reach US$4.7 trillion by 2020 and share a world trade of about seven percent (Cavusgil et al., 2017). The association is also working to create the East Asian community (EAC) by integrating into a single and more coherent market of ten economies. There is no better place for Unilever to demonstrate their diversity than this region. The huge population means that there is more demand for new kinds of goods. Besides, the company was capitalizing on the previous political and economic turmoil to create a brand where there is minimal competition.
Second, Unilever wants to be part of a growing infrastructure. Most of the countries in the association had faced economic downfalls brought by political disturbances. This means that most of the economies are at the reconstruction phase and Unilever wants to become part of a forming economic system. Unilever is striving to expand capacity and capability for the upcoming markets. This will also help other small businesses to step in and provide locals with the goods and services they need.
The other reason why Unilever could be interested in the emerging economies is prestige. The company wants to elevate its status by informing its customers that they have expanded an emerging economy. For instance, Unilever is the first company to return the business to Myanmar after the political unrest had ended (Cavusgil et al., 2017). This is a legacy that the company wants to make.
Unilever has never been shy about its investment options. For instance, the company became the first to reopen the business in Myanmar after having been closed due to political issues. The company has made a major comeback, and it is using a new strategy. Before the political turmoil, the company had already gained some ground in the country. In 2010, following the news of the country's reopening and its democratic elections, the company decided to work in liaison with the Myanmar government and key stakeholders in the civil society. The company is taking a different approach to cutting the long supply chain and delegating the role to local distributors. In addition, one of the most successful business strategies the company has used is to delegate management roles to individual countries by placing them under the leadership of the COO (chief operating officer) (Cavusgil et al., 2017). The company is even considering of opening a new manufacturing plant and headquarters in Yangon. Most of the employees are also locals of Myanmar. The company has even surpassed its 2015 target of reaching more than 2000 local employees (Cavusgil et al., 2017). The main ambition of Unilever in Myanmar is to concentrate on fast moving consumer goods such as spices. The companys vision in Myanmar is to contribute to societal growth for a brighter future.
Many businesses are striving to expand into the ASEAN countries. Some multinational companies also use the countries as an operations management hub. There are several reasons why the region is an attractive place for manufacturers to set up their bases. First, the region boasts a long tradition in manufacturing. The countries have a huge population size which stands to benefit the most from the manufactured household products. With about ten percent of the global population, the ASEAN countries offer a promising market for the household items (Cavusgil et al., 2017). For instance, Unilever, which is one of the largest consumer goods manufacturers in the industry, investing in the ASEAN countries provide a diverse market that will ensure constant growth. Countries like the Philippines and Indonesia have a huge dependency on manufactured goods, which makes the regions a good investment base.
The countries also enjoy excellent facilities regarding infrastructure, ports, and technology. For instance, Singapore is the best example of such a country with fine infrastructural facilities. Other countries like Malaysia are improving rapidly making them an excellent choice for offshoring. Many organizations are using Singapore as an operations management hub because of its highly sophisticated facilities, technology, and deep seas container port. Presently, more than seventy-five of the multinational corporations run their business from the ASEAN region (Cavusgil et al., 2017). The emerging economies with adequate infrastructure are ideal places for starting a multinational brand to utilize the facilities and edge out any future competition.
Another advantage of investing in the emerging markets is that the labor costs are lower than in the developed countries. Because of this, many multinational corporations are rushing into the ASEAN countries in the bud to cut their production costs and pursuing a more aggressive and integrated market (Cavusgil et al., 2017). Manufacturing industries are labor intensive, and therefore, any nation that promises adequate labor at a lower cost is the ideal production base.
The ASEAN countries are a good investment hub for most multinationals. However, there are some challenges for a real regional integration among the member countries. One of the main issues affecting a coherent integration is protectionism in the region. In economics, protectionism refers to the government policies and actions that restrict smooth operations of international trade. There are some misunderstandings in the implementation of the framework of free trade areas. Also, the non-tariff barriers like industrial standards and red tapes are a challenge among the ASEAN countries. One of the major problematic issues such as ASEAN free trade area (AFTA) has been a success, but the differences in each of the ASEAN countries calls for an immediate action to evaluate the agreement and reach a common ground (Cavusgil et al., 2017).
Another issue is the different infrastructural development levels in the individual countries. Unfortunately, some of the most promising countries for offshoring such as Indonesia are hard to operate a business. For instance, the cost of transportation, warehousing, and logistics in Indonesia account to more than 4 percent of the total sales revenue making the country a turn off for most businesses. Also, the documentation policies in the countries are slow and unresponsive with goods waiting up to three weeks in the port on arrival (Cavusgil et al., 2017). Without a properly optimized supply chain, the bloc is going to repel any future investments.
There are differences in political systems, religions, and languages making agreements o trade very difficult for the ASEAN countries. For this reason, the multinational corporations are forced to drop the single market approach and resort to various strategies, which might prove expensive to implement. The planned unification of the ASEAN countries into EAC will hopefully make the region one of the new powerhouses of global growth, and this will significantly affect the results of multinational enterprises in the region (Cavusgil et al., 2017).
Finally, the differences in the purchasing powers of the citizens make it difficult for the corporations to establish a base. For instance, Singapore, the richest economy in the region has a per capita GDP of US$50,000 as compared to the Myanmar, the poorest economy with just a per capita GDP of US$896 (Cavusgil et al., 2017). This poses a huge challenge on the multinational corporations regarding proper pricing and other cost calculations.
The ASEAN countries are an upcoming investment hub, especially for the manufacturing industry. That is why multinational corporations such as Unilever are shifting their attention to this market. The company wants to be part of a growing economy and to leave a legacy behind. The company is also trying to localize its new investments for easier management. The ASEAN bloc is very attractive for investments because of high population, improved infrastructure, and lower labor costs. However, the political, religion and language barrier remain significant challenges (Cavusgil et al., 2017). Further unification of the regional bloc will foresee the formation of the new global powerhouse in terms of business.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2017). International business. Pearson Australia.
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