Analysis of Unilever’s Risks and Risk Management Strategies Essay

With the rapid development of modern economy, companies ar alship canal undefended to happens which argon penetrating to all walks of life and non only equal in the crossroads securities indus show, to a greater extentover also exist in financial market (Ballou, 2005). It is undoubtedly that fortunes jeopardize the unions development in that they whitethorn increase the equal of a partys operation and collect it harder for a participation to make a crucial decision. Accordingly, it is essential to do ventures and watch away gamble circumspection st localizegies.This essay leave behind for the first time map come forward Unilevers crease model and have a brief analysis on it. Following this, it go forth illustrate specifically assays Unilever is expose to in sapless of the concern model. Mean time, it will point out whatsoever perils Unilever has not managing enough. Next, the essay will assess approximately risk management strategies Unilever has int erpreted to mitigate or avoid the risks. Finally, it will pr separately the guild some more risk management strategies in come in to help it mitigate or maintain risks.Analysis of Unilevers line of die hard ModelBusiness ModelA line of descent model, strictly speaking, is the makeups core logic for creating value (Jane & Susan, 2000). After all over 80 years development, Unilever has flummox one of the largest suppliers of consumer products in the world. Its strong portfolio of foods, piazza and personal care brands is trusted by consumers the world over. Unilevers glide by 13 brands account for total trades of over EUR23 billion and drop dead 25 brands represent nearly 75% of the sales (Unilever annual Report, 2009). Unilever is a well-operated friendship, and its transmission line model is mapped out as follows Key PartnersSuppliersContractorsDistributorsKey Activities look forDesign outturnSaleValue PropositionProduce forward-looking and good-quality persona l and ho wasting diseasehold care goods for consumers and try to make battalion have good and comfortable every day Produce and sell alimentary foods, such as tea, ice cream, dressing to people and to make them respect a better life. client RelationshipsDeliver goods to customers via various channelsCustomer SegmentsHuge segment of customersCustomers all over the worldKey ResourcesBrands /LabelsEmployeesProduction Sites & LinesTechnology Information,Intellectual Property, Embracing DiversityChannelsMalls SupermarketsStores GroceriesPharmacies terminus MarketsCost StructureResearch comprise, design cost, production cost, supply and sale cost, marketing and packagingal spend, management cost Revenue Structure sales of the consumer goods the family researches, designs and produces.Analysis of the Business ModelThe business model mapped out above indicates that a multi-national enterprise like Unilever has an integrated and inseparable business chain which is spherical on th e one hand, and multi-level on the separate hand, that is, its economical activities involve employees, suppliers, manufacturing businesss, stock, terminal markets, retailers, customers and former(a) beneficiaries (Ian, 2009). Such business model enables Unilever to become a world top supplier of consumer products. However, for each one coin has twain sides. Since the Unilevers business chain connects each other so most and relates to numerous parties and factors, thus the smart sets whole operation is earlier vulnerable and is easily theater of operations to various risks. assays 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 private-enterprise(a) market. Its business development is subject to the condition and dislodge of the whole market. Firstly, economic condition plays a crucial role on the development of Unilevers business as cons umption demand and purchase ability of consumers straight square up the sale of the products. 2008 and 2009 were relatively tough years for Unilever collectible to the global economic crisis (Unilever Annual Report, 2009).The economic downturn reduces consumers wealth and makes them unable to barter for as many products as before. Meanwhile, customers purchasing ability was greatly undermined and dour to buy those inexpensive but substantial products rather than those top-grade products. Customers reactions touch on Unilevers turnover rate, returns and funds travel by ear. Next, more and more companies are targeting the market of consumer goods due to the guideion of billions of consumers. Thus, the market of consumer goods is just like a world of pie and is per centumd by more and more competitors. Therefore, the whole market is indistinct and Unilever has to be well prepared for the fight against the economic gropingties and the industrial ferocious competition.F inancial InstabilityThe s reach 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 move interest rate exposes the company to the risk of the increased interest cost and the increased borrowing by and bywards 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 one hundred eighty countries, Unilever is exposed to the risk of the fluctuation of the interchange rate during the assist of the change of currencies and the actual value of the currency may be decreased due to such fluctuation (Unilever Annual Report, 2009). Provided that Unilever does not handle the issue of interest rate and exchange rate well, the company may be subject to the expo accredited of the reduction of cash flow, turnover, profits which may subsequently adve rsely affect the companys credit rating, ability to raise capital and confidence of investors.Environmental guessAs a top producer of consumer goods, some waste water is generated for disposal and the company also discharges some CO2 from energy that the company uses in the process of the production (Unilever Annual Report, 2009). In case the said issues are not dealt with fittingly, 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 glowering operation in 2008 which impacted upon more than 100 thousand peoples normal life and Unilever was imposed a fine of 10 million Brazilian Real by the Brazilian government due to such pollution (Unilever Annual Report, 2009). Similar accidents will greatly ill-use the reputation of the company as not only the government but also common peoples awareness of environmental resistance has been greatly improved nowadays. Accordingly, Unilever is exposed to the environmental risk which may moderate in the heavy fine and adverse reputation.Loss of CustomersUnilevers impressive achievement obtained nowadays is on the one hand be causation 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 spare-time activity three factors may undermine customers trust to the company and its brands a. Products fail to resonate high product safety standards. Quality inspectors in each responsibility have set many standards and are doing lots of inspection work to en received the safety of products sold in the market.In case the product is found insecure or with any shortcomings, customers will feel scotch b. Lack of new products and technical capability. Customers have quite high requirements on products. Lack of new products and technical capability will push customers to other supplier of standardized consumer goods c. The assistant and produc t provided by the competitive company is better than Unilever. Loss of customers trust may be caused by some(prenominal) reasons, while the result is simply the loss of the companys cash flow and the damage of the companys growth and profitability. operating room RiskEach step 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 secure supply of the rough-material, while the successful sale of goods necessarily hard-hitting storage and distribution capability. However, the supply of the companys raw material, mostly agriculture products, is based on the secure and sufficient sylvan production which may be influenced by weather, water scarcity, and farming practices. Similarly, the storage and distribution of products is usually influenced by the storage and distribution capability, the cost of it and the topical anesthetic social stability. Any issue of the foreg oing may badly influence Unilevers normal production and sale and subsequent cash flow, turnover, and profit and other business indexes.Risk of Employees and TalentsUnilever is a company with more than three hundred operation agencies in 88 countries, more than 1000 well-known brands and sells its products in more than 150 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, suspend 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. Different country has very different legal administration and regulations concerning the employment, the product safety, the pricing, the int ellectual 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 anesthetic 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, there are some risks which have not aroused Unilevers great attentionRisk of New products victimisationIn nightclub to confront the industrial competition, Unilever needs to exploit continually new products to attract customers and consolidate the relationship with customers. The exploitation of a new product fundamentally involves following steps 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 take away to the unsuccessful exploitation, loss of cost or 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 earthquake 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 Instability Legal Risk Loss of Customers Risk of Employees and Talents Operation Risk All risks illustrated above do not exist severally but rather influence interactively (Geert, 2008). The economic downturn will check to the financial instability which may cause the company to operate adversely and the subsequent poor operation may cause the company to slope more fierce industrial competition 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 function with each other and the company has to take some effective and holistic measures to defend these risks. judgment of Unilevers Risk forethought Strategies Unilever has recognize 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 because exploit the gravestone risk management strategies for the business (Michael, 2007). The specific risk management strategies it has secondhand are as follows1. Unilever has been carefully admonishering economic indicators and consumer behavior in different areas through extensive and professional research in order to respond quickly and take new and flexible measures to meet the changing demand of customers.2. In order to deal with the issue of financial instability, the company has been making efforts to get access to global debt markets through various ways such as short-term or long-term debt programs. Unilever attaches great sizeableness to the fluctuation of interest rate, trying to have different types of financial function and balance the risks between floating and fixed rate interest after a professional prediction and assessment of the interest rate Regarding to the contrasted 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 serial publication 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 Group which is comprised of five external spec ialists, engaging in the companys development of the strategy. Unilever also has specific policy concerning products recall in case theres products quality incident. 4.Unilever has set complete and effective contingency measures and system to ensure the material supply or to share the production task 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 optimize 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 humankind resource system. It has produceed Resource charges to identify employees skill and capability, define employees passage paths. It also provides numerous opportunities for employees to improve their skills, leadership abilities through training and coa ching. Meanwhile, Unilever shall take measures to enhance employees risk management ability. Ballou and Heiger (2005) propose shifting the employees attitudes about risk management to acknowledge monitoring, measuring, and controlling certain risks while sharing, avoiding, and accepting that other risks will not occur in effect in a short period of time.6. Unilever has set policies to make sure employees follow policies and abide by local laws and regulations in all applicable 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 practicable 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 abide 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 Management Strategies 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.Transfer and Divert RisksIn order to avoid the policy and losses brought by such risks to the development of the company, Unilever may select to enthrallee risks by applying for insurance. Modern insurance system is the idealist way to transfer risks (Mike, 2006). For example, Unilever may transfer the risks of property, employers liability and business interruption by applying for the insurance of Property All Risks, Employers Liability and Business Interruption so as to transfer risks to the insurance company.Establish an Effective Control arrangementRisk management is not only to establish a risk management for business procedure, more importantly, the company shall establish a omnibus(prenominal) and effective risk management control system to make sure the effective execution of instrument of the risk management strategy. The company can establish a Risk Management Committee in the head duty 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 institution An world-wide check over, 2009, 546-558). The function of the Risk Management Committee is to implement the risk management, to be especially responsible for the risk supervision of the whole company and to make unified risk management policy and procedure each branch of the company shall establish an independent risk supervisor, responsible fo r the risk management and to report the matter of risk to Risk Management Committee without consent of the local manager.Establish a Database of Risk AccidentsDatabase of risk accidents is a tool to effectively predict and assess the risk. The data in the database shall include both internal and external data concerning risk accidents. We can try to estimate how bad this problem is by looking at the historic 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 learn 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 effective risk management strategies. Research on risk and risk management strategy is a long excursion 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 foreign 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 appraise the Landscape, Business Publisher Accenture, Pages 1-15Michel C., Dan G. and Robert M., 2 001, Risk Management, McGraw-Hill.Michael R. Czinkota, Ilkka A. Ronkainen, 2007, International marketing, Cengage Learning, 2007, p417-422.Mike Walker. 2006. 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