Business Week International Cover Story
UNILEVER'S ROUGH PASSAGE TO INDIA IS PAYING OFF
Hundreds of kilometers northeast of Bombay, in the remote forest village of Antagad, 27-year-old Abhimanyu barely makes ends meet as a woodcutter. But he indulges himself by bathing with Lifebuoy soap. Ever since a Unilever salesman hoisted a makeshift movie screen in a forest clearing three years ago to show ads extolling the product, Abhimanyu has bought Lifebuoy instead of the harsh laundry soap most villagers once used. To make Lifebuoy affordable, Unilever miniaturizes its soaps and dispenses individual bars, packaged in bright-red wrapping. The price--5 cents.
Such savvy marketing strategies are hallmarks of Unilever's style as it woos consumers in emerging markets. The company is hoping that someday the residents of Antagad will join India's 200 million-strong middle class and trade up to more expensive Unilever soaps, detergents, foods, and beauty products. Already, Unilever's Pond's skin cream, Close-Up toothpaste, Sunsilk shampoo, Flora cooking oil, Red Label tea, and Rin laundry soap are household names throughout India.
India's vast size, the daunting remoteness of its villages, and a sometimes unfriendly government have never stood in Unilever's way. The Anglo-Dutch company has been in India since 1931--and persevered even when other multinationals were forced to reduce their ownership in Indian subsidiaries to 40% in the 1970s.
LOCK OUT. Today, the payoff in India, modest for decades, is increasing rapidly. Last year, revenue ballooned by 20%, to $1.3 billion. Earnings at the largest of several subsidiaries, Hindustan Lever Ltd., 51% owned by Unilever, jumped 29%, to $41 million, on $660 million in sales. Hindustan Lever is the largest company listed on the Bombay Stock Exchange, at $3.4 billion in market capitalization, and its share price has more than doubled in a year. "It's one of the best-managed Indian companies," says Ajit Dayal, an analyst at Jardine Fleming Holdings Ltd. in Bombay.
Partly to lock out Procter & Gamble Co. and other major world rivals, Unilever has been buying up local distribution channels. It bought the brand name and distribution network of Dollops ice cream from Cadbury India. And Unilever has acquired rival soapmaker Tata Oil & Mills Co. and purchased Kissan Products, the market leader in ketchup. Moreover, it is by far the largest advertiser in India, with an annual budget of about $32 million.
Problem is, Unilever's dominant position is under assault from many directions. Labor unions fought the Tata Oil Mills acquisition, charging that the merger would result in thousands of job losses. This argument didn't work with the Bombay High Court, which upheld the merger on May 18. But a new ruling by the Reserve Bank of India, the nation's central bank, could sharply raise the cost of the deal.
More broadly, some analysts are beginning to say that, as Unilever gets bigger, it is responding more slowly to changes in a market where government controls are loosening and Western rivals are pouring in. "Lever is frozen in the past," acknowledges Hindustan Lever Chairman Susim Datta.
Reflecting the new competition, his company has been losing key executives--29 to PepsiCo Inc. Indian operations alone. In toothpaste, it is warring against Colgate-Palmolive, and in coffee against Nestle. And P&G has formed a joint venture with Godrej Soaps Ltd. The companies are now selling Camay for the same price as Lifebuoy, raising the specter of a price war in India's remote villages. Despite its long headstart, Unilever's battles in India could quickly become just as bloody as they are back home.Shekhar Hattangadi in Bombay