Unilever to make India agriculture exports hub4 min read . Updated: 10 Sep 2012, 07:49 PM IST
Unilever to make India agriculture exports hub
Unilever to make India agriculture exports hub
Mumbai: As Unilever Plc., the world’s second largest packaged consumer goods maker, chases its ambitious goal of doubling revenue and halving its environmental impact, it is looking at Indian suppliers to play a key role in agriculture product exports and product innovations in skin care and laundry, said a senior company executive.
For the maker of Kissan tomato ketchup, Knorr soups, Dove soap and Surf detergent, the focus on collaborative growth with suppliers has led to an increase in supplier-led product innovations. Suppliers now account for 72% of its pipeline of innovations, up from 48% two years ago, and less than 10% five years ago.
“The strategy of having your key suppliers thinking with you on product portfolio is an increasing phenomenon. That’s also true for India," said Marc Engel, chief procurement officer at Unilever, who is responsible for the entire €33 billion (around 2 trillion today) procurement budget of the company, or two-thirds of the company’s cost base in its profit and loss statement.
From India, the Anglo-Dutch parent of Hindustan Unilever Ltd (HUL) is taking local sourcing initiatives in chemicals and packaging across the world. Additionally, it’s also looking at taking innovations from its Indian research and development lab overseas and making the country an exports hub for agriculture products.
Currently, Unilever sources agriculture products from India such as onions and gherkins. It has signed a private-public partnership with the government of Maharashtra for growing tomatoes. “We are one of the largest tomato buyers worldwide and we see a lot of opportunity to grow tomatoes sustainably in India for the world," said Engel.
He has similar plans for exporting Indian tea. Unilever sources about 7.5 million tonnes of agricultural products annually.
Collaborating with suppliers is also essential for creating capacities to support its growth plans. Unilever’s revenues have grown from €38 billion in 2009 to €46.5 billion in 2011. In the first six months of 2012, the company already recorded a little over €25 billion in revenues.
Its Indian subsidiary HUL is among its fastest growing business units with 19,401 crore in revenue for the fiscal year ended March 2011, said Engel.
“The second leg of partner-to-win is all about capacity and capability building in suppliers," said Engel. “While Unilever is building 30 new factories around the world right now, its suppliers are building more than 40 factories to supply to those factories."
Some of its Indian vendors have already invested in building global capacities as they look at expanding their business in step with Unilever.
“The joint business development plan defines roles, responsibilities, size of the bubble, timelines, opportunities and who does one deal with within the company," said G. Ramakrishnan, director (home and personal care business), Galaxy Surfactants Ltd. He has worked with Unilever globally on developing the Dove body cleanser from the business concept stage four years ago to its launch in March.
For developing the product, six Galaxy scientists worked with an equal number of Unilever scientists at its Trumbull, US-based R&D centre. The two teams spoke on the phone every week and met every month, discussing everything from inputs used in products to packaging materials.
After the launch of the product, Galaxy is ramping up its manufacturing capacity to meet the global demand. The company has outlined a capital expenditure of 300 crore for setting up of two factories in Egypt and Gujarat. The production capacity is already factored into Unilever’s capacity addition plans.
Yet another instance of such a joint initiative is Vivimed Labs Ltd, a supplier to HUL since 1997 for its toothpastes such as Pepsodent and Close Up. In the past 15 years, Vivimed’s revenue has grown from $1 million (around 5.5 crore today) to $220 million and its relationship with HUL has extended to other areas such as home care. It is a global supplier to Unilever now.
“By 2017, we will be a $500 million company," said Santosh Varalwar, chief executive officer and managing director of Vivimed, who is looking at an investment of $60-70 million for capacity expansion. “If Unilever is planning to double in size, we should also be prepared for growth," said Varalwar.
To be sure, these companies also supply to other consumer goods makers. And collaboration with suppliers has happened in other manufacturing industries such as automobile.
In most engineering sectors such as automobiles, companies stick to assembly and sales and marketing as their core functions and collaborate with suppliers for setting up foundries, castings and forgings. “This trend is now picking up in consumer packaged goods industry as well," said Pinaki Ranjan Mishra, partner (retail and consumer practice) at Ernst and Young.
It is a necessity for Unilever to meet its larger objectives of sustainability as that requires participation across the value chain.
Partnering with suppliers also benefits companies as they can look at reducing costs. For instance, in the case of beverage makers Coca-Cola Co. and PepsiCo Inc., the sourcing of sugar, one of their key inputs, is done at the company level for economies of scale. This benefit of scale is then passed onto the suppliers.
“For us, this is a new way of thinking. It’s not a project, it’s not a programme. It’s a new way of doing business and it requires everyone to work differently," said Engel, pointing to the multiple ways the partner-to-win programme helped—innovations, saving costs, meeting Unilever’s sustainable living plan, business growth and capacities addition.
Nitin Paranjpe, CEO and managing director of HUL said, in a statement: “We...look at our suppliers as business partners who help us to seamlessly drive end-to-end value delivery to our consumers. Partner to win gives us the platform to forge strategic alliances that can help deliver superior consumer value in a win-win way."
HUL stock gained 0.39% to close at 540 per share on BSE while the bourse’s benchmark index Sensex rose 0.37% to close at 17,749.65 points. Since January, HUL gained 28.91% outperforming Sensex that gained 12.24%.