Adverse Effects of Brexit on Unilever
|Topics:||Brexit, ✔️ Political Science, 💱 Macroeconomics|
Brexit and its aftermath have had a considerable effect on the ability of companies to undertake their operations in the UK. This is especially the case considering that it has brought a level of uncertainly when it comes to the manner through which these companies will be able to conduct their operations more effectively. Furthermore, it has also created a situation where because some of these companies are abased in the UK, there is the potential that they might lose their markets in the EU because of the potential withdrawal of the UK from the free market (Dhingra, Ottaviano, Sampson, & Van Reenen, 2016). In this paper, there will be an analysis of the adverse effects of Brexit on Unilever based on Porter’s five forces model in order to gain a better understanding of these threats.
One of the most significant effects that Unilever has to face as a result of Brexit is the threat of new entrants. This is because with the potential of an increase in the costs of production in the UK, it is likely that there will be an influx of companies from other countries outside of the EU that will want to get into the UK market (You, Xuan, Mahmood, & Krijestorac, 2016). A consequence is that there will likely be an increase in the number of new companies that are seeking to take advantage of the newly available British market to advance themselves. This is especially the case considering that a considerable number of companies, which were previously hindered by strict EU laws, will be able to gain greater access to the UK market; making the situation for Unilever one that essentially puts it at a disadvantage.
Another situation that Unilever is likely to face following Brexit is the threat of substitutes. The circumstances surrounding Brexit have made it imperative for the UK companies to produce most of its products domestically in order to ensure that they have enough for the domestic market. However, it is likely that the cost of production will also increase significantly because producing domestically will become more expensive following the removal of free market status from the EU, which was a source of cheap raw materials (Seabrooke & Wigan, 2017). A consequence is that Unilever will find it more difficult to compete with substitute products from other parts of the world which will likely be less expensive to produce and hence cheaper than Unilever products. Moreover, Unilever, because it will have lost a significant source of its raw materials from the EU, will have to increase costs of its goods in order to survive in the market; making it quite difficult to ensure that it competes effectively against these substitutes.
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The presence of substitutes in the market has the potential of leading to a situation where Unilever is faced with the problems of increased bargaining power of customers. This situation comes about because customers will have a greater number of product options from which to choose meaning that Unilever will have to make sure that it seeks to bring about a reduction of costs as well as the establishment of loyalty programs in order to maintain the loyalty of its customers (Sampson, Dhingra, Ottaviano, & Van Reenen, 2016). However, undertaking such initiatives following the considerable backlash from Brexit will make Unilever have a difficult time competing against rival products in the market. A result is that Unilever could end up being forced into a situation where it is no longer able to withstand the competition from substitute products in the market. The presence of substitutes could end up leading to Unilever essentially having to withdraw from the UK market in order to survive.
With Brexit, and a failure of a deal to remain in a single market, there is a possibility that Unilever will no longer be able to get supplies from its suppliers as swiftly and as cheaply as has been the case. This is because suppliers will end up having greater bargaining power and this will mean that it will be difficult to obtain supplies without paying more for them (Seabrooke & Wigan, 2017). Suppliers in this case will have the upper hand in the relationship and this will be to such an extent that it causes Unilever to spend more on the supplies that it needs to make the products of its numerous brands. It will be essential for Unilever to make sure that it increases its prices in order to remain competitive; meaning that it will essentially have lost its edge over its rivals in the market. It will create a situation where Unilever is no longer able to maintain its leadership in the UK market.
A consequence of Brexit is that there is likely to be a situation where there is increased industry rivalry for the company. This is especially the case where there is an increase in the number of companies that are involved in the market (Vickers, 2017). There will likely be an increase in companies that are essentially fighting for the same market space meaning that Unilever will have to compete with a significant number of companies (Thompson & McLarney, 2017). A result of the situation is that there will likely be an increase in rivalries that have the potential of hurting the share that Unilever has in the market; meaning that it will be essential for Unilever to develop new long- and short-term strategies aimed at making sure that it keeps it rivals from taking its market share.
In conclusion, Brexit has the potential of having a considerable number of adverse effects on those companies that do business in the UK. Unilever, which is one of the oldest companies with a history in the UK, has the potential of incurring significant costs when it comes to dealing with the impact of Brexit. The discussion above has shown that Brexit will likely cause Unilever end up being forced to not only increase its costs, but also cater to the bargaining power of both customers and suppliers. Whether the company will be able to survive the consequences of Brexit or whether it will be forced into a situation where it has to develop new survival strategies it yet to be seen.
- Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on foreign investment in the UK. BREXIT 2016, 24.
- Sampson, T., Dhingra, S., Ottaviano, G., & Van Reenen, J. (2016). Economists for Brexit: A Critique. BREXIT 2016, 81.
- Seabrooke, L., & Wigan, D. (2017). Brexit and Global Wealth Chains. Globalizations, 1-10.
- Thompson, J., & McLarney, C. (2017). What Effects will the Strategy Changes Undertaken by Next Plc Have on themselves and their Competition in the UK Clothing Retail Market? Journal of Commerce and Management Thought, 8(2), 234.
- Vickers, J. (2017). Consequences of Brexit for competition law and policy. Oxford Review of Economic Policy, 33(suppl_1), S70-S78.
- You, N., Xuan, O. J., Mahmood, M., & Krijestorac, H. (2016). Brexit and its effect on the pound, the UK’s trading position and productivity. LSE Business Review.