Egypt’s Henkel affiliate still managed to do well even though the country was in turmoil then. The company managed to maintain not only volume but also margins. The manager of Egypt’s plant was perceived to be a real winner and he was touted to move up the ladder to the next management level in a year’s time. Ashur was indeed entrepreneurial in the heart of exceptional political havoc. He changed routes of distribution, put emphasis on brands with high margins and figured out robust trade allowances to boost volume.
However, the Manager of the Henkel subsidiary in Tunisia was not doing well. Though he was in a solid environment his business was underperforming. By focusing too much on excuses and efforts the Henkel’s Tunisia subsidiary Manager did not get results. Kasper Rorsted was appointed Henkel CEO at the age of 45 he became the company’s youngest CEO and the first one with roots outside Austria or Germany. Born in Denmark, Kasper learned economics at Copenhagen’s International Business School.
Henkel’s segments have strong financial positions. The company enjoys global leading positions in Henkel technologies, laundry and home care, craftsmen and consumer adhesives as well as toiletries and cosmetics. In-home care and laundry, the employed return on capital and sales have increased over the years. For instance, in 2006 there was an increase of 15.1% and E4, 116 Million respectively in comparison to 2005. The same period saw the operating income increased by 7.1% while sales were increased by 8.1%. To date, Henkel owns the widest product portfolio in this niche market. A strong financial base in almost all its segments portrays a stable cost foundation and if this continues the company’s future plans will be enhanced.
In 1985 the company raised capital to support its rapid expansion through submitting non-voting shares to the public. In the year 2008, its sales had increased to four billion dollars across 126 countries. Most of its shareholders stemmed from the EMEA region, closely followed by North America, Asia Pacific and finally Latin America. Even though it is only 20% of its employees that had Germany roots the company managed to safeguard its German family roots. Most executive board members were Germans and the company’s shareholding committee was still widely held by members of the Henkel family.
By 2008 the financial crisis effects and succeeding economic slowdown was already affecting Henkel’s major markets. Its beauty and personal care products were adversely affected since the company’s esteemed customers decided to cut back on spending, focused on critical products and thus traded down on brands that were lower priced through foregoing unrestricted purchases. To deal with the growing costs of materials the company decided to increase the prices of most of its products.
A weak Asian presence: even though Henkel operates in more than 70 countries that span Africa, Europe, Asia Pacific, Middle East, North, and Latin America it derives a paltry 8.1% of its revenues from the Asian markets while gaining 84.5% of its revenues from the other regions. Its weak presence in Asia makes it be disadvantaged against its competitors, for instance, Unilever and P&G. Its decline in margins over the years is an indication of an unbalanced cost base and its continuation could impede the company’s growth plans in the future.
The mergers in the industry in combination with the slowing economy resulted in the fall of the volume of Henkel’s rapid growth in all of its business units in 2008. Faced with corporate complacency and falling demand Kasper Rorsted swore to change Henkel into a leaner more results-driven company. In his assertion, it was no longer an alternative for the company to stay where it was. It was either the company moved up or down, it was either the company makes itself relevant or the circumstances would make it irrelevant.
To appeal to the company employees and indicate his obligation to change Kasper Rorsted called a press conference at the end of 2008 to make known a set of the company’s four-year ambitious plan for EPS, sales growth and EBIT margin. Analysts and business reporters echoed the cynicism of the wall street journal. Listeners in the London evaluation conference did not believe their ears to them 14% was too ambitious.
Kasper Rorsted completely understood that his ambitious financial objectives that were aimed at augmenting profitability and sales growth in declining markets could only be attained by changing the self-satisfied spirit inherent in Henkel into what he termed a winning culture. This notion was to underline three premeditated priorities which included: the attainment of full business potential, the strengthening of its global team and focusing more on customers.
In the year that followed Kasper Rorsted and his management crew worked to time and again correspond the new calculated priorities to Henkel’s employees while transforming them into action for all business units. To obtain Henkel’s complete potential in business Kasper Rorstedv decided in 2008 to dwell on optimizing the company’s portfolio through dedicating extra resources to high potential markets and top-performing brands. In the same year, the company made its largest acquisition by paying 3.8 billion dollars for the electronic materials and adhesives business of the National Chemical and Starch Company thus strengthening its global leadership in adhesives.
The business for consumer products is mainly driven by household income growth, population growth, and household formation. These factors are now compelling strong growth in the company’s emerging markets which include China and India. China’s GDP is expected to grow at 13% in the year 2013-2014 while India is expected to grow at 10% in this period. Henkel has already enhanced its presence in these markets and could obtain considerable growth through making these high growth areas it’s center of attention.
Henkel’s investment in new projects gives it more opportunities to consolidate its edge against competitors in the market. Its investment of E79 million in its Russian business in 2010 took it a notch hire beyond its rivals in the market. The opening of its E 7.3 million projects to generate construction mixtures in Chelyabinsk was amongst its biggest investment in the last three years. The company is now in the process of boosting the production competence of its perm plant that manufactures synthetic cleaning agents.
Henkel invested E 2 million Euros in its Belarusian plant that produces dry building mixtures in 2009 to increase the plant’s capacity to over 99,000 tonnes per annum. The plant cost Henkel 6.6 million Euros in 2006. Other projects include a new warehouse in Saratov and its new Moscow headquarters. The company’s investment in these projects is likely to assist the company to attain its long term strategic goals.
Competition from private labels and large players: Henkel markets are typified by extreme competition. Henkel has always competed with companies that are well established for instance Unilever and Colgate Palmolive. Colgate Palmolive that purchased 85% of Tom’s Maine is one of its big threats; it also faces competition from more low cost and low manufacturers in emerging countries as well as from rapid private label brands introduced by discounters and large retailers globally. Therefore to retain and maintain its position in the market Henkel’s products must successfully compete with its strong competitor’s products in addition to that of retail chains. The economic crisis in 2007 adversely affected the company, particularly in its European and US subsidiaries. This crisis put a lot of pressure on the company’s revenues. However, realignment after the crisis enabled the company to re-emerge unscathed.
Industry consolidation: the household products and personal care industry has seen a lot of consolidation in the recent past. Gillette was purchased by Procter & Gumble in 2005 at $58 billion this made P&G the top universal household goods manufacturer. This pushed Unilever into second place. P&G-Gillette now has 21 brands each generating yearly sales of more than $1.2 billion. In 2006 Johnson and Johnson won against GlaxoSmithKline and Reckitt to buy Pfizer’s medicine for $17 billion. These consolidations witnessed in the industry have led to the creation of bigger entities that command high negotiating power in the industry. This is likely to augment competition for prices that will in the end lower Henkel’s operating margins.
Adam Bryand (2010, August 28). No need to hit the send key. Just talk to me. New York Times
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