INTRODUCTION TO FINANCIAL STRATEGIES OF A COMPANY
It is important for a business to have a clear financial strategy. This is true for both new companies and those with a long history. The strategy constitutes your company's guiding principles in all its financial decisions.
Different scenarios demand varying strategies for the business. Of course the strategy must be re-evaluated whenever the business undergoes changes in its financial circumstances.
When you plan your financial strategy, these are some of the factors you should consider:
* Future need for liquidity
* Future cash flow
* Relation between assets and liabilities
* Your company's risk profile
* Time horizon
* How your business will be financed
INTRODUCTION TO THE FINANCIAL STATUS AND CURRENT POSITION OF THE FMCG SECTOR
Post liberalization, because of the entry of a number of MNCs in India, the FMCG sales went up. But soon between 2000 and 2004, FMCG sector got hit, attributed to agricultural crisis and industrial slowdown. The crisis of declining FMCG markets was also driven by new avenues of expenditure for growing consumer income such as consumer durables, entertainment, mobiles, motorbikes etc. Indian population was all set to experience the new basket of products, but with cut-down on FMCG products. This lead to low share of FMCG spends in the consumer’s wallet.
But every year the disposable income was increasing, from $424 in 2002 to $599 in 2007. There was an inflection in 2005, when they could spend on value added/ premium products along with the new basket of products. This was the boom stage; all categories were growing at healthy double digit rates.
As the share of FMCG spend has come down over the last few years, high inflation will not have a major impact on the consumer. The incremental expenditure will not pinch. In the current slowdown and high inflation,consumers may not reduce the expenditure on FMCG products; rather they may cut down expenditure on expensive restaurants. People may prefer local cinema halls or in-house entertainment (Movies on Demand), than multiplexes. Consumers may prefer a local transport than Taxis. They may hold their decision of buying a new car for sometime.
CHANGING FINANCIAL STRATEGIES IN THE FMCG SECCTOR
As mentioned in the first half of my article, the overall impact on the FMCG sales will be marginal. Heavy dependence on the agri-sector and FMCG not being very capital-intensive are among the factors that have insulated the sector from the downturn. But rising input prices, inflation and increased commoditization of products are forcing FMCG companies to adopt new strategies, to have a viable business proposition.
FINANCIAL STRATEGIES OF UNILEVER
The formation of Unilever in 1929 marked the emergence of the first and largest M-form corporate structure in Britain. A policy of multiple acquisitions of other competing companies, culminating in the merger between Lever and the European Margarine Union in 1929 to form Unilever, resulted in an organization comprising 49 associated manufacturing companies. Decisions concerning products, production, and marketing were under the control of each of the companies which in some markets were often in competition with each other. During the last decades of the twentieth century, post-acquisition management inside many large multinationals moved from being an ad hoc process to being almost routinized (Church & Godley 2003). Unilever, which acquired 540 companies between 1965 and 1990, developed systematic procedures to absorb acquired firms which were known inside the firm as Unileverization. This involved the introduction of corporate accounting systems, and changes to salaries and pensions to conform to corporate practice. Unilever also strove to retain good managers, including former family owners, at least for a time. The pace of Unileverization speeded up overtime. During the 1970s...
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