The coronavirus pandemic and quarantine measures to contain it had an abrupt and widespread shock on the world economy. Then quarantines gradually began to be withdrawn, and demand for many goods and services returned to pre-quarantine levels and may even have exceeded them. Thus, people attempted to compensate for the lost opportunities for consumption. As a result, factories and service providers could not cope with this demand, and prices began to increase. Therefore, it is crucial to establish the economic influence of the pandemic on the multinational firm Unilever.
The Government’s Economic Policies and Goals related to the Covid-19 Pandemic and the Effect on Unilever
It is essential to note that the original strategy of the United Kingdom was aimed at protecting at-risk groups and building population immunity. It was based on a behaviorist approach, according to which strict quarantine measures could only be applied for a short time. Nevertheless, a rapid increase in the number of infections and the introduction of lockdowns in some European countries led to a change in strategy. The decision to proceed to strict quarantine restrictions was based on the model of the spread of the coronavirus, which a group of scientists from Imperial College London developed (Cairney, 2021). Thus, the government’s policy focused on the sector of health protection and support of the business.
Moreover, the British parliament voted to transfer emergency powers to the government to implement the measures. Several programs were introduced in the intervals between the first and second lockdowns to support small and medium-sized businesses, the largest of which was the “Eat Out to Help Out” subsidy program for cafes, bars, and restaurants (Cairney, 2021, p. 101). Additionally, the economic policy and goals of the UK government were to support employees of companies that did not work due to the lockdowns, that is, to allocate funds from the state budget for social spending. Furthermore, the government has introduced lower interest rates for companies and several measures to facilitate cash flow, including deferred tax payments (Cairney, 2021). Currently, the authorities’ actions aim to contain the infection rate, gradually return companies to normal operations and normalize public life.
In general, Unilever did not suffer significant losses due to the Covid-19. However, the lockdowns affected the company’s policy of paying salaries to employees who were at home. Hence, with the benefit and support of the UK government’s initiatives and policies, Unilever was able to protect its employees from wage cuts due to market disruptions. The UK’s economic policy was especially noticeable in helping Unilever’s small and medium-sized suppliers. Therefore, they received loans and assistance worth 500 million euros (EReuters Staff, 2020, para. 3). It is also significant that the company could adapt to the unstable market due to the nature of Unilever’s business. This enabled it to cooperate with the UK authorities to implement a hygiene campaign to combat Covid-19.
Inflation and Unemployment
In a market economy, there is a tendency for economic instability, expressed in its cyclical development, unemployment, and inflationary price increase. Hence, unemployment is an economic phenomenon that reflects the discrepancy between the supply of labor in the labor market and the demand for it, both quantitatively and qualitatively (Ruiz Estrada, 2021). In addition, it is possible to identify the main types of unemployment. Frictional unemployment is caused by the natural movement of the labor force, in the course of which it is deprived of paid work for a certain period, usually short-lived.
The next type of structural unemployment occurs due to the economy’s structural adjustment. This arises when, as a result of transformations, specific sectors reduce the level of economic activity, and the workers involved in them join the ranks of the unemployed. The third type is cyclical unemployment, which is created by the influence of economic cycles (Ruiz Estrada, 2021). The change in economic activity of economic entities in periods of ups and downs is accompanied by a corresponding change in the need for labor and, consequently, the level of unemployment.
The modern economic theory distinguishes fundamental causes of unemployment. The economic recession leads to a reduction in production and a decline in demand for all types of resources, including labor. In addition, structural transformations of the economic system, caused by the introduction of new technologies and means of production, lead to a labor demand reduction. Another reason is state policy and changes in the demographic structure of the working-age population (Ruiz Estrada, 2021). Seasonal fluctuations in the production level of goods and services in individual industries and sectors of the economy also lead to unemployment. Moreover, unemployment is also caused by unreasonable conditions caused by consumer factors in the market.
Furthermore, there is an inverse relationship between the level of unemployment and the rate of inflation, which means that during the period of economic growth and declining unemployment, the inflation rate increases as well. Accordingly, inflation is the rise in prices of goods and services; with inflation, there is a depreciation of money and reduced purchasing power of the population. The leading causes of inflation include a decrease in the gross domestic product (GDP) with the same amount of money in circulation (Ruiz Estrada, 2021). The increased government spending by issuing and excessive expansion of lending to companies are other causes of inflation.
In addition, depending on the criteria, it is possible to distinguish several groups of varieties of inflation. For instance, if the inflation rate is selected as a criterion, it can be considered moderate inflation; the level of inflation of no more than 10%, usually 3-5% per year. Moreover, there is galloping inflation; the rate of this type of inflation is expressed in double-digit percentages (Ruiz Estrada, 2021, p. 203). After all, high inflation may be 200-300% or more, and the current type of hyperinflation may be more than 1000% per year (Ruiz Estrada, 2021, p. 205). However, as the criteria for choosing the form of manifestation of inflation, it is possible to identify such varieties as open and suppressed.
With the economic crisis caused by the spread of coronavirus infection, the global labor market is facing severe challenges. The International Labour Organization estimates that 1.6 billion workers were employed in sectors that experienced significant job losses and whose incomes fell markedly due to restrictive measures (Ruiz Estrada, 2021, p. 206). As the coronavirus spread worldwide, millions of workers lost some or all of their income. Thus, the labor market has shifted dramatically and entered a recession, which has had a negative impact on market prices. Accordingly, the current high inflation is related to the effects of the COVID-19 pandemic and rising producer costs. Global inflation is about 9.9% per year compared to 3.5% in 2019 (Ruiz Estrada, 2021, p. 206). This is due to a disturbance in the supply and demand structure.
The Influence of Inflation and Unemployment on Unilever’s Current Operations and Profitability
It is critical to mention that the Covid-19 pandemic has had a negative impact on most businesses, but at the same time, some companies have been able to benefit. Accordingly, Unilever, through its specialization and products, was able to operate during the pandemic (EReuters Staff, 2020). Even due to closed borders and the delivery of components for manufacturing products from different geographical locations, the company protected its workforce from the economic effects of the coronavirus. For this purpose, a special anti-coronavirus plan was developed. Thus, the payroll protection plan was applied to employees, contractors, and others working for the company (EReuters Staff, 2020). Meanwhile, the company was not forced to lay off employees due to the lockdown, mainly because Unilever used its production lines to produce a disinfectant that was in high demand in the market. As a result, the market prices of the companies’ products rose significantly, affecting the ability to provide all employees with social protection.
Nevertheless, the company’s pricing policy indicates a negative impact of the global Covid-19 infection on the company. Unilever has raised prices for its products by more than 4 percent as the global consumer goods group struggles to combat input cost inflation (Evans, 2021, para. 1). The pricing policy helped the company boost sales and generated profits to support its workers. Furthermore, after the quarantine measures were eased, sales of skincare products increased due to the shortage created for consumers earlier. Therefore, the company did not suffer significantly from inflation and could provide customers with guarantees. As a result, even during the pandemic outbreak, Unilever made a profit and operated mainly by producing sanitizers and then scarce consumer goods.
Therefore, the economic impact of the pandemic on the multinational firm Unilever is generally positive. This is because, despite the increase in global inflation, the company was able to protect its employees and adapt to market conditions and make a profit. Consequently, there were no significant layoffs due to inflation. However, Unilever has received assistance from the government for the representatives of the sector that are its suppliers of components for its products. Accordingly, Unilever has chosen effective defense strategies during Covid-19.
International trade determines what is more profitable for a state to produce and on what terms to exchange the product. Thus, it contributes to expanding and deepening the international division of labor and, therefore, international trade involving new states. Meanwhile, depending on internal or external factors, positive or negative inflation-related processes affect multinational companies (Ruiz Estrada, 2021). Therefore, it is essential to note the mutual impact of international trade and global companies.
The processes of international trade development are directly related to the movement of capital, primarily in the form of import and export of foreign direct investment. They are mainly carried out through the channels of transnational corporations (Ruiz Estrada, 2021). An essential characteristic of the evolution of international companies is their transition from single-sector specialization to multi-sectoral production organization based on global optimization of global value chains. Consequently, such companies must enter the worldwide market and depend on international trade for successful development. Hence, global processes such as the Covid-19 pandemic affect international business and, consequently, multinational companies (Ruiz Estrada, 2021). Moreover, multinational companies have a reciprocal impact on international trade. If they produce goods of the same quality at lower costs, they influence the pricing process and can affect the purchasing power of consumers around the world.
It is significant to highlight that Unilever made profits during the Covid-19 crisis because it mainly produced goods that were in demand, especially disinfectants. Hence, the company launched a global aid policy, donating 100 million euros for products for citizens who were pushed to the brink of poverty by the pandemic and lost their jobs (Unilever, 2020, para. 3). Furthermore, the aid was at scale, as the company partnered with the World Economic Forum’s Covid-19 Action Platform to create a supply chain to help individuals beyond the UK (Unilever, 2020, para. 4). Moreover, Unilever’s global policy was not only about food aid but also about humanitarian aid. During the active outbreak of Covid-19, the company provided batches of soap, disinfectants, and sanitizers on a charitable basis.
In addition to material assistance, Unilever’s global strategy also included promoting proper handwashing in society. This was an essential measure for the preventive fight against infection. In 2019, the brand reached 1 billion people with handwashing education programs (Unilever, 2020, para. 5). During the pandemic, the firm launched an ad for its Lifebuoy soap brand, which allowed it to use social media to spread awareness of the importance of proper handwashing. Moreover, employees of Knorr’s Foods & Refreshment business units were involved in supporting the public, and one of the team’s initiatives was to teach people how to prepare restaurant food at home. (Unilever, 2020). Thus, such a global initiative was extremely necessary for people who were isolated and helped them cope with stress.
Accordingly, Unilever launched many blog initiatives during the Covid-19 crisis, which also affected its profits. This is because it became clear that good hand hygiene can help reduce the spread of the infection (Unilever, 2020). Correspondingly, Unilever’s products have met the global demand for sanitizers. This was made possible by the company quickly adapting our production lines and cooperating with several new factories. In this way, Unilever was able to significantly expand the production of a disinfectant that met the World Health Organization’s recommended standards of at least 60% ethanol (Unilever, 2020, para. 5). As a result, the company’s global strategy allowed it to save jobs and not suffer from inflation while simultaneously fulfilling its charitable activities. The firm also implemented its strategy on the multinational business market and made adjustments to it.
Hence, international trade simultaneously provides companies with opportunities to reach a new level of business and creates risks for them. On the other hand, multinational companies can influence pricing and the labor market in the global market. During Covid-19, Unilever operated in the international market because it produced the necessary products due to the nature of its business. Consequently, it had a significant impact on consumers and price formation in the sector. However, it was the international nature of the company that helped it to enter the international market. In this way, international trade is closely related to its participants and they influence each other.
References
Cairney, P. (2021). The UK government’s COVID-19 policy: Assessing evidence-informed policy analysis in real time. British Politics, 16(1), 90-116. Web.
EReuters Staff. (2020). Unilever to shield workers from financial impact of coronavirus. Reuters. Web.
Evans, J. (2021) Unilever raises prices as inflationary pressure bites. The Financial Times. Web.
Ruiz Estrada, M. A. (2021). How much unemployment and inflation is going to be generated by COVID-19?. Transnational Corporations Review, 13(2), 202-210. Web.
Unilever. (2020). Putting purpose into practice: Our Covid-19 response. Web.