Unilever plans to pour $500 million into Mexico
Emerging markets are attractive for sales volume growth and market share expansion.
Even though the investment plan has not been formally announced by the consumer goods giant, it was revealed by Mexico's President Felipe Calderon, after his interaction with Unilever Mexico's President Fabio Prado at the World Economic Forum for Latin America.
Unilever is the second largest consumer goods company in the world after Proctor & Gamble (PG).
In July 2011, Unilever opened a new state-of-the-art plant in Mexico with an investment of $130 million to double the production capacity of aerosol-based deodorants for the United States, Canada, Latin America and Caribbean markets. The new $500 million investment is likely to add a new production plant in Mexico as well as fund expansion of the existing plants.
Unilever needs to do more to catch up with P&G
As developed markets are nearing saturation, under penetrated and higher growth emerging markets are attractive for sales volume growth and market share expansion. Unilever's biggest competitor, Procter & Gamble has been aggressively pursing expansion and deeper market penetration in the emerging markets.
P&G has also announced plans to reduce costs by $10 billion by 2016 and use the released resources to invest more in the emerging markets. With a target to acquire one billion new customers by 2015, it will add 20 new manufacturing units in Brazil, China and Eastern Europe in the next few years, including $1 billion investment in China. P&G's aggressiveness in cost-cuts and investments for deeper presence in emerging markets has provided it an edge over Unilever, which needs to do more to catch up.
We value Unilever with a $32 Trefis price estimate of its stock, almost in-line with the current market price.
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