Company Analysis of Nestle Corporation - Essay Example

? Company Analysis Company Analysis Nestle foods Nestle foods is one of the worlds leading provider of foodproducts. Henry Nestle established the corporation, one hundred and forty years ago in Vevey, Switzerland. The company’s headquarters are still in Switzerland but has branches in almost all countries in the world. The company deals with wellness, fitness, and nutritional foods products. In addition, the company has a product line for pet care products and pharmaceuticals. The company offers a wide range of beverage and foods that its customers can enjoy from morning to evening, which include baby food, cereal, bottled water, coffee, chocolate, and weight-loss management products. A situational audit is a comprehensive analysis of an organization’s current state in comparison to its micro and macro economic environment. According to Cherniss and Adler (2000, p. 97), a situational audit helps to establish the organization’s current situation in relation to its marketing objectives. In addition, a situation analysis identifies the future economic performance of the organization if it continues to use its current strategies. Nestle foods has operations in more than eighty countries globally. The organizations expansion strategy is implemented through joint venture and acquisitions. This report presents a situational audit for Nestle Foods, one of the world’s largest organizations. It explores the external, competitive, and internal market factors influencing the organization performance. Finally, it provides an analysis of the suitability of the marketing strategy used by the corporation and provides appropriate recommendations. The Internal environment According to Remenyi, Money and Bannister (2007, p.128), the internal analysis of an organization helps to identify the organization’s strengths, weaknesses, opportunities, and threats. The strengths represent the competencies and resources within the organization, which help it to achieve a competitive position in the industry. Nestle foods has numerous strengths which have helped the organization to become one of the worlds largest corporations. Nestle Foods has highly competent team of top management that has helped to steer the organization to operational excellence. Management of the organization has excelled in creating an environment, which foster innovation in the company. Innovation has helped the organization to achieve internal growth through the ability to meet and surpass consumer expectations. Nestle Foods has uses a low cost strategy which helps the organization to maintain low cost for all operations. Through the low cost strategy, Nestle Foods is able to offer its consumers competitive prices for its products. In addition, Nestle foods have a highly competitive team of research and development in charge of new product development. Nestle Foods has affiliations with major learning institutions and has developed a university where most of its research and development is conducted. The research and development team has enabled Nestle Foods to differentiate its products from those of its competitors in the industry. Another strength that Nestle Foods has its health based weight-management product line. With the growing popularity of health foods in the European market and other countries, this presents a lucrative opportunity for Nestle Foods. According to Remenyi, Money and Bannister (2007, p.128), threats are factors in the business environment which may hinder the successful implementation of an organization strategies. Nestle Foods has undertaken an intensive expansion strategy by venturing in many markets in Europe and other continents. However, most markets in Europe are already saturated which may hinder the successful implementation of the Nestle Food’s expansion strategy in European markets. For example, when Nestle Foods launched its yoghurt, Yoplait, in France, it failed to acquire a large market share because Danone is the established brand of yoghurt in the country. Nestle Foods has subsidiaries in almost all countries and treats each subsidiary as an independent unit through decentralization. This perspective has led to the dilution of the organization’s operation standards and principles. This presents a major threat, which hinders the organization’s success in implementation of its expansion strategy. A weakness is factor, which threats the organization’s survival in the future. According to Cherniss and Adler (2000, p. 97), it is critical for an organization to ensure its human capital is well motivated in order to increase productivity and operational efficiency. Nestle Foods has a bad reputation for using unethical practices when dealing with labor unions in most countries where it has manufacturing operations. For example, in the year 2005, one of Nestle foods employee who was on strike protesting the organization’s poor treatment of employees was murdered under mysterious circumstances Nestle Foods infant formula product presents the organization’s with a major challenge as it become to be associated with high infant mortality rate especially in the Southern market. Despite the fact that Nestle foods claims it adherence to the World Trade Organization code for distribution of breast milk substitutes have been accused of using questionable practices for production of infant formula. This has led to a boycott by consumers from purchasing the organization’s infant formula. Nestle Foods utility of its low cost strategy profoundly affects the social economic ability of farmers who supply the corporation with raw materials for manufacturing cocoa and coffee products. The company has been accused of oppressing the farmers through the refusal to purchase raw material through fair trade organizations. In other countries Nestle Food ahs been accessed of using child labor in its manufacturing operations, which is violation of children’s rights. Nestle Foods has been accused of interfering with natural resources in production of its bottle water. With increased demand for bottled water, Nestle Foods draws more than the flow of water springs through drilling borehole, which may deplete the natural resource. According to Cherniss and Adler (2000, p. 97), opportunities are factors in the business environment, which increase an organization’s ability to achieve its strategic intent. Nestle Foods has a broad product line which caters for the needs of different market segments. This has enabled the organization to venture into different markets. For example, Nestle has a joint venture with one of the largest cosmetic companies in France L’Oreal. On the other hand, the corporation is also one of largest producer of pet care products. Through a diversification strategy, Nestle Foods has become of the largest corporation the world over. The advancement of technology presents a lucrative opportunity for Nestle Foods to venture into global markets through its expansion strategy. For example, the company uses an intensive marketing strategy to build its brand. In addition, Nestle Foods has a public relation department which helps the organization to develop a positive reputation for the corporation. External Analysis The global marketing environment is very dynamic but provides international companies with numerous opportunities. The European market is viable for its business environment offers more opportunities than threats. For example, the country demographic has a sizeable population of grey society who are conscious about their health and would be a viable market for Nestle foods healthy breakfast cereal. This venture will help Nestle Company to increase its profitability levels and expand its business. According to Egan (2007, p.104), components of the organizational macro economic environment include social economic factors, political, legal, technological, and economic environment. Remenyi, Money and Bannister (2007, p.128) argues that the economic factors, include factors in the economy, which influences consumers’ purchasing power. These factors include inflation, economic growth, unemployment rate, interest rates, and changes in income. Nestle Foods is a multinational corporation operating in different economies. The economic environment in Europe is stable although many consumers were affected by the recent global recession. Despite the global recession Nestle Foods, sales revenue continues to grow because it provides consumers with necessities. When incomes of individuals and households are high the purchasing power of consumers increases leading to increased demand for consumer products. This will increase the overall demand for the products of Nestle Foods if the company is able to position its products in the market strategically. According to Egan (2007, p.104), legal environment refer to government regulations influencing the organizations operation. The legal environment in the European retail industry is deregulated with little or no interference from governments. However, the retail industry is influenced by legislation formulated by the European community countries formulated to regulate the industry. For example, after the launch of the Euro, most countries in Europe are required to switch from their regular trading currency to the Euro. The move was implemented to ensure uniformity in pricing. With the Euro, performing better than other currencies in the global market should help Nestle Foods to expand into other markets through exports of its products in to new markets. According to Remenyi, Money and Bannister (2007, p.128), the socio-cultural heritage of a country refers to the values, beliefs, and ways of doing things in a society. Socio-cultural factors include attitudes, beliefs, value system, lifestyle, and demographics. In the European market, there is increased emphasis on the wellness and fitness. In addition, societies constitute of the graying community whose needs differ from other market. The social and cultural environment in Europe is characterized by good work ethic; they have a rich ethnic diversity due to constant immigration, low infant mortality rate, and high life expectancy. In order to remain competitive, it is critical for an organization to keep up with changes in the socio-cultural environment. Nestle Foods should target the vast elderly community and provide them with their fitness and wellness products. They should also have a range of products for the infants to help increase profitability in their business and grow as a company. Bhatia (2008, p. 159) argues that the chosen technology by a company must reflect the competitive position it wants to be in the future. Technology helps a company to keep up with industry trends in the market. It also saves on cost of production that emanate from the efficiency and effectiveness of carrying out operations using technology rather than relying on manual methods. Technological advancement in the retail industry can help an organization to reduce operational cost. Reduction in operational cost is achieved through increased manufacturing efficiency, use of new distribution and communication methods such as the internet. To gain competitive advantage in the retail industry Nestle Foods should adapt a structure, which enable the fast adoption of new technology in the industry. Alternatively, an organization should become a trendsetter by becoming an innovation in the industry. According to Bandt (2010, p. 16), the environment concerns have increased in many industries as consumers have become more environmentally friendly. Contemporary environmental concerns such as global warming and use of environmentally friendly packaging material has been on the forefront of many debates concerning environment conservation. Global warming can be attributed to green house emissions. Organizations should invest in alternative sources of energy to prevent the overreliance on fossil energy. Nestle Foods should invest in discovering alternative sources of energy such as solar energy to help reduce its cost of production and conserve the environment. This will also help Nestle Foods in penetrating markets whose consumers are environmental friendly. Another contemporary environmental concern in Europe business environment is waste disposal. Non-biodegradable waste is chocking the environment and if the government does not institute policies to deal with the situation, it may lead more harm to the environment. According Hodgson, Chuck and Mathew (2003, p. 22), the political environment includes rule, regulations and policies by the government, which may influence an organization’s operations either positively or negatively. The political environment in most European countries in which Nestle Food operates is stable with little or no regulation from the government. The political environment in European markets presents Nestle Foods with a stable environment where it can implement its growth and expansion strategies successfully. Competitive Analysis The retail industry is highly dynamic and competitive. It offers consumers with choice, fair prices, and value. According Hodgson, Chuck and Mathew (2003, p. 24), Michael Porter’s five forces framework ascertains there are five forces that influence an industries competition. The forces influencing industry competition include threat of new entrants, buyers bargaining power, supplier’s bargaining power, threat of substitutes, and competitive rivalry. There are a large number of organizations competing for the same market shares in the European retail industry. This intensifies the competition and firms are deploying various strategies to survive the competitive environment. According to Henry (2008, p.70), to mitigate the effect of industry rivalry firms can use pricing strategies, for instance, low prices strategy. The major competitors for Nestle Foods include Unilever, Cadbury Schweppes, Danone and Hershey Foods. Product differentiation helps an organization to provide unique products with additional features. By exploiting supplier alliances, an organization can mitigate industry rivalry and gain competitive advantage over other companies in the industry. In order to increase consumers’ purchasing power eroded by the global recession, retail stores should offer pocket friendlier prices to consumers. The retail industry in Europe, the buyers bargaining power is relatively high. According to Hill & Jones (2009, p.33), buyers bargaining power is usually high due to the presence of many alternatives and low cost of switching. The retail industry offers consumers many alternatives to select from increasing competitive rivalry. The retail industry faces a formidable threat for some of its product lines from substitutes available to consumers. In the wake, of life style diseases most families have become health conscious. Bargaining power of the supplier’s increases when there are a limited number of suppliers carrying a scarce commodity in an industry. The bargaining power for supplier of raw material is low. According to Henry (2008, p. 70), bargaining power of consumers increases the cost of purchases, which in turn limits the outlets ability to offer consumers low prices. The supplies bargaining power in the North American retail industry is relatively low. According Hodgson, Chuck and Mathew (2003, p. 22), factors such as, market attractiveness, government restrictions, economies of scale for existing firms an industry and capital intensity determine the threat of new entrants in an industry. The threat of new entrants in the European retail industry is low. The nature of the retail industry requires a firm to have incumbent technology to join the market. Test of Suitability Nestle has been able to meet its marketing objective of growth through expansion of its operation into new markets in the European market. According to Graham (2007, p.73), it is critical that an organization evaluates its strategies in order to determine suitability, acceptability and feasibility. Botten (2009, p. 318) says that suitability determines the ability of organizations ability to achieve its marketing objectives despite eminent threats in the external business environment and weaknesses in the internal business environment. Nestle foods faces formidable threats from the mature markets in Europe, which may hinder its growth and expansion strategy. Coveney (2003, p. 51) says that acceptability evaluates the risk that an organization may have to incur in case of a failure upon implementation of a strategy. Acceptability also evaluates the commitment of major stakeholders in implementation of a strategy. Nestle Food’s top management plays a fundamental role in guiding employees in implementation of expansion strategy. The strategy has helped the organization to become one of the largest corporations in the world. According to Kew and Stredwick (2005, p.218), feasibility evaluates the organization resources to determine whether they are adequate for the successful implementation of the organization strategies. Nestle Foods has competent team of top management who have helped to guide the organization through the successful expansion into new markets all over the world. In addition, the organization has a competent team of research and development team who ensure the organization develops quality and differentiated products. In addition, management of the organization uses a low cost strategy, which helps the organization to penetrate new markets with a low price strategy. Recommendation Nestle Foods should standardize its operations through centralization of major functions such as manufacturing in order to control the operations of the organization more effectively. With centralization function, Nestle Foods will ensure adherence with labor union laws, thus avoid bad publicity emanating from employees strikes. In addition, Nestle Foods should use a supplier union when procuring raw materials in order to avoid bad publicity from activists who claim oppression of supplier by the company. Alternatively, the organization should diversify backwards by establishing its own production functions to supply raw material for the organization. To avoid the pitfall associated with expansion into mature the organization should concentrate its resources into growing markets such as in Asia and Africa. To mitigate the negative effect from baby- formula product line, Nestle Foods should undertake corporate social responsibility supporting a worthy cause for infants. The effort will help the organization to build a positive public image that is hindering the organization expansion strategy. With negative publicity, Nestle Foods products may be rejected in new markets. References Bandt, T. 2010, Business Analysis Project Solar Industry: Case Study Conergy. Germany: Grin Verlag Bhatia, S. C. 2008, Retail Management. USA: Atlantic Publishers Botten, N. 2009, Enterprise strategy: strategic level, E3. USA: Butterworth-Heinemann Cherniss, C. & Adler, M. 2000, Promoting emotional intelligence in organizations: make training in emotional intelligence effective USA: American Society for Training and Development Coveney, M. 2003, The strategy gap: leveraging technology to execute winning strategies New York: John Wiley and Sons Egan, J. 2007, marketing communications USA: Cengage Learning EMEA. Graham, T. 2007, CIMA Exam Practice Kit Management Accounting Business Strategy USA: Butterworth-Heinemann Henry, A. 2008, Understanding Strategic Management. New York: Oxford University Press. Hill, C. & Jones, G. 2009), Strategic Management Theory: An Integrated Approach. Canada: Cengage learning Hodgson, A. & Chuck, Mathew C. 2003, Effective Strategic Planning USA: John Catt Educational Ltd Kew, J. & Stredwick, J. 2005, Business environment: managing in a strategic context USA: CIPD Publishing Remenyi, D., Money, A. & Bannister, F. 2007, The Effective Measurement and Management of ICT Costs and Benefits USA: Elsevier Publishers. Read More