International Expansion and Its Effects on the Marketing and Product Mix of Nestle - Research Paper Example

Nestlé Table of Contents Nestlé 1 Table of Contents 1 Introduction 3 About the Company 4 Opportunities and Challenges of International Marketing 4 Trade Theories and Economic Cooperation 6 Environment for International Marketing 6 Political Factors 7 Economic Factors 7 Sociological Factors 8 Technological Factors 8 Foreign Market Entry Strategies 8 Exporting 9 Licensing 10 Joint Ventures 10 Management Contracts 10 Product Strategies 10 Distribution Strategies 11 Promotion Strategies 12 Pricing Strategies 12 International Marketing Mix Strategies 12 References 14 Bibliography 15 Introduction Business organizations presently operate in highly turbulent business environments. This is because of the large scale competition which is prevailing in the international business markets. The twenty first century business environment has been closely linked with the aspect of globalisation as nations are cutting down on the restrictions for foreign companies to invest in their markets. As a result business organizations across nations are breaching political and geographical boundaries in an attempt to grab a share of the market. The emergence of developing nations has created numerous opportunities for business organizations so as to expand into different markets. This has triggered a wave of competition among the business organizations to garb each other’s market share. International expansion also poses numerous challenges for multinational firms which have operations in different regions as markets in different nations have distinct consumer tastes and preferences apart from large scale variations in macro economical and political environments. The present study would deal with the aspect of international expansion and its effects on the product and marketing and product mix of the organization. The organization selected for the study is Nestle. The choice of the organization assumes significance considering the fact that the firm has its markets in numerous regions and has a large range of product mix and categories that cater to many segments of the consumers across the world. About the Company Nestle is the global leader in the food and beverage industry segment and has a significant presence across numerous consumer markets across the globe. The origins of the company date back to the year 1866 when Henri Nestle founded the organization in Vevey Switzerland. The company has since then grown up a long way to emerge as an organization which boasts of its business presence in almost all the major markets of the world with a profit margin of CHF 108 billion providing employment opportunities to about 280,000 individuals. The company’s mission is to provide best quality and highly nutritious food to individuals across the globe (Nestle, 2011). Opportunities and Challenges of International Marketing International expansion has given rise to a new term called ‘Multinational Corporation’. The word multinational in business parlance implies an organization in which the marketing related tasks are formulated in numerous nations and are coordinated across all the markets where the firm operates (Onkvisit & Shaw, 2008, p.5). International expansion throws numerous opportunities and challenges before an organization. On one hand it opens up numerous opportunities in the form of new markets with good potential. Saturation of a particular product line can also be handled by a firm if it introduces the product in newer markets. It also reflects numerous challenges for an organization as large scale market fluctuation and adaption with the local culture and sentiments play a major role in the success of firms in the international markets (Czinkota & Ronkainen, 2007, p.10). Figure 1: The Process of International Marketing (Source: Philips, Doole & Lowe, 1994, p.28) The figure above shows the process of international marketing in multinational organizations. The figure shows numerous challenges such as attitude based barriers, unsolicited orders, lack of willingness as well as time frame based commitment to the international markets as the major challenges faced by organizations while expanding internationally into different markets. Trade Theories and Economic Cooperation The growth of international expansion has been often linked to the aspects of free trade policy which is being pursued by different nations following global conventions of the World trade organization which is striving towards creating a global business environment. Free trade is a “macroeconomic scenario in which a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another nation” (Hill & Jain, 2008, p.216). The concept of free trade was first stated by Adam Smith in the year 1776 and was based on the invisible interference of market mechanisms. The adoption of free trade policies by governments across nations has opened a plethora of opportunities for business organizations across the world. Governments across the world including those of communist regimes like China have adopted a free trade policy which has resulted in growth of business organizations beyond their national and geographical frontiers. Nestle is one of the pioneer organizations that have pursued international expansion as a part of the long term growth strategy of the company. The company has its business presence across Africa, Asia, Americas, Asia, Europe and Oceania. The most important and interesting part of the international expansion strategy of Nestle is that in almost all the consumer markets it has occupied a formidable brand image which has created a niche for the brand in the mindset of the global consumers (Nestle-a, 2011). Environment for International Marketing External business environment plays a major role in the international expansion strategy. The external business environment of any organization can be analysed by taking into account the Political, Economic, Sociological, Technological and legal factors affecting a particular business market. Political Factors Government policies play a major role in the international expansion strategy of business organizations. Trade policies, monetary and fiscal policies are largely influenced by the nature of political leadership in a particular region. In addition to these labour laws which have a vital influence on the international expansion strategy of business organizations. The aspect of competition among the firms is also largely influenced by the stance taken by the political leadership of a particular region as aspects like licensing are under the control of the political leadership of a nation. Foreign trade regulations, taxation and other policies largely affect the international expansion strategy of business organizations (Johnson, 2008, p.66-68). In the context of Nestle which deals with food and beverage products governmental regulations would also include the list of permissible ingredients as well as quality standards which vary from one region to another and are normally defined by the government of a particular region. Economic Factors Economic indicators include aspects like interest rates, income levels of individuals of a particular area, inflation monetary and fiscal policies, exchange rates and GDP. The economic well being of a nation is directly related to the profitability of business organizations as it determines the disposable income level of individuals which is the most important factors that determines the sale of a particular product offering (Henry, 2008, p.54). Sociological Factors The success of an international business expansion also depends on the extent to which a firm takes care of the local beliefs and sentiments of individuals in a particular region. There have been a number of instances where firms undertaking an international expansion strategy have failed in a particular market because they did not pay attention towards the local cultures and sentiments of individuals. Sociological aspects also include areas like packaging, promotions etc which are largely dependent on the sociological aspects of consumers of a particular area (Gilligan & Hird, 1986, p.5). Nestle has adopted a ‘glocalisation’ strategy of thinking globally and acting locally with regards to its international expansion strategy (Hamel, 2001, p.100-101). Under this strategy Nestle introduces products with a touch of local flavour in its packaging and promotional aspects. For instance products are packaged and printed in local languages. In addition promotional mix also has a local taste and flavour which adds to the value addition of the product offering. Technological Factors Technological factors determine the expertise of firms in areas like production and management. Technological advances like internet have largely influenced the business prospects of multinational firms with regards to their international expansion strategies (Bensoussan & Fleisher, 2008, p.180). Foreign Market Entry Strategies Market entry strategies are large important for any organization willing to undertake international expansion in new markets. Markets which boast of favourable macro economic scenarios provide greater opportunities to business organizations to maintain the profitability and sustainability. A critical analysis of the market environment is very critical for firms tying to expand internationally. The analysis of the markets is based on the prevailing political, sociological, economical, legal and technological aspects of a particular region. In addition consumer behaviour of consumer belonging to a particular region is also important for business organizations. This is important because consumer preferences are known to be varied across regions and are largely influenced by the local and cultural beliefs of the individuals in the target market. These factors would serve as a guideline for any organization so as to adapt successfully as well as to take care of the competition aspects prevailing in a particular consumer market. An organization trying to enter the international markets can adopt many routes such as exporting, licensing, partnerships, joint ventures, franchising and management contracts. These strategic alliances help an organization to enter and adapt successfully in the international market (Georgia CTAE, 2011). Alliance with a local partner also helps in generating greater sustainability as local partners have a better understanding of the market conditions which helps in better penetration of the product in the consumer market. Exporting This is the oldest and one of the most popular modes of foreign market entry strategies adopted by business organizations across the globe. Exporting involves marketing of goods and services which are produced in a different nation other than the nation where it’s being sold. This form of market entry is considered to be less risky in nature as most of the investment is being done in the home country. Disadvantages arise from the fact that the foreign agents who are responsible for sales and distribution in the target market have high bargaining powers which keeps the exporters at a disadvantage (Agriculture and Consumer Protection, n.d.). Licensing Licensing involves a situation in which a foreign business organization shares its patents and other technological expertise with a local partner under the terms of a contract known as the licensing contract. Advantage of this technique includes risk sharing whereas disadvantages include aspects like illegal use of patents and copyright infringements (Georgia CTAE, 2011). Joint Ventures This is form of a legal agreement between two partners where they run a business on a joint basis. The advantages of this technique include better sustainability whereas disadvantages include legal conflicts between the partners (Georgia CTAE, 2011). Management Contracts This is one of the newer forms of business alliances in which one partner provides the technological and operational expertise whereas the other partner provides the capital and other raw materials required for the smooth conduct of business operations in a particular region (Georgia CTAE, 2011). Product Strategies Product features are perhaps the most important aspect that determines the success of a particular product offering in the international market. The product strategy of Nestle is directly linked with the aspect of ‘thinking globally and acting locally’. The product features of Nestle are designed in a manner that takes care of the local beliefs and sentiments of the local target market. Nestlé’s product strategies are primarily based on the principles of providing high quality nutritious diet. Innovations are a critical part in the product strategy of the firm as it lays stress on the providing quality through innovation. The company produces a wide range of products that cater to the needs of a large section of the population ranging from baby products to chocolates which are deigned to suit the budget of different section of the consumer markets (Tata Consultancy Services, 2008, p.6). Nestle also aggressively pursues product extension strategies wherein it introduces products with variations in different consumer markets based on the local market environmental conditions. Product positioning is also important in case of international expansions as it helps in creating an image of the product or the brand in the mindset of the consumers. Nestle has acquired a formidable brand image in the minds of the consumer by virtue of its excellent product quality offering over a long duration. This aspect combined with its ‘glocalization’ strategy has resulted in a formidable positioning of the firm and its products in the minds of the consumers. Distribution Strategies Distribution strategies involve a major factor in the success of an organization in the global market. Distribution channels determine how easily and readily a product is available in the market. In case of FMCG companies like Nestle this factor assumes significance as it would determine the availability and penetration of the product line in the new market. Tie up with a local partner could help in better penetration as the local partners would have a better understanding of prevailing conditions in a market. These tie ups include franchising, joint ventures etc which should be formed on the basis of the prevailing political and economic conditions in a market. Promotion Strategies Promotions are vital as they form the medium of communication between the organization and the final consumer. Promotions are important as they help in generating an image of the product or service in the minds of the consumer. Promotions can be done in many ways which includes advertising, direct selling, sponsorships, and sales promotions (Kitchen & Pelsmacker, 2004, p.21). The advancement of technology has resulted in the development of internet as a tool for integrated marketing communications. Online channels have a wide reach and are comparatively cheaper as compared to the other tools of promotions. The advent of popular social networking sites has also accentuated the popularity of the channel. In case of multinational firms like Nestle the challenge remains for the organization to include local cultural beliefs and sentiments in their promotional campaigns. Pricing Strategies Nestle has an aggressive pricing strategy where the firm tries to cater to all the consumer segments. This helps the firm to target a large consumer base as they produce products in varying packages that help to serve every section of the consumer. The example of Nestle in India clearly proves this fact where the company has launched premium versions as well as low cost versions of a particular product. Products also come in different sizes with prices of certain products being as low as a single rupee. This strategy has helped it to not only generate a large customer base but also in creating sustainable competitive advantage for its products in the markets (Catalyst, 2001). International Marketing Mix Strategies The success of a firm in the international markets is largely dependent on the ability of a firm to successfully adapt to the market environment. This is quite difficult considering the fact that different markets have different external environment. This apart the consumer behaviour of target market consumers also varies to a large extent across different geographies as cultural sentiments largely vary across different markets. Hence it is important that Nestle adopts a strategy of ‘thinking globally and acting locally’ wherein it would target global markets but would also consider slight variations in its product line depending on the local tastes and preferences of a particular consumer market. This would not only help the firm to successfully enter the international market but would also help in the long term business and profit sustainability of the organization in the long run. References Agriculture and Consumer Protection. No date. Global agricultural marketing management. (Marketing and Agribusiness Texts. [Online]. Available at: http://www.fao.org/docrep/w5973e/w5973e0b.htm [Accessed on February 22, 2011]. Bensoussan, B.E. & Fleisher, C.S. 2008. Analysis without paralysis: 10 tools to make better strategic decisions. FT Press. Catalyst. 2001. Reinventing Nestle. [Online]. Available at: http://www.hinduonnet.com/businessline/catalyst/2001/12/20/stories/1920f051.htm [Accessed on February 22, 2011]. Czinkota, M.R. & Ronkainen, I.A. 2007. International marketing. Cengage Learning. Georgia CTAE. 2011. Entering International Markets: Organization and Strategy. [Ppt]. Available at: http://www.gactaern.org/Unit%20Plans/Marketing/Marketing_Principles/MP_5%20Entering%20International%20Markets.ppt [Accessed on February 22, 2011]. Gilligan, C. & Hird, M. 1986. International marketing: strategy and management. Taylor & Francis. Hamel, P. 2001. Globalization and social movements. Palgrave Macmillan. Henry, A. 2008. Understanding Strategic Management. Oxford University Press. Hill, C.W.L & Jain, A.K. 2008. International Business 6E. Tata McGraw-Hill. Johnson. 2008. Exploring Corporate Strategy: Text & Cases, 7/E. Pearson Education India. Kitchen, P.J. & Pelsmacker, P.T. 2004. Integrated marketing communications: a primer. Routledge. Onkvisit, S. & Shaw, J.S. 2008. International marketing: strategy and theory. Taylor & Francis. Nestle. 2011. About us. [Online]. Available at: http://www.nestle.com/AboutUs/Pages/AboutUs.aspx [Accessed on February 21, 2011]. Nestle-a. 2011. Global Presence. [Online]. Available at: http://www.nestle.com/AboutUs/GlobalPresence/Pages/GlobalPresence.aspx [Accessed on February 21, 2011]. Philips, C., Doole, I. & Lowe, R 1994. International marketing strategy: analysis, development, and implementation. Routledge. Tata Consultancy Services. 2008. Competitive Capabilities for the Future. [Pdf]. Available at: http://www.tcs.com/SiteCollectionDocuments/White%20Papers/tcs_retail_whitepaper_competitive_capabilities.pdf [Accessed on February 21, 2011]. Bibliography Knoll, S. 2008. Cross-Business Synergies: A Typology of Cross-Business Synergies and a Mid-range Theory of Continuous Growth Synergy Realization. Gabler Verlag. Morley, M. 2002. How to manage your global reputation: a guide to the dynamics of international public relations. Palgrave Macmillan. Rutenbeck, J & Rutenbeck, J.B. 2006. Tech terms: what every telecommunications and digital media person should know. Focal Press. Kotler, P. 2003. Marketing insights from A to Z: 80 concepts every manager needs to know. John Wiley and Sons. Read More