Nestle in Switzerland - Company Analysis - Assignment Example

Corporate Governance Analysis Executive Summary A company or an organization traditionally participates in the mobilization of resources to contribute to productivity with the objective of attaining wealth creation and other benefits to the stakeholders. For that reason, appropriate corporate governance is required to protect and improve shareholders’ interests through strategic operations and management of all the resources. This paper outlines corporate governance as exhibited in Samsung Electronics (South Korea), Nestle (Switzerland), and Singapore Airlines (Singapore). An analysis has been done on the companies’ background, their corporate governance practices, challenges and the response to the challenge. From the analysis, it was evident that the main objective of these companies is to build customer confidence and meet their different needs. Nestle (Switzerland) Company Analysis Nestle is a Switzerland- based company that was formed as a result f a 1905 merger between two companies: Henri Nestle (1867) and Anglo- Swiss (1886). The company has engaged in effective marketing strategies, vast sales and immense distribution network across the globe to ensure availability of the products to customers irrespective of their location. The company provides a wide range of food products and services and the brand has focused on the provision of products and services that meet the needs of customers in different parts of the world. It is a company that recognizes culture and the need for quality of life of people wherever they are. Nestle is a company committed to excellence and provision of value and services to its clients (Onkvisit, 2004). Company Background Nestle is a company that traces its history to 1866, the year when the first condensed milk company was open in Switzerland, Cham. In 1867, the founder of Nestle, Henri Nestle (German pharmacist) launched ‘Farine lactee’ (mixture of cow’s milk, sugar and wheat flour) as he was saving the life of a child in the neighborhood in Vevey, Switzerland. From that time, Nestle Company was formed and its cornerstone became nutrition. The founder of the company used his surname as well as the logotype to define the company in such that; the meaning of his surname was ‘little nest’ and was used to name the company and design its logo. The symbol of the nest is security, nourishment and family, and the symbol forms the platform for Nestlé’s profile (Nestle-nordic.com, 2012). In 1898, Nestle purchased its first factory out of Switzerland in Viking Melk factory, Norway. In 1905 and in 1929, the company merged with Anglo- Swiss Condensed Milk Company and with Peter- Cailler- Kohler Chocolats Suisses S.A. respectively. The company was able to experience growth especially because of the First World War whereby government contracts increased due to demand for dairy products leading to Nestle production experiencing more than double growth after the war. In 1938, the company launched the first instant coffee in the world, known as Nescafe. In 1947, the company formed a merger with Alimentana S.A. and the brand was referred to as Maggi. In 1962, Nestle purchased Findus, and in turn, it became the first significant shareholder in 1974 in the Cosmetics Company L’Oreal. In addition, the company bought Alcon- the company that manufactured eye care kits and products- in 1977. The company continued to expand and in 1985, Nestle bought the Food Company Carnation as well. Three years later, Nestle bought Rowntree Mackintosh, a confectionary company as well as Buitoni- Perugina, a pasta company. There were several other company that Nestle purchased including; Perrier water company in 1992, Spillers pet food company in 1998, and acquired Preparados y Congelados Alimenticios LA- a company that is involved in the production of ready -made frozen foods, refrigerated products, snacks and pizzas. In 2000, Nestle sold Findus brand in all countries with the exception of Switzerland and Italy. Nestle merged with a North American premier pet food company Ralston Purina in 2001 in order to benefit from the differentiated expertise in dry dog food (Nestle-nordic.com, 2012). Nestle Switzerland is generally a large food and pharmaceutical company operating in virtually all parts of the world. The company earns over $80 billion revenues per year and has employed more than 230, 000 workers, in about 80 countries. Nestle is best known for its coffee, chocolate, milk products, and several other products that have been invented to meet the needs of the locals. Due to the presence of the company in different countries, its values have included corporate social responsibility and respect for traditional and cultural values of the locals. Since it is a huge firm, it has allowed local organizations to engage in business in the best way that fits the business cultures and local conditions in those countries. Therefore, Nestle has been guided by decentralized strategy and has depended on information technology units to help in the operation numerous computers, mainframes and UNIX systems (Pearson Education, 2010). The Nestle Company has been in existence for more than 130 years and it has been a successful company based on its product innovations and acquisitions of business making it the largest food company across the globe. The company has experienced growth since its inception and this has made it possible for the company to produce other products such as; soups, frozen products, chocolates, cereals, mineral water, yoghurts, and coffee among others. In addition, the company has expanded its portfolio and included other products such as; pet foods, cosmetics, and pharmaceutical products (Nestle-nordic.com, 2012). Corporate Governance at Nestle (Switzerland) Primarily, Nestle is a company that is involved in the provision of responses to human needs in different parts of the world and it is mainly concerned about the well- being of its clients and employees. This is depicted the company’s social responsibility towards the people. The objective of Nestle is to increase its sales and expand its profit margin while raising the living standards in the regions where the company is active. In addition, Nestle understands that it is the people who form the backbone of the company and without the commitment and the energy of the people, the company cannot achieve anything hence for Nestle, the people form the most fundamental asset. As a result, the company involves the people in its activities and in other work aspects (Onkvisit, 2004). By using open communication as well as active cooperation, all the people are involved in making contributions on how to improve the results of the company and to achieve personal development. Values of Nestle Company Quality: Nestle is highly committed towards quality brands and products. Since its creation by Henri Nestle, the company’s coat of arms is a bird’s nest which represents the safety of the company’s products. Quality and safety have been given priority and continuously enhanced through research and development as guided by innovation capacity and the strength of the brand (nestle.com, 2009). Respect: Nestle is an international company and it has realized the significance of the relationship between eating habits and social habits and in turn, it has been concerned about various cultures and traditions. The company has endeavored on integrating itself into different cultures and traditions by embracing diversity as guided by respect for nationality, race, age, nationality, religion and gender (nestle.com, 2009) Culture: there are different cultural values that Nestle considers to be vital for the success of the company and Swiss roots have played a significant role in influencing Nestlé’s culture. At the same time, the company’s culture has evolved in the bid to reshape the company. Nestle, Switzerland is committed towards strong work ethic, honesty, quality, and integrity, and social attitudes toward other people. Furthermore, the company’s approach to business has been pragmatic rather than dogmatic. The other values include; openness and curiosity, pride in reputation and performance and loyalty to the company (nestle.com, 2009) Corporate Governance Practices Decentralized Management Structure Nestle management continuously adds value to the company more than exercising authority through the involvement of all the employees. Project work and specific assignments have become common extending beyond traditional boundaries with the objective of contributing to high level of group performance. Basically, the management structure of the company is decentralized whereby, the responsibility of making operating decisions are assigned to the local units to decide on issues such as; pricing, human resources, marketing and distribution among others. In addition, the company has seven worldwide strategic business units (SBUs) which are responsible for high level of strategic decisions and also for business development. For instance; one of the strategic business units can focus on coffee and beverages while the other can focus on ice cream and confectionery. The strategic units engage in general strategy development that includes market entry and acquisitions strategy (Herbold, 2011). In addition to the SBU structure, regional organization is used in the management of the company and the regional organizations have been divided into five main geographical zones in different parts of the world to include; North America, Europe and Asia. Regional organizations help in the execution of overall development strategy and have the responsibility of developing regional strategies. That is, regional managers and SBU do get involved in strategic or operating decisions except on exceptional issues (Herbold, 2011). In the main, the strategic tool used by Nestle is management development programs. With numerous branches in different parts of the world, the company has about 700 managers engaging in foreign assignments as they move from one country to another. Training is intensively done at Rive- Reine, Switzerland where individuals from different countries are trained. Managers from various regions around the world at various stages of their work are exposed to specific development programs. This exposes the managers to the company’s strategy and culture, and creates an opportunity for the managers to access Nestlé's top management (Nestle.com, 2009). Research and Development Research and development plays a crucial role in the operation of Nestle mainly because the company is interested in commercializing innovative foodstuffs. Research and development function is composed on 18 different groups that function in 11 countries in various parts of the world. The company used about 1% of its annual sales revenues for research and development, and it has about 3, 100 employees engaging in that function. Development initiatives take up about 70% of the research and development budget and the initiatives are focused on the development of products and processes that meet the market needs as they have been identified y SBUs, and in relation to information provided by regional and local managers (Wit & Meyer, 2010). For example, research and development group in Asia contributed to the development Nestle instant noodle products based on research on the perceived needs of the people in Asia. Therefore, the company concentrates on short and long term initiatives based on information obtained from research and development projects that are focused on the development of new technological platforms for example; agricultural biotechnology products or non-animal sources of proteins (Herbold, 2011). Market Positioning Although Nestle exhibited undisputed success from the early 1990s, it had to improve its marketing strategies in order to maintain its growth rate. In Switzerland and other European and North American markets, the markets were undergoing maturity and populations of some of the countries experienced stagnation and in others, the rate of food consumption declined. This was challenging for the company and in response, it focused on emerging markets for the possibilities of growth (Wit & Meyer, 2010). Simply, economic and population growth as well as market oriented economic policies developed by governments especially in the developing countries served as business opportunities for Nestle (Onkvisit, 2004). Generally, Nestlé's strategy is to enter the emerging markets before its competitors so as to hold a substantial position to sell basic food items that would attract local market base for example; infant formula, tofu, condensed milk and noodles. Apart from concentrating on emerging markets, the company has narrowed its strategic brands in order to simplify life, to concentrate on the existing marketing resources, and reduce exposure to risk. The managerial efforts have been basically on key niches so as to build a commanding market position in these niches. Nestle Switzerland, has been successful in implementing this strategy as indicated by the company 85% of instant coffee market in Mexico, 66% of powdered milk market in the Philippines, and 70% of soup market in Chile. After positioning itself in these markets, and the income levels experience an increase, Nestle moves out of the niches progressively and introduces other upscale products such as chocolates, prepared foodstuffs, mineral water and cookies among others (Nestle.com, 2010). Even though the Swiss company is famous throughout the world for main brands such as Nescafe, it penetrates the markets by focusing on local brands. Apparently, while the company owns over eight thousand brands, only seven hundred and fifty are registered in at least two countries and 80 of them are registered in at least ten countries. Therefore, in order to ensure that its market position facilitates for growth, it optimizes on ingredients and the kind of technology used in processing in relation to the local conditions and use the kind of brand name that is recognized locally. In that effect, instead of concentrating on globalization, Nestle Company’s strategy –especially in emerging markets is not globalization but rather, it is customization (Pride & Ferrell, 2011). In executing market positioning strategy, Nestle ensure that it has a high level of flexibility in order to be able to adapt to the unpredictable local conditions and attain long term benefits through the construction of sustainable business that extend beyond short term profits. For example; in developing countries where the level of insecurity is high, trucks used in the distribution of company’s products are allowed to travel only at daytime and be guarded. In other countries such as China, the company focused on provision on incentives and direct payment to farmers to provide milk to the company and also, the company constructed transportation routes to make it easier for the farmers to transport milk for the company (Bradley, 2011). While the execution of these strategies may be perceived as being expensive, the long term benefits for Nestle are substantial. In Switzerland and in other European and American niches, the company engaged in similar strategies during the period of industrialization. The company invested in infrastructure in order to trigger production. On the other hand, the company has also purchased local companies to build the company. For example; in Poland, the company purchased Goplana which was the second largest manufacturer of chocolate in the country so as to increase production and experience business growth. The company did not only grow, but its market share also increased (Bradley, 2011). Challenges and Solutions Nestle is a large company that operates virtually in every region across the world. With more than $80 billion annual revenues and over 230, 000 employees in over 500 facilities in more than 80 countries, there are bound to be challenges. One of the main challenges that the company is facing is effectively running its enterprise system in the various countries where it is located. In the recent past, the company has not been able to effectively engage in electronic commerce because of local inefficiencies and costs to allow for coordination of information systems and business operations (Pearson Education, 2010). In Geneva, Switzerland, the Fair Labor Association undertook an independent investigation on Nestlé’s cocoa supply chain and found that the company had violated its labor code, and in particular, child labor. Irrespective of the company’s effort to discourage child labor, the report found that; there were cultural and systematic challenges that made it difficult to curb child labor. The investigation report showed that; the there were several stages of Nestlé’s supply chain and this has led to increased cases of child labor thus the need to understand the labor code (FLA, 2012). Responses In order for the company to deal with enterprise system issues, Nestle concentrated on the standardization and coordination of business processes and information systems. First, Nestle installed R/3 enterprise resource planning software from SAP to integrate accounting applications, distribution and material mainly in Europe, in Canada and in the United States. At the same time, the company is still working on expanding its enterprise systems to include all the facilities to enable its numerous facilities function as a single- minded e- commerce. The response is expected to improve the implementation process of enterprise systems (Pearson Education, 2010). In regard to the issue of child labor incidences as found in the company’s cocoa supply chain, especially in Ivory Coast, Nestle Company responded to the recommendations that had been provided by FLA. Nestle developed an action plan that outlined three stages of activities that would contribute to improvement of the situation and the phases would be completed at the ending of 2012, 2013, and 2016. The short term response involved the development of a clearly illustrated guide outlining supplier code, to be distributed to over 20, 000 farmers that participated in the company’s sustainability initiative- dabbed the Nestle Cocoa Plan. Furthermore, the Nestle Company decided to conduct training activities to empower employee dealing directly with farms so that they would closely monitor incidences of violations and encourage the farms to comply with the labor code. In addition, the company agreed that, its main suppliers will concentrate on working with training agencies in order to fully include the supplier code into those training programs. Apart from that, the company distributed the supplier code manual and the developed workshops that would be used as platforms to explain the manual (FLA, 2012). The company also plans to establish a sophisticated monitoring and remediation system to cover all the parties in the supply chain. An adequate mapping system will ensure that code violations are tremendously reduced and suppliers will act in a socially recommendable way. The response by Nestle is enormous and it is expected that the company will have a dedicated workforce that would ensure that children are protected and the suppliers comply with the supplier code so as to lead to the improvement of labor practices threatening to ruin the company’s reputation (FLA, 2012). Compare and Contrast: Nestle, Samsung Electronics and Singapore Airlines Nestle is a company that is not systems oriented but product, brand and people oriented. Although the company requires a system to run it, the company understands that the system cannot function in itself. Furthermore, Nestle is interested in long term benefits accruing from its business practices and thus prefers to have shareholders interested in long- term benefits, and in strategies that result to long term benefits e.g. infrastructural development. However, as much as long term outcomes are fundamental for Nestle, short term outcomes have not been ignored because the company is interested in creating wide profit margin annually. Like Samsung and SIA, Nestle is a company that is interested in earning its customers’ preference and confidence. The strategies implemented by the companies adhere to the needs of the customers and anticipate the trends of the customers in order to create products that the customers are interested-in. on the other hand, Nestle has put into consideration the significance of the employees. While SIA has concentrated on the needs of the employees by ensuring that the front- line managers are well trained and equipped to address the needs of the company, Nestle Company has not only trained its employees to effectively manage the diverse and numerous companies throughout the world, but has also decentralized its system of governance to allow employees to participate in decision making processes. Conclusion Corporate governance practices form an important element for any business because it determines the management and consequently, the success of the company in a competitive market. As evident from Samsung electronics, SIA, and Nestle, the companies are driven by a high level of performance with the objective of producing high quality products to contribute to growth. The assurance of the production of high quality products for the companies has been enhanced by operational efficiencies and their realignment to people and development. In addition, the companies have realized the significance of corporate social responsibility and that is why they have focused on needs of the local consumers for example through infrastructural development in the respective regions where the companies have been set up. Essentially, the companies have shown commitment towards the concept of progressive improvement of its operations in order to avoid abrupt changes that may be challenging or risky for their development. References Bradley, J. (2011). Cadbury’s Purple Reign: the story behind chocolate’s best loved brand. Chicago: Chicago press FLA. (2012, June). FLA Highlights Underlying Challenges of Child Labor after Extensive Investigation of Nestle Cocoa Supply Chain. (September 15, 2012). http://www.fairlabor.org/blog/entry/fla-highlights-underlying-challenges-child-labor-after-extensive-investigation-nestl%C3%A9 Herbold, R. J. (2011). What’s Holding you back: 10 bold steps that define gusty leaders. Cambridge: Cambridge University Press Nestle.com (2009). Nestle Management and Leadership Principles. http://www.nestle.com/Common/NestleDocuments/Documents/Library/Documents/People/Management-Leadership-Principles-EN.pdf. P.1-16 Nestle.com. (2010). Nescafe/ Nestle Global. http://www.nestle.com Nestle-nordic.com (2012). Nestle History. (Accessed September 15, 2012). http://www.nestle-nordic.com/corporate/no/om_nestle/historikk/history.htm Onkvisit, S. (2004). International Marketing: Analysis and Strategy. London: Routledge publishers Pearson Education. (2010). Nestle Struggles with Enterprise Systems. (accessed September 15, 2012). http://wps.prenhall.com/bp_laudon_mis_9/32/8212/2102272.cw/content/index.html Pride, W. M. & Ferrell, O. C. (2011). Marketing. New York: John Wiley & Sons Wit de, B. & Meyer, R. (2010). Strategy: Process, Content, Context: an International Perspective. New York: Springer Read More