Global Management Strategy - Nestle - Case Study Example

Nestle is considered globally one of the biggest marketers of various products like powdered milk, infant formula, chocolates, soups, instant coffee, pet food, confectionary, snacks and also mineral water. Nestle is a multinational brand dealing in nutrition and health industry to be precise, with its headquarters situated in Switzerland, Vevey. In terms of revenues, Nestle is one of the largest companies in the world. Also, the company employs almost 330,000 people globally (around 150 countries) with around 461 operational factories in almost 86 countries. Back in 2011, the sales for Nestle hit a new high of around CHF 83.7 billion (Kapferer 24). It also became one of the shareholders for L`Oreal which is also one of the big cosmetic brands of the world. Therefore, considering the domain and high revenue generation of the company, an entry strategy will focus on various short term and long term goals, which will be discussed in the paper thereby devising a strategy to cope up with the market competition. In order to enter a new or a transition market, Nestle will need to devise a strategy to plan its long term objectives and then decentralize these objectives after which adapting to the local tastes will follow. Therefore, the sole objective of the strategy would be to understand the local market in context to socio-political as well as cultural and economic perspectives to offer a reliable yet an affordable product to the market in transition. This paper will, thus, focus on various perspectives and strategies on global marketing to explicate how Nestle can become a key player in the market it is planning on entering. Prior to designing the entry strategy, a historic perspective on Nestle as a company must be presented. The history of Nestle goes back to 1866 when the first ever milk factory was established in Switzerland. The Anglo-Swiss Condensed Milk Company was the one to establish the factory. However, the founder of Nestle i.e. Henri Nestle who was a German based pharmacist initiated his own product called Farinelactee which was formed out of cow`s milk alongside sugar and milk aimed at enhancing the life standard of one of his neighbor`s child. Ever since, the company has been focusing on designing nutritious products for customers. Later in 1905, the American company (Anglo-Swiss Condensed Milk Company) had a merger with Nestle, after which it grew drastically to acquire a large share of revenue. As a result, in 2011, Nestle acquired the accolade of being the first one in the list published on Fortune Global 500 for the large revenue base it had acquired. The company bases its success on its culture which has been matured after 140 years reflecting on various ideals of honesty, long-term thinking and fairness (Hit & Ferrer 17-18). These principles are left intact while going through a merger or even while entering into a local market in transition. Therefore, one of the sole long term objectives of entering into a transition market is the transference of experience as well as technology into the host country by integrating cultures and values, a perspective which would further be touched upon in the paper. Considering the perspectives that the company under discussion undertakes, it is safe to assume that entry into a transition market can produce economies of scale if the strategy is accurate. In this context, identifying the large market segments is crucial after which a marketing strategy can be designed. Therefore, as mentioned above as well, the competitive advantage of the company lies in the transference of experience, also the integration of various marketing activities via enhanced coordination amongst various countries. However, at the same time, the risk of dealing with the toughest customers also lies; therefore, marketing should be aimed at satisfying the concerns of the native audience. Yet, diverse markets carry various financial benefits as well since any change in the financial scenario may be coped up by virtue of a large segment of global market. In this context, entry into transition markets is highly recommended since any threat with respect to developed market can be coped up with by strengthening the standing in transitioning markets. Therefore to make use of the benefits attached with transitioning markets, proper planning must go into strategically making alliances or to compete in the local markets. This would include a thorough study of international commitment values of the host country in context to personnel management and also the commitment to various international marketing trends. Therefore, keeping the benefits of entering into diverse and transitional markets, proper planning must go into the strategy to ensure that economies are scales are being achieved. Furthermore, while entering a transitioning market, Nestle must keep certain aspects in mind. That is, when is the right time to enter these markets and also what scale to enter the market on. In addition, the entry mode is also crucial since Nestle will have to plan if aims at exporting its products, licensing, franchising, developing a joint venture with an already established company or rather acquiring an enterprise that has already been established. However, the choice of entry mode is in turn affected by various other factors. That is, in case of transition markets, transport costs may be too high while trade barriers may also be strict. In addition, due to economic instability, political risks may also be present. However, at the same time the costs of setting up a factory may not be too high, while personnel may also be available at lower costs. Yet, the firm strategy in general plays a big role in determining the entry strategy. Another choice which Nestle will have to make related to which developing markets should it enter to best achieve its objectives and enhance revenues to reach the long-run profits margins. In this context, those markets which are considerably stable in terms of political scenario are best suited to companies like Nestle. Also, free market economy is also a critical factor while low inflation rate also ensures placement of profits for the firm. In addition, lower debts for private sector are also a plus. Considering these factors, Nestle should consider entering Middle Eastern markets since they fulfill all prerequisites of being considerably stable economies, which strategic alliances are recommended to achieve the goals intended. (Probst & Andrea 41-44) As recommended above, Middle Eastern markets form strong grounds for market entry due to variety of other reasons as well. Not only are they politically stable, but also have lower levels borrowing levels as compared to other counterparts. Though a few Middle Eastern markets do have command or rather mixed economies, yet they have recently opened doors to relax their policies to encourage foreign investments. Also, it would be imperative to enter particularly those markets with considerably lesser extent of competition with little or no presence of the products being offered. Once such a market is identified, the timings of entry can turn out to be an issue as timing is of much strategic value. Firstly, Nestle must enter the transitioning market soon enough to ensure that other foreign markets haven’t entered already. However, if other foreign firms are still struggling to get established, Nestle might still enter and develop a competitive advantage by virtue of products placements and adequate marketing. In this context, Nestle might acquire the first mover benefits by pre-empting its competition by developing a strong brand presence and reliable customer experience with its products. Also, first mover benefits would include the capability and space to enhance sales while bringing down the experience curve of its rivals and thus attain a cost advantage over those entrants who try to penetrate the market at a later stage. Therefore, the timings of entry must be such for Nestle where later entrants find it unconvincing to tie the customers to their products by pre-empting these rivals early on (by choosing an adequate market). (David & Robert 66) However, at the same time Nestle shouldn`t get too experimental by considering solely short term advantages. Instead it must plan a long-terms strategy as mentioned above as well, and thus disadvantages for Nestle as the first mover in a transitioning market must also be considered. That is, pioneering costs must be weighed against the long term perceived revenues. In other words, when the operational culture of transition market would be different from that of foreign market, additional resources would go into establishing the business from scratch. Therefore, if Nestle sees a business failure due to the native environment, the costs would be borne solely by the company. Also, costs of marketing and promoting a newer brand would also be high and thus, decisions must be made by thoroughly researching the market to ensure that the experiment doesn`t turn out to be a failure. For this reason, it is recommended for a company like Nestle to form strategic alliance with another company already in business who understands the local audience well. Thus, with joint ventures, though the company would have to share the profits with the host company, yet risks would be evidently reduced. To further assess the recommendation of forming strategic alliances to Nestle, various aspects relevant to joint ventures must be analyzed. Firstly, Nestle won`t have to invest added resources to understand the local market and thus the culture, politics, language and the business systems won`t be out of context for the company. Therefore, the risks and costs attached to first move for Nestle into the emerging market would be diminished drastically. Also, in any case, even if the strategy fails and costs are incurred, they would be shared mutually by both parties, thereby reducing risks for Nestle. In addition, a local company not only knows how to deal well with competitors locally, but also is well aware of political considerations and ways to overcome socio-political hurdles. However, a risk is involved since Nestle has managed to grow overtime and the technology and information is crucial to their competitive advantage. Thus, by handling over technology and information to another venture is surely a risky business. Also, if the joint alliance isn`t undergone with the right firm, the results might also be counterproductive. In addition, shared ownerships leave immense room for conflicts and arguments. Given that Nestle is a company firm on its commitments and ideals, if another company clashes with the central ideals of Nestle, the objectives of Nestle itself would be subject to change. Therefore, special consideration must be invested while making a decision for joint ventures and a reliable company must be picked to carry the task in order to ensure that Nestle retains its position globally by investing in a local market. (Fitzroy, James & Abby 11-12) Therefore conclusively, it is recommended that joint alliance is quite a rational approach for a company like Nestle to conduct business and enter into an emerging economy. Nestle is considered globally one of the biggest marketers of various products like powdered milk, infant formula, chocolates, soups, instant coffee, pet food, confectionary, snacks and also mineral water. Considering the products and also the positioning of the brand as one of the most influential ones globally, the entry strategy must be planned out carefully to ensure that the ideals and core values aren`t compromised. Though the diversity of emerging markets can prove to be an asset for the company, yet planning must be adequate enough to ensure that the entry is done at right time and by the right mode. For Nestle, entry into an emerging Middle Eastern economy where similar brands are not already available is recommended. In addition, the mode recommended is joint venture with an already established company. However, special consideration must be invested while making a decision for joint ventures and a reliable company must be picked to carry the task in order to ensure that Nestle retains its position globally by investing in a local market. Thus, a joint venture must be made in such a way that long term objectives are met and also revenue targets are achieved to further expand the influence of Nestle as a global brand. Works Cited: Dell, David J, and Robert J. Kramer. Forging Strategic Business Alignment. New York, NY: Conference Board, 2003. Print. Fitzroy, Peter T, James Hulbert, and Abby Ghobadian. Strategic Management: The Challenge of Creating Value. Hoboken: Taylor & Francis, 2011. Internet resource. Hitt, Michael A, R D. Ireland, and Robert E. Hoskisson. Strategic Management: Competitiveness and Globalization : Cases. Princeton, N.J: Recording for the Blind & Dyslexic, 2004. Sound recording. Kapferer, Jean-Noël. The New Strategic Brand Management: Advanced Insights and Strategic Thinking. London: Kogan Page, 2012. Print. Probst, Gilbert, and Andrea Bassi. Tackling Complexity: A Systemic Approach for Decision Makers. Sheffield: Greenleaf Publishing, 2014. Print. Read More