Analysis of Nestle Company - Case Study Example

NESTLE CASE STUDY Name: Course: College: Tutor: Date: EXECUTIVE SUMMARY Nestle is a Swiss –based company under food and beverage industry. Nestle has become a globally successful company with factories in different parts of the world and occupying a large market share in the food and beverage industry. Irrespective of the success of the company, there are various weaknesses and threats facing the company but due to numerous opportunities and strengths, the company can still hold a large market share. This paper is a case study of Nestle Company and it begins with background information about the company. External analysis on general environment, industry environment and competitive environment is done as well as internal analysis on tangible and intangible resources, capabilities and value chain analysis. From external analysis it is evident that Nestle has used its resources and core capabilities to attain competitive advantage and thus achieve cost leadership and success against its competitors. SWOT analysis has been done and discussion of company’s strategies has also been included as part of case study for Nestle. From the analysis, it showed that Nestle has maximized on its strengths and opportunities while ensuring that threats and weaknesses are curbed or have been minimized. The paper ends with a summary of the findings in the conclusion and recommendations that the company should follow to ensure a better future. It is a case study analysis that focuses on a wide range of issues regarding Nestle Company. TABLE OF CONTENTS EXECUTIVE SUMMARY 2 EXTERNAL ANALYSIS 4 General Environment Analysis 4 The Industry Environment 6 Competitive Environment 7 INTERNAL ANALYSIS 8 Company Resources 8 Tangible Resources 8 Intangible Resources 10 Capabilities 11 Core competency Analysis 11 Value chain analysis 12 Weaknesses 13 SWOT analysis 13 Current Strategies 16 CONCLUSION 17 RECOMMENDATIONS 18 REFERENCES 19 INTRODUCTION Nestle is known to be the largest company that monopolizes the food industry. It is a popular multinational company involved in the production of a number of food, senior drinks and nutrition. In the beginning, it was known as the Swiss Condensed Milk Company until 1949 when it was changed to its present name- Nestle. Generally, Nestle has become one of the most successful global companies under the leadership of its current CEO Paul Bulcke. In the company’s headquarters – Switzerland, the turnover of the company is less than one percent and the product has its presence in almost every part of the world. Nestle has been ranked as being top sixty among the best five hundred companies globally. The company has an operating income of about $99, 114 million, a profit of about $9,604, has over 500 firms globally, and about 280, 000 workers (Kendrick & Vershinina, 2010). EXTERNAL ANALYSIS General Environment Analysis Political In the food and beverage industry, globalization is an important political factor. Nestle is a global business. In the recent past, globalization has become real part of business and it affects a number of things including accessibility of emerging markets. The vice president of Nestle Jose Lopez observed that; “the impact of globalization has been different than we thought it would be. For those of us in the West, globalization meant developing countries opening their markets for us to sell to. Yet that is not how it turned out… instead of being globalized, we are learning to react to global markets” (Bell & Shelman, 2009, p.10). As pointed out by Nestlé’s Environmental Impact (2008), one issue that food and beverage industry confronts in the global scale include the issues of regulations. In the case of Nestle, it operates in several highly regulated sector thus, the product is highly affected by several tiers of regulation e.g. food and beverage safety, cross- border trade, environmental regulations and others. Economic Even when there is an economic downturn, the demand for food supplies usually continues but change appears on eating and drinking patterns in such that; the possibility of consumers preparing and consuming foods at home increasing. Considering that Nestle operates in different parts of the world, it is forced to adjust according to fluctuations in demand and price sensitivities. Nestle was initially based in Switzerland while Europe and the United States were the key leaders. However, this has changed with consumers increasing in the developing world for example; out of the sales made in 2007, a third was from the developing countries. Social Nestle is a company operating in global food industry and it understands that; consumption patterns of food and beverage tend to be bound social and cultural issues, or at least, it is associated with culture. Technological In the entire industry, technology is fundamental in defining recipes, location and purification water, and production of food and beverages. Internal technology is very crucial in operations coordination and this has been indicated by Nestlé’s globe initiatives. The Industry Environment Threat of New Entrants Nestle is a company that is largely involved in food and beverage industries. In the world of today, the market competition is increasingly fierce due to the long industry chain as well as the big span of the industry. Business cost is high hence small businesses cannot easily survive in such an industry. Since the competition is intensified by low- cost, the companies tend to earn little profit while on the other hand, new businesses cannot find easy entry because consumer demand is focused on brand (Porter, 2008). Bargaining Power of Suppliers Even though the prices of the raw materials for the products have experienced improvement, production costs in the food industry are rather low. Furthermore, Nestle has focused on low- cost operations, making it exhibit cost leadership. Nestle has a high percentage of sales in the food industry and this gives it advantages that lead to cost reduction of raw materials. As a result, the company’s cost advantage is consolidated leading to a low bargaining power for the suppliers (Porter, 2008). Bargaining Power of Buyers Since the product is diversified, there is a diversified oligopoly market at the high- end market while at the low- end market; there is a competitive monopoly market. In order for the company to maintain profit and revenue growth, improvement of gross margins, is done but is influenced by effects of industry policy and restrictions on capacity expansion. Therefore, increases in direct and hidden price will be the corporate norm in the future (Porter, 2008). Threat of Substitute Products Nestle cannot ignore the risk of substitution. The industry chain is long and the industry span is big for the food and beverage industry hence, in the industry, a vending company has to be informed about all the products in the industry that have mutual substitution. For the producers, there are alternatives of elements such as technology and factors of production. Evidently, threat of substitute products is high hence Nestle has to be attentive to the movements made by the alternatives (Porter, 2008). Rivalry Currently, the food and beverage industry is highly competitive. The existing rivals in the market tactically use different strategies such as; competition of prices, advertisements, introduction of products etc. additionally, the high level of competition among companies is intense. The imitation of a good product has led to the fall of price and quality. As a result, the competitive environment has become unhealthy and thus, companies are expected to concentrated on product innovation and research and development, and establish brands of their own. Competition is intensifying because the industry is moving towards a mature stage. Competitive Environment In the food and beverage industry, Nestle is a leader but competition exists with companies such as Mars Company and Kraft Foods. In order to deal with such rivalry, Nestle makes use of the same pricing as its competitors. Consequently, Nestle is able to acquire a high percentage of profits. Furthermore, Nestle uses specialized equipment, establishes large factories, and carries staff specialization in order to realize low –cost strategy. In addition, the company stands out in the competitive food and beverage industry by focusing on the bargaining power of the buyers. Cost pressures have forced Nestle to consider high quality but maintain low prices. At the same time, Nestle has been increasing its yield because; when it increases yield, threat of the buyers is reduced. When it comes to the bargaining power of the suppliers, Nestle is a high output level that the volume of procurement is large making Nestle easily gets discounts from the suppliers (Kendrick & Vershinina, 2010). Therefore, in the competitive food and beverage industry, Nestle is able to compete against its rivals by finding ways to increase sales. INTERNAL ANALYSIS Company Resources Tangible Resources Financial Resources In regard to financial resources, Nestle has large advantages mainly because of the annual high sales. Nestle has been spending billions of dollars in investments, mergers and acquisitions. In addition, the financial resources of the company have been increasing due to the increase in the range of products produced. The company has acquired companies manufacturing drugs such as Alcon and Spirax pet food company etc (Bell & Shelman, 2009, p.4). Organizational Resources Generally, Nestle has a decentralized form of power organization facilitating for the creation of a network-based organizational structure. Across the globe, Nestle has about 100 managers handling issues only within their respective jurisdictions and keep moving around the globe. As a result, the company can depend entirely on transitional exchange of the managers to manage the resources rather than having external appointments. Technological Resources Nestle has advanced in regard in its production, management and sales. For example; it was the first firm in the industry to hit the ecommerce and in 1994, the company established a store via interactive television system in order to sell its products. In addition, the company established Nestle Technique Ltd which handles all operational departments on the current food and nutrition technology. The company is mainly concerned about its own development. in 1987, the company constructed the largest research and nutrition center in the world and it was the most sophisticated food research lab in Lausanne. Moreover, the company has about twenty technology development divisions (Collin, 2008). Physical resources The company has a number of physical resources ranging from plants, assets to equipments. By 2008 for example; the total value of land, building, machinery, equipment, tools, furniture, and vehicles was over $49,000 million. Intangible Resources Human Resources The people of Nestle have the tradition of exhibiting calm character. Since Nestle is based in Switzerland, it has become accustomed to the Swiss culture of stern, serious features. People are an important part of the company and thus, the company perceives the employees as being the most valuable resource. The company’s strong efforts and staff loyalty enables the company to have an outstanding performance. Putting into perspective that Nestle is a company committed to high quality food and creation of better life, it pays attention to its employees. The working environment at Nestle is harmonious whereby the managers and the employees work together. The company is constantly providing high quality training to its staff both at home and internationally, and in Nestle International Training Center, Switzerland. Brand Brand is a resource that Nestle believes it has to be well planned to sustain the life of the company. Collin (2008) states that; first, the company developed Nestle coffee brand afterwards, it launched other products under the umbrella of Nestle coffee. Excellent advertising using single brand strategy benefited the company compared to using scattered brands. This has been useful because Nestle has been able to reduce risk on the one hand, and concentrate on attach power on the other. Resources of Innovation Nestlé's history shows that the company is continuously engaging in product development and innovation. The company is pays attention to the market and it updates, re-positions, and launches new products with the objective of complementing arising demands of the present customers and to attract new customer hence ensuring that new growth is always achieved in the market. Collin (2008) says, Nestle is always timely in the introduction of new products before its competitors do, or they quickly introduce new products to the market when competitors do. In regard to research and development, the company has involved local food technology professionals made up of chefs and family. Apart from mass production, the company is concerned about convenient and long lasting products thus it uses the techniques that enables it reach such levels. Nestle has a strong research and development capabilities making it the leader in the industry, attracting the loyalty of the customers. Capabilities Core competency Analysis The core competencies for Nestle are found in its innovation and research. The four competencies and innovation and research include; well-known brands and products, leader in capabilities of research and development, business regions across the globe, and differentiated corporate culture and values. The competencies support business development for Nestle. Innovation is the most important requirement and fundamental type of enterprise that leads to development and sustainability which is needed for the company to constantly adjust to the environment and attain self- transcendence. In turn, this has triggered brand competitiveness. Hitt and colleagues (2009, p.262) mention that; since the industry is increasingly competitive, brand is an important element of intellectual capital and therefore, companies have to continue enriching brand knowledge and on the other hand, create innovative products that meet the increasing needs of consumers. In addition, Nestle is a company that has had 130 years history and it is experienced in regard to food, food quality, food safety, botany and nutrition. Based on that; the company has concentrated on exploiting and pursuing food processing and it is being guided by up-to-date knowledge and skills (Hitt et al, 2009). Therefore, the company cannot stop focusing on research and development. Value chain analysis Cost Advantage: The primary and support activities of the company form an important part of the company’s value chain. Primary activities are those activities that are concerned directly in the creation and delivery of a product or service. Sand (2010) mentions that; support activities are those that do not have direct involvement in production. For Nestle, cost advantage is one way that the company has used through the reduction of cost of value chain activities in distribution channels and different approach to sales. Differentiation: The other activity in Nestlé’s value chain is differentiation. Nestle has been able to reconfigure its value chain so that it can control inputs for example; by using new technologies to attain product differentiation. According to Sand (2010), due to differentiation, distribution channels can provide high levels of service and improved final product. Linkages: in the value chain, the activities do not function independent from each other. instead, one activity usually influences the performance or cost of the activities. For Nestle, the company has been able to reduce cost in the final product through reduction of costs in activities such as procurement. Therefore, Sand (2010) asserts that; by being able to access suppliers at a reduced cost, the company has been able to offer products at reduced costs and consequently, it has allowed Nestle to develop competitive advantage. In- bound logistics: a company can specialize in a given activities in the value chain and outsource. Nestle has made outsourcing decisions based on value chain analysis and it has understood that; the strengths and weaknesses of the company can make the company function better without engaging in outsourcing. In particular, Nestle found that it has the resources and capabilities of differentiating its products and depending on experts trained by the company. In other words, by training their own managers, Nestle has reduced costs and strengthened its capabilities to achieve competitive advantage (Sand, 2010). Weaknesses SWOT analysis Strengths Brand: Nestle is a well- known global brand that has been in existence for over a century. Kendrick & Vershinina (2010) point out that; the brand continues to meet the arising needs of its customers and thus forming the foundation for the company’s core competitiveness Financial power and scope: the company has a strong financial power and this has enabled it to spend billions of dollars in large- scale investments, mergers and acquisitions thus leading to the expansion of the company’s range of products. In the present, Nestle is a strong and differentiated multinational food company Research: research and development investment forms the largest part of Nestle as a food company hence it has been able to exhibit timely introduction of new products compared to its competitors. In case competitors introduce new products before Nestle, it immediately follows them. (Kendrick & Vershinina, 2010) Management: Nestlé's management mode is advanced in such that; the company has marketing mix that has provided it with business advantages. The company has a unified brand image while enabling flexible management of respective firms of all market modules. Nestle has adhered to the principle of integration to gain the best interests. (Datamonitor, 2008) Weaknesses Product range is quite simple because; the range of milk drinks and cereal is very large while for the other products, it is small and thus limiting market share expansion for the company (Kendrick & Vershinina, 2010) Opportunities: according to Kendrick & Vershinina (2010), the following are the opportunities of Nestle: Advertising: themes of advertisement can significantly benefit Nestle for example; in the recent past, the company focused on the theme of ‘a new beginning’ and in turn attracting the young people who have the desire of independence while at the same time, retaining conventional ethical concepts. Good relations: Nestle is an international company and has worked on establishing good relations at the local level. It has had loyal trading partners forming a foundation for success because the partners can easily open channels for the company to make more sales Quality of products: issues with milk powder have made consumers to be conscious about the quality requirements for products. Nestle has paid attention to high quality of dairy products and this will lead to a broader market share. (Kendrick & Vershinina, 2010) Threats Troubles and risks: Nestle has been setting up different factories in different parts of the world exposing the company to numerous problems and risks such as; appearance of fake products, political volatility at local level, changing policies etc. (Datamonitor, 2008) Competition: there are strong and several competition companies against Nestle for example; Mars Company and Kraft Foods – they have large market share in the food industry Current Strategies Cost Leadership Strategy In the contemporary world, a number of companies have collapsed due to business expansion effects that they cannot hold. Diversification is a challenging issue for Nestle but it has to control cost- effectiveness so that it can be able to attain global growth. This has contributed to the success of the company. In particular, by focusing on how to gain influence over bargaining power of the buyers and suppliers, and effectively competing with its rivals, Nestle has attained cost- effectiveness (Farschtschian, 2011, p.122). Cost leadership strategy has also been achieved by Nestle by having lower costs compared to potential entrants hence the new entrants have been forced to adapt to product differentiation strategy so as to seize the food and beverage market. Similarly, in relation to threat of substitutes, Nestle has produced high quality products offered at low costs. Corporate –Level Strategy Corporate level strategy is defined by Nestlé’s diversification strategy. As a company in the food and beverage industry, the company uses product diversification strategy by designing multi- level, multi standard and multi species products which accounts for a large market segment in the food and beverage industry making it possible for the customers to access a variety of options. In addition, this has made Nestle band be given a large shelves space thus preventing invasion of competition. Diversification of technology and sales has also been used by Nestle to improve the competitiveness of the product. Nestle has made propriety technology and capacity production from one business transfer to another, it has combined related tasks from various business to facilitate for cost reduction, and the use of ‘Nestle Coffee’ as the umbrella during the promotion of new products (Farschtschian, 2011). Therefore, through diversification, Nestle has been able to rise to a higher level. CONCLUSION For a number of countries across the world, Nestle is a brand that represents tender moment, freedom, and enjoyment of life. Nestle has been able to preach lifestyle and life across the world making it an indispensable brand in the lives of numerous people in different country. With its century of success, Nestle shows that its products are being consumed throughout the world. Generally, Nestle is a large company with several products, strong culture, and a long history in the production of innovative products. Customizing services and products has allowed Nestle to meet the needs of the locals. Innovation, high level of efficiency, low costs, availability, and connection with customers has allowed Nestle to continue attaining competitive advantage. RECOMMENDATIONS One of the ways that Nestle can attain the top strength for its brand and product portfolio, it should use complementary platforms. These platforms are; health, nutrition and wellness; emerging markets, outdoor consumption, and making the existing products premium products should be the focus of Nestle. This strategy would be advantageous for the company because it will be consistent with previous strategies and more so, it would have been built on Nestlé’s core capabilities that include broad brand and product portfolio thus allowing Nestle to maintain a strong global presence. Nestle can meet profitability and growth goals by embracing a flexible approach in relation to internal growth versus acquisitions. Flexible approach would make it possible for Nestle to discover another potential platform for growth and at the same time, the company will not have to solely depend on internal growth for profitability goals. However, the approach can be disadvantageous if it is not well executed. Additionally, this approach will enable Nestle to tailor specific resources and capabilities to meet the threats and opportunities in the external environment. REFERENCES Bell, D.E. & Shelman, M. (2009).  Nestlé in 2008.  Harvard Business School Case Study.  Boston:  Harvard Business School Publishing. Colin, M. (2008, April 14).  A town torn apart by Nestle.  Business Week, pp. 42-47. Datamonitor (2008, January).  Company spotlight:  Nestle.  Food Market Watch, pp. 41-40. Farschtschian, F. (2011). The Secret of Successful Acquisitions. London: Routledge publishers Hitt, M.A.(2009). Strategic Management: Competitiveness and Globalization, Cases. New York: Springer publishers Kendrick, D. N. & Vershinina, N. (2010). Management International Edition. New York: John Wiley & Sons Nestlé’s environmental impact (2008).  Diary Industries International, April, p. 10. Porter, M.E. (2008, January).  The five competitive forces that shape strategy.  Harvard Business Review, pp. 1-18. Sand, C. (2010). The Packaging Value Chain. Cambridge: Cambridge university press Read More