Nestl as the Boycotted International Company - Essay Example

MARKETING due: Table of Contents Table of Contents 2 Introduction 3 Nestlé Company 3 Definition of consumer boycotting 4 Types of consumer boycotting 4 Internationalisation 5 EPGR-model of Perlmutter 6 Internationalisation of Nestlé Company 7 Competitiveness 8 Nestlé Company market entry strategy 10 Company’s reaction to the boycotting 11 Environmental and strategic elements of the company impacted by boycotting 12 Conclusion 13 Bibliography 14 Introduction The consumer boycotts have happened for a long time in history and consist of a broad range of social concerns, protest groups and target organisation in various countries around the world. The boycotts have been organised for various purposes such as political objectives of different special interest groups that are not part of the consumer movement. In addition, the boycott is aimed at playing the role of consumer objective, for instance, advocating reduced prices on particular items. Moreover, boycott is utilised to assist organisation realise their objectives on consumer services and objectives (Reiboldt & Mallers 2014: 69). This paper will discuss the effect of boycotting campaigns on an international company. It will elaborate on types and definitions of consumer boycotting and consider how it affected the international company. Finally, the essay will look at the principle strategic elements affected by the boycott. Nestlé Company This paper will explore Nestlé Company as the boycotted international company. The baby milk action IBFAN based in the United Kingdom has been in the front row advocating boycott on Nestlé products. It is because of the unwarranted suffering and deaths of infants as a result of marketing baby formulas that do not conform to the international marketing standards around the universe (Baby Milk Action 2014: para 1). The baby Milk Action collaborates with partners from the International Baby Food action Network to watch the operations of business organisations. The bone of contention is in the use of marketing phrases such as ‘gentle start’, ‘protect’ babies and ‘natural start’ by Nestlé in formulas. The reality is that the infants fed on the formula are at high risk of getting sick or dying compared to the babies that are breastfeeding. The breast milk has the potential of preventing deaths that occur in children below the age of five. On the other hand, the expensive baby formulas lead to malnutrition because of poverty. The company expose the young babies feeding on the foods at risk because it does not put warnings that the formula is not germ-free. As a result, most infants get bacterial infections, and there are no appropriate instructions on the course of action to be taken (Baby Milk Action 2014: para 5). The Nestlé company baby products are promoted through health workers, pregnant women and mothers with young babies to increase their sales. The objective of the boycott campaign is to pressure the company to make amendments and at the same time sensitising individuals on the risks. The boycott campaign has resulted to the company pledging to stop using the word ‘natural start’ but has maintained the rest by 2015 (Baby Milk Action 2014: para 5). Definition of consumer boycotting The consumer boycotting is the effort by one or many groups to attain particular goals and objectives by earnestly persuading independent customers to keep away from buying a particular product in the market (Reiboldt&Mallers2013:6). The boycott’s objective is to give a physical method for customers to put pressure collectively on companies by making them accountable for their business operations. The action is aimed at a particular group of market area. The achievement is realised when the consumers stop buying the specific products (Albala& Allen 2007: 57). Types of consumer boycotting There are three forms of consumer boycotting with distinct objectives and aims. It is because individuals are motivated by various senses to reject the unethical business behaviour. The instrumental boycott is aimed at changing the existing state of affairs by coercing the targeted company to amend particular policies or practices (Albala& Allen 2007: 57). The second form of boycotting is known as expressive boycott. The instrumental boycotting does not have specific goals and objectives. The groups involved in it generally condemn the manner in which a business organisation performs its operations (Albala& Allen 2007: 58). The self-enhancing boycotts promote the ‘clean hands’ idea. The type of boycott happens when individual consumers use their consciences to judge their purchasing habit. In most cases, the customer decides to avoid purchasing particular products from specific companies without making their reasons known. The individuals do not look for support from people who think the same. In this case buying habit is a kind of self-expression, and the target of the boycott is unconscious of the act (Albala& Allen 2007: 57). The Nestlé Company faces instrumental boycotting. According to Angouri & Marra (2011), the Nestlé Company has been confronted with various boycotts and scandals since 1977 (p.121). He argues that Nestlé Company is and has been a target for many pressure groups from around the universe. The pressure groups condemn the company’s behaviour in regard to marketing formula in developing countries. As written by Counihan & Van Esterik (2013), the World Health Resolution was established in 1986 to recognise the damaging effect of cheap and free baby formula (p. 517).The organisation refined the pertinent Articles of the Code that prohibited the supply of such products. It was implemented in hospitals where most of the baby formula was sold and distributed. Internationalisation In marketing, internationalisation refers to the procedure of exporting products to foreign countries. Internationalisation yields fruits when the export company establish manufacturing firms to fulfil the demand in the international market (Moore, Bruce & Birtwistle 2007: 7). The internationalisation of the business focuses on the maximisation of extension and movement of manufacturing, distribution and sale volume from domestic to a foreign market. Businesses begin to expand internationally because of various factors. These factors include: - A strategy for market development When the firms attain maturity stage in the domestic market, market development is an option for further development of the company. - The necessity to go after their consumers It refers to the requirement or demand of the consumer that live in foreign countries. In order to fulfil these requirements, the company must follow their customers. - Competition It is a need for a business to gain entry into the country ahead of its rival’s internationalisation endeavours. - Opportunities They are the external movements that provide market openings in particular regions or countries. EPGR-model of Perlmutter EPGR-model is utilised to describe the internationalisation process in four types of organisations (Leeman 2010: 11). Exporting is not the only kind of internationalisation, therefore, the others include: - Ethnocentric organisation The type of organisation is pushed by the domestic market, and the decisions are made founded on the sake of the internal market. The export orders are performed outside the local market and are treated as more sales. - Polycentric organisation Such an organisation is positioned in the local market. It implies that the company focus on domestic needs and culture. The multinational corporations have a secondary firm in the domestic market to assist in comprehending and embracing the local wants in respect to culture. - Region centric organisation The organisation concentrates on the area market demands rather than the needs of the country. This type of internationalisation result in the development of trade blocks. - Geocentric organisation In this category, the organisation acts as a trans-national company. The trans-national company look at the universe as its marketplace. It motivates the organisation to establish centres of excellence in areas where it feels it is appropriate. There is no much difference in the domestic and international markets. Internationalisation of Nestlé Company The Nestlé Company is a geocentric organisation because it carries out its operations in different parts of the world. The company has been active in the field of internationalisation for long. Internationalisation has made the company have many businesses around the world from the start of the twentieth century. The Nestlé Company is present in countries such as Canada, Germany, USA, United Kingdom and Spain. The company started manufacturing in Australia in 1907 and has invested in various warehouses in Bombay, Singapore and Hong Kong to meet the demand of Asian Markets (Morschett, Schramm-Klein & Zentes 2009: 316). During the World War I, Nestlé Company bought forty existing dairy factories in the USA to satisfy the demand for milk. In 1918, the company purchased a Canadian milk plant in Chestiville, Ontario and operated under the name The Maple Leaf Condensed Milk Company. The Nestlé Company is also engaged in the production of other products such as chocolate that began in 1920. The Peter-Cailler-Kohler is the leading chocolate company in the world, and this enabled the company to expand. In 1938, the company invested in the coffee industry and invented the powder Nescafé that was followed by Nesquick and Nestea ten years later. The World War II resulted in logistics difficulties as well as reduced profits that necessitated the company to establish manufacturing firms in developing markets. The manufacturing firms were located in Latin America. Competitiveness Competitiveness is the company’s share for its products in the world market. Competitiveness is referred to as a zero-sum game because a corporation gains at the cost of another (Sachs, Warner, Cornelius, Levinson & Schwab 2000: 25). Nestlé Company leads in a highly competitive food industry and encounters competition in all its products worldwide. The main areas of competition are service, promotion, price, advertising, quality, brand recognition and convenience (Hitt, Ireland & Hoskisson 2014: 69). The company’s annual sales amount to $71 billion and provide employment to an estimated two hundred and thirty thousand staff all over the world. It presents eight thousand brands in the market and has 500 factories in over eighty countries. To gain more competitiveness, the company invested $40 billion to obtain several businesses. The companies included Friskies in 1985, in 1988 sauce maker Buitoni and the 1992 Perrier. In addition, for $11 billion the company received a North American leading pet food producer, Ralston Purina Co. (Onkvisit & Shaw 2004: 2). The company’s objective includes a change of far-flung activities into one global unit. The company adds value to its products while increasing their competitiveness and efficiency through integration of its marketing operations and production. It achieves this trough grouping countries into units in relation to geographic connection and consumer habits. A perfect example is Cambodia, Thailand, Myanmar, and Vietnam constitutes a single Indochina sub-region market. The particular strategy is utilised to evolve products and brands on the basis of region so as to develop a bigger critical group. As a multinational organisation, the company integrates different cultures in food production. For example, a Bavarian soup is not a favourite for people of Taiwan, who enjoy eating noodles. Therefore, the company practices a balanced act to acquire economies of scale and at the same time offer different culture preferences. To this effect, the company operates local but thinks globally. Confronted by the rapid global competition, the company transforms any challenges into opportunities to be able to survive in the market (Onkvisit & Shaw 2004: 2). To retain its competitiveness, the Nestlé Company invests much money in Development and Research. It enables the company to implement nutritional science and expertise to develop products that integrate nutritional benefits with excellent taste. Through development and research, the company attained the potential to refurbish the existing products and innovation of new products. The company makes an annual investment of estimated $1.5 billion in research and development (Nestlé 2006: 16). Nestlé Company market entry strategy The company utilises five modes of entry to gain entry in the foreign market (Benjamin Levi 2006: 42). The five modes include: - Joint venture or strategic alliance, - Setting up of a wholly owned subsidiary, - Exporting, and - Franchising. In exporting, the company transport goods across national borders. Exporting helps the company to maintain production equipment and transfer the goods to foreign countries. In addition, the company avoids considerable expenditure incurred in setting up manufacturing firms in the foreign company. In addition, the mode of entry also benefits the company through learning about the local consumer behaviour before investing heavily. The method of licencing involves the procedure of the company entering the international market through letting out the rights to utilise the organisation’s intellectual property to a company performing business in the target international market. The intellectual property includes brand name, technology, copyrights, work methods, trademarks, and patents. From this perspective, the Nestlé Company is the licensor and the licensee is the receiving company. In the mode of franchising, the Nestlé Company gives operating systems, trademarks, well-known products, quality assurance programmes, advertising and specialised training. The company licences their products and business structure to partners at a specified cost (Ireland, Hoskisson & Hitt 2012: 177). In joint ventures, the company gets into contracts with the organisations in the host country and work in collaboration. The mode of entry requires the creation of different firms to enhance partners’ mutual interest. It enables the Nestlé Company to enter into a new market without paying tariffs. One aspect that the company considers when selecting a partner is trustworthiness and reliability. It is paramount to avoid imitation of its valuable technology (Ireland, Hoskisson & Hitt 2012: 178). In wholly owned subsidiaries, the company invests in the host country and establishes a local auxiliary firm. It is achieved by buying a local company or leasing land to construct a factory and starting business activities in the host country. The mode of entry gives the company authority to control all its activities and marketing (Klug 2006: 42). Company’s reaction to the boycotting The Nestlé Company is not the only company engaged in baby formula manufacturing, but it was selected by the Swiss social activist group as the one causing child deaths in an article titled ‘Nestlé Kills Babies’. It was not the only article writing about the company’s product, but also an article named ‘The Baby Killers’ was published in Great Britain. The company was selected from the rest because it owned the largest share of the market. The other fact that resulted to the problem was that it was dynamic in increasing sales in less developed countries. Moreover, the company did not adhere to the sales code processed by the World Health Organisation (Carroll & Buchholtz 2014: 296). The Infant Formula action Coalition (INFACT) in collaboration with the Interfaith Centre on Corporate Responsibility (ICCR), marshalled a national boycott against Nestlé Company in 1977. Other organisations in America representing churches, nurses, doctors, teachers and other individuals from various professionals joined in the boycott. The boycott lasted for almost seven years. The aim of the boycott was to pressure Nestlé Company to change the marketing activities in less developed countries (Carroll & Buchholtz 2014: 296). The Nestlé Company sued for defamation, and the ruling made demanded that the company change the way they advertised in less developed countries (Austin 2008: 385). The Nestlé Company decided to spend millions of dollars in resisting the boycott but in 1984, the company decided to reach an agreement with the protestors. The company gave in to the demand of the protestors and agreed to change some of its business activities. On the other hand, the protestors decided to terminate the boycott on condition the company honours their promise. The protesters pledged to monitor the Nestlé Company’s performance continually. The agreement put an end a boycott that occurred in the 2000s, 1980s and 1990s (Carroll & Buchholtz 2014: 296). Environmental and strategic elements of the company impacted by boycotting The boycotting affects the Nestlé Company from the perspective of ‘new accountability’ where private organisations put social control on producing companies. The private organisation executes the role of controlling the manufacturing companies with the aim of forcing penalties to enhance human rights (Rodman 2001: 200). The company is expected to follow the regulations and laws of the host and domestic countries. Moreover, the company is supposed to adhere to environmental aspects in regard to their stakeholders. The company is influenced by market, social, regulatory, political and technology environmental factors (Business Case Studies 2014: para1). As a result of 1977 Nestlé boycott led by the Infant Formula Action Coalition, the company manufactures products according to the regions and in respect of the country’s laws and regulations. The Nestlé products were also affected because the corporation produces goods according to demographics. The boycott was also promoted by the company’s failure to social responsibility when selling baby formula to less developed countries and discouraging breastfeeding. The company failed to consider the environment in the less developed countries in the sense that most of these countries do not have safe drinking water, and the baby formula needs it. The unsafe water caused many infant deaths as a result of diarrhoea (Business Case Studies 2014: para 3). From the perspective of strategic elements, the company’s profitability was threatened by the boycotting. The company’s position in the promotion, distribution, positioning and advertising of the baby formula was at stake in less developed countries (Austin 2008: 377). Currently, the company still faces boycott of the baby formula by the World Health Organisation. The boycott continues because the Nestle Company does not educate the public about the hazards of utilising the product incorrectly. The other problem is that the company advertises bottle feeding as the best option compared breastfeeding. Conclusion Analysing this discussion, Nestlé Company in terms of nationalisation and competitiveness has done its best, and it deserves the current position in the market all over the world. A big investment has been made by the company in the right place, for example, in research and development. The company can sustain its competitiveness in the market. The company has also utilised the correct modes of market entry that allows it to reap the benefits provided by different markets. The boycotting carried out by various organisations has affected the penetration of Nestlé’s products in some countries. Despite the challenges, the company has been able to achieve a market niche. Although, the company’s marketing strategies are advanced it has failed in adhering to the requests by several activists. It is fair for a company to educate the masses about the good and the risks of utilising their products. The people are entitled to information on how to utilise the products to get optimum nutrients. For example, the cause of infant deaths is as a result of malnutrition. This is as a consequence of the parents or guardians not mixing the correct quantity of formula with water. The other reason the babies die is because the water used in less developed countries is not sterile. The unsterile water cause diarrhoea and contributes to death in young children. The company has also failed because of encouraging bottle-feeding instead of breastfeeding. Breast milk is best for infants and cannot be substituted with anything though it can be supplemented. The company should put funds apart to promote safe drinking water to be provided to households using the baby formula. It is the main duty of the enterprise to promote health and long life because it is essential for its business. Bibliography ALBALA, K., & ALLEN, G. J. (2007).The business of food: encyclopedia of the food and drink industries. Westport, Conn. [u.a.], Greenwood Press. AUSTIN, J. E. (2008). Strategic management in developing countries. Simon and Schuster. ANGOURI, J., & MARRA, M. (2011).Constructing identities at work.Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. BABY MILK ACTION.(2014). Nestlé boycott. 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Lanham [u.a.], Rowman & Littlefield. REIBOLDT, W., & MALLERS, M. H. (2014). Consumer survival: an encyclopedia of consumer rights, safety, and protection. Read More