Nestle a Leading Global Company - Term Paper Example

Table of Contents Table of Contents 1 Introduction 3 Overview: The Company 3 Literature Review 4 Competitive Advantage 5 Foreign market entry strategy 6 Market enhancement strategies 8 Global and local strategies 10 Organizational Structure 11 Recommendations 12 Conclusion 13 Reference 15 Bibliography 18 Introduction The rapidity of global assimilation has been dramatically changed in recent years. Rapid and improved changes in the communications, technology and transportation have provided the process a new momentum and have made the planet more co-dependent than ever (Global Policy Forum, 2010). The multinational organizations manufacture their products in a number of countries and sell to the consumers around the globe (Global Policy Forum, 2010). Raw materials, Money, technology and human resources have started moving across nations more swiftly than ever. Along with that the products, finances, cultures and ideas circulate more easily (Global Policy Forum, 2010). As a consequence, the legal, social and economics movements have been forming in International level. It is the time to have globalization in every aspect; globalization of economics, globalization of culture and legal environment (Global Policy Forum, 2010). The company, Nestle is a leading global company with its existence in around 130 countries around the world (Nestle, n.d.).The report consists of the analysis of its strategy in local and global markets. The company’s competitive strategy, foreign market entry strategy, market enhancement strategies as well as some other local and global strategies has been discussed below. At the same time a glance at the organizational structure of the company can provide an influential factor behind the success of the organization. Overview: The Company Nestle is one of the most respected brand name in the global food and beverage industry. The company promotes its products in around 130 nations across the globe (Nestle, n.d.). Some of its well known global brands include Maggi, Nestea, Nescafe, Friskies and Nestle. Apart from its own products the company owns around 52% of shares of Alcon Inc and about 30 % of the cosmetic giant, L’Oreal (Hoovers, 2010). Such diverse range of products makes it a leading brand not only in the world of food and beverages but attempts to elevate it to greater heights. Literature Review This part of the report has been based on the tactical theories, written by renowned authors on international strategy. Competitive advantage emerged from the differentiation among different firms in any of the attributes as well as the characteristics. These attributes and characteristics are supposed to let one firm to create customer value and do something analogous better than its competitors. The common sources of competitive advantages include possession of better assets, access to well organized distribution and supply networks and better talent pool, productive operations (Tallberg, Adhikari & Helsinki, 2007). Firms, which have decided to enter into the foreign markets, have to face a challenge while deciding on the right entry mode to enter into the market. This is a quite influential decision as it may have a continual impact on the firm’s global business performance. Two major modes which have been considered more often is the export of products and services and through the usage of foreign direct investment. Firms, adopting the very first one, try to make their existence in foreign markets by exporting to those regions. After having knowledge to that country they go for having their own operation facilities in those regions. Firms using the second one use the foreign direct investments to make their existence in foreign markets (Chung & Enderwick, 2001). Competitive Advantage Nestle has described themselves as the food, health and wellness company. The Nestle Nutrition was established with the purpose of strengthening their focal point, i.e. their core nutrition business. Attaining leadership in this market is one of the primary aims in their well defined corporate strategy. Modern day consumers are more influenced by the claims that the company make regarding the nutritional contents of their products and the customer while making his purchase decision makes it his primary motivation. The establishment of Nestle nutrition as an independent business unit was with the aim to reinforce their competitive advantage in this area. The unit was given the responsibility of looking after its operations in the business of health care nutrition, infant nutrition and performance nutrition. The aim was to confirm a superior performance by providing products which are enriched with consumer trusted and scientifically approved nutritional components. The corporate wellness unit has been responsible to integrate nutritional value in their food and beverages worldwide. Its responsibility includes coordination of horizontal as well as cross functional activities that properly address existing customer concerns and at the same time anticipate consumer trends in future. In simple terms the unit is meant for aligning the research and development expertise of Nestle with customer benefits. The research and development division is one of its strong footholds, because of which the company has been able to make its presence felt in the global market. It has its well-built innovation heritage with a comprehensible visualization of the future (Bauer, n.d.). The resources required to build up their business are readily available. Nestle has got access to a pool of experienced suppliers who are aligned with Nestlé’s assurance for innovation and excellence. Quality is surely one of the competitive advantages that Nestle has. Better quality products and services at reasonable prices is what Nestle strives for. From the above, it is apparent that the company operates on product differentiation with preference being given to better quality. The suppliers, employees, processes, business units and the research and development divisions have all contributed to make this happen. It can be deduced that Nestle has achieved its market leadership on the base of its cost effectiveness and innovation. Nestle has a well built economies of scale which helped it to attain low cost of reduction. Another important factor which contributes to the success of Nestle is their knowledge about the consumers in the market. To meet the varied customer needs Nestle prefers to blend their product mix with that of their local ingredients. Nestle has a well established transportation system for its distribution network. This helps the company to transport products in bulk to different factory outlets. Infrastructural development is another major concern of Nestle. (FAO, n.d.). Nestlé has shown such an example in China. In China they had developed roads to carry out their distribution process smoothly. Mentioned above are some of the factors which have collectively assisted the company to excel in innovation and customer services. Foreign market entry strategy As the markets are getting more competitive as well as more flat, it is very much apparent that Nestle would be looking towards other new markets from the growth perspective. Successful implementation of strategies for market development requires more flexibility, ability to adapt to an unforeseen market conditions and the vision to achieve long term goals. Nestle has been relied on the foreign direct investment for entering into different foreign markets (Rao & Murthy, 1999). Nestle, being the first mover, tries to enter the emerging markets in an early stage. Nestle is not generally inclined to go through the expensive process of setting up its brand name in the prospective markets; rather the company prefers to acquire local companies which are known in the indigenous market. This actually helps Nestle to overcome the cultural hurdles and consumer resentment to the foreign brands. Nestle first used this policy to start its business with the basic consumer needs like infant food; and after that they expanded their business in the upscale market segments of chocolate , soft drinks, instant food and beverage items as per customer needs. The strategy is quite simple but strong. The strategy is to start from a basics and then only move to the more niches with the rise in demand. Sometimes they connect their expansion plan with other brands as per the rising income of the population present there. The company provides some 8500 product brands; but only around 750 are registered in multiple nations and only about 80 are registered in over ten distinct countries (Nestle, n.d.). Nestle uses this approach as it is easier to reach the consumers with local brand names because of their attachment to these local names. Consequently the marketing becomes easier in such a situation as the local company has its own distribution channel, reputation and its own customer base. With due course of time, Nestle starts the marketing of its own products. In such a situation Nestle can very well concentrate on enhancement of the product line as well as process innovation. Nestle must evaluate their basic entry strategy before entering into a new country. The company is supposed to make choices based on the long run profitability of different foreign markets. The strategy is all about balancing the cost, benefits, innovation and excellence. Nestle matures by acclimatizing food components and processing technology in local environment; it is mostly done by employing the appropriate local brand name. For an instance, in many countries in Europe, Nestle introduced few dairy products under the brand name of ‘Sveltesse’ (Nestle, n.d.). In Asia, the strategy was mainly to acquire the local companies present there. This is mainly done with the motive to structure an assembly of independent regional managers since they know the local cultures and markets better than the foreign employees. The company’s strong cash inflow as well as its powerful debt equity ratio gives Nestle with ample power to venture into acquisition and consolidation. Nestle has been using a broad strategy for Asian market. The strategy is to produce different products in distinct countries to be supplied to the entire regional market. For an instance, Nestle produces soya sauce powder in Singapore (Nestle, n.d.), cereals and coffee in Philippines (Nestle, 2008). All these products are produced to serve the regional market. Market enhancement strategies Market enhancement strategies are primarily divided into four major parts. Market penetration and development of the existing market are done by Nestle in two ways; either by marketing the existing products in the existing market or by introducing new products in the existing market. Nestle, during the early stages of its initiation only marketed the milk products, a sort of infant food. In the year 1905, the company merged with Anglo Swiss Condensed milk to enhance and broaden the milk product line (Nestle, n.d.). This acquisition helped Nestle to penetrate further into the market thereby enabling it to enhance its existing products already present in the market. The risk is considerably reduced as the market is already aware of the existing product line. The small market size of Switzerland forced Nestle to explore other regions for their long term growth perspective. Consequently, Nestle established its milk products and infant food processing plant in Asia, Africa, Britain and America (finntrack, n.d.). This is an example of market development strategy where Nestle used its existing product lines to enter into the new regional markets. Nestle had certain inherent risks, the primary being, the unfamiliarity with the market and the absence of customer’s awareness regarding the product. In such a case, most of the times, they start with some local brands of the local companies which are readily recognized by the local consumers. In such a course the products are more readily accepted by the regional consumers. In the year of 1929, the company moved into the chocolate business. This happened when the company acquired the Swiss chocolate maker. The next product was one of the most revolutionary one, Nescafe, the first soluble coffee powder of the world (finntrack, n.d.). In coming years, Nestle moved its business to other segments, primarily through a number of acquisitions which included Maggi, Findus, Cross & Blackwell and Perrier (finntrack, n.d.). The entry of the new products in new markets diversified its range of acquisition. For most of the market enhancement techniques, Nestle had used either acquisition or consolidation. Be it the existing market or be it the new market, Nestle has always strived for innovation and brilliance. Global and local strategies Nestle is one of the renowned global organizations. So it is not surprising that the international strategy would be at the core of its tactical focus. Nestle is a decentralized company with the operational responsibilities spread out among the local units. The local units enjoy autonomy in regards to pricing, marketing, distribution etc. For an example, in Nigeria, Nestle has done away with its traditional distribution procedure of operating from a central warehouse because of Nigeria’s poorly developed road system. Instead Nestle has constructed several small warehouses around the country. This shows that the company’s responsiveness to diverse local conditions. Nestle even employs local staffs for their regional offices as they are better equipped to handle the business procedures and customers. This in turn helps the organization to respond to the local demand more effectively and efficiently; resulting in increased market share and profitability for the company. The adaptation procedure embraced in China is another example of the company’s focus on long term goals. After some 13 years of discussion, Nestle was finally invited to China in the year of 1987 by the government (finntrack, n.d.). Nestle started by opening of a powder milk producing farm in 1990; but soon after that the company realized that transportation infrastructure over there was inadequate to carry on the process. The infrastructure used to inhibit the accumulation of milk and delivery of the finished products. Rather than putting up with the existing infrastructure, Nestle made a plan to build up its own road for the transportation of milk and other finished products. Farmers used to bring the milk to the centers where it was weighed and checked for quality. Nestle used to pay the farmers on time. That acted as an incentive for the farmers and they increased the production of milk. This resulted in an increased number of cows in the district. After a period it became the responsibility of the area managers to organize the delivery of the milk to the factory centers. Although initially the whole procedure seemed very costly; but Nestle had the vision to see its long term profitability. This paved the way for the company’s success in China. Another example which shows that Nestle inclination to adapt local products is its operation in Syria. In Syria there is a huge demand for tomato and its related ingredient. The company used it to boost their sales. By using local ingredients and concentrating on the local demand, the company has earned a good rate of return in those regions. However this is not the case everywhere. Nestle had faced severe problems in Japan. Failure to make its coffee brand compatible to the weather condition, forced Nestle to lose its significant market shares to Coca Cola (finntrack, n.d.). Organizational Structure Nestle has seven different strategic business units worldwide. Now, these units have the responsibility to make strategic decisions as well as to look after the overall development of the business, which even includes consolidations and other market ingress strategies. Apart from this structure, a regional organizational structure operates almost parallel to the previous one. This structure divides the whole operating zone into five foremost geographical regions, including North America, Europe and some others. These regional divisions are in charge to make the development strategies for their individual regions, hence contributing towards the overall tactical decision making. Local units are responsible for local operating decisions; the tactical business units or the regional heads have nothing to do with their decision making. Nestlé makes exhaustive use of their local managers, to connect its diverse operations through out the world. They also make their managers move from one country to another. These managers are mostly selected on the basis of their characteristics, their inclination towards such kind of lifestyle and their working ability. This company also uses its management program to enhance optimistic energy level among their employees. The reason behind carrying out such kind of workshops is to provide them knowledge about Nestlé’s strategy and the culture. One of the most important departments, in this company, is its research and development division. Nestlé’s global network is spread around 17 research and development centers and are enriched with about 3500 qualified and experienced people from more than 50 countries; the main think tank being the Nestle research centre at Switzerland (Nestle, 2006). Nestle research division is expected to become bigger and better with time in its attempt to attain higher degree of innovation. Recommendations The company should work further to make better quality products. It needs to be aware of the fact that the incident happened in melamine in Chinese made infant food should not get repeated again (redOrbit, 2008). Situation can turn adverse for Nestle if these would happen again. The company must try to make its product differentiation by enhancing the quality of food and beverages (redOrbit, 2008). Conclusion Nestle has been able to make its presence felt as the world’s largest food company. Since its inception it has been able to increase the market share by implementing successful growth strategies. This indicates that the overall tactical practice of Nestle has been quite effective in the regional markets they have entered into. In conclusion it can be said that the key reason behind the company’s success is their amalgation of customization with globalization. It would be wrong to say that the country has marked its sign with the help of globalization. For an example, the company had entered into the China market as part of globalization efforts; but it was a success in that country because of the alignment of products and services with the consumer demands over. Despite having inferior infrastructure, Nestle was able to increase the production of powdered milk by a large amount. This actually showed the triumph of their strategy and flexibility. The reason behind company’s success in expanding into prospective markets can be attributed to the organizational structure as well as its core corporate strategy. Two significant reasons behind this success have been its flexible response towards the environmental change as well as its willingness to learn about the new culture. Despite the recent downturn Nestle has been able to maintain a continuous growth, even in the new markets, with the help of skillful market enhancement strategies. This excellent performance is facilitated by the execution of its unique strategy in building up bonds with customers through the local employees and managing the entire process using a very distinct approach. With most of the marketing strategy in its favor Nestle is expected to continue making profits and increase its market share but it also has to take certain factors like economical, cultural and into account while pursuing the strategy to ensure an all around development of the company. Reference Bauer, W., I. No Date. Nestlé Research Strategy. [Pdf]. Available at: http://www.nestle.com/ [Accessed on February 5, 2010]. Chung, H. & Enderwick, P. An Investigation of Market Entry Strategy Selection. Netherlands: Kluwer Academic Publishers, 2001. FAO. No Date. A Competitive Analysis And Strategy. Available at: http://www.fao.org/docrep/W5973E/w5973e0a.htm [Accessed on February 6, 2010]. Finntrack. No Date. Nestlé: Global Strategy. [Pdf]. Available at: http://finntrack.eu/mba/mb210/intbus/hill4e_506_509.pdf [Accessed on February 6, 2010]. Global Policy Forum. 2010. Globalization. [Online]. Available at: http://www.globalpolicy.org/globalization.html [Accessed on February 10, 2010]. 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