Case Nestle

draw near CASE STUDY keep down near is one(a) of the oldest of all multinational commercial enterprisees. The alliance was founded in Switzerland in 1866 by Heinrich nest, who realiseed draw near to distri moreovere milk nutrient, a type of babe food he had invented that was made from pulverised milk, baked food, and sugar. From its actually archeozoic days, the partnership looked to other countries for emergence opportunities, establishing its world-class foreign offices in London in 1868. In 1905, the corporation integrated with the Anglo-Swiss Condensed Milk, in that locationby broadening the companys increase tenor to embarrass both condensed milk and baby formulas.Forced by Switzerlands small size of it to look outside its borders for growth opportunities, go up set up condensed milk and infant food processing plants in the United States and Britain in the late nineteenth century and in Australia, South America, Africa, and Asia in the first three decad es of the twentieth century. In 1929, draw near moved into the chocolate business when it acquired a Swiss chocolate provoker. This was followed in 1938 by the increase of draw nears about revolutionary product, Nescafe, the worlds first soluble cocoa drink.After institution War 11, Nestle continued to expand into other beas of the food business, originally through a series of acquisitions that included Maggi (1947), Cross & Blackwell (1960), Findus (1962), Libbys (1970), Stouffers (1973), Carnation (1985), Rowntree (1988), and Perrier (1992). By the late 1990s, Nestle had 500 factories in 76 countries and sold its products in a staggering 193 nations-almost every rural in the world. In 1998, the company generated sales of close to SWF 72 billion ($51 billion), however 1 portion of which occurred in its home country.Similarly, only 3 percent of its- 210,000 employees were located in Switzerland. Nestle was the worlds biggest shambler of infant formula, pulverize mil k, chocolates, trice coffee, soups, and mineral waters. It was number two in ice cream, breakfast cereals, and pet food. Roughly 38 percent of its food sales were made in Europe, 32 percent in the Americas, and 20 percent in Africa and Asia. Management Structure Nestle is a deconcentrate organization. Responsibility for operating decisions is pushed down to topical anesthetic units, which typically enjoy a high degree f autonomy with regard to decisions involving pricing, distribution, foodstuffplaceplaceing, human resources, and so on. At the same time, the company is organized into seven worldwide strategical business units (SBUs) that shake off responsibility for high-level strategic decisions and business development. For example, a strategic business unit center ones on coffee and beverages. Another one foc single-valued functions on confectionery and ice cream. These SBUs engage in boilersuit outline development, including acquisitions and market entry dodging. In recent years, two-thirds of Nestles growth has come from acquisitions, so this is a critical function.Running in parallel to this social structure is a regional organization that divides the world into five major geographic zones, such(prenominal) as Europe, matrimony America and Asia. The regional organizations assist in the overall scheme development process and ar responsible for evolution regional strategies (an example would be Nestles strategy in the Middle East, which was discussed earlier). Neither the SBU nor regional managers, however, line up involved in topical anaesthetic anaesthetic anesthetic operating or strategic decisions on any social function other than an exceptional alkali.Although Nestle makes intensive engross of local managers to knit its diverse worldwide trading operations together, the company relies on its expatriate army. This consists of about 700 managers who spend the bulk of their c atomic number 18ers on foreign assignments, moving fr om one country to the next. Selected primarily on the basis of their ability, drive and willingness to live a quasi-nomadic lifestyle, these individuals much work in half-a-dozen natiosn during their careers. Nestle also uses management development programs as a strategic puppet for creating anesprit de corpsamong managers.At Rive-Reine, the companys international training center in Switzerland, the company brings together, managers from around the world, at different stages in their careers, for specially targetted development programs of two to three weeks duration. The objective of these programs is to give the managers a better mind of Nestles culture and strategy, and to give them access to the companys top management. The research and development operation has a special do within Nestle, which is not surprising for a company that was established to exploit innovative foodstuffs.The R&D function comprises 18 different groups that live in 11 countries throughout the world . Nestle spends approximately 1 percent of its annual sales revenue on R&D and has 3,100 employees dedicate to the function. Around 70 percent of the R&D budget is fagged on development initiatives. These initiatives localise on ontogeny products and processes that fulfill market needs, as identified by the SBUs, in concert with regional and local managers. For example, Nestle instant noodle products were originally developed by the R&D group in response to the perceived needs of local operating companies through the Asian region.The company also has longer-term development projects that focus on developing new technological platforms, such as non-animal protein sources or agricultural biotechnology products. A Growth Strategy for the 21st one C Despite its undisputed success, Nestle realized by the early 1990s, that it face portentous challenges in maintaining its growth rate. The large Western European and North American markets were mature. In some(prenominal) countries, p opulation growth had stagnated and in some, there had been a small decline in food consumption.The retail purlieu in many Western nations had become increasingly challenging and the balance wheel of power was shifting away from the large-scale manufacturers of mark foods and beverages, and toward nationwide supermarket and tax write-off chains. Increasingly, retailers found themselves in the unfamiliar position of playing off against each(prenominal)(prenominal) other manufacturers of branded foods, thus bargaining down prices. Particularly in Europe, this trend was enhanced by the successful introduction of private-label brands by several of Europes leading supermarket chains.The results included increased price disputation in several key segments of the food and beverage market, such as cereals, coffee and soft drinks. At Nestle, one response has been to look toward uphill markets in Eastern Europe, Asia and Latin America for growth possibilities. The logic is simplistic and obvious a combination of economic and population growth, when coupled with the far-flung adoption of market-oriented economic policies by the governments of many developing nations, makes for attractive business opportunities.Many of these countries are still relatively poor, but their economies are growing rapidly. For example, if sure economic growth forecasts occur, by 2010, there will be 700 meg people in china and India that watch income levels approaching those of Spain in the mid-1990s. As income levels rise, it is increasingly likely that consumers in these nations will start to substitute branded food products for basic foodstuffs, creating a large market opportunity for companies such as Nestle.In general, the companys strategy had been to enter emerging markets early before competitors and build a substantial position by shoping basic food items that appeal to the local population base, such as infant formula, condensed milk, noodles and tofu. By narrowing it s initial market focus to middling a handful of strategic brands, Nestle claims it can simplify life, chasten risk, and concentrate its marketing resources and managerial effort on a trammel number of key niches. The goal is to build a commanding market position in each of these niches.By pursuing such a strategy, Nestle has take overn as much as 85 percent of the market for instant coffee in Mexico, 66 percent of the market for pulverize milk in the Philippines, and 70 percent of the markets for soups in Chile. As income levels rise, the company progressively moves out from these niches, introducing more upscale items, such as mineral water, chocolate, cookies, and prepared foodstuffs. Although the company is known worldwide for several key brands, such as Nescafe, it uses local brands in many markets.The company owns 8,500 brands, but only 750 of them are registered in more than one country, and only 80 are registered in more than 10 countries. While the company will use the same global brands in multiple developed markets, in the developing world it focuses on trying to optimize fixingss and processing technology to local conditions and then employ a brand name that resonates locally. Customization rather than globalisation is the key to the companys strategy in emerging markets. carrying into action the StrategySuccessful execution of the strategy for developing markets requires a degree of flexibility, an ability to change in often unforeseen ways to local conditions, and a long-term perspective that puts building a sustainable business before short bring inability. In Nigeria, for example, a crumbling road system, aging trucks, and the danger of violence laboured the company to re-think its traditional distribution methods. Instead of operating a important warehouse, as is its preference in most nations, the country.For safety reasons, trucks carrying Nestle in force(p)s are allowed to travel only during the day and frequently under-armed guard. Marketing also poses challenges in Nigeria. With little opportunity for typical Western-style advertising on television of billboards, the company hired local singers to go to towns and villages offering a mix of sport and product demonstrations. China provides another interesting example of local accommodation and long-term focus. After 13 years of talks, Nestle was formally invited into China in 1987, by the Government of Heilongjiang province.Nestle opened a plant to bring on powdered milk and infant formula there in 1990, but quickly realized that the local rail and road infrastructure was unretentive and inhibited the collection of milk and delivery of finished products. Rather than make do with the local infrastructure, Nestle embarked on an ambitious plan to establish its own distribution network, known as milk roads, between 27 villages in the region and factory collection points, called chilling centres.Farmers brought their milk often on bicycles or carts to t he centres where it was weighed and analysed. Unlike the government, Nestle paid the farmers promptly. Suddenly the farmers had an inducing to produce milk and many bought a second awe, increasing the cow population in the district by 3,000 to 9,000 in 18 months. subject managers then organized a delivery system that used utilize vans to deliver the milk to Nestles factory. Although at first behold this might seem to be a very costly solution, Nestle calculated that the long-term benefits would be substantial.Nestles strategy is similar to that undertaken by many European and American companies during the first waves of industrialization in those countries. Companies often had to invest in infrastructure that we now take for granted to get production off the ground. Once the infrastructure was in place, in China, Nestles production took off. In 1990, 316 tons of powdered milk and infant formula were produced. By 1994, output exceeded 10,000 tons and the company decided to terc et capacity.Based on this experience, Nestle decided to build another two powdered milk factories in China and was aiming to generate sales of $700 million by 2000. Nestle is pursuing a similar long-term bet in the Middle East, an area in which most multinational food companies have little presence. Collectively, the Middle East accounts for only about 2 percent of Nestles worldwide sales and the individual markets are very small. However, Nestles long-term strategy is based on the self-confidence that regional conflicts will subside and intra-regional trade ill expand as trade barriers between countries in the region come down. Once that happens, Nestles factories in the Middle East should be able to sell throughout the region, thereby realizing scale economies. In anticipation of this development, Nestle has established a network of factories in five countries, in the hope that each will, someday, supply the entire region with different products. The company, currently makes ice- cream in Dubai, soups and cereals in Saudi Arabia, yogurt and bouillon in Egypt, chocolate in Turkey, and ketchup and instant noodles in Syria.For the present, Nestle can survive in these markets by apply local materials and focusing on local demand. The Syrian factory, for example, relies on products that use tomatoes, a major local agricultural product. Syria also produces wheat, which is the main ingredient in instant noodles. Even if trade barriers dont come down soon, Nestle has indicated it will remain committed to the region. By using local inputs and focussing on local consumer needs, it has earned a good rate of return in the region, even though the individual markets are small.Despite its successes in places such as China and parts of the Middle East, not all of Nestles moves have worked out so well. the likes of several other Western companies, Nestle has had its problems in Japan, where a reverse to adapt its coffee brand to local conditions meant the loss of a signifi cant market opportunity to another Western company, Coca sess. For years, Nestles instant coffee brand was the dominant coffee product in Japan. In the 1960s, cold canned coffee (which can be acquired from restorative vending machines) started to gain a following in Japan.Nestle dismissed the product as just a coffee-flavoured drink rather than the real thing and declined to enter the market. Nestles local partner at the time, Kirin Beer, was so incensed at Nestles refusal to enter the canned coffee market that it broke off its relationship with the company. In contrast, Coca Cola entered the market with Georgia, a product developed specifically for this segment of the Japanese market. By leveraging its existing distribution channel, Coca Cola captured a 40 percent share of the $4 billion a year, market for canned coffee in Japan.Nestle, which failed to enter the market until the 1980s, has only a 4 percent share. While Nestle has built businesses from the ground up, in many emer ging markets, such as Nigeria and China, in others it will purchase local companies if suitable candidates can be found. The company pursued such a strategy in Poland, which it entered in 1994, by purchasing Goplana, the countrys second largest chocolate manufacturer. With the collapse of communism and the opening of the color market, income levels in Poland have started to rise and so has chocolate consumption.Once a incomparable item, the market grew by 8 percent a year, throughout the 1990s. To take advantage of this opportunity, Nestle has pursued a strategy of evolution, rather than revolution. It has kept the top management of the company staffed with locals as it does in most of its operations around the world and carefully adjusted Goplanas product line to better match local opportunities. At the same time, it has pumped specie into Goplanas marketing, which has enabled the unit to gain share from several other chocolate makers in the country. Still, competition in the market is intense.Eight companies, including several foreign-owned enterprises, such as the market leader, Wedel, which is owned by PepsiCo, are vying for market share, and this has depressed prices and profit margins, despite the healthy volume growth. Discussions 1. Does it make sense for Nestle to focus its growth efforts on emerging markets? Why? 2. What is the companys strategy with regard to business development in emerging markets? Does this strategy make sense? From an organizational perspective, what is required for this strategy to work effectively? 3. by means of your own research on NESTLE, identify appropriate capital punishment indicators.Once you have gathered relevant data on these, undertake a performance analysis of the company over the last five years. What does the analysis verbalize you about the success or otherwise of the strategy adopted by the company? 4. How would you describe Nestles strategic posture at the corporate level is it pursuing a global stra tegy, a multidomestic strategy an international strategy or a transnational strategy? 5. Does this overall strategic posture make sense given the markets and countries that Nestle participates in? Why? 6. Is Nestles management structure and philosophy align with its overall strategic posture?