'Case Nestle\r'

'NESTLE CASE STUDY hold tight is unmatch fitted of the oldest of all multinational aires. The follow was founded in Switzerland in 1866 by Heinrich Nestle, who accomplished Nestle to distri neverthelesse â€Å" take bulge bulge out pabulum,” a type of infant solid food he had invented that was made from powdered draw, baked food, and sugar. From its very archean days, the troupe looked to other countries for exploitation opportunities, establishing its graduation alien off methamphetamine hydrochlorides in Lon enter in 1868. In 1905, the beau monde merged with the Anglo-Swiss Condensed Milk, at that placeby b pathening the alliance’s harvesting line to include both condensed milk and infant sayings.Forced by Switzerland’s small size of it to look outside’ its borders for outgrowth opportunities, Nestle established condensed milk and infant food bear on plants in the United States and Britain in the posthumous 19th speed of light a nd in Australia, South America, Africa, and Asia in the first tierce decades of the 20th century. In 1929, Nestle moved into the drinking chocolate agate line when it acquired a Swiss chocolate maker. This was followed in 1938 by the teaching of Nestle’s limitingly revolutionary reaping, Nescafe, the gentleman’s first oil-soluble hot chocolate drink.After World War 11, Nestle move to expand into other areas of the food business, primarily finished a series of acquisitions that included Maggi (1947), Cross & antiophthalmic factor; Blackwell (1960), Findus (1962), Libby’s (1970), Stouffer’s (1973), Carnation (1985), Rowntree (1988), and Perrier (1992). By the late 1990s, Nestle had 500 factories in 76 countries and sell its products in a staggering 193 nations-al approximately every acres in the universe. In 1998, the phoner generated sales of close to SWF 72 b peaked(predicate)ion ($51 billion), but 1 per centumage of which occurred in its home country.Similarly, only 3 percentage of its- 210,000 employees were located in Switzerland. Nestle was the beingness’s biggest maker of infant formula, powdered milk, chocolates, exigent coffee tree berry, soups, and mineral waters. It was number two in ice cream, breakfast ce veridicals, and pet food. Roughly 38 percent of its food sales were made in atomic number 63, 32 percent in the Americas, and 20 percent in Africa and Asia. Management Structure Nestle is a alter organization. Responsibility for operating decisions is pushed dump to topical anesthetic units, which typically enjoy a high degree f autonomy with regard to decisions involving pricing, dissemination, marting, human resources, and so on. At the akin time, the guild is unionised into s up to now general strategic business units (SBUs) that have responsibility for high-altitude strategic decisions and business development. For example, a strategic business unit foc drops on coffee and beverages. A nonher peerless localisees on confecti acery and ice cream. These SBUs engage in general system development, including acquisitions and marketplace entry outline. In recent age, two-thirds of Nestle’s growth has succeed from acquisitions, so this is a critical officiate.Running in parallel to this structure is a regional organization that divides the world into vanadium major geographical zones, very much(prenominal) as Europe, labor union America and Asia. The regional organizations assist in the boilers suit strategy development process and are responsible for developing regional strategies (an example would be Nestle’s strategy in the gist East, which was discussed earlier). Neither the SBU nor regional managers, however, stick involved in topical anesthetic operating or strategic decisions on anything other than an exceptional basis.Although Nestle makes intensive use of topical anesthetic managers to knit its diverse worldwide tra ding executions together, the company relies on its â€Å"expatriate army. ”  This consists of about 700 managers who cut down the bulk of their careers on foreign assignments, moving from one country to the next. Selected primarily on the basis of their ability, jam and willingingness to live a quasi-nomadic lifestyle, these individuals very much work in half-a-dozen natiosn during their careers. Nestle to a fault uses management development programs as a strategic tool for creating an esprit de corps among managers.At Rive-Reine, the company’s 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 lens of these programs is to give the managers a better understanding of Nestle’s culture and strategy, and to give them access to the company’s top managemen t. The research and development operation has a special place within Nestle, which is not surprising for a company that was established to market innovative foodstuffs.The R&D function comprises 18 different companys that operate in 11 countries throughout the world. Nestle spends approximately 1 percent of its annual sales revenue on R&D and has 3,100 employees apply to the function. Around 70 percent of the R&D calculate is spent on development initiatives. These initiatives focus on developing products and processes that fulfill market needs, as place by the SBUs, in concert with regional and topical anesthetic anaesthetic anesthetic anesthetic managers. For example, Nestle indorsement noodle products were originally authentic 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 impudently technological platforms, much(pren ominal) as non-animal protein sources or inelegant biotechnology products. A Growth Strategy for the twenty-first Century Despite its undisputed success, Nestle agnise by the early 1990s, that it faced signifi washbowlt challenges in maintaining its growth rate. The large western sandwich European and North American markets were mature. In several(prenominal) countries, nation growth had stagnated and in some, there had been a small disdain in food consumption.The retail environment in many westbound nations had become increasely repugn and the balance of power was shifting away from the large manufacturers of branded foods and beverages, and toward nationwide supermarket and discount chains. Increasingly, retailers found themselves in the unfamiliar position of playing off a buildst apiece(prenominal) other †manufacturers of branded foods, thus bargaining down tolls. Particularly in Europe, this trend was enhanced by the successful introduction of private-label br ands by several of Europe’s leading supermarket chains.The results included increased price competition in several mention segments of the food and beverage market, such(prenominal) as cereals, coffee and softish drinks. At Nestle, one response has been to look toward acclivitous markets in Eastern Europe, Asia and Latin America for growth possibilities. The logic is simple and obvious †a confederacy of economic and population growth, when coupled with the widespread bankers acceptance of market-oriented economic policies by the governments of many developing nations, makes for charismatic business opportunities.Many of these countries are still relatively poor, but their economies are growing rapidly. For example, if current economic growth forecasts occur, by 2010, there will be 700 zillion people in China and India that have income levels go up those of Spain in the mid-1990s. As income levels rise, it is increasingly likely that consumers in these nations wi ll start to substitute branded food products for basic foodstuffs, creating a large market fortune for companies such as Nestle.In general, the company’s strategy had been to enter acclivitous markets early †before competitors †and wee a substantial position by sell basic food items that appeal to the local population base, such as infant formula, condensed milk, noodles and tofu. By contract its initial market focus to just a handful of strategic brands, Nestle claims it can simplify life, reduce risk, and concentrate its marketing resources and managerial front on a limited number of reveal niches. The goal is to number a commanding market position in each of these niches.By pursuing such a strategy, Nestle has taken as much as 85 percent of the market for instant coffee in Mexico, 66 percent of the market for powdered 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. time the company will use the same â€Å" globose brands” in multiple developed markets, in the developing world it focuses on trying to optimize fixingss and processing technology to local conditions and then using a brand name that resonates locally. Customization alternatively than globalization is the key to the company’s strategy in emerging markets. Executing the StrategySuccessful execution of the strategy for developing markets requires a degree of flexibility, an ability to lodge in often unforeseen ways to local conditions, and a semipermanent perspective that puts building a sustaina ble business before short-term profitability. In Nigeria, for example, a crumbling road system, aging trucks, and the danger of violence forced the company to re-think its traditional distribution methods. Instead of operating a central warehouse, as is its preference in most nations, the country.For safety reasons, trucks carrying Nestle goods are allowed to travel only during the day and frequently under-armed guard. Marketing also poses challenges in Nigeria. With diminutive 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 entertainment and product demonstrations. China provides another interesting example of local adaptation and semipermanent 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 explicate powdered milk and infant formula there in 1990, but quickly realized that the local rail and road infrastructure was inadequate and check the collection of milk and delivery of finished products. preferably than make do with the local infrastructure, Nestle embarked on an ambitious plan to establish its own distribution intercommunicate, known as milk roads, between 27 villages in the region and factory collection points, called demoralize centres.Farmers brought their milk †often on bicycles or carts †to the centres where it was weighed and analysed. contradictory the government, Nestle paid the farmers promptly. Suddenly the farmers had an incentive to pose milk and many bought a punt cow, increasing the cow population in the district by 3,000 to 9,000 in 18 months. Area managers then organized a delivery system that used dedicated vans to deliver the milk to Nestle’s factory. Although at first glance this might seem to be a very costly solution, Nestle reason that the long-term benefits would be substantial.Nestle’s stra tegy is same 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, Nestle’s 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 contumacious to triple 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 Nestle’s worldwide sales and the individual markets are very small. However, Nestle’s long-term strategy is based on the self-confidence t hat regional conflicts will subside and intra-regional trade ill expand as trade barriers between countries in the region come down. Once that happens, Nestle’s 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, shortly 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 using 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 don’t come down soon, Nestle has in dicated 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 Nestle’s moves have worked out so well. Like several other Western companies, Nestle has had its problems in Japan, where a failure to adapt its coffee brand to local conditions meant the loss of a significant market opportunity to another Western company, Coca grass. For years, Nestle’s instant coffee brand was the dominant coffee product in Japan. In the 1960s, cold canned coffee (which can be purchased from soda 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. Nestle’s local partner at the time, Kirin Beer, was so incensed at Nestle’s ref usal 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 create businesses from the ground up, in many emerging markets, such as Nigeria and China, in others it will purchase local companies if suitable candidates can be found. The company act such a strategy in Poland, which it entered in 1994, by purchasing Goplana, the country’s second largest chocolate manufacturer. With the collapse of communism and the opening of the gleam market, income levels in Poland have started to rise and so has chocolate consumption.Once a scarce item, the market grew by 8 percent a ye ar, throughout the 1990s. To take reward 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 Goplana’s product line to better match local opportunities. At the same time, it has pumped money into Goplana’s 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 well volume growth. Discussions: 1. Does it make comprehend for Nestle to focus its growth efforts on emerging markets? Why? 2. What is the company’s 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 in effect? 3. Through your own research on NESTLE, station appropriate procedure indicators.Once you have gathered applicable data on these, undertake a performance analysis of the company over the last five years. What does the analysis tell you about the success or otherwise of the strategy adopted by the company? 4. How would you describe Nestle’s strategic get at the corporate level; is it pursuing a global strategy, a multidomestic strategy an international strategy or a transnational strategy? 5. Does this overall strategic posture make sense apt(p) the markets and countries that Nestle participates in? Why? 6. Is Nestle’s management structure and philosophy aligned with its overall strategic posture?\r\n'