International Business Strategy

A Report on International Business Strategy of Nestle

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EXECUTIVE SUMMARY

The below explanation of Nestlé’s approach to internationalization/globalization is illustrating that the company is one of the oldest international firms that properly concentrates on wellness, health and nutrition. The organization keeps its commitment to follow and respect all application local laws in each target market. Moreover, the performance analysis section demonstrating that Nestle has positioned its brands successfully as healthy and nutritious. The company follows a tendency to make early entries into developing nations and build a significant image by selling products and services that perfectly appeal to local taste of population. Also, it has been given that the company narrow down its focus on some strategic brands only to reduce risk, concentrate managerial effort and marketing resources on niche.

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In the context of market entry mode, Nestle follows direct exporting by introducing its subsidiaries in overseas market. The company considers internal expansion as well as try to attain high sales volume by renovation and innovation. Moreover, a multinational company is required to face tariffs and quotas while introducing its offerings to different regions. The Common Agriculture Policy is an important aspect to consider by food and beverage producing organizations and hence Nestle has incorporated Fairtrade in its operations. It provides minimum baseline rates for products by allowing farmers to hedge against market volatility.

Besides above, at the end section of report it is given that Nestle is a multi-domestic firm by its local responsiveness and weak worldwide integration. Also, for the effective management of its human resources the company adopts decentralized approach at all subsidiaries. Finally, the paper is summarizing by suggesting that Nestle should reduce its costs by accessing cheap labour and resources to improve its approach to internationalization, market entry and trade.

INTRODUCTION

The economic globalization, company’s internationalization and new markets emergence are all main themes in modern business. Rising numbers of organizations are confronted with persuasive reasons to grow their activities across various national boundaries. Globalization economic factors are the most important and visible ones. It comprise increasing economic competition among countries, rapidly growing financial flows and international trade plus foreign direct investment by multinationals through dissemination of advanced practices of management and in few cases share universally recognized labour standards. The following report is explaining international strategy used by Nestle to expand into global markets. The content is including entry mode adopted by organization and its effectiveness for the success of business. The reader will also find discussion about efficiency of Nestle in globalization and trade. Finally, the suggestions are given to improve internationalization process of organization.

NESTLE COMPANY PROFILE

Nestle is one of the most known and largest companies in the world. It is a Swiss organization with its head brand located in Vevey, Switzerland. The corporation was established in the year 1866 and since its inception has developed through bounds and leaps to become the biggest nutrition plus food business. Also, Nestle is main stakeholder in the well-known cosmetic organization, L’Oreal. Its strategic vision plays a main role for it to start from domestic market and then to expand globally. Moreover, Nestle is major player within Irish and UK food sector, as provides employment to around 8000 individuals throughout its 23 sites. It is the producer of some lovable brands of Britain, such as Nescafe, Kit Kat, Buxton, Shreddies, Smarties and Go Cat. Nestle is major exporter, which is exporting products of £346m worth every year to 70 nations round the globe.

1. PERFORMANCE ANALYSIS

1.1 Approach to globalization/internationalization

Nestle is an international organization that operates around the world through branches with head office in one nation. It is made possible by Trade Liberalization and globalization, which encourages firms to make expansion at worldwide level with less restrictions. The following are some internal factors that have led the organization to grow globally:

  • The company keeps on maintaining its commitment to respect and follow all applicable local laws in all of its target market (Green, 2015).
  • The organization has successfully positioned itself as a firm promoting dietary and health preferences to its clients.
  • Nestle attains dependable brands globally to develop its product range.

In spite of its definite success, by the early 1990s Nestle realized that it faced great challenges in sustaining its growth rate. In several Western countries, the environment of retail sector has become more challenging and balance of power has been shifted from large scale branded beverages or food manufacturers to discount and supermarket chains locally. Furthermore, retailers are finding themselves in unacquainted position to play in against of other branded foods manufacturer, hence bargaining down the market prices. Specifically, in Europe, the trend has increased by successful launch of private label brands by many leading chains of supermarket (WASHINGTON, 2010). This outcome in increased competition of price in various main segments of beverage and food market, i.e. coffee, soft drinks and cereals. Nestle has been taken a response to look towards emerging markets in Asia, Eastern Europe and Latin America for growth potentials. The logic is obvious and simple that vast business opportunities is provided by combination of population plus economic growth when coupled with adoption of market-oriented strategies of developing nation’s government. Many regions are still poor, however their economies are rapidly growing. For instance, it has been forecasted that in coming years, Indian and Chinese population will have same income level as those in Spain. As the level of income rise, it is more likely that customers in these regions will start substituting their branded food stuffs for basic eatables by developing a large opportunities for organizations like Nestle.

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In general, the strategy of Nestle is to make early entry into emerging markets and create a substantial image by selling basic items of food that appeal to local base of population, such as condensed milk, tofu, noodles and infant formula. By narrowing down focus on its initial market to just some strategic brands, the organization claims that it can reduce risk, simplify life plus concentrate its managerial effort and marketing resources on less number of niches. The aim is to develop a leading position in all of these niches. By following this tactic, Nestle has taken 85 percent of instant coffee market in Mexico, 70 percent soups market in Chile and 66 percent powdered milk market in Philippines. Due to increase in income level, the corporation is moving out progressively from these niches by presenting more items of upscale, like chocolate, prepared food stuffs, cookies and mineral water.

1.2 Nestle market entry strategies

In terms of internationalization and entry mode, Widersheim-Paul/Vahlne and Johanson in 1975 claim that internationalization is a range of incremental stages or decisions based on distinct modes of foreign market entry. They introduce the Uppsala model of Internationalization. In the particular model, the organization engage into market of any country by establishing chain that include four stages, i.e. no regular activities of export, export through self-governing representative, foreign sales subsidiary development and foreign manufacturing/production. These stages sequence shows a growing commitment of resources to the potential market. Moreover, activities of business are differed in relation to attained experience of market.

With regards to market entry mode, Nestle utilize direct exporting by establishing its subsidiary in foreign market. The company focuses on internal expansion and attempt to reach high sales volumes by removing available products and innovating new commodities. Through this strategy, the organization has been able to grow several products in many fields, such as dairy products, ready to eat foods, breakfast cereals, ice-cream, beverages, baby foods, pet care, bottle water and chocolate confectionary (Jenkins, 2013). Also, Nestle has capability of customizing global products as per the choices of local market customers. One of the main strengths of company is that its subsidiary introduce products, which can perfectly match with local market preference. This ability of products customization supports in gaining customer and brand loyalty by utilizing local names. For instance, Nestlé’s confectionery range sold in Russia is known as Rossiya but in U.S., it is recognized as Rolo.

1.3 Trade limitations for Nestle and strategies to deal with these successfully

Trade barriers are measures that is introduce by public authorities and governments to make imported services or goods less competitive than commodities or services produced locally. At the worldwide level, restrictions of trade such as quota and tariffs are also taken as barrier type into another nation’s market. The most common one is CAP (Common Agriculture Policy) that is developed to support farmers in developing regions. In this respect, Nestle has announced to incorporate Fairtrade concept in its operations. Fairtrade offers minimum baseline price for products by letting farmers to hedge against volatility of market. Also, it facilitates farmers effectively access to international markets and encourage their democratic representation. The company also includes social premium in price of its every commodity that is reinvested in development and social projects.

Additionally, the global food and beverages organizations are required to follow international standards. Hence, according to ISO’s 1000 food-related standards, Nestle beverage and food company comply with all standards of undertaking business at global level. Besides this, the organization fulfil requirements all other standards too, as a part of society to gain positive image among target customers. Furthermore, it successfully apply health and safety standards in its services as well as in operations of factories. The corporation is committed towards business practices that sustain the natural environment, thus comply with standards of international environment too (Hollensen, 2007).

2. PERFORMANCE ASSESMENT

Nestle is categorized as multi-domestic organization by its relatively weak worldwide integration and local responsiveness. Comprising its operation firms, such as Rowntree, Buitoni and Carnation among others, Nestle has practiced a decentralized management approach. The operating decisions responsibility of company is pushed down to local units that generally enjoy a great level of autonomy in decisions related to distribution, pricing, human resource, marketing and so on. At the same time, the organization is structured into seven (SBUs) strategic business units globally, which have responsibility for high-level business development and strategic decisions. For instance, one unit focuses on beverages and coffee section, while other focuses on ice cream and confectionary. Such SBUs involve in complete strategy development including market entry and acquisitions (Kim and Shin, 2002).

Recently, two-thirds growth of Nestle has come from acquisitions, hence it is an important function. Operating in equivalent to this structure is regional management, which divides the globe into some main geographical zones, i.e. Asia, North America and Europe. The regional management support in the process of strategy development and are responsible for forming tactics at particular region too. Even though, Nestle makes a significant use of local managers to join together its global operations, the organization depends on its “expatriate army”. It includes around 700 managers who spend most of their time on overseas assignments, moving from one nation to another.

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Also, the company makes use of management development programs as a strategic tool for developing an esprit de corps within managers. At its international training centre in Switzerland, Nestle brings all managers together from the whole world, for especially targeted development programs of two to three weeks. These programs objective is to provide managers with better understanding of company’s strategy and culture (Fischer, Clement and Shankar, 2005). The operation of research and development has important place in Nestle that support the business in commercializing innovative food products (Bauer and Taylor, 2001). The function of R&D consist of 18 distinct groups that perform in 11 nations around the globe. The company spends nearly 1 percent of its yearly revenue from sales on R&D as well as has 3100 staffs dedicated towards this particular function. Moreover, it spend 70% of overall R&D budget on initiatives of development. Such initiatives emphasis on developing processes and products determined by SBUs, which fulfil needs of market in concert with local and regional managers. For example, instant noodle products if Nestle were developed originally by group of R&D in reaction to observed needs of local operating firms through Asian region. Also, the firm has long-term development projects, which concentrates on novel technological platforms development, such as agricultural biotechnology products or non-animal protein sources.

3. SUGGESTIONS

In order to improve its approach to globalization/internationalization, trade and market entry, Nestle should reduce its overall cost by accessing cheaper materials, more advanced technology and labour. It is due to within all industry, a market segment presents that have tendency to buy products on low cost. In order to successfully compete in niche, an organization should be the low cost manufacturer. But the management should know that it always does not guarantee profitability (Sethi, 2002). Through the acceleration innovation and technological advancement, the production cost now can be manipulated to benefit both customers and organization as well. With an increase in globalization, distinct developing nations are being able to produce varied foodstuffs by low labour costs and at superior quality. Such resources interchange is made possible by transportation advancement as well as development in information technology.

Nestle should recognize potential sources of raw materials. By outsourcing production facilities in regions where labour, resources and materials are available at cheap cost, the company can also support in economic development of that particular nation and increase job opportunities too. Moreover, the Nestle products that are not well performing in some markets must be pulled out in spite of regularly spending on them (Weber, 2008). Also, company facing problems in selling some products due to prevailing culture of specific market in which it operates and hence must avoid to make sure the non-occurrence of sunk cost. The company have good opportunity to go from merely a food brand to well-being and nutrition brand, as it will open many new field for the extension of product line. Furthermore, developing manufacturing plants and entering into emerging markets will also support the organization in reducing extra costs.

Additionally, Nestle should make all possible attempts through its research and development unit to become company as nutrition and well-being because people are becoming more conscious towards their health. The organization would be able to capitalize on activities related to consciousness of health by enhancing its concentration on nutrition. In the segment of confectionary, the company should leverage centralize strategies plus research and execute them through innovation and renovation while considering or respecting local tastes as well as habits. This will support the firm in balancing its production cost and maintaining constant profits.

CONCLUSION

It can be concluded from above report that Nestle has many positive attributes that is supporting its product portfolio and hence the firm is able to sustain its position in list of fortune five hundred organizations. Nestle with the efficient utilization of proper management process, capital infusion, innovation plus research and development continues to grow its portfolio and is not merely a nutrition and food providing firm but serve as real multinational organization in distinct markets. There are various lawsuits in against of corporation and is considered as boycotted business, but in spite of this the Nestlé’s revenue have hardly dropped since its foundation.

The economy of world is changing through globalization. Nestle pursue a multi-domestic tactic, as it is facing more pressure for local responsiveness and less pressure for reductions in cost. But it is evident from above paper that changing offerings according to local needs enhances overall cost structure of company but improves the successful acceptance of its products plus needs. Hence, a multinational firm is able to attain efficiencies at global scale by making necessary adjustments in its products.

REFERENCES

  • Ghemawat, P. and Altman, A. S., 2014. Making Sense of Globalization.
  • Green, J., 2015. How Does Globalization Affect an Organization's Business Approach.
  • WASHINGTON, A. R., 2010. The end of cheap Chinese labour. Free exchange Economics.
  • Lewis, M., 2015. How to Reduce Labor Costs in Your Business.
  • Jarillo, J. C., 2003. Strategic Logic. Palgrave Macmillan.
  • Horn, S. S. and Faulkner, D., 2010. Understanding Global Strategy. Cengage Learning EMEA.
  • Jenkins, R., 2013. Transnational Corporations and Uneven Development.
  • Blythe, J., 2005. Sales and Key Account Management. Cengage Learning EMEA.
  • Hollensen, S., 2007. Global marketing: A decision-oriented approach.
  • Albaum, G. S., Albaum, G. and Duerr, E., 2008. International marketing and export management.
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