Question

Case Study-1

In 1990s Nestlé faced significant challenges in its market growth. Despite of the stagnant population in western countries the balance of power was increasing from large scale manufacturers like Nestlé, toward supermarkets and discounted chain stores. In result, Nestlé decided to lessen its focus on developed markets like North America and its home based market in Switzerland to emerging market like India and China. The driving force behind the decision of expanding its market share in emerging market is simple, as the population grows and government decisions favoring market economies brings attractive business opportunities for public living at intermediate income.

Although many of the counties are still living under poverty line, even living on $1 per day shows optimistic signs for the future markets. For example: as the current economic forecasts continues, there will be 9 billion people living on this planet as compare to today’s population of $7 billion today, and coincidently the increase in population is all in developing countries. Nestlé uses the strategy which correlates the ratio of increase in income to use of branded food products, which means as a person earns more and has less time for making food in his/her home, they will automatically substitute for branded products.

In general the company’s strategy has been to enter emerging markets early before its competitors and build a substantial customer base by selling products which suit the local population such as infant formula, milk, and noodles. Nestlé narrows down its market share to many small niche markets, as opposed to general or one for all strategies. Nestlé keeps the goal of commanding the niche markets by gaining at least 85% of market share in every food product it launches. For example, by pursuing such a strategy, Nestlé 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 market for soups in Chile. As the income level rises in each niche market, Nestlé introduces an upscale version of the same brand to increase its profit level. Although Nestlé has become a global brand, it uses local identity to gain exposure in local markets. The company owns 8500 brands but only 750 of them are known internationally.

Customization is the key to Nestlé’s global brand identity rather than universalism, which means Nestlé, uses global brand identity but, from the internal point of view, it uses local ingredients and other technologies that resonate with the local environment and brand name that is known globally. The customization of Nestlé’s products causes many hindrances in carrying out its distribution of products from local farmers to factories. For example, in Nigeria the infrastructure placed is crumbling, trucks are old and political conditions are not suitable to carry out the processes successfully, so Nestlé adopted a new strategy to deliver its products to local warehouses which are Loco convenient to local farmers for milk production. Although this might

seem as an expensive solution, the local farmers have tripled their milk production and the supply of milk, which Nestlé has calculated as beneficent for the long term growth.

The execution of the strategy matches the planning of the strategy which is to plan globally and implement locally. Nestlé gives autonomy to its local branches based in different countries to make pricing decisions, and distribution decisions. Nestlé has expanded its growth by diversifying its product base to tomato ketchup and wheat base products such as noodle and tofu. Nestlé has expanded into 5 countries and expects to supply all food products throughout the regions namely, Turkey, Egypt, Syria, Dubai and Saudi Arabia.

Nestlé is also buying local companies in China and adapting its own portfolio for the Chinese market. Since many Chinese find coffee too bitter for their liking, Nestlé is working on a new “formula” to offer Smoovlatte, a coffee drink that tastes like melted ice cream. The company wants to be seen as a company that makes healthy food. As Janet Voûte, Nestlé’s global head of public affairs, said “it is a core business strategy”.

Nestlé has used its brand name as strength to generate sales and to expand its market share, which includes it customization of products to fit its target market’s profile. Although Nestlé has not always started from scratch, the company has used acquisition as a penetration strategy to expand and penetrate new international markets, which eliminates any local barriers to its competition. A few weaknesses which are related to the company’s quality measure resulting in product recalls. The company has decentralized its strategy units into 7 subunits in charge for different product lines, for instance, one – for coffee and beverages; another one focuses on ice cream and milk products. Nestlé brings its management level employees all around the world for 2-3 week training in its headquarters in Switzerland to familiarize them with their global culture, strategy and given them access to the company’s top management.

Answer the below questions:

                                                                                                 

1) Explain the modes of entry adopted by Nestle to enter the international market

Answer 1

Answer:

• This report will break down the international strategy of Nestlé and one of its significant rivals, Cadbury plc in the United States. Nestlé is one of the most established global organizations and centers in nourishment, wellbeing, and health. It was established by Henri Nestlé, a drug specialist, who built up nourishment for babies who couldn't breastfeed in Switzerland in 1866. The organization converged with the Anglo-Swiss Condensed Milk in 1905. Nestlé grows their business through a progression of acquisitions after World War II that included Maggi (1947), Cross and Blackwell (1960), Findus (1962), Libby's (1970), Stouffer's (1973), Carnation (1985), Rowntree (1988) and Perrier (1992), (Nestle Management Report, 2008). By the 1990s, Nestlé had in excess of 500 processing plants in 76 nations and sold its items in 193 countries pretty much every nation on the planet. Generally, 28.2 percent of its deals were made in Europe, 33.1 percent in the Americas and 17.1 percent in Asia, Oceania, and Africa (Nestlé Management Report, 2008).
• Nestlé USA is a backup of Nestlé S.A in Vevey, Switzerland. Nestle has been available in the USA for over 110 years and now headquartered in Glendale, California. By the 2000s, Nestlé becomes a bigger organization through a few acquisitions that included Ralston Purina (2001), Chef America (2002), Power Bar (2006) and Gerber (2007). Nestlé's significant items and administrations incorporate milk-based items, pet consideration, dessert shop, drinks, cooking helps and arranged dishes, frozen yogurt, and pharmaceutical items. In the US, Nestlé markets confectionary and dessert items under Wonka, Perugina and After Eight brands. It likewise makes bread rolls, garnishes, and mints. This purchaser merchandise organization rehearsing a broaden item marketing and offer numerous brands and item in many markets. Nestlé recorded US$10 billion with America is the greatest geographic market, recorded for 30.2 percent of all-out incomes in 2008 and offer in excess of 50 brands (Nestlé Management Report, 2008).
• In Global strategy, the requirement for familiarity with separation is low while the requirement for the mix is high. This circumstance causes Global systems dependent on value rivalry for point of view of economies of scale. As indicated by Bartlett and Goshal (1989, 1992), the principle vital push of Multi-residential organization is to react to national contrasts. In Global strategy, rivalry happens at a worldwide level while multi-local organizations are outfitted towards local rivalry since the national item market doesn't have similar standards to make rivalry at a worldwide level. In worldwide organizations, bearing and pace would be required to stream for the most part from a base camp to their auxiliaries while Multi-residential organizations would be described by a lower generally speaking progression of items, individuals and data (Perlmutter, 1969). To be locally responsive, nearby creation and neighborhood innovative work (R&D) are not fundamental for an organization with neighborhood nearness since the course and pace originate from a center. Worldwide organizations are probably not going to find these pieces of the worth chain near the client since they will feel less need to get to this sort of market data. In International and Transnational strategy, it reflects progressively complex natural circumstances. International systems are described by expanded international normalization of items and administrations. It can prompt lower requirements for brought together quality control and key dynamic while killing prerequisites to adjust exercises to singular areas. In transnational strategy, there is a more significant requirement for territorial separation in marketing and a solid prerequisite underway. Transnational is the most testing strategy where MNCs try to work (Jeannet, 2001). Be that as it may, the issue for some MNCs is the social difficulties incorporated with confining a worldwide core interest.

Business strategy of Nestlé:

• Nestlé is described as a multi-local organization by its articulated neighborhood responsiveness and generally frail worldwide mix. Counting its working organizations, for example, Carnation, Rowntree, and Buitoni among others, it has generally rehearsed a decentralized way to deal with the board. Nearby working directors thought to be significantly more in line with neighborhood markets are given the opportunity to create marketing methodologies that coordinate neighborhood needs. In the same way as other different organizations seeking after a multi-local strategy, Nestlé has started an advance toward a progressively concentrated administration structure, which has brought about a re-association around significant business lines. So as to receive the rewards of worldwide influence, organizations understand that the multi-residential plan of action leaves an excessive number of activities to neighborhood levels in this way bringing about botched chances (Doole, 2004).
• As far as entry mode and disguise, Johanson and Widersheim-Paul/Vahlne (1975) guarantee that internationalization is the result of a progression of steady choices or 'stages' in light of various remote market entry modes. They present the Uppsala Internationalization model. In this model, the company's commitment in the particular nation market creates as indicated by a foundation chain that has four phases. There are no normal fare exercises are acted in the market, send out just happens by means of autonomous delegates, deals auxiliary and assembling in the remote market. The succession of stages demonstrates an expanding responsibility of assets to the market. What's more, business exercises are varied with respect to the market experience picked up. Nestlé utilizes direct sending out for entry mode, which is backup and utilizations its own association in the abroad market.