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TABLE OF CONTENTS
NO CONTENTS PAGE NUMBER
1 EXECUTIVE SUMMARY 1-2
2 INTRODUCTION 3
3 PESTLE ANALYSIS 4-5
4 SWOT ANALYSIS 6-8
5 VALUE CHAIN ANALYSIS 9-11
6 PORTER FIVE FORCES 12-13
7 CONCLUSION 14
8 RECOMMENDATIONS 15
9 APPENDICES 16-20
10 REFERENCES 21-25
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Executive Summary
Nestlé is widely known as the world’s largest multinational food and beverage company,
with a 148-year history and operations in virtually every country in the world. Nestlé was
founded in the year 1866 by Swiss pharmacist Henri Nestlé in Vevey, Switzerland.With
successful product expansion and business strategies, Nestlé now employs roughly 339000
people and has factories or operations in almost every region. Nestlé owns a variety of major
consumer brands such as Nescafe, Kit-Kat, Carnation, PowerBar and so forth that has a
dominant position in a variety of markets. The industry leadership of Nestlé largely depends
on the company’s Research and Development (R&D) networks and activities. This enables
Nestlé to provide high quality, safe and healthy food and beverage categories for worldwide
consumers on a continuous basis. Aiming to become the food industry leader in nutrition,
health and wellness, Nestlé is committed to promote corporate common goals and create
shared values within a decentralized organizational model.
The company typically implements differentiation and low-cost leadership strategies to
occupy or retain the target markets. They also established a global hybrid or mixed structure
that empower regional managers, who report back to the headquarters, to have autonomy for
their specific business operations and decision-making processes. Although Nestlé has certain
competitive advantages for persevering in the market, the company still faces challenges due
to external environments and internal factors in today’s dynamic and high velocity global
markets.
The purpose of this report is to evaluate Nestle Company industry based on the case
study and comprehend how the company develop strategic intent for their business
organisations following the analysis of external and internal business environments. It also
aims to identify market place opportunities and threats in the external environment and to
decide how to use their resources, capabilities and core competencies in the firm’s internal
environment to pursue opportunities and overcome threats. In order to strengthen this
assignment about Nestle, there are several methods of gathering data has been conducted,
such as PEST analysis, Porter’s 5 forces model, value chain analysis and SWOT analysis.
By the end of this assignment, future strategy will be mentioned as well as my
recommendations about Nestle that will fit into strategic orientation in order to perform better
in their business world. And continue to develop and implement its learning approach as the
chosen large company by using different strategies.
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In the end of this report, there are also research regarding Nestle’s strategy to overcome
other competitor as well recommendation and conclusion. In the Apendix, there are some
information regarding Nestle’s growth and histotry throughout time.
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1.0 Introduction
Nestle founder is Henri Nestle, a trained pharmacist and it was founded in the year of
1866. It is now one of the dominant leader in the environment of food and beverage
throughout the world (Osiris, 2014). It was began in Vevey, Switzerland when Henri Nestle
first invented Farine Lactée Henri Nestlé, which was filled with various combination such as
wheat flour, sugar and cow’s milk. The product was bought by a mother for her premature
infant whom couldn’t accept mother’s milk nor any other milk substances (Anon, 2015).
After the disruption of World War I in 1908, this created more demand, mostly from the
government contracts for dairy products. Nestle took chance of purchasing some of existing
factories in US and as the war ends, they have approximately 40 factories worldwide (Nestle,
2015). For partnership, they also merged with Alimentana S.A for Maggi products in 1945. In
addition, they are a major shareholder in L’Oreal, Cosmetics Company. The portfolio of their
brand is almost 2,000 global brands, sold worldwide based 196 different countries
(MarketLine, 2014). Not only that, this made Nestle to be in lead for some other industries
(refer Appendix 1). Financially, Nestle performance is defined as profitable. As stated in
Financial Times (2014), (refer Appendix 2), Nestle in 2013 had stream of revenue about
$99.5 billion which is calculated to be 2.7% more than the year 2012 end revenue. Nestle is
also awarded 41st most respected and well-known brand globally (Forbes, 2014).
For social responsibility, they have launched Nestle Cocoa Plan in 2012 to help farmers
rejuvenate farms and their productivity. They have reached a milestone whereby through
Cocoa Plan, by the year 2015 they are building 40 schools to help provide education for more
than 10,000 young children (Nestle, 2015).
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2.0 PESTLE Analysis
According to Mindtools.com (2015), PESTLE creator was taught to be a Harvard
professor Francis Aguilar. In 1967, he included EPTS in his book “Scanning the Business
Environment”, a scanning tool. Later the name was changed in order to create current
acronym. It is used to help warn advanced significant threats and spot business and personal
opportunities. Not only that, PESTLE helps to develop objective for environment. It is a
business measuring tool that take count of external factors of an organization. PESTLE stands
for acronym of Political, Economic, Social, Technological and Environmental factors
(Rapidbi.com, 2015).
2.1 Political
It is categorized as one of the concern to operate internationally for companies
global wide. Taxation policies and political stability plays crucial parts for an
operation of international business like Nestle. The company budget as well company
policies would be affected. In order to provide their consumers the food assurance
that their foods are manufactured, distributed and imported in the strictest sanitary and
hygiene condition. When it comes to products, Nestle products have guarantee seal.
This allows customers to have more confidence and trust towards Nestle products. In
addition, quality control plays vital role too. Products quality for all over the world
would not be different (Nestle, 2014).
2.2 Economic
According to Nestle (2014), they share knowledge and collaborate with local
companies even when Nestle is in the lad in food industry. By this, entrepreneurs get
to compete in a free trade environment in the terms of market growth. This too would
benefit the industry that takes part. Nestle along with the local government
collaborates in order to ensure technical help for farmers in harvesting and planting
crops. Both parties would be leaving with profits, farmers with their income and
Nestle gets raw materials to produce food. This is because the raise of price in raw
materials in need of source from a sustainable suppliers as stated in Kumar et al
(2013, pg. 205). They got to save money as they don’t have to import materials from
other countries. Customers too would be benefited as they get to buy products in low
prices.
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2.3 Social
Newman et al (2014, pg. 15) clarified that one of the main attention is to make
difference in consumers’ attitude and lifestyle. This terms constantly change as
different countries have different lifestyle as in religions, foods, taste, and also
language. In order to achieve targeted people in a region, Nestle comes up with
strategic plans. Not only that, customers’ value towards food is health. They
prefer food health conscious compared to junk foods (Watrous, 2015). Nestle is up
to the challenge in taking pace of consumer’s health in advance for their product.
2.4 Technological
Small change in technology could make an impact to business. Nestle as one
of the largest food and beverage company in the world have various products from
Baby foods, to cereals, coffee, and chocolate till ice-cream. They developed
technologies such as Extrusion, Malt extraction, Fermentation and Healthier fats
(Nestle.com, 2014). Refer Appendix ( ). Furthermore, the usage of Internet and
social media to interact with consumers enables Nestle to make difference in
development (Lin et al, 2014, pg. 3).
2.5 Legal
As Nestle is established worldwide, there are changes in regulation for each
countries. There would a need to adapt changes in global regulation in
international market (Schaffer et al, 2014, pg. 12).
2.6 Environmental
Nestle have increase their corporate social responsibility as in they have
established Cocoa Plan where they help poor ones to study and create a living
life for people in Africa (Nestle, 2015). Not only that, Nestle is one of the top
ten company worldwide to report corporate social responsibility by KPMG
(2013).
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3.0 SWOT Analysis
SWOT is originated by Albert Humphrey from Stanford University in 1960s and
1970s by leading a research project with many top companies. His main goal was to
identify reason corporate planning fails. The results was identified as tools and key areas
called SOFT Analysis (Morrison, 2014). SWOT stands for Strength, Weakness,
Opportunity and Threat. Chron.com (2014) stated SWOT is a process to identify internal
and external factors by the management team that would affect future performance of
company. The strength and weakness is their internal factors while opportunity and threat
is external factors.
The table below states the SWOT analysis;
STRENGTH
1. Committed to their stockholders in
the approach of business and strong
cultural values (Schein, 2012).
2. Strong commitment in social
responsibility whereby as stated in
CSR Wire (2014) “long term
commitment never being sacrificed
for short term performance”.
3. Diversity in products, have 8000
products sold in markets (Nestle,
2014).
4. Operation in more than 197
countries including indirect and
direct channels (Nestle, 2015).
5. Refereed to Forbes (2015), Nestle
was the 43th in World’s Most
WEAKNESS
1. Certain Nestle products
encountered criticism in
nutritional value. Often blamed
because of poor supplies
(GotAbout, 2015)
2. India government sued for unfair
trade practices ($100m) for Maggi
product (BBC News, 2015).
3. Being tainted in negative public
relations; baby milk scandal (the
Guardian, 2013).
Commentaries: Unilever manages to
breakthrough packaging technology by
using 15 less plastic whereby it is to build
more environmental awareness (CSR
Wire.com, 2015). While Nestle is tainted
with many health concerned issues,
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Valuable Brands position and 14th
in the market value.
Unilever is progressing with proper
health awareness product packaging.
OPPORTUNITY
1. Developed their selling channel to
Africa with Coca Cola (Mark,
2012).
2. Disposable income increased in
China, demanding pet food, water
and ice cream (Decorvet, 2012).
3. Opened Nestle Café in many
locations (Nestlecafefranchise.com,
2015).
4. Collaboration with Global
Chocolate Market 2015-2019 with
companies as Mars, Ferrero Group
and Mondelez International
(Markets, 2015).
Commentaries: By 2020, Unilever is
focused in improving well-being and health
THREAT
1. People more health conscious as
chocolate related products are one
of the major products.
2. Major competitors such as
Unilever, Hersheys, Cadbury and
also Starbucks
3. Rising in price for raw materials
as global population increases
where Nestle might be forced to
increase their selling price
(Nestle, 2014).
4. Could lose dominance in India as
Nestle products are getting
banned in India states (Firstpost,
2015).
Commentaries: As stated in a press
release by Unilever (2013), they are
sourcing 1/3 of their own agricultural
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where there are taking actions to improve
nutritional and taste quality in product for
health. Not only that, they are giving
priority for women and fairness in
workplace by empowering 5 million
women in Unilever by 2020 (Unilever,
2015). Nestle and Unilever both are
progressing towards making a change for
organization and community by taking
opportunity in hand.
raw materials as it is one of their target
to source 100% of it by year 2020 as they
are in the midst of doubling their
company size. As for Nestle, they are
facing high raw materials price which
encounters them increase their product
price instead of enhancing their business.
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4.0 Value Chain
(Source: Imanet.org, 2015)
This idea was defined by Michael Porter in 1985 in order to know how
customer value gets along with activity chain which in the end lead to product or
service. He too describes value chain as an internal process in company which “to
design, produce, market, deliver and support its product” (Imanet.org, 2015).
Referring to the diagram above, Porter have stated in his book “Competitive
Advantage: Creating and Sustaining Superior Performance” that business activity is
split into two: Primary and support activities (Refer to Appendix 4 (Porter, 1998).
4.1 Primary Activity
4.1.1 Inbound Logistics
Nestle works worldwide with more than 165,000 direct supplier and 695
individual farmers (Nestle.com, 2015).there are also 26 language of supplier code for
worldwide suppliers. They too have established warehouses in different countries,
example in China and Malaysia.
4.1.2 Operations
Packaging water filling and account maintenance is Nestle operation. Major
improvement was held to speed up production by bringing facility par with
international standards. The top priority of Nestle for consumer is quality and safety
as it is one of our corporate principle.
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4.1.3 Sales and Marketing
Nestle promote their products by advertisement, personal marketing, TVC,
public relation and sales promotion. In Pakistan, they charge value price by producing
water in plastic bottles. “Brand Building the Nestle Way” is Nestle’s commercial and
career point of view. Nestle provide end-to-end marketing in brand management,
consumer insight and communications. Their main focus is to make sure they are able
to provide a hand to the customer.
4.1.4 Outbound Logistics
Customers knew Nestle through their brand where most food and beverage are
covered by them. From Baby foods and bottled water, culinary to coffee and
chocolates to drinks. Innovations by bottling packaging, delivering to regional offices
as demanded by customer and also having eco-efficient packaging (Nestle, 2014).
4.1.5 Services
Nestle have delivery services. They deliver to shops, hotels, offices and also
restaurants (Nestle, 2014).
4.2 Supporting Activities
4.2.1 Procurement
Main raw materials by Nestle is cocoa, milk and coffee. From farmers, Nestle
receive vegetables, potatoes, cereals and fruits. Through trading, Nestle also receive
spices, meat, oil, sugar and more on. All this requires specific quality of raw materials
but in the lowest cost system.
4.2.2 Technological
Nestle is enlarging their Product Technology Centre in United Kingdom for
confectionary because it strengthens the leadership and research and development.
The main two roles of enlarging is to use the technology in company operations and
second to enhance new product development.
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4.2.3 Human Resource
To make sure their employee have full rights, Nestle dedicate human research.
The aim of Management Trainee Programme is to develop young people in order
to help them in achieving a dynamic organization.
4.2.4 Firm Infrastructure
Nestle.com (2015) states in the Nestle Report that they have helped creating
labour forces in Africa and also help educating children. Not only that, they too
have built infrastructure like water treatment systems.
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5.0 Porter5 Forces
Michael E. Porter came up with five forces model in 1979 while working for Harvard
Business School. The aim of this model was to show new way to identify, analyse and
manage factors by using effective strategy in an organization. It is divided into two parts;
Horizontal forces and Vertical Forces. (Kaumba et al, 2014). This was a framework which
shows the overall profitability and attractiveness in a market. Refer to Appendix 5 for the
Diagram.
5.1 Threat of New Entrants
The food industry is a large industry. It is common for companies in the industry to do
well for years and also to do poor in short period. Nestle luckily have been around for more
than a century and produces good products as well satisfaction of consumers. In order for
new threats to survive, they must be able to seize one of a Nestlé’s market share portion.
Example, Unilever is a threat for Nestle in certain products such as beverages. But somehow
Nestle is still on lead because of their trademark of healthy and long lasting credibility in
market. This made Nestle a target, and hereby the new entrants’ threat is moderate.
5.2 Threat of Substitute
There would be always something new on the market. Like every other company, Nestle
too encounter threat of substitute products. Comparing from Pet food, confectionaries and
ice-creams, there are similar products out there to Nestle products. To be in lead
continuously, Nestle got to find innovative ways in bringing up their products and also to
come up with new products to ensure their future plans for the company. Example, Spray
(2015) stated in Marketing Magazine that Kit Kat by Nestle has been blocked from
registering the four finger shape chocolate by Cadbury and the case is still ongoing.
Competitions in food industry is vigilant as Nestle has now turned to focus on healthy food
aspects while maintaining their place in market. The threat of it is high.
5.3 Competitive Rivalry
Being one of a powerhouse in the industry of food processing, Nestle have competition in
national and international level. Example of competition Nestle have is Unilever, Cadbury,
Masterfoods and Kraft. These are strong companies, battling continuously to overcome one
another. Refer Appendix ( ), as in Global Food Market Share 2004, Unilever, Kraft and
Nestle have been competing closely to be in lead.
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5.4 Bargaining Power of Buyers
Customers have high bargaining power as they are consuming the products. As there are
many substitute products for Nestle, customers could change perception and get influenced
by the factor of healthy food, low cost, and easy attainable. Nestle knows the steps to take in
order to meet their customers’ expectation. Since customers are nowadays health conscious in
products, Nestle have included health factor in their products (Nestle, 2015).
5.5 Bargaining Power of Supplier
Nestle have more power over suppliers as they have large purchasing power and the
suppliers too offer unique products. Moreover, Nestle have long duration relationship with
their suppliers as they need to preserve the availability of raw materials and also the quality
of it. Nestle took initiative to offer their suppliers regarding the efficiency to perform and
minimize the cost of production.
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6.0Conclusion
“Your most unhappy customers are your greatest source of learning” by Bill Gates.
This quotes show clearly that Nestle too have bad experiences in the past, and yet they are
striving to make a change to their organization, family and also to the community.
Nestlé’s official website shows that they have huge potential in most developing countries
if they could keep up the pace. Nestle company is known internationally and their
company is able to deliver more goodness than they do before for the future. I am sure
that Nestle Company could do even better by applying more strategies then their
competitors.
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7.0Recommendation
As stated in Nestle.com (2014), the important source in competitive advantage is the
image of Nestle brand. Nestlé’s big scope of business enables a significant scale in
administrating, marketing and manufacturing. Example, Nestle comes up with ventures
into new areas for growth in the reason of nutrition and wellness. Nestle joined a venture
by L’Oreal in the name of Inneoy. This joint venture takes place because of Nestlé’s
strong reputation. In order to be different, they invest in many new industry such as
nutricosmetics. Being innovative is also an advantage for Nestle. They make sure that
their 140 years of research that takes place in their globally renowned R&D Centres main
activity is for their customers’ benefit. Price could be a threat for Nestle as there are many
competitors and if their price is higher than ceiling, other competitors would win over the
customers. To ensure this don’t take place, Nestle have long availability for their raw
materials, thanks to their good relationship with their suppliers. “If you don’t have a
competitive advantage, don’t compete” says the CEO of General Electric – Jack Welch. If
Nestle apply more of their competitive advantage strategy, they could be able to be in the
lead in market for a long period.
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Appendices
Appendix 1
General information
Founded in 1866 by Henri Nestlé in Vevey, Switzerland, Nestlé is one of the world’s largest
food and nutrition company. Nestlé now operates 115 countries and has around 280,000
employees worldwide. Nestlé is ranked third by milk intake and first by turnover among
world dairy companies in 2010.
The timeline below reviews the significant events that mark the history of Nestlé:
1866‐1905
In 1866, two separae Swiss enterprises that would later form the core of Nestle, the Anglo‐
Swiss Condensed Milk Company and the Farine Lactee HenriNestle Company, were established.
1905‐1918
The Company formed by the merger was called the Nestlé and Anglo‐Swiss Milk
Company. By the early 1900s, the Company was operating factories in the United States,
Britain, Germany and Spain. In 1907, the Company began full‐scale manufacturing in
Australia, its second‐largest export market. Warehouses were built in Singapore, Hong
Kong, and Bombay to supply the rapidly growing Asian markets.
1918‐1938
The manufacture of chocolate became the Company's second most important activity. New
products appeared steadily: malted milk, a powdered beverage called Milo, a powdered
buttermilk for infants, and, in 1938, Nescafé.
1938‐1944
Due to World War II, neutral Switzerland became increasingly isolated, and many of
Nestlé's executives were transferred to offices in Stamford, Connecticut. To overcome
distribution problems, factories were established in developing countries, particularly in
Latin America.
1944‐1975
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Throughout this period, Nestlé's growth was based on its policy of diversifying within the
food sector to meet the needs of consumers. Mergers and acquisitions made by Nestlé
within this period include Alimentana S.A., the manufacturer of Maggi seasonings and
soups (1947), Crosse & Blackwell, the British manufacturer of preserves and canned foods
(1960), Findus frozen foods (1963), Libby's fruit juices (1971), Stouffer's frozen foods
(1973), and finally becoming a shareholder in L'Oréal (1974), which is outside the food
industry .
1975‐1981
Nestlé's rapid growth in the developing world partially offset a slowdown in the Company's
traditional markets, but it also carried with it the risks associated with unstable political and
economic conditions. To maintain a balance, Nestlé made its second venture outside the
food industry by acquiring Alcon Laboratories, Inc., a U.S. manufacturer of pharmaceutical
and ophthalmic products.
1981‐1995
The Company's strategy for this period was twofold: improve its financial situation through
internal adjustments and divestments, and continue its policy of strategic acquisitions. In
1984, Nestlé's improved bottom line allowed the Company to launch a new round of
acquisitions, including a public offer of $3 billion for the
1996‐2002
In July 2000, Nestlé launched a Group‐wide initiative called GLOBE (Global Business
Excellence), aimed at harmonizing and simplifying business process architecture. Two
major acquisitions took place in North America in 2002 Dreyer's and Chef America, Inc.
Also in 2002, the joint venture Dairy Partners Americas was set up with Fonterra; and
Laboratoires innéov was set up, another joint venture, this time with L'Oréal.
2003‐2009
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Acquisitions made during this period include Mövenpick Ice Cream, Jenny Craig, Uncle
Toby's, Novartis Medical Nutrition, Gerber and Henniez. Also, Nestlé entered into a strategic
alliance with the Belgian chocolatier Pierre Marcolini. In 2008, Nestlé began a process of
selling Alcon by divesting 24.8% to Novartis. In 2009, Nestlé opened the Chocolate Centre
of Excellence in Broc, Switzerland, with Pierre Marcolini one of the master chocolatiers
Mission
Nestlé does not have a formal mission statement. Instead of a mission statement, Nestlé
uses a
clear set of principles and values to guide it through its business and corporate decisions.7
Nestlé
believes that attempting to capture all of its values and principles in a couple of sentences
would
fall short of what Nestlé strives to achieve. Nestlé operates under ten guiding principles of
operations. These ten principles are: 1) Nutrition, health and wellness, 2) Quality
assurance and
product safety, 3) Consumer communication, 4) Human rights in business activities, 5)
Leadership and personal responsibility, 6) Safety and health at work, 7) Suppler and
customer
relations, 8) Agriculture and rural development, 9) Environmental sustainability, and 10)
Water.8
Nestlé management believes that the company cannot create value society and for its
shareholders if it does not abide by its guiding principles.
The first three principles are in reference to Nestlé’s consumer. Nestlé works to
enhance the nutritional value, taste, and enjoyment of its products while guaranteeing a safe
product that fully informs the consumer about the benefits and pitfalls of its products. The
fourth principle is about recognizing the necessity of human rights and exercising and
promoting good human rights practices. Guiding principles five and six are about requiring
that employees respect each other and their management while also ensuring healthy and safe
conditions for all employees
worldwide. Principles seven and eight require that Nestlé’s customers and suppliers
adhere to the
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same high standards of honesty, integrity and fairness that it expects of itself. Lastly,
Nestlé’s
ninth and tenth principles revolve around environmental sustainability, and Nestlé
continuing
attempts to advance its environmentally safe practices and sustainability initiatives.9 It is
through adherence to these ten principles that Nestlé can give shared value to society,
customers,
and shareholders (its top priority stakeholders).
While Nestlé has a bit of a checkered past when it comes to corporate values due the
infant formula scandal of the 1970s, its new principles seem to be working very well. Per the
2011 Annual Report, in the last year Nestlé experienced internal growth in several important
areas, in spite of overall disappointing results.10 Additionally, both Chairman Peter Brabeck-
Letmathe and CEO Paul Bulcke agree that Nestlé’s principles will help the company to grow
in the future.
Apendix 2
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Appendix 4
Value Chain
 Inbound logistics: This refers to everything involved in receiving, storing and
distributing the raw materials used in the production process.
 Operations: This is the stage where raw products are turned into the final product.
 Outbound logistics: This is the distribution of the final product to consumers.
 Marketing and sales: This stage involves activities like advertising, promotions, sales-
force organization, selecting distribution channels, pricing, and managing customer
relationships of the final product to ensure it is targeted to the correct consumer groups.
 Service: This refers to the activities that are needed to maintain the product's
performance after it has been produced. This stage includes things like installation, training,
maintenance, repair, warranty and after-sales services.
Appendix 5
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Strategic Management for Nestle

  • 1. TABLE OF CONTENTS NO CONTENTS PAGE NUMBER 1 EXECUTIVE SUMMARY 1-2 2 INTRODUCTION 3 3 PESTLE ANALYSIS 4-5 4 SWOT ANALYSIS 6-8 5 VALUE CHAIN ANALYSIS 9-11 6 PORTER FIVE FORCES 12-13 7 CONCLUSION 14 8 RECOMMENDATIONS 15 9 APPENDICES 16-20 10 REFERENCES 21-25
  • 2. |SIM336 STRATEGIC MANAGEMENT 1 Executive Summary Nestlé is widely known as the world’s largest multinational food and beverage company, with a 148-year history and operations in virtually every country in the world. Nestlé was founded in the year 1866 by Swiss pharmacist Henri Nestlé in Vevey, Switzerland.With successful product expansion and business strategies, Nestlé now employs roughly 339000 people and has factories or operations in almost every region. Nestlé owns a variety of major consumer brands such as Nescafe, Kit-Kat, Carnation, PowerBar and so forth that has a dominant position in a variety of markets. The industry leadership of Nestlé largely depends on the company’s Research and Development (R&D) networks and activities. This enables Nestlé to provide high quality, safe and healthy food and beverage categories for worldwide consumers on a continuous basis. Aiming to become the food industry leader in nutrition, health and wellness, Nestlé is committed to promote corporate common goals and create shared values within a decentralized organizational model. The company typically implements differentiation and low-cost leadership strategies to occupy or retain the target markets. They also established a global hybrid or mixed structure that empower regional managers, who report back to the headquarters, to have autonomy for their specific business operations and decision-making processes. Although Nestlé has certain competitive advantages for persevering in the market, the company still faces challenges due to external environments and internal factors in today’s dynamic and high velocity global markets. The purpose of this report is to evaluate Nestle Company industry based on the case study and comprehend how the company develop strategic intent for their business organisations following the analysis of external and internal business environments. It also aims to identify market place opportunities and threats in the external environment and to decide how to use their resources, capabilities and core competencies in the firm’s internal environment to pursue opportunities and overcome threats. In order to strengthen this assignment about Nestle, there are several methods of gathering data has been conducted, such as PEST analysis, Porter’s 5 forces model, value chain analysis and SWOT analysis. By the end of this assignment, future strategy will be mentioned as well as my recommendations about Nestle that will fit into strategic orientation in order to perform better in their business world. And continue to develop and implement its learning approach as the chosen large company by using different strategies.
  • 3. |SIM336 STRATEGIC MANAGEMENT 2 In the end of this report, there are also research regarding Nestle’s strategy to overcome other competitor as well recommendation and conclusion. In the Apendix, there are some information regarding Nestle’s growth and histotry throughout time.
  • 4. |SIM336 STRATEGIC MANAGEMENT 3 1.0 Introduction Nestle founder is Henri Nestle, a trained pharmacist and it was founded in the year of 1866. It is now one of the dominant leader in the environment of food and beverage throughout the world (Osiris, 2014). It was began in Vevey, Switzerland when Henri Nestle first invented Farine Lactée Henri Nestlé, which was filled with various combination such as wheat flour, sugar and cow’s milk. The product was bought by a mother for her premature infant whom couldn’t accept mother’s milk nor any other milk substances (Anon, 2015). After the disruption of World War I in 1908, this created more demand, mostly from the government contracts for dairy products. Nestle took chance of purchasing some of existing factories in US and as the war ends, they have approximately 40 factories worldwide (Nestle, 2015). For partnership, they also merged with Alimentana S.A for Maggi products in 1945. In addition, they are a major shareholder in L’Oreal, Cosmetics Company. The portfolio of their brand is almost 2,000 global brands, sold worldwide based 196 different countries (MarketLine, 2014). Not only that, this made Nestle to be in lead for some other industries (refer Appendix 1). Financially, Nestle performance is defined as profitable. As stated in Financial Times (2014), (refer Appendix 2), Nestle in 2013 had stream of revenue about $99.5 billion which is calculated to be 2.7% more than the year 2012 end revenue. Nestle is also awarded 41st most respected and well-known brand globally (Forbes, 2014). For social responsibility, they have launched Nestle Cocoa Plan in 2012 to help farmers rejuvenate farms and their productivity. They have reached a milestone whereby through Cocoa Plan, by the year 2015 they are building 40 schools to help provide education for more than 10,000 young children (Nestle, 2015).
  • 5. |SIM336 STRATEGIC MANAGEMENT 4 2.0 PESTLE Analysis According to Mindtools.com (2015), PESTLE creator was taught to be a Harvard professor Francis Aguilar. In 1967, he included EPTS in his book “Scanning the Business Environment”, a scanning tool. Later the name was changed in order to create current acronym. It is used to help warn advanced significant threats and spot business and personal opportunities. Not only that, PESTLE helps to develop objective for environment. It is a business measuring tool that take count of external factors of an organization. PESTLE stands for acronym of Political, Economic, Social, Technological and Environmental factors (Rapidbi.com, 2015). 2.1 Political It is categorized as one of the concern to operate internationally for companies global wide. Taxation policies and political stability plays crucial parts for an operation of international business like Nestle. The company budget as well company policies would be affected. In order to provide their consumers the food assurance that their foods are manufactured, distributed and imported in the strictest sanitary and hygiene condition. When it comes to products, Nestle products have guarantee seal. This allows customers to have more confidence and trust towards Nestle products. In addition, quality control plays vital role too. Products quality for all over the world would not be different (Nestle, 2014). 2.2 Economic According to Nestle (2014), they share knowledge and collaborate with local companies even when Nestle is in the lad in food industry. By this, entrepreneurs get to compete in a free trade environment in the terms of market growth. This too would benefit the industry that takes part. Nestle along with the local government collaborates in order to ensure technical help for farmers in harvesting and planting crops. Both parties would be leaving with profits, farmers with their income and Nestle gets raw materials to produce food. This is because the raise of price in raw materials in need of source from a sustainable suppliers as stated in Kumar et al (2013, pg. 205). They got to save money as they don’t have to import materials from other countries. Customers too would be benefited as they get to buy products in low prices.
  • 6. |SIM336 STRATEGIC MANAGEMENT 5 2.3 Social Newman et al (2014, pg. 15) clarified that one of the main attention is to make difference in consumers’ attitude and lifestyle. This terms constantly change as different countries have different lifestyle as in religions, foods, taste, and also language. In order to achieve targeted people in a region, Nestle comes up with strategic plans. Not only that, customers’ value towards food is health. They prefer food health conscious compared to junk foods (Watrous, 2015). Nestle is up to the challenge in taking pace of consumer’s health in advance for their product. 2.4 Technological Small change in technology could make an impact to business. Nestle as one of the largest food and beverage company in the world have various products from Baby foods, to cereals, coffee, and chocolate till ice-cream. They developed technologies such as Extrusion, Malt extraction, Fermentation and Healthier fats (Nestle.com, 2014). Refer Appendix ( ). Furthermore, the usage of Internet and social media to interact with consumers enables Nestle to make difference in development (Lin et al, 2014, pg. 3). 2.5 Legal As Nestle is established worldwide, there are changes in regulation for each countries. There would a need to adapt changes in global regulation in international market (Schaffer et al, 2014, pg. 12). 2.6 Environmental Nestle have increase their corporate social responsibility as in they have established Cocoa Plan where they help poor ones to study and create a living life for people in Africa (Nestle, 2015). Not only that, Nestle is one of the top ten company worldwide to report corporate social responsibility by KPMG (2013).
  • 7. |SIM336 STRATEGIC MANAGEMENT 6 3.0 SWOT Analysis SWOT is originated by Albert Humphrey from Stanford University in 1960s and 1970s by leading a research project with many top companies. His main goal was to identify reason corporate planning fails. The results was identified as tools and key areas called SOFT Analysis (Morrison, 2014). SWOT stands for Strength, Weakness, Opportunity and Threat. Chron.com (2014) stated SWOT is a process to identify internal and external factors by the management team that would affect future performance of company. The strength and weakness is their internal factors while opportunity and threat is external factors. The table below states the SWOT analysis; STRENGTH 1. Committed to their stockholders in the approach of business and strong cultural values (Schein, 2012). 2. Strong commitment in social responsibility whereby as stated in CSR Wire (2014) “long term commitment never being sacrificed for short term performance”. 3. Diversity in products, have 8000 products sold in markets (Nestle, 2014). 4. Operation in more than 197 countries including indirect and direct channels (Nestle, 2015). 5. Refereed to Forbes (2015), Nestle was the 43th in World’s Most WEAKNESS 1. Certain Nestle products encountered criticism in nutritional value. Often blamed because of poor supplies (GotAbout, 2015) 2. India government sued for unfair trade practices ($100m) for Maggi product (BBC News, 2015). 3. Being tainted in negative public relations; baby milk scandal (the Guardian, 2013). Commentaries: Unilever manages to breakthrough packaging technology by using 15 less plastic whereby it is to build more environmental awareness (CSR Wire.com, 2015). While Nestle is tainted with many health concerned issues,
  • 8. |SIM336 STRATEGIC MANAGEMENT 7 Valuable Brands position and 14th in the market value. Unilever is progressing with proper health awareness product packaging. OPPORTUNITY 1. Developed their selling channel to Africa with Coca Cola (Mark, 2012). 2. Disposable income increased in China, demanding pet food, water and ice cream (Decorvet, 2012). 3. Opened Nestle Café in many locations (Nestlecafefranchise.com, 2015). 4. Collaboration with Global Chocolate Market 2015-2019 with companies as Mars, Ferrero Group and Mondelez International (Markets, 2015). Commentaries: By 2020, Unilever is focused in improving well-being and health THREAT 1. People more health conscious as chocolate related products are one of the major products. 2. Major competitors such as Unilever, Hersheys, Cadbury and also Starbucks 3. Rising in price for raw materials as global population increases where Nestle might be forced to increase their selling price (Nestle, 2014). 4. Could lose dominance in India as Nestle products are getting banned in India states (Firstpost, 2015). Commentaries: As stated in a press release by Unilever (2013), they are sourcing 1/3 of their own agricultural
  • 9. |SIM336 STRATEGIC MANAGEMENT 8 where there are taking actions to improve nutritional and taste quality in product for health. Not only that, they are giving priority for women and fairness in workplace by empowering 5 million women in Unilever by 2020 (Unilever, 2015). Nestle and Unilever both are progressing towards making a change for organization and community by taking opportunity in hand. raw materials as it is one of their target to source 100% of it by year 2020 as they are in the midst of doubling their company size. As for Nestle, they are facing high raw materials price which encounters them increase their product price instead of enhancing their business.
  • 10. |SIM336 STRATEGIC MANAGEMENT 9 4.0 Value Chain (Source: Imanet.org, 2015) This idea was defined by Michael Porter in 1985 in order to know how customer value gets along with activity chain which in the end lead to product or service. He too describes value chain as an internal process in company which “to design, produce, market, deliver and support its product” (Imanet.org, 2015). Referring to the diagram above, Porter have stated in his book “Competitive Advantage: Creating and Sustaining Superior Performance” that business activity is split into two: Primary and support activities (Refer to Appendix 4 (Porter, 1998). 4.1 Primary Activity 4.1.1 Inbound Logistics Nestle works worldwide with more than 165,000 direct supplier and 695 individual farmers (Nestle.com, 2015).there are also 26 language of supplier code for worldwide suppliers. They too have established warehouses in different countries, example in China and Malaysia. 4.1.2 Operations Packaging water filling and account maintenance is Nestle operation. Major improvement was held to speed up production by bringing facility par with international standards. The top priority of Nestle for consumer is quality and safety as it is one of our corporate principle.
  • 11. |SIM336 STRATEGIC MANAGEMENT 10 4.1.3 Sales and Marketing Nestle promote their products by advertisement, personal marketing, TVC, public relation and sales promotion. In Pakistan, they charge value price by producing water in plastic bottles. “Brand Building the Nestle Way” is Nestle’s commercial and career point of view. Nestle provide end-to-end marketing in brand management, consumer insight and communications. Their main focus is to make sure they are able to provide a hand to the customer. 4.1.4 Outbound Logistics Customers knew Nestle through their brand where most food and beverage are covered by them. From Baby foods and bottled water, culinary to coffee and chocolates to drinks. Innovations by bottling packaging, delivering to regional offices as demanded by customer and also having eco-efficient packaging (Nestle, 2014). 4.1.5 Services Nestle have delivery services. They deliver to shops, hotels, offices and also restaurants (Nestle, 2014). 4.2 Supporting Activities 4.2.1 Procurement Main raw materials by Nestle is cocoa, milk and coffee. From farmers, Nestle receive vegetables, potatoes, cereals and fruits. Through trading, Nestle also receive spices, meat, oil, sugar and more on. All this requires specific quality of raw materials but in the lowest cost system. 4.2.2 Technological Nestle is enlarging their Product Technology Centre in United Kingdom for confectionary because it strengthens the leadership and research and development. The main two roles of enlarging is to use the technology in company operations and second to enhance new product development.
  • 12. |SIM336 STRATEGIC MANAGEMENT 11 4.2.3 Human Resource To make sure their employee have full rights, Nestle dedicate human research. The aim of Management Trainee Programme is to develop young people in order to help them in achieving a dynamic organization. 4.2.4 Firm Infrastructure Nestle.com (2015) states in the Nestle Report that they have helped creating labour forces in Africa and also help educating children. Not only that, they too have built infrastructure like water treatment systems.
  • 13. |SIM336 STRATEGIC MANAGEMENT 12 5.0 Porter5 Forces Michael E. Porter came up with five forces model in 1979 while working for Harvard Business School. The aim of this model was to show new way to identify, analyse and manage factors by using effective strategy in an organization. It is divided into two parts; Horizontal forces and Vertical Forces. (Kaumba et al, 2014). This was a framework which shows the overall profitability and attractiveness in a market. Refer to Appendix 5 for the Diagram. 5.1 Threat of New Entrants The food industry is a large industry. It is common for companies in the industry to do well for years and also to do poor in short period. Nestle luckily have been around for more than a century and produces good products as well satisfaction of consumers. In order for new threats to survive, they must be able to seize one of a Nestlé’s market share portion. Example, Unilever is a threat for Nestle in certain products such as beverages. But somehow Nestle is still on lead because of their trademark of healthy and long lasting credibility in market. This made Nestle a target, and hereby the new entrants’ threat is moderate. 5.2 Threat of Substitute There would be always something new on the market. Like every other company, Nestle too encounter threat of substitute products. Comparing from Pet food, confectionaries and ice-creams, there are similar products out there to Nestle products. To be in lead continuously, Nestle got to find innovative ways in bringing up their products and also to come up with new products to ensure their future plans for the company. Example, Spray (2015) stated in Marketing Magazine that Kit Kat by Nestle has been blocked from registering the four finger shape chocolate by Cadbury and the case is still ongoing. Competitions in food industry is vigilant as Nestle has now turned to focus on healthy food aspects while maintaining their place in market. The threat of it is high. 5.3 Competitive Rivalry Being one of a powerhouse in the industry of food processing, Nestle have competition in national and international level. Example of competition Nestle have is Unilever, Cadbury, Masterfoods and Kraft. These are strong companies, battling continuously to overcome one another. Refer Appendix ( ), as in Global Food Market Share 2004, Unilever, Kraft and Nestle have been competing closely to be in lead.
  • 14. |SIM336 STRATEGIC MANAGEMENT 13 5.4 Bargaining Power of Buyers Customers have high bargaining power as they are consuming the products. As there are many substitute products for Nestle, customers could change perception and get influenced by the factor of healthy food, low cost, and easy attainable. Nestle knows the steps to take in order to meet their customers’ expectation. Since customers are nowadays health conscious in products, Nestle have included health factor in their products (Nestle, 2015). 5.5 Bargaining Power of Supplier Nestle have more power over suppliers as they have large purchasing power and the suppliers too offer unique products. Moreover, Nestle have long duration relationship with their suppliers as they need to preserve the availability of raw materials and also the quality of it. Nestle took initiative to offer their suppliers regarding the efficiency to perform and minimize the cost of production.
  • 15. |SIM336 STRATEGIC MANAGEMENT 14 6.0Conclusion “Your most unhappy customers are your greatest source of learning” by Bill Gates. This quotes show clearly that Nestle too have bad experiences in the past, and yet they are striving to make a change to their organization, family and also to the community. Nestlé’s official website shows that they have huge potential in most developing countries if they could keep up the pace. Nestle company is known internationally and their company is able to deliver more goodness than they do before for the future. I am sure that Nestle Company could do even better by applying more strategies then their competitors.
  • 16. |SIM336 STRATEGIC MANAGEMENT 15 7.0Recommendation As stated in Nestle.com (2014), the important source in competitive advantage is the image of Nestle brand. Nestlé’s big scope of business enables a significant scale in administrating, marketing and manufacturing. Example, Nestle comes up with ventures into new areas for growth in the reason of nutrition and wellness. Nestle joined a venture by L’Oreal in the name of Inneoy. This joint venture takes place because of Nestlé’s strong reputation. In order to be different, they invest in many new industry such as nutricosmetics. Being innovative is also an advantage for Nestle. They make sure that their 140 years of research that takes place in their globally renowned R&D Centres main activity is for their customers’ benefit. Price could be a threat for Nestle as there are many competitors and if their price is higher than ceiling, other competitors would win over the customers. To ensure this don’t take place, Nestle have long availability for their raw materials, thanks to their good relationship with their suppliers. “If you don’t have a competitive advantage, don’t compete” says the CEO of General Electric – Jack Welch. If Nestle apply more of their competitive advantage strategy, they could be able to be in the lead in market for a long period.
  • 17. |SIM336 STRATEGIC MANAGEMENT 16 Appendices Appendix 1 General information Founded in 1866 by Henri Nestlé in Vevey, Switzerland, Nestlé is one of the world’s largest food and nutrition company. Nestlé now operates 115 countries and has around 280,000 employees worldwide. Nestlé is ranked third by milk intake and first by turnover among world dairy companies in 2010. The timeline below reviews the significant events that mark the history of Nestlé: 1866‐1905 In 1866, two separae Swiss enterprises that would later form the core of Nestle, the Anglo‐ Swiss Condensed Milk Company and the Farine Lactee HenriNestle Company, were established. 1905‐1918 The Company formed by the merger was called the Nestlé and Anglo‐Swiss Milk Company. By the early 1900s, the Company was operating factories in the United States, Britain, Germany and Spain. In 1907, the Company began full‐scale manufacturing in Australia, its second‐largest export market. Warehouses were built in Singapore, Hong Kong, and Bombay to supply the rapidly growing Asian markets. 1918‐1938 The manufacture of chocolate became the Company's second most important activity. New products appeared steadily: malted milk, a powdered beverage called Milo, a powdered buttermilk for infants, and, in 1938, Nescafé. 1938‐1944 Due to World War II, neutral Switzerland became increasingly isolated, and many of Nestlé's executives were transferred to offices in Stamford, Connecticut. To overcome distribution problems, factories were established in developing countries, particularly in Latin America. 1944‐1975
  • 18. |SIM336 STRATEGIC MANAGEMENT 17 Throughout this period, Nestlé's growth was based on its policy of diversifying within the food sector to meet the needs of consumers. Mergers and acquisitions made by Nestlé within this period include Alimentana S.A., the manufacturer of Maggi seasonings and soups (1947), Crosse & Blackwell, the British manufacturer of preserves and canned foods (1960), Findus frozen foods (1963), Libby's fruit juices (1971), Stouffer's frozen foods (1973), and finally becoming a shareholder in L'Oréal (1974), which is outside the food industry . 1975‐1981 Nestlé's rapid growth in the developing world partially offset a slowdown in the Company's traditional markets, but it also carried with it the risks associated with unstable political and economic conditions. To maintain a balance, Nestlé made its second venture outside the food industry by acquiring Alcon Laboratories, Inc., a U.S. manufacturer of pharmaceutical and ophthalmic products. 1981‐1995 The Company's strategy for this period was twofold: improve its financial situation through internal adjustments and divestments, and continue its policy of strategic acquisitions. In 1984, Nestlé's improved bottom line allowed the Company to launch a new round of acquisitions, including a public offer of $3 billion for the 1996‐2002 In July 2000, Nestlé launched a Group‐wide initiative called GLOBE (Global Business Excellence), aimed at harmonizing and simplifying business process architecture. Two major acquisitions took place in North America in 2002 Dreyer's and Chef America, Inc. Also in 2002, the joint venture Dairy Partners Americas was set up with Fonterra; and Laboratoires innéov was set up, another joint venture, this time with L'Oréal. 2003‐2009
  • 19. |SIM336 STRATEGIC MANAGEMENT 18 Acquisitions made during this period include Mövenpick Ice Cream, Jenny Craig, Uncle Toby's, Novartis Medical Nutrition, Gerber and Henniez. Also, Nestlé entered into a strategic alliance with the Belgian chocolatier Pierre Marcolini. In 2008, Nestlé began a process of selling Alcon by divesting 24.8% to Novartis. In 2009, Nestlé opened the Chocolate Centre of Excellence in Broc, Switzerland, with Pierre Marcolini one of the master chocolatiers Mission Nestlé does not have a formal mission statement. Instead of a mission statement, Nestlé uses a clear set of principles and values to guide it through its business and corporate decisions.7 Nestlé believes that attempting to capture all of its values and principles in a couple of sentences would fall short of what Nestlé strives to achieve. Nestlé operates under ten guiding principles of operations. These ten principles are: 1) Nutrition, health and wellness, 2) Quality assurance and product safety, 3) Consumer communication, 4) Human rights in business activities, 5) Leadership and personal responsibility, 6) Safety and health at work, 7) Suppler and customer relations, 8) Agriculture and rural development, 9) Environmental sustainability, and 10) Water.8 Nestlé management believes that the company cannot create value society and for its shareholders if it does not abide by its guiding principles. The first three principles are in reference to Nestlé’s consumer. Nestlé works to enhance the nutritional value, taste, and enjoyment of its products while guaranteeing a safe product that fully informs the consumer about the benefits and pitfalls of its products. The fourth principle is about recognizing the necessity of human rights and exercising and promoting good human rights practices. Guiding principles five and six are about requiring that employees respect each other and their management while also ensuring healthy and safe conditions for all employees worldwide. Principles seven and eight require that Nestlé’s customers and suppliers adhere to the
  • 20. |SIM336 STRATEGIC MANAGEMENT 19 same high standards of honesty, integrity and fairness that it expects of itself. Lastly, Nestlé’s ninth and tenth principles revolve around environmental sustainability, and Nestlé continuing attempts to advance its environmentally safe practices and sustainability initiatives.9 It is through adherence to these ten principles that Nestlé can give shared value to society, customers, and shareholders (its top priority stakeholders). While Nestlé has a bit of a checkered past when it comes to corporate values due the infant formula scandal of the 1970s, its new principles seem to be working very well. Per the 2011 Annual Report, in the last year Nestlé experienced internal growth in several important areas, in spite of overall disappointing results.10 Additionally, both Chairman Peter Brabeck- Letmathe and CEO Paul Bulcke agree that Nestlé’s principles will help the company to grow in the future. Apendix 2
  • 22. |SIM336 STRATEGIC MANAGEMENT 21 Appendix 4 Value Chain  Inbound logistics: This refers to everything involved in receiving, storing and distributing the raw materials used in the production process.  Operations: This is the stage where raw products are turned into the final product.  Outbound logistics: This is the distribution of the final product to consumers.  Marketing and sales: This stage involves activities like advertising, promotions, sales- force organization, selecting distribution channels, pricing, and managing customer relationships of the final product to ensure it is targeted to the correct consumer groups.  Service: This refers to the activities that are needed to maintain the product's performance after it has been produced. This stage includes things like installation, training, maintenance, repair, warranty and after-sales services. Appendix 5
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