Nestle is one of the world’s largest global food companies. It has over 500 factories in 76 countries, and sells its products in 193 nations. Only 1% of sales and 3% of employees are located in its home country, Switzerland. Having reached the limits of growth and profitable penetration in most Western markets, Nestle turned its attention to emerging markets in Eastern Europe, Asia, and Latin America for growth. Many of these countries are relatively poor, but the economies are growing quickly.
Thus a consumer base capable of buying many Nestle products will develop over the next couple of decades. Nestle tries to enter emerging markets ahead of competitors, and build a substantial position in basic foodstuffs. As income levels rise, the company progressively moves from these niches into more upscale items. It very much focuses on developing local goods for local markets, however, and places relatively less emphasis on its global brands in emerging markets. It also localizes its distribution and marketing strategy to the requirements of the local market.
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When good opportunities are available, Nestle acquires local firms. Nestle is a very decentralized organization, with operating decisions pushed down to local units. On top of this are both a SBU organization focused around food groups, and a regional organization that tries to help rationalize production and marketing among nearby countries. Helping hold the organization together is a group of managers who rotate around the world on various assignments. TEACHING OBJECTIVES The main teaching objectives of the case are: 1.
Provide an example of the strategy of one firm operating with an international approach 2. Show how this strategy is supported by structure and management systems 3. Illustrate the way a firm can enter and develop in emerging markets This case could be best used after chapter 13, linking the strategy with the organization of a firm. STRATEGIC ISSUES AND DISCUSSION QUESTIONS 1. Does it make sense for Nestle to focus its growth efforts on emerging markets? Why? It does make sense for Nestle to focus its growth on emerging markets.
It currently already has a significant presence in most segments of the market in developed markets, and further growth requires either taking market share from competitors or entering new product segments. Both of these are expensive undertakings that must be continually repeated to sustain growth above the level of economic growth. In contrast, if it gets a good foothold in emerging markets, it will be in a good position to grow with the market as the purchasing power of consumers’ increases. It can also progressively bring new products to these markets, accelerating its growth. 2.
What is the company’s strategy with regard to business development in emerging markets? Does this strategy make sense? Nestle tries to enter emerging markets ahead of competitors, and build a substantial position in basic foodstuffs. As income levels rise, the company progressively moves from these niches into more upscale items. It very much focuses on developing local goods for local markets, and places relatively less emphasis on its global brands in emerging markets. It also localizes its distribution and marketing strategy to the requirements of the local market. When good opportunities are available, Nestle acquires local firms.
Given significant differences in various developing markets, and different food preferences of different cultures, this customized approach makes sense. 3. From an organizational perspective, what is required for this strategy to work effectively? For this strategy to work it is important that local units be given a great deal of autonomy to make decisions that will best serve the interests of the local market. Excessive oversight or direction from headquarters will not only constrain the decisions of local managers, but may keep them from considering options that might seem offbeat or strange back at headquarters. . How would you describe Nestle’s strategic posture at the corporate level; is it pursuing a global strategy, a multidomestic strategy, an international strategy, or a transnational strategy? From the information in the case, the strategy is essentially that of an international strategy, although there are some elements of a multidomestic approach as well. Clearly there is some attempt to coordinate strategies across countries (e. g. , in the Middle East, Europe), and utilize centralized R&D facilities for product development. If one looks at Table 13. , and compares it to the narrative in the case, one could make some arguments for both a multidomestic and an international strategy. The coordination across local markets, presence of a number of global brands, and existence of the product focused SBU, tend to make a stronger case for an international strategy. The degree of global coordination inherent with global or transnational strategies is not present. 5. Does this overall strategic posture make sense given the markets and countries that Nestle participates in? Why? This strategic approach seems to make sense for Nestle.
Clearly there is a need for regional coordination and leveraging competences. The existence of a number of global brands also means that purely multidomestic strategy would be sub optimal. Likewise, there are few cost pressures that would make a global or transnational strategy appropriate. 6. Is Nestle’s management structure and philosophy aligned with its overall strategic posture? Looking at Table 13. 2, it appears that Nestle’s structure and control systems are well aligned with its strategy. The controls it has in place are generally moderate, yet stronger than would be required for a multidomestic strategy.