Strategic management report about Nestle
The following discussion indulges in the strategic situation of the Nestle Company. The paper begins by giving a brief history of the Company; it then establishes the company’s strength, opportunities, and threats. The study also researches more the external environment of the company. It specifically analyses the political, economic, social, technological, and the legal status of the company. The study the analyses the company using Porter’s five forces model and analysis. They include power of the suppliers, threats of new entrants, threat of substitutes, the bargaining power of buyers, and rivalry within the industry. In addition, the study analyses nestle company vision and mission statement. Porter’s generic strategic tools were utilized to determine company’s generic strategy. The study also elaborates on the competitive advantage of the company, and the possible strategies that can be used to gain comparative in the company. These strategies are creating value added services, create stronger online presence, expansion with cultural sensitivity, and implementing directional policy matrix. The study finally gives recommendations and possible future strategy.
The company’s history can be traced back to in 1866, when the first condensed milk factory was started in Cham Switzerland. In 1876 the founder of the Henri Nestle, who was a German pharmacist, started his Farine lactee, it was prepared by combining sugar, wheat, and cow’s milk, and this saved the life of a neighbor’s kid. The company traces its values of nutrition since then (Kumar, M., Srai, J., Pattinson, L., & Gregory, M. 2013 pp. 78). Henri Nestle, the founder of the company, was a key figure in directing the company toward international expansion. He developed various values and attitudes that have been maintained up-to-date by the company they include flexibility, open mind, respect for other people’s culture, and pragmatism. In 1905, the Anglo-Swiss Milk Company merged with the Nestle after years of completion.
The company has various strength in the market they include first; it is the largest food and beverage firm in the world. The company products include, milk based products, beverages, prepared dishes, ice cream and pharmaceutical products. This makes it the market leader in the food and beverages market (Servaes, H., & Tamayo, A. 2013 pp. 98). The second strength is the strong brand name. The company is able to use its brand name to generate sales and hence increase their profit. They have built their brand name by producing quality products. The third strength is their ability to customize products and services to meet the local’s needs and expectation (White, C,2004 pp. 45). The company researches the market to determine the local’s needs they then design the products to match with those needs. This improves customer loyalty. The fourth Nestle strength is the strong global market with diversified revenue base. The final strength is research and development capabilities. Nestle has developed its research strategy to ensure they understand the changes in consumer taste and preferences.
Nestle company has been faced with the increase in cases of products recalling due to fault or they do not meet the customers expectation. This recalls are hampering the brand equity. This inconsistency in the provision of quality food products is concern by the firm management since it is hurting the company’s image (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 12). The company has also faced criticism on various issues such as, child labor and horsemeat scandals, which has tainted the firm’s image.
Nestle company has various market growth opportunity, this opportunities includes first, the increase in demand for quality and healthy food ( Rao, V. S. P., & Krishna, V. H. 2003 pp.92). This demand has encouraged Nestle to provide healthier products to tap the growing market. The demand has been due to the growth of the out of home eating market. The second opportunity is that Nestle has engaged in partnerships with various firms such as Coca-Cola Company. This will help the firm grow to achieve its vision (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 83). The final opportunity is emerging and developing economies. There are several countries that their economy is developing; Nestle can invest in these countries to capture the new market.
Nestle company has been faced with various external threats the first issue is the compliance issue. Complying with various changing laws in different countries has been a difficult job for Nestle. This has resulted in penalty and fines payments for violations of laws. The second threat is the growing allegations of unethical activities in the business ( Rao, V. S. P., & Krishna, V. H. 2003 pp.121). The third issue is that it is expected that due to population increase, the demand for raw food will expand, and as a result, Nestle will face higher costs of production. The fourth threats, is the trend toward healthy food may decrease the sales for Nestle chocolate products. The fifth threat is increase of the buyer’s power within the industry due to the presence of competitors and the lower customer’s loyalty (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 97). The sixth issue is the changes of the cost of raw material, which influences the ability of the company to maintain a constant pricing policy in context of its wider commitments to social responsibility. The final threat faced by Nestle is the technology change. These changes gave resulted in innovation challenges.
The pestle analysis helps in identifying a number of factors that affects the industry dynamics. Nestle is a global firm hence it must remain adaptive to the new environment for it to remain competitive.
They following are the political factors affecting Nestle Ltd. First, are the changes in regulations relating to marketing actions and standards Eldring, J. 2009 pp. 12). Different political regimes have their set rules and guidelines in standards of product and the marketing styles. The firm has to constantly check these regulations to ensure compliance. The second issue bin political environment analysis is government stability. Most of the emerging economies are politically unstable increasing the risk of internationalization of the company. The third issue is the changes in global regulation ( Rao, V. S. P., & Krishna, V. H. 2003 pp.712). The global standards of business are constantly changing due to the changes in political forces that have different policies.
The following issues relates to economic environment challenges. First, the company has to remain conversant with the changing economic growth rates, inflation, and the changes in income levels. The second issue is the changing of consumer budget (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 51). This is the amount that the consumer is willing to spend for a particular product; this has been influenced by the growth of consumer awareness on the cost of products. The final economic challenge is the rise of raw material good prices due to the increase of the bargaining power of suppliers and the need to source and maintain a sustainable supplier.
These are the factors that affect the company due to the changes in society. This includes first, the changing consumer attitude. Consumers are moving toward healthier products to the rise of health information and the government initiatives in supporting consumption of a balanced diet. Consumers have been educated on the dangers of consuming sugar products (Kumar, M., Srai, J., Pattinson, L., & Gregory, M. 2013 pp. 95). This affects the company’s sales for chocolates or cocoa products. Second, the challenge of adapting to the different cultural settings. Due to the company, strategy of globalization the company has to deal with issues like language differences, different family settings, and different religious beliefs (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010, pp. 64). Culture affects the consumption of particular products especially in cases where the culture prohibits consumption of certain products. The company has to understand consumer behavior to ensure a personal approach to product promotion. The company is also affected by the consumer’s view that the company is an agency of power. The consumers tend to consume products from the home countries rather than from another country.
The rise of social media use, consumer communication with the company and being able to communicate with the consumer through various platforms has improved the company customer’s relation (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010, pp. 34). The company innovation is influenced by the technological changes in the environment. The company has embraced E-commerce as an important method for business development. Technological changes have also negatively affected the company, this is because the firm has to constantly change to match the new technology.
Nestle company is faced with legal challenge. The company has to remain vigilant to the changing nature of laws to avoid fines or lawsuits. The company has to observe global regulations and the legal changes across the different international markets (Kumar, M., Srai, J., Pattinson, L., & Gregory, M. 2013 pp. 65). The market regulations are constantly changing and, therefore, the company has to align its policy with the new rules.
There has been an increased attention toward corporate social responsibility. The company intends to make an impact on the society where it operates. Many companies are embracing this strategy as an ethical standard of business (Servaes, H., & Tamayo, A. 2013 pp. 98). Environmental pollution by the government and consumers in regards to packaging and recycling. The company must ensure that their packaging material does not pollute the environment and can be recycled. Environmental issues are a growing concern for many businesses since; most government has restricted companies from using certain products in their packaging.
Porter’s 5 forces strategy
Porter identified forces in the market that affects the competitiveness, attractiveness, and profitability of the market. This study uses these five forces to analyze Nestle Company. The first force is the threats of new entrants (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 32). The food industry is a large market but very competitive. Firms in the industry do make huge profits margins, this attracts new firms who want to tap the market and share the profits of the established companies. Several; firms join the industry every year with an aim of competing with the market leader Nestle or to take advantage of an existing market niche (Dubois, M. 2012 pp. 43). This threat does not heavily affect Nestle because it benefits from customer loyalty due to its quality products. Most consumers trust the company product and therefore they resist buying other companies product
The second force is threats of substitute goods. These are the products that have similar utilities but there are not of the same company. The company faces huge threats of substitute from other firms in the same industry (Servaes, H., & Tamayo, A. 2013 pp. 24). For instance in China the company faces threats from other firms who provide similar products. The company has reacted to this threat by constantly upgrading their products to make them more competitive (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 73). For instance, the company has differentiated its products based on health and wellness issues to keep its competitive edge and maintain customer loyalty.
The third issue is the bargaining power of the suppliers. Any industry has to carefully analyze the bargaining power of its suppliers to establish the area to source raw materials (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 23). Nestle has a reputable relationship with its suppliers due to its buying power. Nestle is always determined to build a sturdy and strong business relations with its suppliers to ensure high quality of the raw materials (Dubois, M. 2012 pp. 45). The company also offers advice to its suppliers on ways of avoiding redundant expenses to improve their profits. Nestle motivate supply of quality products by paying the suppliers according to the quality they provide. Nestle company does not face supplier bargaining power threat since it controls the terms of trade.
The fourth force is the bargaining power of customers. The customers bargaining power is very influential in the companies pricing policy (Servaes, H., & Tamayo, A. 2013 pp. 756). The company has to be concerned about this threat since consumers are more cost aware of the product due to development of technology, which has enabled them to compare the prices of Nestle products with other firm’s products. Consumers have the bargaining power of which products to buy and when to buy them. Consumers bargaining power is also fueled by the presence of substitutes (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 23). The company deals with this challenge by providing quality products that match with the consumer needs.
The fifth force identified by Porter is competition within the industry. Competition in business is healthy since it ensures that quality products are produced, however, close competition can lead to low profits and losses in an industry. There is a huge competition in the food and beverage industry (Dubois, M. 2012 pp. 12). This competition is good for consumers since it enables them to get quality products. However, competition affects the company profits since a lot of its resources are used for advertisement. Nestle company face huge competition from other firms. It tries to limit this competition by promoting customers loyalty and providing quality products (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 273). It also differentiates its products from other firms by ensuring health concerns are their main objective.
Mission and Vision
The company vision is “to be the leading Food and Beverage Company in the Caribbean Region. Providing our customers with high-quality products and services with added value at competitive prices, simultaneously with high-quality products and services…” the vision statement shows their goal and how they will achieve these objectives (Harrison, J. S., & ST. John, C. H. 2010 pp. 76). Their visions show their desired long-term and short-term objective. Nestle mission requires that they should be friendly efficient and a caring organization (Servaes, H., & Tamayo, A. 2013 pp. 586). They also seek to satisfy the customers need by providing quality and safe products and services. The mission statement act as a marketing tool, it shows why the consumer should purchase their products.
The main external threat facing Nestle is competition. There is a lot of competition in the food and beverage industry. This has made it necessary for the company to utilize better competitive strategy for it to remain the market leader. Porter argued that a company can maintain a competitive edge through differentiation, cost leadership, and majoring on specific segments ( Rao, V. S. P., & Krishna, V. H. 2003 pp.127). Cost leadership is achieved by applying appropriates methods to reduce the cost of production. This can be achieved by ensuring that the organization reduces the cost of raw material, manufacturing cost, and the human resources. This will enable the company to lower its price than it competitor. Focus strategy is the strategy where an organization majors on a specific line of production or product (Goldman, G., & Nieuwenhuizen, C. 2006 pp. 23). This ensures that the company has enough resources and knowledge on products that they provide in the market.
Nestle employs differentiation strategy as identified by Porter’s generic strategy. This strategy aims at differentiating the firm from its competitors. For food and beverage companies that offer similar product this is difficult to achieve (Harrison, J. S., & ST. John, C. H. 2010 pp. 76). Nestle offers quality products that are healthy to its consumers as means of differentiating from the rivals. They also develop unique products that are different from other brands such as Nespresso ( Rao, V. S. P., & Krishna, V. H. 2003 pp.92). This is a coffee machine uses coffee capsules that other machines do not have. They also develop products that are specific to the market target for instance; Nestle Company spent a lot of resources in research and development in China, which was aimed at developing products that will match China market ( Kossowski, 2007 pp. 605). Differentiation works well with Nestle customers who are less price sensitive. Consumers have the perceived differences in their mind, this makes them purchase product from the company. The company also uses this strategy since it encourages product improvement.
The main strength of Nestle company is it competitive advantage. It occupies the leading position in two main brands. The company has also diversified to increase the scope of the products it produces, which has improved the economics of scale in administration, manufacturing, and marketing (Servaes, H., & Tamayo, A. 2013 pp. 653). This helps the company to remain the market leader. The company has also invested in research and development to identify areas for innovation and what the consumers needs. The main competitors’ in food and beverage industries are organizations like P&G, Sara Lee, and Unilever (Burke, R. J., Cooper, C. L., & Field, J. 2013 pp. 13). This has resulted in the implementation of their competitiveness strategies these Strategies are used to gain comparative advantage in functional businesses corporate
Expansion with cultural sensitivity
Nestle company is very careful when investing in new countries. It has to analyze the culture to determine their taste and preferences. This help in designing products that match the consumer expectation ( Henry, 2007, pp.77). They achieve by embracing diversity in business and recognize it as an asset for business developments. The company recruitment policy is also aimed at ensuring that the company employees a diverse workforce. The diverse culture is seen as a new market to develop new products by Nestle. The company has over 400 plants in 60 countries. These plants are successful due to the investment in research and development.
Nestle company has adopted technology development in communication. The company uses social media to reach out to customers’ address the customers complaints. The company uses its website to advertising new products and portray the vision and mission (Servaes, H., & Tamayo, A. 2013 pp. 187). The company uses online platforms to develop new brand through customer participation in the design. The use of social media is the company strategy for public relation; it is also a learning platform since the company checks and analyzes customer’s feedbacks to determine areas that need change (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010 pp. 97). Customers can check Nestle Company to check for new products and new investment areas. The customer can also check the website for information on the health value of the company’s product. This strategy is used to gain a comparative advantage over its competitors in the food and beverage industry.
Directional policy matrix
Nestle company enjoys the being the market leader. It has invest in many countries and has the largest market share in the food and beverage industry, the company should aim at increasing its investment to other countries especially the developing economy ( Rao, V. S. P., & Krishna, V. H. 2003 pp.192). It should tap the growing market needs by opening new plants and developing new brand to ensure all the customers need are met (Servaes, H., & Tamayo, A. 2013 pp. 56). Diversification has been a major source of success for the company. The market for food and beverages is still growing due to the increase in population and the rise of economy in the global market. The global market has become more open than before due market liberalization.
Value added service
Nestle provide quality products that have nutritional benefits (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010 pp. 87). Due the increase in health issues, the company provide brand that are safe and beneficial to individual health. These strategies create customer loyalty and ensure that they remain the market leader in the industry.
Current, Future Strategy challenges and recommendation
The current strategy by Nestle management is to achieve worldwide growth. They intend to achieve this through four strategic pillars, which are efficient operation, low cost, innovation, and renovation of the Nestle product line (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010 pp. 187). The company has developed communication method to facilitate customers’ communication with the company. This strategy is aimed at ensuring the customers are involved in the brand designs. The company also aims at changing the company from “technology-and processing-driven food and Beverage Company toward a vision of nutrition, health, and wellness.” The company has transformed from agricultural productivity to sourcing raw materials ( Kossowski, 2007 pp. 93). This strategies have been used to reduce the steps for value chain activities, the strategies eliminate the unnecessary activities. The changes in value chain activities have helped in developing new products. The company has adopted a strategy of collaborating with the suppliers. This strategy allows the company to maintain quality supplier and control the bargaining power of suppliers (Servaes, H., & Tamayo, A. 2013 pp. 46). Through these strategies, the company can maintain their competitiveness. The company has implemented innovation strategy. The company has achieved this strategy by investing in research and development. This enables them understand new cultures and market. The data received from research is used by the company to develop new products that will match with the expectation of the market (Kumar, M., Srai, J., Pattinson, L., & Gregory, M. 2013 pp. 65). The company has centralised its research and development to reduce the cost of doing research. However, this has prevented them from benefiting from decentralization of research and development department. Decentralization will ensure that the company has a crosser touch with the research target (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010 pp. 87). The proximity of the department to the locals helps in developing products that suit their needs. The company has also used the differentiation strategy to develop new products that help in growing the profits of the company ( Kossowski, 2007 pp. 65). The decision by Nestle to invest in differentiating their products by pursuing nutrition, health, and wellness strategy has not promoted sales. The unhealthy products still control the market meaning that they are the cash cow. The company still make more profit from selling the unhealthy products. Nestle company should rethink this strategy of differentiation since it has not worked ( Rao, V. S. P., & Krishna, V. H. 2003 pp.12). The company should also rethink the decision to centralize the research and development department. It should decentralise it to allow the company to benefit from having a personal touch with the consumers.
Nestle companies to grow independently rather than glowing through major and acquisition. The company has grown due to mergers with other companies such as Coca-Cola Company. This strategy may not work well for the company considering the process that the company has used to grow (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010 pp.78). The company mostly rely on acquisition and joint venture. A strategy to end the venture will end the joint venture and the strategic acquisitions. This means that Nestle will have to use its own resources and skills to manage the business. The company benefits from the ventures since it reduces the cost of research and the cost of setting new businesses (Servaes, H., & Tamayo, A. 2013 pp. 12). Nestle has also initiated a move from an organization by country to an organization by business, they intend to achieve this by sharing best business practices using GLOBE. This will enable the company to start controlling its operation on global context rather than having to adapt to every new market they invest. This strategy will give more autonomy to managers to make independent decision (Eisenhardt, K. M., Furr, N. R., & Bingham, C. B. 2010 pp. 67). The strategy will allow employees to move up in the organization. The company also plans to decentralize the organization structure. This will help in dealing with local needs. The strategy has faced problems in its implementation due to lack of a proper implementation plans. The choice of which part to be decentralised first has affected the company strategy. They can overcome this strategy by implementing it in stages (Servaes, H., & Tamayo, A. 2013 pp. 56). The company should develop a better marketing plan that will enable the firm to benefit fully from the huge market. They can do this by undertaking research to determine the areas that they should invest and the marketing strategy to use.
In conclusion, Nestle Company has been successful due to its efficient strategies that increase their sales and promotes consumer loyalty. The food and beverage company has many competitors; this is one of the threats faced by Nestle. Nestle has tried differentiation strategy to overcome the threat of competition. The market is flooded with different companies that offer the same products. The company should rethink its strategy for differentiation by pursuing health and wellness strategy; these products are yet to gain market grounds.