Nestle’s Sustainable Growth in Mature Market

The company establishment Nestle was first founded by Henri Neslte in the 1860s by developing and producing food products for babies who could not adapt mother’s milk. Following the success in baby food products, Henri incorporated with an Anglo-Swiss condensed milk company to develop dairy products, especially for government supply in World War I. High sensitive and quick responding to the demand of consumer, Nestle continued to create and develop new product mix to canned food, beverage, pet care products, to maximize its scope of business in food segment.

Nestle had been incurring high success during its operation in food industry, proved by production many creative product portfolio, double sales and tripled profits, globally brand recognition, offices and factories around the world with the management of previous CEO Helmut Maucher. Maucher successfully promoted Nestle to higher position in market as a global company and has been operating beyond its original Europe boundary. Nestle seems not still happy with what it had obtained.

Under leadership of current CEO Peter Brabeck, Nestle is now experiencing a more significant growth and synergies as the top nutrition and food company with strategic management of Brabeck since he took over Nestle in 1997. In today, Nestle has developed another core business to Research and Development sector to support its traditional food and beverage business. Vision and Mission Vision According to Chief Technology Officer, Bauer, of Nestle in his presentation, Nestle has two visions classified for its two core sectors.

For the Nestle’s operation vision, it indicates Nestle’s ambition to be the world’s largest Nutrition, Health, and Wellness company that innovate and distribute nutritious products that satisfy consumers’ nutritional and emotional needs. Additionally, to have continuous product innovations, Nestle realizes the important of new product research and development. As a result, the second sector is established with the vision is “to create future, move faster and go beyond what consumers tell us” (Bauer 2009).

The new sector applies science and technology into innovating and reinnovating consumer=oriented products. Mission Brabeck’s growing strategies are aiming to position Nestle as the market leader in food industry, or at least to rank stably its product categories as second strong product power. Approaches to the mission are now strategically deploying by series of initiatives to increase internal and external operation efficiency. Nestle is currently widely known as the most success company manufacturing and distributing nutritional products for any aspect of health care.

That means, Nestle already reaches the first part of its vision, however, Brabeck never stop thinking of giving Nestle to the most possibly highest position as he can and strikes strategies to advance Nestle’s competencies over its major competitors Nestle in a mature market Industry value chain analysis Targeted consumers: Nestle focuses on developing and manufacturing nutritious food and health care products to all types of retail consumers from premature babies to maturity and aging group.

Another special profitable market for Nestle is to develop consuming products for pet care In order to Nestle’s products deliver to end-users, they are distributed by large buyers such as wholesalers, supermarkets, schools, businesses. Even they are retail or larger buyers; they of course have power over their choices and expectation of products. They are holding negotiating power on sales contracts at prices and quality they expect to.

Nestle is an nutrition, health and wellness business, and it declare consumer orientation is main business development, it thus must notice to consumer’s wants and needs to offer them satisfactory products and acceptable prices. Intensive competition: Although already being the world’s largest food and beverage company, other food companies either globally or regionally achieve some objectives of their expansion strategies during years. Consequently, Nestle’s widespread position is not likely to be stable for a long-run.

The three main competitors of Nestle are defined as Kraft, Masterfoods, and Unilever. Additionally, Nestle also must be aware of slow and consistent of local rivals. Both Nestle and its competitors distribute similar products to the same groups of consumers in same markets. Obviously, demand for food is essential and mature; however, with the significant increase in quality of life, people are searching for high qualitative nutritious products that satisfy their demand for health care. Thus, add-ins product is an important strategy for Nestle to remain its world largest position and market share.

Key suppliers: strong supply chain is one of the most important competitive advantages to every business. Nestle has a wide supply chain operating over the world, in countries it has representing offices and factories. Similarly to consumer aspect, suppliers also have their owned power in term of conditions and considerations of supply contracts and they are uncontrollable entities. According to Nestle’s official website, it asserts the company has a strong relationship with its suppliers in single market.

The relationship and professional corporation are conducted under respect and loyalty elements of non-negotiable standards to generate the competitive advantage to the company. Barriers to entry/exit: There is unlikely chance for a new participant to compete against Nestle and there is no signal from Nestle’s current rivals to exit the industry. The expansion of regional companies, however, must be noticed as they cannot confront to Nestle in global arena but they will probably occupy market share in a particular area.

Merges between existing competitors to enhance their capital, market share and competitive factors then can obstruct Nestle’s internal growth. Substitute product: Adopting business strategies Raisch and Ferlic (2005) mentioned in their analysis that Brabeck wanted to achieve four percent of real internal growth when he had recently taken over Nestle in 1997. On the way to reach his goal, Brabeck had been developing challenging objectives such as strengthening innovative capacity and organizational changes.

Many strategies were initialed during 1997 to 2005 in order to obtain his ambitious goal and objectives. Corporate level strategies As a global organization international strategy is at the heart of their competitive focus. Nestle’s competitive strategies are associated mainly with foreign direct investment. Nestle aims to balance sales between low risk but low growth countries of the developed world and high risk and potentially high growth markets of Africa and Latin America.

Nestle recognizes the profitability possibilities in these high-risk countries, but pledges not to take unnecessary risks for the sake of growth. This process of hedging keeps growth steady and shareholders happy. When operating in a developed market, Nestle strives to grow and gain economies of scale through foreign direct investment in big companies. For example Nestle licenses its brands to local producers. In the developing markets, Nestle grows by manipulating ingredients or processing technology for local conditions, and employ the appropriate brand.

For example, in many European countries most chilled dairy products contain sometimes two to three times the fat content of American Nestle products and are released under different brand names. Another strategy that has been successful for Nestle involves striking strategic partnerships with other large companies. In the early 1990s, Nestle entered into an alliance with Coca Cola in ready-to-drink teas and coffees in order to benefit from Coca Cola’s worldwide bottling system and expertise in prepared beverages.

European and American food markets are seen by Nestle to be flat and fiercely competitive. Therefore, Nestle is setting is sights on new markets and new business for growth. In Asia, Nestle’s strategy has been to acquire local companies in order to form a group of autonomous regional managers who know more about the culture of the local markets than Americans or Europeans. Nestle’s strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestle acquired Indofood, Indonesia’s largest noodle producer.

Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export Indonesian food products to other countries. Nestle has employed a wide-area strategy for Asia that involves producing different products in each country to supply the region with a given product from one country. For example, Nestle produces soy milk in Indonesia, coffee creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for regional distribution.

Business level strategies. To be able to adopt Innovation Strengthening objective, Nestle invested in maximizing assets, capacity utilization and distribution network. These investments were to generate operation efficiency and resources for reinforcing brands and stimulate product innovation that increases the company’s competitive advantages. For example, Nestle employed and financially succeeded in MH97, Target 2004+ and Operation Excellent 2007 projects which created considerably savings on capital.

Reducing production cost (direct and indirect cost), innovation on production to minimize time and maximize outputs, closure of 165 factories from 1997 to 2002 and focusing on high-performed factories, improve supply chain were implemented during the period. As a result, the company saved up to 7 billion. For more saving, the company initialed FitNes project in 2002 to renovate administrative process that could save 1 billion. The amount saved from those activities was then invested in R&D sector by establishment of Product Technology Centers, Local Application Centers and Clusters in the US, Europe, and partly Asia.

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