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International Business
Section: 03
Team Hustlers

Submitted to:
Ms. Fabiha Enam
Senior lecturer and assistant proctor
BRAC Business School

Submitted by:
Md. Shariful Alam Shabuj - 17304061
Tasniva Kabir - 17304103
Tareque Habib Emon - 18204090
Taslimun Jannath Jaci - 19204071
Rina Akter - 17204029

DATE OF SUBMISSION: August 29, 2020

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Executive Summery
The purpose of this report is to evaluate Nestle Company which is the oldest multinational
company of this world, based on the case study and understand how the company develops
strategic intent for their business organization following the analysis of external and internal
business environments. We will analyze the strategic management process that the firm uses to
achieve strategic competitiveness and earn above-average return. We will discuss the strategy
formulation that includes business-level strategy, corporate-level strategy and the overall
strategic posture of the company.

It also aims to identify market place opportunities and threats in the internal environment and to
decide how to use their resources, capacities and core competencies in the firm's internal
environment to pursue opportunities and overcome threats. By the end of this assignment, our
recommendations about Nestle will be provided that will fit into strategic orientation in order to
perform better in their business world.
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6. Does the overall strategic posture make sense given the markets and countries that
Nestle participates in? Why?

The overall strategic posture of Nestlé makes a lot of sense given the fact that it is
operating in virtually every country in the world, with a huge presence in the emerging markets.
Nestlé operates almost in every country all around the world. Within the developed markets
Nestlé has a strong basis while in developing world the company involves a huge presence as
they are potential markets for growth. According to (Hill 2009), transnational strategy makes
most sense in markets where the pressures for cost reductions and local responsiveness are high.

Due to the highly competitive levels and the financial complications that exist in developed
markets, companies have to rethink about their strategies in order to survive (Hill, 2009). Then
again, emerging markets involve low spending consumers with different preferences and tastes
as well. It is therefore important for firms to respond at the cost pressures and the local
requirements of the markets (Hill, 2009).

Following this transnational structure, Nestlé is able to customize global products in accordance
with consumer requirements in the local market. This can be achieved through its autonomous
local units which are responsible to understand the local needs and decisions related to marketing
and distribution. Using an extensive market research, the company offers its products under the
organization umbrella and specializes on building brand names that are associated with local
conditions. Consequently, the company achieves the advantage of building customer loyalty and
brand equity in local markets.

Allowing the subsidiaries to modify their packaging and distributions channels to meet local
needs is a further benefit for Nestlé. In instance, Nestlé and Mars in UK have combined their
confectionery deliveries to Tesco, as a way to reduce as much possible trucks from Britain’s
roads. This had a result to reduce both environmental and distribution costs. Since the early
1990s Nestlé UK has been recycling its packaging as a way to reduce the amount of packaging
used. The company decreased not only the costs of packaging but also its transportation costs
since less Lorries are required.

Regarding Nestlé’s strategic posture, the company’s subsidiaries within emerging markets have
achieved to reap previous learning and ideas that have been used in developed markets. It seems
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that the company has succeeded to successfully transfer capabilities, skills and core competences
in these markets. Hill (2009) supported that a transnational enterprise must give strong attention
on flexibility by exploiting an information flow among the organization and its local units. Thus,
the key characteristic of transnational strategy offered the ability for Nestlé to achieve almost 40
billion of sales in emerging markets and a growth of 11.5% in 2010 year.

This worldwide combination strategy allows Nestlé to enjoy benefits of low cost through
location economies and economies of scale. For instance, as part of its strategy in the Middle
East region, Nestlé has set up a network of factories in five countries with a prospect to supply
the whole region, achieving at the same time economies of scale. Through the integration of
regional economic groupings, the company is able to produce larger units which can supply
entire areas, building at the same time competitive advantage.

Sometimes, the transnational strategy involves a complex structure which includes a potential
danger of losing control. Under this circumstance the organization involves problems of creating
a practical and valuable organizational structure and it is therefore impossible to manage the
strategy. In order avoid any risks the transnational strategy requires a balanced binary of decision
making and not a choice of one or the other but of where, how, when.

7. What type of Business level strategy has Nestle adopted?

The main business level strategies that are used by Nestle are cost leadership,
differentiation and focus strategy. These are discussed as follows:

(a) Low Cost Leadership Strategies:

 Nestle is a leading manufacturer of quality foods and beverages. It purchases the highest quality
of raw materials from different suppliers from the market. Therefore, the cost of production of
nestle is comparatively higher than small scale businesses, due to this nestle was unable to
maintain low cost leadership strategy in industry, but the business level strategies are largely
focused on achieving this goal through cost efficient operations, quality assurance and effective
inventory management. Furthermore, the company management is now emphasizing on
controlling the unnecessary costs in all the major functional areas. This includes inventory
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management, manufacturing, marketing, research and development, strategic investment and

customer services. The current strategy of nestle is to purchase high quality of raw materials of
reliable suppliers that provides them high quality of raw materials in best prices and then use
those raw materials to manufacture quality foods and beverages in the most advanced production
plants.

(b) differentiation Strategy:

The success and competitiveness of Nestle can be attributed to its differentiation strategy which
has played the biggest role in making it the top most favorite brand in the presence of a massive
competition. Nestle is currently the world’s most liked brand in the consumer-packaged foods
industry. In addition to their quality and ingredients, Nestle products also have a unique taste,
packaging, and additional health and nutritional benefits which attract consumers from all
potential consumer segments. This differentiation strategy has also helped Nestle is developing a
strong brand image in its industry. The main purpose of this strategy is to create a brand image
in the mind of their customers/consumers and to differentiate their products from their
competitors. Nestle manufactures more than 10,000different products under 8,500 different
brand names and most of their products are easily identifiable from their competitor because of
their features, quality, ingredients, packaging, pricing, labeling and other attributes. These
products are manufactured under strict quality and health standards and maintain them. Not only
that these products are sold and marketed with the company’s promise to deliver real value for
the customers money. While introducing new products to the market, Nestlé ensures that they
establish a unique position in the consumers’ choice parameters. The strongest role in making the
differentiation strategy successful is played the quality of the products. Nestle never
compromises on the quality of its products in order to achieve economy or scale or low-cost
leadership in the industry. Rather, it strives to build a differentiated position among its industry
rivals on the basis of a product’s quality and associated health and nutrition benefits. This
differentiation strategy has also helped Nestle is developing a strong brand image in its industry.
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c) Focus strategy:

The third most important business level strategy of Nestle is to focus on the differentiation and
low-cost leadership in specific products, brands, or operational areas. For example, it uses
focused low-cost strategy to control the heavy manufacturing and marketing costs of, its top
selling brands. This strategy is used in order to lessen the financial burden which is put by these
top brands on the overall profitability of the company. Similarly, the focused-differentiation
strategy is to give emphasis on making improvements and alterations in the quality, ingredients,
flavors and other attributes for a specific product line instead of differentiating all the products in
the currently offered brands. Both these strategies enable the company in generating more
attractive revenues in its top brands in a more competitive fashion.

As is clear from the information that has been provided in the case study, Nestle uses a variety
of different strategies to develop its business activities and markets in the emerging markets.
While many maybe of the opinion that only one or two strategies should be used in order to
ensure that synergies of scale are gained and that there is consistency across the operations, such
a customization of strategy to meet the specific needs of an economy is highly commendable.
For instance in countries like India and China, Nestle has entered the market by providing low
cost brand name basic food stuff like condensed milk and infant formula, in doing so the
company has also located its manufacturing plants within the countries and the regions,
employed host country nationals and helped uplift their living standards. Likewise another
strategy that is being used by the company is to enter markets like Nigeria and China and invest
in basic infrastructure to ensure smooth distribution channels, while many may see this as a
waste, in the long run, the company has gained a strong foothold in the marketplace, created job
opportunities and further increased the visibility of its brand and thus increased entry barriers for
the competition , thus it can be stated that this is indeed a very good business development
strategy that is being followed by the company at the present time. From an organizational
perspective for a strategy to work effectively it is necessary to ensure that the strategy is
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developed in such a manner that it would fit the market needs and help the company to gain a
comparative advantage. Based on everything that has been stated above and the manner in which
Nestlé’s is currently operating in China, India, Africa, the Middle East and Eastern Europe, it is
clear that the company has adopted many different successful strategies that are helping it to gain
a competitive edge in these markets while continuing to benefit from the ‘first mover’ advantage
that it has created for itself.

8. Is Nestle’s management structure and philosophy aligned with its overall strategic
posture?

According to the case study “Nestlé’s Growth Strategy”, stated that, Nestle’s
management structure and philosophy is well connected with its overall strategic posture. This
case also explained that, Nestlé provides cooperation between local autonomy in the host
countries and power and authority is decentralized as much as possible, again indicating that the
management structure is indeed very much aligned to its philosophy of local autonomy and its
multi domestic strategy. Beyond such structure, Nestlé decentralized as the responsibility for
market decisions is carried down to local units which are basically operate autonomously for
various local judgments. Nestlé supports the philosophy that there is no single product for
everyone, which achieves to understand local preferences through its subsidiaries and thus
develops tailored products that meet those tastes and habits. Based on everything that has been
stated above, it is therefore the opinion of the writer that greater global integration is necessary
as the company moves forward and hopes to retain its place as a market leader by gaining large
shares of the market in emerging economies, which it has strived hard to build over the last few
decades. In effect it is therefore necessary to ensure that there is high levels of global integration
and simultaneously ensure that there is high levels of local market responsiveness as well. Even
that the authority to local subsidiaries is decentralized, the firm is categorized into seven
worldwide strategic business units (SBUs) that involve in the overall strategy development.
Hence the multinational firm focus on local responsiveness and global integration. In addition,
the company’s structure is well matched with the concept of transnational strategy. Moreover,
the SBUs that Nestlé performs around the world are responsible for top strategic decisions which
have specific focus on particular product lines such as coffee and beverages. Beside that
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structure of SBUs, Nestlé includes regional divisions in five key geographical zones.  In
combination with SBUs, these regional organizations are also supporting the overall strategy and
business development. It is also important to state the R&D that Nestlé operates which focus on
the creativity and production of products that meet local requirements. The R&D function
involves 29 research groups within various countries around the world. With reference to the
Nestle case study, provide one example which clearly illustrates a link between topics or
concepts drawn from at least two pre-requisite modules. Nestle is one of the oldest of all
multinational business. Nowadays, Nestle is one of the biggest food and nutrition companies in
86 countries in the world. (Hill, 2009 pp). Nestle was involved with a range of acquisitions in the
last years in order to extend its line of products and try to expand on a geographical scale. Since
its sales are reducing in developed markets, Nestle has the opportunity to expand business in up
and coming countries, which is going to generate more profit for the company. Up and coming
countries is one sector that Nestle is going to invest money in because it has the potential to be a
strong and attractive market. Nestle feels confident in doing so because in such countries
population economy and technology has experienced a rapid growth. Nestles long-term strategy
is to identify the quickly expanding countries first and get into the market as soon as possible in
order to take advantage of other competitors.

As explained above there is a link between Nestlé’s strategy and the Strategic management,
because companies employ managers from respective countries in the local companies due to the
fact that they understand the local market dynamics. However, it first has to hold the leading
position in the developed markets where it is currently placed. Also Nestle has to hire local
managers and staff in the developing markets that understand the local market dynamic and
culture because by hiring local manager, they can take advantage of the local knowledge and
own culture of the country. Also, Nestle is connected with methods of enquiry with Emerging
markets. Companies will have less space to roam around and make decision considering that
much of their movements are controlled by the market reaction. This means that emerging
markets are countries with social or business activities in the process of rapid growth and
industrialization. The Nestle case study as clearly explained above illustrates a good link with the
Strategic Management/Methods of Enquiry and the Market dynamic/Emerging markets
respectively.
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Reference:

1. Payaud, M. A. (2014). Marketing strategies at the bottom of the pyramid: Examples from
Nestle, Danone, and Procter & Gamble. Global Business and Organizational Excellence, 33(2),
51-63.

2. Sethi, S. P. (2012). Multinational corporations and the impact of public advocacy on

corporate strategy: Nestle and the infant formula controversy (Vol. 6). Springer Science &
Business Media.