Nestle's global business strategies and competitive positioning

Nestle is a large scale multinational corporation engaged in manufacturing a wide variety of food, beverages, and health care products. It was incorporated in 1866 by Henry Nestle in Switzerland as a small food manufacturing company. At present, Nestle is present in all the corners of the world and serves its customers with thousands of food and beverage brands for all types of consumers. It manufactures products for all types of food consumption requirements for any day or night time. It has more than 500 production units in developing and well-developed countries of the world whereas its final products are available in more than 130 countries. Nestle is recognized as the strongest and the most competitive food and beverage products manufacturer in the world. It has successfully targeted all the potential markets of the world and currently pursuing business expansion strategies through product diversification in related product lines as well as penetration in new geographical locations (Nestle, 2012).

This paper presents a comprehensive discussion on Nestle's business strategies in its overall Global operations. It starts by discussing the impact of its mission, vision, and stakeholders on its strategies and success in the industry and proceeds by highlighting the major strengths, weaknesses, opportunities, and threats in its business environment. The competitive analysis for the company is also made in the light of Michael Porter's Five Forces Model. The next section gives recommendations on how Nestle can capitalize on its strengths to avail the attractive opportunities from the market, overcome its weaknesses, and encounter the potential threats from the external environment. The final sections explain the company's corporate governance mechanisms, leadership effectiveness, and corporate social and ethical responsibility efforts.

The Impact of Vision, Mission, and Prime Stakeholders on Nestle's Overall Success

The vision and mission statement of Nestle entail its strategic direction and long-term goals which it wants to achieve in its life. The mission statement highlights the major areas on which Nestle must focus whereas the vision statement shows the strategic path which it can choose to reach its long-term goals. Nestle keeps in view both these statements while formulating and implementing strategies and future plans for its corporate operations and strategic business units in other regions. The prime stakeholders of Nestle like customers, employees, shareholders, suppliers and distributors also play their distinctive part in its strategic success and sustainability. For example, suppliers provide it the highest quality raw material so that it can manufacture the most demanded products for the general consumers.

The distributors deliver its products to all the corners of the world so that its customers can easily find these highest quality products at their nearest stores and marts. The shareholders give their money to the company in the form of capital employed which it uses to run its business operations in an effective and efficient manner. The customers, which are the biggest source of income for Nestle, are the sole reason for doing business. Similarly, the regulatory authorities and auditors play their important part in keeping the Nestle's operations and strategic moves in line with the ethical and legal standards and regulations (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

Michael Porter's Five Forces Model for Nestle

1. The Competition among the Existing Competitors:

Nestle has a large number of competitors in the local and international markets. There are some well-known brands like Unilever and Procter & Gamble, Kraft, General Mills, etc. As well as numerous small and medium scale brands. All these competitors are the biggest threat for Nestle's market position and attractive profitability. Nestle finds it harder to target a large customer segment in the presence of equally competitive and strong competitors in both local and international markets.

2. The Threat from the New Businesses:

The fast moving consumer goods, eatables, beverages, beauty and health care industry is a mature and saturated industry all over the world. However, there is a great room for new entrants to join and manufacture these types of goods for the general consumers. Finding it an attractive opportunity, new small and large scale businesses are joining this industry and taking the market share from existing competitors through their low-pricing strategies and extensive marketing efforts. Nestle also faces a strong competition from these new entrants because these competitors snatch its potential customers and penetrate in the prospective markets where Nestle aims to establish its business. The decrease in sales volume and profitability of Nestle during the last few years can also be attributed to this new level of competition in the international markets.

3. The Threat from the Substitute Products:

Almost every Nestle product has a substitute product manufactured either by an equally strong and well-known brand or a small unknown brand. These substitutes are a direct threat for Nestle's top products. Nestle produces a large variety of products that meet consumer requirements for all day and night timings and individual health requirements. But the presence of substitute products reduces their sales and negatively impacts the company's performance. Nestle has been making efforts to manage this competition by producing higher quality products and introducing flavored variations in different products. It competes on the basis of quality, customer services, and ease of availability of these products.

4. The Bargaining Power of Suppliers:

The bargaining power of suppliers is weak in this industry. Reason being, there are large number of suppliers which supply similar raw material and almost same prices to the manufactures. Therefore, Nestle does not face any problems in getting the required raw material at a good price from its suppliers (Kotler, Brown, Burton, Deans, & Armstrong, 2010). In order to make strong relationships with the well-established brands, suppliers offer their raw material at a lower price to these brands. Nestle enjoys a strong brand image and high level of trust by its supply chain members. Therefore, it always gets its required raw material at a low price.

5. The Bargaining Power of Customers:

Converse to the bargaining power of suppliers, customers have a strong bargaining power in this industry. This is due to the large number of manufacturer brands and readily available substitute products. If these manufacturers over-price their products, customers immediately choose other brands or simply switch to substitute products. Nestle cannot charge a high price for its products because it has to keep its strategies in line with the competition as well as with the purchasing power and preferences of its target customers.

SWOT Analysis for Nestle

1. Strengths:

The biggest strength of Nestle is its huge scale of operations and geographical presence in all the corners of the world. Nestle is one of the largest manufacturers of fast moving consumer goods, eatables, beverages, and health care products in the world. It has a large customer base and sound financial strength. Nestle has a strong brand image and high level of acceptability and appreciation among its customers. These strengths and competencies make Nestle the strongest brand in the Global consumer goods industry. Another major strength of Nestle is its strong relationships with its supply chain members. Nestle has a large number of suppliers and distributors all over the world which supply the required raw material and distribute its final products to the potential target markets. Nestle enjoys full confidence of its investors, supply chain members, and customers (Nestle, 2012).

2. Weaknesses:

One of the major weaknesses of Nestle is the low level of acceptability of its newly introduced product lines. These products are not giving attractive returns to the company as compared to its top products. Secondly, Nestle has a weaker market position in different regions of the world as compared to its top industry rivals like Unilever and Procter & Gamble. Another weakness of this large scale manufacturer is its varying focus on different types of business operations. That is, Nestle does not give equal focus on all its product lines. Rather, it manufactures and promotes the top-rated products with greater emphasis than newly introduced or low-demand products.

3. Opportunities:

Nestle has various attractive opportunities which it can avail to overcome its weaknesses and strengthen its Market position in the Global industry. Nestle can introduce more innovative and useful products according to the needs of the general consumers. It can expand its existing product lines so that it can target a larger customer market with all age groups and income classes. Secondly, Nestle can adopt horizontal and vertical integration strategy in order to achieve costs leadership and become the most competitive organization in its industry. Horizontal and vertical integration will allow it to become its own supplier and distributor and achieve cost-efficiency and operational excellence. Nestle can also diversify its operations in related and unrelated product lines as a part of its business growth strategy (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

4. Threats:

The biggest threat for Nestle is its competitors in the local and international markets. Nestle uses premium-pricing for its products which enables it to ensure attractive profit margins. However, its top competitors give it a challenging competition and force it to keep its prices according to the competitive environment. Other major threats for Nestle include day by day increasing raw material costs, manufacturing costs, Research and Development expenses, and human resource development expenses. These high costs negatively impact its financial performance in both local and international markets. Moreover, inflationary pressures, recession and critical economic conditions, and political instability in different target countries also impact Nestle's operational performance and profitability in a negative way.

Strategies to Maximize Competitiveness and Profitability

Nestle can maximize its competitiveness in the industry if can gain the highest market share and the largest customer base. At present, Nestle does not have an equally strong market position in the six operating regions of the world. In order to become more and more competitive with the passage of time, Nestle can do extensive Research and Development to introduce innovative and more useful products for all types of target customers. It can manufacture, distribute, and promote a wide array of product lines which are not still offered by its top industry rivals. The profitability can be maximized if Nestle controls its unnecessary business costs like manufacturing costs, R&D expenditures, HR development costs, maintenance costs of plants and machineries, and warehouse costs. Similarly, profitability can be maximized by increasing the number of units sold in every target market. In order to achieve this goal, Nestle can set higher targets for its sales teams that will make efforts to attract greater number of customers through different marketing strategies and tactics.

Communication Plan

The communication plan will give a complete description of how Nestle can communicate its marketing strategies and future plans to the prospective stakeholders in an effective and cost-efficient fashion. First of all, Nestle can use its publications and annual reports to communicate its mission, vision, and strategic goals to the investors, governmental bodies, and supply chain members. These reports and publications will contain all the historical and current data which can be used by these prospective stakeholders to assess the company's performance over the years. Secondly, it can use different promotional mediums to communicate its products, pricing, public relations, and corporate social responsibility efforts to the customers, investors, supply chain members, and regulatory authorities (Perreault & McCarthy, 2002).

The communication plan will also entail the major objectives which the company wants to achieve over a certain period of time. The current communication plan will give Nestle a framework and direction on how it should move in its industry and communicate its messages and strategies to the potential audience in the short run. The promotional mediums like electronic media (television, radio, etc.), print media (newspapers, publications, newsletters, company broachers, circulars, etc.), social media networks (Facebook, twitter, LinkedIn, Google+), etc. And public relations can help the company in promoting its products to the target customers as well as communicating its initiatives which are non-profit motive (Perreault & McCarthy, 2002).

Corporate Governance Mechanisms at Nestle

There are a number of controls and mechanisms which the company's Board of Directors has instituted to ensure a fair and transparent managerial performance, but the most important mechanisms are performance appraisals and internal audit on periodical basis.

1. Performance Appraisals:

The Board of Directors or Senior Management at Nestle analyzes the performance and activities of its managerial employees through different ways. Performance appraisals are used to measure their performance level at equal intervals in several times in one year. This method assesses the performance of managers individually and finds which of them have achieved their targets more efficiently and effectively. These appraisals also help the Management in choosing the right leaders for tomorrow. The low performers are not discouraged through demotion or downgrading. Rather, they are encouraged and trained to perform better in the future. Nestle expends a huge amount on manager training and development sessions every year which is a proof that it gives strong focus on managerial performance (Nestle, 2012).

2. Internal Audit:

Internal audit is carried out at the end of every quarter. However, the internal control team keeps an eye on the performance and business affairs of the entire organization. The team ensures that the operational efficiency and transparent financial reporting are not compromised at any cost. In order to make the organizational members comply with the laws, regulations, and ethical standards, the internal auditing teams give them directions and frameworks which they have to follow inside and outside the organization. The internal audit team also ensures that the organizational resources are used efficiently and by the authorized persons only (Nestle, 2012).

Effectiveness of Leadership at Nestle

Nestle has expanded its business operations in all the six operating regions of the world. Therefore, the Leadership consists of members who supervise the performance of these regions individually. The presidents of every region look over the performance of all their operational areas including manufacturing operations, Finance and investments, human resource management and expatriation, sales and marketing, supply chain network, regulatory compliance, etc. (Nestle, 2012). With this structured leadership pattern, Nestle operates in a quite well-organized and ideal fashion where there is no conflict of interest or erroneous flow of direction in the whole organizational setup. Nestle can further improve its leadership pattern if it divides the sole decision making authorities given to the Chief Operating Officers to the Presidents of those regions. It will help in supervising the company's performance at regional level before making analysis at the corporate level (Ferrell & Hartline, 2011).

Social Responsibility Efforts

Although Nestle has a strong brand image and high level of acceptability among its customers, it has faced severe criticism various times in its life. For example, it was criticized of presenting its powder milk as a substitute for mothers' milk. Similarly, Nestle was boycotted for ignoring business ethics in various regions of the world. In order to encounter these ethical and social issues and remove the black stains from its public image, Nestle took various initiatives in the home country and other major target markets. For example, it invested a huge amount on making its business operations environmental friendly. It has implanted the latest plants and machineries which are more fuel-efficient, more productive, and faster in their performance. In order to dispose the factory wastages, Nestle chooses the un-populated areas of the countries so that this waste may not cause any health issues to the general public or bring harmful impacts to the environment (Nestle, 2012).

Secondly, Nestle invests a big amount on social welfare like education reforms and consumer information sections so as to create awareness among the general public on how to make better use of products, know the basic health and nutrition tips, and choose products that best meet their specific day and night food requirements. In order to present itself as a socially and ethically responsible corporation, Nestle ensures that its business strategies and marketing campaigns do not hurt the feelings, values, or norms of any social, religious, or ethnic group of the society (Nestle, 2012).