Strategic Management Case Analysis the Business Environment

Strategic Management Case Analysis

The business environment brings a number of challenges and issues for organizations. In order to operate profitably and competitively in the presence of uncertainties and threats in the external environment, business organizations have to formulate effective corporate, business, and international level strategies for the short run and the long run (Hitt, Ireland, & Hoskisson, 2007). The case discussed in this research paper highlights the major strategic issues which Nestle faces in international markets. This Nestle case study has been extracted from Hanson, Hitt, Ireland & Hoskinsson (2011: 564-577) as a real life strategic management case for business management students.

The paper starts with a brief introduction to the case study; that is, what are the major issues which Nestle has been facing in the given situation and what strategies its Board of Director has formulated to encounter these issues in the most effective manner. The paper proceeds by giving an ample introduction to the industry where Nestle operates and presents a detailed analysis of the external environment which directly or indirectly affects the financial and operational performance of the company. The analysis has been made in the light of different environmental forces which are present in the foods and beverages industry and can pose threats and challenges for Nestle in the given situation. The competitive environment has also been discussed in order to highlight the intensity of competition and rivalry among the top market leaders and small new competitors. A brief discussion on the firm's weaknesses, opportunities, and capabilities has been made in order to discuss how Nestle will be able to survive in the situation discussed in the case study. After a careful analysis of all the environmental and competitive forces, a set of recommendations has been proposed for the present and future strategies for the Corporate, business, and international level business segments.

Introduction to the Case Study

This paper presents a case study on the Strategic Management issues faced by Nestle; one of the leading multinational organizations in the consumer goods market. The case study has been taken from Hanson, Hitt, Ireland & Hoskinsson (2011: 564-577). The major focus of the whole case study is on two major strategic issues; internal and external growth and the strategies to maintain the market leadership in the presence of a strong competition. The first issue is to revive the company's organic growth in such an industry which has gone mature and has little potential for new investments. Nestle intends to create opportunities in this maturing market itself and gain the highest market share among its competitor organizations. The second issue is to expand the business operations in a view to become self-sufficient in all its major product categories. It wants to keep the crown of market leadership, develop the strongest customer base, and achieve high financial performance over years through competitiveness and innovation in its business processes. In addition to these major issues, the company has been facing certain environmental challenges which it has to meet by formulating effective marketing and operational strategies.

Nestle: Introduction to the Industry

Nestle is one of the largest manufacturers of foods and beverages in the world markets. It has expanded its business operations to all the corners of the world. Currently, it is serving a large number of customers from more than 130 countries with almost 8,500 different brands and 10,000 products. Its production units have reached to 500 in number that are set up in all the developed and most of the developing countries of the world. The food and beverage industry in which Nestle operates is the largest consumer goods industry with respect to consumer base, industry participants, and sales revenues (Nestle, 2012).

Nestle has targeted the food and beverage industries in all the developed, developing, and under-developed countries of the world by effectively defining its target consumers for each of its product category. The world's food and beverage industry is composed of a large number of businesses; all of which is in a quest to beat the other industry competitors and strengthens its own customer base and market share. For the last few decades, the industry has been showing an increasing trend towards maturity due to low growth rate in the consumer market and declining attractiveness for the new entrants.

General Environmental Analysis

The business environment of Nestle is composed of political and legal, economic, socio-cultural, demographical, technological, and Global forces. The analysis of these forces will help the company to formulate strategies in such a fashion that it avails all the attractive opportunities, mitigates all the risks up to their maximum extent, and ensure a continuous organic growth in the industry (Hitt, Ireland, & Hoskisson, 2007). This analysis is discussed below:

a. The Political and Legal Segment:

Nestle intends to expand its current operations in order to earn more revenues for the revitalization of its organic growth. For these expansion strategies, Nestle will have to meet certain legal requirements which are defined by the governmental bodies of the target countries. The political environment of different countries will also impact its growth in the new markets. In this case study, a stable political environment will be favorable for Nestle to expand its operations. However, the given situation requires Nestle to focus on its competitiveness in the current operations rather than taking new challenges or pursuing new expansion projects.

b. The Economic Segment:

The economic environment of Nestle consists of all those forces that directly impact its costs of doing business, sales revenues, and financial performance. Nestle has diverse fields of operations with an enormous range of products for all types of customers and all age groups and income levels (Nestle, 2012). Therefore, any change in one or more of the economic forces can impact any of its business segments or product lines. In this case study, Nestle has to encounter two big issues of international expansion; an improvement in its operational performance and control its marketing expenditures for the existing and new projects. In this situation, Nestle will have to keep in mind all the economic forces which are present in its business environment. The improvements in its operational performance will require the procurement of latest plant and machinery at its production units. Due to the day by day increasing inflation, Nestle will have to purchase these assets at a higher price than before. Similarly, the marketing expenditures for the revitalization campaigns will put heavy financial burdens on the company due to increasing costs of marketing and promotional mediums (Kotler, Brown, Burton, Deans, & Armstrong, 2010).

c. The Socio-Cultural Segment:

The socio-cultural segment constitutes those environmental forces which differentiate the company's potential customers from other consumers in the target market. The level of acceptability for a particular product largely depends upon the social and cultural forces in the society in which that product is marketed and sold. In the given case study, Nestle has to focus on its six major brands which have the highest level of acceptability among their potential consumers. To meet their expectations, Nestle will have to maintain all the attributes of its brands which contribute towards this high level of acceptability. These attributes may be the quality of the brands or their price due to which consumer are agree to make their purchase decision in favor of those brands.

d. Demographical Segment:

Nestle has to formulate strategies to bring improvements in its operational performance in the most profitable geographical segments. Demographical forces can impact this operational performance in a way that consumers make their choices of brands by keeping in view their ease of availability at their local stores. In order to serve the potential customers in their local geographical regions, Nestle has to deliver its products to all the small and large scale retail outlets and private shops so that its customers do not face any difficulty in finding their favorite brands and can purchase them at the nearest retail shops.

e. Technological Segment:

In the situation stated in this case study, Nestle can ensure competitiveness in its industry if it will give emphasis on technical innovations in its business processes. Technological advancements in the global market have put great pressures on businesses to improve their operations and marketing strategies in order to meet the high expectations of their customers. Nestle will have to expend a large amount from its revenues on Research and Development section, Internet Marketing strategies, and procurement of modern machineries in order to maintain its position as the market leader in quality, reliability, and competitiveness (Kotler, 2010).

f. Global Segment:

This segment constitutes all the aforementioned forces in the Global context. That is, Nestle will have to analyze the political, social and cultural, economic, technological, and demographical forces for its Global business operations. For instance, the economic conditions in all the target countries are not the same; Nestle will have to keep in mind the costs of doing business in every country before entering into that country with its full operational units and segments. Similarly, it will have to analyze the earning and spending patterns, life styles, and brand preferences of the consumers which vary in every region. Moreover, the risks and uncertainties in the external environment are also an important part of the global segment.

Porter's 5 Forces & the Competitive Environment for Nestle

The food and beverages industry constitutes a large number of competitors that are offering their wide array of products for the final consumers. Being the market leader in its industry, Nestle has to focus on two things; to keep its top position in the industry intact and keep expanding into other geographical regions on the basis of its core competencies and competitive advantages. The following paragraphs discuss the intensity of competition for Nestle from five different angles using Michael Porter's Five Forces Model of Competition:

a. Rivalry among existing competitors -- the Competitive Environment for Nestle:

Nestle operates in the largest industry of the world where a large number of competitors have established their presence by offering high quality products and using effective marketing strategies. The food and beverages industry has been largely dominated by Nestle along with its two major rivals, Unilever and P&G. These three competitors have captured the greatest market share from the industry with immensely wide range of brands. As Nestle is the market leader, it has a big threat from these top competitors which are also among the most competitive organizations in the industry. In addition to Unilever and P&G, Nestle also has to face a stiff competition from numerous small competitors which are selling their products at comparatively lower prices.

b. Threat from the New Entrants in the Industry:

Although food and beverages industry has gone mature, but there is still a continuous emergence of new companies. These companies are expending a large amount on the promotion of their brands which are available in the same retail shops but at lower prices. Nestle wants to revitalize its competitiveness and continuous growth by capturing greater market share, but these new entrants have put hurdles in the achievement of these goals.

c. Threat from the Substitute Products:

The small well-established competitors and new entrants are offering the substitute products for almost all the brands of Nestle. These substitute products bring negative impacts to the sales of Nestle's top quality brands. In order to achieve its long-term objectives stated in this case study, Nestle has to formulate effective strategies to throw all those competitors out of the market that are selling inferior quality products to the Nestle's target consumers.

d. Bargaining Power of Suppliers:

Nestle products have a high level of acceptability among its customers (Nestle, 2012). This acceptability is the competitive advantage of Nestle which enables it to charge a fair price for its high quality brands. Nestle also keeps an eye on the performance of its supply chain that plays an important role in the effective implementation of its competitive strategies. Although Nestle is on the bargaining edge, its suppliers are satisfied with its financial performance and growth.

e. Bargaining Power of Buyers:

Due to the high quality and reliability of the Nestle products, the consumers are ready to pay a higher price for all the existing brands. The excellence in business operations has made Nestle the most competitive seller of food and beverage products in the world market. However, when some new competitor enters the industry, the consumers get attractive towards its products due to promotional ads and lower prices. The bargaining power of buyers becomes stronger when Nestle fails to compete with the new entrants on the basis of the prices of its products.

External Environmental Analysis

Opportunities:

The external environment of a business organization can also be discussed in terms of the opportunities and threats present in the industry. For Nestle, the most potential opportunity is to grow its business operations in the new geographical markets and establish its presence using its core competencies and strengths. Another attractive opportunity for Nestle is to make collaborative arrangements with the suppliers and distributors in its existing target markets so that they render their services in a more effective and reliable way. Nestle has to focus on its top six food brands which are losing their market share due to high sales and acceptability of the competitor products. To regain the previous level of market share, Nestle can make expenditures on the Research and Development section in order to know the answer why did the market share decline for these products and how can it revive their previous position in the short and long run.

Threats:

The biggest threat for Nestle is the industry competitors; both the established multinational brands and the new small competitors. These competitors are snatching Nestle's customers by offering innovative and improved products and efficient after sale services. Another threat for Nestle is the inflationary pressures in the world markets. The costs of doing business are getting higher and higher day by day while the sales revenues have shrunk due to low production in developing countries. The political instability in different economies and the risk of shortage of raw materials can also become big threats for Nestle's business any time (Waterschoot & Bulte, 1992).

Nestle's Resources: Tangible and Intangible

The most important resource which Nestle possesses is its financial capital. Nestle has a huge sales volume in all the major business segments in the world markets which give it attractive returns on its investments. The strong financial position also helps the company to generate funds for future investments and bring efficiency in its current business operations. The second resource category is Nestle's physical resources which are its large scale plants, machineries, and other organizational assets. The patents, trademarks, and copyrights are another resource category which greatly contributes in increasing its asset sizes. Moreover, the employees are also considered as the most precious asset at Nestle. The innovative procedures, intellectual capital, and technological investments are also important asset for the company.

Capabilities Identification

Nestle wants to make certain improvements in its business processes. The planned strategy is to re-design its current marketing strategies and boost up the sales of its top brands in the existing markets. The issues which it can face in the course of the achievement of its goals are stiff competition from top industry rivals, expenditures on the Research and Development, and investment needs of the present era. The capabilities which Nestle can utilize to achieve these strategic goals are its core strengths and distinctive competencies. These include; efficient business operations, well-established brand image, high level of brand loyalty, strong financial position, the highest market share in the industry, strong business relationships with the supply chain members, and confidence of the stakeholders on the company's Board of Directors. All these capabilities and strengths can be used to achieve the strategic goals and objectives (Jenny & Scammon, 2010).