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…