Organizational Culture 

Nestle has strong corporate culture which is reflected by the company logo itself.
The logo, “Good Food Good Life” which is always attached to its products is the
main guidance for every activity within the company. Nestle believes that good
food is the primary source of good health throughout life thus it always puts
nutrition, health and wellness as the core of its business. The company tries to
further develop and emphasize on these aspects. These three things Nutrition,
Health and Wellness can be found in all Nestle products and in the company
mission statement as well. 
Talking about the company culture which is related its people structure, Nestle has
the culture of team focused and open door policy which become one of its
corporate strengths. The company focuses on collectivism and performance
orientation attitude to encourage employees to work harder (Ali et al, 2009). 
Strategic Purpose 
Mission of Nestle is to make better food so that people live a better life. There is an
apparent relationship between this mission statement and the company logo. As
what the company believes in, it strives to bring consumers foods that are safe, of
high quality and provide optimal nutrition to meet physiological needs. In addition
it also brings the vital ingredients of taste and pleasure. 
Nestlé's corporate objective is to be the world's largest and best branded food
manufacturer, whilst ensuring that the Nestlé name is synonymous with products
of the highest quality (Nestle Corporate Objective, 2009). It shows that Nestle has
achieved one part of its corporate objective which is to be the world’s largest
manufacturer. This objective is related to another objective of Nestle which is the
company wants to make sure that the product creates value that can be sustained
over the long term for shareholders, employees, consumers, business partners and
the national economies in which Nestle operates. 
The main concern of Nestle is to deliver nutritional value for the customers. That’s
why in the website of the company, it’s clearly stated that Nestle is the world’s
foremost Nutrition, Health and Wellness company. The CEO of Nestle, Paul
Bulcke once said that the objective is to be recognized as the leader in the
Nutrition, Health and Wellness and as the reference for financial performance,
trusted by all stakeholders. 
The statement from the CEO is in line with the fact that Strategic Purpose isn’t
only concerned with what the organization should achieve but also who has
influence over the purposes. In every organization there should be some people
that have complex role in affecting the organizational purpose. These people are
the stakeholders of the company. Nestle wants the stakeholders are well-served
which is returned in the company’s long term objective: to create sustainable value
for its shareholders which require it to create the value for the societies at first
place. 
2.0 Industry Analysis 
The threat of entry 
At first glance, people may think that food and beverages industry is quite easy to
enter. This is true if the consideration is only about the capital requirements. The
capital requirement of entry is not high thus enable many parties to open their
business in this industry. This opinion is also supported by the fact that many
brands are occupying the shelves of supermarket or retailer. 
But if more factors are taken into consideration, the threat of entry for food and
beverages industry is moderately high (medium level). The threat of entry is
affected by many factors which are economies of scale, capital requirements,
access to supply or distribution channel, customer of supplier loyalty, experience,
expected retaliation, legislation or government action and differentiation (Johnson
et al, 2005). For this industry there is no specific government legislation that
governs the entry of new entrants. 
The fact is that there are many big players exist in this industry and they are at
multinational level which means the retaliation is very great. These big players
have broad product lines and they have global marketing strategy that those local
brands are not able to compete with. These big companies also have an advantage
in term of achieving economies of scale. They have more experiences to give them
advantage in terms of cost, customer and supplier loyalty. 
Entering the food and beverages industry to compete with the big competitors such
as Nestle won’t be a wise decision unless the new comer has careful attention paid
to the strategy. Nestle has the most important thing to retain its customers which is
the brand name itself. In 2008, Nestle is one of the companies in the list of 100
Best Global Brand (Best Global Brands, 2008). Nescafe as one of the brand under
Nestle was reported to have 13,056 million USD of brand equity. This shows how
valuable the brand name of Nestle as the market leader in the industry which can’t
be imitated by competitors. The brand name is used to differentiate Nestle product
from the competitors. 
Threat of Substitute 
Threat of substitute is high in the food and beverages industry. There are many
substitutes available that might reduce demands for company in the food and
beverages industry. To identify the threat of the industry, the company can’t only
look at close substitute. Threat can be assessed using price/performance ratio and
extra industry effects. There is a tendency for food and beverages manufacturers to
product broad range of products. These products may compete with one another to
gain market share. It means that they become substitute for each other. For
example Nestle Koko Krunch Cereal can be the substitute for Nestle Nesvita cereal
drink since both of them are intended for breakfast consumption. 
Because Nestle is offering not all kinds of food and beverages, those unoffered
kinds may act as the substitutes for the Nestle products. For example Nestle has
coffee in its product lines which is Nescafe, the substitute for it can be the soft
drinks which are not in the portfolio of Nestle. In this case the substitutes are also
very broad. For certain food such as baby food, the substitute can be breastfeed
which is free and offer same or higher value. 
Power of Supplier 
The power of supplier in food and beverages industry tends to be medium. The
basis of Nestle products are agricultural raw materials such as milk, cocoa, and
coffee. By referring to 3 factors that affect the power of supplier, only 1 factor can
gives the supplier the power advantage which is the non-existence of forward
vertical integration. 
Supplier power is increasing as many of the food and beverages manufacturer are
not involved in agricultural raw material production and don’t own or operate
farms. Nestle, Cadbury, and Kraft are some of the examples. They rely on the
suppliers to provide the raw materials. Nestle itself purchases agricultural materials
in either raw or semi-processed form directly from farmers or via trade channels
(Raw Materials, 2009). 
On the other hand, by considering the number of suppliers in the industry and also
the switching cost, the dependency to a particular supplier can be reduced. The
suppliers are not concentrated that enables the companies to choose the most
appropriate suppliers. For multinational companies that have their operations in
many countries throughout the world, if one supplier can’t offer good price for the
company, it can look for the other suppliers (can be in different countries). One
issue for some companies is how to get the suppliers that can supply high quality
materials as needed for producing high quality finished products. Switching cost
from one supplier to another is not high. 
The bargaining power of supplier depends heavily on the strength of the
company’s brand. In this case, big companies such as Nestle can take advantage in
bargaining. Small scale companies or local companies may feel that the power of
supplier is higher as compared to the well-established companies. 
Power of Buyer 
Competitive Rivalry 
Food and beverages industry is a very competitive industry. This is affected by the
other 4 factors discussed above. It’s not too difficult to enter to this industry, the
bargaining power of supplier and buyer are medium and threat of substitute is high.
Some other factors also determine the intense of competition. 
The competitors are of roughly equal size which can make the competition even
stiffer. They will attempt to gain dominance over another. For example Nestle and
General Mills have joint ventured for breakfast cereal market. By having such joint
venture these two companies instead of competing with each other they can gain
better success (Jones, 2008). 
In overall this food and beverages industry has its own attractiveness to attract new
comers to enter. Although from the 5 Porter results the industry isn’t so attractive,
it has its own set of appeal for the business party which is the growing opportunity
(profit). If the new comers can have good strategy to penetrate into the market and
know how to compete with existing companies, they can gain benefits in the
competition. 
{draw:frame} Since Nestle is operating in world-wide market, the industry life
cycle may vary among different geographical areas. In general food and beverage
industry is at the growth stage of life cycle but for European market and non-
European market they are at the different point of growth stage. Figure below
shows the position of the food and beverages industry in the life cycle. 
Another reason for the difference is the demographic differences between the two
different areas. A very important issue that makes European market is hardly to
grow is regarding the population growth rates. As compared to other markets, the
population growth rate is lower that makes the industry can’t grow or generate
higher profits for the market players. For food and beverages industry, the
consumption is driven by the population growth. Slower population growth means
the industry also grows slowly. 
The industry life cycle analysis is related to the Porter 5 forces. The relationship
can be seen from the characteristics of the forces which vary for each life cycle
stage. In other words the life cycle can be determined by looking at the 5 forces of
the industry. 
As for the food and beverages industry, since it’s still at the growth stage the
competition will keep increasing (intense rivalry) till it reaches maturity stage. One
obvious fact is that in European and North America market the competition is
stiffer as compared to the other markets. As shown in the curve before, these 2
markets are approaching the maturity stage while the other markets are just at the
middle of growth stage. Nestle knows this thus it put more attention to the Asian
market (Jones, 2008). The competitive rivalry is driven by the increasing number
of new entrants. 
The power of buyers at growth stage isn’t high but it will increase as the industry
goes further in the life cycle. The main reason for this is because of increasing
number of competitors to offer more products to the customers. In the Porter 5
Forces analysis it has been identified that the bargaining power of buyers is quite
high already. This is because this industry is very broad and the companies can
come out with many product selections. When the companies step into the maturity
stage by sure they will have even more products providedto strengthen the
company’s brand. For example Nestle MILO has strong market share and remains
a perennial favorite amongst Malaysia consumers. In order to further strengthening
the brands image, the company added MILO GOLD to its product range. This was
done to keep the consumers loyalty towards the product (Business Review, 2008). 
Reversely the power of supplier will be lower when this industry reaches the
maturity stage. It is because the brand of the company will be more powerful when
it enters to the maturity stage. As explained before the power of supplier is relative
to the company brands. Currently since the food and beverages industry is still at
the growth stage the power of supplier is medium. Nestle is an exception case. For
Nestle whose brand is very strong, the power of supplier becomes lower. One
proof to show that the power of supplier is low is the presence of Nestle Supplier
Code. This Nestle Supplier Code establishes non-negotiable minimum standards
that the suppliers must respect and adhere at all times when conducting business
with Nestle (Nestle Supplier Code, 2009). The Code also helps in implementing
the commitment to foster responsible practices in the company supply chain. It is
used to ensure the responsible sourcing and supplier relationships that deliver a
competitive advantage for Nestle. Not all companies have capability to implement
such thing. Suppose Nestle isn’t a well-known company, it won’t dare to have
supplier code, instead it may have to listen to what supplier requires. 
A major barrier to entry for the growth stage is the learning or experience. Nestle
and other companies have gained many experiences that allow them to achieve
economies of scale. Pricing during this stage is also declining (lower than the
introduction stage) and the profit is also increasing. Nestle and its competitors still
have growth opportunity. 
Another proof to show this industry is still at the growth stage is more
differentiated products are being introduced these days. The research center of
Nestle is still striving to come out with innovative products and renovate existing
ones. 
Before identifying the key drivers for change, the PESTEL analysis should be
carried out. 
From the key factors in the macro-environment (PESTEL), there are 2 of the
factors that influence food and beverages industry the most which are economic
and social factor. These two are the key drivers for change in food and beverages
industry. 
Demographic is also one of the factors that keep changing. The main factor within
demographic that will impact the operation of the company is the lifestyle. As
mentioned earlier, people are shifting to healthier life. The demand for food and
beverages that don’t fulfill this requirement can’t stay long in the competition. But
for Nestle this won’t affect much since Nutrition, Health and Wellness has been
the company focus for years. 
According to Johnson (2005) critical success factors are those product features that
are particularly valued by a group of customers and therefore where the
organization must excel to outperform organization. CSF can be related to the
differentiation by the companies within the industry. There are 4 common forms of
differentiation which can be used by the company which are: product attributes,
price, support, and brand image. 
For the food and beverages industry the most critical success factor will be the
product quality and innovation (Nestle: Global Strategy, 2009). It means that for
the company to success in this industry, the product quality should be taken care
the most while innovation process is also carried out. This is what Nestle has been
doing so far. As mentioned before Nestle brand has been the symbol of quality.
Innovation is said to be the critical factor because in this kind of industry the
company should be able to come out with new ideas to keep pace with the
changing customer preferences. 
Another critical success factor for the food and beverages industry is the
healthiness of the products. This is closely related to the key drivers for change as
discussed earlier. As people are very concern about their health, the healthiness of
the food and beverages they are taking become a key determinant in their
purchasing. Many groups of customer valued this healthiness issue thus allows
Nestle to conquer big market share. 
Indirectly the brand image itself can be built from the product attributes thus brand
is of the same importance with product quality in food and beverages industry. The
company also needs to develop its corporate brand using CSR (Corporate Social
Responsibility). Probably this factor is applicable for any industry in the business
world. 
As Nestle is the market leader of its industry, by sure it has its own set of core
competencies to deal with the critical success factors in the industry. All CSF is of
Nestle capability which means it has the resources and competencies to cater all
CSF. Without these competencies, Nestle can’t sustain its position any longer. 
This core competency of Nestle has made the company reached the first place in
the industry. Quality which is the most important factor for food and beverages
industry has been so attached to the Nestle brand itself. Nestle knows that
innovation and quality are the key determinants thus it transferred these
competencies to the foreign market wherever it entered into (Nestle: Global
Strategy, 2009). 
One of the innovations from Nestle which gives it first mover advantage is its
nutrition labeling on all the products packaging. It was launched in 2005 and
comprises three elements: Good to know, Good to remember, and Good to talk.
These 3 labels can be found in all the Nestle products. 
There is another first mover advantage Nestle has which is becomes the first in the
industry to offer a full range of chilled dairy products with “No Artificial
Coloring” in 2008 (Business Review, 2008). Some examples of the products are
BLISS Yogurt Drink, NESTLE Yogurt and YOCO Cultured Milk Drink. It was
communicated under the “Some Things are Best Left Natural” communication
campaign and received very positive feedback from consumers. 
Nestle also has competencies in leading and developing people (Roongrerngsuke,
2006). This is important since Nestle is operating worldwide. As the market in
each country is different from the others, the company needs to adapt itself to the
macro-environment accordingly. 
Nestle has the ability in adapting itself to local demand and cultural differences
although it operates in global level. It uses local brands in a wide range of local
markets and focuses on trying to optimize ingredients and processing technology to
local conditions. Doing business in different countries means different ethical
standards, different business expectations, and different cultural norms. One
example to show Nestle’s ability in responding to local condition is when it
penetrated to Nigeria, the company had to rethink its distribution method
(operating a central warehouse) because the road system was poorly developed and
much violence there. The global strategy must be backed up with the necessary
financial and human resources and knowledge management should be introduced
to spread information throughout the company (Nestle: Global Strategy, 2009). 
Nestle can take advantage of location economies to lower the cost of value creation
thus it can achieve low cost position which will give the company even better
market shares (Nestle: Global Strategy, 2009). The experience of Nestle itself also
can help the company to sustain its competitive advantage in term of lower product
price. 
For Nestle to sustain its competitive advantage shouldn’t be a problem. This is due
to the value and inimitable of the core competencies of Nestle especially for its
corporate brand image and commitment. To achieve what Nestle has achieved so
far is very difficult for the other companies. This requires long term experience and
investment. The most important thing is that Nestle is aware of the intense
competition and keeps improving itself so that competitors can’t take over its
position. For the nutritional labeling, it was protected by law and other companies
can’t follow the same thing. Another thing that enables Nestle to sustain its
competitive advantage is the intangibility of “innovation” in Nestle and first mover
advantage. Innovation has been the culture of Nestle and it can’t be transferred to
other parties. 
Furthermore with the presence of this competency, Nestle shouldn’t be worry
whenever there are any changes in the industry (macro-environment) especially
when people life style change. The company still can come out with nutritious food
and beverages to cater the demand of customers worldwide.
5.0 Strategic Directions and Corporate Level Strategies of Nestle 
Corporate level strategy is also dealing with the product diversity, international
diversity, corporate parenting roles and management of portfolio (Johnson et al,
2005). It is strongly related to the strategic direction of the company. 
Nestle applied international diversity which means it differentiates its products
based on the local market and competition. The example has been given in the
chapter before which shows the Nestle ability in adapting itself to the local
market. 
In selecting the corporate strategy a firm might refer to Boston Matrix, Ansoff
Matrix or use a simple SWOT analysis to establish where the company is and in
which direction it wishes to head. Below is the BCG portfolio matrix for Nestle
SBU. The classification is based on the performance of the SBU (the profit it
generated to Nestle). 
Most of the Nestle SBU is in the category of star. The SBUs in this category
generate high profit for the companies. This is the main reason why Nestle can
gain its number one in the industry. All its SBUs are generating profit. Nestle
doesn’t have any SBU in dog and cash cow category. Take example of Ice Cream
SBU to show why it’s considered as star. Nestlé Ice Cream registered double digit
growth in 2008 (Business Review, 2008). The division continued to spearhead the
market with even stronger brand awareness, which saw continuous and sustained
brand building efforts even during lackluster market conditions. This SBU can
come out with innovative products such as DRUMSTICK Techno, DRUMSTICK
Retro ice cream and MAT KOOL Tangle, MAT KOOL Super Blaster and
TROPICANA Plus ice confection. In the following years if the innovation is kept
carried out, this SBU can still generate high profit for Nestle. 
Strategic direction or development directions are strategic options available to an
organization in terms of products and market coverage (Johnson et al, 2005). There
are 4 strategic development directions which are: protect/build, product
development, market development and diversification. 
Nestle has done the 4 strategies. In recent years, the company has pursued a policy
of expansion and diversification through acquisition and divestment to achieve a
more balanced structure to the business. 
Product development is the main direction of Nestle and done by the company
R&D team. As what a director of Nestle said, renovation is to keep pace in the
industry; company needs to change at least as fast as consumer expectation.
Innovation is to maintain the leadership position; to move faster and go beyond
what consumers will tell (Nestle SWOT analysis, 2005). These 2 strategies are
intended for internal growth to achieve higher volumes. In 2005, Nestle’s ice
cream business unit for the China Region launched 29 new products to attract more
consumers having its quality improved (Nestle Attacks with New Products, 2005). 
As the multinational company, market development is also very important in order
to increase the geographical area coverage. In this case Nestle is expanding the
market by geographical area. Nestle expanded to Asia region as it saw good
opportunity there. 
In some cases Nestle used joint venture to assist itself in entering into new market.
As a multinational company, Nestle has done some sorts of international strategy
such as joint ventures with Coca Cola and General Mills (Nestle SA, 2009). These
2 joint ventures still main for the food and beverages industry (this also can be the
example of related diversification). Joint venture with General Mills is to form
Cereal Partners Worldwide and joint venture with Coca-Cola is named Beverages
Partners Worldwide. The main reason for Nestle to do the joint ventures for its
market development strategy is to benefit from the traditional marketing expertise
and distribution strength of Coca-Cola and General Mills. These 2 joint ventures
also allow the companies to have their market penetration (existing product in
existing market). 
Nestle has related diversification and unrelated diversification. For the related
diversification, it can be seen from the wide product portfolio which encompassing
baby foods, dairy products, chocolates, breakfast cereals, food seasoning etc. 
For unrelated diversification, Nestle did it by acquiring or joint venturing with
other big companies. For example Nestle acquired Alcon Laboratories Inc. in
Texas which is a pharmaceutical company specializing in eye care (Company
Related, 2009). 
Another example of unrelated diversification is the joint venture with L’Oreal.
Nestlé and L'Oréal have a close relationship dating back to a shareholder pact
made in 1974. Nestlé holds a 26.4% stake in the world's largest cosmetics group.
Whilst it is unlikely that Nestlé will take over L'Oréal in the immediate future, it
could well do so in a few years (Nestle SA, 2009). 
For the future days, Nestle may still come out with market development, product
development and diversification. Nestle with its R&D team can come out with
more and more innovative idea in developing the products and try looking for new
market segment. The new market segments can be new geographical unit or based
on demographic factor. However for the unrelated diversification Nestle shouldn’t
go to extensive. It is because the more extensive the unrelated diversification the
lower the performance will be. 
6.0 Conclusion 
Conducting industry analysis is very important whenever a company wants to enter
into new market. Porter 5 forces and industry life cycle are have-to-do analysis
before making decision. However for the existing companies especially large scale
companies, they need to pay attention to the future changes that might happen in
the industry because these changes will impact the operation of the company in the
business environment. 
Nestle as the leader in the food and beverages industry has its own set of
competencies that allow it to conquer the largest market share and left the
competitors behind. The core competencies or strategic capability of the company
should fit what the most influential factors in determining the success of the
company are. It means that the core competencies should be able let the company
to sustain its competitive advantages. 
Portfolio matrix assists the company in determining how to allocate the investment
based on the SBU. By understanding this, the company knows the direction it
should go. This is related to the issues of market penetration, consolidation,
product development and diversification. 
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