SAN PEDR O COLLEGE OF BUSINESS ADM INISTR ATION

KM 30, OLD NATIONAL HIGHWAY, BRGY. NUEVA, SAN PEDRO LAGUNA

Case Study:
Nestle’s Growth Strategy

Submitted By: Group 4 - BSA 102 Submitted To:

DY, Eryll Matthew Dr. Bienvenido Odejar

PABLO, Allen Miles Total Quality Management
ALCAZAR, Franceska
CABUNGCAL, Mary Gil
MACASPAC, Francheska Lynn

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SAN PEDR O COLLEGE OF BUSINESS ADM INISTR ATION
KM 30, OLD NATIONAL HIGHWAY, BRGY. NUEVA, SAN PEDRO LAGUNA

I. Identification of the Problem

This study aims to answer the following problems and the different factors
that affect how Nestle is faced with significant challenges in maintaining its
growth rate despite their undisputed success. In several countries, population
growth had stagnated and in some, there had been a small decline in food
consumption. This will provide insight on how the company can overcome the
obstacles they have in spreading their influence and in maintaining their growth
rate in a more efficient and effective way.

II. Background of the Problem

Heinrich Nestle first established “Nestle” to produce and deliver infant

foods in 1867. Later on, they merged with the Anglo-Swiss condensed milk
company (also known as the Nestle group) in 1905 which was their rival at first
because they sell almost the same products that Nestle produces. Anglo-Swiss
already expanded in the United States but the passing of George Page delayed
their plans causing them to merge with their main rival, Nestle. Through this,
Nestle managed to expand in the US and began selling chocolate. In 1905,
Nestle managed to expand its business in Asia, Australia, Latin America, and
Africa.

In 1914, a war suddenly emerged in the entire Europe resulting in the increase in
demand of condensed milk and other dairy products. Condensed milk was well
liked by the armed forces making Nestle supply the British army in World War 1.
However, they still faced several problems including the shortage of raw
materials making them acquire more facilities. At the end of the war, they had
over 40 factories around the US and Australia. In 1938, they developed Nescafe.
The first soluble coffee drink and still one of the most famous products today.
World War 2 suddenly flared up in 1939. The company still supplied both the
civilians and armed forces despite the circumstances. After World War 2, they

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merged with Swiss company in Australia that produces seasonings and soups
called Maggi.

After the continuous wars, Nestle was able to bounce back and continued their
expansion throughout the world. Nestle Managed to acquire several factories
including Cross & Blackwell (1960), Findus (1962), Libby’s (1970), Stouffer’s
(1973), Carnation (1985), Rowntree (1988), and Perrier (1992).

Nestle continued to offer a variety of products and expanded their business in

several countries. They continued to sell different brands in order to satisfy each
and every countries’ needs achieving their line “Nutrition, Health, and Wellness”.
However, while the company continues to expand, they still faced several
problems including maintaining its growth rate since there are a lot of competitors
nowadays and the business industry is getting fiercer.

III. Analysis of the case (Solution)

1. Nestle Company takes advantage of the developing countries in Asia, Eastern

Europe and Latin America for the subsequent growth opportunities and
possibilities as it possesses the income levels.

Bringing Nestle to the developing countries to emerge in the markets in

the Eastern Europe, Asia and Latin America for development prospects is one
way to solve the company’s problem on sustainability of growth. The Nestle seize
opportunities when these country economies are expeditiously increasing. When
a developing country like Argentina in Latin America, Poland in Eastern Europe,
and China in Asia will finally develop and Nestle already established its own
company, plants, and centers, it will bring a subsequent increase in its
profitability simultaneously with the developing countries’ economies. Developing
countries until now are creating a subsequent increase in their economies, (not
considering the pandemic) the indicators such as the income levels, per capita
income, GDP, and GNP are continuing to rise. Other reasons are in developing
countries: resources, costs, finance and marketing opportunities, which
determine the efficiency of doing business, which allow the international business
to increase the revenue and extract the profit in developing countries; low wages;
monopoly power that allows corporations to make high profits; lack of control of
environmental pollution. These are also some of the reasons why some

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SAN PEDR O COLLEGE OF BUSINESS ADM INISTR ATION
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multinational corporations like Nestle tend to establish their businesses in

developing countries.

Advantages:

· The mix of monetary and populace development, when combined with the
broad reception of market-situated financial approaches by the Government
of many succeeding countries, the results would be the opportunities of
opening up a business.

· The potential of high growth rate of the company simultaneously with the
economic growth of the developing countries.

· Foreign investment opportunities will come.

Disadvantages:

· The foreign rules and regulations. When the country has many regulations
or barriers to entry before the company establishes and becomes legal to the
country that they wish to start its operations, it may be too costly for them to
attend to the government’s requirements. The government regulations and
restrictions prioritize security among their people and also for their
sovereignty.

Countries especially in Asia are experiencing tremendous natural calamities such

as typhoons, earthquakes, and volcanic eruptions. Natural calamities are part
of the lives of every person in countries in Asia. The occurrence of natural
calamity can greatly affect the production of products especially the majority
of raw materials of nestle came from agricultural sectors, which greatly
affected when the country was hit by a typhoon.

The imposition of taxation. Countries may have different sets of the impositions
of their tax laws. Developing countries rely on the powers of taxation mainly
because it was used for government projects such as infrastructures and
welfare. Imposition of taxes by the government in developing countries greatly
affects the production of products of the company. It may add burden to the
supplier of raw materials or to the company itself. With this, the company will
tend to increase their prices to recover from the taxes imposed by the

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government. Simply, the higher the price of goods, the lower the demand for
the product will be.

2. Customization is a method in local adaptation in which the company itself is

providing their own medium and channels for the distribution and delivery of the
products to its customers.

Customization or localization are one of the methods in Strategic Marketing. The

standardization of the Nestle company, they contrivance marketing strategies of all firms
in the other market country. The Nestle Company desires to develop the localization of
the country that they will select. The customization is separation of marketing strategies
on the standardization for the market environment of a country. In the emerging of
Nestle in other country markets, they urge to develop the markets by the method given,
they localize the raw materials that will be used in the production of products to the
market. In addition, long-term perspective is also part of the local adaptation. Since in
other countries when they need to be futuristic on their decisions, they will be needing
more long-term plans. The company also invests on their distribution channels in order
to create its own medium for the service and delivery of its products. The Nestle
company also adapted the local policies and tried to be very flexible at all times. It is
mainly because, as a multinational company, it should know how the specific country or
community is moving with their own directions of decision making. Nestle became more
creative and strategic on how they can expand their business with the adoption of the
local policies in the countries they occupied. As customization is concerned, the Nestle
company relied more on the local resources. This is to attract more local people to
contribute with their businesses and to open opportunities and jobs for the people.

Advantages:

· Localization procedure perceives that diversity exists in worldwide business

sectors and that advertisers need to comprehend and react to this variety in
the merchandise they offer and the manner in which they market to
purchasers in these business sectors.

· The results in the profit of the Nestle company will increase because of the
target market or the consumer. In addition, the products and the market
strategies of the company that are strictly localized that attract the consumer
itself.

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The company could easily address the change in their customer’s behavior, and
includes the analysis on how the business will fit local market conditions
better and lower cultural barriers.

Disadvantages:

· Customization through localization can convert into higher working

expenses in light of the fact that there are additional expenses related with
creating and advertising special items customized to other country market
needs. It cannot grow the client base open to a typical worldwide item.

This local adaptation may be too costly for the business because they are still
needing to adopt for change and invest in the distribution networks.

Lack of control over the region since the company will not own the
localized material.

3. Product Niches. Narrowing its product focuses on certain countries wherein

the basic needs of the people in the developing countries are priority and focuses
more on the particular product in the Middle East.

Part of the solution to the problem of sustainability of their growth rate, one of the
strategies that Nestle applied was the narrowing of the initial market focus or creating a
niche. Nestle assumes that if they build a substantial position by selling basic food items
that appeal to the local population base that could largely contribute to profitability of the
company. Nestle created a niche for the basic products that will be needed by the
people. Whenever the people’s income level is, they need this kind of food to survive.
Nestle assumes that if they will focus on a particular product wherein the population is
large and the basic good is badly needed by every person, they could increase their
profitability as long as more people will purchase their products. Nestle made this
strategy because they knew what is the most needed and preferred by these countries
in terms of basic goods. This provides the business to specialize in a particular service,
or serves a particular demographic within its target audience.

Advantages

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Less Resources. The benefit of niche marketing is that because you are confined
to a specific person and a specific need, less focus is required on digging into
your data to understand and keep up with their needs. You will also be doing less
trial and error with your methods, which also can be resource-heavy.

Enhanced Customer Relationships. Niche targets a very specific kind of

customer, so depending on what the company was promoting, the niche market
may be very small. A small customer base has its benefits. When the company is
engaging with fewer people, it can focus on the quality of those engagements
and on nurturing relationships.
Reduced Competition. When the company has a highly specific product or
service, there will be less companies out there with the exact same offering.
While it’s important for companies to have competitors, reduced competition is
not necessarily a bad thing.The less competitors it has, the less it has to worry
about monitoring prices and keeping tabs on what they’re up to.

Disadvantages

Vulnerable to market changes

Risk of over dependence on a single product or market.

Takes time for the company to upscale its products due to some highly political
and economical factors such as inflation.

4. Purchase of local companies. Establishing the long run legacy of the

Existing Company that compromise the attitude of the owner. The Nestle
Company course reputation in Poland by purchasing the second largest
chocolate manufacturer.

The Nestle Company urged to secure local companies. In this method they will
have opportunities because the company that is being sold has a reputation in the
country. Nestle evolved the existing company to the market country that gives the
market rate higher than before.

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Advantages:

· The market of the company has the start-up meaning the company has
established. They have consumer before the company is being purchased
and consumer to the product itself.

· Purchasing a business can give you the advantage of prompt income

instead of constraining to subsidize the business for what can be quite a
while before it gets perceived, productive and profitable.

Existing representatives ought to have experience you can draw on. The
employees before the company being sold have experience that can have
higher engagement levels. It means that the employee can improve much
higher than the new employee present.

Disadvantages:

· The company that purchases might have a history of debts and incorporate
financial problems. That will affect the future of the company.

· The Existing Company might have major improvements in the aspects of

old equipment, land and other assets of the company.

Considering the past owner of the company, the reason why they sell the
company. It is possible current employees might not adjust to the new rule of
employment of the company.

IV. Recommendation

In order for the company to maintain its growth rate they must focus not
only in short term profitability but also in long-term sustainability. After the careful
analysis of all the data gathered, the researchers recommend that the best
solutions that the company must do in order for it to maintain its growth rate is
solution 2 and 4 which are customization and the purchase of local companies.
They can provide their products to the consumers without them having to be at a

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loss by having less expenses in the long run. The fund of the company will keep
on flowing and making more money thus having their potential growth not
stagnant. They will have better relationships with consumers, suppliers,
representatives, and partners. Their influence will increase steadily as well as
their sustainability.

The company can prevent being over leveraged and also avoid financial
distress by allocating its resources to the right tools and right projects. Its funds
and potential profitability will not be hindered while the expenses they will obtain
will be limited as time goes by. Although it may take some time for the company
to be at its peak performance once again, it will definitely be worth every moment
that it builds up. These solutions will prove and show excellent results such as
that have little to none down sides that will affect the company. These focuses on
a strategy of evolution rather of revolution and will answer the problems that the
company has to deal with maintaining its growth rate such as:

 Short Term Profitability

- Customization ; This is to attract more local people to contribute with

their businesses and to open opportunities and jobs for the people

 Long Term Sustainability

- The purchase of local companies that establishes the long legacy of

existing companies and will let the money keep on flowing continuously
throughout the whole business.

 Consumer Relationship

- . Localization procedure perceives that diversity exists in worldwide

business sectors.

 Potential Profitability and Growth of Expenses

- Purchase of local companies provide Nestle with long term options and
tools to continue the production of goods that help them become more effective
and efficient with the expenses.

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V. Action Plan

This is where the solutions becomes concrete and how should it go. The
goals should be set and the task should also bear results. It shows here the
targeted time frame in which the goals should be met.

Objectives Task Success Time Resources

Criteria Frame

Physical
Capital
Increase sales, ~Purchase local If sales increase
profit, and influence companies by at least 20%, Human
in developing and profits by 5 years Capital
countries ~Target specific 20% with the
consumers within given time frame Land
country
Labor

Labor

Create product Gather information If product focus 5 years Physical

niches on countries about which has been Capital
to narrow down its product is scarcely narrowed down to
product focus needed specific Human
consumers Capital
~Market said
product to
consumers

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Labor

Reduce expenses Remove If expenses are 3 years Human

that creates a larger unnecessary decreased by at Capital
impact on the projects and least 10% within
company’s activities that are the time given. Physical
profitability not worthwhile Capital

Allocate resources
to right tools and
projects that can
increase
profitability.

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