International Business: Competing in the Global Marketplace
Fourth Edition
Cases
NESTLE: GLOBAL STRATEGY
SYNOPSIS
Nestle is one of the world’s largest global food companies. It has over 500 factories in 76 countries, and
sells its products in 193 nations. Only 1% of sales and 3% of employees are located in its home country,
Switzerland. Having reached the limits of growth and profitable penetration in most Western markets,
Nestle turned its attention to emerging markets in Eastern Europe, Asia, and Latin America for growth.
Many of these countries are relatively poor, but the economies are growing quickly. Thus a consumer base
capable of buying many Nestle products will develop over the next couple of decades.
Nestle tries to enter emerging markets ahead of competitors, and build a substantial position in basic
foodstuffs. As income levels rise, the company progressively moves from these niches into more upscale
items. It very much focuses on developing local goods for local markets, however, and places relatively
less emphasis on its global brands in emerging markets. It also localizes its distribution and marketing
strategy to the requirements of the local market. When good opportunities are available, Nestle acquires
local firms.
Nestle is a very decentralized organization, with operating decisions pushed down to local units. On top of
this are both a SBU organization focused around food groups, and a regional organization that tries to help
rationalize production and marketing among nearby countries. Helping hold the organization together is a
group of managers who rotate around the world on various assignments.
TEACHING OBJECTIVES
The main teaching objectives of the case are:
1.
2.
3.
Provide an example of the strategy of one firm operating with an international approach
Show how this strategy is supported by structure and management systems
Illustrate the way a firm can enter and develop in emerging markets
This case could be best used after chapter 13, linking the strategy with the organization of a firm.
STRATEGIC ISSUES AND DISCUSSION QUESTIONS
1.
Does it make sense for Nestle to focus its growth efforts on emerging markets? Why?
It does make sense for Nestle to focus its growth on emerging markets. It currently already has a significant
presence in most segments of the market in developed markets, and further growth requires either taking
market share from competitors or entering new product segments. Both of these are expensive undertakings
that must be continually repeated to sustain growth above the level of economic growth. In contrast, if it
gets a good foothold in emerging markets, it will be in a good position to grow with the market as the
purchasing power of consumers’ increases. It can also progressively bring new products to these markets,
accelerating its growth.
2.
What is the company’s strategy with regard to business development in emerging markets? Does
this strategy make sense?
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International Business: Competing in the Global Marketplace
Fourth Edition
Cases
Nestle tries to enter emerging markets ahead of competitors, and build a substantial position in basic
foodstuffs. As income levels rise, the company progressively moves from these niches into more upscale
items. It very much focuses on developing local goods for local markets, and places relatively less
emphasis on its global brands in emerging markets. It also localizes its distribution and marketing strategy
to the requirements of the local market. When good opportunities are available, Nestle acquires local firms.
Given significant differences in various developing markets, and different food preferences of different
cultures, this customized approach makes sense.
3.
From an organizational perspective, what is required for this strategy to work effectively?
For this strategy to work it is important that local units be given a great deal of autonomy to make decisions
that will best serve the interests of the local market. Excessive oversight or direction from headquarters will
not only constrain the decisions of local managers, but may keep them from considering options that might
seem offbeat or strange back at headquarters.
4.
How would you describe Nestle’s strategic posture at the corporate level; is it pursuing a global
strategy, a multidomestic strategy, an international strategy, or a transnational strategy?
From the information in the case, the strategy is essentially that of an international strategy, although there
are some elements of a multidomestic approach as well. Clearly there is some attempt to coordinate
strategies across countries (e.g., in the Middle East, Europe), and utilize centralized R&D facilities for
product development. If one looks at Table 13.2, and compares it to the narrative in the case, one could
make some arguments for both a multidomestic and an international strategy. The coordination across local
markets, presence of a number of global brands, and existence of the product focused SBU, tend to make a
stronger case for an international strategy. The degree of global coordination inherent with global or
transnational strategies is not present.
5.
Does this overall strategic posture make sense given the markets and countries that Nestle
participates in? Why?
This strategic approach seems to make sense for Nestle. Clearly there is a need for regional coordination
and leveraging competences. The existence of a number of global brands also means that purely
multidomestic strategy would be sub optimal. Likewise, there are few cost pressures that would make a
global or transnational strategy appropriate.
6.
Is Nestle’s management structure and philosophy aligned with its overall strategic posture?
Looking at Table 13.2, it appears that Nestle’s structure and control systems are well aligned with its
strategy. The controls it has in place are generally moderate, yet stronger than would be required for a
multidomestic strategy.
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