Nestle - Global Strategy Case

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1.What is the company’s strategy with regard to business development in emerging markets? Does this strategy make sense? From the NESTLE : GLOBAL STRATEGY case, it can be seen that Nestle generally operates worldwide with the strategy of customization rather than globalization. It moves into consumer markets by using Niche market strategy to become the market leader in each of the niches. It mainly focuses on European markets, which make up 70 percent of its sales. As mentioned, these markets are in the mature state of the life cycle of that industry and also demographic changes such as the stagnation of population growth rate and slight decline in the food consumption have made it very challenging for companies like Nestle to generate higher profits through higher sales. Factually, the western economies are slumping in output and growth, thereby influencing the consumption patterns of customers, especially in the retail business. Consumers are becoming more aware of price and tend to spend less while they demand for customization, product differentiation and specialization at the same time. Another trend is the shifting away from branded food and beverages towards cheap non-branded foods and beverages. Nevertheless, the introduction of non-brand own labeled products such as Food Lion or encouraging private labeled products only makes sense in a large scale, in order to achieve economies of scale. As a result of increasing non-brand cheap products offered by rivals, Nestle has found itself in an even more problematic position in the market and needs to develop a new strategy either away from branding or towards a higher degree of international market penetration. Since Nestle prioritizes high quality and has distinctive competencies in producing higher quality food, it would be unwise to change the strategic group, because it would most likely lose its smooth operation. The right strategy is to expand into new markets such as Asia, Eastern Europe and South America. In these markets the consumer behavior, macroeconomic environment and cultural habits are unlike that of the western economies. Most of these markets are still in a developing stage and this clearly indicates an opportunity because they are emerging markets and are “untouched”. As mentioned in the case, China for instance will have a population of 700 million by 2010 who will have nearly the same income levels as Spain had in the mid 1990s. As income levels in these emerging markets rises, people will acquire a higher purchasing power due to more disposable income. This would cause the people to come up with unsatisfied demands. Serving this demand can open up wide opportunities for Nestle to penetrate new markets and build up market share, simultaneously using its profits to defend its old markets in the western economies through low prices. Nestle follows the first mover advantage strategy which means that the company enters the emerging markets at an early stage, in order to establish a position there before its competitors. The first step it takes is to establish a substantial position by selling basic food items such as infant formula, condensed milk, noodles and tofu to the consumers with the goal to build up a commanding position in each niche. In order to optimize costs and minimize technology requirements to establish a brand, Nestle simply purchases brand names that the local consumers are familiar with. This helps the company to overcome cultural barriers and customers’ negative attitude towards foreign brands. After these niches of basic food supply are filled, Nestle moves on into introducing more upscale items such as chocolate, soft drinks, cookies and prepared foodstuffs. Their strategy is to establish a good base and then expand into more niches as demand rises. The rising demand for products is due to the rising income level as the population can afford to spend more money on food products. As mentioned in the case, Nestle owns about 8500 brand...
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