Nestle vs Kraft

Only available on StudyMode
  • Topic: 2007, 1975, 1968
  • Pages : 18 (3986 words )
  • Download(s) : 392
  • Published : May 3, 2013
Open Document
Text Preview
6505403

Lu LU

Globalization has been popular since last century, which provided opportunities for multinational enterprises to obtain overseas development. In food and beverage industries, Nestlé and Kraft are first two largest manufactures. Nestlé is making large efforts on searching for growth opportunities in emerging markets, transferring from the subdued trading environment in many developed ones (BBC, 2012). Meantime, Kraft gets fully prepared for accelerating its global expansion, focusing more on fast growing markets than on primary grocery b usiness in North American markets (Mondelēz International, 2013). Figure 1 shows that Nestlé emphasizes on multinational mentality and high level of localization. However, Kraft applies international strategy and undergoes the mentality movement towards multinational strategy, aiming to localize its products and capabilities. According to Figure 2, Nestlé utilizes its national differences to achieve global efficiency, multinational flexibility and worldwide learning, yet Kraft aims to achieve higher flexibility to fit its strategy transfer intension. This essay compares how Nestlé and Kraft accomplish three goals through developing their international business strategies, and HR functions.

1

6505403

Lu LU

1.

Efficiency

Enhancing efficiency is essential for MNEs to achieve sustainable competitive advantage (Bartlett and Beamish, 2011). It is positively related to firms’ net profit margins and can be improved by lessening cost, enhancing revenue or both (ibid). From 2011 to 2012, Nestlé’s net profit margin was increased to 11.5%, while Kraft’s was eroded towards 8.95% (Figure 3) (Kraft, 2013a; Nestlé, 2013a).

2

6505403

Lu LU

The 2.56% difference in net profit margin indicates that Nestlé achieved better global-scale efficiency. The analysis of efficiency gap is conducted from two influential factors: cost-reduction and revenue-improvement. Cost reduction

1.1

Scale and scope economy are two significant means for obtaining cost advantage (Bartlett and Beamish, 2011). Both Nestlé and Kraft emphasize on reaching scale and scope economy, taking advantage of massive production and products diversification. Kraft has approximately 80 brands and its products are operated by 220 facilities (Kraft, 2012a). Nestlé is even larger, whose brands reached almost 8000 and factories approached nearly 450 worldwide in 1990s (Rapoport, 1994). However, due to different corporate-level strategies employed by Nestlé and Kraft, the ranges of cost control adopted are dissimilar. Within regional markets, Nestlé benefits from cost advantage through acquisition and strategic alliance. For example, the collaboration of Nestlé and General Mills enriched Nestlé’s product mix with breakfast cereals in Europe market and strengthened benefits of scope economy (Stenzel, n.d.). Unlike Nestlé, Kraft attaches higher importance on pursuing low-cost operation (Bartlett and Beamish, 2011). Kraft stresses cost reduction not only in regional markets, but also among corporation. The acquisition of Danone’s biscuits division in 2007 complemented Kraft’s biscuit business capacity, diversified products in snack segment and helped Kraft attain accumulated learning through the boosted production volume (Jones, 2007). Specifically in China, the combination enabled Kraft’s distribution network to be shared by more products, and intensified its scale and scope economy (Contineo Media, 2007). Revenue improvement

1.2

In terms of Nestlé, not only acquisition and strategic alliance but also localization is emphasized to gain higher market share. For example, Nestlé established partnership with Hsu FU Chi in 2011, aiming to increase market share of candy in emerging markets (Hook, 2011). Moreover, Nestlé planned to build new R&D center in Guangdong, supporting Hsu Fu Chi in production and aiming to have deeper understanding of Chinese customers’ preferences to increase revenue (Li,...
tracking img