Nestle Group was established in 1905 by Henri Nestle as he merged his breakthrough infant

formula with an Anglo-Swiss Milk company. Nestle started of as a producer of a single product,

currently they have diversified their portfolio in the food and confectionery segment with over

2000 global and local brands manufactured in 413 facilities in over 83 countries. (Nestlé Global,

2019) The headquarters of Nestle are based in Switzerland, the global strategy development

and majority of the Research and Development are done in Switzerland. They operate in a multi

domestic structure, localizing the brands for their markets. Their brands can be divided into six

corporate brands which are Nestle, Buitoni, Nescafe, Maggi, Nestea and Purina. Under this

umbrella Nestle sells brands like Maggi, Kitkat, Water, Milo, Nido. Nespresso etc. (Wisdom Jobs,

2019).

Nestle, with over 340,000 employees and supplying products to 180 countries, is the largest

company in the FMCG sector in terms of sales (92Bn) followed by P&G (64 Bn) and PepsiCo (63

Bn). (Consultancy.uk, 2018) Nestle is a market leader in majority of its products and as it

operates in a variety of segments in the food and snacks industry, thus it is faced with a lot of

stiff competition from its main competitors in each sub-segment. (Medium, 2018). The top 5

competitors of Nestle are “Mondelez, Mars, Hershey’s, Kellogg’s and Kraft Heinz”. In terms of

revenue Nestle dominates its competitors with a total revenue of 92Bn in 2018 whereas its

closest competitor (Mondelez) has a revenue of only 25.7 Bn. (Owler, 2018).

According to Nestlé’s global strategy of ‘shared value’, they closely listen to their key

stakeholders such as customers, suppliers, government institutions, employees and

shareholders by engaging them on key forums and taking valuable input from them. The

primary aim of the company is to develop healthy and nutritious products by understanding
their consumer, through extensive research and development and enhancing efficiency by

increasing the scale of production. Additionally, they give autonomy to their local and regional

markets to quicken the decision making process and capture greater market share. (Nestlé,

2019)

Now we will examine Nestlé’s strategy through Yip’s Drivers of Internalization:

1. Market Drivers

Nestle operates in 180 countries globally, and it is the homogeneity of customer needs

that enable them to target consumers in emerging markets. Development, new

infrastructure, growth of middle class and increased exposure to foreign products have

increased the demand for Nestle’ products in these markets. A lot of MNC’s including

Nestle identified the potential of these markets, and as their growth declined in

developed markets they started to globalize their portfolio to grow their sales. (Anwar,

2018) No matter, how much the preferences diverge within cultures eventually they

homogenize. Additionally, a lot of the emerging markets want to emulate the west and

use their products. Nestle, with its huge presence and reputation has localized its

marketing and promotional activities according to the needs of the country they operate

in while maintaining their global vision, mission and values. The global brand image of

Nestle gives them the advantage of trust amongst the consumers in the emerging

markets. (Harvard Business Review, 1983)

2. Cost Drivers

Moving their production lines to 80 of these countries by setting up new factories or by

mergers and acquisitions has enabled Nestle to reduce their cost of production,
 achieving economies of scale which leads to serving the market at a lower rate.

(Lib.cufe.edu.cn, 2005). Currently Nestle is optimizing its logistics and manufacturing

systems worldwide by consolidating factories as well as closing down the unprofitable

facilities. Given the worldwide network of factories that Nestle has cost optimization

and increasing the efficiency with higher labor productivity as well as employing new

technology has become the strategy for the future. This phenomenon is forced by

reduction in sales in some markets, and increased competition in other markets.

Moreover, the improved transportation system due to initiatives likes the belt and road

initiative have made transportation cheaper, thus consolidation of factories is a major

cost reduction initiative for Nestle. (Swisscham.org, 2019)

3. Competitive Drivers

Nestle operates in an industry categorized by many competitors in the local and

international marketspace. Products like water and chocolates are highly dependent on

consumer preferences and buying power. Availability of cheaper alternatives, creation

of private brands by large scale retailers and increased penetration by competitors in

the global landscape have put in a huge dent in Nestlé’s sales growth. Their biggest

markets in China and Brazil have slowed down due to economic downturn adding

additional pressure on their sales growth. (Reuters 2016) For developed markets the

increase in demand for healthier, sugar free products have changed the competitive

landscape for Nestle. This will result in more capital expenditure towards research and

development and innovation to cater to the changing needs of the consumer. (Food

Business News, 2016).

 4. Government Drivers

When a multinational like Nestle looks to invest in a country it has a higher bargaining

power initially. They are able to negotiate tax free returns for the initial years; as

emerging countries welcome MNC’s. These MNC’s creates thousands of jobs when they

enter into a market, and also invest large sums of money. However, once the

investment is done the host countries negotiation power and policies take precedence.

(Nygaard, Arne and Dahlstrom, Robert, 1992) For example, countries like Pakistan and

Turkey faced high depreciation in their country in the recent years, leading to

government policies toward curbing imports. This had a major impact on the

profitability of Nestle, as the imported raw materials and products for these markets

became a lot more expensive leading to a decline in revenues due to higher pricing.

Thus, we observe that a large FMCG such as Nestle now has majority of its growth coming from

emerging countries. In the early years of their globalization they were able to generate super

normal profits, this attracted competitors to start operating in the global landscape. The

changing consumer preference, government policies as well as innovative marketing strategies

are having a tremendous impact on the growth of Nestle.

Value Chain Analysis

Primary Activities

1. Inbound Logistics

Nestle has a global sustainability plan in which they want to improve products not

only for their customers but for the environment as well as their suppliers. For
 example, Nestlé’ sources more than 12million tons of fresh milk from 30 different

countries. They work with 600,000 farmers adding value to their quality controls,

animal husbandry, logistics support. They issue prompt payments to their suppliers

reducing poverty while maintaining quality. Their milk programs have benefitted

countries like China, Colombia, India, Indonesia and Pakistan. They also collaborate

with UNDP to train female livestock workers, thus improving the living conditions of

the villages as well.

Nespresso, one of the largest coffee brands, also follows the sustainable

development strategy. 45,000 farmers have been engaged to create the ‘AAA

sustainable quality’ of ensuring the highest quality coffee and improve the lives of

the farmers. Nestle not only pays them timely but also provides training, assistance

and investment to improve the yields of the farms. Due to this both the farmer and

Nestle benefit as the customer gets higher quality products and the suppliers get

prompt payments. (Nespresso, 2018)

2. Operations and Outbound Logistics

To achieve operational efficiency, Nestle is currently in the consolidation phase.

They are making strides to strengthen their business through the ‘Nestle Business

Excellence’ program. They are standardizing processes and increasing efficiency, to

counter the increasing costs due to inflation and reduced sales through economic

downturn. Addition of technology in their warehouses and manufacturing plants

have improved capacity utilization. (Nestle, 2018)

 Nestle’s distribution channels include supplying directly through distributor, through

retailers and through e-commerce Research and development is constantly being

done to improve the quality of the product that is being produced, while reducing

natural resource consumption. Learnings from one country are transferred to

another. For example, Nestle UK is testing a digital inventory management system to

better serve the customer needs. Once they are successful these learning will be

transferred to other countries as well. (Stratton, F., A, 2019).

3. Marketing, Sales & Service

Nestlé’s branding is a source of its competitive advantage. High autonomy is given to

regional and local marketing teams to localize the products while maintaining the

global brand image. They have also made their organizational structure leaner so the

decision making process is even faster. (Media Marketing, 2006) With over 2,000

world recognized brands Nestle is a marketing power house. They do this by telling a

story, and creating brand association. They take consumer on a journey and match

the values of the consumer to their brand. It strategy of health and wellness

complements the marketing strategy and brings it closer to the heart of the

consumer. Data analytics and consumer insight is essential for the success of the

brands. Lastly their innovation team keeps coming up with new products and ideas,

which make adds value to their brands. (Cameron, N, 2016). As the largest FMCG

Nestle is widely known for its excellent marketing strategies, creating brands and

positioning statements which are etched into the minds of the consumers since a
 very young age. Marketing is an essential component of their value chain and

through this they have created the brand equity that they have today.

Support Activities

The primary activities of Nestle are ably supported by the supporting activities. By

hiring the best talent throughout the world they are constantly able to improve their

primary activities. Employing the latest technology with world class manufacturing

facilities throughout the world and warehouse management systems Nestle is able

to differential itself from its competitors. They have divided their procurement in

three main global purchasing hubs to ensure cost optimization by leveraging their

size and scale. Currently they are in a consolidation phase, optimizing their

manufacturing facilities to decrease overall firm costs. (Nestle, 2018)

For Nestle the main value adding activities are visible in inbound logistics, as they partner with

suppliers and in marketing activities in which they create powerful brands which resonate with

the customers.

International Generic Strategy

The international strategy of Nestle is based on a differentiation and multi domestic strategy

according to Porter’s Generic competitive strategies Through their ‘Nutrition, Health and

Wellness Strategy’ Nestlé’s aim is to enhance the lives of ordinary people and contribute

towards a healthy living standard. (Ifm.eng.cam.ac.uk, 2019) With a global brand presence, they

differentiate their products through constant research and innovation. Even though they are a

global company, however, their localization strategy enables them to connect deeply with
customers’ worldwide. We can also, categorize Nestle as being multi-domestic. This means that

Nestle has low global integration and a very decentralized and autonomous structure.

Consequently, Nestle is able to adapt to local tastes and cultures and design unique marketing

campaigns to suit the local markets. (B2U - Business-to-you.com, 2017)

Nestle achieves their competitive advantage through their four main core competencies, which

are “Innovation and Renovation, Wherever, Whenever, However, Consumer Communications

and Operational Efficiency”. (Nestlé, 2019) These inter related core competencies enable them

to develop new products, improve quality and efficiency and be consumer-centric. Through

matchless R&D, worldwide presence and a diverse product portfolio Nestle is able to

differentiate itself from its competitor. (UKEssays.com, 2017)

Nestle has built a strong value chain over decades, creating tough to copy advantages which

distinguish Nestle from its competitors. In terms of entry into the emerging markets Nestle tries

to enter them before any of the competitors. Given their large scale and extremely efficient

research and development processes they build a huge customer base with their high quality

products. As Nestle, engages the local suppliers for sourcing its raw materials for milk, cocoa

and coffee they develop them along with improving their yield, while preserving the

environment. Through this they improve their image in the minds of the consumers, as it links

their global strategy of “creating shared value” to their actual business practices. Along with

differentiation they are also able to minimize cost by achieving economies of scale. As the

source the raw material in such large amounts, and with increased concentration towards

operational efficiency they are able to be cost effective as well. (Blogs.baruch.cuny.edu, 2013)

For example when Nestle entered into China, 24,000 fresh milk producers were engaged to
cater to 78 collection centers. Nestle invests USD 200Mn to improve the lives of these farmers.

This is one of the many examples of Nestle does to improve the lives of their suppliers under

the resourcing responsibility strategy (Nestlé, 2019). Subsequently, they are able to create an

ecosystem within their value chain through which they get the best quality raw materials, by

obtaining cost and quality advantages. Whenever, Nestle moves into a new market it develops

the supplier according to their own standards, thus they obtain premium quality products.

Every Nestle factory has its own R&D which carefully analyses the quality of the products

according to very strict standards. They also ensure that the criteria of local and global

standards are met, hence creating healthy products, improving their brand image which

ultimately leads to their competitive advantage. (UKEssays.com, 2016)

Nestle employs a customization strategy for the local markets rather than universalism. They

acquire local companies to utilize their experience in developing products which resonate with

the local consumer. They use the global identity but localize the ingredients for the local

environment. Due to the autonomy given by the Nestle Global, local branches are able to

determine their own prices and distribution mechanisms according to the rules and guidelines

of the global team. This corresponds to their multi-domestic strategy and enables them to

create even more powerful localized brands. (Blogs.baruch.cuny.edu, 2013)

Nestle has been operating for more than 150 years now, through this they have been able to

create patents and copyrights for their brands. Nestle files for new patents every year ensuring

they are covered legally. Their patents cover all the developments of their R&D teams which

have come up with matchless products to support the suppliers and improve the quality of the

raw materials. (Nestle Global,2019)

In 2018, Nestle was ranked as the 60th on the best global brand ranking. This reputation enables

them to create trust in the minds of the consumers whenever, they enter into a new market.

Subsequently, they generate huge amount of brand equity from this. (Rankingthebrands.com,

2019)

Human Resource is the key to sustain the competitive advantage is the long run. Nestle hires

the best researchers, marketers, supply chain analysts and accountants which enables them to

create value for the shareholders. Nestle is ranked on 79th in the global best employer ratings.

(Forbes, 2019) Their research and development team has been able to constantly come up with

nutritious products. They were the first confectioner to remove all kinds of artificial flavors,

colors and preservatives from their products. Additionally, they have developed organization

capabilities which are replicated internationally. They utilize the expertise of the local

companies by acquiring them, through their strong financial ability. (UKEssays.com, 2016)

To maintain their competitive advantage and to compete with nimbler competitors Nestle

invests more than 1.7Bn in research and development utilizing the best brains in 30countries.

Consequently, they are able to leverage the knowledge of the most talented scientists and

researches throughout the world. Additionally, the creation of Nestle R&D accelerator in their

headquarters will utilize the top experts in the food and nutrition segment. (Nestle

Global,2019)

Under the value creation strategy of Nestle, they are looking to increase growth, reduce costs

and optimally allocate resources. They are investing in high growth categories to improve their

organic growth. This growth will be spurred by extensive research in marketing as well as R&D.
They also want to increase their presence in emerging markets, which already contribute to

42% of their total sales, by localizing products as well as entering new markets. Given the highly

disruptive environment of today Nestle wants to utilize its digital footprint to achieve higher

growth targets as well as closing down or turning around underperforming businesses. The

Nestle business excellence program will help them reduce costs by consolidation of

procurement in three global hubs as well restructuring the organization. New initiatives will

help them deliver products faster to the market as timing is the key, due to more and more

competitors entering the market. The optimal allocation of resources will be done through

disciplined acquisitions, acquiring companies which fit the profile of the business of Nestle. Also

paying out dividend and investing in organic growth is the future. (.foodingredientsfirst.com/,

2018)

Lastly, Nestle wants to grow and innovate sustainably. With evolving consumer preferences

Nestles is engaged in promoting affordable plant based nutrition and using recyclable material.

This will not only preserve the environment but also enable them to grow organically.

The strategic goals of Nestle are very clear for the future to maintain their competitive

advantage. Investing into R&D to produce nutritious products at a much faster pace as

compared to the competitors will enable them to maintain their lead as the largest FMCG in

terms of sales. Their core competencies and global brand portfolio localized to the needs of

their local markets enable them to leverage their brand name and increase their sales.

In conclusion, Nestle has built an empire in the last 150 years, which is being constantly

attacked from competitors and technological disruption in today’s rapidly changing

environment. Keeping up with changing customer preferences is proving to be difficult even for

giants like Nestle. However, the strategy for the future is very clear as Nestle consolidates its

factories, optimizes its costs and creates new R&D centers. The savings from cost optimization

would be utilized for research and development to meet the ever changing needs of the

customer. Nestle has to protect its legacy of 150 years through their core competencies and the

competitive advantages that they have achieved in terms of R&D, global presence and brand

portfolios It is expected that Nestle will survive this onslaught and come out even stronger.

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