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Regional strategies for Global Leadership by Pankaj Ghemavat – An Idea in Practice
Better results come from strong regional strategies. Home Base Strategy Portfolio Strategy Hub Strategy Platform Strategy Mandate Strategy .An Idea – Regional strategies for Global Leadership It’s often a mistake to set out to create a worldwide strategy. Shri Pankaj Ghemawat identifies & suggests 5 Regional strategies while aiming to conduct successful business in foreign markets. legal & economic factors which the affect the globalization of an industry or economy. a renowned strategist. Despite Globalization. political. the Jaime and Josefina Chua Tiampo Professor of Business Administration at Harvard Business School in Boston and the author of “The Forgotten Strategy” (HBR November 2003). brought together into a global whole. there is a wide regional distinction in global markets (read regional) with respect to cultural. A lot of companies competing globally expect to succeed with a global strategy and ignore the regional differences and the result they get is no surprise! The success mantra is to capitalize on the regional differences and adopt strategies that complement their global strategy but blend them well with regional tactics. This idea is shared by Shri Pankaj Ghemavat.
Constituting the last strategy introduced by Ghemawat it focuses on economies of specialization as well as scale.. naturally locating their R&D and manufacturing in the country of origin. and near markets from their home base.. The main trait of this strategy is that companies adopting this strategy: “.award certain regions broad mandates to supply particular products or perform particular roles for the whole organization. used in conjunction with local and global initiatives.this by sharing components. The Mandate Strategy The mandate strategy can be seen as an extension of the platform strategy. The Portfolio strategy By acquiring or setting up organisations outside the home region that reports directly to the home base companies engage in the portfolio strategy. In his own words. The Platform Strategy The Platform strategy is looking for economies of scale across regions in its effort to spread fixed costs. This is usually the first type of strategy that is used by companies that seek to establish a market outside their home base. Companies usually start by serving the home-. if not as the platform strategy runs into difficulties when managers take standardization too far.The Idea described… Taking a more practical orientation than other researchers within regional studies..regionally focused strategies are not just a halfway house between local (country-focused) and global strategies but a discrete family of strategies that. Ideally platform strategies are almost invisible to a company's customers. “. administration. The indirect goal of this strategy is to make the hub a standalone unit. can significantly boost a company's performance. The platform strategy refers to the attempt by companies to share platforms that provide the companies a way of launching products in a wide variety more cost effectively .. and operations. Ghemawat (Ghemawat 2005) provide five different tangible types of regional strategies that incorporate and balance both global integration and local responsiveness as well upstream and downstream activities. This strategy tend to be especially important for upstream activities that can deliver economies of scale and scope. By adopting this strategy companies seek to add value at the regional level. The Hub Strategy A hub strategy builds regional bases or hubs.” . enabling reduced cost in sourcing. which provide a variety of shared resources and services to local operations.” The Home Base Strategy The strategy of the home base strategy resembles very much a normal export strategy and it is difficult to tell the difference as the main point of Ghemawat is that the company develops and produces in their home country and export it to suitable markets. Setting up such centres on a country basis is normally not justified having such a hub for cross country operations to utilize economy of scale may make them practical.
and pet care. It has 511 factories in 86 countries around the world. Good Life”. chocolate. nutrition and ice cream. Switzerland is amongst the world’s largest food and beverages companies. The principle activities of the group encompass: beverages. trustworthy food. This objective is encapsulated in “Good Food. nutrition. beverage.The Idea in Practice – Strategies at About Nestlé Nestlé SA. confectionery and biscuits. water. The company is progressively evolving from a respected. Global Footprint . trustworthy food and beverage company to a respected. milk products. prepared dishes and cooking aids. health and wellness company.
and had been given up for lost by local physicians.“ This clearly indicates the vision of the leader of the company who had a home based invention and a goal to serve global customers. will be centralized… the company is getting fitter and fitter everyday”.. in his German dialect. anyone can make use of a cross. after Nestlé's new formula saved the child's life and within a few years. Nestlé invests around USD 1. . Nestlé CEO once summarized – “everything that can be centralized. Coffee and Cocoa.. Nestlé's global R&D is applied locally to meet different consumer needs and preferences through 320 Application Groups worldwide. Farine Lactee Nestlé was being marketed in much of Europe. the key ingredients of Nestlé products worldwide. His response was firm: "I regret that I cannot allow you to change my nest for a Swiss cross . However the headquarters at Swiss has also taken up some functions itself. Its scope and reach are global with about 5000 people working in R&D. but no-one else may use my coat of arms. Nestlé has a dynamic network of R&D centres globally working on scientific research and product development. Nestlé means 'little nest'. I cannot have a different trademark in every country.. Quality and safety control is in the hands of 30 people in headquarters who watch over all 511 factories. economical alternative to breastfeeding for mothers who could not feed their infants at the breast.2 Bi in R & D every year. He had adopted his own coat of arms as a trademark. Nestlé's first customer was a premature infant who could tolerate neither his mother's milk nor any of the conventional substitutes. Henri Nestlé also showed early understanding of the power of branding. One of his agents suggested that the nest could be exchanged for the white cross of the Swiss flag. is pooled into five corporate-led regional centres.The Home Strategy Nestlé is a Swiss based company and originated with Henri Nestlé's search for a healthy. Since then Nestlé focussed on development of products at home but would be of vital utility to people in various countries across the globe. People quickly recognized the value of the new product.
Although Nestlé is very global. Local Nestlé units work within a global framework based on the Nestlé principle: “Centralise what you must. Their global sales are simply the result of adding together the sales of each local company. In many of them. In early 2000s. the average number of employees in their factories is 270. It’s a genuine paradox. With time they have learned and understood the cultures and habits. it considers itself a conglomerate with network of local companies. Today. In this way they combine the advantages of a worldwide company with the advantages of smaller.The Portfolio Strategy A network of Local Companies Nestlé's unmatched geographic presence is one of its competitive advantages. From Swiss beginnings. and in some cases more than a century. a Swiss bank analyst commented that Nestlé was basically a holding company with hundreds of companies reporting in. So wherever Nestlé is. . they are a local company in each of the 130 countries where they market their products. they are present for more than 100 years. dates back many generations. it is not an anonymous giant. and how to benefit their economies and communities.000. Nestlé's presence in most markets. Inspite of operating in 130 countries. and the average number of employees in any single country is around 3. Although Nestlé is one of today’s global giants. local businesses. essentially it’s a company made up of smaller local units. Around the world. the company grew to establish a presence in almost every country in the world. but decentralise what you can“. including emerging markets.
trusted by all its stakeholders. too. Good Life”. it is also about behaviour. The Corporation believes that leadership is not just about size. Trust. is about behaviour. “Good Food. a phrase that sums up the Corporation’s corporate ambition .The Hub Strategy - Nestlé’s objectives are to be recognised as the world leader in Nutrition. and they recognise that trust is earned only over a long period of time by consistently delivering on their promises. Health and Wellness. and to be the reference for financial performance in its industry. These objectives and behaviours are encapsulated in the simple phrase.
Nestlé Shuangcheng Ltd. Nestlé has employed a wide-area strategy for Asia that involves producing different products in each country to supply the region with a given product from one country. In 1987. Nestlé acquired Indofood. For example.The Hub Strategy contd Nestlé in Original Triad: Nestlé has its own local companies in most countries. for example Coffee and Beverages. Nestlé grows by manipulating ingredients or processing technology for local conditions. or Pet Care. acting as the voice of the headquarters to the markets. An example is Nestléin China. Nestlé in Asia: In Asia. All Zones and Units share Nestlé’s vision so that everyone around the world understands the direction to take and how to get there with common tools. and the voice of the markets to the headquarters. or Chocolate and Confectionery. Nestlé has 511 factories in 86 countries. . Africa and the Middle East)work closely with the local markets and the Strategic Business Units. Corporation works with Research and Development (R&D) to ensure that everything the Corporation produces is led by consumer insights and relevant innovation. Their focus will be primarily on expanding sales in the Indonesian market. Nestlé’s strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. The Strategic Business Units specialise in a given category. and sets the overall strategy which is managed through Management and the Strategic Business Units. common strategies and common values. Applying the expertise in nutrition and food processing. transfer of technology. Indonesia’s largest noodle producer. Their primary role is that of enablers. candy in Malaysia. and training in agriculture are just three ways in which Nestlé is a force for good around the world. Oceania. Recently. With that. When operating in a developed market. To make it all happen. and cereal in the Philippines. Nestlé produces soy milk in Indonesia. and they help the markets to achieve their business and brand objectives. Geographically. the first local production in mainland China started in 1990. the first joint-venture company. The Head Office in Switzerland works very closely with them. and employ the appropriate brand. soybean flour in Singapore. Nestlé added another region in the original triad of business zones. in many European countries most chilled dairy products contain sometimes two to three times the fat content of American Nestlé products and are released under the Sveltesse brand name. coffee creamers in Thailand. Nestlé’s three Zones (Europe. For example. Asia. Recently. Nestlé’s strategy has been to acquire local companies in order to form a group of autonomous regional managers who know more about the culture of the local markets than Americans or Europeans. all for regional distribution. wase stablished in Heilongjiang Province. Nestlé in China: Long-term investment. and in time will look to export Indonesian food products to other countries. Nestlé strives to grow and gain economies of scale through foreign direct investment in big companies. Nestlé licensed the LC1 brand to Müller (a large German dairy producer) in Germany and Austria. the Americas. In the developing markets. and 29 Research Centres.
In the developing markets. Nestlé acquired Indofood. For example. Nestlé is setting is sights on new markets and new business for growth. . European and American food markets are seen by Nestlé to be flat and fiercely competitive. soybean flour in Singapore. coffee creamers in Thailand. Recently. and cereal in the Philippines.The Hub Strategy contd FDI in Developed Market When operating in a developed market. Their focus will be primarily on expanding sales in the Indonesian market. Nestlé strives to grow and gain economies of scale through foreign direct investment in big companies. Strategy in Asia Market In Asia. Nestlé’s strategy has been to acquire local companies in order to form a group of autonomous regional managers who know more about the culture of the local markets than Americans or Europeans. Nestlé produces soy milk in Indonesia. in many European countries most chilled dairy products contain sometimes two to three times the fat content of American Nestlé products and are released under the Sveltesse brand name. Therefore. Nestlé licensed the LC1 brand to Müller (a large German dairy producer) in Germany and Austria. Indonesia’s largest noodle producer. Nestlé’s strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. all for regional distribution. and employ the appropriate brand. Recently. Nestlé grows by manipulating ingredients or processing technology for local conditions. candy in Malaysia. Nestlé has employed a wide-area strategy for Asia that involves producing different products in each country to supply the region with a given product from one country. For example. and in time will look to export Indonesian food products to other countries.
healthcare. sauces etc. Lagging behind all of its main competitors in operating margin. It branches out into cosmetics by taking a stake in Loreal and added eye care company Alcon to the portfolio in seventies.The Platform Strategy Nestlé – a company built on brands The Nestlé brand portfolio covers practically all food and beverage categories: milk and dairy products. Nestea. nutritious baby food. chocolate and confectionery. nutrition being a core platform for their products since the inception in 1866 with the launch of an innovative.). petcare. nutrition. breakfast cereals. the company had to be streamlined and restructured. Buitoni and Friskies which together contributed 70% of the group’s sales. Starting out as a baby-milk powder. the company continues to focus on this core element of “Nutrition” for all their product innovation while not over-riding the taste factor and hence their slogan – “Good Food. bottled water. health & wellness’ leveraging the same message of swiss reliability around the world. Nescafe. Several businesses such as roast coffee. Almost 150 years later also. Nestlé refocused around its core brands – Nestlé. Maggi. cheese and frozen potatoes were divested. a Swiss bank analyst commented that Nestlé was basically a holding company with hundreds of companies reporting in. cooking aids. nutrition (infant. Nestlé is now more integrated towards ‘food. . The company also made short diversion into the hotel & restaurant industry but these businesses were subsequently divested. Nestlé adopts the platforms of Nutrition. performance and weight management). Health & Wellness while producing new products to serve global customers. Good Life”. culinary products (prepared dishes. in the late 19th century. In early 2000s. it grew steadily as a global food company. coffee and beverages. ice cream.
As shown in the diagram. the Nestlé Corporate Business Principles form the foundation of all that they do.The Mandate Strategy Nestlé’s 10 Corporate Business Principles & concepts of Creating Shared value showcase their Mandate Strategy. . they have to create value for society. compliance with Nestlé Corporate Business Principles is the foundation for the Company’s commitment to be environmentally sustainable and to create shared value. and with specific policies related to each principle. But they cannot be either environmentally sustainable or create shared value for shareholders and society if they fail to comply with the Business Principles. is non-negotiable for all employees and their application is monitored and regularly audited. Compliance with Nestlé Corporate Business Principles. Creating Shared Value is the basic way they do business. which states that in order to create long-term value for shareholders. As Nestlé is a principle-based company.
The Mandate Strategy contd Nestlé’s 10 Corporate Business Principles .
Nestlé as an organization has gone through various phases growth in it’s aged old history of inception. it is not necessary that the Companies necessarily progress through the strategies as they evolve. this organization has been more of a Regional Transnational Company operating across the globe! . expansion. The Nestlé Road Map guided under the visionary leader Henri Nestlé in earlier days. diversification and Globalization. And capable companies will often use elements of several strategies simultaneously. Whereas some companies may indeed adopt the strategies in the order as presented. others may find themselves abandoning more-advanced strategies in favor of simpler ones— good business is about striving to maximize value.An Idea indeed in Practice While Shri Pankaj Ghemawat has broadly specified 5 regional strategies to choose from. not complexity.
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