FAKULTI EKONOMI DAN PENGURUSAN

EPPM 4014 PENGURUSAN STRATEGIK

SET 3

NAMA SYARIKAT

NESTLE COMPANY

SEMESTER 1

SESI 2017/2018

NAMA PENSYARAH

DR.CIK FARHANA BINTI SIDEK

AHLI KUMPULAN

NAMA NO MATRIK
NURUL AISYAH BINTI MUHAMAD JAFRI A152836
WAN NOR HAZIRAH BINTI WAN SAHPARI A152985
NURFATEN AMYZA BINTI AMERAN A153706
NUR MURNI BINTI ABD GHANI A153725
NUR FATHIN FASHIHAH BINTI KHAIRAN A153758
1.1 INTRODUCTION

Nestl (Malaysia)(110925-W) (Company) produces a range of reports to provide our

stakeholders with pertinent information that enable them to gain a better understanding of our
business operations across the value chain, from suppliers to top management.

Nestl is one of the oldest of all multinational businesses. The company was founded in
Switzerland in 1866 by
Heinrich Nestl, who established Nestl to distribute milk food, a type of infant food he had
invented that was made from powdered milk, baked food, and sugar. From its very early days,
the company looked to other countries for growth opportunities, establishing its first foreign
offices in London in 1868. In 1905, the company merged with the Anglo Swiss Condensed
Milk, thereby broadening the companys product line to include both condensed milk and
infant formulas. Forced by Switzerlands small size to look outside its borders for growth
opportunities, Nestl established condensed milk and infant food processing plants in the
United States and Great Britain in the late 19th century and in Australia, South America, Africa,
and Asia in the first three decades of the 20th century. In 1929, Nestl moved into the chocolate
business when it acquired a Swiss chocolate maker. This was followed in 1938 by the
development of Nestls most revolutionary product, Nescafe, the worlds first soluble coffee
drink. After World War II, Nestl continued to expand into other areas of the food business,
primarily through a series of acquisitions that included Maggi (1947), Cross & Blackwell
(1960), Findus (1962), Libbys (1970), Stouffers (1973), Carnation (1985), Rowntree (1988),
and Perrier (1992). By the late 1990s, Nestl had 500 factories in 76 countries and sold its
products in a staggering 193 nations almost every country in the world. In 1998, the company
generated sales of close to SWF 72 billion ($51 billion), only 1 percent of which occurred in
its home country. Similarly, only 3 percent of its 210,000 employees were located in
Switzerland. Nestl was the worlds biggest maker of infant formula, powdered milk,
chocolates, instant coffee, soups, and mineral waters. It was number two in ice cream, breakfast
cereals, and pet food. Roughly 38 percent of its food sales were made in Europe, 32 percent in
the Americas, and 20 percent in Africa and Asia.
1.2 NESTLE COMPANY STRATEGY

1.2.1 A GROWTH STRATEGY FOR THE 21ST CENTURY

Despite its undisputed success, Nestl realized by the early 1990s that it faced significant
challenges in maintaining its growth rate. The large Western European and North American
markets were saturated. In several countries, population growth had stagnated and in some
there had been a small decline in food consumption. The retail environment in many Western
nations had become increasingly challenging, and the balance of power was shifting away from
the large-scale manufacturers of branded foods and beverages and toward nationwide
supermarket and discount chains. Increasingly, retailers found themselves in the unfamiliar
position of playing off against each other manufacturers of branded foods, thus bargaining
down prices. Particularly in Europe, this trend was enhanced by the successful introduction of
private-label brands by several of Europes leading supermarket chains. The results included
increased price competition in several key segments of the food and beverage market, such as
cereals, coffee, and soft drinks. At Nestl, one response has been to look toward emerging
markets in Eastern Europe, Asia, and Latin America for growth possibilities. The logic is
simple and obviousa combination of economic and population growth, when coupled with
the widespread adoption of market-oriented economic policies by the governments of many
developing nations, makes for attractive business opportunities. Many of these countries are
still relatively poor, but their economies are growing rapidly. For example, if current economic
growth forecasts occur, by 2010 there will be 700 million people in China and India that have
income levels approaching those of Spain in the mid1990s. As income levels rise, it is
increasingly likely that consumers in these nations will start to substitute branded food products
for basic foodstuffs, creating a large market opportunity for companies such as Nestl.

In general, the companys strategy has been to enter emerging markets earlybefore
competitorsand build a substantial position by selling basic food items that appeal to the
local population base, such as infant formula, condensed milk, noodles, and tofu. By narrowing
its initial market focus to just a handful of strategic brands, Nestl claims it can simplify life,
reduce risk, and concentrate its marketing resources and managerial effort on a limited number
of key niches. The goal is to build a commanding market position in each of these niches. By
pursuing such a strategy, Nestl has taken as much as 85 percent of the market for instant coffee
in Mexico, 66 percent of the market for powdered milk in the Philippines, and 70 percent of
the market for soups in Chile. As income levels rise, the company progressively moves out
from these niches, introducing more upscale items, such as mineral water, chocolate, cookies
and prepared foodstuffs.

Although the company is known worldwide for several key brands, such as Nescafe, it uses
local brands in many markets. The company owns 8,500 brands, but only 750 of them are
registered in more than one country, and only 80 are registered in more than 10 countries. While
the company will use the same global brands in multiple developed markets, in the
developing world it focuses on trying to optimize ingredients and processing technology to
local conditions and then using a brand name that resonates locally. Customization rather than
globalization is the key to the companys strategy in emerging markets.

1.2.2 EXECUTING THE STRATEGY

Successful execution of the strategy for developing markets requires a degree of flexibility, an
ability to adapt in often unforeseen ways to local conditions, and a long-term perspective that
puts building a sustainable business before short-term profitability. In Nigeria, for example, a
crumbling road system, aging trucks, and the danger of violence forced the company to rethink
its traditional distribution methods. Instead of operating a central warehouse, as is its preference
in most nations, the company built a network of small warehouses around the country. For
safety reasons, trucks carrying Nestl goods are allowed to travel only during the day and
frequently under armed guard. Marketing also poses challenges in Nigeria. With little
opportunity for typical Western-style advertising on television or billboards, the company hired
local singers to go to towns and villages offering a mix of entertainment and product
demonstrations. China provides another interesting example of local adaptation and a long-
term focus. After 13 years of talks, Nestl was formally invited into China in 1987 by the
government of Heilongjiang province. Nestl opened a plant to produce powdered milk and
infant formula there in 1990, but quickly realized that the local rail and road infrastructure was
inadequate and inhibited the collection of milk and delivery of finished products. Rather than
make do with the local infrastructure, Nestl embarked on an ambitious plan to establish its
own distribution network, known as milk roads, between 27 villages in the region and factory
collection points, called chilling centre. Farmers brought their milk often on bicycles or
cartsto the centre where it was weighed and analysed.
Unlike the government, Nestl paid the farmers promptly. Suddenly the farmers had an
incentive to produce milk, and many bought a second cow, increasing the cow population in
the district by 3,000, to 9,000, in 18 months. Area managers then organized a delivery system
that used dedicated vans to deliver the milk to Nestls factory. Although at first glance this
might seem to be a very costly solution; Nestl calculated that the long-term benefits would be
substantial. Nestls strategy is similar to that undertaken by many European and American
companies during the first waves of industrialization in those countries. Companies often had
to invest in infrastructure that we now take for granted to get production off the ground. Once
the infrastructure was in place in China,

Nestls production took off. In 1990, 316 tons of powdered milk and infant formula were
produced. By 1994, output exceeded 10,000 tons, and the company decided to triple capacity.
Based on this experience, Nestl decided to build another two powdered milk factories in China
and was aiming to generate sales of $700 million by 2000. Nestl is pursuing a similar long-
term bet in the Middle East, an area in which most multinational food companies have little
presence. Collectively, the Middle East accounts for only about 2 percent of Nestls
worldwide sales, and the individual markets are very small. However, Nestls long-term
strategy is based on the assumption that regional conflicts will subside and intraregional trade
will expand as trade barriers between countries in the region come down. Once that happens,
Nestls factories in the Middle East should be able to sell throughout the region, thereby
realizing scale economies. In anticipation of this development, Nestl has established a network
of factories in five countries in hopes that each will someday supply the entire region with
different products. The company currently makes ice cream in Dubai, soups and cereals in
Saudi Arabia, yogurt and bouillon in Egypt, chocolate in Turkey, and ketchup and instant
noodles in Syria. For the present, Nestl can survive in these markets by using local materials
and focusing on local demand.

The Syrian factory, for example, relies on products that use tomatoes, a major local agricultural
product. Syria also produces wheat, which is the main ingredient in instant noodles. Even if
trade barriers dont come down soon, Nestl has indicated it will remain committed to the
region. By using local inputs and focusing on local consumer needs, it has earned a good rate
of return in the region, even though the individual markets are small.
Despite its successes in places such as China and parts of the Middle East, not all of Nestls
moves have worked out so well. Like several other Western companies, Nestl has had its
problems in Japan, where a failure to adapt its coffee brand to local conditions meant the loss
of a significant market opportunity to another Western company, Coca-Cola. For years,
Nestls instant coffee brand was the dominant coffee product in Japan. In the 1960s, cold
canned coffee (which can be purchased from soda vending machines) started to gain a
following in Japan. Nestl dismissed the product as just a coffee flavoured drink, rather than
the real thing, and declined to enter the market. Nestls local partner at the time, Kirin Beer,
was so incensed at Nestls refusal to enter the canned coffee market that it broke off its
relationship with the company. In contrast, Coca-Cola entered the market with Georgia, a
product developed specifically for this segment of the Japanese market. By leveraging its
existing distribution channel. Coca-Cola captured a canned coffee in Japan. Nestl, which
failed to enter the market until the 1980s, has only a 4 percent share.

While Nestl has built businesses from the ground up in many emerging markets, such as
Nigeria and China, in others it will purchase local companies if suitable candidates can be
found. The company pursued such a strategy in Poland, which it entered in 1994 by purchasing
Goplana, the countrys second largest chocolate manufacturer. With the collapse of
communism and the opening of the Polish market, income levels in Poland have started to rise
and so has chocolate consumption. Once a scarce item, the market grew by 8 percent a year
throughout the 1990s. To take advantage of this opportunity, Nestl has pursued a strategy of
evolution, rather than revolution. It has kept the top management of the company staffed with
locals as it does in most of its operations around the worldand carefully adjusted
Goplanas product line to better match local opportunities. At the same time, it has pumped
money into Goplanas marketing, which has enabled the unit to gain share from several other
chocolate makers in the country. Still, competition in the market is intense. Eight companies,
including several foreign-owned enterprises, such as the market leader, Wedel, which is owned
by PepsiCo, are vying for market share, and this has depressed prices and profit margins,
despite the healthy volume growth.
1.2.3 INSPIRING HEALTHIER LIVES STRATEGY

Through our brands, our products and the services we offer, we are helping and inspiring people
to live healthier lives. We are building, sharing and applying nutrition knowledge, and
empowering people to make informed decisions about what they eat and what they feed their
families. Our Start Healthy Stay Healthy programme helps parents and caregivers provide their
children with the best start in life. In partnership with other stakeholders, our United for
Healthier Kids programme helps establish healthier eating, drinking and lifestyle habits, and
the Nestl Healthy Kids Programme is teaching nutrition and encouraging physical activity.
We want our products to be the healthiest and the tastiest choices in each and every category
we compete in. We use quality ingredients people know and trust, adding nutrients where
appropriate. We are substantially reducing sugar, saturated fat and salt. By communicating
clearly about the contribution each product makes to a healthy diet, we are helping people make
informed decisions about what to eat and drink.

Our new nutrition and health platforms, Nestl Health Science and Nestl Skin Health, allow
us to apply the knowledge we have developed with the most advanced Research and
Development network in the industry. They enable us to develop products and services that
meet specific needs of different parts of the population, to help address issues the world faces,
for example rising healthcare costs.

By keeping ourselves relevant in this fast-changing world, we can deliver industry-leading

growth. We work with agility, creativity and discipline, constantly innovating and renovating
our portfolio. Our Research and Development capability ensures we maintain our leading
positions in the categories we compete in, driving growth throughout the portfolio. The
innovation is broad-based across all categories, brands and markets. It comes in many forms
from blockbusters like Nespresso, to renovating products to keep them fresh and relevant as
we have done with brands like Nescaf and Nescaf Dolce Gusto, Nido, Milo and Maggi.
Digital innovation is a strong competitive advantage and a cornerstone of the companys future
development. For some time now we have been creating a digital-first culture that enables us
to manage and to benefit from the disruption digital is bringing. As the fourth industrial
revolution takes hold, we are confident that we can capitalise on the efficiencies and the
opportunities digital brings.
1.2.4 NESTL STRATEGIC ROADMAP

The Nestl Strategic Roadmap guides us in these turbulent times. The glue is our purpose and
values, and our culture. The roadmap says what we want to be as a company, what we want to
leverage as competitive advantages to fuel growth, where we want to grow and how we will
do that efficiently, effectively and responsibly. It drives internal alignment behind our goals.
1.2.5 OUR STRATEGIC PRIORITIES

It is more important than ever to ensure that resources are dedicated to the right projects,
maximising the effectiveness of what we spend. We have a strong cost control culture.
Through Nestl Continuous Excellence we continuously improve our operations and deliver
savings. With Nestl Business Excellence we simplify, standardise and share. This is creating
back-office efficiencies, helping us to leverage our size and scale to deliver competitive
advantage, and unlocking resources. These are the fuel for growth, brand support, Research
and Development, innovation and renovation.
We challenge ourselves continuously to look for new opportunities and for areas where we can
make a contribution to the issues society faces. This creates shared value for the communities
where we operate and for our shareholders. We are contributing to society while growing our
business. Trust is fundamental to our success. Trust helps deliver growth, creating shared value
for our shareholders and for society. Quality and compliance underpin that trust, and are the
best way to ensure the long-term success of our business.
Our strategy helps achieve our purpose: enhancing quality of life and contributing to a healthier
future. Nestl is always anticipating and adapting to the changing world, guided by our purpose
and our values, as we have since the company started 150 years ago. Our purpose defines why
the world is a better place with Nestl, better for those who enjoy our products and services,
and for those who are affected by our business. It is the inspiration for each and every one of
us in the company. It aligns our actions and creates a common language. It is the compass for
our decisions and for everything we do. It helps ensure we remain a long-term company
delivering with short-term intensity, investing for future success while ensuring that we meet
the needs of the billions of people we touch every day, and the expectations of our shareholders.
1.2.6 MARKETING AND SALES STRATEGY

The management following what is expected has designed a marketing strategy mix.
Which is basically the combination of four aspects: product, distribution, promotion and price.
Nestle main strategy and way of business is to focus on innovation and renovation while
maintaining a balance between the earlier two and geographic activities and product lines.

Nestle is devoted internationally to taking into consideration local legislation, cultural and
religious practices:

Manufacturing and marketing the company's products in a sense to create sustainable

value over a long period of time for stakeholders, employees, consumers and business
partners, is Nestls business objective.

Nestle prefers long-term business development to short-term profit.

Nestle is invested in its customers feedback, and admits to identifying the genuine
interest coming from them. They believe that without the customers, the company
would not exists.

Nestle always maintains a respectable relationship with the countries in which it

operate, by respecting laws, culture and traditions.

1.2.7 STRATEGY FORMULATION

Strategy formulation is the second step in strategic management procedures. It brings strategies
to achieve and produce a reference and supportive explanation that modify the mission and
vision. Environmental strategy, corporate strategy that includes the Directional strategy,
growth strategy, and corporate parenting strategy.

1.2.8 STRATEGY IMPLEMENTATION

There are several strategies that the company cans peruse. From alternative strategies, Nestle
can follow environmental strategy and growth strategy.
1.2.9 ENVIRONMENTAL STRATEGY

Nestl deems that environmental functions is a mutual obligation and needs the support of
all segments of society. They are resolute to remain offering leadership inside range of
stimulus.

One of the strategies that the company can inspect in order to attain a commendable business
is succeeding an environmental sustainability strategy. Nestl is following this strategy in all
stages of their product life cycle. This strategy ponders on using natural resources efficiently
in order to produce environmental friendly products. They implement this strategy by the

courtesy of the use of sustainably coped renewable resources, and mark zero leftover. Also,

by investing constantly in order to develop better environmental functions.

Nestl have set several policies for the company to follow in order to implement this strategy
effectively. The Nestl Policy on Environmental Sustainability encompasses the United
Nations Global Compacts three directorial principles on environment; this includes Principles
7, 8 and 9.

One approach that the company is ensuing is they apply a product life cycle approach. This

approach involves partners from farm to consumer in order to diminish the environmental

influence of Nestl products and activities. There are four significance areas for this

approach. This can include, water, agricultural raw materials, manufacturing and distribution
of products, and packaging. The Company instruments their approaches and environmental
objectives through-out the Nestl Environmental Management System.

One of the particular focus areas of the company is water. Nestl is dedicated to the

environmental usage of water and nonstop upgrading in water management. This is done

through The Nestl Commitments on Water set, which sets primacies and objectives on

accountable water usage.

1.2.10 GROWTH STRATEGY

Nestls goals are to be known as the world leader in Nutrition, Health and Wellness, trusted
by all its stakeholders, and to be the indication for financial performance in its industry. They
believe that leadership is not just about volume; it is also about performance. These objectives
and behaviour are summarized in the simple expression, Good Food, Good Life, a phrase
that recapped the company spirit.

The Nestle Roadmap is intended to create alignment for people behind a consistent set of
strategic significances that will quicken the accomplishment of objectives. These objectives
requirement from people a merger of long-term creativeness desirable to make for the future
and short-term business events, bringing the essential balanced of performance.

Nestle Corporate growth strategy consists of obtaining to grasp leadership and warrant that
confidence by sustaining the prospects of customers. Creating Shared Value is a term used
in the company, which refers to the behaviour, strategies, and operations that are creating value
for the communities where Nestle operate.

Their growth is done by investing for the future in order to certify the financial and
environmental sustainability of activities and procedures. This includes:

Capacity.
Technologies.
Capabilities.
People.
Brands.
R&D.

Their purpose of the growth strategy is to

1. Meet todays needs without compromising the capacity of future generations to meet the
needs.

2. Do this in a way, which will guarantee profitable growth in the future.

3. Also to provide a high level of returns for shareholders and society at large over the long-
term.
1.3 EXTERNAL AND INTERNAL AUDIT
1.3.1 EXTERNAL ASSESSMENT

Political

Any political decisions will have an impact on nestle for the both the good and the bad. If the
tax rate increases, the consumers will reduce and so for the sales of their stocks.

Economic, social, cultural, and demographical

Nowadays there are different types of consumers and of course the needs of new services and
variety of products are now increasing.

It is hard to describe the culture in nestle. Because they care about their people, motivate them
in different ways, and their way of learning new things from each other. The demographics
around the world is changing now. Therefore the economic and the geographic factors will
affect people and their lifestyles. Nestle will try to prioritize on health and wellness specially-
on nutrition. It is very important to satisfy the existing consumers to keep the high rate of
development.

Technology

Before technology people used to eat only what they harvest and plant themselves. Now, that
is not the case anymore. With technology, more products and food can be distributed. People
are not relying anymore on the seasonal foods.

Other external factors

Since nestle is a multinational food company with thousands of brand that they merged with,
it is really hard for any company to compete against. However any company that usually makes
package food might be a competitor for nestle such as Hershey's, Kellogg's Quaker, Kraft
Foods, DANNON, Del-Monte, IAMS, Earth's Best, Heinz, Frito-Lay (Owned by Pepsi) and
few more.

For the bottled water industry and due to the advancements and changes in technology, it was
very successful and satisfying for the consumers. Out of home trends and external influences:
The out of home food market is growing
people are now eating out of home
a key trend is snaking throughout the day
what divers those out of home snacks is the enjoyment home (54% and 37%)
people are trying to find substantial snacks rather than crisps

Polarisation in skill of cooking labour

the need for the deskilled labours using easy to use products
the need for high quality products for the high skilled people

Legislation
stock products needs are increasing

* estimating new trends for snacks and drinks

1.3.2 EXTERNAL FACTORS EVALUATION MATRIX

It identifies the opportunities and threats for any company. Of course the factors are rated from

1-4 where 1 the lowest, 4 the highest. Many companies nowadays are entering the market and

putting low prices for their products to attract customers and that is a threat that has a significant

impact on the company.

Therefore there are opportunities that may help the company which is globalization. It makes

it easier to inter the International markets. Their weighted score is 3 which might be not really

good in addressing their factors in their environment. But in addressing the weighted score for

both the threats and the opportunities, based on the calculations, Nestle is more effective in

addressing the opportunities.

1.4 OPPORTUNITIES AND THREATS

Opportunities:

1) The increasing in the demand for health and wellness products

2) Taste is changing around the world

3) Continues merging and develop the markets

4) Expanding in other markets, geographical and in products

5) Acquisition of complementary companies or reduce the weakness

6) Merging the economy

7) Become a market of out of home.

8) Open nestle cafs in the major cities.

9) They launched a new premium line of higher cacao content chocolates dubbed Nestl

treasures gold, in order to cash in on the "recession economy" in which consumers cut back

on luxury goods, but regularly indulge in candy and chocolate

10) They can introduce more health-based products, and because they are a market leader,

they would likely be more successful

Threats:

1) Changes in the consumer taste

2) Knowing the local market and the fear of small local companies start competing

3) The fear of the competition of the big discounters such as wall-mart.

4) The bad reaction of the political opposition

5) Threat of organizing
 6) The competition from the big world-known food competitors

7) The environment regression

8) The issue of compliances

9) The factors from macroeconomics

10) The claims of illegal business

1.5 CONCLUSION & RECOMMENDATIONS

Nestle is a well-established company in its industry. However, in order for it to standstill and
survive in the intense competition, it needs to generate a strategic analysis through formulating,
implementing, and evaluation of the strategies.

In order for the company to achieve strategic analysis efficiently, the following
recommendations can be made

1. Recognizing and classifying Nestls resources to detect opportunities for healthier

utilization of resources.

2. Identify Nestls capabilities, and identify them as core and distinctive competencies.

3. The strategy group should then appraise the potential of resources and capacities.

4. Select a strategy or collection of strategies, which best exploits the firm's resources and
capabilities relative to external opportunities.

5. Nestle strategy managers should identify resource gaps, which need to be filled, as well as
invest in refilling, enhancing and upgrading the firm's resource base.