Strategy Analysis of

Regional strategies for Global Leadership by Pankaj Ghemavat An Idea in Practice

An Idea Regional strategies for Global Leadership

Its often a mistake to set out to create a worldwide strategy. Better results come from strong regional strategies, brought together into a global whole.
This idea is shared by Shri Pankaj Ghemavat, a renowned strategist, 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). Despite Globalization, there is a wide regional distinction in global markets (read regional) with respect to cultural, political, legal & economic factors which the affect the globalization of an industry or economy. 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. Shri Pankaj Ghemawat identifies & suggests 5 Regional strategies while aiming to conduct successful business in foreign markets. Home Base Strategy Portfolio Strategy Hub Strategy Platform Strategy Mandate Strategy

The Idea described

Taking a more practical orientation than other researchers within regional studies, 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. In his own words, ...regionally focused strategies are not just a halfway house between local (country-focused) and global strategies but a discrete family of strategies that, used in conjunction with local and global initiatives, can significantly boost a company's performance.

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. Companies usually start by serving the home-, and near markets from their home base, naturally locating their R&D and manufacturing in the country of origin.

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. This is usually the first type of strategy that is used by companies that seek to establish a market outside their home base.

The Hub Strategy

A hub strategy builds regional bases or hubs, which provide a variety of shared resources and services to local operations. By adopting this strategy companies seek to add value at the regional level. 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. The indirect goal of this strategy is to make the hub a standalone unit.

The Platform Strategy

The Platform strategy is looking for economies of scale across regions in its effort to spread fixed costs. This strategy tend to be especially important for upstream activities that can deliver economies of scale and scope. 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 - this by sharing components, enabling reduced cost in sourcing, administration, and operations. Ideally platform strategies are almost invisible to a company's customers, if not as the platform strategy runs into difficulties when managers take standardization too far.

The Mandate Strategy

The mandate strategy can be seen as an extension of the platform strategy. Constituting the last strategy introduced by Ghemawat it focuses on economies of specialization as well as scale. 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.

The Idea in Practice Strategies at

About Nestl Nestl SA, Switzerland is amongst the worlds largest food and beverages companies. The company is progressively evolving from a respected, trustworthy food and beverage company to a respected, trustworthy food, beverage, nutrition, health and wellness company. This objective is encapsulated in Good Food, Good Life. The principle activities of the group encompass: beverages, milk products, nutrition and ice cream; prepared dishes and cooking aids; chocolate, confectionery and biscuits; water; and pet care. It has 511 factories in 86 countries around the world.

Global Footprint

The Home Strategy Nestl is a Swiss based company and originated with Henri Nestl's search for a healthy, economical alternative to breastfeeding for mothers who could not feed their infants at the breast. Nestl's first customer was a premature infant who could tolerate neither his mother's milk nor any of the conventional substitutes, and had been given up for lost by local physicians. People quickly recognized the value of the new product, after Nestl's new formula saved the child's life and within a few years, Farine Lactee Nestl was being marketed in much of Europe. Since then Nestl focussed on development of products at home but would be of vital utility to people in various countries across the globe. Henri Nestl also showed early understanding of the power of branding. He had adopted his own coat of arms as a trademark; in his German dialect, Nestl means 'little nest'. One of his agents suggested that the nest could be exchanged for the white cross of the Swiss flag. His response was firm: "I regret that I cannot allow you to change my nest for a Swiss cross .... I cannot have a different trademark in every country; anyone can make use of a cross, but no-one else may use my coat of arms. This clearly indicates the vision of the leader of the company who had a home based invention and a goal to serve global customers. Nestl invests around USD 1.2 Bi in R & D every year. Nestl has a dynamic network of R&D centres globally working on scientific research and product development. Its scope and reach are global with about 5000 people working in R&D. Nestl's global R&D is applied locally to meet different consumer needs and preferences through 320 Application Groups worldwide. However the headquarters at Swiss has also taken up some functions itself. Quality and safety control is in the hands of 30 people in headquarters who watch over all 511 factories. Coffee and Cocoa, the key ingredients of Nestl products worldwide, is pooled into five corporate-led regional centres. Nestl CEO once summarized everything that can be centralized, will be centralized the company is getting fitter and fitter everyday.

The Portfolio Strategy A network of Local Companies

Nestl's unmatched geographic presence is one of its competitive advantages. From Swiss beginnings, the company grew to establish a presence in almost every country in the world. Today, Nestl's presence in most markets, including emerging markets, dates back many generations, and in some cases more than a century. Inspite of operating in 130 countries, it considers itself a conglomerate with network of local companies. In early 2000s, a Swiss bank analyst commented that Nestl was basically a holding company with hundreds of companies reporting in. Its a genuine paradox. Although Nestl is one of todays global giants, they are a local company in each of the 130 countries where they market their products. In many of them, they are present for more than 100 years. With time they have learned and understood the cultures and habits, and how to benefit their economies and communities. Local Nestl units work within a global framework based on the Nestl principle: Centralise what you must, but decentralise what you can. In this way they combine the advantages of a worldwide company with the advantages of smaller, local businesses. Although Nestl is very global, essentially its a company made up of smaller local units. So wherever Nestl is, it is not an anonymous giant. Their global sales are simply the result of adding together the sales of each local company. Around the world, the average number of employees in their factories is 270, and the average number of employees in any single country is around 3,000.

The Hub Strategy -

Nestls objectives are to be recognised as the world leader in Nutrition, Health and Wellness, trusted by all its stakeholders, and to be the reference for financial performance in its industry. The Corporation believes that leadership is not just about size; it is also about behaviour. Trust, too, is about behaviour; and they recognise that trust is earned only over a long period of time by consistently delivering on their promises. These objectives and behaviours are encapsulated in the simple phrase, Good Food, Good Life, a phrase that sums up the Corporations corporate ambition

The Hub Strategy contd Nestl in Original Triad: Nestl has its own local companies in most countries. The Head Office in Switzerland works very
closely with them, and sets the overall strategy which is managed through Management and the Strategic Business Units. Geographically, Nestls three Zones (Europe; the Americas; Asia, Oceania, Africa and the Middle East)work closely with the local markets and the Strategic Business Units. Their primary role is that of enablers, acting as the voice of the headquarters to the markets, and the voice of the markets to the headquarters. All Zones and Units share Nestls vision so that everyone around the world understands the direction to take and how to get there with common tools, common strategies and common values. The Strategic Business Units specialise in a given category, for example Coffee and Beverages, or Pet Care, or Chocolate and Confectionery. Corporation works with Research and Development (R&D) to ensure that everything the Corporation produces is led by consumer insights and relevant innovation; and they help the markets to achieve their business and brand objectives. To make it all happen, Nestl has 511 factories in 86 countries, and 29 Research Centres. When operating in a developed market, Nestl strives to grow and gain economies of scale through foreign direct investment in big companies. Recently, Nestl licensed the LC1 brand to Mller (a large German dairy producer) in Germany and Austria. In the developing markets, Nestl grows by manipulating ingredients or processing technology for local conditions, and employ the appropriate brand. For example, in many European countries most chilled dairy products contain sometimes two to three times the fat content of American Nestl products and are released under the Sveltesse brand name.

Nestl in Asia: In Asia, Nestls 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. Nestls strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestl acquired Indofood, Indonesias largest noodle producer. Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export Indonesian food products to other countries. Nestl 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, Nestl produces soy milk in Indonesia, coffee creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for regional distribution.

Nestl in China: Long-term investment, transfer of technology, and training in agriculture are just three ways in which Nestl is
a force for good around the world. An example is Nestlin China. In 1987, the first joint-venture company, Nestl Shuangcheng Ltd, wase stablished in Heilongjiang Province. Applying the expertise in nutrition and food processing, the first local production in mainland China started in 1990. With that, Nestl added another region in the original triad of business zones.

The Hub Strategy contd FDI in Developed Market When operating in a developed market, Nestl strives to grow and gain economies of scale through foreign direct investment in big companies. Recently, Nestl licensed the LC1 brand to Mller (a large German dairy producer) in Germany and Austria. In the developing markets, Nestl grows by manipulating ingredients or processing technology for local conditions, and employ the appropriate brand. For example, in many European countries most chilled dairy products contain sometimes two to three times the fat content of American Nestl products and are released under the Sveltesse brand name. European and American food markets are seen by Nestl to be flat and fiercely competitive. Therefore, Nestl is setting is sights on new markets and new business for growth. Strategy in Asia Market In Asia, Nestls 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. Nestls strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestl acquired Indofood, Indonesias largest noodle producer. Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export Indonesian food products to other countries. Nestl 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, Nestl produces soy milk in Indonesia, coffee creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for regional distribution.

The Platform Strategy Nestl a company built on brands

The Nestl brand portfolio covers practically all food and beverage categories: milk and dairy products, nutrition (infant, healthcare, performance and weight management), ice cream, breakfast cereals, coffee and beverages, culinary products (prepared dishes, cooking aids, sauces etc.), chocolate and confectionery, petcare, bottled water. Starting out as a baby-milk powder, in the late 19th century, it grew steadily as a global food company. It branches out into cosmetics by taking a stake in Loreal and added eye care company Alcon to the portfolio in seventies. The company also made short diversion into the hotel & restaurant industry but these businesses were subsequently divested. In early 2000s, a Swiss bank analyst commented that Nestl was basically a holding company with hundreds of companies reporting in. Lagging behind all of its main competitors in operating margin, the company had to be streamlined and restructured. Nestl refocused around its core brands Nestl, Nescafe, Nestea, Maggi, Buitoni and Friskies which together contributed 70% of the groups sales. Several businesses such as roast coffee, cheese and frozen potatoes were divested. Nestl is now more integrated towards food, nutrition, health & wellness leveraging the same message of swiss reliability around the world. Nestl adopts the platforms of Nutrition, Health & Wellness while producing new products to serve global customers, nutrition being a core platform for their products since the inception in 1866 with the launch of an innovative, nutritious baby food. Almost 150 years later also, 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, Good Life.

The Mandate Strategy Nestls 10 Corporate Business Principles & concepts of Creating Shared value showcase their Mandate Strategy.
As Nestl is a principle-based company, the Nestl Corporate Business Principles form the foundation of all that they do. Compliance with Nestl Corporate Business Principles, and with specific policies related to each principle, is non-negotiable for all employees and their application is monitored and regularly audited. As shown in the diagram, compliance with Nestl Corporate Business Principles is the foundation for the Companys commitment to be environmentally sustainable and to create shared value. Creating Shared Value is the basic way they do business, which states that in order to create long-term value for shareholders, they have to create value for society. But they cannot be either environmentally sustainable or create shared value for shareholders and society if they fail to comply with the Business Principles.

The Mandate Strategy contd Nestls 10 Corporate Business Principles

An Idea indeed in Practice While Shri Pankaj Ghemawat has broadly specified 5 regional strategies to choose from, it is not necessary that the Companies necessarily progress through the strategies as they evolve. 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, not complexity. And capable companies will often use elements of several strategies simultaneously. Nestl as an organization has gone through various phases growth in its aged old history of inception, expansion, diversification and Globalization. The Nestl Road Map guided under the visionary leader Henri Nestl in earlier days, this organization has been more of a Regional Transnational Company operating across the globe!