Introduction
Today, the global economy can be characterized by the increasing tendency of internationalization. These changes can be explained by the free movement of goods, people, and resources, the growing importance of international trade, and the overall trend of globalization in many spheres of business. Companies worldwide start to target international audiences; they adapt their business strategies to correspond to the needs of their foreign clients. Nestlé is one of such companies; its current policies and decisions are aimed at global development and the extension of the foreign customer base. In this report, the features of the business internationalization of this company will be analyzed in detail.
Overview of the Current State
The organization that is going to be described further is considered an international leader among other companies in its sector of business. Nestlé is a food and beverage producer famous for a variety of brands, such as Nescafe, Nesquik, and Rowntree’s Fruit Pastilles. The company with headquarters in Vevey, Switzerland, and offices all around the world employs thousands of workers (Varma and Ravi, 2017). The mission of Nestlé is expressed in its slogan, “Good food, good life” (Strategy, no date). The organization follows the principle of shared value and aims to provide customers with healthy products of high quality.
Operating in both domestic and foreign markets, Nestlé is an example of business internationalization. This notion can be identified as a process of cross-border development, aimed at increasing presence in the international markets and satisfying the needs of foreign customers. In 1866, the organization was established by Henri Nestlé as a company focusing on dairy and infant food (The Nestlé company history, no date, para. 1). Today, the company has 449 factories in more than 180 countries across five continents (Leeman, 2018, p. 128). In addition to dairy, its range of products includes cereal, chocolate, coffee, pharmaceutical goods, and pet nutrition.
The markets of Nestlé are divided into zones according to their region or dominating products. Its business segments are Americas (South and North America), AOA (Asia, Oceania, and Sub-Saharan Africa), EMENA (Europe, Middle East, and North Africa), Nestlé Waters (bottled water production), and Other (unites less significant departments and directions) (Nestlé, 2019). The U.S is considered its most important product market; in 2019, Nestlé sales in this region reached CHF 27 billion (Nestlé, 2019, p. 51). The U.S. is followed by China, where year sales are estimated at CHF 7 billion (Nestlé, 2019, p. 51). Other major business regions are France, Brazil, Mexico, and the United Kingdom.
Since the company produces a wide range of brands, its sales related to different types of products also vary. According to the financial report of 2018, powdered and liquid beverages remain the company’s most popular segment of products, with more than CHF 21 billion in return on sales. Nutrition, milk products, and prepared dishes bring more than CHF 10 billion every year. The segment of pet nutrition also demonstrates significant growth; according to Nestlé, “the largest contribution came from Purina PetCare and its premium brands Purina Pro Plan and Purina ONE” (Nestlé, 2019, p. 51). In general, Nestlé is experiencing stable dynamics of international development and sustainable growth of revenue.
Internationalization Modes
Being the largest global food company, Nestlé can be characterized as a transnational organization. As it was mentioned in the first part of the paper, Nestlé was founded in Switzerland as a company with a limited specialization. Today, the domestic density of the organization, which is the percentage of the overall revenue and the number of employees in its country of establishment, is estimated at only 2.41% (Parietti, 2017, p. 43). The international success of the company can be explained by its wise use of business strategies aimed at global extension. It is necessary to note that the organization is mainly decentralized, which means that its development decisions are taken under the responsibility of subsidiaries. Further, the Nestlé internationalization modes will be identified and evaluated.
Export
The company’s export is probably one of its most widespread ways of internationalization. Back in the last century, Nestlé used foreign subsidiaries to establish factories and offices in Asia, Africa, Latin America, and Australia (The Nestlé company history, no date). Its first affiliate was opened in London, where Nestlé entered the local dairy market. Before the First World War, the organization was already considered the global producer of dairy products (The Nestlé company history, no date). Today, Nestlé exports food and beverage products to countries in different parts of the world.
The significant feature of the geographical presence of the company is that Nestlé does not only spread to foreign countries but remains a significant food and beverage producer for many years. According to Leeman (2018), several generations of families purchase Nestlé products, which are often perceived as local. The company pays a lot of attention to research and development; it considers and takes into account the peculiarities of foreign culture and habits and does not follow the principle of the worldwide standard (Leeman, 2018). For example, Nestlé adapts the design and taste of its products to the demands of local communities.
Licensing
Recently, Nestlé signed an agreement for the global license of Starbucks, which is a major coffee company and a branch of coffee shops. This decision is an opportunity for the enterprise to maintain its leading position in North America and to continue development in other regions of the world. According to the annual report of the company, “in total, Starbucks products generated more than CHF 300 million of incremental sales in 2019” (Nestlé, 2019, p. 51). Licensing with Starbucks is beneficial for both parties; they follow the same principle of shared value and aim at meeting the changing demands of their customers.
Creating Joint Ventures
In general, collaboration with other companies is an important feature of the Nestlé internationalization activity. At different periods of its history, Nestlé formed joint ventures with other enterprises, both domestic and foreign. This strategy allows the company to not only expand its client base globally but also diversify the range of produced goods, as some of the partner corporations focus on other types of products. A French company L’Oréal, which is a world leader in the sphere of cosmetics and perfume, played an essential role in the internationalization of Nestlé. Through the joint ventures Galderma and Laboratoires Innéov, the company entered the French market and to sell cosmetic food supplements (What is the nature of Nestlé’s relationship with L’Oréal? no date). The results of the collaboration were not as successful as expected; the share of Nestlé decreased, and the companies withheld their cooperation. At the same time, in terms of internationalization, the joint business was beneficial for both parties, as they successfully promoted their products overseas.
Foreign Direct Investments
The strategy of Foreign Direct Investment (FDI) is primarily connected with the expansion to Asian countries. The advantage of this investment method is that in the earlier history of the company, it helped solve the problem of trade barriers. Today, this strategy is not the most popular way to internationalize business, since the effectiveness of other solutions, such as licensing and creating joint ventures, outweighed FDI. Nevertheless, the current example of this strategy is Nestlé Bangladesh Limited, which was founded under the FDI policy of Bangladesh as a joint venture with Transcom Group Limited (Nestlé in Bangladesh, no date). Due to the developed channels of distribution of the latter company, Nestlé could promote its products in this region. Today, Nestlé Bangladesh Limited offers a wide range of products, including dairy products, culinary, beverage, cereals, and nutrition.
Expansion to Emerging Markets
Researchers note that the company pays a lot of attention to emerging markets. According to Leeman (2018), after gaining success in the Western markets, Nestlé expanded to Eastern Europe, Asia, and Latin America. The growing economies of these regions provide conditions for the development of the organization and the increase of the client base. Moreover, the strategy of the company is to enter these markets before competitors. It starts its sales in the new regions with basic foods and beverages; further, upon progress, the company starts to offer additional items. Another important internationalization mode that characterizes the company is that it pays much attention to the local peculiarities of the markets (Leeman, 2018). When entering the emerging market, Nestlé prefers the development of local goods to the promotion of global products. It also buys local firms if the conditions are found appropriate.
Challenges and Opportunities
The analysis proved that the wise use of internationalization strategies allowed Nestlé to become the global leader in the area of food and beverage production. At the same time, although this success offers opportunities for further growth, the diversity of markets where it operates can lead to certain difficulties. In this part of the report, the possible challenges of the company and measures that can be implemented are going to be analyzed.
Ethical Challenges
Nestlé is an organization that pays much attention to the satisfaction of communities; at the same time, a multinational target audience puts forward different demands. The major ethical challenges that might occur are connected with the marketing strategies used by the company and their compliance with the norms of local markets. For example, according to recent research in Mexico, where obesity has become a major problem, Nestlé tends to promote its “heavily calorific products” during children’s TV shows (Adhikari and Roy, 2017, p. 1). Varma and Ravi (2017, p. 16) confirm that “one of the core weaknesses of Nestlé is the content of some of their products, which marks a move away from healthy eating initiatives.” The ethical dilemma of the company is that it needs to adapt its assortment to the demands of the local culture, which may decrease the sales of certain types of products.
The managerial solutions to the problem include research on the economic and social demands of communities. Subsidiaries need to be held responsible for creating marketing campaign plans that would correspond to the ethical standards of markets. A company may need to modify or even exclude certain goods from their assortment; some changes in the production process and technologies used can also be needed. At the same time, the right approach would make Nestlé products more attractive to foreign customers.
Governmental and Regulatory Challenges
The governmental challenges of Nestlé are mostly connected with the diversity of policies and regulatory measures in different countries. Internationalization means that upon entering a foreign market, Nestlé needs to comply with the norms and standards applied to food and beverage producers in the particular region. Therefore, the management of the company is responsible for conducting the proper research before promoting its goods in different markets.
It is necessary to mention the importance of food safety control, as it is essential in the food processing industry. In this sphere of business, “governments have a long-standing and continuing commitment to regulation” (Michida, Hamphrey, and Nabeshima, 2017, p. 24). The government may also impose restrictions on the marketing strategies used by companies (Varma and Ravi, 2017). In this case, management should define multiple ways of promoting Nestlé products. Moreover, the governmental stability in the region is also vital for the internationalization of business: it allows determining if the company can be successful in the emerging market, or if it may face the risk of failing.
Economic Drivers and Competition
Today, Nestlé is one of the most successful enterprises in its sphere of business with stable economic performance. The high positions of the company can be explained by a constant demand for its products; the diversification of goods allowed Nestlé to maintain the levels of production even at the time of crisis. Nevertheless, the company should be aware of economic driving forces and challenges that it may face. Economic growth and the average income in a particular region are decisive in terms of internationalization (Varma and Ravi, 2017). The company should understand what kind of products potential consumers can allow; this may require changes in the technology of production and design of the products. Moreover, the research on the economic situation may help Nestlé define reliable suppliers and eliminate financial risks connected with business activity.
Even though the enterprise remains the international leader, marketing experts still name certain companies that may act as Nestlé competitors. Other food and beverage companies, like Kraft Foods and Group Danone, are also considered rather successful in the food industry; the competition may become a threat for Nestlé over the long term (Varma and Ravi, 2017). At the same time, Nestlé products are more available compared to the goods produced by the company’s competitors. Moreover, even though the food industry is highly attractive to new entrants, emerging organizations are not considered an immediate threat to Nestlé’s success. It is emphasized that “every year number of companies attempt to enter the market and strive for their share of profit and productivity in the market but very few survive” (Varma and Ravi, 2017, p. 20). The Nestlé subsidiaries need to adapt to the needs of local customers; moreover, the management of the company should continue working on global development and product diversification to reduce possible competition.
Socio-Cultural Challenges
The major socio-cultural difficulty of the company is that it needs to adapt its products to the tastes and demands of foreign markets where it operates. As Nestlé is a rather decentralized company, many of its decisions are taken by its subsidiaries. Religion, language, specific food habits, family settings, and the overall attitude to health and in a certain country should be taken into consideration (Varma and Ravi, 2017). Local affiliates are to determine the assortment, marketing plans, and business strategies independently. Nowadays, the food preferences of people are changing rapidly; food allergies and intolerances also become a concern for certain cultures (Galanakis, 2018). Moreover, since some of the Nestlé products contain a significant amount of sugar or food supplements, they may not be accepted by particular communities. Therefore, the management of the company needs to follow the strategy of individual business planning about different markets.
Conclusion
The report demonstrated that Nestlé is a transnational enterprise that actively uses different strategies of internationalization. Founded as a small company producing infant nutrition, the organization managed to enter the global arena. Today, it is the largest food and beverage exporter; it acquires other companies, creates joint ventures, and successfully operates in emerging markets. Not all strategies used by Nestlé were successful; however, its current performance proves the domination of the enterprise in its sphere of business.
At the same time, the company may still face certain challenges connected with its outstanding growth. As foreign markets have local peculiarities and standards, the major problem is to adapt to the different needs of consumers. Social and economic varieties in foreign countries, different regulations, and ethical norms are only some of the factors that Nestlé subsidiaries need to take into account. However, comprehensive research and adequate business strategies may help the company improve its market positions and maintain the status of the leading food and beverage enterprise.
Reference List
Adhikari, A. and Roy S.K. (eds.) (2017) Instructor’s manual for strategic marketing cases in emerging markets: a companion volume. Cham: Springer.
Galanakis, C.M. (ed.) (2018) Sustainable meat production and processing. Oxford: Academic Press.
Leeman, J. (2018) Export planning: a 10-step approach. 2nd edn. Düsseldorf: BoD – Books on Demand.
Michida, E., Hamphrey, J. and Nabeshima, K. (eds.) (2017) Regulations and international trade: new sustainability challenges for East Asia. Cham: Springer.
Nestlé (2019) Annual review 2019.
Parietti, L.V. (2017) Internationalization of firms: the role of institutional distance on location and entry mode. Bingley: Emerald Group Publishing.
Varma, G.R. and Ravi, J. (2017) ‘Strategic analysis on FMCG goods: a case study on Nestle’, International Journal of Research in Management Studies, 2(4), pp. 12-22.