Q1. Nestle growth efforts on emerging market
Mature state of market in developed countries
Nestle generates operates worldwide with a focus on large Western European and North American markets, because of the saturation and increased competition in the developed countries by early 1990s, it makes sense for Nestle to focus its growth on emerging markets.
These markets which the large Western European and North American had a small decline in food consumption and additionally demographic changes such as the stagnation of population growth rates make Nestle hard to gain higher profits through higher sales.
The retailer environment in many Western nations had become increasingly challenging, because of the changing of consumption patterns of customers in the retail business. The balance of power was shifting away form the large-scale manufactures of branded foods and beverage and toward nationwide supermarket and discount chains. Consumers are becoming more price responsiveness. So Nestle is hard to use the high pricing strategy and greater sales to raise the profits.
Another challenge is the successful of the private-label brands by several of Europe's leading supermarket chains. The trend is the shift away from branded food and beverages towards cheap non-branded foods and beverages and cause price competition in key segments of Nestle core products.
As a result of increasing non-brand cheap products offered by the competitors, Nestle needs to develop a new strategy and look toward emerging markets such as Eastern Europe, Asia, and Latin America for growth possibilities.
The expansion of the new markets
This is a right strategy for Nestle expand into above markets where a combination of economic and population growth, when coupled with the widespread adoption of market-oriented economic polices by the government of many developing nations, makes for attractive business opportunities.
Another key point is the above nations are still relatively poor, but their economies are growing rapidly. For example, there are 700 million people in China and India by 2010 that will have nearly the same income levels as Spain in the mid 1990s.
That mean income levels in these emerging markets will increase, people will own a higher purchasing power for the basis foodstuffs and upscale items. At the same time, the customer should seek the higher quality when increasing the income level. Since Nestle stands for high quality and has a long history in producing higher quality food. Thus, these emerging markets create a large market opportunity for Nestle to serving these demands and increase its market share at the same time. Nestle also can use the profit form the emerging markets to balance the saturation of the developed markets through the low prices.
Concluding, I believe that it make sense for Nestle to expand into new markets if it still wants to be a global market leader in the 21st century when its face the saturation, increased competition in the developed countries and attractive business opportunities and less competitors in the developing countries.
Q2. The strategy of business development in emerging markets
Nestle adopt the first mover advantage strategy to enter the new markets that means the company enters into an early stage of emerging markets, in order to build a substantial position by selling basic food items such as infant formula and condensed milk, noodles and tofu to the customer and establish a network with vertical supply chain include backward and forward stage in the emerging markets before competitors from Western countries. The goal is to build up a commending market position in each of these niches by a handful of strategy brands first. In order to simplify life, reduce risk, and concentrate its marketing resource and managerial effort on the above key niches. This helps Nestle to overcome cultural barriers, consumer behavior and cultural habits by its products.
After these niches of basic food supply that the consumer is acceptable. Nestle moves on into the more upscale segments such as mineral water, chocolate, cookies and prepared foodstuffs because of rising income level and the customers can afford to spend more on the food basis products. This strategy helps Nestle satisfy the basis and more niches segment as rising demand on the food quality.
Nestle uses local brands in many markets. In case, Its provides about 8500 brand names, but only 750 of them are registered in more than one country and only 80 are registered in more than 10 countries.
As mentioned in the book, Nestle provides about 8500 brand names, but only 750 of them are registered in more than one country and only 80 are registered in more than ten countries. This is due to the fact that Nestle strategy is based on a broad range of local brand names which are not entitled as estle? The company uses that approach in order to the convenient fact that the consumer is easier to reached because he is accustomed to this brand name and they think they know what they are buying.
Consequently, marketing is easier and les costly because a reputation, a distribution channel and customer loyalty already exits for that product with that brand name. As a result Nestle can focus its distinctive competencies on product improvement and technological aspects such as process innovation.
Concluding, the key to their success is customisation rather than exaggerated globalisation. This strategy makes sense as the business success of the company proofs. An example is Nestle success in the Chinese milk powder market. There was hardly any infrastructure nor transportations systems in 1987 when the company entered the market.
Nevertheless, Nestle increased the output of powdered milk from 300 tons in 1990 to 10,000 tons in 1994. This refers to an increase in output of 790% per year. These figures show the success of their strategy, as well as their flexibility, the steady learning processes and the monitoring of the environment. In combination all these factors make up a successful and sense full strategy.
Q3. Nestlé's strategic posture at the corporate level
Nestle adopt the transnational strategy to operate its company worldwide with a focus on developed markets and developing markets. Logically, the consumer behaviour, macroeconomic environment and cultural habits of developed markets are different from developing market. So Nestle adopt different strategies in different nation.
Developed markets by the 19th century
Nestle use the same global brands in multiple developed markets such as Western European and North American markets which is global standardization strategy. Nestle was founded in Switzerland in 1866. Afterwards, Nestle had a series of acquisition and merger activities in United States and Britain in the late 19th century and in Australia, South America, Africa and Asia in the first three decades of the 20th century. By the late 1990s, Nestle had 500 factories in 76 countries and sold its products in a staggering 193 nations. Roughly more 60 percent of its food sales were made in Europe and Americas.
Nestle can enjoy the low cost strategy that come from economies of scale, learning effect and location economies. By the way, Nestle face the saturation and increased competition in the developed markets. Thus, Nestlé focus its growth efforts on emerging markets.
Developing Markets by the 20th century
Nestle use the localization strategy to operation its business in the developing world where Eastern Europe, Asia, and Latin America to optimize ingredients and processing technology to local conditions and then using a brand name resonates locally as the cultural habits difference in different nations.
Customization rather than globalization is the key to Nestle's strategy in emerging. For example, Nestle 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. Besides, Nestle hired local singer to promote its products in Nigeria, the organization of a delivery system to increase efficiency in China, and using local material and focusing on local demand such as make ice cream in Dubai.
Nestle focus on increasing profitability by customizing the firm' products so that it provides a good match to tastes and preference in different nation.
The combination of the worldwide markets by the 21st century
Nestle is one of the oldest of all multinational business company. Its operate food basis business around the world. In order to satisfy both developed markets and developing markets. Nestle adopt the transnational strategy that contain the element of global standardization strategy and localization strategy to operate its company by the 21st century. By using the transnational strategy, Nestle enjoys the low cost through economies of scale and offers different product to different markets with high local responsiveness in order to defend its old markets in the developed markets and look for potential growth in emerging markets.