Growth Imperative

1. Growth Imperative • Pure Life spring water for developing markets in a important growth opportunity. Sales were around 3 billion. • The four pillars of growth are operational efficiency, innovation and renovation, sale of products whenever, wherever, and however and better communication with customers. • Under performing executives are being fired.

2. Growth Imperative • 3000 cups of the coffee are consumed worldwide every second. • Soluble coffee is a typical grocery product. • Nescafe dispensers and cafes and in-flight service on Air France of the product offer huge opportunities.

3. Growth Imperative • Nestle is almost double the change in stock price (120 points compared to 75 and 65 for Procter & Gamble and Unilever respectively). • Nestle wants targeted communities of consumers. • They created Nespresso, a club. • They also have Club Buitoni. • They also have a chocolate lovers website. • They have an infant nutrition website.

4. Efficiency Imperative • Quote: • “Whenever the value chain sustains one of more activities in which the minimum efficient scale(of research facilities, production centers, and so on) exceeds the sales volume feasible within one country, a company with global presence will have the potential to create a cost advantage relative to a domestic player within the industry.” • What it means: • Achieve Economies of Scale • Cost reduction

5. Efficiency Imperative • 5 Examples • Removing under-performers in senior executive team 1.Getting rid of underperformers in his senior executive team who hadn’t grasped that the days were over when consumer packaged goods companies could simply dump products on retailers and wait for fat returns. • Automate and Integrate 2. Nestle paid an undisclosed amount for the license to use German software group SAP’s entire mySAP.com suite of products which will be made available to all 230,000 Nestle employees. The goal is to automate and integrate all of Nestle’s operations, from procurement through production to distribution. This will give far-flung employees quick access to information from across the globe and is expected to speed up financial reporting by more than a month. • Revamping of Nestle’s R&D department 3. Innovation—revamping Nestle’s R&D unit so that there would be better coordination among the group’s different businesses. Better communication leads to efficiency.

6. Efficiency Imperative • 5 Examples(cont.) • E-Revolution 4. Become one of the world’s websmart elite. Overhaul everything from buying raw materials such as cocoa beans to producing, marketing, and selling products such as KitKat chocolate bars and Nescafe instant coffee. The Net helps to cut inventories too. In the past, when Nestle held promotions it had to guess at demand. By linking up electronically with its retail partners, it can now adjust production fast. • Build highly targeted communities of consumers 5. Focusing on and establishing loyal customer base to increase sales such as Nespresso clubs and Club Buitoni who’s members are lovers of Italian culture. Nestle is establishing a interactive community in Britain, US, and Japan.

7. Knowledge Imperative • The Innovation Pillar • Re-Design products to meet different cultural tastes through research & development efforts. • Using local resources to produce global products more efficiently. • Using research & development to coordinate among the group’s different businesses worldwide.

8. Knowledge Imperative • Learning through globalization: • Used Unilever as a benchmark in slimming down. • Distribution problems taught Nestle’ to establish factories in developing countries. • Failed marketing of infant formula in third world countries led to a boycott; learned to use more cautious advertising practices.

9. Knowledge Imperative • Learning through globalization: • Poor efficiency, lousy returns, and stagnating stock prices taught Nestle’ to utilize the internet to streamline processes. • With 8,000 different products, Nestle learned that innovation is difficult and costly. Thus, they are prepared for takeovers through consolidation.

10. Globalization of Customers Identifying three of Nestle’s global customers and ways that Nestle is responding to their needs.

11. Global Customers • Air France and other airlines • Wal-Mart • Grocery chains and Mom & Pop stores

12. Ways Nestle has responded to global customers’ needs • NestleEZOrder.com • Stores can order Nestle products online, eliminating the need to call or fax orders. This saves time and is cheaper because the order processing is automatic rather than manually input.

13. Ways Nestle has responded to global customers’ needs • Product development • Has products such as Nescafe that meet the needs of airlines to offer coffee without having to brew it fresh on each flight. • Newer premium brands of coffee to serve customers in first-class.

14. Ways Nestle has responded to global customers’ needs • Regional Differentiation • Nestle has developed brands that cater to regional tastes. • This allows local grocery chains to meet the needs of their customers • Examples: India and Russia are offering new varieties of products.

15. Ways Nestle has responded to global customers’ needs • Creating inexpensive products for distributors in developing markets Pure Life spring water is a lower cost bottled water that can be sold in emerging markets at a lower price.

16. Ways Nestle has responded to global customers’ needs • Aiding distributors in marketing • Creating promotional displays for stores

17. Ways Nestle has responded to global customers’ needs • Selects appropriate transportation modes with special attention given to optimum loads, vehicle capacity utilization, route planning, consolidation with outside partners, scheduling, and fuel conservation; • Optimizes warehouse and distribution center locations and environmentally efficient operational systems; • Identifies and implements measures to reduce energy consumption and waste • Encourage its distribution service providers to use environmentally sound practices.

18. Globalization of Competitors • Proctor & Gamble • Philip Morris • Unilever

19. Proctor & Gamble • Sells over 300 brands • Operations in 70 countries • Nestle is growing faster than P & G • New acquisition of Clairol Company

20. Philip Morris • Two main companies-Kraft and Nabisco • Volume increase due to successful new product launches • In comparison to Nestle, Philip Morris is keeping a leading edge in acquiring new companies

21. Unilever • Located in over 150 countries • Products include Lipton and Helman’s which are currently number one globally • In comparison- Nestle and Unilever are investing in e-business

22. Choice of Product Lines • Six Global Brands • Chocolate; Crunch Bar • Coffee; Nescafe • Maggi-Seasoning & Sauces • Pet Care; Friskies • Food; Buitoni • Nestea

23. Choice of Product Lines • 5 Characteristic of Product Lines • Standardized • Low degree of local adaptation • Basic Raw Materials easily transferred • Milk, coco, coffee beans, easily obtained • License and build factories • 500 factories in 70 countries • License coffee makers, Kit Kat, • Customers demands required them to Globalize • WWII, soldiers demanded Nescafe when they returned

24. What Factors Make Markets Favorable? • Brian Feyereisen • Dave Risser • Identify the top ten country markets in terms of number of factories located in each country. • Describe the characteristics that make each of these a choice for the location of factories.

25. USA • Factories-59 • Most tech powerful, diverse, advanced and largest economy in the world. • Market oriented economy

26. France • Factories-40 • Economy combines capitallistic methods with extensive but declining gov’t intervention. • Keep the deficit low • Euro was launched in 1999 with 10 other countries

27. Germany • Factories-24 • Third most technologically powerful economy behind USA and Japan • High rate of social contribution

28. Italy • Factories-23 • Diversified industrial economy • Same total and per capita output of France and the UK

29. Brazil • Factories-22 • Huge in size • Well developed ag and mining • Good service factors • Top economy of all South American Countries • Fastest Growing

30. Spain • Factories-18 • First group of countries to launch the Euro • Helped to integrate in Europe • Reduced unemployment

31. Mexico • Factories-17 • Cheap labor • Lack of EPA • Free market economy • Strong export sector • Expanding competition in all modes of transportation

32. South Africa • Factories-12 • Middle income developing country • Top ten in stock market in the world • Efficient dist. Of good to major urban centers

33. Switzerland • Factories-10 • Prosperous and stable market economy with per capita GDP 20% above big western European economies. • Safe haven for investors

34. Canada • Factories-9 • High tech industrial society • Close resembelence to the US • Market oriented economic system • High standards of living

35. What Factors Make Markets Favorable? • The end • Thank you

36. Entry Modes and Considerations • Late 1800s - initially exported infant formula throughout Europe • Added chocolate as export in 1904 • In 1905, merged with Anglo-Swiss Condensed Milk Company • Operated factories in US, Britain, Germany and Spain • Began full-scale manufacturing in Australia in 1907 • Built warehouses in Singapore, Hong Kong, and Bombay to supply rapidly growing Asian markets

37. Entry Modes and Considerations • Impact of WWI • Severe disruptions in production, acquisition of raw materials, and distribution • Created new demand for dairy products (powdered and condensed milk) – government contracts • Purchased several factories in US – had 40 factories by end of war • Worldwide production doubled from 1914-18

38. Entry Modes and Considerations • After WWI • Demand dried up - company had first loss in 1921 • Reorganized, streamlined operations, brought production levels in line with sales, reduced debt • Expanded beyond traditional product line – started manufacturing chocolate worldwide • Introduced Nescafe in 1938 • Introduced Nestea in early 1940s

39. Entry Modes and Considerations • Impact of WWII • Transferred many executives to the US • Established factories (FDI) in Latin America to overcome distribution problems in Europe and Asia • After WWII • Grew through diversification into other food products – mostly through acquisition

40. Entry Modes and Considerations • Entry Through Acquisitions • 1970 Libby’s (US) • 1973 Stouffer (US) • 1974 minority interest in L’Oreal • 1977 Alcon (US) • 1985 Friskies (US) • 1988 Buitoni (Italy), Rowntree (UK) • Licenses manufacturing of KitKat in US to Hershey

41. Entry Modes and Considerations • Entry Through Acquisitions • 1992 Perrier (France) • 1994 Alpo (US) • 1998 SanPellegrino (Italy); Spillers (UK) • 2000 Power Bar (US) • 2001 Ralston Purina (US)

42. Transplanting Corporate DNA • Founder Henri Nestlé (in 1860’s) insisted on using the power branding by keeping the trademark in foreign and local operations

43. Transplanting Corporate DNA • Nestlé recognizes that consumers have a legitimate interest in the company behind the Nestlé brands, and the way in which the Nestlé Company operates.

44. Transplanting Corporate DNA • New chief Executive Officer, Helmut Maucher, headed new twofold corporate strategy • Improve it financial situation through internal adjustments and divestments • Continue its policy of strategic acquisitions

45. Transplanting Corporate DNA • Used the same boldness and vision in diversification of product lines through acquisitions and mergers

46. Transplanting Corporate DNA • Implement MySAP.com German company that links all aspects of their DNA and suppliers\ • Example of how MySAP.com will work with chocolate bars “processes” • Taking Orders • Getting Ingredients • Making Chocolate • Cutting Inventories • Marketing the Candy Bars

47. Winning Local Battles • Nestle concentration is more on global markets

48. Winning Local Battles • Nescafe • First Launched in 1983 • Most popular brand of coffee world wide • On Average 3000 cups of Nescafe are drunk every second • Extensive advertising • Developing brands of coffee specific to that local market

49. Winning Local Battles • Perrier Bottled water • Market share • Europe 58 % • North America 35% • Asia 4% • Latin America 3%

50. Winning the Local Battle • Snacks And icecream • Shelf stable dairy products • Example, Molico a flavoured non-fat milk powder marketing specifically in Brazil • Forming alliances with established companies . Example, J.V snow brand milk products in Japan.