Review of Nestle's Emerging Nations Strategy
This article reviews Nestle's current strategy, based upon publicly available information, and provides recommendations for the Executive team to consider in future strategy reviews. A key plank of the Nestlé strategy is to pursue growth outside of the stagnant developed world into emerging markets such as Eastern Europe, Asia and South America (Hill, 2009, p.532).
This has clearly worked to a large extent in a variety of countries with Nestlé learning to adapt to local conditions. For example Nestlé learnt to (Hill, 2009, pp532-3):
- Be flexible in Nigeria
- Be adaptable in China
- Develop long term strategies in the Middle East
- Manage acquirements in Poland
- Understand the market better to reduce the chance of failure in Japan
This overall strategy has assisted Nestlé; however with the Global Financial Crisis (GFC) in 2008 is this strategy still adequate for Nestlé?
Research has shown that competition has grown in developing countries since the GFC (Raman, 2009, p.131) with local companies concentrating on their home markets rather than exporting to the developed world. These companies are also targeting Nestlé’s market of upmarket and middle-market consumers (Raman, 2009, p.131).
Emerging countries governments are also supporting local businesses through monetary and policy measures as these countries grew by 1.6% in 2009 (Raman, 2009, p.131) whereas developed countries shrank by 3.8%.
Nestlé needs to have awareness of the economic conditions in each of their emerging nations markets in order to take advantage of the opportunities that these countries provide, especially to first movers in new market segments (Raman, 2009, p.133).
Another recent trend is for emerging countries firms merging or acquiring developed world firms (Kumar, 2009, p.120). Nestlé has a track record in FDI, especially in Poland. Post-GFC it is important for Nestlé to continue FDI in this way, harnessing the local Government support, reduced regional tariffs and the new expertise of these firms (Raman, 2009, pp.135-6) to continue growth.
Marketing is another area that requires Nestlé to focus on local attitudes and culture to ensure that the product that is being promoted has relevance and buy in from the local team (Amos, 2010, pp. 131-134). Nestlé does this through their decentralised structure (Hill, 2008, pp.533-4) promoting coffee differently in Africa as compared to the Middle East and Asia even though this product is controlled by a SBU. Where Nestlé can improve is to develop a framework for collecting information into the SBU to understand better when to switch from subsistence product advertising to more aspiration middle class style of advertising and to provide this to the marketing team at a local level.
A final factor is that Nestlé needs to continue to find new emerging markets. Africa is seen as the next frontier, especially by major competitor Unilever (Raman, 2009, p.137). While Nestlé has a presence, there are issues with local regimes, such as in Zimbabwe where Nestlé have stopped buying milk from a dairy controlled by Mugabe’s wife (dairyindustries, 2009). This is an example of a political risk that is still apparent in Africa, but Nestlé need to understand this more in order to mitigate risk across the region.
Nestlé’s strategy of investing in emerging markets will assist continued growth post-GFC (Raman, 2009, p.133), however it is imperative that the company devises ways of reducing risk and gaining market share by having more market intelligence at the SBU level to inform the regional and local business units.
In the post-GFC world Nestlé are well positioned to continue market growth based on their emerging nations strategy providing that they are able to understand more of what is occurring in these nations and to use this knowledge target them accordingly. To this end Nestlé needs to adopt a Mattel type strategy of embedding a Market Intelligence and Analysis team into each SBU to enable Nestlé to be nimble in reacting to changing market conditions in these rapidly growing and aspirational markets.
This team needs to inform on key initiatives such as:
- Which nations to find business partners for FDI
- When to change product mixand marketing strategy based on knowledge that can accurately predict the cusp of change within a nation from subsistence products to aspirational and middle-class product
- Reduce the risks of failure (Japan) and political risks(Zimbabwe) by having more knowledge
- Increase the ability for Nestlé to be nimble in these emerging markets to take first mover advantage when opportunities arise