micro factors for nestle in malaysia

1. Nestle in Malaysia Page 1
Nestle in Malaysia
Submitted by:
Noman Bashir
Enrolment ID: 7109
International Islamic University

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Table of Contents
INTRODUCTION ............Error! Bookmark not defined.
INTERNAL ANALYSIS.................Error! Bookmark not defined.
EXTERNAL SITUATIONAL ANALYSIS...........................- 5 -
CONCLUSION..................................Error! Bookmark not defined.
REFERENCES.................................Error! Bookmark not defined.
Introduction:

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Nestle has been providing the quality products the Anglo-Swiss Condensed in Malaysia since 1912. It
started its operations as a milk company in Penang and later moved to Kuala Lumpur in 1939 for the
growthand expansion of the business. Nestle started its first factory in Petaling Jaya in 1962, and now
the companyis manufacturingitsproductsthrough7 differentcompanies in Malaysia. Its head office is
located in Mutiara Damansara (Drummond, G. and Ensor, J. 2001). The Nestle was listed as a public
listedcompanyin1989 in the KLSE whichisnow knownas Bursa MalaysiaBerhad. Nestle has more than
5000 employees for producing the Nestle products. The company is also having more than 300 Halal
products in Malaysia. The Nestle has become successful in building its strong brand name as a
householdproductlike Nescafe, Maggi, Kit Kat, Milo, Nespray, and so on. The type of economic goods
Nestle produce in Malaysia includes; Junior Foods such as cereals Nestle Cerelac, Milk such as - Every
day, Nespray, Nestle Low Fat Milk, Adult Milk, Omega Plus Adult Milk; ice cream, Breakfast Cereals –
such as Nestle Clusters, cornflakes, Nestle Milo;Nestle fitness,CreamersBeverages, HotCereals, Chilled
Dairy, Coffee, and Culinary Products.
Internal Analysis

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1. Government intervention/price regulation:
The local governmenthasdecidedtoimpose tariff onthe companies like Nestle for importing goods. It
isone of the trade policiesthatgovernmentcanendorse forpromotingthe local businesses of the state
inorder to promote the local businessesforthe contributioninthe national economyandfor improving
the payments’ balances in the country (CSR profile of Nestlé).
In the businesseitherthe profitis maximized or the cost of the production is reduced. The tariff on the
productsof Nestle will have aneffectonthe demandand supply, consumers, and the market. It is a big
disadvantage forthe Nestle products’ business (Kotler, P. 1994). After imposed tariff, the Nestle will
have to adopt either one of the two options; i.e. the Nestle can either increase their price or they can
compromise theirqualityof the products. If the Nestle increasestheirpricesforproductsthenthe price
of the Nestle products will be higher to up to 6-7 percent than the prices of local market products. By
increasing the price of products means the local competitors’ products will be more attractive to the
customers. As the price is an important factor from the aspect of consumer buying behavior of the
certain products. If the local competitors are going to provide quality products to the customers then
the Nestle will be havingseriousmatterof tariff.However,if the local competitors are also offering the
productswithoutqualityoronhighpricesor theyare havingissueswiththe qualityof services,andthen
the Nestle cangenerate itsmarkupsand become the marketleaderinthe Malaysianmarket. The Nestle
while dealingwiththe imposedtariff,it increases the production cost which means that this rise in the
productioncostcan leadtowardsthe decrease inthe qualityof the Nestle products. In this scenario the
managementandthe boardof the Nestle inMalaysiawill have toputtheireffortsandworkdeliberately
to reduce or to eliminate the impact of imposed tariff on the business.
2. Short run& longrun forNestle
The demandof the Nestle products is increasing with the passage of time in Malaysia. This increase of
demandforthe products of the Nestle will have miscellaneous inference both in the short run and the
longrun at the industry level (Mike Moffatt unknown). For an instance in the short run there is a great
increase indemandforNestle Dairy. Therefore,eachof the firmwill increase theirsupplyof the workers
– bygettingnewlabor and by asking existing workers to work for more time labor as overtime. By this
waythe firmswill startgettingmore possible supply of the diary services in order to meet the demand
of the market and the customers. In the beginning only the previously existing firms can capitalize on
the increasedaddeddemandof the markettohave access inthe marketby givingthe inputsneeded for
the desiredproduct.However,the factorwill be variable toowhenitisexistingonthe longrun. This will
ultimatelymeanthatthe existingfirmeitherbuildorbuythe existingfirmsforchangingthe numberand
the size of the factoriestoprovide the diaryservicestothe customers.Inthe same manner, for the long

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run the new firms will be entering in the market to provide the desired products to the customers. In
additionsuchfirmswill not be existing in the short runs as these firms will not be able to get all of the
inputs needed for them to make the desired products for the customers.
3. Determinantsof ElasticityforNestle
There are numberof factors to determine the price elasticity.There are alsothe numberof substitutes,
time anddefinitionof the market.Asthe substitution ismore in the markettherefore the price elasticity
of demandwill becomemore elasticforthe Nestle productsinthe Malaysianmarket. However,if there
are no substitutes forthe specificproduct,althoughthe price of the product isalsoincreasingitself,
people cannotswitchtootheralternative, andthen itwill be more inelastic.Forexample,once the price
of Nestle increaseshighlyandthere isdecrease inprice of competitors,consumerrathertobuy
competitors’productalthoughNestle isloyal brand.Thus,inthiscase, Nestleiselasticdemand.
Secondly,time is alsoasignificantfactor.The situationof inelasticityisoccurredwhensomething asa
new productis enteringinthe marketandthere are no substitutes tobe faced inthe market. However,
inlongterm,more similarproductwill be enteringinthe market,andthen the people will be havingthe
otherchoices as well andthey will switchto competitor’sproductsasif the price isincreased.The
productin longtermwill become more elastic.Foran instance let’sconsiderthe demandforthe milkis
lessinelasticasif the price of the milksuddenlyincreases ascomparedto the decrease in demandof the
productbut for the longerrunthe demandmaynot to be muchaffected.
There are some criteriathatalso affectthe competitive demandscenario andtheyare like:Ourproduct
shouldbe inthe monopolisticcompetitivemarketproduct.Nochange inthe qualityandthe service. In
the Long run periodof time,the demandforthe dairy products ismore elastic.
4. Income Elasticityof Demand
An income elasticityimpactdoes change in the demandcurve. The demandforthe quantitytendstobe
increased,whenthe income getsincreased.Similarly the demandforthe quantitytendstobe decreased
whenthe income levelisdecreased. Asincome increases,people will tendtopurchase more Nestle
products.But some facts state thatto some of the people, Nestleproductcanbecome the inferiorgood
as it issoldat lowprice. The demandof the customerswill be decreasedwiththe decreaseinthe
income levelsof the individuals.The consumerswill switchbackto Nestle asthey finditeasyto buy at
an affordable price.
The Cross Price Elasticity forComplementaryGoods
If they complement each other we should see that an increase in the price for on good can lead to the
demand for both goods to fall. In reality when the price of related goods of the substitutes and
complementschange, the impactof pricesdoesalso change. For example, if there is an addition in the
price of the milk, cocoa bean or the other related complementary goods – the plastic packaging
materials for an example, the cost of the production will be increased and due to this the price of the

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relatedproductswill alsobe increased butthe demand of the Nestle will remain constant because it is
referred as normal good.
External situationanalysis
The changingbuyingpatternsof the behaviorsof the consumersincludingthe demand for the food and
beverage productsinthe markets hasincreasedthe spendingpatternsonrestaurantfoods,andthe take
outs.Such a spendingpatternof the customersis a threat for the Nestle. It might require the Nestle to
eitherrecycle its products or to create some new products and designs in order to maintain its market
share in the business. Nestlé’s view in a continuously changing consumer marketplace are good due to
the strong brands of the Nestle, good relationships with retailers and research and development
capabilities,andreputationwithconsumers. Undoubtedly, there are a high number of suppliers in the
market who are offering the products to the customers as a competition for the Nestle (Barney, J.B
1991).
As the softdrinksare now available inthe marketwithanincreasedvolume due tothe demandof the
customer,the Nestle will needtofocuswithmore effortsforitscompetitive productsinthe marketof
the Malaysia.The keyseasonto Nestle forthe mineral waterandsoftdrinksisthe summerandthe
target customersare the youngstersandthe females. The segmentsare furtherdividedfortargetingthe
customers.These furtherdividedsegmentswill be made onthe basisof flavors,tastes,sizes,andthe
colorsof the softdrinks.Everyone hasa differenttaste forthe flavors,colorsandchoices.Some willalso
preferthe softdrinksandtheirchoicesonthe basisof the energydrinks.Thereforeitbecomesreally
significantforthe Nestleteamtoputtheirkeeneffortsindeliveringthe desiredneedsanddemandsof
the customers. The overall numberof individualsbuyingNestle productshasbeenincreasedinthe last
fewdecadesinthe Malaysia. We alsonotedthat the salesforthe milkare alsoincreasing andtherefore
the marketshare isalsogettinghigh. Basedonthese increase insaleswe cansuggestthatthe
preferencesof the consumersisshiftingawayfromjuice drinksandsugarydrinkstothe more natural
products.Thisshiftof customers ismostly the female customers.
Conclusion

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Nestlé is a successful and large company, dealing in the food and beverages. The market structure of
Nestle is basedonthe monopolistic competition. The Nestle as a company is a product differentiation
company. It isdealingwithmanybuyersandsellers,itisprice maker,easymarketentry and exit, and it
spends a proportion of money in the advertisement. There are many competitors around which are
producingthe similarproductsasNestle includingCadbury, Yeo Hiap Seng, Dutch Lady, Hershey Foods,
Apollo Food Holdings Berhad, Kraft Foods and so on. For competing in the marketplace among the
business,the Nestle mustcarrytheirpricingstrategiesto maximizing their profit. There are few pricing
strategies that used by Nestle which are two-part tariff penetration pricing strategy, psychological
pricing strategy, price discrimination, and tie in sales (Reem Heakal 2009).
As the strategywhere the purchasingof one productismade on the condition for the sales of the other
productcan maximize the profitof the organizationina betterway.As for as our opinionisconcerned, I
personally think that tie-in sales is the best pricing strategy for Nestle to be used for maximizing their
profits. The cheaper price product is normally offered in a buddle, which means the purchasing of the
one itemmakesyouto buythe other one also. So in this way the volume of sales even in a situation of
tariff imposedcanincrease byincreasingthe profitsforthe firm. Atlastbutnot least,Nestlewillhave to
introduce more products and react to alternatives in an effective way.
References

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 Drummond,G. andEnsor, J. (2001), StrategicMarketing,planningandcontrol,2ndEdition,
ButterworthHeinemann
http://economics.about.com/cs/studentresources/a/short_long_run.htm
 CSR Wire (2014) CSR profile of Nestlé [online]. http://www.csrwire.com/members/10393-
Nestlé
 Kotler,P.(1994), MarketingManagement:Analysis,Planning,ImplementationandControl,5th
Edition,Prentice Hall International.
 Mike Moffatt (unknown) ShortRunvs.LongRun.
http://economics.about.com/cs/studentresources/a/short_long_run.htm
 Barney,J.B(1991) Firm resourcesandsustainedcompetitive advantage.Journal of
Management,17 (1) 99-120
 ReemHeakal (2009) What Are Economiesof Scale
http://www.investopedia.com/articles/03/012703.asp