STRATEGIC MANAGEMENT - NESTLE COMPANY

[BUMGT 3702 STRATEGIC MANAGEMENT] September 24, 2012
Nestlé Company 1
Executive Summary
The purpose of this report is to evaluateNestle Company industry based on the case
study and comprehend how the company develop strategic intent for their business
organisations following the analysis of external and internal business environments. I will
analyse the strategic management process as firm used to achieve strategic competitiveness
and earn above-average returns. I will discuss the strategy formulation that includes business-
level strategy and corporate-level strategy.
It also aims to identify market place opportunities and threats in the external
environment and to decide how to use their resources, capabilities and core competencies in
the firm’s internal environment to pursue opportunities and overcome threats. In order to
strengthen this assignment about Nestle, there are several methods of gathering data has been
conducted, such as PEST analysis, Porter’s 5 forces model, value chain analysis and SWOT
analysis.
By the end of this assignment, future strategy will be mentioned as well as my
recommendations about Nestle that will fit into strategic orientation in order to perform better
in their business world. And continue to develop and implement its learning approach as the
chosen large company by using different strategies.

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Table of Contents
Executive Summary...................................................................................................................1
1.0 Introduction ......................................................................................................................4
1.1 Industry and Nestle Summary .....................................................................................4
EXTERNAL ANALYSIS........................................................................................................5
2.0 General Environment Analysis.........................................................................................5
2.1 Demographic Segment.................................................................................................5
2.2 Economic Segment ......................................................................................................6
2.3 Political or Legal Segment...........................................................................................6
2.4 Socio-cultural Segment................................................................................................6
2.5 Technological Segment ...............................................................................................7
2.6 Global Segment ...........................................................................................................7
3.0 Industry Environment Analysis........................................................................................7
3.1 Threat of New Entrants................................................................................................8
3.2 Bargaining Power of Supplier .....................................................................................8
3.3 Bargaining Power of Buyers........................................................................................8
3.4 Threat of Substitute Products.......................................................................................9
3.5 Intensity of rivalry among Competitors.......................................................................9
4.0 Competitive Environment ..............................................................................................10
5.0 Opportunities and Threats of Nestlé...............................................................................11
5.1 Opportunities .............................................................................................................11
5.2 Threats .......................................................................................................................11
INTERNAL ANALYSIS .......................................................................................................11
6.0 Nestlé’s Resources, Tangible and Intangible .................................................................12
6.1 Tangible Resources of Nestlé ....................................................................................12
6.2 Intangible Resources of Nestlé......................................................................................13
7.0 Capabilities of Nestlé ...................................................1Error! Bookmark not defined.
8.0 Core Competencies Analysis..........................................................................................15

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9.0 Value Chain Analysis of Nestlé .....................................................................................16
9.1. Primary Activities ........................................................................................................16
9.1.1 Inbound Logistics ...............................................................................................16
9.1.2 Operations...........................................................................................................16
9.1.3 Outbound Logistics.............................................................................................16
9.1.4 Marketing and Sales ...........................................................................................16
9.1.5 Services...............................................................................................................17
9.2 Support Activities......................................................................................................17
9.2.1 Procurement........................................................................................................17
9.2.2 Technological Development...............................................................................17
9.2.3 Human Resources Management .........................................................................17
9.2.4 Firm Infrastructure..............................................................................................18
10.0 Weaknesses.....................................................................................................................18
11.0 SWOT Analysis..............................................................................................................18
11.1 Strengths ....................................................................................................................18
11.2 Weaknesses................................................................................................................19
11.3 Opportunities .............................................................................................................19
11.4 Threats .......................................................................................................................19
12.0 Current Strategy..............................................................................................................19
13.0 Strategy...........................................................................................................................20
14.0 Conclusion......................................................................................................................21
References................................................................................................................................22
Appendices...............................................................................................................................23
Appendix 1..........................................................................................................................23
Appendix 2..........................................................................................................................23
Appendix 3..........................................................................................................................24
Appendix 4..........................................................................................................................26
Appendix 5..........................................................................................................................26
Appendix 6..........................................................................Error! Bookmark not defined.

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1.0 Introduction
The most important thing for most of business company is an understanding their
successful performance among the other competitors in market place.For some parties, like
shareholders, it is essential for company to make a profit and gain above-average returns. In
this assignment, I will discuss furthermore about Nestlé’s external environment in all aspects
such as their general environment, industry environment, competitive environment, and scan
the opportunities and threats of the company. And also I am going to explain briefly about
their internal environment includes their resources, type of their resources, company’s
capabilities, evaluate their core competencies and so on.
1.1 Industry and Nestle summary
Nestlé S.A. is a Swiss multinational nutritional and health-related consumer goods
company headquartered in Vevey, Switzerland. It is the largest food company in the world
measured by revenues. Nestlé’s products include baby food, bottled water, breakfast cereals,
coffee, confectionary, dairy products, ice cream, pet foods and snacks. Nestlé employ around
330,000 people in over 150 countries and have 461 factories or operations in 86 countries.
Nestlé sales for 2011 were almost CHF 83.7 billion. It is one of the main shareholders of
L’Oreal, the world’s largest cosmetics company. Nestlé history begins back in 1866, when
the first European condensed milk factory was opened in Cham, Switzerland, by the Anglo-
Swiss Condensed Milk Company. In Vevey, Switzerland, Nestlé founder by Henri Nestlé, a
German pharmacist, launched his Farinelactee, a combination of cow’s milk, wheat flour and
sugar, saving the life of a neighbour’s child. Nutrition has been the cornerstone of the
company ever since. In 1905, The Anglo-Swiss Condensed Milk Company, founded by
Americans Charles and George Page, merged with Nestlé after a couple of decades as fierce
competitors to form the Nestlé and Anglo-Swiss Milk Company. The company grew
significantly during the First World War and again following the Second World War,
expanding its offerings beyond its early condensed milk and infant formula products. In
2011, Nestlé was listed No.1 in the Fortune Global 500 as the world’s most profitable
corporation. The Nestlé Corporate Business Principles are at the basis of the company’s
culture, developed over 140 years, which reflects the ideas of fairness, honesty and long-term
thinking. Nestlé believes that not only possible to create long-term value for their

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shareholders if their behaviour strategies and operations also create value for the communities
where they operate, for their business partners and of course, for their consumers.
Nestlé vision is to meet the various needs of the consumer everyday by marketing and
selling foods of a consistently high quality. Their objectives are to deliver the very best
quality in everything they do, from primary produce, choices of suppliers and transport, to
recipes and packaging materials.
Their mission is they strive to bring consumers foods that are safe, of high quality and
provide optimal nutrient to meet physiological needs. Nestlé helps provide selections for all
individual taste and lifestyle preferences.
Nestlé purpose is to offer safe, tasty, convenient and nutritious foods to improve health
and well-being of consumers of all ages all over the world. To meet the needs and desires of
today’s and tomorrow’s consumers, Nestlé is strongly committed to Research and
Development (R&D) to improve products and develop new foods with specific health
benefits (Nestlé.com, 2012).
EXTERNAL ANALYSIS
2.0 General Environment Analysis
The general environment is composed of dimensions in broader society that influence an
industry and, indirectly, the firms within it. They group these dimensions into six
environmental segments such as demographic, economic, political, socio-cultural,
technological and global. These structured segments are external to the firm. The challenge to
the firm is to scan, monitor, forecast, and assess those elements in each segment that are of
the greatest importance. These efforts should result in recognition of environmental changes,
trends, opportunities and threats.
2.1 Demographic Segment
Nestlé’s product is for everyone. People from any area, any culture, any age, and income
will drink water. It is not any luxury item which is used by a specific people. Nearly all age
from young to old people can produce Nestlé. And all six continents are their customer. For
instance, Nestlé segment into different of age. For baby, they have Nestlé baby foods while
young people can drink Milo, Nescafe or eat ice cream, chocolate and cookies. In

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Vietnam,Nestle has the Maggi brand with many kinds of Asia sauce, but Maggi do not exist
in England because of the different in the geographical taste.
2.2 Economic Segment
Although Nestlé is leading food industry, it shares its knowledge and expertise with local
small and medium companies. It helps entrepreneurs to compete in the new free trade
environment which will ultimately benefit the industry and the economy by making the
market growth. Besides that, Nestlé also collaborates with local government to provide
technical assistance to farmers in planting and harvesting crops. The farmer will get income
and Nestlé will get to purchase good and fresh raw materials to produce their food. By having
own local productions, Nestlé should no longer needs to import any raw materials from other
country where they will save much more money. It will also benefit the consumers whereby
consumers could enjoy the local productions with low price. More consumers will use this
product and therefore Nestlé will gain more profit from that.
2.3 Political/Legal Segment
Political factors are important especially in food industry. The company policies are
affected and its budget is also affected. Nestlé provide food assurance to provide assurance to
the consumers that Nestlé’s products are manufactured, imported and distributed under the
strictest hygienic and sanitary condition. Besides that, to ensure that consumers do not buy
any fake products, Nestlé’s products are always come with the seal of guarantee. By having
the seal of guarantees, consumers are now more confident and trust of Nestlé’s products.
Strict quality control played a role in political factor too. It means that Nestlé’s products
quality will not be different with other countries. Consumers are guarantees with full
satisfaction of the products all over the world.
2.4 Socio-cultural Segment
A good diet and adequate food supply, the central for promoting health and well-being is
the focus of every person even these days; whether people tend to value products that
incorporate with them healthy benefits. Obviously, these types of goods are preferred more
than that of junk foods and its relative products. Moreover, generation Y cohorts, those born
from 1980s-2000s, possess characteristics such as acceptance to change and being
technologically savvy. These kinds of characteristics should coincide to the

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firms’aggressiveness of using technology especially that this is also the tie of the influx of
technology in the Europe.
2.5 Technological Segment
Internet and Mobile Technology is currently growing so rapidly in the market where
almost all of the people nowadays will get contact with it. Nestlé could use this advantage to
benefit them by using technology to promote their products over those advanced technology.
Customer could get any information from their site. Nestlé’s employees could use this
internet service to connect to its industry in other country such as Australia, Singapore, U.K
and more. They did research and development by using the technology to find more
information to satisfy the local tastes and cultural flavours in each country market. By
understanding what each country asks for, Nestlé could market difference product according
to the customer demand in difference country. It is already proven that the technology factors
are important for Nestlé Company.
2.6 Global Segment
Nestlé Company improves their operational efficiency by integrating the company’s
businesses on a global scale. They are now transitioning to become a genuinely global food
company, to behave as one. Nestlé has a dynamic global network of Nestlé R&D centres
working on scientific research and product development. They have the world’s largest food
and nutrition research organisation, with about 5000 involve in R&D. Nestlé’s global R&D is
applied locally to meet different consumer needs and preferences through over 300
Application Groups worldwide.
(The detailed data are given in Appendix 1)
3.0 The Industry Environment Analysis
Compared with the general environment, the industry environment has a more direct
effect on the firm’s strategic competitiveness and to earn above-average returns. The intensity
of industry competition and an industry’s profit potential are functions of five forces of
competition such as the threat of new entrants, bargaining power of supplier, bargaining of
power buyers, threats of substitute products, and intensity of rivalry among competitors
(Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E., 2011, p.48). Porter’s Five Forces
Model was created to act as a framework for industry analysis and business strategy

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development. Porter singled out five different forces that impact competitive intensity which
portrays an image of the overall attractiveness and profitability of a market. To aid in my
evaluation of Nestle and its status in the industry, I will apply Porter’s Five Forces Model to
the company.
3.1 Threat of New Entrants
The food processing industry is very large and competitive. It is uncommon for firms
within the industry to do quite well. As a result, many companies enter into the market every
year in an attempt to gain a portion of the profitable market. For Nestle, the company luckily
has been around for over a century and boasts a long history of quality products and
consumer satisfaction, which has allowed the company to obtain a considerable share of the
market. As a result, new entrants into the industry must attempt to seize a portion of Nestlé’s
market share in order to survive. Essentially, Nestlé is constantly a target, and so the threat of
new entrants is moderate.
3.2 Bargaining Power of Supplier
Nestlé prides itself on creating and maintaining positive relationships with its suppliers
all over the world. Due to the large purchasing power of Nestlé, and because the suppliers of
agricultural commodities offer a product that is far from unique, Nestlé holds more
bargaining power than its suppliers. Aside from this, Nestlé prefers to create and preserve
long term relationships with its suppliers as this helps to ensure the quality of the raw
materials being purchased. In addition, Nestlé also offers useful advice to its suppliers on
how to perform more efficiently to minimize unnecessary costs.
3.3 Bargaining Power of Buyer
Customers have a large amount of bargaining power regarding to their consumption of
Nestlé products. There are close substitutes for Nestlé products which allows for the
preferences of the customer to be very influential. Nestlé understands the power of the
customer and has taken specific steps to meet the needs of its products consumers.
Specifically, Nestlé’ is incorporating health and wellness into the creation of its products as
society has started becoming more health conscious.

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3.4 Threat of Substitute Products
Due to the nature of the industry, Nestlé is afflicted with the threat of substitute goods.
Ranging from ice cream, frozen foods and confectionaries to pet food, there are arrays of
similar products that compete directly with Nestlé. It is vital for Nestlé to continuously find
new ways to improve its products and generate new sources of growth for the company’s
future expansion because competition is so violent. In recent years, Nestlé has focused on the
health and wellness aspects of its products to maintain its edge in the market.
3.5 Intensity of Rivalry Among Competitors
Nestle is powerhouse in the food processing industry but so are Kraft, Masterfoods, and
Unilever, Nestle was also facing strong competition at the national and regional level. These
companies, among others, are in a constant and continuous battle to outperform one another.
Nestle was increasingly facing fierce competition as many food producing rivals had
achieved significant improvements in their operating efficiency. Rivalry is fierce in the food
processing industry, and this is a good thing for consumers. As long as these companies
continue striving to one up one another, consumers will continue to enjoy ever-improving
product lines.
When I applied to Nestlé, the Porter’s Five Forces Model depicts a competitive, but
profitable market for the food processing industry. Furthermore, the model places Nestlé in a
somewhat comfortable position within the food processing industry, while acknowledging the
threats to its market share. Specifically, the model notes a moderate threat of new entrants
into the market and a substantial threat of substitute goods. In addition, the model shows that
Nestlé tends to maintain the upper hand over its suppliers as commodities have exact
substitute in the market. And also, their customers have a considerable amount of bargaining
power, as Nestlé must adhere to consumer wants and needs because there are so many close
substitutes. For the final force, the model depicts a large amount of rivalry within the food
processing industry.
(The detailed data are given in Appendix 2)

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4.0 Competitive Environment
Nestlé Company encounters higher levels of competition than it currently experiences.
Any increase in the competitive environment may have an adverse effect on Nestlé’s
business, earnings and growth. Through effective competitive intelligence, the firm gains the
insights needed to create a competitive advantage and to increase the quality of the strategic
decisions it makes when deciding how to compete against its rivals (Hanson, D., Hitt, M.,
Ireland, R. D., &Hoskisson, R. E., 2011, p.60). The brand image of Nestlé is one of the most
important sources of competitive advantage. Through the research and development (R&D)
capabilities allow Nestlé Company to lead the way in innovation and provides for maximum
portfolio flexibility. The extraordinarily large scope of Nestlé’s business provides for
significant economic of scale in manufacturing, marketing, and administration. For example,
Nestlé established a number of ventures for growth into new areas related to wellness and
nutrition. Nestlé moved into the area of nutricosmetics, under the brand name Inneov a joint
venture by Nestlé and L’Oreal. This strong brand reputation is built due to high quality of the
products and customer satisfaction. Competitors’ rivalry in this market is really intense; it is
because in Nestlé’s market there are a lot of branded rival such as Kraft, Unilever,
Masterfoods, Johnson & Johnson, and Wal-Mart.
Innovation is one of Nestlé’s key competitive advantages. They have more than 140
years of research, development and scientific know-how. While there is a great deal of pure
and applied science research that takes place in their global R&D centres, Nestlé ensures that
the consumer, and the consumer benefit, remains at the core of all their activities. To be
successful in today’s food and beverage sector the cost component is critical and economic of
scale are a main cost driver for Nestlé’s Company. Between the shelf share of multi
billionaire brands and recent push of retailer driven private label products a new entrant
would be challenged into executing a successful distribution strategy.The main threat of this
company is their competitors, which is come out with foods and beverages as well, if they go
higher than price ceiling, the other competitors will win by setting up lower price, but if they
go lower than that, competitors will easily eliminate them in market place. That is why the
rate of competition is really high and Nestlé was also facing a strong competition at the
national and regional level. Nestlé Company have strategic advantage over their competitors
because their will increase Nestlé value by ensuring long term availability of raw materials
and water, more secure supply of better quality raw materials, producing products with
improved environmental performance, profitable growth, consumer preference for their

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products and sustainable, and also to continuously improving environmental performance
(Nestlé.com, 2012)
5.0 Opportunities and Threats of Nestle
5.1 Opportunities
High credibility
Potential to expand to smaller towns
Improving trends
Industry leadership
Increase the partnership
Product diversity and offerings
5.2 Threats
Highly competitive market
Increasing prices of raw materials
Strong rival like Kraft, Masterfoods, and Unilever
Threat of substitute products
Bargaining power of buyers
INTERNAL ANALYSIS
Here, I discuss about the nature of Nestlé’s firm’s internal environment analysis.
Evaluate the role of resources and capabilities in developing core competencies, which are
the sources of the firm’s competitive advantages. In this section, I will discuss the techniques
firms can use to identify and evaluate resources and capabilities and the criteria for selecting
core competencies from among them. It also discusses the value chain concept and examines
four criteria to evaluate core competencies that establish a competitive advantage to Nestlé
Company.

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6.0 Nestlé’s Resources, Tangible and Intangible Product
Resources are the source of the firm’s capabilities. Resources are bundled to create
organisational capabilities. Some of a firm’s resources are tangible and intangible. Tangible
resources are assets that can be seen and quantified. Intangible resources include assets that
typically are rooted deeply in the firm’s history and have accumulated over time. Intangible
resources are relatively difficult for competitors to analyse and imitate. The four types of
tangible resources are financial, organisational, physical and technological. And the three
types of intangible resources are human, innovation and reputational (Hanson, D., Hitt, M.,
Ireland, R. D., &Hoskisson, R. E., 2011, pp. 75-78).
6.1 Tangible Resources of Nestle
 Financial Resources
Total Revenue : CHF 83.64 billion (2011)
Operating income : CHF 12.538 billion (2011)
Profit : CHF 9.487 billion (2011)
Total Equity : CHF 62.60 billion (2010)
Total Assets : CHF 111.64 billion (2010)
(The detailed financial resources paragraph are given in Appendix 3)
 Organisational Resources
Nestlé’s governing body is the Annual General Meeting of shareholders.
Leading the company is the Chairman of the Board and CEO.
The most relevant of Nestlé’s organisational measures were the creation of Product
Technology Centres, Local Application Centres and Clusters.
 Physical Resources
Coffee
Water
Ice Cream
Baby Food
Healthcare nutrition
Confectionary

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Pharmaceuticals
 Technological Resources
Nestlé moved from being a technology led company that produced convenient, tasty
foods and beverages for sustenance, to being a science driven, health and wellness
company.
Continual involvement of rapid technological change.
6.2 Intangible Resources of Nestle
 Human Resources
Approximately 330,000 people have been employed by Nestlé Company.
 Innovation Resources
Nestlé R&D generates the innovative science and technology needed to build
nutritional and health benefits into products offerings Nestlé legendary sensory
excellence.
 Reputational Resources
Nestlé scientists play their part in communicating the health and wellness benefits of
products to consumers.
From consumer need into research priorities.
From emerging science into consumer benefits and services.
7.0 Capabilities of Nestle
Actually, capabilities are the firm’s capacity to deploy resources that have been
purposely integrated to achieve a desired end state. Capabilities are often based on
developing, carrying and exchanging information and knowledge through the firm’s human
capital and also often developed in specific functional areas, such as R&D, marketing,
manufacturing, management and so on. In this section, I briefly evaluate of Nestlé’s
capabilities (Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E., 2011, p.79).
 Distribution
Nestlé distribution network ensures that every day more than 100.000 tonnes of
products are transported to customers from their factories and distribution centres.

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Optimises their distribution network such as transport and warehousing in order to
minimise greenhouse gas emissions, to ensure the most efficient use of their transport
to reduce the distances travelled.
 Human Resources
The Company employs around 330,000 people, operates in over 150 countries.
Nestléprovides training on the Code, with staff from the 14 departments that are part of
the Code’s compliance system participating in yearly or twice yearly training.
 Management Information System
By using their research for Information Technology, control all aspects more efficient.
 Marketing
Famous brand name and efficient strategy to meet the taste of each type of consumers.
To increase sales and build an image in the mind of consumer, Nestlé Company
advertise their product in different ways, as for as Nestlé pure life is concerned
company use television, radio, newspaper, bill board.
 Management
Nestlé Company has a Board of Directors, led by their Chairman Peter
BrabeckLetmathe, who was the former Nestlé CEO.
The day to day management of Nestlé business is taken care of by Executive Board
members composed of company executives and department heads.
 Manufacturing
Nestlé produced a probiotic especially for all infant formulas and created and patented a
spray drying process, used in manufacturing milk powders and Nescafe was first used
to make powdered paint dispersions.
 R&D
Nestlé Company first acquired the milk sterilising site to develop milk products and
processes.
Nestlé’s is boosting its research and development in Switzerland by extending its
Product Technology Centre (PTC) in Konolfingen.
The extension will help to enhance Nestlé’s innovative technologies for new product
development and apply these to the company’s operations worldwide.

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8.0 Core Competencies Analysis
Nestlé’s products and brand portfolio ranges from global icons to local favourites. It is
supported by an unmatched research and development capability, with clear priorities,
focused on driving innovation and renovation that is relevant and attractive for consumers.
Nestlé Company has an unmatched geographical presence, due to the number of countries
where they are present, but also due to the depth of their roots in those countries. They have
operated in most of their locations for generations. This has created strong relationship
between their brands and their consumers as well as an unrivalled understanding of
consumers. This enables them to anticipate their needs and improve the quality of their lives.
Their people, culture, values and attitude are their greatest strength. The Nestlé culture binds
their people together all over the world with a shared set of doing business. Their culture
combines a long-term mind-set with short-term action. It encompasses a passion for quality in
products, in relationships, in everything they do. It is focused on competitiveness, calculated
risk-taking and an unswerving determination to deliver their goals, while creating value for
society as a whole.
Nestlé Company wants to be a leader in innovation and renovation, whether of products,
systems or processes. They need to have the most efficient supply chain, from farm to fork to
ensure that they have the best raw materials, the bet processes and the freshest products on
their customer’s shelves. Nestlé Continuous Excellence is their approach to operational
efficiency, with its objectives of eliminating waste, increasing efficiency and effectiveness,
and improving quality in all operations. To make the most innovative products in the most
efficient way, they also need to ensure that their products are available sustainably wherever,
whenever and however consumers want to buy them. Of course, they need to communicate
with their consumers in a dynamic way, both to keep them abreast of all that is new and
exciting, but also to learn from them, so that Nestlé can bring their experiences to bear on
their upcoming innovation and renovation (Nestlé.com, 2012)

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9.0 Value Chain Analysis of Nestle
The value chain analysis is a template that firms use to understand their cost position and
to identify the multiple means that might be used to facilitate implementation of a chosen
business-level strategy. A firm’s values chain is segmented into primary and support
activities. Primary activities are involved with a products physical creation, its sale and
distribution to buyers and its service after sale. Support activities provide the assistance
necessary for the primary activities to take place (Hanson, D., Hitt, M., Ireland, R. D.,
&Hoskisson, R. E., 2011, p.84).
9.1 Primary Activities
9.1.1 Inbound Logistics
Nestlé’s Pure Life purchase plastics bottles with different size form supplier. Establish
warehouse in different countries and setup of water filling plant and disseminate inputs to
their products.
9.1.2 Operations
Nestlé operations are water filling packaging and account maintenance. They know and
have approved the manufacturing for all their raw materials and packaging materials. Nestlé
Company immediately instituted a programmed of major improvement to bring the facility on
par with international standards, introduce more efficient machinery. This has helped them
speed up production. Nestlé handle their account for exclusive sale in their regional office.
9.1.3 Outbound Logistics
Nestle Pure Life deliver their product to their house. Operation has been done that
deliver to their regional offices according to their customer demand, innovations in bottled
packaging and eco-efficient packaging.
9.1.4 Marketing and Sales
Nestlé charge value price, product designing Nestlé produce tasty water in plastic bottles.
That produce is place in major city of Pakistan. Nestlé promote their produce by personal
marketing, TVC, sales promotion and public relation.

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9.1.5 Services
Nestlé provides the service home office delivery. They distribute bottle for exclusive
selective on shops, restaurants, hotel, etc. Their service is very efficient as compared to
others.
9.2 Support Activities
9.2.1 Procurement
The key raw materials purchased by Nestlé are milk, coffee, and cocoa. These, as well as
fruit, vegetables, cereals, and potatoes are partly sourced directly from farmers. Sugar, oil,
meat, spices and other ingredients are sourced only through the trade; Sourcing has to
contribute to the sustainable and profitable development of their company by providing the
base for quality differentiation of finished products to customer or consumer satisfaction.
This requires a supply of raw materials at specified quality, in the quantities and the timing
needed, at the lowest possible system costs.
9.2.2 Technological Development
Nestlé is strengthening its leadership in research and development by enlarging its global
Product Technology Centre for confectionary, based in United Kingdom. Nestlé Product
Technology Centres have two roles. The first is to develop breakthrough technologies,
building blocks that are basis of new product development. The second is to deploy these
technologies to the company’s operations.
9.2.3 Human Resource Management
Human research is dedicated to their employees and ensures that they have all the right
people with the right skills. Understanding their people are the bedrock of all their business
strategies, it is their mandate to enhance their skills with cutting edge training and provide
them with world standard facilities. Their Management Trainee Programmed aims to develop
talented young men and women and help them achieve their potential in a dynamic and
enabling environment.

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9.2.4 Firm Infrastructure
The Nestlé Report provides a fact based analysis of how, over time, their manufacturing
plants have helped to create large, skilled labour forces in rural areas and educate the people
who supply them, as well as build an important infrastructure such as roads and water
treatment systems. Through its infrastructure, the firm strives to effectively and consistently
identify external opportunities and threats, identify their resources and capabilities of Nestlé
and support their core competencies.
(The detailed basic value chain diagram are given in Appendix 4)
10.0 Weaknesses of Nestle
One of weakness of Nestlé can be pointed out that there are too many distribution
channels for certain products. The main weakness of the LC-1 division of Nestlé is that they
were not as successful as they thought they would be in France. The launch in France was in
1994, but since the late 1980s, Danone had already entered the market with a health-based
yogurt. The second weakness is that LC-1 was positioned as too scientific, and customers did
not understand that LC-1 was a food and not a drug. Nestlé do not have direct market outlets
and this can be one of the weaknesses as it can cause difference in profit made. They are not
having enough raw material production units; they depend on either local raw material
producers or through other trade channels.
11.0 SWOT Analysis
11.1 Strengths
Have a very long history over 140 years
Operated factories in 77 countries in all six continents, a truly global company
Considered the innovation leader in the global food and nutrition sector with 3500
scientists in company R&D network
Offering thousands of local products, research and development capabilities.
Have a great CEO, Peter Brabeck and very strong workforce.

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11.2 Weaknesses
Less consumer research in few areas.
Increasing instances of product recalls hampering brand equity
Entering into markets that are already mature and can give a tough competition to new
entrants.
11.3 Opportunities
Well-known company and strong brand name
Health based on products are becoming more popular in the world, including United
States
Ranked first in nearly all the product segments in which it operated (market leader)
11.4 Threats
Some markets they are entering are already mature
Global competitors
Increasing prices of raw materials
Highly competitive market, multinational companies are very organized and financially
strong
12.0 Current Strategy
Nestlé’s objectives are to be recognised as the world leader in Nutrition, Health and
Wellness, trusted by all its stakeholders, and to be the reference for financial performance in
its industry. They believe that leadership is not just about size, it is also about their behaviour.
They recognise trust is earned only over a long periods of time by consistently delivering on
their promises. These objectives and behaviour are encapsulated in the simple phrase, “Good
Food, Good Life”, a phrase that sums up their corporate ambition. The Nestlé Roadmap is
intended to create alignment for their people behind a cohesive set of strategic priorities that
will accelerate the achievement of their objectives. These objectives demand from their
people a blend of long-term inspiration needed to build for the future and short-term
entrepreneurial actions, delivering the necessary level of performance. They are seeking to
achieve leadership and earn that trust by satisfying the expectations of consumers, whose
daily choices drive their performances, of shareholders, of the communities in which they

Nestlé Company 20
operate and of society as a whole. They believe that it is only possible to create long-term
sustainable value for their shareholders of their behaviour, strategies and operations are also
creating value for the communities where they operate, for their business partner and also for
their consumers, and they call this Creating Shared Value. They are now investing for the
future to ensure the financial and environmental sustainability of their actions and operations
in capacity, technologies, capabilities, in people, in brands, in R&D. Their aims to meet
today’s needs without compromising the ability of the future generations to meet their needs,
and to do so in a way which will ensure profitable growth year after year and a high level of
returns for their shareholders and society at a large over the long-term.
13.0 Strategy
Nestlé describes itself as a food, nutrition, health, and wellness company. They believe
strengthening their leadership in this market is the key element of their corporate strategy.
This market is characterised as one in which the consumer’s primary motivation for a
purchase is the claims made by the product based on nutritional content. In order to reinforce
their competitive advantage, Nestlé created Nutrition as an autonomous global business unit
within the organisation, and charge it with the operational and profit and loss responsibility
for the claim-based business performance by offering consumers trusted, science based
nutrition products and services. The Corporate Wellness Unit was designed to integrate
nutritional value-added in their food and beverage businesses. This unit will drive the
nutrition, health and wellness organisation across all their food and beverage businesses. It
encompasses a major communication effort, both internally and externally, and strives to
closely align Nestlé’s scientific and R&D expertise with consumer benefits. This unit is
responsible for coordinating horizontal, cross-business project that address current customer
concerns as well as anticipating future consumer trends.Nestlé business-level strategy is
integrated cost leadership or differentiation with wide range of products and low cost
operators. Nestlé strategic leadership is to force the business to become more efficient, to
create a regional manufacturing network, integrate the company’s business on a global scale
and to reduce marketing expenditures by exploiting the synergies between brands. Their
strategy to develop R&D network by improving existing products and creating tomorrow’s
nourihsments, two third of company’s R&D activities are dedicated to renovating existing
products, the remaining third is reserved for radical product innovations, improve on
operational level and a number of organisational changes. (See Appendix 5)

Nestlé Company 21
14.0 Conclusion
The theory based frameworks and models might be very useful but the application in
practice might be achieved very hard. It will also depend on the execution skills of the
companies and the organisational culture. Nestlé Company is an international company which
came to the stage it is today by gaining superior competitive advantage over its rivals. The
focus product differentiation strategy has been very successful although it may not work for
other firms. The company is able to create and deliver value not only by offering
distinguished products but also gaining effectiveness and efficiency by reengineering its
business processes. By doing all recommendations and follow all these steps of strategic
management processes, I am sure that Nestlé Company will do better in the future than their
competitors and might be the new trendsetter in some criteria and also gain its above-average
returns to their company.

Nestlé Company 22
References
Book:
David, F. R. (2009). Strategic management: concept and cases (12th
Edition). NJ: Pearson
Prentice Hall.
Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E. (2011).Strategic Management:
Competitiveness and globalisation (Asia-Pacific 4th
Edition). South Melbourne:
Cengage Learning Australia.
Electronic Media:
Jones, S. (2012). Strategic Management at Nestle.
Retrieved September 17, 2012, fromhttp://www.articlesbase.com/management-
articles/strategic-management-at-nestle-5907881.html
Nestle (2012), Nestlé’ Good Food, Good Life.
Retrieved September 18, 2012, from http://www.nestle.com
Nestle (2011). The world’s leading Nutrition, Health and Wellness Company Annual Report
2011.
Retrieved September 20, 2012, from http://www.nestle.com
Scribd Inc. (2012). Competitive Advantage of Nestle. Retrieved September 19, 2012, from
http://www.scribd.com/

Nestlé Company 23
Appendices
Appendix 1 Theexternal environment
Appendix 2 The five forces model of competition
Source: www.google.com
Industry Environment
Threat of new entrants
Power of supplier
Power of buyers
Product substitutes
Intensity of rivalry
Competitor environment
Economic
Socio-
Cultural
Global
Demographic
Political/Legal
Technological

Nestlé Company 24
Appendix 3 Financial Statements of Nestlé’s

Nestlé Company 25
Source: 2011-Financial-Statements-EN.pdf

Nestlé Company 26
Appendix 4 The basic value chain
Appendix 5 Business Level Strategy

STRATEGIC MANAGEMENT - NESTLE COMPANY

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