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Nestle Case Study

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Joey Van Hoose
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M5A1- Nestlé
Nestlé Case Study
Nestlé has been considered the world’s largest food and beverage company for many years and they achieved this by operating under a localization strategy. Under a localization strategy, a company focuses on local responsiveness, and requires little coordination between the subunits. Working under a localization strategy, firms do not have a high need to integrate mechanisms to knit together different national operations. With that each operation has the ability to control operations by relying primarily on output and bureaucratic controls and a policy of management by exception. Considering the need for integration and coordination is low, under a localization strategy, the need for common processes and organization culture is also low (Hill, 2011). With that, each operating unit basically acts as its own entity, creating their own independent set of core values and policies.
Nestlé traces its origins back to the first European condensed milk factory, based in Cham, Switzerland, that opened in 1865 by the Anglo-Swiss Condensed Milk Company. One year after this, Henri Nestlé, a trained pharmacist, launched one of the world’s first prepared infant formula companies in Vevey, Switzerland. The two companies, that at the time were fierce competitors, decided to merge in 1905 to become the Nestlé we know today, and their headquarters are still in Vevey, Switzerland (Nestlé, 2012).
Nestlé begin with the localization strategy as a business model because at Nestlé, they believed that consumers and food were very local. The company wanted to expand its business model but did not believe that good food in one region was the same as good food in another. Nestlé believed there was no such thing as a global consumer and that they needed to adapt their product to the markets they were being sold in. That is why they begin operating under a localization strategy; it gave local management the ability to adapt their product to the local tastes and references (Hill, 2011).
Nestlé over time has spread to operating 461 factories in over 83 countries, and at each of these factories are located there where consumption is. Local raw materials, local tastes, the dietary needs of the local population demand it (ISO, 2012).And with the change in the global market and global standards, Nestlé had to transform from a company with a localization strategy, to more of a global standardized strategy. This came in part also because of competition from Unilever and Proctor and Gamble, this caused Nestlé to realize that they needed to adapt its organizational structure in a way that allowed it to maintain local responsiveness. They wanted to do this while at the same time realizing the cost saving that come from eliminating duplication that comes from across the subsidiaries (Hill, 2011).
Under the global standardization strategy firms realize that the strategy focus of location and experience curve economics. Firms that operate under the global standardization strategy, operate under a worldwide product division structure. Under this strategy headquarters maintains ultimate control over most operating decisions. Firms operating under the global standardization strategy model also have a high need for integration to realize value. Firms reaching for this strategy will stress the need to build a strong organizational structure that can facilitate coordination and cooperation. This style of organization is considered to be more complex than the localization and international strategies, due to the fact that there is much more oversight from a central headquarters (Hill, 2011).
Although I am not completely sold as the global standardization strategy in its truest form is what Nestlé is trying to attain. Nestlé was built on the belief that there is not a global consumer and their product needs to be adapted at a local level, and even though there is a trend for more oversight from headquarters, I believe there strategy is really more of a mix between an international strategy and global standardization strategy. I feel this way because Nestlé still wants its’ management at a local level to make operating decisions that will work best for that subsidiary of the company.
Putting into practice an international strategy is where a company transfers the company’s core values across the board to all factories and firms in every nation they operate in. In the International Strategy, even though headquarters maintains control of the core competencies and values, almost all other operating decisions are decentralized from the headquarters to the subsidiaries of the company are given the power to make their own operating decisions while working under the companies central core values (Hill, 2011).
Nestlé has evolved from a company that implored a localization strategy to one of what I believe to be a hybrid between the global standardization strategy and international strategy, and one of the driving forces behind this has been globalized food standards. According to, Paul Bulcke, the chief executive office for Nestlé: “International Standards help me to apply, throughout the company, the same dimension of judgment and the same terms of reference. In turn, this helps me scale up efforts to comply with these standards. If I have a standard that is the same the world over, I can muster the resources to achieve or, whenever relevant, surpass the requirements of those standards (ISO, 2012).” From this we see that global standards have forced more global oversight at Nestlé than they have lacked in the past. For this reason I feel that Nestlé has moved toward more of global standardization strategy in order to comply with global standards that are being established.
However within the same interview, Mr. Bulcke states: “How can Nestlé be so active worldwide and connect with consumers in a meaningful way? Actually, the answer is that we are very decentralized, because we believe consumers and food are always “ local ”. Very much from the beginning, over 145 years ago, we commercialized our products outside of our home market Switzerland. So, right from the start, we were decentralized and present in many markets with local structures. We are a global company, but one that is very connected on a local level to our consumers (ISO, 2012).” When you read a quote like this it tends to make you feel the company still wants to maintain the localization strategy that has made the company what it has been. The company still wants to produce its product on a local level for its consumers, and maintain that local feel in its product. However at the same time the company realizes that it has to maintain a global standard for its product.
Nestlé Company hasn’t been without its controversy. There have been and still continue today to be boycotts of Nestlé’s products, one of the more predominant is by the human rights group, Baby Milk Action that begin in 1988. According to their website, “Nestlé is the target of a boycott because it contributes to the unnecessary death and suffering of infants around the world by aggressively marketing baby foods in breach of international marketing standards (Baby Milk Action,n.d.).” The major concern is the promotion of the company’s baby formula alternatives to breast feeding. The boycott page goes on to state that: Nestlé is singled out for boycott action as monitoring shows it to be responsible for more violations of the requirements than any other company. The boycott helps to stop some of the specific cases of malpractice we expose and has forced some changes in policy. But Nestlé continues systematic violations in those countries which have not yet brought in independently monitored and enforced legislation implementing the marketing requirements, which is another part of our strategy for protecting infant health and mothers' rights (Baby Milk Action, n.d.).”
I believe this truly isn’t one of the driving forces to Nestlé adopting a more global standardization strategy; however it can cause some public relations issues for a company founded on nutrition. Nestlé was founded by Henri Nestlé when he developed a breast milk alternative made out of cow’s milk, wheat flour and sugar to help a neighbor’s child survive (Nestlé, 2012). With that being said, the Nestlé brand is one that is recognized throughout the world and the company does not want to be associated with an inferior product. Tie that to more global standards when it comes to food processing and manufacturing, and I believe Nestlé, didn’t have a choice but to adopt some global standardization into their company. Even I still feel that based upon the company structure, there strategy is a mix of the global standardization and international strategy, because they still really heavily on local management making the day to day operating decisions for the company, there is just more oversight than there has been in the past at Nestlé.

Reference
Baby Milk Action(n.d.) The Nestle Boycott. Retrieved October 7, 2012 from: http://info.babymilkaction.org/nestlefree
Hill, C.W. (2011). International Business: Competing in the Global Marketplace (8th ed). New York, NY: McGraw-Hill Companies, Inc.
ISO. (2012). Nestlé CEO on the need for International Standards. Retrieved October 7, 2012 from: http://www.iso.org/iso/home/news_index/news_archive/news.htm?refid=Ref1628
Nestlé (2012). Nestlé Good Food, Good Life. Retrieved October 7, 2012 from: http://www.nestle.com/AboutUs/History/Pages/History.aspx

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