An Incredibly In-Depth Analysis of Nestle

Firstly, there are macroeconomic factors which are managed at government levels. These include: gross domestic product (GDP), interest rate trends, inflation, exchange rates, unemployment, tax rates and recessions. All factors contribute to how Nestle operates. This causes a disadvantage to the business as it creates problems as to the management of functions of where these factors are prevalent in the business, therefore constant updates must be made to ensure that the company is in the most advantageous position whenever these changes are made. Microeconomic factors are related to consumer spending behavior and their income. These include suppliers, competition, demand for products and services, and the general public. This means that consumers drive the business forward in demand. Suppliers distribute the product available so control over this is not available. Public behaviour impacts all these factors.

Rising Cost of Raw Materials

Nestle would need to tackle the rising cost of raw materials. This means that Nestle would need to find new suppliers which are cheap and are good enough quality, however this is hard to find. In addition, the cost mark – up will increase because of this. Therefore, customer satisfaction may decrease because of the rising prices. The cost of raw materials is rising because of their scarcity, however the rising prices will affect all of Nestle’s competition as well as Nestle. Where, suppliers are located also depends on the prices of their raw materials, as wherever they are more prevalent the cheaper they will be. However, this creates problems in logistics management.

Opportunities 1. One opportunity that Nestle can exploit is investment in online retail, as this could open up new distribution channels and bypass traditional retailers. An advantage of this is that they can avoid extra costs as a percentage of products sold to give to retailers such as Tesco’s, Morrisons. Also set up and operational costs will be lower. Also this improves customer service, This is because it gives greater sales reach and customer accessibility which gives customers a greater and easier experience in purchasing products. In addition E-commerce represents the brand 24/7, further communication improves over many channels through e-mail, online forums, and website. Through this information is streamlined and much more efficiently transferred. 2. People have busy lifestyles this means that they need to have something to eat on the go, rather than sit for 2 hours like they used to do before and relax. So to and alternative lifestyle Nestle can offer an alternative product, and expand their product portfolio. This could be especially targeted to affluent professionals. Furthermore, this growth in variety attracts potential customers and gives more dominance to the monopoly that Nestle had created. Wider product portfolios spreads risk, so decline in one product in its product lifecycle may offset sales of other products, as selling one product may not give enough return for a business. 3. Nestle could aim for a focused global expansion for heavily populated areas like China or India, which people have more disposable income can create larger markets for Nestle. Because of this income will increase because of the wider knowledge of Nestle products being known to these populations. Furthermore, Nestle can adapt their existing products to the demand due to culture differences. Also, because of Nestle’s size they would be able to outcompete and dominate local markets, international business can also increase a company’s perceived image, as global operations can help build name brand recognition. Another top benefit of going global is international labour can offer companies unique advantages in terms of increased productivity. However, international expansion can also help companies acquire access to new technologies, which may significantly improve their operations. 4. Increased interest in health and nutrition creates opportunities for Nestle such as investment in healthier alternative products such as wheat bars, oats, fat free products etc. This can create a more favourable public image for Nestle. This can also be appointed to Nestle for reducing the sugar percentage in their chocolate bars by 40%. Furthermore, the growth in sales in lower calorie beverages can help Nestle also reconsider the ingredients put into them. Because of the rising popularity of people leading healthier lifestyles Nestle can exploit this by launching and new marketing campaign promoting these products, for supposed high return value. 5. Investment in new technologies can improve the efficiency of operations management. Manufacturing, improving customer care, transportation, human resource management, business communication will all be boosted for high efficiency outcomes in order to meet customers demand. An example of these technologies is EPOS this new opportunity allows Nestle to use differentiated pricing strategies in a new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions. These newly found customers will then create a return for these investments. Nestle also have 4000 members of staff with responsibilities looking at development therefore they can be trained to use this equipment. This will avoid Nestle needing new recruitment and spend other resources.

Weaknesses 1. Brand structure could affects Nestle negatively because it has many brands under the same umbrella group, therefore managing such a large number of brands creates a conflict of interest. This can interfere in Nestle’s operations as different paths of individual brands can misalign from Nestle’s main aims and objectives for the business as a whole. Therefore, new management of these different brands can create larger costs for the business, and the risk of making redundancies creates new recruitment costs. 2. Legal issues such as controversies over child labour suppliers affect Nestle negatively due to their bad word of mouth. Nestle has been heavily criticised for their lack of human rights of labour workers and under enforced food safety regulations whereby the product suffers as a cost of it. This unethical approach to Nestle’s production tarnishes their brand name and reputation leading to a worsened public opinion. This can cause Nestle to loose customers therefore decrease their sales revenue as then will lead to less profit. 3. Decrease in Nestle’s marketing means that a lot more products left to be desired. This doesn’t give knowledge to the public of the more wider products available in the market produced by Nestle brands. However if the product is successful in it’s sales and positioning and unique selling point the problem is that it is not clearly defined. Therefore, the segment in the market where this product is can be attacked by competition which could come at a cost of losing customers. These loses in customers can be costly in the long-term as it could cause a problem to retrieve them. These problems would ensue as a new marketing campaign, extension strategies, etc. 4. Nestle is not effective in product demand forecasting, therefore this leads to higher rates of missed opportunities compared to their competitors. Therefore, their inventory keeps building in channels and in company houses which creates additional costs. These missed opportunities have a disadvantage for Nestle as every missed opportunity lost their competition can exploit. Because of this competition can grow to the point where they can become serious rivals. So whatever Nestle is missing must be correctly calculated and demand well predicted so that sales will be guaranteed and no or little stock should be left over. 5. Nestle have limited success outside of their core business, this means that the organisations in their industry are having trouble moving other product segments. Therefore, Nestle would need extra management on their product management which will provide additional costs which is detrimental to the continued growth of Nestle. Also additional costs will be made creating the products there is no demand for, so this will also build up Nestle inventory.

Factors that Influence Competitive Advantage

Differentiation

Nestle, have many individual brands under their name e.g. KitKat, Nescafe, Purina, S. Pellegrino. This means that these brands produce products that add variety to their product portfolio and product mixes which gives them a competitive advantage when some products are in decline there are always different products or the same product of a different Nestle brand that customers can buy. A differentiated product creates value as consumers and the business have a perceived value which can further increase the durability of the product in comparison to other products. Businesses can focus the differentiation strategy on the quality and design of their products and gain a competitive advantage in the market.

Pricing Policy

Pricing policies give Nestle a competitive advantage because the more effective the policy is the better they can compete and the more they are tailored to the competition. Also, a competitive pricing policy puts Nestle’s product in reference to other brands in the market. According to reuters.com Nestle’s competitive pricing strategy helped lift sales growth from emerging competitive markets in Europe. Competitive pricing is advantageous for Nestle as it allows them to respond faster to competition this allows Nestle to have control over their competition, Nestle can also position themselves to meet different strategic decisions of their competitors. Furthermore, the constant dropping prices will satisfy customers and attract new ones so this can avoid revenue loss from a race-to-the-bottom which is another competitive advantage of Nestle’s.

Market Leadership

Nestle is the largest firm in their industry, this gives them a competitive advantage as they have dominance over the market allowing them to destroy any rising competition. Nestle have done this over the years by purchasing successful brands e.g. KitKat, Purina, S. Pellegrino. However, this has also been acquired through Nestle creating their own brands such as Nescafe. Therefore, some advantages are that you can charge a premium price due to the leader status, low product cost due to the economies of scale, longer product life cycles due to customer loyalty and self-interests, more publicity, more favourable distribution terms due to more channel demands. Reasons above show that market leadership gives nestle a competitive advantage because of all the perks of their expansion that aid them because they are successful.

Reputation

Nestle’s reputation as a successful multinational has been mended since their beginning and expansion to become a household name. A good business reputation already gives the public a good impression of the business making them inclined to utilised their products and services. Therefore as a trusted company customers would want to shop their and buy their products and services. The reputation of an organisation can enable a company to differentiate their products in highly competitive markets, allowing the Nestle brands to be recognisable and be the first choice for their customers. A respectable reputation can allow a company to facilitate international as foreign investment can trust the Nestle business due to their reputation. Most importantly I believe that reputation gives Nestle a competitive advantage because their reputation gives them brand recognition. This is important because their brand is known and other competition may not be as recognisable.

Cost Control

Cost control for Nestle is important because it identifies and reduces business expenses to increase profits. Therefore, Nestle’s cost control management system makes them successful because, it reduces their debt to equity, so a reduced debt to equity ratio improves the financial strength of the business. Nestle can increase their budgets for other functions of the business such as marketing and advertising, so the more efficient operation generates more funds and improves quality of sales campaigns, and more sales can lead to better profits. Cost control provides more sales income for Nestle, therefore more investment in better capital equipment and increased productivity. All of the points above are done to maintain an efficient operation which gives Nestle a competitive advantage. Nestle use backwards integration, the act of purchasing suppliers up the supply chain, as it is expected to result in improved efficiency and cost savings.

Technology

Technology can be used in business in various ways, in processes such as manufacturing, customer service, business communication, transportation, they can also use technology as a way of improving their products and services as a way of gaining a competitive advantage. E.g. in communication the role of technology can help maintain data flow, track processes and maintain employee records. This means that technology helps businesses to operate efficiently and effectively with minimal manpower to help reduce the cost of doing business. Nestle is affected by the changing technological environment, as change offers risks, opportunities and threats it is always good to invest for long term outcome, so Nestle can leverage changing technology to create new products and processes that will expand to new markets and profits. Nestle utilises the advantage of technology through the use of social media, advertising, design, production etc. These gives Nestle a competitive advantage as cost will reduce of e.g. wages for manpower, faster and more efficient systems, these can also be made to work 24/7. This produces a lot of retained profit that can be used elsewhere.

Suppliers

Suppliers are important to a business because they provide other businesses with goods and services to run Nestles business. It is also important to know your suppliers if they provide would with a quality product to make Nestle’s products. This will give Nestle a competitive advantage as the quality of their products will affect their customer satisfaction with the product, so the better quality they are the more they will be coming back. According to nestle.com the work with about 165,000 direct suppliers and 695,000 individual farmers worldwide. This makes them an effective operation as their wide chain of suppliers ensures that they have enough product to meet the demand of their customers. This wide chain of suppliers give them a competitive advantage as this gives leverage to their global operations because they can rely on so many suppliers.

Employees

Employees are essential to Nestle’s business as they run their operations. Therefore, employees are essential to Nestle’s business. Effective and efficient employees may be the most useful part of the business. Therefore, Nestle believes in motivating their employees as it can increase sales, improve customer service and increase productivity. Nestle also believe the success of the business depends on the ability of their employees to perform on the highest level. It is also important that Nestle show appreciation of their employees to increase their job satisfaction as a happy workforce keeps them productive. Employees give Nestle a competitive advantage because through the well trained workforce is a major factor that leads the business into success.

How the Internal Environment Affects Business Operations

Culture:

A business culture refers to the beliefs and behaviours that determine how a companies employees and management interact and handle outside business transactions. The company culture is the personality of the company. It defines the environment by which the employees work. The company culture includes a variety of elements including, working environment, company mission, value, ethics, expectations and goals. Company culture is important to the employees because they are more likely to enjoy their time in the workplace when they fit in with the company culture.

Impact:

A business culture is important because it makes happy employees more productive and more engaged employees. Furthermore, CEOs and HR leaders now recognize that culture drives people’s behaviour, innovation, and customer service: 82 percent of survey respondents believe that “culture is a potential competitive advantage.” Knowing that leadership behaviour and reward systems directly impact organizational performance, customer service, employee engagement, and retention, leading companies are using data and behavioural information to manage and influence their culture.

Nestle seem to have a culture of diversity where all people are included under their brand, which portrays their appreciation of their employees. Further on, Nestle treat the their acquired brands as assimilated as one their own that are under the same branch to become another continuing sources of finance and to provide sales for Nestle.

Corporate Social Responsibility

What is meant by CSR?

A corporate social responsibility is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders. However CSR has many definitions. CSR is a very broad concept that addresses many and various topics such as human rights, corporate governance, health and safety, environmental effects, working conditions and contribution to economic development. Whatever the definition is, the purpose of CSR is to drive change towards sustainability. Furthermore, CSR is a self-regulating business model that helps a company be socially accountable — to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental.

Impact:

Benefits:

Corporate social investment can help you to build a reputation as a responsible business, which can, in turn, lead to competitive advantage. Companies often favour suppliers who have responsible policies, since this can reflect on how their customers see them. Some customers don't just prefer to deal with responsible companies. By reducing resource use, waste and emissions, you can help the environment and save money too. With a few simple steps, you may be able to lower your utility bills and achieve savings for your business. See how to reduce your business waste to save money. Being a responsible, sustainable business may make it easier to recruit new employees or retain existing ones. Employees may be motivated to stay longer, thus reducing the costs and disruption of recruitment and retraining.

Drawbacks:

Corporate Social Responsibility Can Mean Greater Scrutiny

A failed CSR plan can ultimately fare worse for your company than no CSR at all. Use corporate social responsibility to show consumers that you follow through with your promises and put your money where your mouth is. Press releases that prove to be false promises over time lead to greater scrutiny from both the media and consumers.

Corporate Socially Responsibility Isn't Always Cheap

CSR strategies can end up being expensive endeavors with difficult-to-track return on investment. After all, you must pay a team of people to devise and execute a corporate social responsibility plan, and their salaries alone can be difficult for some small businesses to stomach. Plus, CSR campaigns often have a financial component, whether it's donating money outright or allowing employees to spend a day out of the office doing volunteer work.