M MC

TUTORIAL 2

I N T E R N AT I O N A L S T R AT E G I E S OF MNCS
 GLOBAL STRATEGY

Where to
Why expand? How to
expand?
expand?
AN INTERNATIONAL STRATEGY
SHOULD PINPOINT TO
Strong
Global
International
Partnerships
Vision

Allocation of Global
Scarce Competitive
Resources Moves

Participation in ValueAdding
Major Markets Activities
THE FIRM AS A VALUE CHAIN
GLOBAL INTEGRATION VS LOCAL
RESPONSIVENESS
 FOUR STRATEGIES EMERGING FROM
THE INTEGRATION-RESPONSIVENESS FRAMEWORK
EXAMPLES FOR THE 4 STRATEGIES
NESTLE KITKAT KITTU KITSU CASE
STUDY JAPAN
Nestle KitKat - Kittu Kitsu Case Study Japan-YouTube
DISCUSSION ON KITKAT KITTU
KATSU
 NESTLE CASE STUDY
Introduction

In 1929, Nestlé moved into the chocolate business when it acquired a Swiss chocolate maker. This
was followed in 1938 by the development of Nestlé’s most revolutionary product, Nescafe, the
world’s first soluble coffee drink. After World War II, Nestlé continued to expand into other areas of
the food business, primarily through a series of acquisitions.

By the late 1990s, it had 500 factories in 76 countries, selling in 193 nations. It became the
world’s largest food and beverage company.

Growth in Western markets stagnated due to low population growth and increased price
competition driven by powerful supermarket and discount chains.
 A Growth Strategy for the 21st Century

•Nestlé focused on early entry into developing countries to capture markets before competitors.

•The company built strong positions by offering basic food products suited to local needs (e.g.,

milk, noodles, tofu).

•As incomes rose, it introduced premium products (e.g., chocolate, mineral water).

•Examples of success: 85% of instant coffee market in Mexico, 66% powdered milk in the

Philippines, 70% soups in Chile.

Successful execution of the strategy for developing markets requires a degree of flexibility, an ability
to adapt in often unforeseen ways to local conditions, and a long term perspective that puts building a
sustainable business before short-termprofitability.
In Nigeria, for example, a crumbling road system, aging trucks, and the danger of violence forced
the company to rethink its traditional distribution methods. Instead of operating a central
warehouse, as is its preference in most nations, the company built a network of small warehouses
aroundthe country.
For safety reasons,trucks carrying Nestlé goods are allowedto travelonly during theday and frequently
under armed guard.
Marketing also poses challenges in Nigeria. With little opportunity for typical Western-style
advertising on television or billboards, the company hired local singers to go to towns and villages
offeringa mix of entertainmentand productdemonstrations.
Although at first glance this might seem to be a very costly solution; Nestlé calculated that the long-
term benefits would be substantial. Nestlé’s strategy is similar to that undertaken by many European and
American companies during the first waves of industrialization in those countries. Companies often had
to invest in infrastructure that we now take for granted to get production.

Nestlé is pursuing a similar long-term bet in the Middle East, an area in which most multinational
food companies have little presence. Collectively, the Middle East accounts for only about 2
percent of Nestlé’s worldwide sales,and the individual markets are very small.

However, Nestlé’s long-term strategy is based on the assumption that regional conflicts wil subside and
intraregional trade wil expand as trade barriers between countries in the region come down. Once that
happens, Nestlé’s factories in the Middle East should be able to sell throughout the region,
thereby realizing scale economy.
Management Structure
Nestlé is a decentralized organization. Responsibility for operating decisions is pushed down to local units,
which typically enjoy a high degree of autonomy with regard to decisions involving pricing,
distribution,marketing,human resources, and so on.

At the same time, the company is organized into seven worldwide strategic business units (SBUs) that have responsibility
for high-level strategic decisions and business development. For example, a strategic business unit focuses on coffee
and [Link] one focuses on confectionery and ice cream.

These SBUs engage in overall strategy development,including acquisitions and market entry strategy. In
recent years,two-thirds of Nestlé’s growth has come from acquisitions,so this is a critical function.

Running in parallel to this structure is a regional organization that divides the world into five major
geographical zones, such as Europe, North America, and Asia. The regional organizations assist in the overall
strategy development process and are responsible for developing regional strategies (an example would be Nestlé’s strategy
in the Middle East,which was discussed earlier).

Neither the SBU nor regional managers, however, get involved in local operating or strategic decisions
on anything other than an exceptional basis.
 WHAT IS THE COMPANY’S STRATEGY
WITH REGARD TO BUSINESS
DEVELOPMENT IN EMERGING MARKETS?

DOES THIS STRATEGY MAKE SENSE?

• Enters emerging markets by building its own infrastructurefromscratch.

• As an alternative way of trying to force a product in a market,the company customizesbut tries

• When good opportunities are available,Nestle acquires local [Link] significant differences
in various developing markets,and different food preferences of different cultures,this
customized approach makes sense.
 HOW WOULD YOU DESCRIBE NESTLE’S
STRATEGIC POSTURE AT THE CORPORATE
LEVEL;
IS IT PURSUING A GLOBAL STRATEGY, A
MULTI-DOMESTIC STRATEGY, AN
INTERNATIONAL STRATEGY, OR A
TRANSNATIONAL STRATEGY?
 TRANSNATIONAL STRATEGY
• Attempt to coordinate strategies across countries (e.g.,in the Middle East,Europe)

• Operates on a decentralized structure as a way to customize its product offerings to local needs,
a key characteristic of a multi-domestic company.
• Due to the high competitive conditions that Nestlé faced along with the need to obtain cost
reductions, the company moved one step ahead by adopting a transnational strategy (to achieve
both cost efficienciesand local customization).

• Within Nestlé, its national units are characterised as semi-self-directed as they are able to
involve decisions such as pricing and marketing in order to customize the products to local
[Link] rather than globalization.
 THANK YOU!
ANY QUESTIONS?