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Nestle Case Study

Essay by   •  April 22, 2012  •  Case Study  •  524 Words (3 Pages)  •  1,560 Views

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Like their competitors, Nestle's competitive landscape is characterised not only by their global nature, but by the globalisation of product markets. They must maintain high levels of strategic flexibility as a whole and as individual strategic business units in order to keep up with the multiple product strategies that their truly global brand requires. Nestle must simultaneously manage a portfolio of brands that vary from low cost to high end food stuffs. The nature of the food industry means that growth is low and although food markets will never truly experience a decline phase, ambitious expansion strategies are required to keep the profits rolling in. This is a matter of where the global food industry profit pools lie. Nestle has found the largest pools to be in the related areas of product development and R&D which have recently become the centre of their organic growth strategies. Outside of these profit pools, Nestle and its competitors have little opportunity for significant growth and must leverage every last possible resource and capability they have to keep their heads above water. When playing with companies this large, the only true solution here is to take advantage of the economies of scale that arise from improvements in technology and market knowledge.

These are perhaps the areas where Nestle's aggressive acquisition strategy over the 90's has helped them the most. By growing the parent company by such a significant percent, they have bought access to many markets for their existing products as well as having acquired large amounts of industry skills and knowledge. It is now their task to maintain this successful streak and branch out in their acquisitions before organic growth dries up entirely. Although they have recently focused on spurring internal growth with minimal acquisitions, the time has come to acknowledge that all areas in which they are currently competent are soon going to dry up of fresh opportunities. The remedy to this is for Nestle to identify the areas in which they underperform, and spend some time and capital developing those resources so that they can be considered some of the companies many core competencies.

However, the very nature of business acquisitions implies there will be at least some hostility towards the new parent company. This can cause large amounts of friction and cause synergy break downs among both the business and parent after an acquisition has taken place. Nestle used a simple system of patient integration in order to manage the culture shock problem, but it comes at the expense of rapid consolidation of resources into the parent. All the time that a new business spends resisting their corporate parents represents the loss of money and skills that may have been put to value-creating uses otherwise.

Another big issue - one that Nestle had become familiar with - is the absorption and retainment of business structure that is excess to the needs



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