Question

CASE STUDY

Despite its undisputed success, Nestle’ realized by the early 1990s that it faced significant
challenges in maintaining its growth rate. The large Western European and North American
markets were stature. In several countries. Population growth had stagnated and in some there
had been a small decline in food consumption. The retail environment in many Western nations
had become increasingly challenging, and the balance of power was shifting away from the
large-scale manufacturers of branched foods and beverages and toward ration wide supermarket
and discount chains. Increasingly, retailers found themselves in the unfamiliar position of
playing off against each other manufacturers of branded foods, thus bargaining down prices.
Particularly in Europe, this trend was enhanced by the successful introduction of private-label
brands by several of Europe’s leading super-market chains. The results included increased price
competition in several key segments of the food and beverage market, such as cereals, coffee and
soft drinks.
At Nestle, one response has been to look toward emerging markets in Eastern Europe, Asia and
Latin American for growth possibilities. The logic is simple and obvious – a combination of
economic and population growth, when coupled with the widespread adoption of market oriented
economic policies by the governments of many developing nations, makes for attractive
business opportunities. Many of these countries are still relatively poor, but their economies are
growing rapidly. For example, if current economic growth forecasts occur, by 2010 there will be
700 million people in China and India that have income levels approaching those to Spain in the
mid 1990 S. As income levels rise, it is increasingly likely that consumers in these nations will
start to substitute branded food products for basic food stuffs, creating a large market opportunity
for companies such as Nestle.
In general, the company’s strategy has been to enter emerging markets, early-before competitors
– and build a substantial position by selling basic food items that appeal to the local population
base, such as infant formula condensed milk, noodles, and tofu. By narrowing its initial market
focus to just a handful of strategic brands, Nestle’ claims it can simplify life, reduce risk, and
concentrate its marketing resources and managerial effort on a limited number of key niches. The
goal is to build a commanding market position in each of these niches. By pursuing such
strategy, Nestle has taken as much as 85 percent of the market for instant coffee in Mexico, 66
percent of the market for powdered milk in the Philippines and 70 percent of the market for
soups in Chile. As income levels rise, the company progressively moves out from these niches,
introducing more upscale items, such as mineral water chocolate, cookies and prepared food
stuffs.
Although the company is known worldwide for several key brands, such as Nescafe, it uses local
brands in many markets. The company owns 8,5000 brands, but only 750 of them are registered
in more than one country, and only 80 are registered in more than 10 countries. While the
company will use the same, “global brands” in multiple developed markets, in the developing
world it focuses on trying to optimize ingredients and processing technology to local conditions
and then using a brand name that resonates locally. Customization rather than globalization is the
key to the company’s strategy in emerging markets.
Questions
((a) Does it make sense for Nestel to focus its growth efforts on emerging markets? Why?

(b) What is the company’s strategy with regard to business development in emerging
markets? Does this strategy make sense?

Answer 1

Answer1: Yes, it does make sense for Nestle to focus its growth efforts on emerging markets because over the period of time Nestle realized that maintaining the growth rate is an important aspect in the Western Europe and North American market. It is also evident that the emerging market economies are at faster growth rate and pace mostly in developed countries. Many researches also indicated that the global recession and real estate price downturn also have influence on the emerging market as due the change in consumer’s spending dynamics. Hence, Nestle found this as a greater opportunity for the long term perspective.

Answer2: Nestle adopted the “first mover strategy “with regard to business development in emerging markets as Nestle was the first organization to offer differentiated products in local markets on affordable pricing. Progressively, Nestle acquired local organizations into the new emerging markets and also build its own infrastructure from the beginning. This strategy worked well for Nestle in establishing the presence in the market by having strong product portfolio in local markets and fulfilling the need of the local consumers.