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rve long term relationships with its suppliers as this helps to ensure the quality of the raw
materials being purchased. In addition, Nestl also offers useful advice to its suppliers on
how to perform more efficiently to minimize unnecessary costs.
1.1 Bargaining Power of Buyer
Customers have a large amount of bargaining power regarding to their consumption of
Nestl products. There are close substitutes for Nestl products which allows for the
preferences of the customer to be very influential. Nestl understands the power of the
customer and has taken specific steps to meet the needs of its products consumers.
Specifically, Nestl is incorporating health and wellness into the creation of its products as
society has started becoming more health conscious.

1.2 Threat of Substitute Products


Due to the nature of the industry, Nestl is afflicted with the threat of substitute goods.
Ranging from ice cream, frozen foods and confectionaries to pet food, there are arrays of
similar products that compete directly with Nestl. It is vital for Nestl to continuously find
new ways to improve its products and generate new sources of growth for the companys
future expansion because competition is so violent. In recent years, Nestl has focused on the
health and wellness aspects of its products to maintain its edge in the market.
1.3 Intensity of Rivalry Among Competitors
Nestle is powerhouse in the food processing industry but so are Kraft, Masterfoods, and
Unilever, Nestle was also facing strong competition at the national and regional level. These
companies, among others, are in a constant and continuous battle to outperform one another.
Nestle was increasingly facing fierce competition as many food producing rivals had
achieved significant improvements in their operating efficiency. Rivalry is fierce in the food
processing industry, and this is a good thing for consumers. As long as these companies
continue striving to one up one another, consumers will continue to enjoy ever-improving
product lines.
When I applied to Nestl, the Porters Five Forces Model depicts a competitive, but
profitable market for the food processing industry. Furthermore, the model places Nestl in a
somewhat comfortable position within the food processing industry, while acknowledging the
threats to its market share. Specifically, the model notes a moderate threat of new entrants
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into the market and a substantial threat of substitute goods. In addition, the model shows that
Nestl tends to maintain the upper hand over its suppliers as commodities have exact
substitute in the market. And also, their customers have a considerable amount of bargaining
power, as Nestl must adhere to consumer wants and needs because there are so many close
substitutes. For the final force, the model depicts a large amount of rivalry within the food
processing industry.
(The detailed data are given in Appendix 2)

2.0 Competitive Environment


Nestl Company encounters higher levels of competition than it currently experiences.
Any increase in the competitive environment may have an adverse effect on Nestls
business, earnings and growth. Through effective competitive intelligence, the firm gains the
insights needed to create a competitive advantage and to increase the quality of the strategic
decisions it makes when deciding how to compete against its rivals (Hanson, D., Hitt, M.,
Ireland, R. D., &Hoskisson, R. E., 2011, p.60). The brand image of Nestl is one of the most
important sources of competitive advantage. Through the research and development (R&D)
capabilities allow Nestl Company to lead the way in innovation and provides for maximum
portfolio flexibility. The extraordinarily large scope of Nestls business provides for
significant economic of scale in manufacturing, marketing, and administration. For example,
Nestl established a number of ventures for growth into new areas related to wellness and
nutrition. Nestl moved into the area of nutricosmetics, under the brand name Inneov a joint
venture by Nestl and LOreal. This strong brand reputation is built due to high quality of the
products and customer satisfaction. Competitors rivalry in this market is really intense; it is
because in Nestls market there are a lot of branded rival such as Kraft, Unilever,
Masterfoods, Johnson & Johnson, and Wal-Mart.
Innovation is one of Nestls key competitive advantages. They have more than 140
years of research, development and scientific know-how. While there is a great deal of pure
and applied science research that takes place in their global R&D centres, Nestl ensures that
the consumer, and the consumer benefit, remains at the core of all their activities. To be
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successful in todays food and beverage sector the cost component is critical and economic of
scale are a main cost driver for Nestls Company. Between the shelf share of multi
billionaire brands and recent push of retailer driven private label products a new entrant
would be challenged into executing a successful distribution strategy.The main threat of this
company is their competitors, which is come out with foods and beverages as well, if they go
higher than price ceiling, the other competitors will win by setting up lower price, but if they
go lower than that, competitors will easily eliminate them in market place. That is why the
rate of competition is really high and Nestl was also facing a strong competition at the
national and regional level. Nestl Company have strategic advantage over their competitors
because their will increase Nestl value by ensuring long term availability of raw materials
and water, more secure supply of better quality raw materials, producing products with
improved environmental performance, profitable growth, consumer preference for their
products and sustainable, and also to continuously improving environmental performance
(Nestl.com, 2012)

3.0 Opportunities and Threats of Nestle


3.1 Opportunities

High credibility
Potential to expand to smaller towns
Improving trends
Industry leadership
Increase the partnership
Product diversity and offerings

3.2 Threats

Highly competitive market


Increasing prices of raw materials
Strong rival like Kraft, Masterfoods, and Unilever
Threat of substitute products
Bargaining power of buyers

INTERNAL ANALYSIS
Here, I discuss about the nature of Nestls firms internal environment analysis.
Evaluate the role of resources and capabilities in developing core competencies, which are
the sources of the firms competitive advantages. In this section, I will discuss the techniques
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firms can use to identify and evaluate resources and capabilities and the criteria for selecting
core competencies from among them. It also discusses the value chain concept and examines
four criteria to evaluate core competencies that establish a competitive advantage to Nestl
Company.

4.0 Nestls Resources, Tangible and Intangible Product


Resources are the source of the firms capabilities. Resources are bundled to create
organisational capabilities. Some of a firms resources are tangible and intangible. Tangible
resources are assets that can be seen and quantified. Intangible resources include assets that
typically are rooted deeply in the firms history and have accumulated over time. Intangible
resources are relatively difficult for competitors to analyse and imitate. The four types of
tangible resources are financial, organisational, physical and technological. And the three
types of intangible resources are human, innovation and reputational (Hanson, D., Hitt, M.,
Ireland, R. D., &Hoskisson, R. E., 2011, pp. 75-78).
4.1 Tangible Resources of Nestle
Financial Resources

Total Revenue
Operating income
Profit
Total Equity
Total Assets

:
:
:
:
:

CHF 83.64 billion (2011)


CHF 12.538 billion (2011)
CHF 9.487 billion (2011)
CHF 62.60 billion (2010)
CHF 111.64 billion (2010)

(The detailed financial resources paragraph are given in Appendix 3)


Organisational Resources

Nestls governing body is the Annual General Meeting of shareholders.


Leading the company is the Chairman of the Board and CEO.
The most relevant of Nestls organisational measures were the creation of Product
Technology Centres, Local Application Centres and Clusters.

Physical Resources

Coffee
Water

The day to day management of Nestl business is taken

care of by Executive Board members composed of company executives and


department heads.
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Manufacturing

Nestl produced a probiotic especially for all infant formulas and created and patented a
spray drying process, used in manufacturing milk powders and Nescafe was first used
to make powdered paint dispersions.

R&D

Nestl Company first acquired the milk sterilising site to develop milk products and

processes.
Nestls is boosting its research and development in Switzerland by extending its

Product Technology Centre (PTC) in Konolfingen.


The extension will help to enhance Nestls innovative technologies for new product
development and apply these to the companys operations worldwide.

4.1.1

Inbound Logistics
Nestls Pure Life purchase plastics bottles with different size form supplier. Establish

warehouse in different countries and setup of water filling plant and disseminate inputs to
their products.
4.1.2

Operations
Nestl operations are water filling packaging and account maintenance. They know and

have approved the manufacturing for all their raw materials and packaging materials. Nestl
Company immediately instituted a programmed of major improvement to bring the facility on
par with international standards, introduce more efficient machinery. This has helped them
speed up production. Nestl handle their account for exclusive sale in their regional office.
4.1.3

Outbound Logistics
Nestle Pure Life deliver their product to their house. Operation has been done that

deliver to their regional offices according to their customer demand, innovations in bottled
packaging and eco-efficient packaging.
4.1.4

Marketing and Sales


Nestl charge value price, product designing Nestl produce tasty water in plastic bottles.

That produce is place in major city of Pakistan. Nestl promote their produce by personal
marketing, TVC, sales promotion and public relation.

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4.1.5

Services
Nestl provides the service home office delivery. They distribute bottle for exclusive

selective on shops, restaurants, hotel, etc. Their service is very efficient as compared to
others.

4.2 Support Activities


4.2.1

Procurement
The key raw materials purchased by Nestl are milk, coffee, and cocoa. These, as well as

fruit, vegetables, cereals, and potatoes are partly sourced directly from farmers. Sugar, oil,
meat, spices and other ingredients are sourced only through the trade; Sourcing has to
contribute to the sustainable and profitable development of their company by providing the
base for quality differentiation of finished products to customer or consumer satisfaction.
This requires a supply of raw materials at specified quality, in the quantities and the timing
needed, at the lowest possible system costs.
4.2.2

Technological Development
Nestl is strengthening its leadership in research and development by enlarging its global

Product Technology Centre for confectionary, based in United Kingdom. Nestl Product
Technology Centres have two roles. The first is to develop breakthrough technologies,
building blocks that are basis of new product development. The second is to deploy these
technologies to the companys operations.
4.2.3

Human Resource Management


Human research is dedicated to their employees and ensures that they have all the right

people with the right skills. Understanding their people are the bedrock of all their business
strategies, it is their mandate to enhance their skills with cutting edge training and provide
them with world standard facilities. Their Management Trainee Programmed aims to develop
talented young men and women and help them achieve their potential in a dynamic and
enabling environment.

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4.2.4 Firm Infrastructure


The Nestl Report provides a fact based analysis of how, over time, their manufacturing
plants have helped to create large, skilled labour forces in rural areas and educate the people
who supply them, as well as build an important infrastructure such as roads and water
treatment systems. Through its infrastructure, the firm strives to effectively and consistently
identify external opportunities and threats, identify their resources and capabilities of Nestl
and support their core competencies.
(The detailed basic value chain diagram are given in Appendix 4)

5.0 Weaknesses of Nestle


One of weakness of Nestl can be pointed out that there are too many distribution
channels for certain products. The main weakness of the LC-1 division of Nestl is that they
were not as successful as they thought they would be in France. The launch in France was in
1994, but since the late 1980s, Danone had already entered the market with a health-based
yogurt. The second weakness is that LC-1 was positioned as too scientific, and customers did
not understand that LC-1 was a food and not a drug. Nestl do not have direct market outlets
and this can be one of the weaknesses as it can cause difference in profit made. They are not
having enough raw material production units; they depend on either local raw material
producers or through other trade channels.

6.0 SWOT Analysis


6.1 Strengths

Have a very long history over 140 years


Operated factories in 77 countries in all six continents, a truly global company
Considered the innovation leader in the global food and nutrition sector with 3500

scientists in company R&D network


Offering thousands of local products, research and development capabilities.
Have a great CEO, Peter Brabeck and very strong workforce.

6.2 Weaknesses
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Less consumer research in few areas.


Increasing instances of product recalls hampering brand equity
and strong brand name
Health based on products are becoming more popular in the world, including United

States
Ranked first in nearly all the product segments in which it operated (market leader)

Increasing prices of raw materials


Highly competitive market, multinational companies are very organized and financially
strong
partner and also for their consumers, and they call this Creating Shared Value. They are

now investing for the future to ensure the financial and environmental sustainability of their
actions and operations in capacity, technologies, capabilities, in people, in brands, in R&D.
Their aims to meet todays needs without compromising the ability of the future generations
to meet their needs, and to do so in a way which will ensure profitable growth year after year
and a high level of returns for their shareholders and society at a large over the long-term.

7.0 Strategy
Nestl describes itself as a food, nutrition, health, and wellness company. They believe
strengthening their leadership in this market is the key element of their corporate strategy.
This market is characterised as one in which the consumers primary motivation for a
purchase is the claims made by the product based on nutritional content. In order to reinforce
their competitive advantage, Nestl created Nutrition as an autonomous global business unit
within the organisation, and charge it with the operational and profit and loss responsibility
for the claim-based business performance by offering consumers trusted, science based
nutrition products and services. The Corporate Wellness Unit was designed to integrate
nutritional value-added in their food and beverage businesses. This unit will drive the the
synergies between brands. Their strategy to develop R&D network by improving existing
products and creating tomorrows nourihsments, two third of companys R&D activities are
dedicated to renovating existing products, the remaining third is reserved for radical product
might be achieved very hard. It will also depend on the execution skills of the companies
and the organisational culture. PAFMAC Company is an international company which came
to the stage it is today by gaining superior competitive advantage over its rivals. The focus
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product differentiation strategy has been very successful although it may not work for other
firms. The company is able to create and deliver value not only by offering distinguished
products but also gaining effectiveness and efficiency by reengineering its business
processes. By doing all recommendations and follow all these steps of strategic management
processes, I am sure that PAFMAC co will do better in the future than their competitors and
might be the new trendsetter in some criteria and also gain its above-average returns to their
company.

References
Book:
David, F. R. (2009). Strategic management: concept and cases (12th Edition). NJ: Pearson
Prentice Hall.
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Hanson, D., Hitt, M., Ireland, R. D., &Hoskisson, R. E. (2011).Strategic Management:
Competitiveness and globalisation (Asia-Pacific 4th Edition). South Melbourne:
Cengage Learning Australia.
Electronic Media:

Jones, S. (2012). Strategic Management at Nestle.


Retrieved

September

17,

2012,

fromhttp://www.articlesbase.com/management-

articles/strategic-management-at-nestle-5907881.html
Nestle (2012), Nestl Good Food, Good Life.
Retrieved September 18, 2012, from http://www.nestle.com
Nestle (2011). The worlds leading Nutrition, Health and Wellness Company Annual Report
2011.
Retrieved September 20, 2012, from http://www.nestle.com
Scribd Inc. (2012). Competitive Advantage of Nestle. Retrieved September 19, 2012, from
http://www.scribd.com/

Appendices

Economic

Appendix
1 Theexternal environment
Demographic
Industry Environment
Threat of new entrants
Power of supplier
Power of buyers
Product substitutes
Intensity of rivalry

NestlPolitical/Legal
Company

Competitor environment

Technological

Socio-Cultural

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Appendix 2

The five forces model of competition

Source: www.google.com

Appendix 3

Financial Statements of Nestls

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Source: 2011-FinancialStatements-EN.pdf

Appendix 4

The basic value chain

Source: www.google.com

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Appendix 5

Business Level Strategy

Source: www.google.com

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