The economic globalization in terms of international trade, foreign direct investment (FDI) and outsourcing has gained more significance these days due to market liberalization and technological improvement. In this essay, we reveal on the possible effect of economic globalization on Nestle. The emphasis is on whether Nestl’s internationalization strategy fit in to the observation that we are living in a globalize world in which differences and distances across countries no longer matter.
The company that we chose for our assignment is Nestle which is one of the world’s biggest global food and nutrition corporations; it has more than five hundred factories in more than eighty countries, and vends its products in more than hundred and ninety nations. Nestle is one of the oldest multinational corporation which was originated in 1866 in Switzerland by Heinrich Nestle. The Nestle firm from its very initial days, looked to different countries for development opportunities and Nestle started its global business by setting up its foremost foreign offices in London in 1868. The Nestle got merged in 1905 with Anglo Swiss Milk Corporation to extend the company’s product line and by the late 1990’s the Nestle Company had more than five hundred factories in different countries almost operating its business in each country of the globe.
There are certain corporate business principles that Nestle follow in all the countries in which it operates its business activities, taking into account local legislations, cultural and religious practices of each country. These principles are:
1. Nestl’s basic intend is to enhance the quality of consumers’ everyday lives by offering tastier, healthier and hygienic food and beverage choices that encourages a healthy lifestyle.
2. Secondly Nestle gives quality assurance and product safety all over in the world as well as the company name Nestle basically symbolizes a guarantee to the consumer that the product is harmless and high of standards.
3. Nestle also make sure that they are committed to accountable and trustworthy consumer communication that gives power to consumers to use their rights and give any kind of feedback about their products.
4. Nestle also feels that they are highly committed to do their business practices in such a way that are environmentally sustainable like at all phases of the product life cycle they make sure that they use natural resources efficiently.
5. Last but not the least Nestle is highly committed to the sustainable use of water and tries to improve constantly in water management as the whole world facing a mounting challenges of water and for this Nestle convey messages to all people to use water as a complete necessity.
The word globalization usually refers to the opening of international borders to trade, information and technology and the foreign direct investment (FDI). Globalization has caused remarkable changes to the business practices around the world. Nestle outsource professionals from different parts of the globe, causing job shifts and changes in company structures. Nestle believes that expanding business internationally guides to voluntary exchange of capital and employees as well as goods and services, which in turn provides overall universal growth. On the other hand the detractors of globalization argue that more might be done to help out people in poor countries attain the living standards of those in richer countries.
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Nestle follows a decentralization and all the responsibilities of operating decisions is pressed down to local units, which typically enjoy a high extent of independence with regard to decisions relating to pricing, distribution, marketing, human resource etc. Nestle can be called as a regional organization because the company divides the globe into five major geographical zones Europe, North America and Asia that are responsible to develop regional strategies, as Nestle operates in more than eighty countries it is a wise decision of dividing a globe into geographical zones so every zone would easily look after that every country follows developed regional strategies and maintain same quality standards throughout the world.
There are certain effects of foreign direct investment (FDI) on the home country of the company. Within the host countries multinational firms like Nestle almost always pay higher salaries than the locally owned firms the main reason behind this is their presence usually increase the pay level in the host countries. These multinationals usually have higher productivity than local firms. The major role of FDI is to support the growth of host country exports and associations to outside the world and also the conversion of host economies from being exporters of food to relative high technology manufacturers. Nestl’s impact of FDI is the great knowledge of world markets and of different ways of fitting into international production networks.
A multinational company like Nestle can attain technology infrastructure investments, along with improved business aptitude and good control over worldwide operations with a single global instance of its activity resource planning system, but the essential combination of databases and application servers can be technically and managerially difficult.
Nestle uses web based technology to administer worldwide transportation. The Nestle Research Center is the focus of global research area, internally, with best scientists from all over the world and outwardly, in collaborations with key international research universities. The basic role of Nestle Research Center is essential in helping the company to fulfill its vision of GOOD FOOD FOR GOOD LIFE. The entire network of Research and Development and the Nestle Research Center carry out timely research on nutrition, health and wellness issues, and therefore using research findings to produce new product ideas keeping in mind consumer health and wellness needs.
The research ideas from Nestle Research Center are transformed into product applications and processes through Nestl’s international network of Product Technology Centers and Research and Development. The Product and Technology Center exist for each specific product category that includes Dairy, Beverages, Chocolate and Coffee, Biscuits, Ice cream, Pet care and food services. The Product Technology Centers also gives plan for product innovation and packaging.
The global network of Product Technology Centers and Research and Development works closely with Nestle Research Center as well as with nestle Strategic Business Units to provide scientific support for the entire nestle product range and the outcome is the Nestle products are tasty, healthy, conveniently available.
Nestle believes that the Nestle Research center is a basis of Nestl’s international success in promising safe and high quality products. With the advance technologies and scientific expertise Nestle carefully analyze their raw materials and finished products and assure that they provide safe and healthy product to all consumers in every part of the world and also believes that it is their responsibility to protect consumers and maintain their trust in Nestl’s products and brand.
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It is important for any company to upgrade its technology time to time to maintain a competitive within in the industry. Nestle just in five years from nineteen ninety four to nineteen ninety nine spent approximately five hundred and seventy five million dollars to seven hundred and fifty million dollars a year on its information system. These costs were mounting when the company was facing a loss.
Geography and Distance:
As a multinational company Nestle operates in more than eighty countries with more than two hundred and sixty five thousand employees. Although Nestle is a Swiss company but generates only two percent or even less than two percent of their sales in Switzerland which is a home country of Nestle.
Nestle always believes in decentralization and also believes that it is beneficial for any company to think globally and act locally. The people of Nestle believe that in spite of globalization the food business remains a local business which is based on local cultures, tastes and habits. This thinking of Nestle helped a lot in making a Nestle so renowned and successful all over the world. Therefore we’ll get a different taste of Nestle products in each of the countries where Nestle sell its products.
Nestle may be recognized for its chocolates, coffee, pure water, milk and infant formula, but it is a lot more multifaceted and large than that, it is the world’s biggest food company with almost seventy billion dollars in annual sales. Nestle operates five hundred factories in some two hundred nations including those places as well that are not part of the United Nations yet.
Nestle earn more sales by selling small items like Kit Kat chocolate which is the largest selling chocolate bar internationally. As we have just described above that every country has its own tastes and habits so for Nestle nothing is simple as it operates in more than eighty countries. The coffee Nescafe which is a global brand and more than hundred billion cups of it consumed each year in different countries and for just one product Nescafe the Nestle Company has two hundred formulations, to go with local tastes. In all the Nestle corporation produces almost hundred and twenty seven thousand different varieties and ranges of products.
Brabeck , a chief executive officer (CEO) of Nestle since nineteen ninety seven, wanted to maintain some discipline in terms of how the company is operating the businesses throughout the world that sustain marketing of its enormous range of brands, products and factories. For Nestle operating business maintain same quality standards in so many different countries with enormous range of products is very difficult and also to keep control of its thousand of supply chains with respect to each country and each product variety, along with that predicting demand for different products in different countries and the uncountable different of ways of charging customers and collecting payments is more difficult.
Home and Foreign Government Policies:
Administration control is a serious issue for multinational corporations that operate in international markets (Geringer and Hebert, 1989; Groot and Merchant, 2000). On hand indication suggest that multinational firms like Nestle transfers their managerial practices from their country of origin which is also called home country to the country of operations which can be called a host country (Child et al, 2000). Firms operating in more than one country like Nestle go through pressures to incorporate their international business. Nestle incorporate their business internationally through methods of standardization that could attain either on the basis of home practices or any best global practices.
The degree to which the host country affects multinationals like Nestle depends on two factors the first one is the institutional distance between the home country and the host country. The more the institutional difference among the host and the home country the easier it is to identify the host country effect. Secondly the power of national institutional law is important. Nestle or any other multinational corporations are under more pressure to meet the terms in more strongly regulated business systems than in weaker institutional system environments.
There are certain government incentives as well like economic, financing and other incentives that play an important role in attracting multinational investments. These government incentive policies are usually joint with performance necessities, for instance increase in exports, technology advancement, innovation enhancement and environmental friendliness. If multinational corporations’ investments meet all these government necessities they would be able to get special treatment.
As Nestle is a principle based company it believes that by creating shared value is how they do business, which states that in order to create long term value and maintain a good relationship with consumers they have to create value for society. All the strategies that Nestle follows from product development to the delivery of products to their consumers clarifies that we are living in a globalize word in which differences across the countries no longer matter. If we talk about the products that Nestle offers like chocolate, coffee, biscuits, drinking water, and milk etc, everybody in the whole world consume all of these products. So if everybody is consuming same kind of products with just little differences in terms of taste verifies that we are living in a globalize world where the distances and differences no longer matter. Nestle is one the most successful company who caters more than 192 nations of the world and maintains the same quality standards of its brands and products throughout the world.
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