Nestle's Growth Strategy and Business Development
Nestle's Growth Strategy and Business Development
1.) Does it make sense for Nestle to focus its growth on emerging markets?
As it can be derived from the text, Nestle generates operates worldwide with a focus on European markets, which make up 70 percent of its sales. These markets are in the mature state of life cycle of that industry and additionally demographic changes such as the stagnation of population growth rates make it very hard companies like Nestle to generate higher profits through higher sales. As a matter of fact the western economies are actually facing a downturn in output and growth, thus influencing the consumption patterns of customers, especially in the retail business. Consumer are becoming more price aware and tend to spend less while demanding at the same time for customisation, product differentiation and specialization. Another trend is the shift away from branded food and beverages towards cheap non-branded foods and beverages. Nevertheless, the introduction of non-brand own labelled products such as Food Lion offers only makes sense in a large scale in order to achieve economies of scale. As a result of increasing non-brand cheap products offered by rivals, Nestle find itself in an even more embattled market and needs to develop a new strategy either away from branding or towards a higher degree of international market penetration. Since Nestle stands for high quality and has distinctive competencies in producing higher quality food, it would not make sense to change the strategic group, because it would most likely get stuck in the middle. The right strategy is to expand into new markets such as Asia, Eastern Europe and South America. Logically, in these markets the consumer behaviour, macroeconomic environment and cultural habits are different in contrast to western economies. Most of these markets are yet in a growth cycle and this clearly generates an opportunity because they are emerging markets and “untouched”. As mentioned in the text book China for instances will inhabit 700 million people by 2010 who will have nearly the same income levels as Spain has today. While income levels in these emerging markets will increase, people will gain a higher purchasing power with unsatisfied demands. Serving this demands is the right opportunity for Nestle to penetrate new markets, build up market share while at the same time using its profits to defend its old markets in the western economies through low prices. Concluding,...