International Business Globalization
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International Business
Global Competitive Strategy
In this essay I will be evaluating how Nestle have been able to achieve and maintain global competitive advantage. I will use the framework of Spulbers star analysis 2007 model as well as his G5 competitive strategies and Porters diamond theory (1990) to analyse and determine the different factors of how a nation can improve a firms global competitiveness.
Nestle is the largest food & beverage company in the world. The company is headquartered in Vervey, Switzerland and employs around 281,000 people. Nestle achieved revenues of $105 million in 2010, which was an increase of 2% compared to 2009 (Data Monitor, 2012). Nestle announced in 2010 there net profit of 2010 to be $35bn, up from $10bn in 2009 (BBC News, 2011).
Global business is where strategy meets geography. Spulber says that for a company to become globally competitive it has to each achieve of the 5 main drivers.
These drivers are the; home country, which is where the companys headquarters are, supplier country, which is about the companys sourcing methods and activities; customer countries, which is about the nature of the companys customers; partner countries, which is about the partnerships held with other organisations and lastly competitor countries, which identifies the companys competitors and then identifying their own strategies.
Spulber also suggests that along with these 5 main drivers there are 5 key global strategies, which are; Global platform strategy, global intermediary strategy, global entrepreneurial strategy, global network strategy and global investment strategy.
Nestlés home country is Switzerland, in which the company has been situated since it was founded in 1866, which is situated in Europe which is their largest market, with one of them being confectionary in the UK. This is shown by Nestle UK sales of Aero going up 3%, Milkybar up 14% and Rowntrees up 8% from 2010 to 2011 (Food Manufacture, 2011). Their UK success now makes Nestle UK the fastest growing big confectionary company and a 3rd consecutive year of growing market share (Nestle, 2011). Nestlés UK success in the confectionary market has been built upon its consistent product portfolio by re-releasing their famous Aero bar and more importantly their products being full of goodness and contributing to well-being. This resulting in Nestle UK exporting in excess of £260m worth of products every year.
Porters diamond model (1990) can be linked to Nestlés home success. Porters diamond model states that the companys home country can provide Nestle with specific factors that can potentially create competitive advantage on a global scale. Porter identifies 4 determinants of national advantage which are; factor conditions, demand conditions, related and supporting industries and firm strategy, structure and rivalry.
The factors conditions in which the UK benefits Nestle are from the UK maintain a good educational system resulting in Nestle UK having a highly skilled workforce. The demand conditions also benefit Nestle UK by the current financial state causing the consumers to choose more price efficient products which Nestle UK provides.
Related and supported industries and the firms strategy, structure and rivalry can also be linked to benefits Nestlés productivity as there is a lot of competition against Nestle UK in their markets and as Nestle are the leading food and beverage company there is a lot of competition for their market share. This results in an increase of competitiveness within the UK market, shown by one of their competitors, Starbucks targeting Nestlés market share in their coffee market (Reuters, 2012).
Nestlés good home market success can be linked into Spulbers theory as a good launching pad for international growth (Spulber, 2007) showing use of their home country to achieve global growth.
Partner countries are those that a company has relationships with either may it be global collaborations or alliances with them. Nestle have built strategic relations with Fair Labor Association, National Diabetes, Obesity and Cholesterol Foundation to help aid their core aim of offering healthier and tastier products that have come naturally and keep to their Good Food, Good Life objective. Nestlés venture into healthier products has been seen globally; in the UK the Kit Kat went fair-trade in 2009 causing 6,000 African farmers to receive a better price for the Cocoa whilst sales of the Kit Kat bar in the UK to increase their market share value in the UK chocolate confectionary market to 15.6% (Sky, 2010) whilst their competitors Mars and Cadburys decrease in the market share.
In 2011, Nestle partnered up with Chinese confectionary company Hsu Fu Chi to greatly enforce our presence in China (Bulke, Nestle, 2010) Nestle have been present in China for 20 years and as China is now the worlds second largest economy Nestle have targeted this by buying a large stake in Hsu Fu Chi. An increase of 7.5% in sales in China totally sales in China to be approaching CHF 5bn. A factor which could have aided Nestle is that the Asian market has not yet been hit hard from the economic downturn compared to other markets. In response, Nestle invested heavily in operations in Asia and our two new partnerships with Yinlu and Hsu Fu Chi will deepen our engagement with our Chinese consumers (Bulke, 2011, Nestle.com) (Reuters, 2011).
Nestle have achieved strong global competitive advantage from the benefits of investing in the correct areas by creating valuable partnerships with Chinese companies which has put them in a good position for further growth in the Chinese and Asian markets.
Nestle has now grew as a country to be established in almost every country and market globally. Their development of their overseas subsidiaries remains by Nestle continuing to foster close relationships with farmers