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PREPARED FOR: Dr. Shibli Noman Khan Lecturer Department of Business Administration Independent University, Bangladesh
PREPARED BY: Alif Al Mohammed Shalahuddin ID: 1221557 MBA 509 Department of Business Administration Independent University, Bangladesh
Letter of Transmittal 30th July, 2012 Dr. Shibli Noman Khan Asst. Professor Department of Business Administration Independent University Bangladesh,
Dear Sir, Its our great pleasure to submit the Report on Nestle Bangladesh Ltd. A study was making on a company that you have asked to prepare to study. I have tried our best to follow the instruction that was given by you. Throughout this study I tried to identify how Nestle operating their local business being a multinational company in Bangladesh.
I sincerely hope that you will enjoy this report as I enjoyed while writing it. If you need any further clarification or quarry in interpreting this analysis, we will be glad to oblige you.
Thank you,
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Abstract
The study seeks to identify the local business policies of Nestle Bangladesh Ltd. as a multinational company. How they operate their business in Bangladesh being a multinational company to compete with their local competitors. To operate their business how they develop their strategy to gain the competitive advantage. In details the study aimed to identify the business policy and their strategy in Bangladesh. What is there key success factors, marketing strategy, competition structure, market audit as well as how they develop their market segmentation, target market, positioning strategy, advertising and promotional activities and what is the output.
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Bangladesh
Local Business Policies of Nestl Bangladesh Ltd. Independent University, Bangladesh
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2.1 Introduction
Todays Nestl, the world's largest food and nutrition company, founded by the Henri Nestl (10 August 1814 7 July 1890); a German confectioner in Vevey, Switzerland in 1866. In the food industry Nestl is the most trusted name with high quality products. Good food Good Life is the mission of Nestl, which drives the company to provide consumers with the best tasting and most nutritious choices in a wide range of food and beverage categories and eating occasions. The vision of creating shared value and the very own Corporate Business Principles shaped the company culture and made them a reliable investor over 86 countries of the world. Today Nestl employs around 280000 people and have factories or operations in almost every country of the world with a total equity of CHF 62.60 billion.
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1905-1918: The Company formed by the 1905 merger was called the Nestl and Anglo-Swiss Milk Company. Most production facilities remained in Europe, however, and the onset of World War I brought severe disruptions, as a result acquiring raw materials and distributing products became increasingly difficult. At the same time the war created tremendous new demand for dairy products, largely in the form of government contracts. By war's end, the Company had 40 factories, and its world production had more than doubled since 1914. Moreover in this period Nestl added chocolate to its range of food products and also the Condensed-milk exports increased rapidly as the Company replaced sales agents with local subsidiary companies. In 1907, the Company began full-scale manufacturing in Australia.
1918-1938: The end of World War I brought with it a crisis for Nestl. Rising prices for raw materials, the worldwide postwar economic slowdown, and declining exchange rates made the situation worst. In 1921, the Company recorded its first loss. Nestl's management brings Louis Dapples as an expert to deal with the situation; his rationalized operations and reduction of the company's outstanding debt improve the financial condition. On the other hand Nestl's first expansion beyond its traditional product line came in 1920s by producing chocolates. In the meantime Brazilian Coffee Institute first approached to Nestl in 1930 to reduce Brazil's large
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coffee surplus, after eight years of research Nestl came with Nescaf became an instant success.
Local Business Policies of Nestl Bangladesh Ltd. Independent University, Bangladesh
1938-1944: in this period World War II were felt immediately upset the business once again and Profits dropped from $20 million in 1938 to $6 million in 1939. To overcome distribution problems in Europe and Asia, factories were established in developing countries; particularly in Latin America. As the end of the war approached, Nestl executives found themselves unexpectedly heading up a worldwide coffee concern, as well a company built upon Nestl's more traditional businesses.
1944-1975: The graph of growth sets its trends little higher between 1944 and 1975. As a result many new products were added as and outside companies were acquired. In Nestl merged with Alimentana S.A in 1947, purchase of Findus frozen foods occurred in 1960, Libby's fruit juices joined the group in 1971 and Stouffer's frozen foods in 1973and finally in 1974 the Company became a major shareholder in L'Oral, one of the world's leading makers of cosmetics. The Company's total sales doubled in the 15 years after World War II.
1975-1981: In 1920s the economic situation was in challenge due to price of oil rose, growth in the industrialized countries slowed down and worldwide unstable political situation. In 1975 and 1977 price of coffee bean and the price of cocoa tripled. In this situation to maintain a balance, Nestl went to second venture outside the food industry by acquiring the pharmaceutical and ophthalmic product producer Alcon Laboratories Inc. of U.S; as a result it increased competition and shrink the profit margins.
1981-1995: Improvement of financial situation through internal adjustments and strategic acquisitions are the two important moves in this period. As a result between 1980 and 1984, diversification of several non-strategic or unprofitable businesses occurred. On the other hand Nestl managed to put an end in the third World to about a serious controversy over its marketing of infant formula in this period. In 1984 Nestl acquire American food giant Carnation and became one of the largest company in the history of the food industry.
1996-2002: The opening of Central and Eastern Europe, along with China and a general trend
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hand in July 2000 Nestl launched a Group-wide initiative called GLOBE (Global Business
Local Business Policies of Nestl Bangladesh Ltd. Independent University, Bangladesh
towards liberalization of direct foreign investment was good news for the company. On the other
8 Excellence) aimed to simplifying business process. Two more acquisitions took place in this period-U.S. ice cream business was to be merged into Dreyer's and the acquisition of Chef America, Inc. a leading U.S.-based hand-held frozen food product business.
2003-2009: Within this area the acquisition of Mvenpick Ice Cream, Jenny Craigand Uncle Toby's enhanced Nestl's position as one of the world market leaders in the super premium category. On the other hand Novartis Medical Nutrition, Gerber and Henniez join the Company in 2007. Meanwhile Nestl entered into a strategic alliance with the Belgian chocolatierPierreMarcolini at the end of 2009.
2010 to onward: In mid-2010 Nestl finalized the sale of Alcon to Novartis; at the same time Nestl bought Krafts frozen pizza business. Another important move in this period is launch of Special. Tea machine system and the completion of the CHF 25 billion share buyback program
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Nestl Bangladesh Limited started its commercial operation in Bangladesh in 1994. Its total authorized capital is TK1.5 billion and total paid up capital is TK 1.1 billion. The only factory of the company in Bangladesh is situated at Sreepur, 55 km north of Dhaka. The factory produces the instant noodles and cereals and repacks milks, soups, beverages and infant nutrition products. Today Nestl Bangladesh Ltd. is a strongly positioned organization. The Company is continuously growing through the policy of constant innovation, concentrating on its core competencies and its commitment to high quality food to the people of Bangladesh.
Since the beginning of Nestls operation in Bangladesh, the chairman of the company has been Mr. LatifurRahman, one of the top industrialists of the country, his firm Transcom used to import the products of Nestl. His business house Transcom is still involved in wide range of business like beverage, pharmaceutical, electronics, newspaper, tea export, fast food franchises etc. Still he remains as an honorary chairman of the company although his group Transcom does not capture any share today as Nestl S.A. holds 100% share of this company.
In Bangladesh Nestls vision is-to be recognized as the most successful food and drink Company in Bangladesh, generating sustainable, profitable growth and continuously improving results to the benefit of shareholders and employees.
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Dhaka North
Dhaka South
Chittagong
Bogra
Khulna
Sylhet
The retail distributors supply Nestl products to four types of outlet, while Nestl Professional Distributors supply products to different institutions.
Vending Site
Retail/Wholesale
Institutional Sale
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Nestl Professional
General Management
Human Resource
Supply Chain
Marketing
Nutrition
Nestl Professionals
Sales
No matter how many functions are running, their main aim is to gain ultimate excellence. Every function contributes from their end to meet the corporate goal. The General Management take cares of the overall operation of the company and makes the key decisions. Human Resource focuses the management of employees and organizational culture; moreover HR professionals are also responsible for retaining the people who are making the difference with their competitors at the end of the day. Supply Chain ensures the stable supply of the products according to the demand of the customers. Marketing looks after the existing brands, market share and product development of the products. Nestl is the worlds largest Nutrition Company that is why the importance of the Nutrition products is much more in compared to the other food companies; as a result they created a totally separate team to look after the Nutrition products, such as, CERELAC, LACTOGEN. Finance and control deals with the financial transactions and most importantly they also apply the control mechanism to remain the company complaint financially and procedurally. Finally Sales and Nestl Professionals are responsible for earning
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revenue for the company, but sales goes for the retail distributors and Nestl Professionals looks
Beverage
Culinary
Maggi, Shade-Magic
Dairy
Breakfast Cereal
Comflex
Nutrition
Nescafe
Nido
HunyGold
Nestea
Coffeemate
Kokocranch
Lectozen
Nesfuta
NAN
Cerelac
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Building relations with medical and scientific community in light of Nestl Bangladesh Ltd., this report tried to analyze the following components of marketing strategy through different theories and applications: External factors Social: Nestl makes an effort to integrate itself as much as possible into the cultural and social values of the different countries. During operation in Bangladesh Nestl has launched products with integration of social & cultural factors. This has been done to match the taste buds of Bangladeshi consumers. Ethical: Although Nestl faces ethical dilemmas in commercialization of its products, it does not consider its high price to be an ethical crisis. This is because they are not ready to compromise their quality in order to make their product widely available to all. Internal factors Marketing structure: Nestl is more people, product and brand oriented than system oriented. Nestl favors long-term successful business development and even to greater extent, customer life-time value. At the same time Nestl does not lose sight of the necessity to improve in terms of quality, price and distribution. However, Nestl remain conscious of satisfying the wants needs and demands of its consumers. It is also aware of the need to generate a sound profit annually. Nestl seeks to earn consumers confidence, loyalty and preference and anticipate their demands through innovation and renovations. Therefore Nestl is driven by an acute sense of performance adhering to quality and customer satisfaction Nestl is as decentralized as possible within its marketing strategic definitions requiring increasing flexibility. Nestl is always committed to the concept of continuous improvement of its activities and customer satisfaction through market segmentation, positioning and target marketing.
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The effective formulation of their marketing strategy depends on the proper match between the three key elements: o Consumer o Quality o Competition One thing to be mentioned is that the match between consumer and quality is most important for Nestl. Besides there are some other concerns that effect the marketing strategy. This concerns are where to compete, how to compete and when to compete
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Market Segmentation
Nestl is targeted towards the consumer market. So Nestl food products can be treated as consumer products. The major factors which play key role in the process of consumer segmentation are: Demographic (age, income, etc.) Consumption pattern Social economic factors Brand loyalty patters Perceptual factors Cultural factors Proper consideration of the given factors results in effective consumer segmentation for Nestl. Since the product range is expensive in Bangladesh; FoysalAlam, the Marketing Officer, says, we have to concentrate strongly on income of consumers.
Target market
Nestls main focus is the socio-economic class, which is the company wide target. Nestls potential consumers are those who acknowledge that Nestl is all about quality and most importantly those who can afford the products. The strategy for selecting their target market is the following: Income level (>10000 Tk) Education Quality realization
Positioning strategy
Nestls positioning strategy comprises of the three steps: Identifying the right competitive advantage Choosing the right competitive advantage Selecting the right completive advantage
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The company then effectively communicates and delivers the chosen position to the market. Nestl strongly believes that their products are specific and so are the product benefits. This, Foysal Alam, the marketing officer, termed as Benefit Positioning Regarding new upcoming products, Nestl is looking forward to renovation and innovation for Maggi noodles and soups. This might be in terms of new flavors or improvising the quality and the quantity of the products.
Since Nestl is already an acknowledged and quality food product company in Bangladesh, it does not emphasize much on publicity and promotion. Here are a few points to ponder about advertising done by Nestl Bangladesh Ltd.: Nestl cannot advertise for infant milk. Mass advertising is done for new products only Advertising and promotion is done by product wise 15% of marketing communication budget is spend for publicity More indulged into product sampling and test marketing Nestl had performed test sampling in the year 2003 on Nescaf. Nestl Bangladesh Ltd. has specialized agencies for their promotional purposes. They are:Product name advertising agencies: Nescaf -Unitrend Milo - (25%) Unitrend Maggi - Protishobdo Polo Protishobdo
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Medium Responses
Newspapers (e.g. ProthomAlo) Small Pass along audience, approx. 1 lakh. High cost per exposure. TV Reach up to 20 lakh audience Billboards Very few Local Magazines Negligible Outdoor
The given table suggests that Cost per Contact is better in television advertisement than in newspapers and other media for Nestl. Nestl also believes that television receives better clutter, fleeting, exposure and a mass audience for promotion, which is only to be considered for Nestl Bangladesh Ltd. The main advertising is done on television and to a very little extent, newspapers. The emphasis is on building a corporate image about maintaining their high quality. There are also considerations underway to promote upcoming brands and products to extend their promotional activities by putting up more billboards, posters, flyers, and banners. They will start internet as their medium from year 2005. These decisions are carried out by the marketing department. Hence, Nestl Bangladesh is trying to integrate their promotional activities and have an integrated marketing approach
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However, for specific brands, such as Milo, Nestl Bangladesh has an organized database of 1000 consumers who are the core that is final consumers of Nestl. Whenever, there are any upcoming new products, Nestl sends these loyal consumers newsletters, leaflets, free samples and even feedback questionnaires. This is the only consumer communication that Nestl does in Bangladesh; also consider to be Direct Marketing. For any other products Nestl never performs consumer communication.
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External Audit: Scanning the external environment of Nestl, we tried to find out the opportunities and threats that are pointed out here: Opportunities: The ability to expand their product line that requires an approach that is compatible with Nestls strengths and that compensates for its weaknesses, e.g. to make certain products available in the market at a relatively lower price so that a larger number of consumers can buy itproducts such as Cerelac. Enhance distribution of their Infant Nutrition Products in a country like Bangladesh where malnutrition already exists, increasing the distribution channels and channel outlets. Threats: Few local manufacturers who tend to sale their products at a relatively lower price through various unethical means. For instant, many do not value expiry dates since not much restrictions are practiced in Bangladesh.High degree of bargaining power of suppliers.
Internal Audit: Then we tried to analyze the internal situation of Nestl and we figured out the following strengths and weaknesses: Strengths: o A portfolio of products which responds to the consumer trend for lighter yet indulgent snacking o A unique strategic position which combines powerful local brands with strong global product brands
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o Dedicated core staff who are willing to provide significant labor hours to accomplish
Nestl Weaknesses: o Far fewer staff than actually required in terms of tasks to be completed. o Significantly less customer support services than is required in terms of the number of customers and the complexity of the services offered. o Except form Milo, they have no post purchase service for other products in Bangladesh.
Another Approach toward Strengths; Weaknesses Apart from conducting the SWOT analysis, under marketing assessment, a different approach is taken to make an in depth analysis about Nestl. In this approach, first, some core factors are identified against which the performance or relative strength or weakness of Nestl can be measured. These factors include: a. Marketing Factors b. Manufacturing Factors c. Organizational Factors But these factors are too broad. So, further some criteria were developed for each factor to be evaluated. Then the relative weaknesses or strengths are measured against each criterion that is summarized here in a tabular format:
Weaknesses
Strengths
Fundamental Strength
Marginal Strength
Neutral
Marginal Weakness
Fundamental Weakness
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Raw Materials:
In general, Nestl is not directly involved in the production of raw materials. Wherever possible, locally available raw materials are used. They are either obtained directly from producers or purchased through trade channels. Nestl applies the following principles when sourcing raw materials: all raw materials must meet both legal and internal quality criteria, including limits on possible environmental contaminants; whenever possible, preference is given to raw materials that are produced by environmentally sound farming methods (e.g. integrated crop management); and farmers are encouraged to apply sustainable farming methods and, where appropriate, are provided with assistance in crop production and dairy farming. Such assistance includes the provision of recommendations for the conservation of natural resources (soil, water, air, energy, and biodiversity) and techniques for reducing environmental impact.
Manufacturing:
Manufacturing comprises all processes that are necessary to transform perishable raw materials into safe and convenient food products for consumers. Nestl strives to achieve optimal performance in its manufacturing activities, including the environmental aspects. As such, the manufacturing practices of the Group: Respect natural resources by emphasizing the efficient use of raw materials, water and energy; Minimize the use of environmentally critical substances; Continuously seek improvement in the efficiency of production facilities; and Reduce waste generation and emissions as much as possible; consider recycling of waste as a priority and dispose of non-recyclable waste in an environmentally sound manner.
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Regular environmental assessments of Nestls manufacturing practices are conducted to: Evaluate factory performance; Review factory compliance with applicable legislation and Nestls own standards; Packaging fully investigate incidents that could affect the environment and take relevant measures; and Compare results with previous targets and set new improvement objectives.
In addition, Nestl exchanges information on environmental protection technology and practices in order to ensure a wide use of best practices. Nestl encourages its contract manufacturers to use environmentally sound manufacturing practices. Packaging serves a major role in our daily lives. It protects food products from spoilage and ensures safety from manufacture through storage, distribution and consumption. Packaging may also provide tamper-evidence features. It communicates information, including nutritional information and serving instructions, and provides the convenience demanded by todays consumers. Nestl is committed to reducing the environmental impact of packaging, without jeopardizing the safety, quality or consumer acceptance of its products. It is Nestls objective to develop safe and wholesome packaged foods using the most efficient and appropriate packaging materials available, while, at the same time, satisfying consumer requirements and expectations. Nestl seeks packaging solutions that: result in the lowest possible weight and volume of packages; take into account new packaging materials and processes that reduce the impact on the environment; avoid the use of substances that can adversely impact the environment during packaging production and disposal; decrease packaging waste at all stages, including package manufacturing, utilization and disposal; increase the use of recycled materials wherever possible; and Increase the recyclables and compatibility of its packages with existing waste management
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schemes.
Regular assessments of Nestls packaging are carried out and action plans are implemented. Nestl supports industrial and governmental efforts to promote integrated waste management that takes into consideration matters such as source reduction, reuse, recycling, composting, energy recovery and landfill. Nestl encourages suppliers of its packaging materials to adopt sound environmental practices
Distribution Marketing
Distribution of products from the factory to the customer involves transport and storage. Efficient management of the distribution system is essential to preserve the safety and quality of Nestls products, to ensure a high level of customer service, and to meet its commitment to environmentally sound business practices. To this end, Nestl: selects appropriate transportation modes, with particular attention given to optimum unit loads (pallets), vehicle capacity utilization, route planning and consolidation with outside partners, scheduling and fuel conservation; optimizes warehouse and distribution center locations and environmentally efficient operational systems; and Identifies and implements measures to reduce energy consumption and waste.
Nestl encourages its distribution service providers to use environmentally sound practices. Marketing is based on the principle of satisfying consumers needs. The overall trust of consumers in Nestls brands and products comes from a quality image that has been
Continuously strengthened for over 130 years. Nestl strives to increase this trust through its commitment to environmentally sound business practices. For this reason, Nestl:
bases environmental claims in advertising, promotional material, labeling and corporate communications on solid scientific evidence; and selects materials and printing methods for merchandising materials such as consumer offers, in-store promotions, display materials, leaflets and printed materials in light of environmental considerations.
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Flood relief Nestl Bangladesh donates products to support the Prime Ministers Relief Fund of Bangladesh which helps victims of floods and other natural disasters. The Company also assists with fund-raising efforts for the Flood Relief fund. Medical support The Company contributes to the Floating Hospital Project which provides medical assistance for the poorest of the poor people. Food support The Company also runs a feeding programme for a school, established for the under- privileged children of Dhaka city slums. Under this programme, food is supplied twice a week for the students. Sports Development Programme Cricket is the most popular sport in Bangladesh. Nestl Bangladesh has stepped forward together with the Bangladesh Cricket Board (BCB) to develop cricket talent for the future under a special sponsorship programme. Milo will sponsor a series of local cricket development camps and tournaments, to be organized by BCB for the under 13 and under 15 age groups. Through this specific programme, a pool of young talented cricketers will be identified to ultimately represent Bangladesh internationally.
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4.10 Conclusion
Finally it can be said that that Nestl Bangladesh Limited is using and developing their strategy perfectly. By using valuable marketing tools they are creating competitive advantage for themselves which ultimately helping them to reach their market as well as organizational objectives. Again their continuous renovation are making them leader into the market which leads to profit as well as customer base for their company.
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References
Corporate Governance report 2011 The Nestl Corporate Business Principles 2010 Annual Report 2011 Quick Facts 2011 Nestl Management report 2011 Nestl Sustainability Review Nestl People Development Review Corporate Business Principles Million Years of the Food Industry The Nestle Management and Leadership Principles Nestle Policy on the Environment
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