CH 12:

TYPES OF STRATEGY 508-509

Ch 14:

EXPORT AND IMPORT

CH 15: FDI

PT Nestle Indofood Citarasa Indonesia

Nestle is a Multinational Company (MNC) that is headquartered in Vevey, Switzerland. It

is well-known as the world’s largest food and beverages company. It has a wide portfolio of
products in more more than 180 countries around the world. It can generate more than 60 CHF
billion ($62.4 billion) every year. Its portfolio of products is described in the figure 1.2 and market
segments in figure 1.2. The data is collected from Nestle’s annual report 2017. Year of 2017 is
selected because it is up-to-date data.

Figure 1.1 Nestle’s portfolio of products Sales in 2017

 Nestle has seven product categories which generate in total 90 CHF billion. It has
established more than 2000 brands of its products. By looking at the figure, water is the lowest
category for sales due to availability of tap water in developed countries and subtitituted water
products. For PetCare, it generates more sales than other three categories which has more than 0.5
CHF billion differences. The reason is the PetCare industry might be less competitive. Therefore,
substituted products are less available. The figure is predicted to increase as Nestle will improve
its products and market segments.

Figure 1.2 Nestle’s Market Segments

In 2017, those seven categories generate high sales in 189 countries. In Europe, Middle
East and North Africa (EMENA) generate 26.1 CHF billion, in Asia Oceania Africa (AOA)
generate 23 CHF billion, and in North, Central, South America (AMS) generate 40.7 CHF billion
(Nestle’s annual report 2017). High sales will be supported by higher number of employees. Nestle
has approximately 323,000 employees. AOA area might be the lowest sales because the economic
growth of those countries. Nestle is well-known for its high quality product. Therefore, the price
might be less attractive to consumers.

Nestle adopts multidomestic strategy, by definition it is a strategy in which a MNC

matches global integration and local responsiveness by relying on its core competency
throughout worldwide operations (Daniels, J., Radebaugh, L. and Sullivan, D.,2015). The
multidomestic strategy enables Nestle to build a superior competitive positions in local markets
on the strength of their global advantages. It also benefits low cost of production through
economies of scale (EOS) and sells varied products to varied markets with high local
responsiveness.
 Furthermore, Nestlé has ability to customize global products based on consumer choices
in the local market. This is one of Nestlé's key strengths where its subsidiaries develop products
that match consumer preference in the local market. In every country, Nestle's products have
different tastes, packaging and prices. It is committed to customizing its products in every
different countries so that its products can be received and enjoyed by consumers that will lead to
satisfaction.
Not only developed markets, but it also targets an emerging market especially in
Indonesia as main source of production and sales. In fact, in 2011, Nestle invested a factory in
Karawang, West Java, Indonesia that is worth US$ 200 million. The factory produces dairy
product such as CERELAC infant cereals and MILO chocolate malt drinks) with capacity around
65,000 ton per year. It becomes the production base not only for domestic market, but also
Southeast Asia market. Another important fact, before the factory was established, Nestle
Indonesia only imported CERELAC and MILO from Malaysia.
Nestle made a risky decision, but high return in the long-term. In demand side, in 2011,
Indonesians have low average of milk consumption by 11.05 litre per year compared to other
ASEAN countries by 20 litre per year. Therefore, Nestle can improve the domestic milk
consumption by setting affordable price and generate high revenues in that industry.
In supply side, fresh milk from domestic is insufficient in which approximately 75% of
milk raw materials were still imported in the form of Skim Milk Powder, Anhydrous Milk Fat
and Butter Milk Powder from various countries such as Australia, New Zealand, USA and
European Union. Therefore, Nestle can improve the production by applying its invention to the
local dairy farmers. Another benefit is since 2011, the Indonesian government impose Value-
Added Tax (VAT) exemption for dairy processing industry because the government wanted to
improve the domestic milk consumption.
(http://www.kemenperin.go.id/artikel/31/Menperin-Resmikan-Investasi-Baru-Nestle-US$-200-
Juta)
 1. Analysis of Nestle as Multinational Company (MNC)
Nestle is a Multinational Company (MNC) that is headquartered in Vevey, Switzerland. It
is well-known as the world’s largest food and beverages company. It has a wide portfolio of
products in more than 180 countries around the world. It is possible to generate more than 60 CHF
billion ($62.4 billion) every year.

Figure 1.1 Nestle’s portfolio of products Sales in 2017

According to Nestle’s annual review 2017, Nestle has seven product categories which
generate in total 90 CHF billion. Furthermore, water is the lowest category for sales which might
be due to availability of tap water in developed countries and subtitituted water products. For
PetCare, it generates more sales than other three categories which has more than 0.5 CHF billion
differences. The reason is the PetCare industry might be less competitive. Therefore, substituted
products are less available. The figure is predicted to increase as Nestle will improve its products
and market segments.
Figure 1.2 Nestle’s Market Segments

In 2017, those seven categories generate high sales in 189 countries. In Europe, Middle
East and North Africa (EMENA) generate 26.1 CHF billion, in Asia Oceania Africa (AOA)
generate 23 CHF billion, and in North, Central, South America (AMS) generate 40.7 CHF billion
(Nestle’s annual review 2017). High sales is supported by higher number of employees. Therefore,
Nestle has approximately 323,000 employees. AOA area is the lowest sales because of the
economic growth of those countries. Nestle is well-known for its high quality product. Therefore,
the price might be less attractive to consumers. In short, Nestle is categorized as a MNC since it is
able to generate billions of revenues and has sales over the world.

The Structure of Industry

Nestle’s industry is food and beverages. By applying the five-forces model, the structure
of food and beverage industry of Nestle is
 Buyers of outputs
Nestle faces strong buyers of outputs in Indonesia because the consumers are price
sensitive. It is common that consumers from developing countries are price sensitive. Furthermore,
the substitute products are available in its industry. For instance, for the infant milk powder
products, its competitors are Danone which produces Nutricia and Mead Johnson Nutrition which
produces Sustagen. In fact, the strong buyers of outputs lead to less attractive industry and decrease
potential profits. However, Nestle is able to be the potential brand in the market because it owns
two milk factories in Indonesia which can achieve economies of scale.
 Suppliers of inputs
Nestle faces low suppliers of inputs in Indonesia because it owns four factories in Indonesia
(Karawang, Cikupa, Panjang, and Kejayan). By owning factories, Nestle experiences economies
of scale as it saves on production cost, transportation cost, and tax for dairy production. However,
it needs to invest more than $200 billion dollars to achieve the long-term prospect.
 Substitute products
Nestle faces high substituted products because Indonesian consumers have knowledge of
its product through internet and other competitors such as Unilever, P&G, and Danone offer better
prices and quality. Those big firms will try to achieve the market share as many as possible. Nestle
has a competitive advantages which is well-known for high quality and social responsible.
Therefore, it can utilize its competitive advantages to position themselves above its competitors
 Potential new entrants
 Rivalry among competing firms