Nestle's International Strategy Essay

3895 words - 16 pages

Introduction

Every corporate story has its own character... In the case of Nestlé's ice cream market endeavors, it is the present CEO of Nestlé Group - Mr. Peter Brabeck-Letmathe.

Back in 1991, when he was the Head of the ice cream / confectionery business, the company had its ice cream operations in just ten countries around the world. Mr. Brabeck faced a strategic dilemma: to build a solid presence in this sector or to make a better use of resources elsewhere in the company (Pictet). Being a person who is not used to give up in the face of a challenge, Mr. Brabeck chose the first option and succeeded, developing among others "the unique branding policy of Nestlé, characterized by a strict hierarchy of strategic brands on the global, regional and local level" (Nestlé "Peter Brabeck-Letmathe").

Ice cream is not an accidental choice...

Nestlé has already been number one food company in the world with paramount leadership in chocolate, confectionery and soluble coffee markets. Consequently, an active entry to another food sector would allow the company to use its accumulated expertise; in the case of ice cream - years of experience in milk and frozen food sectors. Marketing know-how and unique branding strategies could have been profitably used to extend the confectionery lines to ice-cream products and offset decreasing summer sales (Datamonitor Industry Market Research).

The industry analysis has reassured Mr. Brabeck's position. The ice cream market proved to be very attractive as one of the biggest food sectors in the world comparable in size to pet care, fifty percent bigger than breakfast cereals and twice as big as soluble coffee with steady annual growth estimated at 3%. According to some estimates the global ice cream market is valued at $25 billion (CHF 43 billion), with the following regional segmentation: Europe (41%), North America (33%), Asia (18%), Latin America (6%), Africa and Middle East (2%). Additional appeal is added by the market structure with 66% occupied by small local players - potential targets for acquisitions (Nestlé "Nestlé Ice Cream Strategy for Accelerated Profitable Growth"). Thus, if successful, Nestlé will have a lucrative share of the ice-cream pie.

A number of manufacturing considerations have also attracted the attention of the ice cream business Head. One of the most effective barriers to entry in the industry has always been its capital intensity (the importance of "efficient production, distribution and sales facilities") (Pictet). Consequently, a special consideration should be given to these factors as they enable the company to secure its position from both present and potential competition.

Thinking of a strategically important market, the future CEO has turned his attention to the United States renowned for its leadership in a variety of worldwide industries (from confectionery to pharmaceuticals). A number of crucial features have come...

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