Nestle: An In-Depth Analysis of its External and Internal Environment

This text is a report on Nestle, a Swiss multinational food and drinks company. The report conducts an external and internal analysis of Nestle using various models such as PESTEL analysis and TOWS analysis. The report finds that political, economic, and social factors have had a significant impact on the organization. The report also discusses Nestle's global presence, diversification of products, and controversies. The report concludes with recommendations for Nestle to focus on sustainability, e-commerce, and venturing with small-food start-ups.

Managing Strategy
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Table of Contents
Introduction................................................................................................................................3
Current Strategic Position..........................................................................................................4
PESTEL Analysis...................................................................................................................4
Porter’s Five Forces Analysis.................................................................................................6
VRIO Analysis........................................................................................................................7
Current Strategic Options...........................................................................................................8
TOWS Analysis......................................................................................................................8
ANSOFF Matrix.....................................................................................................................9
SAF Framework...................................................................................................................10
Contemporary Strategic Management Thinking......................................................................10
Critical Self-Reflection and Progression..................................................................................12
Gibbs Reflective Cycle.........................................................................................................12
References................................................................................................................................14
Appendix..................................................................................................................................17
Appendices 1: PESTEL Analysis.........................................................................................17
Appendices 2: Porters Five Forces Analysis........................................................................17
Appendices 3: VRIO Framework.........................................................................................18
Appendices 4: Ansoff Matrix...............................................................................................18
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Introduction
The company selected for the current report is Nestle, which is a Swiss multinational food
and drinks company with its headquarters in Vaud. It is one of the biggest publicly held food
companies in the global market as per its revenue. The organisation manufactures a
significant number of products including baby food, breakfast cereals, medical food, pet food,
dairy products, and frozen foods among others. There is a massive array of brands that
operate under Nestle such as Vittel, Nespresso, Kit Kat, and Maggi among others. The net
sales of Nestle amount to more than $93 billion and its employees more than 276,000 around
the world (Statista, 2022). However, Nestle has also been the subject of a large number of
controversies and criticism along with boycotts from customers related to its marketing
formula of using baby formulae rather than breastfeeding in developing countries.
Furthermore, its promotion of bottled water and child labour in cocoa production has also
been a subject of major controversies and criticism.
Fig: Financial figures of 10 selected FMCG companies worldwide 2021; Statista, (2022)
The report in this regard will primarily conduct an external and internal analysis of Nestle
and will discuss the impact of different factors on its business operations such as legal
aspects, which resulted in banning its product 'Maggi' in India. The report will also conduct a
TOWS analysis and will find that one of the major strengths of Nestle comes in the form of
global presence and diversification of products. The three major strategies that the report will
suggest for the future are sustainability, e-commerce, and venturing with small-food start-ups.
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Current Strategic Position
PESTEL Analysis
Political factors
The aspect of political factors impacting the operations of international organisations has
enhanced significantly. Nestle operates in more than 190 countries and hence, political factors
prove to be an important phenomenon that impacts their work such as trade policies,
government rules towards sustainability, and trade barriers among others. The growing
tension in the international landscape has also managed to impact the operations of Nestle.
The US is one of the biggest markets of the company, however, their focus towards Asian-
pacific countries such as China has also enhanced significantly (Statista, 2022). However, the
trade relationship between China and the US has been in disarray and it has negatively
impacted the working of the organisation. Though, India is one such country that has
attracted the organisation through its policies in which lower tax rates and other benefits were
provided to attract the organisation to invest in forms of new factories and stores all around
the country.
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Fig: Leading markets of Nestlé worldwide in 2021, based on sales (in billion CHF)*; Statista, (2022)
Economic factors
An important economic factor that impacts the working of the company is foreign exchange
swings. If a particular currency is weakened on the international market, then it could result
in profit loss, depending upon the country. The company has enjoyed recent success as it
registered an increase in its profit by 40% (Pogacar et al., 2021). Furthermore, its recent
focus on developing markets such as India and Brazil are also some of the fastest growing
countries and it is believed that the economic growth of these countries will positively impact
Nestle. However, the recent Covid pandemic has resulted in negatively impacted the
operations of Nestle and is suffered a huge loss in its revenues.
Social factors
Some of the key aspects of the social environment include changing demographics, attitudes
and buying behaviour of customers. In regards to Nestle, which is a food and beverage
company, the primary aspect that has changed recently is customers' inclination towards
healthy foods. Customers nowadays are focusing on low-calorie and low-sugar foods. The
company has shifted its focus as per customer demand and new products come with reduced
salt, saturated fat, and sugar quantity. However, Nestle has to face several controversies
related to the extraction and usage of water. The organisation is found to be extracting spring
water and then leaving polluted water, which has impacted indigenous lands in Canada (The
Guardian, 2018). These social behaviours of the organisation have often caused outrage from
NGOs and customers who have demanded a boycott of their products.
Technological factors
The advent of digital technologies has brought significant opportunities to organisations such
as Nestle. The organisation need to think more about its e-commerce business as it holds the
key to success in the future. In addition to this, Nestle competitors have already started to
deploy blockchain technology to possess informational access to products (Hutasoit, 2022).
In this regard, Nestle is required to ramp up their investment in R&D, especially in terms of
production and digital marketing.
Environmental factors
Environmental factor has become a central concern for the organisation because of their
unsustainable approach revealed in recent years. The company has been found to be involved
in a large number of issues related to the environment and water. The over-utilisation of water
and exploitation of natural resources in different countries have called for strict action against
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the company. Some of the key issues found with Nestle are the use of child labour, price
fixing, manipulating uneducated mothers, and mislabelling (Our Santaferiver, 2021). It is also
said that Nestle is among some of the most hated organisations in the world due to their
unsustainable approach.
Legal factors
Legal aspects have recently seen a tighter hold against organisations due to enhanced
oversight of governments, NGOs, international agencies, and others. The organisation has
held to legal boundaries apart from a few cases such as their product Maggi in India was
found to have a high level of lead and Monosodium Glutamate (MSG), which according to
the label should not be present (India Today, 2021). The product was even banned in the
country until the regulatory measures were implemented by Nestle.
Porter’s Five Forces Analysis
Bargaining Power of Suppliers
Nestle has managed to build a significant relationship with its suppliers all around the globe
and holds significant bargaining power. The product quality required in the agricultural and
dairy industry is high hence, Nestle ensures that their suppliers have got what is required of
them. The company is also found to work with their suppliers in providing guidance on how
to work in a more efficient manner to reduce redundant expenses (Woolhandler et al., 2021).
This shows that the bargaining power of suppliers for Nestle is low.
Bargaining Power of Customers
The bargaining power of customers is high in the industry due to the existence of huge
competition in the market. There are a large number of options available to customers and
hence, they could switch to its competitors, if they are not satisfied with the product of
Nestle. Though, in terms of some products such as Kit Kat, the company hold greater
bargaining power because of its growth and popularity (Djarum et al., 2019). However, on an
overall basis, the bargaining power of customers is very high and there is no margin of error
for Nestle to make.
Current Competitors in the Industry
The company has a massive array of brands through which it distributes its food and drink
products. The competition that Nestle has to face is immense, which is further increasing as
more competitors are diversifying their product range. Some of the key competitors of Nestle
include Kerry, Unilever, Hershey, Mars, PepsiCo, and others. Its biggest competitor is
considered as Unilever, which has gained significant global market ground in recent years
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giving a high level of competition to Nestle (Shah, Chowdhury and Singh, 2021). Even
though Nestle holds the greater hand in the industry and is a dominant factor, still the
competition that they have to face in the industry is very high and they are required to make
appropriate strategies to deal with the increasing competition.
The threat of Substitute Product
The major competition in terms of substitute products comes from local vendors that sell
dairy products or local cuisine. Even though there are a vast number of food and beverage
organisations operating in the global world, still, a dominant factor is local vendors of all
countries. This suggests that the threat of substitute products is high for Nestle (Renard,
2022).
The threat of New Entrants
The threat of new entrants in the food and drink industry is low due to immense competition
and the availability of already established big players. The industry is attractive because of its
growth and revenue; however, no investors want to take such a big risk in which
organisations such as Nestle, and Unilever among others operate and have established their
brand image.
VRIO Analysis
Value
Its financial capabilities serve great value to the organisation's success and future endeavours.
The revenue of Nestle in 2021 was $95.73 billion, which allows it to raise significant capital
in times of need (Companies Market Cap, 2021). Another aspect that provides value to Nestle
is its relationship with suppliers which has allowed them to keep its bargaining power to be
low.
Rareness
The most appropriate aspect that provides rarity to Nestle is its international presence. The
company is the biggest Fast-Moving Consumer Goods (FMCG) organisation in the world and
its competitors are still not a match for its brand image in the global market (Consultancy,
2021). The organisational capability of risk-taking of Nestle has also allowed them a rarity at
their disposal.
Inimitable
Product offering such as Kit Kat and Maggi shows quality product offering that could not be
imitated. These brands of Nestle have managed to build their own brand reputation and a
loyal customer base. There a vast number of Nestle products could not be imitated by its
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competitors. Similarly, being a financial leader has allowed Nestle to be highly competitive in
their pricing strategy (Orji, Oyenuga and Ahungwa, 2020).
Organisation
One of the biggest strengths that Nestle enjoys comes in the form of its effective distribution
channels. The company has operations in more than 190 countries and its distribution
channels have allowed them to perform its business operations with effectiveness. Similarly,
its capability to develop new products and acquire foreign brands is something that its
competitors could not manage to do.
Current Strategic Options
TOWS Analysis
Threats
The major threat that Nestle has to face is increasing competition as organisations such as
Unilever have gained significant ground in recent years and is providing tough competition to
Nestle. With each passing year, the market size of Unilever has grown and Nestle is losing its
market position slowly. The next threat comes in the form of a decrease in the sales of its
product during the recent time of Covid pandemic (Financial Express, 2020). The world was
shaken by the pandemic and FMCG organisations such as Nestle have to face a lot of
challenges in the supply chain, frequency of consumption and reduction in their revenue.
Opportunities
The opportunities for Nestle are huge and immense due to the increase in the demand for
FMCG products. Furthermore, one significant opportunity present before the organisation
comes in the form of venturing into small food start-ups, the brand name of Nestle will highly
benefit from small food start-ups. The organisation could collaborate with different small
local organisations around different countries. Furthermore, another opportunity for the
organisation is associated with online shopping. It was discussed earlier that the organisation
needs to enhance its online presence as its competitors have already invested significantly in
e-commerce (Pillay and Scheepers, 2020). The organisation does have a presence in the
online market but only in a few countries developing this offering could be highly crucial in
the global market.
Weaknesses
The great business journey of Nestle has also been hectic because of the controversies that it
has faced such as the water controversy, social criticism, the Maggi controversy and others.
These aspects show that one of the most crucial weaknesses that current the company possess
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comes in the form of an ineffective sustainable approach. The company has even been
referred to as the most hated company in the world because of its sustainable approach.
Massive protests and boycotts of Nestle products have been called on several occasions
(Sheldon, 2020). Similarly, its ethical working is also questioned as racially insensitive
product names have also caused outrage in some parts of Australia. The company is required
to work significantly in terms of enhancing its ethical and sustainable operations so that it
could perform its work effectively.
Strengths
One of the most significant strengths that the company has is its market position and financial
capabilities. The company is the world’s biggest FMCG company in the world and has over
2000 brands all over the world with an offering of more than 8000 products (Nestle, 2022).
The company has diversified its product portfolio to provide a massive array of products in
different categories such as Petcare, powdered and liquid beverages, cooking aids and various
others. Another strength comes in the form of global presence while, Americas is the biggest
market for Nestle, however, they have also managed to cap a significant portion of the rest of
the market including, Asia, the Middle East, Europe, and Africa.
ANSOFF Matrix
Market Penetration
The market penetration for the organisation will be easy in terms of e-commerce. The
growing use of internet users and e-commerce businesses all around the world provides an
effective ground for organisations to use e-commerce in their business strategy and benefit
from it. For example, India is the eighth largest e-commerce market in the world with a
revenue of $85.4 billion, while, China is the biggest e-commerce market in the world with a
revenue of $1368.3 billion (Statista, 2022). Nestle has already established its presence in
these markets hence, penetrating through e-commerce will not be difficult for them.
Market Development
The concept of market development is mostly related to launching existing products into new
markets. In this regard, different products such as Maggi that have faced controversies is
needed to be relaunched in different markets through the new image of a sustainable product.
Sustainability will play a key role in ensuring that the product is seeing the same growth that
it has faced in earlier times.
Product Development
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The aspect of product development is majorly associated with the opportunity of venturing
into small food start-ups. The market capitalisation of small food start-ups or local shops is
massive and hence, this could be an important opportunity that could be used by Nestle to
enhance its revenue.
Diversification
One of the riskiest strategies of growth is launching a new product in a new market and
Nestle has done it over the years with high effectiveness. In this regard, venturing into small
food start-ups, and e-commerce in new and developing countries could prove to be a difficult
task for them (Kumari and Muralidhara, 2021). However, their already established brand
image could be highly significant in this regard and will allow them to enjoy success in the
market.
The three strategies that Nestle could deploy in their future strategy come in the form of
sustainable working, e-commerce, and venturing into small food start-ups.
SAF Framework
Suitability
The concept of all three strategies is highly suitable in the modern-day market. Such as e-
commerce is a profound way to sell products and has gained significant market growth.
Furthermore, it is also believed that e-commerce will be the new future of selling and will
take over most of the business world in the coming years.
Acceptability
In terms of acceptability, it is believed that around 218.8 million customers will shop online
in 2023 alone in the US (Oberlo, 2022). This signifies the acceptability ratio of the strategy
for Nestle and could further allow an enhancement in business revenue. Similarly,
sustainability is a modern need and not just a business strategy, customers motivate their
organisations to attain sustainability.
Feasibility
In terms of feasibility, the idea is feasible as attaining sustainability is easy due to its
immense financial capabilities. Similarly, in terms of venturing into small food start-ups is
also feasible due to their market size and increasing growth. Nestle could easily contact,
venture, or acquire small food start-ups and make them their own.
Contemporary Strategic Management Thinking
As per Steiss (2019), strategic management in the modern era is the ongoing assessment,
monitoring, and planning of all aspect that is required by companies in order to meet their
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goals and objectives. Strategic management thinking has evolved as an important prospect
because of changing macro and micro environmental factors and increasing competition in
the market. Strategic management thinking allows companies to analyse their current
situation and then chalk out strategies in order to implement them and then analyse their
effectiveness. There is a different aspect of strategic management thinking as discussed by
Grant (2021), namely, assessing current strategic direction, identifying internal and external
strengths and weaknesses, forming action plans, executing these plans, and evaluating the
success of implemented strategies. In terms of Nestle, strategic management thinking will
prove to be highly crucial as through strategic management, the company will plan out their
future existence. The strategies that Nestle is looking to implement such as e-commerce and
sustainability are also inclined towards future existence.
Currently, the company is lagging behind in terms of the above-suggested strategies and
hence, they are required to effectively evaluate these strategies so that they could be
implemented in an effective manner. Strategic management involves the element of
incorporating a particular aspect in their vision so that it could be effectively implemented
through a strategy. It is vital for Nestle that they should implement the concept of
sustainability in its vision if they want to effectively implement this strategy. In this regard,
planning should be done in such a regard that manoeuvres through competitors’ current
strategies (Sasaki et al., 2020). Different Nestle competitors such as Unilever have already
used sustainability in their approach effectively hence, Nestle is required to be more profound
in that regard so that their strategy could be differentiated.
The incorporation of the current set of strengths is crucial in strategic management and then
working on new strategies could prove to be highly fruitful. Such as Nestle has an effective
brand image in the market and hence, when launching its products over e-commerce, Nestle
needs to ensure that they use its brand image to its advantage. For example, Nestle has a
profound brand image in the US and still an emerging brand image in other countries such as
Brazil. Number of customers that trust Nestle in the US is much more than in Brazil. Hence,
it becomes vital that the company primarily diversify its e-commerce offering in the US
before Brazil. Strategic thinking allows organisations to effectively use their strengths so that
market volatility could be reduced and substantial growth in new strategies could be achieved
(Grant and Fuller, 2018).
Another important aspect of a new perspective of strategic thinking comes in the form of
going with the trend or creating a new trend. Thus, the aspect of venturing with small food
start-ups could be highly used as it will create a new trend. The organisation will use its
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current strength of global presence and then, merge with various small-food start-ups all
around the world. The trend of food start-ups in the global market is increasing and hence,
Nestle could capitalise on the situation and benefit from it. This is when inclined with the
competition-based theory of strategic management, which states that the primary objective of
businesses is to enhance their long-term profit and generate a sustainable competitive
advantage over their competitors (Suddaby et al., 2020). Thus, the strategies projected for
Nestle when implemented in a strategic manner are much more likely to provide them with a
competitive advantage in the market.
Critical Self-Reflection and Progression
Gibbs Reflective Cycle
Description
My experience of completing the module was highly useful for me as I want to become a
prominent leader in a top-notch company in the future. The module allowed me to enhance
my knowledge about various aspects of strategic management, which was not known to me.
Earlier, I had a certain idea of what working as a manager is like however, I did not have the
details of the planning, implementing, execution, and monitoring process, which this module
allowed me to achieve (Argyres et al., 2020). My knowledge related to strategic management
has been enhanced significantly.
Feelings
The feeling generated from my experience was also positive to a significant extent as my
current knowledge related to strategic management has enhanced. However, I feel that there
is still a lot that could be done for my knowledge to be enhanced to a level that meets the
current competitive level. I believe that my knowledge related to strategic management
theories is not good and the role of theories is vital in understanding the perspective through
which organisations work, and the competitive marketing scenario is looked at. Additionally,
I also believe that my lack of research skills has restricted my knowledge about various
important topics taught during the module.
Evaluation
The evaluation of my experience is mixed incorporating both good and bad, as I believe that
while, the module has helped but at the same time, my lack of certain skills has restricted my
potential to learn in a comprehensive manner. Furthermore, while completing the above
report I had to research a large number of academic journals and authentic reports and it
allowed me to form appropriate strategies showing the importance of future planning for the
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organisation. Though, I believe that I could have done better in terms of researching data,
facts, and information.
Analysis
The analysis of the situation could be formed mostly as positive due to my learning and
enhancement in my knowledge of strategic management thinking. My knowledge in the area
has only increased and I believe that this will help me in reaching my profound career goal of
working for a prominent organisation in a leadership position. Though, I also found that there
is a certain skillset that I need to work on before I could achieve my dream.
Conclusion
It could be concluded that the module and the report have helped me in developing my
knowledge about an important prospect of the modern-day business world. Similarly, it could
also be stated that in the future when I will be writing future reports, an enhanced form of
research abilities could allow me to reach a much more profound conclusion.
Action plan
I aim to enhance my research skills through continuous learning by the mid of 2023. I have
already started this journey by collecting various articles and reports about different
organisations. I have also sought the help of my friends in learning about keywords when
finding information. I believe that these actions will help me in enhancing my research skills
through which I could also gain a profound set of knowledge about management theories
(Koseoglu et al., 2019).
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Appendix
Appendices 1: PESTEL Analysis
Political factors  Tension between the US and China,
which are two of the biggest markets
for Nestle could impact its working
Economic factors  The covid-19 pandemic impacted
the sales of Nestle and has to suffer
a reduction in its revenue.
Social factors  The inclination of modern-day
customers towards healthy foods has
to be considered by Nestle to
develop healthy products.
Technological factors  E-commerce is a profound aspect of
the technological era, however,
Nestle needs to enhance its online
market presence.
Environmental factors  Nestle has done very poorly in
sustainable practices and is even
considered to be one of the most
hated companies in the world.
Legal factors  Legal aspects such as government
norms should be adhered to by
Nestle or it could face legal
procedures such as in the case of
India in which its product 'Maggi'
was banned for not adhering to legal
aspects.
Appendices 2: Porters Five Forces Analysis
Factors Power
Bargaining Power of Suppliers Low
Bargaining Power of Customers High
Current Competitors in the Industry High
The threat of Substitute Product High
The threat of New Entrants Low
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Appendices 3: VRIO Framework
Resources/
Capabilities
Valuable Rare Imitable Organisations
Financial
capabilities
Yes No Yes Yes
International
presence
Yes Yes Yes No
Product
diversificatio
n
Yes Yes Yes Yes
Distribution
channel
Yes Yes Yes Yes
Appendices 4: Ansoff Matrix
Market penetration
e-commerce in different markets such as
India and China.
Product development
Venturing small food start-ups in developing
countries
Market development
Relaunching its product base that has faced
criticism or controversies due to
unsustainable approaches such as Maggi
Diversification
Entering new markets with new offerings
such as venturing into food start-ups could
be difficult however, their global brand
image will help them in gaining a
competitive advantage.
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