Strategy and International Management

This essay evaluates Nestle's entry into the Indian market by providing an overview of strategy and international management. It discusses the motives behind internationalization, benefits of FDI, Porter's five forces analysis, and external factors influencing Nestle's business environment in India.

Running head: STRATEGY AND INTERNATIONAL MANAGEMENT
Strategy and International Management
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Introduction:
The aim of the essay is to provide an overview into the strategy and international
management by critically evaluating a multinational company that has recently made an entry
into an international economy. Learning of the strategy is vital as it aids in the determination
of the future direction of a business while having an understanding about the company’s
position within a given market. In addition, knowledge about international management
provides insight into the economic and the global business climate. The study also helps in
the development of ample leadership and managerial skills. In other words, strategy puts
forward the action plan necessary for the achievement of a long term or overall aim while the
international management involves understanding of the international economics in relation
to change in international corporations thereby leading to the creations of global business.
The chosen company for this essay is Nestle that adopts strategies in making an entry
into Indian market. Nestle represents a Swiss multinational food and drink firm with its
headquarters located in Vevey, Switzerland (nestle.com 2018). It is one of the largest food
companies across the world in terms of the revenue and the other metrics. The company held
a 64th position in Fortune Global 500 in the year 2017 and a 33rd ranking in the list of the
largest public companies determined by the Forbes Global 2000. The product of the company
varies from baby food, bottled water, medical food, coffee, tea, breakfast cereals, ice cream,
dairy products, pet food, frozen food and snacks. Nestle has an annual sales of US$1.1 billion
contributed by twenty-nine of its brands. The company has close to 339,000 employees along
with 447 factories and operations in close to 189 countries (nestle.com 2018). The company
is also one of the key shareholders of the largest cosmetic brand, L’Oreal.
Discussion:

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According to Cuervo-Cazurra, Narulan and Un (2015), the motives behind the
internationalization depend on the two factors, the pull factors and the push factors. The
pull factors of Nestle represent the forces that attracted the firm in doing business in the
foreign market and determined by the growth prospects and the relative profitability. These
factors are referred as the proactive reasons. They also ensure the firm with profit advantage
and growth opportunities. This implies an increase in the total profit of the firm along with an
increase in market share and sales of Nestle. On the other hand, the push factors refer to the
saturation of the domestic market that prompted a firm like Nestle to internationalize. They
are known as the reactive reasons. Factors like an increased domestic market competition,
surplus production in the home market, decline in the demand of domestic product, smaller
domestic market and the political instability versus stability.
The market reasons and the benefits of Internationalization of Nestle include the
expansion of the market opportunities (Knight 2015). Nestle did not remain restricted to its
home country but expanded its wings to the Indian international market. This helped in the
expansion of the opportunities for Nestle in undertaking an expansion in the other ventures.
Internationalization also contributes in the diversification of the risk. This helps brands like
Nestle in becoming immune to changing trends of the consumption in each of the markets
thereby ensuring minimum impact by external factors that influence purchase of products and
the consumer behaviour. Firms like Nestle also experience the benefits of the economies of
scale through internationalization. This helps the firm in producing products at cheaper rates
due to the presence of lower wages and component cost along with their super availability
and flexibility.
Shenkar, Luo and Chi (2014) put forward that internationalization taking place with
the help of foreign direct investment (FDI) is the investment made by the firm or the
individual in a country due to business interest of a different country. The aspect of direct

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control differentiates it from the foreign portfolio investment. FDI proves beneficial for a
company like Nestle since it puts forward local economic benefits thereby resulting in a much
easier international trade. It also helps in increasing the foreign income but also human
resource. Thus, briefly, FDI results in a constructive spill over effect. In addition, things like
training of workers or building of infrastructure that benefits the company at first also proves
to be beneficial for economy. Foreign direct investment also benefits the private limited
firms more than the public limited due to the allowance of 100 percent FDI (Buckley and
Casson 2016). It also seems beneficial since the foreign direct investment of private firm
occurs through equity investments. Besides, the private limited firms in India are able to issue
equity shares, convertible debentures and preference shares subjected to the norms and
guidelines. Internationalization also proves to be beneficial for the private limited firms
compared to the public limited companies since they remain regulated by law in terms of
publication of the annual financial statements that helps in determining the potential investors
and true position of owners.
According to Tanwar (2013), Nestle has its focus on the porter’s generic strategy of
cost leadership, differentiation and focus strategy that enables it in gaining a competitive
advantage in the Indian market. For achieving the optimum level of cost leadership in
confectionary industry, Nestle considered the cultural behaviour, environment and the
communication issues at its planning stage (nestle.com 2018). Besides, the company made
huge investment in Chocolate and Confectionary Industry, battled frequent rises in the input
price and the challenging ingredient market along with maintenance of optimum cost of
packaging and raw materials. To cut down cost factories were equipped with automatic
machines. To ensure product differentiation, Nestle tries to gain control of the market by
introducing unique products (Crifo and Forget 2015). Besides, it also targets various media
sources like the magazines, television as well as newspapers as sourcing platform for

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advertising their products. Focus strategy is related to the customers and is defined in manner
for satisfying the expectations and the needs of the specific segments such that they end up
buying the product (Payaud, 2014). Nestle adopts the strategy for enhancing the
communication ability of the customers and the organization.
Nestle however takes a further move in market penetration, product development,
market development and diversification. Market penetration refers to the key growth
intensive strategy that aims at business growth through market sales (Johanson and Mattsson
2015). Nestle adopts market penetration by forming cooperative associations between
increasing number of brands for achieving objectives that are mutually decided. The product
and market development strategy is adopted by Nestle through building new manufacturing
plants for the development of better products compared to competitors. Nestle adopts
unrelated diversification which implies taking the organization into the unchartered business
or territories (Hill, Jones and Schilling 2015). For instance, Nestle ventured into the external
pharmaceutical business by acquiring Alcon that manufactures surgical equipment, devices,
pharmaceuticals and consumer products.
Nestle opened a new global research and development centre in Manesar with further
plans of coming up with newer products in varied categories
(retail.economictimes.indiatimes.com 2017)..The challenge lies in the fact that India
contributes to lesser than 2 percent of the overall business. It is a fundamental concept that
the emerging markets should act as growth engines for not only the global economy but also
the business. Slow growth depresses innovation and therefore it becomes vital in creating a
growth momentum for India.
Proctor (2014) puts forward that external factors influencing business environment of
Nestle in the Indian market is evaluated through Porter’s five forces analysis. The five forces

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that ensures the competitive advantage of the firm includes bargaining power of buyers,
bargaining power of the suppliers, competitive rivalry, threat of the substitutes and the threat
of newer entrants.
Bargaining power of Suppliers in food processing industry is determined by the raw
materials and is true for the international market. Nestle remain aware of the fact since most
of the products remains generated from either the dairy or the agricultural raw materials.
Therefore, in the Indian market too, the company maintain a higher standard in seeking the
quality suppliers and goes greater measures in retaining the best of suppliers. Nestle advices
the suppliers of the Indian market to not only reduce wastage but also work in a more
efficient manner. This helped in developing a better relationship between not only the
company and the suppliers but also reduce problems with the team.
Bargaining Power of Buyers is higher in the international market of the food
processing industry since they have easier access to the substitute products of the other food
processing company. Nestle however countered this bargaining power through constant
innovation of the newer products that is able to meet the needs and demands of clients. Nestle
also maintains higher quality production process and incorporates healthy products into the
productions. This has acted as the reason behind its popularity amongst clients.
Competition rivalry is stiff in the Indian food processing market. This also becomes
evident from the commercials carried out by the competitors in attracting the clients through
constant innovation of the products. Nestle has however been a leader in the industry and
even in the international market due to constant innovation and providing top quality
products. Nestle has curved a niche for itself in food processing industry due to the
maintenance of higher quality products and consideration of the changing demand of clients.

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. Threat of the New Entrants is lower for Nestle in the Indian market. The food
industry of the Indian international market is not only attractive but is also profitable and
viable. The new entrants need to undergo a massive battle for replacing the established
products from Nestle that makes it difficult for penetration. The Indian market also puts
forward food policies that require compliance with the goods manufactured by the newer
entrants. Besides, the new entrants also need to acquire a green signal from the inspectoral
agencies.
Threat of the substitute goods is higher in the Indian market as other companies
manufacture similar line of food products put forward by Nestle. Therefore, one way in
which Nestle can retain its position lies in making the product unique by introducing healthier
food options. This has enabled the company in retaining and attracting the health conscious
clients.
Gupta (2013) also stated that for scanning and analyzing the external macro
environment, it becomes necessary for undertaking a political, social, cultural, economical,
technological, legal and environmental analysis of Indian market where Nestle has made an
entry. In relation to the political factors, India represents one of the largest democracies of
world and run a federal form of government.
The political environment of the Indian market is influenced by government policies,
ideologies of political parties and the interest of politicians. The system of taxation includes
sales, service and the income tax that remains controlled by government. The country also
allows privatization and free business through various programs(16). Nestle should focus on
the political dynamics related to the taxation, government permission and import and export
excise duties for entering target segment along with introduction of hygiene products allowed
by the regulated bodies of India. To capture the Indian market, it should comply with the

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regulatory changes surrounding the marketing actions and the food standards. The company
should not only recognize the stability of government along with the involved risk. Besides,
the company should consider changes in the global regulation and thereby maintain quality
standard.
The Indian economy has remained stable since initiation of the industrial reform
policies in 1991. The policies ensured liberalization of foreign capital, reduction in industrial
licensing and the formation of Foreign Investment Promotion Board (FIBP) for ensuring
continuous improvement within India’s economic environment (Perry-Kessaris 2016). As far
as the consumers are concerned, the Indian consumers seem more price conscious and hence
Nestle should price the product in accordance to it. Nestle should also be aware of the income
level of consumer, economic growth and the income levels. However, Nestle has taken an
initiative in producing the products at the local levels for not only satisfaction of the
consumers but also to promotion of economic worth of the farmers.
The social factors represent the change in trends that influences the business
environment of Nestle. Given the increasing number of health conscious Indian consumers,
Nestle need to ensure reduction of the sugar, salt, transfat and sodium content of its products.
To acquire the trust of the Indian consumers Nestle adheres to stronger principles and values.
The company also ensures promotion of family time with the help of Maggi Noodles within
the world of convenience.
The technological factors in India not only helps in introducing new process of
product development but also helps in introducing a fresh procedure of cost cutting. The
introduction of the social media would enable Nestle to penetrate in the different segments
and thereby create an awareness regarding the various products through varied campaigns.

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For instance, ‘We Miss You Maggi’ campaign and the tying up of the brand with Snap deal
facilitated its comeback (Ambwani 2015). The Indian market also provides various e-
commerce platforms for marketing. Thus, the usage of technology will help in narrowing
down the gap between company and consumers thereby allowing direct conversations with
them.
The legal factors of the Indian market has been various laws and policies
implemented by the country that has a direct impact on operation of Nestle (Hoskisson et al.
2013). For instance, Nestle needs to abide by health and safety laws for the employees as well
as produce hygienic products for its customers. As far as the environmental factors are
concerned, the Indian market has become increasingly conscious towards maintenance of a
cleaner environment. It is necessary for Nestle to focus on these regulations and rules and
produce healthier products through environment friendly operations (Cant and Wiid 2013).
The following of rules will result in greater acceptance of products by targeted segment.
Nestle should also be concerned about issues related to the recycling and packaging.
Conclusion:
On a concluding note, it can be said that the last few years saw a change in the
business strategy of Nestle. The company transformed from technology driven to science
driven for producing convenient and tastier beverages and food that are not only nutritious
but also healthy. Innovation has been part of the company since beginning but presently it has
become more dedicated in enhancing the lives of the people. The company strives each day in
making tastier and healthier products that helps the consumers in taking care of the families.
The company has unmatched research and development capability and a passion for quality
maintenance in everything they do. In the year 2017, the company invested close to CHF
1.7billion in the research and development. Switzerland however remains centre of

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importance for Nestlé’s global research work with close to 58 percent of research budget
invested within the country. The essay focuses on internationalization aspect along with the
strategies adopted for gaining competitive advantage. It also focuses on the intensive and the
generic strategies of Nestle. There is also discussion about the challenges that Nestle faces in
Indian market. The essay also puts forward micro and macro strategies of the international
market to which Nestle makes an entry. There are even discussions about Porter’s five forces
with sole focus on external factors that affects the international market of Nestle. There is
also focus on the PESTEL (political, economic, social, technological, environmental and
legal) framework of the external environment of international market that has an influence on
Nestle.

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