Nestle's Diversification Strategies

This assignment examines Nestle's approach to diversification. It explores the potential risks associated with expanding into new product categories and evaluates the company's capacity to successfully implement these strategies. The analysis considers factors such as resource availability, research and development capabilities, and market demand.

Running Head: Strategy, Enterprise & Innovation
Strategy, Enterprise & Innovation

Strategy, Enterprise & Innovation 1
Contents
Section 1..........................................................................................................................................2
Part- a).........................................................................................................................................2
Part-b)..........................................................................................................................................4
Part-c)..........................................................................................................................................5
Section- 2.........................................................................................................................................6
Part-a)..........................................................................................................................................6
Part-b)..........................................................................................................................................8
References......................................................................................................................................11

Strategy, Enterprise & Innovation 2
Section 1
The analysis of strategic capabilities and the external environment is important for any
organization in the country. The selected company is Nestle, which belong to the food and
beverage industry.
Part- a)
Nestle is the world's leading Nutrition, health, and wellness company. The company is the largest
food and beverage company that have more than 2000 brands ranging, and the company is
present in 191 countries around the world (Nestle, 2017). Resources and capabilities of the
company are important and can lead to the competitive advantage for the company. The
resources of the company are divided into tangible, intangible, financial and human resources
and are discussed below:-
 Production sites- The production sites of nestle consist of the coffee plants, the company
is having approximately 27 nestle plants such as plants in Mainz (used for roast coffee) or
Switzerland (Nespresso is produced). This becomes the strength of the company and in
near future company will expand the plants (Hostut, and Hof, 2014).
 Research centres- The Company is having 28 research and development centres across
the world, out of which 6 centres conduct research in an area of coffee. Nestle holds PTC
that is product technology centres this centre focuses on particular businesses and R&D
work closely with PTC (Lang, and Heasman, 2015).
 Culture- Company has a strong culture that focuses on stakeholder’s satisfaction and
innovation. Innovation is important for the organization and this is becoming the

Strategy, Enterprise & Innovation 3
competitive advantage for the company as the competitors in the same industry don't
think to bring the innovation to the work (Ojo, 2012).
 Reputation management- The objective of the company is to build up a responsible and
sustainable supply chain. The nestle partnered as the main from the Big four with the
forest belief to support to stop rainforest deforestation caused by palm oil and coffee
production (Griffin, 2014).
 Innovation management- Nestle has the largest research base in the food industry.
Bloomberg business week shows the list of 50 most innovative companies in the year
2010 and nestles captured the 36th rank. The last innovation of the company was Nescafe
Dolce Gusto and Nescafé Green Blend. The investment done by the company was $1.7
billion on research and development in the year 2008.
 Financial resources- Nestle company has registered the growth over the five years
consecutive. According to the overall review of 5 years, the company showed the growth
from $78 billion to 92.1 billion. The financial resources are the competitive advantage of
the company as the company is showing the growth in the market.
Nestle financial development in billion US $ 2009 2008
Sales 92.1 93.6
Profit 8.96 15,51
Share Development (annual highs) 44,18 45,64
 Human resource- The staff of nestle company plays a vital role in growth and success of
the company as well as it is strength of the company. The productivity and well-being of

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the company are influenced by the staff of the company. The employees of the company
understand their responsibility and fulfill their responsibility every day that becomes the
competitive advantage for the company. Employees are remunerated above the
benchmark and also receive benefits along with salary which motivates the employees
towards the work (Ahmad, 2015). The company provides promotion and appraisal to
their existing employees because the company believes in forming the long-lasting
relationships.
Part-b)
The changes in the external environment can create an impact on the entrepreneurial activities of
the organization.
Political- Nestle expand the business in different countries for that they have to follow the laws
and regulations. Change in the government regulation related to the good an beverage industry
may lead to the problems for the entrepreneurial activities as they won’t be able to find the
market easily in which they can expand the business (Charles, 2014).
PES
T
Political
Economic
Social
Technolo
gical

Strategy, Enterprise & Innovation 5
Economic- Changing customer budget and purchasing power of the customers, rise in the price
of the raw material create an impact on the prices of the product. These changes create an impact
on the decision related to the price of the products available in the market.
Social- Changing customer attribute of the customers and lifestyle brings the changes in the
demands of the customers. The customers spend more time with their families because of
promotion of the family time. The entrepreneur’s decision related to the development of the
product will get affected.
Technology- Rise in the use of the social media by the customers is making the entrepreneurs to
take the decision of marketing considering the social media role in the marketing of the product.
The marketing activities are also included in the entrepreneurial activities (Morschett, Schramm-
Klein, and Zentes, 2015).
Part-c)
The analysis of the competitor’s forces can be done by the company with the use of Porter's five
forces.
 The threat of substitute goods- The food industry is growing industry, there are many
products that can compete with Nestle company. Kraft goods and Groupe Danone
produce similar products like Nestle Company, so the entrepreneur needs to think
innovative so that they can grab the customers.
 The threat of new entrants- The food market is very vats, the new entrants can enter the
market. The Nestle Company have to face the competition, for that the entrepreneurs can
keep the low prices that might result in the loss of the company or might enhance the
profit due to increase in the prices (Njambi, Lewa, and Katuse, 2015).

Strategy, Enterprise & Innovation 6
 Bargaining power of customers- The Bargaining power of the customer is high in the
food industry, to maintain customers the entrepreneurs can produce or launch the new
innovative product in the market through which they will be able to satisfy the needs and
demands of the customers.
 Bargaining power of suppliers- The products of nestle company are made of
agricultural and dairy material. The company wants those suppliers who can provide the
best quality and then a company will provide the best products so that they can meet the
expectations of the customers and can earn maximum of profit.
 Competition within the industry- The Company is trying to maintain the edge among
the competitors that are Groupe Danone and Kraft Foods. The company is bringing
innovation and providing the new products with quality that fulfills the customer needs.
This is possible due to the decision was taken by the entrepreneurs in the organization
(Akey, Jiang, Antwi, and Torku, 2016).
Section- 2
Part-a)
The two strategic options that could be pursued by Nestle Company in order to enhance its
entrepreneurial opportunities in the market are product development and diversification.
Product expansion- The Company should try to expand its product line or should add new
features that help the company in enhancing the entrepreneur’s opportunity in the market. The
new featured products are going to be demanded by the customer, this strategy is used by the
company to bring the expansion to the market. Across the world, there are many places where
the company offers its product (Nestle, 2013). The company expanded its product line in health

Strategy, Enterprise & Innovation 7
and nutritional products. The customers are becoming aware of consumption of the healthy and
the nutritional product.
Considering the demand of the customer, the company can bring new products to the market that
helps in fulfilling the needs of the customers. The changes in the demand of the customers force
the entrepreneurial of the company to bring the changes in the product or to launch a new
product that can fulfill the needs of the customers. While bringing the product expansion the
company need to make sure that they are using advanced technology with the help of which they
can bring innovation in the product and grab the attention of the customers. The demands of the
customers will be satisfied and will help in increasing the opportunities for the company in the
market to maximize the profit.
Diversification- Nestle is famous for the coffee; the company should bring the diversification
and should try to fulfill the demand of the customer according to their needs. The company
earlier invested in the cosmetic company L’Oreal. The company should bring new products by
doing investment in the products of the different brand (Saluja, and Mahajan, 2017). This leads
to the growth opportunity of the company in the other industry than the food and beverage
industry.
The diversification of the product will help the company to grow in the market by providing the
wide range of product and services to the customers. The company can make the product
available in the different markets which clearly show that it leads to the growth of the product in
different markets.

Strategy, Enterprise & Innovation 8
Part-b)
The SAFe criteria help the company to check the suitability, acceptability, and feasibility of the
strategy adopted by the company. The SAFe of the two strategies is shown below:-
Product expansion
Suitability- The strategy product expansion shows that the implementation of the strategy will
enhance the growth opportunity of nestle. The introduction of the new product into different
markets will lead to the growth of the opportunity of the nestle market. The company will be able
to make the profit easily.
Acceptability- The strategy will fulfill the demand of the customers because the company will
make changes in the product or will introduce the new product in the market. Through, this
company will be able to meet the expectations of the customers. The risk of bringing the changes
in the company is acceptable for the company because they know that they will manufacture the
product considering the demand of the customers (Punt, Butterworth, Moor, De Oliveira, and
Haddon, 2016). The return of the strategy is either failure or success, the return of the strategy
will acceptable to the company. There is the possibility that the product provided by the
company might be not liked by the customers and will not be able to make space in the market as
compared to the competitors.
Suitability Acceptability Feasibility

Strategy, Enterprise & Innovation 9
Feasibility- Company can make use of the funds for research and development of the new
product that the company is planning to launch in the market. The nestle can make use of the
existing resources for that the company need to integrate the resources depending on the demand
of the customer, some customers demand for the healthy products for that the company needs to
get in touch with the suppliers who can provide the resources that are used by the company to
make the product.
Diversification
Suitability- There is a presence of the opportunity if a company will follow the diversification
business strategy to expand the business. The company can expand the business in the new
market with the use of the new diversified products (Api, et.al. 2015).
Acceptability- The expectation from the company is increasing because a company is becoming
popular across the world and company is also maintain the reputation in the market. The
customer and investors’ expectations can be met by the company. The risk of bringing the
product which was not early produced by the company is high as compared to the other risk. The
company can take the risk but after considering all the parameters that can affect the company.
Though, this diversification opens new ways for the company.
Feasibility- Company is diversifying in the different fields and company can expand the amount
in the business. To bring the diversification company needs to obtain and integrate the resources
required to bring the diversification in the product. The company needs to perform the activity of
research and development that helps the company in identifying which product is more in
demand by the customers. As there are many products that are provided by the company

Strategy, Enterprise & Innovation 10
currently. The staff of nestle company maintain those skills which help the company to expand
the business.

Strategy, Enterprise & Innovation 11
References
Ahmad, S., 2015. Green human resource management: policies and practices. Cogent Business &
Management, 2(1), p.1030817.
Akey, B.C.A., Jiang, X., Antwi, H.A. and Torku, E., 2016. Diversity Management and
Competitive Advantage In Multinational Firms In Sub-Saharan Africa.
Api, A.M., Belsito, D., Bruze, M., Cadby, P., Calow, P., Dagli, M.L., Dekant, W., Ellis, G.,
Fryer, A.D., Fukayama, M. and Griem, P., 2015. Criteria for the Research Institute for Fragrance
Materials, Inc.(RIFM) safety evaluation process for fragrance ingredients. Food and Chemical
Toxicology, 82, pp.S1-S19.
Charles, A., 2014. The Impact of Technological Innovation on Organizational Performance.
Griffin, A., 2014. Crisis, Issues and Reputation Management: A Handbook for PR and
Communications Professionals. Kogan Page Publishers.
Hostut, S. and Hof, S.D.V.H., 2014. Corporate social responsibility practices of transnational
corporations: Examples from Turkey and Italy1. European Journal of Research on Education,
2(2), pp.202-213.
Lang, T. and Heasman, M., 2015. Food wars: The global battle for mouths, minds and markets.
Routledge.
Morschett, D., Schramm-Klein, H. and Zentes, J., 2015. Strategic international management.
Springer.
Nestle, 2017, About us, viewed on 7th November 2017, http://www.nestle.co.uk/aboutus

Strategy, Enterprise & Innovation 12
Nestle, M., 2013. Food politics: How the food industry influences nutrition and health (Vol. 3).
Univ of California Press.
Njambi, E., Lewa, P. and Katuse, P., 2015. Porter’s Five Forces Influence on Competitive
Advantage in the Kenyan Beverage Industry: A Case of Large Multinationals.
Ojo, O., 2012. Influence of organizational culture on employee work behavior. International
Journal of Contemporary Business Studies, 3(11), pp.46-57.
Punt, A.E., Butterworth, D.S., Moor, C.L., De Oliveira, J.A. and Haddon, M., 2016.
Management strategy evaluation: best practices. Fish and Fisheries, 17(2), pp.303-334.
Saluja, N. and Mahajan, V., 2017. Profitability, Efficiency and Risk Analysis of Nestle India
Limited. Choice, 6(1).