Nestle Company-Cereals (Mexico): Business Environment Analysis Report

This report examines Nestle's proposed expansion into the Mexican cereal market. It provides a comprehensive overview of Nestle's background, including its global operations and product range, with a specific focus on the cereal market. The report analyzes the business environment of Mexico, including its economic stability, political landscape, labor market, and consumer trends. It highlights Mexico's growing consumption levels and its attractiveness for foreign direct investment. The report also delves into the economic factors affecting the Mexican market, such as the depreciation of the Mexican Peso and the role of oil exports. Furthermore, the report includes a PESTLE analysis to assess the political, economic, social, technological, legal, and environmental factors influencing Nestle's business in Mexico. The analysis considers Mexico's political environment, economic conditions, and social dynamics, and offers insights into potential challenges and opportunities for Nestle's expansion strategy, including government policies, market competition, and consumer preferences. Finally, the report concludes with a summary of the key findings and recommendations for Nestle's successful entry into the Mexican cereal market.

Nestle Company-Cereals
(in Mexico)

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Background of Nestle......................................................................................................................1
Background of business environment of Mexico............................................................................3
Analysing the business scenario......................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The present report is based on Nestle company which is planning to expand its
operations in Mexico by establishment of a company in that country. Nestle is the famous
Swiss transnational food and drink company which is regarded as the largest food company
in terms of revenue. It is producing a wide range of products which include baby food,
medical food, bottled water, breakfast cereals, coffee, tea, confectionery, dairy products, ice
cream and pet foods as well. Also, there is a joint venture between Cereal partners worldwide
and Nestle which was established in the year 1991.
Background of Nestle
Nestle is the world famous Swiss company which is operating worldwide and is
producing much food and drink products for the customers (Pasparakis, Haase and Nestle,
2014). The form in which Nestle is at present time was established in the year 1905 as Nestle
and Anglo- Swiss condensed milk company. The company is having about 500+ factories
which is operating in about 194 countries of the world and employing about 400000+
employees all around. Nestle as the company and its operations grew during the 1st and 2nd
World War and this expanded its operations beyond the condensed milk which it was
producing in the starting. On the Six Swiss Exchange the company was primarily listed, then
listed on Swiss Market Index and secondarily, listed on Euro next (Business Summary,
2017). During the 1990, at the time when the whole world was transforming with the
introduction of liberalisation, privatisation and globalisation. Nestle also developed as the
year was proved to be favourable and company developed more or less as an integrated
trading area.
There were also many of the major merger and acquisition of the company like that of
San Pellegrino in 1997, Spillers Pet food in 1998 and in 2002 of Ralston Purina (Von
Minckwitz and Hanusch, 2014). In the same year of 2002, it also acquired two of the main
North American companies which include merger with US ice cream into Dreyer's and that
of Chef America with about $2.6 billion. During the same time, Nestle came into the joined
bid with Cadbury and they both purchased the American company Hershey's which was a
confectionery competitor. And after the year 2010, Nestle focused on producing the nutritious
and healthy food as because of the threat of government increasing regulation and declining
sales of confectionery food in global market. Thus, the company began producing products
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which were linking food product with that of pharmaceuticals (Corporate Governance Report,
2017). Nestle also opened Health Science branches of the company which was aimed in
producing products which were both healthy and nutritious like drinks, protein shakes etc.
which were good for malnutrition, diabetes and digestive disease. And in the present year
2017, Nestle announced that it will likely to decrease the sugar content by 10% in its
chocolates and bars like Kit-Kat in 2018 and also in its breakfast cereals.
According to an online global survey in the year 2015 by the Reputation institute,
company was scored 74.5 out of 100 on the basis of its reputation among the customers. The
market capitalisation of Nestle is about 231 billion Swiss francs which is about $247 billion
more than that in 2015 which make the company the biggest food company of the world. In
the first nine months of the year 2017, there was 2.6% growth in the organic products and
with 1.8% real internal growth and pricing was about 0.8%. There was a decrease in the
foreign exchange and sale by about 0.4% and the total reported sale was about 65.3 billion
CHS (Business Summary, 2017). In North America, the sale was flattened because of the
negative category of dynamic, Brazilian sale was affected because of the difficult in trading
environment, in Mexico and parts of Latin America there was a good growth.
Nestle is a Swiss company which is providing a wide range of nutritious and healthy
food and drink products and is operating in almost all the parts and regions of world
including America, Asia, Oceania and in Africa. It was founded in the year 1866 by Henri
Nestle and having its headquarters at Vevey, Switzerland and is employing about 400000+
employees all around the world (Corporate Governance Report, 2017). At present, the CEO
and Director of Nestle is Ulf Mark Schneider since 2016 and the Chairman of the company is
Paul Bulcke since the year 1979. There are different types of committees which are operating
in the company and all of them are having their own importance in the company and its legal
structure. The committees include Chairman and Corporate Governance, Compensation and
Nomination, Audit and Finance Committees. Chairman and Corporate Governance
Committee include the Chairman or CEO, the two Vice Chairmen and the rest Board of
Directors. The work of Corporate Governance Committee is to provide recommendations to
the Board of Directors by analysing the corporate governance of the company. Compensation
and Nomination Committee include one of the Vice Chairmen and two Board of Directors
who involve in the remuneration of the members and also discuss the candidates of board.
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Audit Committee comprise Vice Chairman and two members of board whose work is to
access the management, books and records of the company (Zeng, 2017). And the rest of the
whole structure of the organisation is divided on the basis of the parts and regions where the
company is operating into. And all the parts which are mentioned above are having their own
Business heads which are further divided according to the products in which the company is
dealing or manufacturing.
Background of business environment of Mexico.
Mexico is one of the weaker area of Latin America in terms of the business operations
which makes larger opportunities for many of the business enterprises to set up in Mexico.
This is because there was a rise in the consumption level in the country in the year 2010 by
the entrance in demographic dividend and creating market opportunities for the consumer
goods. Mexico, according to the World Bank report was considered as among the easiest
countries in Latin America in terms of business (Doing Business, World Bank Report, 2012).
But in the country, there are rigid labour market and tax environment; government is
encouraging investment in key areas and the crime rates in Mexico are relatively higher than
compared to other Latin American countries. The economic environment of Mexico is stable
and form the year 2011 the GDP is growing at the rate of 3.8%. The country is having a very
high rate of crime and corruption which is making the government think about the security
issue in Mexico and it was hardly hit by the 2008 recession.
The government of Mexico is highly encouraging the foreign direct investment in
many industries and sectors of economy. While there are restriction on some industries like
that of airlines, telecommunication and energy sector. The tax rates in the country are very
high and thus making it not too much business friendly nation there is 30% corporate tax rate
in the country. The labour market of Mexico is also not very good as there always remain the
problem of labour shortage and that of unskilled labour in the areas of finance, engineering
and production. After the year 2010 the consumption level of Mexico increased with the
average increase of 2.3% per year from 2012 to 2020 (Business Environment: Mexico, 2017).
Tourism and food service industry of Mexico is the largest growing industry in country and
the growth of both of these sectors are linked to that of economic health and performance of
country. So there are more chances of the investment in these sectors by the leading
companies of the world. Mexico is having the population of about 121.1 million and the GDP
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of the country is about $2.2 trillion with the growth of 2.5% and per capita is $17,534.
However, the inflation rate is about 2.7%, unemployment rate is 4.3% and the FDI inflow is
$30.3 billion.
Illustration 1: Ease of doing business
[Source: Doing Business, World Bank Report, 2012]
Nestle will be opening a new factory in Mexico which will be increasing the
production of infant formula and cereals in the country. As the people of Mexico is mainly
depended upon lunch and the breakfast is not very much considered. But they all like to eat
the low calories cereals in the morning breakfast which is both healthy and nutritious. Nestle
will also be opening two factories in Mexico which will be costing about $1 billion to foster
the fast growing food industry need of the market (Doing Business, World Bank Report,
2012). All the production of the cereal will be done by the latest technology which also will
be including the 100% waste treatment and renewable energy from wind and solar power
usage. This will also be leading the higher growth of both direct and indirect job as according
to the investment of $1 billion.
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As Mexico is favourable country in terms of the growth and operating of the
production and food based industries. And the World bank also considered the country
business friendly nation of Latin America. Mexico as is becoming one of the fastest
economies of the world and having the economic outcome as GDP of about $2.2 trillion in
2015. And the whole economy of Mexico is largely depending on exports as is the 12th largest
export of the world as in 2015 and 80% is to USA. During the last 5 decades Mexico as an
economy is experiencing many ups and down in the growth of the economy and this is
closely linked to changes in the presidency power. The inflation rate of Mexico is relatively
higher than that of the other nations of the Latin America and foreign exchange reserve is
mainly used to finance trade deficit (Business Environment: Mexico, 2017).
The current president of Mexico has laid down the consumption driven economic
policy and is favouring very restrictive monetary policy. The economy of Mexico is also
having a high unemployment rate and the population is having relatively low saving rate. As
per the political conditions are concern the president of Mexico is having a great level of
influence over the decision making process in the country. And the government of the
country is divided into three parts executive, bicameral and judiciary (Zeng, 2017). The legal
system of Mexico is very weak as there are higher rate of crime in Mexico and the judiciary
is facing many problems regarding this.
Analysing the business scenario.
The economy of Mexico is having very high opportunities to business and that of the
foreign direct investment from the other countries of the world. The two main source of
investment in Mexico is of high domestic saving and that of portfolio investment from the
international sources (Oczypo and Oury, 2016). And if Nestle is about to start its business of
cereal in Mexico then it need to do the external environment analysis of the environment so
that it can easily match its objectives and then set them. The external environment analysis
include the PESTLE analysis which comprise political, economical, social, legal,
technological and environment factor.
Political- as Mexico is not very stable country on the bases of political factors as it is having
its presidency elections every 6 years and at present the president of Mexico is Enrique Peña
Nieto this will be changing the economic policy. And this will be changing the way of society
and the living standard of the people of Mexico.
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Economical- there are drastic changes in the depreciation of the currency of Mexico Peso
and this is leading to economic changes in the country (Cigarroa-Toledo and Rosado-Paredes,
2016). The major force of economic growth is financed by oil exports and the private sector
which is developing adequately. The foreign direct investment of Mexico in the year 2009
was about $14.4 billion and which was the low at 51%. The poverty in the country is
widespread to about 44% and still is classified to as the upper middle income country by the
World bank.
Social- from the total population of 121.1 billion about 76% of them are living in the urban
areas and is highly popular Spanish speaking country of world. There are improved rate of
education and literacy rate of Mexico over the past years. The socio culture factors of Mexico
include the population growth, rising educational level and the custom or lifestyle of the
people of Mexico.
Legal- this include the legal structure, corporate law and the process to start the business in
the country (Sanchez-Casas, Dector and Fernandez-Salas, 2016). All the legal factor are
influencing the country and becoming more and more complex in Mexico as there are many
legal problems which are there in the country.
Technological- this involve all the technological changes, challenges and laws which are
governing the technology in that particular country. There are a good deals of technological
advancement which are taking place in Mexico. This technological changes are taking place
in all the industries of Mexico and will also be affecting the production of Nestle products.
As Nestle will be using the best form of technology to produce the best quality of cereal in
Mexico. But the impact of the technological changes on Nestle and its products are not able
to be predicted and the need to monitor these changes are important.
Environmental- this factor include the external forces of the environment of the country
which will be affecting the growth and development of Mexico (Rubio-Covarrubias and
Trumble, 2017). The country at present is facing many problems which are related to the
environment like that of increasing pollution and which is causing the increase in number of
cases of asthma in Mexico. So Nestle should be ensuring that it is not producing cereals with
that type of technology which are affecting the environment and the people of country.
Porter five force model- this explore the level of competition in the industry of food and
drink products within Mexico and also that of business strategy development.
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Competitive rivalry in industry (High)- Nestle will be having its very tough competition
within the food and drink industry in Mexico that of both local and multinational food and
drink company. There are similar type of MNC which are been present in Mexico already
which will be having their good market share.
Bargaining power of customer (High)- the customer will be having many choices form
various types of food and drink company. So the bargaining power or affecting the price and
quality of service in Mexico will also be very high.
Threats of New entrants (moderately low)- as there are very tough competition and the
laws of Mexico regarding the new entrants are very rigid so threat of new entrants in the
market of Mexico is moderately low.
Bargaining power of supplier- there are not many supplies of Nestle in market so they can
not affect the price of Nestle and the bargaining power of supplier in Mexico in terms of food
and drink will be low.
Threats of substitute products- this is the threat of Nestle that how easily consumer of the
company can switch between the different types of products available in the market. Mexico
is profitable market as the corporate tax is low so that will be attracting higher amount of
franchises in market.
CONCLUSION
Nestle is investing in Mexico which is smart economic, social and environmental
decision of the company. Nestle is the world famous Switzerland based company which is
operating worldwide level and is producing food and drink products for customers. Nestle
always believe in expanding its territory and focusing on production of healthy and nutritious
food and drink products. Mexico is ready for the foreign direct investment by the other
companies of world which will be helping the country in economical and social development.
This investment decision of Nestle into Mexico of producing cereal for the people of country
is very good as the people there always like to eat healthy and nutritious food and drink
products.
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REFERENCES
Books and Journals:
Cigarroa-Toledo, N., and Rosado-Paredes, E. P., 2016. Chikungunya virus in febrile
humans and Aedes aegypti mosquitoes, Yucatan, Mexico. Emerging infectious
diseases. 22(10). p.1804.
Oczypok, E. A., and Oury, T. D., 2016. Case Report Erionite-associated malignant pleural
mesothelioma in Mexico. Int. J. Clin. Exp. Pathol. 9(5). pp.5722-5732.
Pasparakis, M., Haase, I. and Nestle, F. O., 2014. Mechanisms regulating skin immunity
and inflammation. Nature Reviews Immunology. 14(5). pp.289-301.
Rubio-Covarrubias, O. A., and Trumble, J. T., 2017. Characterization of the Tolerance
against Zebra Chip Disease in Tubers of Advanced Potato Lines from Mexico.
American Journal of Potato Research. pp.1-15.
Sanchez-Casas, R. M., Dector, M. A. and Fernandez-Salas, I., 2016. Evidence of DENV-2
Vertical Transmission in Larval Aedes aegypti Populations at Cancun, Quintana Roo,
Mexico. Southwestern Entomologist. 41(2). pp.389-398.
Von Minckwitz, G., and Hanusch, C., 2014. Survival after neoadjuvant chemotherapy with
or without bevacizumab or everolimus for HER2-negative primary breast cancer (GBG
44–GeparQuinto). Annals of Oncology. 25(12). pp.2363-2372.
Zeng, X., 2017, May. Research on the development strategy of product under the strategy of
brand merger and acquisition. In Applied System Innovation (ICASI), 2017
International Conference on (pp. 963-965). IEEE.
Online:
<http://www.nestle.com/asset-library/documents/library/documents/corporate_governance/
corp_governance_report_2006_en.pdf>
Business Environment: Mexico, 2017 [Online]. Accessed through:
<https://blog.euromonitor.com/2012/03/business-environment-mexico.html>
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Business Summary, 2017 [Online]. Accessed through: <http://www.4-traders.com/NESTLE-
9365334/company/>
Corporate Governance Report, 2017 [Online]. Accessed through:
Doing Business, World Bank Report, 2012 [Online]. Accessed through:
<http://www.doingbusiness.org/reports/global-reports/doing-business-2012>
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