Nestlés Expansion into China | Analysis

Nestlà ©s Expansion into China | Analysis This paper is about the worlds largest and most famous food company Nestlà ©. If you read this paper, you will not only learn some history and management information about Nestlà ©, but you can also know how Nestlà © makes the decision to come to China and the specific process of development and getting success in Chinese market. This paper will mainly tell about four sections detailed for you. Besides, we will show you our group members thinking about Nestlà © in the conclusion. The followings are main information about four sections. Section I is about the history of Nestlà © Company. Henri Nestlà © found the company in Switzerland in the mid 1860s. Farine Lactà ©e Henri Nestlà ©, the name of Nestlà ©s first product, which saved a premature babys life and soon marketed in Europe. Then Nestlà © expands very quickly all over the world. In 1905, Nestlà © merged with the Anglo-Swiss Condensed Milk Company and this is the beginning of Nestlà ©s expansion. Wars can always bring big changes into the world. World War II has greatly helped popularize Nescafe and Nescafe coffee became a kind of popular beverages for American servicemen. Nestlà © comes to China because of the large potential markets. Now, they have manufacturing factories in many cities in China. Section II is about where did Nestlà © expand and whether did the company expand elsewhere. Nestlà © is one of the largest food and beverage company in the world. It has abundant manufacturing facilities in almost the entire world. It is also about Nestlà © how to cultivate the relationship with Chinese government and citizen and make china become a good market for them. Because traditional Chinese didnt have the habit to drink coffee, Nestlà © have to cultivate Chinese the style of habit by advertisement and a variety of means. Nestlà © tried his best to break market barrier that he can integrated into Chinese market quickly. The Chairman of Nestlà © (China) who is called Mr. Dà ©cor vet thought that there are much difference between Chinese conceptualizes food and western food. So if Nestlà © wants to integrate into local market quickly, they must respect Chinese brands unique qualities. Section III is about the form that Nestlà © came into China. When Nestlà © first came into china in 1987, it chose Shuangcheng which is located in Heilongjiang province to develop itself. However, at that time, Nestlà © didnt have much power, so it chose partnership. In order to improve the level of training that was provided to the local farmers, Nestlà © decided to cooperate with the Shuangcheng government. After developing a long time, Nestlà © choose another partnership with Yinlu. Later, Nestlà © chose joint venture with Yinlu and Hsu Fu Chi to strengthen itself. Resulting from these two forms coming into China, Nestlà © has got a great popularity in all generations in China. Nestlà © makes many profits and it bring much benefit to Chinese at the same time. Section IV is about the organization structure taken by Nestlà © in coming to China. Nestlà © is very successful and it used a proper organizational structure. The matrix structure is efficient and effective. The structure is very flexible and can respond rapidly to the need for change. The key strategy taken by Nestlà © in coming to China is developing partnership. The strategy helps Nestlà © achieve great success in the market of China. Nestlà © develops quickly in China with not only partnership, but also with joint venture. Nestlà © also have four levels in hierarchy. The four parts are respectively, board of directors, executive board, honorary chairman and financial transactions. Nestlà © Company is a decentralized and aligned organization. There are typically three levels of management in organizations: top-level, middle-level, and first-level. Our group is made up of five persons who are Pauline, Serena, Quinn, Hathaway and Mike. Pauline is the leader of the group and she is responsible for the section III and the second question in the section IV. As the leader of the group, Pauline also writes the executive summary to totally introduce the whole paper. Quinn is responsible for the section I and the first question in the section II. Mike who is the only boy in our group is responsible for the remaining five questions in the section II. Serena and Hathaway are both responsible for the section IV. The former writes the front four questions except the second one and the latter introduces the eventual four questions. All of our group members write the conclusion together, because we feel that all of us should know what general content about our work is and we can finish the conclusion better with discussion. We decide this plan for the project, because Quinn as well as Mike is patient, so they are suitable for some detailed q uestions, such as history of Nestlà ©. Pauline is good at organizing and combining the information, so she write about the form Nestlà © came into China, which is connected to the current condition of Nestlà © in China. Serena and Hathaway can do a good job in researching, so they write the organization structure. In order to be fair, each group member writes about three to four big questions. Section I starts at page 3. Three sections left start respectively at page 6, 8 and 10. We all feel very happy to finish the paper in this way. We divide the research and information into six groups, which are four sections, a summary and a conclusion. In four sections, we beginning introduce the history of Nestlà © from which people can know the basic information about Nestlà ©. And then, we tell about the reasons for Nestlà © came to China and the form of Nestlà © came to China. The last section is about organization structure taken by Nestlà © that is deep-going content about Nestlà ©. After reading these four sections, people can know much about Nestlà © and how it goes in China. At last, we talk over each other and write the conclusion that expresses our further thinking and understanding about Nestlà ©. We also use the executive summary to tell reader the general information about our company and the arrangement of our paper. We all sincerely hope that readers will like our paper about Nestlà ©. Section I: History of  Nestlà © In the mid 1860s, Nestlà © was run in Switzerland by Henri Nestlà ©. At the very beginning, Nestlà © was found to help those mothers who have problems in breastfeeding babies. Henri realized the need for baby formulas and decided to create this kind of new products. He mixed cows milk, flour and sugar up to provide babies with necessary nutrition. Farine Lactà ©e Henri Nestlà © was the name of its first product. It saved a premature babys life and soon marketed in Europe. (English Tea Store, English Tea Store, , October 30, 2012) The Anglo-Swiss Condensed Milk Company, whose founders were Americans Charles and George Page, merged with Nestlà © after they had been fierce competitors for a long time. Finally, they formed the Nestlà © and Anglo-Swiss Milk Company together. (Nestlà ©, Nestlà ©, , October 27, 2012) Heiko Schipper, managing director of Nestlà © Food Beverage, Greater China region claimed that they were planning to increase their investment in China and treated coffee business as one of the key growth engines. (CHINADAILY, Li Fngfang, , October 27, 2012) Take coffee as an example. As we all know, Brazil is famous for coffee. At the outset, Nestlà © developed soluble coffee to help Brazilian farmers solve problems about hardship and crop waste. This is an early example of innovation and sustainable development for Nestlà © Company. (Nescafe, Nescafe, , October 30, 2012) Nestlà © expands into China because of the potential of markets in China. The Chinese coffee market has increased 15 percent annually during these years, far higher than the global average. Xiong Xiangru, secretary-general of the Yunnan Coffee Association, predicted that Chinas coffee consumption will reach 1 trillion Yuan annually in 10 years, and the mature market could be worth as much as 3 trillion Yuan by 2030. This may encourage Nestlà © to come to China to a great extent. (CHINADAILY, Li Fngfang, , October 30, 2012) In 1905   the Anglo-Swiss Condensed Milk Company merged with Nestlà © and this is Nestlà ©s first expansion. (Nestlà ©, Nestlà ©, , October 27, 2012) World War II has greatly helped popularize Nescafe. Before the war, initial launch of Nescafe was slow. Nescafe coffee became a very common beverage for American servicemen in Europe and Asia when USA entered the war. Coffee helps people relaxed and gives them energy when they feel tired. This kind of amazing beverage became popular very soon. (Nestlà ©, Nestlà ©, , October 27, 2012) In China, sales have grown around 20%, which shows the potential of developing economies. However, Nestlà © has been losing market share and this may be changed by purchasing. Take Pfizer as an example. Nestlà © bought Pfizer to be more competitive. Reports showed that about 85% of sales for Pfizers business came from developing economies and about one-third of the Pfizer units revenue is from China. The acquisition of Pfizers business which came at a premium price will go a long way to addressing that China problem by adding about $800 million in sales in that country people related said about that. (Msn MONEY, Jim J. Jubak,  , October 27, 2012) Nestlà © has many manufacturing factories oversea. It obeys all rules and standards, such as ISO 14001 (environmental management), OHSAS 18001 (occupational health and safety) and ISO 22000 (food safety management systems). The company controls all parts of manufacturing. That doesnt mean that we will not co-manufacture where there are advantages to doing so, such as speed to market or access to technology, McIntosh says, but we invariably find that we are much more cost-effective in-house than out-of-house. (FOOD PROCESSING, Bob Sperber, Plant Operations Editor, , October 30, 2012) Nestlà © set its first Chinese RD center in Shanghai in purpose to open Asian markets. We continue to invest in our RD capability in Asia, because we know this brings us closer to local consumers, and gives us a greater understanding of the raw materials used to make the products they enjoy, says Johannes Baensch, head of Nestlà ©s research and development division. (Tce, Richard Jansen, , October 30, 2012) Now Nestlà © has companies in many places, such as Guangdong, Shandong, Zhejiang, Shanghai, Jiangsu, Fujian, Anhui, Beijing, Sichuan and so on. It has been expanding steps by steps. (Food China net, Food China net, http://www.foodchinanet.com/supplier/Nestlà ©/>, October 28, 2012) Section II:  Nestlà © Expansion Roland Dà ©cor vet, the food giants China chief executive, said that in spite of facing its own economic slowdown, offers Nestlà © long-term growth opportunities. As now, middle class is playing more important roles in society and this definitely leads to increasing need for dairy products and on-the-go foods. China is a country with a large popularity and it can provide Nestlà © with larger markets they dont assume before. Hsu Fu Chi, a famous candy company, Nestlà © bought a 60% stake from it to bet on big growth in China. This can be powerful evidence that predicts China is a part of a bigger globalization strategy for Nestlà ©. The purpose of the company is to take more shares in Chinese markets and make its globalization conduct well. (THE WALL STREET JOURNAL, LAURIE BURKITT and JOHN REVILL, , October 30, 2012) Nestlà © is one of the largest food and beverage company in the world. There are more than 450 manufacturing facilities in over 80 countries and Nestlà © markets its products in 130 countries across the world. Nestlà © have planed to disease-resistant coffee plants to famers who are in many developing countries such as Mexico, Indonesia by private institutions because he wants to produce Raw materials and sell their product easily in these countries. In 60 countries, Nestlà © has more than 400 factories and employs abundant employees of local person. Nestlà © has expanded almost the entire world and it is a super company. (Facts and figures Nescafe Plan, Nestlà ©, page 1, November 8, 2012) As a transnational enterprise who has a long-term development plan, the most important development strategy for Nestlà © is to find the market which has development potential. In 1987 of the China, the tide of reform and opening up is slowly forward, society as a whole business environment is in a vigorous development of the embryonic stage. Because of its vast size, many Chinese provinces, and each district economy development is not balanced, protectionism, these elements for any foreign enterprise especially transnational enterprise, is a strong resistance. In order to cultivate the relationship with Chinese local government and citizen, Nestlà © constructed a new farming institute in Heilongjiang province. Nestlà © agreed to support technical assistance and train for local famers. Nestlà © want to get win-win by working with famers in this way. (Nestlà © leads dairy development in China with new training institute, Nestlà ©, , November 8, 2012) For Nestlà © who has rich experience, how to break the market barrier and integrate into local market is very important. Nescafe knew that if he wants to root in china firmly, he must consider how to seek the economic benefits to the local people and win their favor in order to solve the problem of Nescafe that it can have milk enough, Nestlà © sent a team of experts from Europe. Not only did it establish a collection network and acquisition system to encourage farmers enthusiasm, but also he taught farmers about dairy technology and milking technology. This is a very difficult thing at that time and it is also more difficult than training a qualified engineer for Nestlà ©. In this way, not only did Nestlà © solve the problem of raw materials supplement, but also it provided a stable daily income for local farmers, there are many farmers and their families living have been fundamentally improved due to its help. The development of ways that could assist the local economic develo pment and help farmers to improve the income which got the Chinese government high approval, meanwhile it helped Nescafe win a good social image. (Nestlà ©s management of dairy supply chain in China, Nestlà ©, , November 8, 2012) Chinas coffees consumption is few at that time, so Nescafe had the problems of supplement at the beginning. Traditional Chinese didnt have the habit to drink coffee. With natural, healthy concept winning the support among the people, tea beverage grows steadily in china. Nestlà ©s opponent is not the coffee sugar , but Chinese traditional tea. When Nescafes instant coffee was introduced to China, Nescafe planed to cultivate the Chinese habit of drinking coffee by advertisement and a variety of means in face of Chinese traditional tea drinking habits. It intended to attract a group of young to choose coffee by Propagandizing that drinking coffee is a kind of fashion, the trend, successfully, and then Nescafe coffee could increase his sales volume in the market. Nescafe admits that he has enough patience to cultivate market and improve product quality. At the same time, in order to suit ones measures to local conditions, Nestlà © designed promotional strategy that minimized the SP ac tivity, and turn to advertising and public relations, to establish long-term consumption preference. For example, in Shanghai, Nescafe Company is enthusiast to support university community activities, such as theatrical festival land English corner. The company is also willing to make special subject report in University and give company information and culture to students. (The Nestlà © People Development Review, Nestlà ©, page 37, November 8, 2012) Mr. Dà ©cor vet who is Chairman of Nestlà © (China) thought that the Chinese conceptualize food and westerns have much difference, and Nestlà © must respect Chinese brands unique qualities and learn from them in order that company can integrate into local market quickly. He also thought that they need to teach farmers about dairy technology and milking technology because it can help them to cultivate the relationship with local government and Resident. (CELBS, June, , November 8, 2012) Section III:  Nestlà © in China When Nestlà © first came into china in 1987, it chose Shuangcheng which is located in Heilongjiang province to develop itself. However, at that time, Nestlà © didnt have much power, so it chose partnership. In order to improve the level of training that was provided to the local farmers, Nestlà © decided to cooperate with the Shuangcheng government. In this way, Nestlà © could make much progress and improve its service and the quality of products, which can attract more consumers. They all knew that good training can improve peoples overall quality which plays an important role in team work. Considering that local farmers lacked money, Nestlà © provided economic assistance for them and distributed many free milking machines to them. Due to this help, local farmers didnt need to manufacture dairy products with hand, which improved the efficiencies and effectiveness. This measure really did well to local farmers and improved the speed and quality of producing dairy products. Nestl à © made much effort to develop the rural area during years, and the company has also provided credit guarantees to farmers which ensure the potential to grow farmers businesses. Therefore, local farmers were all full of energy to expand dairy products and were confident that they can make success. The partnership work between Nestlà © and Shuangcheng government is called Creating Shared Value, which tried to make profits for the companys shareholders and those communities where it operates at the same time. During decades, Nestlà © has made Shuangcheng play the important role in the dairy districts. (Nestlà © leads dairy development in China with new training institute, Nestlà ©, , October 30, 2012f) After cooperating with Shuangcheng government, Nestlà © has made many profits, and it also helped the local city develop a lot. Nestlà © didnt want to stop there, so it looked for another target and finally chose another partnership with a Chinese family-owned firm Yinlu. As Yinlu has a long history in China, it has already got a good reputation. Moreover, Yinlu established a significant market for ready-to-drink peanut milk as well as canned rice porridge in China. Nestlà © wanted to combine its technology with Yinlus reputation to make much progress. Therefore, Nestlà © declared that it had taken some stake in Yinlu. Considering that Yinlu is a co-manufacturer for ready-to-drink Nescafe coffee in China, Nestlà © has decided to cooperate with it and achieved successful achievement with Yinlu before this agreement. The CEO of Nestlà © considered that the partnership between two companies would bring healthy, affordable and tasty products to all consumers in China. Of course, th e foregoing goal must be based not only on Yinlus entrepreneurship, product expertise, and consumer understanding, but also on Nestlà ©s innovation and renovation capabilities. The chairman Chen of Yinlu thought that the partnership represents a very significant landmark which is in Yinlus long-standing aspiration to be a typical and favorite brand for customers. As Nestlà © comes into China over twenty years and cooperates with local companies in China, it operates 23 factories and employs 14,000 people, which really do well for Chinese. (Nestlà © to enter partnership with Chinese food company Yinlu, Nestlà ©, , October 30, 2012) However, partnership was not the only option of Nestlà © to come into China. As Nestlà © develops many years in China, it chose partnership at first and then it expanded for joint venture. Nestlà © uses two RD units in Xiamen and Dongguan to support its joint ventures with Chinese food companies Yinlu and Hsu Fu Chi. Moreover, the unit in Xiamen will specialize in ready-to-drink beverages and will support Yinlu. Hsu Fu Chi is a famous snack-selling company in China, and it enjoys the large popularity among all ages in China. Therefore, Nestlà © and Hsu Fu Chi had got much benefit from the joint venture. Two companies looked forward to the long-term cooperation. Head of RD in Nestlà © thought that Nestlà © would continue to invest in their RD because of this program bringing them closer to local consumers who are very important for their future market. The investment in Xiamen and Dongguan reflects its long-term commitment to improve nutrition and food science in China. The join t venture helps Nestlà © become more popular among Chinese and now almost every young person knows the watchword of Nestlà © which says Good Food, Good Life. (Nestlà © strengthens research and development capability in China, Nestlà ©, , October 30, 2012) Nestlà © makes the decision that it chooses partnership and joint venture to come into China, and these decisions are based on some considerable factors. China has a large amount of persons and its economy wasnt developed fast in 1980s. As this current condition in China, Nestlà © decided to expand its investment and development. Therefore, Nestlà © decided to exploit this potential market. However, at that time, Chinese couldnt be used to and accept Nestlà ©s products. In this way, Nestlà © chose partnership and joint venture, from which it can be easily accepted by local Chinese and it can improve its technology and taste of products. Nestlà © believed that its partnership and joint venture would get success. Whats more, Nestlà © will go further in China. (Cereal partners worldwide transcript, Nestlà ©, page 3, October 30, 2012) Section IV: Organization Structure in China The strategy is the most important contingency. The key strategy taken by Nestlà © in coming to China is developing partnership. In order to create supply chains, Nestlà © has built great infrastructure through the China. Through these years, Nestlà © in China has developed partnership with many brands, including 6 China famous brands, 1 strong regional brand. Besides, it has developed leadership in 11 categories. Nestlà © Company focuses on 3 platforms. All of platforms have clear strengths and expertise. Each of platforms has planned explicit strategies. Key accounts of Nestlà © Dry Grocery are few key distributors. Yinlu and Ready-to-drink coffee are high point of sales coverage, and distribute mostly to lower-tier cities. The direct distribution of Hsu Fu Chi is pick mix and impulse model. (Our partnerships have enhanced Nestlà ©s capability, Nestlà ©, page 10, October 29, 2012) Besides, the human resources are also the most important contingency. Today, across the country, there are 21 factories and Nestlà ©s employs around China are 13,000 people. Every day, its coffee, bouillon, milk and ice cream products are distributed in China, which are its best-sellers. Nestlà ©s will also employ 1,500 workers to meet the goals that that have settled for 2013. Nestlà ©s human assets are one of the most important characteristics that differentiate it in the marketplace. Identifying, recruiting, and retaining top talent across its company are only the beginnings of the story. Human resources teams of Nestlà © cultivate its culture through employee learning and foster its sustained growth by ensuring employee passion is directed to help deliver on business goals. (Nestlà © China hires 1,500 for new bouillon factory, Xieli Lee, Singapore, , October 29, 2012) Yes, I think it is organized in the best way. The partnerships have drastically changed the capabilities of Nestlà ©s with Yinlu, Hsu Fu Chi and so on. Human resources of Nestlà © in China cultivate culture through employee learning and foster sustained growth by ensuring employee passion is directed to help deliver on business goals. As a tycoon in the field of food, Nestlà © has an all-round system and uses part of job characteristics to manage its employees. Nestlà © applies good compliance to help it earn trust with its employees, consumers, investors and governments. Nestlà © opened Nestlà © Business Services Africa in Accra, Ghana. Result from Nestlà ©s compliance and reasonable arrangement, NBS will get support from employees from many countries with some activities such as invoice payment and payroll. All employees who are under these thoughtful arrangements try their best to use all kinds of skills to make contributions to Nestlà ©, no matter in manufacturing or purchasing, which reflects skill variety. Furthermore, Nestlà © makes a project concerning health and safety regimes in all countries, and these countries make many operations. Nestlà © also pay much attention to protection of the health and welfare of employees and contractors. Therefore, employees can focus on the task, and be responsibl e for whole of it, which reflects the task identity. (Nestlà © annual report 2011, Nestlà ©, , October 29, 2012) The CEO of Nestlà © (China) said that Nestlà ©s manufacturing mission in China is to produce advanced, world class quality dairy products for all generations in China. Above all, the quality and safety of products are non-negotiable. In order to get this goal, all employees are committed to it, which reflects task significance. They set direct relationship with local farmers and make a unique dairy collection model. Besides, they make the world-class production and processing, and apply the latest technology and safety standards. All of these actions are based on their attention to task significance. (Nestlà ©s management of dairy supply chain in China, Nestlà ©, ,) October 30, 2012 As a manger of Nestlà © Company, in order to increase the number of tasks for a given job to reduce boredom, he can increase motivation by asking employees to do more sound counter-intuitive. The job can be enlarged. In order to increase the degree of responsibility a worker has over a job and increase workers involvement. A manager can divided employees into departments. When workers typically specialize in one area and the manager instead pitch in wherever their help is needed, the job can be enriched. At last, active management of the enrichment and enlargement process will achieve the greatest return. The job of a manager can be enlarged and enriched. Nestlà © Company uses a matrix structure. The organizational structure groups people and resources by function and product. Each employee has two bosses- functional manager and product manager. The structure is very flexible and can respond rapidly to the need for change. As we can see, Nestlà ©s Company as a decentralized organization allows its subordinate organizations to enjoy a relatively high-level of autonomy. It makes major strategy decisions at the headquarter level, and daily operations are left up to subordinate organizations to derive and implement. (Organizational Chart Nestlà © TheOfficialBoard, Theofficialboard, , October 29, 2012) Some other organizational structures are greater efficiency or effectiveness. Firstly, I think the move to a product team structure can lead to greater efficiency or effectiveness. The members are permanently assigned to the team and empowered to bring a product to market. The great strength of a product team structure is that this structure avoids two people with two different ideas, since people always take different opinions on the same issue and it may sometimes cause a lot of conflicts. The weaknesses of matrix structure the Nestlà © in China uses is that it demands functional and product team bosses. So the product team structure solves the problem efficiency. A product team structure, with one manager in charge of the entire process, generally reduces a d cut down the conflicts between managers. The team remains focused on the product rollout, with the manager removing obstacles from the staff members path. Besides, a functional organization which is included in a product group can share information about its particular discipline. Whats more, cross-fu nctional team is composed of a group of managers from different, so all of the members have a chance to grow within their functional area. Each employ can take more managerial roles and play the better role in a product team. In this way, staff members work together, chasing for the same goal and finishing the same product, and the job can be done quite well. Secondly, I think the move to a Hybrid structure can lead to greater efficiency or effectiveness. The structure of a large organization that has many divisions a simultaneously uses many different organizational structures. Manager can choose the best structure that can lead to the company more effective and efficient. There are many structures, like functional structure, geographic structure and so on. As the worlds biggest food company, the factories and markets of Nestlà © are settled up the entire world. In China, there have been 21 factories now. Different areas have different situations. So the company should divide different structures for each city in China. The ability to break a large organization into smaller units makes it easier to manage. For an example, in Chinas local market, Yihaodian, has grown rapidly and built up an amazing supply chain network in a short time. As the largest B2C online supermarket in China, it won the title of the most popular mall and the most popular food beverage mall of the year at 2011-2012 the second China top retail network selection list award this year in Beijing. As the new chain, if Nestlà © just use the same structure of Hsu Fu Chi or Yinlu, the chain may be not work well. So it is important to choose the best structure for each of the special chain. Whats more, as the worlds biggest food company, there are many challenges. The company need have the ability to adjust each structure for each chain when meet some emergencies and choose the best structure to meet challenges. In my opinion, the move to a Hybrid structure can lead to greater efficiency or effectiveness.