Professional Documents
Culture Documents
International Business
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PROBLEMS/OPPORTUNITIES 36
Problems, Growth drivers, Opportunities, Direction for
2009
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INTRODUCTION
Nestlé is a Switzerland Based International Food Group and is a merger
of two companies:
The Company's priority is to bring the best and most relevant products
to people, wherever they are, whatever their needs, throughout their lives.
Now Nestlé is undisputed leader in food industry, with more than 509
factories in 83 countries out of which 220 are in Europe, 153 in America, 136
in Africa and Oceania.
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HISTORY
1860-1905
In the 1860s Henri Nestlé, a pharmacist, developed a food for babies
who were unable to breastfeed. His first success was a premature infant who
could not tolerate his mother's milk or any of the usual substitutes. People
quickly recognized the value of the new product, after Nestlé's new formula
saved the child's life, and soon, Farine Lactée Henri Nestlé was being sold in
much of Europe.
Henri Nestlé endowed his company with the symbol derived from his
name. His family coat of arms, the nest with a mother bird protecting her
young, became the Company's logo and a symbol of the Company's care and
attitude to life-long nutrition. The Nestlé nest represents the nourishment,
security and sense of family that are so essential to life.
1905-1938
In 1905 Nestlé merged with the Anglo-Swiss Condensed Milk Company.
By the early 1900s, the company was operating factories in the United
States, Britain, Germany and Spain. World War I created new demand for
dairy products in the form of government contracts. By the end of the war,
Nestlé's production had more than doubled. After the war Government
contracts dried up and consumers switched back to fresh milk. However,
Nestlé's management responded quickly, streamlining operations and
reducing debt. The 1920s saw Nestlé's first expansion into new products,
with chocolate the Company's second most important activity.
1938-1975
Nestlé felt the effects of World War II immediately. Profits dropped
from $20 million in 1938 to $6 million in 1939. Factories were established in
developing countries, particularly Latin America. Ironically, the war helped
with the introduction of the Company's newest product, Nescafé, which was
a staple drink of the US military. Nestlé's production and sales rose in the
wartime economy.
The end of World War II was the beginning of a dynamic phase for
Nestlé. Growth accelerated and companies were acquired. In 1947 came a
lot of mergers. Diversification came with a shareholding in L'Oréal in 1974.
1975-1996
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Nestlé divested a number of businesses1980 / 1984. In 1984, Nestlé's
improved bottom line allowed the Company to launch a new round of
acquisitions, the most important being American food giant Carnation.
Nestlé's growth in the developing world partially offset a slowdown in
the Company's traditional markets.
1996-2000
The first half of the 1990s proved to be a favorable time for Nestlé:
trade barriers crumbled and world economic markets developed into a series
of more or less integrated trading areas. The opening of Central and Eastern
Europe, as well as China, and a general trend towards liberalization of direct
foreign investment was good news for a company with interests as far-flung
and diverse as Nestlé. While progress since then has not been as
encouraging, the overall trends remain positive.
Nestlé opened the 20th century by merging with the Anglo-Swiss Condensed
Milk Company to broaden its product range and widen its geographical
scope.
2000-present
In July 2000, Nestlé launched a Group-wide initiative called GLOBE
(Global Business Excellence), aimed at harmonizing and simplifying business
process architecture; enabling Nestlé to realize the advantages of a global
leader while minimizing the drawbacks of size. Nestlé was First to Produce:
Infant milk, Condensed milk, Milk chocolate, Soluble coffee and Freeze-dried
coffee.
NOTABLE FACTS
Nestlé, based in Switzerland, is the world's largest food company. It
manufactures a wide variety of food products, from chocolate to frozen
dinners to pet food, and is one of the top four water bottling companies in
the world. It controls one-third of the American bottled water market, selling
water under 70 different brand names.
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Nestlé is also one of the world's largest chocolate producers, and
critics charge that this makes it a contributor to child and forced labor
problems in cocoa-growing nations.
Switzerland-based Nestlé S.A. manufactures a wide variety of food
products from chocolate to frozen dinners to pet food. In addition,
Nestlé is one of the most prominent bottled water companies in the
world, and also produces personal and health care products. Nestlé SA
employs 247,000.
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COMPANY INFORMATION
Ticker:
NESTLÉ
Country:
PAKISTAN
Major Industry:
Food & Beverages
Sub Industry:
Diversified Food
2007 Sales:
28,235,393,000 (Year Ending Jan 2008)
Employees:
2,345 (Pakistan – as of January 2008)
Currency:
Pakistan Rupee
Market Capital:
61,221,938,400
Shares Outstanding:
45,349,584
Share Type:
Ordinary
BUSINESS LINES
Coffee
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Nescafé, Taster’s Choice, Ricoré, Ricoffy, Nespresso, Bonka, Zoégas,
Loumidis
Water
Nestlé Pure Life, Nestlé Aquarel, Perrier, Vittel, Contrex, S.Pellegrino,
Acqua Panna, Levissima, Arrowhead, Poland Spring, Deer Park, Ozarka,
Hépar, Ice Mountain, Zephyrhills
Other beverages
Nestea, Nesquik, Nescau, Milo, Carnation, Libby’s, Caro, Nestomalt,
Nestlé
Shelf stable
Nestlé Nido, Nespray, Ninho, Carnation, Milkmaid, La Lechera, Moça,
Klim, Gloria, Svelty, Molico, Nestlé Omega Plus, Bear Brand, Coffee-
Mate
Chilled
Nestlé Sveltesse, La Laitière, La Lechera, Ski, Yoco, Svelty, Molico, LC1,
Chiquitin
Ice cream
Nestlé Antica Gelateria del Corso, Dreyer's/Edy's, Drumstick/Extrême,
Maxibon/Tandem, Mega, Mövenpick, Sin Parar/Sem Parar/Non Stop
Infant nutrition
Nestlé Nan, Lactogen, Beba, Nestogen, Cerelac, Neslac, Nestum,
Guigoz, Good Start
Performance nutrition
PowerBar, Pria, Musashi
HealthCare nutrition
Nutren, Clinutren, Peptamen, Modulen
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Nestlé, Crunch, Cailler, Galak/Milkybar, Kit Kat, Smarties, Butterfinger,
Aero, Polo
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HIERARCHY
Organizational Chart - International
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Trevor Clayton, Managing Director, MD Office
(Country Head of Operations)
Syed Yawar Ali, Chairman
Raymond Franke, Head of Finance and Controls,
Finance & Control Division
Haseeb Aslam, Country Business Manager Water,
Water Division
Peter Wuethrich, Head of Technical, Technical
Division
Salman Nazir, Head of Supply Chain, Supply Chain
Division
Uzma Qaiser Butt, Head of Human Resources,
Human Resources Division
• Zafar Hussain, Head of Sales, Sales Division
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SITE LOCATIONS INCLUDING HEAD OFFICE
AND FACTORY LOCATIONS
Registered and Corporate Offices
308 – Upper Mall, Lahore
+92 042 111.637.853
+92 042 578 9303
+92 042 578 9304
Sheikhupura Factory
29thK.M.Lahore-Sheikhupura Road, Shiekhupura
+92 056 340 6615-25
+92 042 636 8710
Kabirwala Factory
Kabirwala-Kabirwala Road, Kabirwala, District Khanewal
+92 065 111.637.853
+92 065 241 1432
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STRATEGIC POSTURE OF LOCAL BUSINESS
NESTLÉ IN PAKISTAN
Nestlé has been serving Pakistani consumers since 1988, when parent
company, the Switzerland-based Nestlé SA, first acquired a share in Milkpak
Ltd.
Today Nestlé is fully integrated in Pakistani life, and is recognized as
the producer of safe, nutritious and tasty food, and leaders in developing and
uplifting the communities in which they operate.
Nestlé Pakistan ensures that their products are made available to
consumers wherever in the country they might be. Convenience is at the
heart of the Nestlé philosophy, and there aim is to bring products to people's
doorsteps
Mission Statement
At Nestlé, we believe that research can help us make better food so
that people live a better life.
Good Food is the primary source of Good Health throughout life. We
strive to bring consumers foods that are safe, of high quality and provide
optimal nutrition to meet physiological needs. In addition to nutrition, health
and wellness, Nestlé products bring consumers the vital ingredients of taste
and pleasure.
As consumers continue to make choices regarding foods and
beverages they consume, Nestlé helps provide selections for all individual
taste and lifestyle preferences.
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Deliver shareholder value through profitable long-term growth,
while continuing to play a significant and responsible role in the
social, economic and environmental sectors of the country.
We have profitable and diversified high quality food and
beverage product portfolio, delivering 60:40+ advantage to
consumers, available across all sales channels.
Our brands are the preferred choice in their categories.
Consumer insight drives all aspects of our marketing and
communication efforts.
Our communications to the consumer are relevant, cutting-edge,
and adhere to the highest standards of responsible
communication.
Our company is seen as the No. 1 career destination for talented,
motivated and ambitious professionals.
Our result-oriented organizational structure ensures effective
communication and empowered self-management.
Our milk collection and agro services will continue to play the
primary role in development of the dairy sector in rural Pakistan.
Our proactive innovation and renovation culture is the key to our
success in the marketplace.
Fully integrated systems (Nestlé Pakistan, suppliers, customers)
ensure efficient business processes.
Non-strategic activities and products are outsourced or
discontinued.
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Nestlé Framework for CSR:
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INTERNATIONAL BUSINESS INVOLVEMENT
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THE MODE OF INTERNATIONAL OPERATION
JOINT VENTURES
Key Dates
1974 L’Oréal
1981 Galderma - (joint venture with L’Oréal)
1990 Cereal Partners Worldwide - (joint venture with General
Mills)
1991Beverage Partners Worldwide (formerly CCNR) – (joint
venture with Coca Cola)
2002 Dairy Partners Americas - (joint venture with Fonterra)
Laboratories innéov - (joint venture with L’Oréal)
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TARIFF AND NON-TARIFF BARRIERS
As per information provided by the Nestlé official we interviewed for
this information, we were told that “Being a Multinational company, Nestlé is
exempted from almost all tariff and non-tariff barriers”. However a finance
official was not available for interview to provide more thorough detail as to
which barriers Nestlé is in fact exempted from and which barriers it isn’t
exempted from.
However, we would disagree with this information and evaluate the
trade, tariff and non-tariff barriers and the regulations laid out in this regard
by local law and government regulatory authorities. A detail of these barriers
can be obtained from legal documentation about the Statutes, Rules,
Regulations and Guidelines from the Securities and Exchange Commission of
Pakistan website: http://www.secp.gov.pk/laws.asp
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Corporate Business Principles (International)
(Source: Nestlé Corporate Business Principles Document, Third Edition,
September 2004, Nestlé S.A., Public Affairs.)
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1. Customer
Meeting Consumers’ Needs: Nestlé aims to create value that can be
sustained over the long term by meeting consumer needs for nutrition,
enjoyment, and quality they can trust.
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Henri Nestlé also insisted that every mother able to breast-feed should do
so. This principle is still the cornerstone of Nestlé policy today, and is in line
with the aim of the International (WHO) Code of Marketing of Breast-
milk Substitutes, which was adopted by the World Health Assembly in
1981.
The International Code recognizes a legitimate market for breast-milk
substitutes and provides recommendations to governments on how its
marketing should be regulated.
Therefore Nestlé:
– encourages and supports breastfeeding as the best start in life;
– carries out research and development aimed at the constant
improvement of infant formula products for use when a safe alternative to
breast milk is needed;
– ensures that its infant food marketing practices conform strictly to
national legislation, regulations, or other measures taken by governments to
give effect to the aim and principles of the International Code.
In addition, in all developing countries, whether or not their governments
have taken action to fully implement the International Code, Nestlé:
– gives detailed instructions to its staff on how to implement the
International Code;
– provides a summary of its policy for the information of employees and
the public in the form of the Nestlé Instructions, which is translated into
many languages;
– regularly conducts training of employees to ensure complete
understanding of the Company’s responsibilities under the International
Code;
– develops its infant formula labels and educational materials in line with
the International Code, after field research and consultation with health
authorities
– has an internal ombudsman system enabling employees to alert the
Company on potential non-compliance with the International Code in a
confidential way, outside line management structures. In each country the
designated ombudsman investigates and reports alleged violations of the
International Code directly to a member of the Nestlé S.A. Executive
Committee at the Company’s global headquarters;
– conducts audits on a regular basis of its companies’ infant formula
marketing practices.
Nestlé is a founding member of the International Association of Infant
Food Manufacturers (IFM), which was formed to facilitate industry
dialogue with WHO and governments, and to encourage responsible
marketing standards for the infant food industry.
3. Human Rights
Nestlé fully supports the United Nations Global Compact’s two
guiding principles on human rights.
Nestlé therefore:
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Supports and respects the protection of international human rights within
its sphere of influence (Principle 1)
and
Ensures that its own companies are not complicit in human rights’ abuses
(Principle 2)
Nestlé aims to provide an example of good human rights’ practices
throughout its business activities and has an interest in encouraging the
improvement of social conditions, which are an important factor for
sustainable development. Nestlé also recognizes that governments are
ultimately responsible for the establishment of a legal framework for
protecting human rights within their markets. Nestlé expects each market to
respect and follow the local laws and regulations concerning human rights’
practices.
5. Child Labor
It is generally acknowledged that the causes of child labor are complex
and include poverty, differing stages of economic development, social values
and cultural circumstances.
Nestlé believes policy development must take into account the social and
legal situation of individual countries.
Action to eliminate child labor must be guided by the best interests of the
child, as ill-considered policies and commercial measures can make the
situation worse for children.
Therefore, Nestlé:
– is against all forms of exploitation of children. The Company does not
provide employment to children before they have reached the age to have
completed their compulsory education, as defined by the appropriate
authorities. Nestlé expects its industrial suppliers and business partners to
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apply policies that have the same standards as the Company’s Business
Principles and reserves the right to audit their compliance.
– abides by national laws in all countries in which it has operations and
complies with the International Labor Organization (ILO) Convention
138 on the Minimum Age for Employment and the ILO Convention 182 on the
Worst Forms of Child Labor. The ILO recommendations are based on the
United Nations Convention of the Rights of the Child (Article 32);
– offers its co-operation with the relevant United Nations agencies,
governments and the business community in their efforts to deal with the
problem of child labor, which include the encouragement of universal
primary education and all aspects of economic development worldwide.
Regulatory Authorities
(Source: Nestlé Corporate Business Principles Document, Third Edition,
September 2004, Nestlé S.A., Public Affairs.)
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Nestlé supports and publicly advocates the United Nations Global
Compact and its ten principles, an initiative of the United Nations Secretary-
General. The Global Compact asks companies to embrace, support and
enact, within their sphere of influence, a set of core values in the areas of
human rights, labor standards and the environment.
Nestlé recognizes that increasing globalization is leading to the
development of more and more international recommendations. Although, as
a general rule, these recommendations are addressed to governments, they
inevitably impact on business practices. Among others, Nestlé has incorpo-
rated relevant International Labor Organization Conventions, and the
International (WHO) Code of Marketing of Breast-milk Substitutes
into its policies.
Nestlé endorses relevant commitments and recommendations for
voluntary self-regulation issued by competent sectoral organizations,
provided they have been developed in full consultation with the parties
concerned. These include the International Chamber of Commerce (ICC)
Business Charter for Sustainable Development. Also, Nestlé uses the
Organization for Economic Co-operation and Development (OECD)
Guidelines for Multinational Enterprises, approved in June 2000, as a
reference point for its Corporate Business Principles.
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These reserves are also being used for intervention in the foreign exchange
market.
The Nestlé officials who were interviewed for this purpose mentioned that
the policies that Nestlé is following are in accordance to the rules stated by
the legal requirements of the Government of Pakistan.
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FINANCIALS
Figures - International
Note: CHF means Swiss Franc
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2008 – 9 month sales presentation
Source: - Roddy Child-Villiers, Head of Investor Relations
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Figures - Pakistan
Sales:
2008 2007
Sales – net (Rupees in ‘000)
Own manufactured
Local 27,959,032 22,050,093
Export 1,902,751
1,355,324
29,861,783 23,405,417
Goods purchased for resale 593,669 656,591
Less:
Sales tax (588,870)
(700,703)
Trade discounts (1,631,189)
(1,330,347)
28,235,393 22,030,958
Profits
2008 2007
(Rupees in ‘000)
Profit before taxation 2,549,756
2,005,455
Taxation (744,544)
(642,165)
Profit after taxation 1,805,212
1,363,290
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STRATEGIES FOR INTERNATIONAL BUSINESS
OPERATIONS
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PROBLEMS/OPPORTUNITIES
(Source: Yasir Malik, Operations Officer, Nestlé Pakistan Limited,
www.Nestlé.com)
Problems:
As such, there seems to be no problem that Nestlé is facing in almost
all zones it is operating in, including The Asia, Oceana and Australia
(AOA) region including Pakistan. Also, local competition, although high,
provides little in the way of taking away profits from Nestlé. There is
constant market growth and potential in the market for future growth.
Potential risks and uncertainties include such factors as general
economic conditions, foreign exchange fluctuations, competitive product and
pricing pressures and regulatory developments.
Opportunities:
AOA: growth opportunity
Performance is on track
Potential for continued growth is promising
Aligned organization and portfolio with a vision and a plan
Strong management with local expertise
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