External Environmental Analysis And Corporate/ Business Level Strategies – Nestle Case Study

Background to Nestle

Strategy is said to be an action which is taken for the attainment of one or more goals of the organisation. It can be described as a general direction which is set for an organisation and its different components for the achievement of a desired state in the future. Strategy is the result from the detailed process of strategic planning of an organisation. A strategy integrates all the activities of the organisation, uses as well as allocated the scares resources in the environment of the organisation for meeting the current objectives. At the time of planning a strategy, it is very important to consider that the decisions are not taken in vacuum and that whenever an organisation acts in a particular manner, it is more likely to be met through a reaction from the once affected. Strategy is the knowledge of goals, the event’s uncertainty along with the needs that has to be considered. Strategy is said to be a blueprint of decisions in a company which signifies its goals as well as objectives, reduces the main policies and plans for the achievement of the goals.  The companies need to grasp some of the fundamental principles which allow them to leap and stay successful in the face of competition (Grant, and Phene, 2022).  A strategy helps the organisations in expanding their business. There can be achievement of growth through some practices like adding some new locations, investing in the acquisition of the customers or growth in the line of product. The industry and target market influence of a company influences the kind of growth strategy which will be used. There are mainly three types of strategies- functional, business as well as corporate level strategy. The following report will analyse, identify and compare the techniques of external environmental analysis, main corporate as well as business level strategies. The findings will be used for the examination of the external environment of the food processing industry and some corporate as well as business level strategies will be suggested for Nestle.

The relationship of Nestle with India dates back to 191, when the company started to deal as the NESTLE Anglo-Swiss condensed milk company Limited which imports as well as sells finished products in the market of India (Bajis, Daifi, and Amin, 2022).  After the independence of India in the year 1947, the policies of economy of the government of India focused on the needs for the local manufacturing. Nestle provided response to the ambition of India through the development of a company in India and the first factory was established in 1961 at Punjab where the government required developing the economy of milk through Nestle. Nestle has set up centres of milk collections which would ensure prompt collections as well as pay fair process along with instilling amongst the society, a confidence in the business of dairy. The progress constituted the development of prosperity on a continuous as well as sustainable basis which has resulted in the transformation of Punjab into a healthy as well as vibrant district of milk today and also thriving hub of industrial activity. Nestle has been a partner in the growth of India for about a century now and they have developed a very special relationship of commitment as well as trust with the people of India (Loonam, and O’Regan, 2022). The activities of the company in India have helped in direct as well as indirect employment and offers livelihood to approximately one million people comprising of the farmers, supplier of the materials of packaging, services as well as other goods.

Analysis of the outer- Organizational Environment

There are various analytical processes which emphasizes on various areas of the external environment of a company and its connection as well as significance to the strategic management. The tools are examined in the following tables:

Nestlé’s PESTEL analysis helps in the examination of the brand on its tactics of business. It helps in examining the different external factors such as political, economic, social; technological that affects the business along with the legal and the environmental factors. The analysis helps in highlighting various extrinsic scenarios that affects the bran’s business. Following is the PESTLE analysis of Nestle in India:

The political factors which impacts Nestle India are as follows:

• Threat of the terrorist attacks- People consider the world after 9/11, firms Nestle have to live with functioning in shadows of the terrorist attack. The policy should be to take insurance as well as other kind of prevarication tools for the mitigation of the losses which occurs due to the terrorist’s attacks.
• Regulations as well as deregulations of the government- The Indian Government is following every rules and regulations under the rules of World Trade Organisation. In India, the policy making along with its implementation are consistent (Hoque, et al., 2022).
• Regulatory practices- the regulatory practices are in harmony with the international regulations that have aided the country in the enhancement its ease of performing any business ranking.

The economic factors of a nation and the region have a direct impact on the probable attractiveness of a particular market. Some of the economic factors that must be evaluated by Nestle in the market are the rate of inflation, growth rate of GDP and level of disposable income. Following are some of the economic factors that Impact Nestle:

• Level of Household Income and the rate of savings- Increasing the income as well as the stagnant income of the household in India have resulted in a credit binge consumption. The culture of savings is decimated as people do not have enough for savings. Nestle has to be very careful for development of the marketing strategy which is reliable on the purchase of credit consumer behaviour.
• Rate of employment- If the rate of employment is high then it will affect the strategy of Nestle in two ways- it will offer enough customers with its products and secondly, it will make it difficult for Nestle to recruit talented as well as skillful employees (Caputo, et al., 2022).
• Productivity of the Work Force- The productivity of workforce in India has increased by 30% in the last two decades even though there is not reflection of the gain in the salaries. It helps Nestle to hire some skilled workers at a competitive salary.
• Shift of demand from goods economy to service economy- The services share in the economy has been increasing in a constant speed for comparing with the share of manufacturing, agriculture and goods sector.

The social factors which impacts Nestle India are as follows:

• Attitude towards authority- cultures in various regions of the nation have various attitude towards power. Nestle should very carefully examine the attitude towards the authority before the launch of a campaign of marketing for its products as well as services.
• Attitude towards safety and health- The attitude towards health as well as safety is signified in the product’s quality along with the structure of costs for the process of manufacturing. Nestle has some strict norms for health and safety so it might have to fight with some players who do not have structures of high costs as the one of Nestle.
• Level of social concerns and awareness in the society- High level of social concerns generally results in higher consumer activism along with pressure from non-governmental organisations as well as pressure groups.

The business models are getting disrupted very rapidly across different industries. Some of the trends of the technology which are affecting t5he macro environment are as follows:

• Investment levels of research and development- If the investment level in the sector of development of technology is high then there is a high chance of the development of an ecosystem which is self sustaining and the one which drives innovation. This situation can be utilised by Nestle for hiring the best people in the business (Knight, Noboa, and Pacheco, 2022).
• Chances of disruption of technology- If the nation is a hub of the companies of technology then there is a very high chance of disruption of technology among different industries. Nestle has to examine if it can live with the fast speed of disruption of technology in its industry.
• Level of acceptance in the community- the level of acceptance of technology has to be figured out by the company while launching any new product in the market.

following are some of the environmental factors which impacts Nestle India:

• Level of activism of customers related to the concerns of environment- Nestle needs to have knowledge about the activity of consumer with respect to the environmental concerns. It will help the company in the development of environmental friendly products.
• Policies of recycling- What the policies of recycling is in the potential market and the way Nestle can stick to all the policies.
• Waste management- Nestle should be aware of the waste management policies in the market and the way in which it can follow the norms related to management of waste.

Legal factors state the relevant laws for operating in the market and the process of resolving any dispute with the stakeholders. If the legal system is not strong enough, Nestle can face many challenges from the petitions of the consumers to the shakedown from the authority.

• Laws of protection of data – Nestle needs to find out what the data laws of India are and the way in which it will comply with them.
• Adherence to the common law- Is India following the common laws that is same for all the parties. If there is arbitrariness in the judicial procedure then Nestle cannot be sure of the judgements (Elsharkasi, 2022).
• Consumer protection laws- Nestles need to have the knowledge of the consumer laws, the enforcement rate, attitude of the authorities towards the law of consumer protection and the role of the groups of activists in enforcing the laws of consumer protection.

Following is the detailed analysis of Porter’s five forces of Nestle:

Competitive rivalry- Nestle works in a consumer food industry that faces intense competition. Some of the biggest competitors of Nestle are Kraft Foods, P&G as well as Group DANONE. In commodities like breakfast cereal, there are many competitors of those commodities like Kellogg’s. Even though Nestle is one among the biggest players of the industry with an experience of more than 150 years, the organisation still faces competitions from these brands. Certain market share is held by them (Elo, and e Silva, 2022). All of these organisations spend huge amounts on advertisement and marketing, especially at the time of a launch of product. The competition is not only for the price but also for the variety of product, offers of promotion, creativity and many more. All the industry players have to work hard for retaining their market shares. Therefore, there is a high competitive rivalry for Nestle.

Theoretical Frameworks for Analyzing the External Environment

Threats of new entrants- The food industry of the consumer is varied, making it difficult for a new entrant. There are many barriers of entry. The present players of the market hold large shares of market. They are very well knowledgeable and recognize the need of the customers. Customer loyalty has been developed by them over time. A number of new entrants enter the industry trying to grab the shares of the market even at a local level and only a few succeed (Civitillo, et al., 2022). The companies which already exist have established string networks of distributions along with economies of scale which gives the permission of producing as well as delivering at a low cost. All these factors make the threat of new entrants low for Nestle.

Bargaining power of the suppliers- The largest market share in the industry is held by Nestle. As a result, it needs supplies in huge quantities. This helps in making an ideal buyer for the suppliers. Thus, a supplier that once begins providing supplies to the company do not interfere or try to bargain or impact the prices. The company prefers long term relations with the suppliers for ensuring the raw product’s quality. If the company wishes to switch the suppliers, the cost of switching is moderate because it will have to enter into so0me new contacts and work for ensuring the quality.

Bargaining power of the buyers- due to high competition level, the bargaining power of the buyers is high. There can be an easy change from one brand to the other, Nestle or any other brands try to impact the market or increase the prices. The cost of switching is low for the consumers. There are many companies which sell same products. The company recognises the power of buyers and work to ensure that Nestlé’s consumers stay satisfied. These areas have helped Nestle in establishing brand loyalty from most of its buyers.

Threats of substitutes- Most of the products of Nestle like bottled water as well as pasteurized milk have substitutes which are also available readily. Most of the products have homemade substitutes like baby food. There are many allegations against some of Nestlé’s products as not being vigorous for being consumed (Ahrin, 2022). This has resulted in an increase in the sale of substitutes amongst the people who are health conscious. The company strives to emphasize the health areas of its products for tackling the substitutes. Therefore, there is a high threat of substitutes for Nestle.

Comparison

The main focus of the corporate-level strategy is on the organisation’s direction as a whole and the type of business that it wants to be in be it including the management, portfolio or the inner-organisational relations. This accounts for all the firms regardless of their size. There is a need of alignment of the strategic decisions with the external environment for increasing the competitive advantage and the market strength. The following table provides a summary and a comparison of some classifications of the corporate level strategies.

Nestle can adopt the strategies of stability, retrenchment and growth according to their changing business needs as well as different situation of the market.

• Growth strategies- Nestle is among the leading manufacturer of foods and beverages. There has been an expansion of its business operations in 130 nations with more than 500 units of production along with strategic relationship with thousands of associates of business partners as well as investors. All these achievements of the company are the result of its strategy of growth The Company has made exceptional growth over the years in all of its units of business as well as segments. The present strategies of growth of the business can be classified into horizontal as well as vertical growth strategies (Crespo, Crespo, and Curado, 2022). The horizontal strategy of growth helps it to expand the operations of business across some new target markets, categories of product, geographical locations as well as extensions of the brand. On the contrary, the vertical growth strategy strengthens the operational position as well as business network through turning it into more self-sufficient in the chain of supply, business promotion as well as distribution. Along with it, the company also make use of related strategy of diversification for increasing its portfolio of product as well as become more competitive among the rivals of industry.
• Stability strategy- The strategy of growth is not the preferred choice in every kind of condition of the market (Cheng, et al., 2022). The growth has to be suspended by Nestle when the conditions of the economy are not favourable, the industry growth is poor or there is high saturation of the market. For surviving as well as moving ahead in a cautious manner, the company waits for the situation to turn favourable for the operation of business. Under the strategy of stability, the company does not undertake any kind of expansion of business, extension of brand or projects of operational growth.
• Retrenchment strategies- Nestle make use of the retrenchment strategy for getting rid of the products, brands or business units which does not perform well, which are not providing any contribution to success, but are taking vital portion from the budget of marketing, efforts of research and development as well as quality management. 

The main focus of the business level strategy is on the position of the organisation in the industry related to its competitors as well as the way in which organisations can compete in the business. There is a need of alignment of the business level strategies with the environment as well as corporate level strategy of the organisation. the following tables illustrates some of the business level strategies used by companies.

Low cost leadership strategy- Nestle is a manufacturer of top quality food as well as beverage products. It buys the raw material of highest quality from the market’s large scale suppliers. Therefore, the production costs are higher in comparison to the small scale as well as low quality manufacturers of product. Because of the high production costs, the company fails to get the low cost leadership in its industry (Barrera, 2022).  But, the business level strategy of the company should focus more on the achievement of its goal by operations which are cost effective, quality assurance and effective management of inventory. The management of the company should focus on controlling the costs which are not important in the major functional areas, comprising of the management of inventory, marketing, manufacturing, strategic investments, research and development as well as customer services. The current strategy of the company should focus on the achievement of the efficiency of operations through buying the ingredients of best quality as well as raw material from the most reliable suppliers through the use of them in producing the top quality foods as well as beverages in the most advanced plats of production.

Differentiation strategy- Nestle should focus on differentiating their products with the ones of its competitors. The reason why it should use this strategy is that the strategy will help Nestle in building a unique brand image in the mid of the potential customers. At present Nestle produces more than 10000 products and around 8500 various names of the brand (Brooks, et al., 2022). These products should be able to be differentiated very easily from the brand and product of its competitors, based on the packaging, quality, pricing, ingredients, labelling, features as well as other attributes of product. The products of Nestle are already manufactured under strict quality as well as standards of health. These should even be marketed as well as sold with the promise of the company to deliver real value for the consumers. At the time of introducing new products in the market, Nestle should make sure that they develop unique position in the choice parameters of the consumer. The most important role in making differentiation strategy a success will be played by the quality of products. The company should never compromise on the product quality for achieving the economy or low cost leadership in the industry. Instead, the company should strive for developing a differentiated position among the rivals of the industry on the basis of the quality of products and associated benefits of health and nutrition.

Customer Analysis

Focus strategy- Nestle must focus on differentiation as well as low cost leadership in specific products, operational areas or brands, (BintiMohamadNasir, 2022). For instance, it should emphasise o the low cost strategy for controlling the heavy manufacturing as well as costs of marketing of its top selling brands. The strategy should be used for reducing the financial burden which is pit through the top brands on the aggregate company’s productivity. This strategy will help in focusing on making some improvements as well as changes in the quality flavours as well as ingredients as well as other attributes for a specific line of product instead of differentiating all the commodities in the present offered brands (Akbar, 2022). These strategies help the companies in the generation of more attractive revenues in its top quality brands in a more competitive fashion.

Conclusion

There is a need for the organisations to differentiate between the different kind of strategies- corporate level, business level as well as functional level. The main activity for the fi9rumulation of the most appropriate strategy in every category is an extensive as well as strategic analysis of the external as well as internal environment of the organisation as this is highly influential on the success of a strategy. In this particular paper, there has been a discussion of the business and corporate level strategy along with the external environment analysis. Different tolls can be used for analysis the external environment which can be applied by the organisations depending on the strategic objectives. The determination of the business level strategies is directly related to the corporate level strategy of the organisation. 

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