Nestlé's Expansion into China | Analysis

This paper is about the world’s largest and most famous food company Nestlé. If you read this paper, you will not only learn some history and management information about Nestlé, but you can also know how Nestlé 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 Nestlé in the conclusion. The followings are main information about four sections.

Section I is about the history of Nestlé Company. Henri Nestlé found the company in Switzerland in the mid 1860s. Farine Lactée Henri Nestlé, the name of Nestlé’s first product, which saved a premature baby’s life and soon marketed in Europe. Then Nestlé expands very quickly all over the world. In 1905, Nestlé merged with the Anglo-Swiss Condensed Milk Company and this is the beginning of Nestlé’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. Nestlé 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 Nestlé expand and whether did the company expand elsewhere. Nestlé 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 Nestlé how to cultivate the relationship with Chinese government and citizen and make china become a good market for them. Because traditional Chinese didn’t have the habit to drink coffee, Nestlé have to cultivate Chinese the style of habit by advertisement and a variety of means. Nestlé tried his best to break market barrier that he can integrated into Chinese market quickly. The Chairman of Nestlé (China) who is called Mr. Décor vet thought that there are much difference between Chinese conceptualizes food and western food. So if Nestlé wants to integrate into local market quickly, they must respect Chinese brand’s unique qualities.

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Section III is about the form that Nestlé came into China. When Nestlé first came into china in 1987, it chose Shuangcheng which is located in Heilongjiang province to develop itself. However, at that time, Nestlé didn’t have much power, so it chose partnership. In order to improve the level of training that was provided to the local farmers, Nestlé decided to cooperate with the Shuangcheng government. After developing a long time, Nestlé choose another partnership with Yinlu. Later, Nestlé chose joint venture with Yinlu and Hsu Fu Chi to strengthen itself. Resulting from these two forms coming into China, Nestlé has got a great popularity in all generations in China. Nestlé makes many profits and it bring much benefit to Chinese at the same time.

Section IV is about the organization structure taken by Nestlé in coming to China. Nestlé 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 Nestlé in coming to China is developing partnership. The strategy helps Nestlé achieve great success in the market of China. Nestlé develops quickly in China with not only partnership, but also with joint venture. Nestlé also have four levels in hierarchy. The four parts are respectively, board of directors, executive board, honorary chairman and financial transactions. Nestlé 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 questions, such as history of Nestlé. Pauline is good at organizing and combining the information, so she write about the form Nestlé came into China, which is connected to the current condition of Nestlé 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 Nestlé from which people can know the basic information about Nestlé. And then, we tell about the reasons for Nestlé came to China and the form of Nestlé came to China. The last section is about organization structure taken by Nestlé that is deep-going content about Nestlé. After reading these four sections, people can know much about Nestlé 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 Nestlé. 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 Nestlé.

Section I: History of Nestlé

In the mid 1860s, Nestlé was run in Switzerland by Henri Nestlé. At the very beginning, Nestlé 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 cow’s milk, flour and sugar up to provide babies with necessary nutrition. Farine Lactée Henri Nestlé was the name of its first product. It saved a premature baby’s 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 Nestlé after they had been fierce competitors for a long time. Finally, they formed the Nestlé and Anglo-Swiss Milk Company together. (Nestlé, Nestlé, , October 27, 2012)

Heiko Schipper, managing director of Nestlé 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, Nestlé 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 Nestlé Company. (Nescafe, Nescafe, , October 30, 2012)

Nestlé 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 China’s 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 Nestlé to come to China to a great extent. (CHINADAILY, Li Fngfang, , October 30, 2012)

In 1905 – the Anglo-Swiss Condensed Milk Company merged with Nestlé and this is Nestlé’s first expansion. (Nestlé, Nestlé, , 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. (Nestlé, Nestlé,

, October 27, 2012)

In China, sales have grown around 20%, which shows the potential of developing economies. However, Nestlé has been losing market share and this may be changed by purchasing. Take Pfizer as an example. Nestlé bought Pfizer to be more competitive. Reports showed that about 85% of sales for Pfizer’s business came from developing economies and about one-third of the Pfizer unit’s revenue is from China. “The acquisition of Pfizer’s 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)

Nestlé 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 doesn’t 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)

Nestlé set its first Chinese R&D center in Shanghai in purpose to open Asian markets. “We continue to invest in our R&D 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 Nestlé’s research and development division. (Tce, Richard Jansen, , October 30, 2012)

Now Nestlé 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/Nestlé/>, October 28, 2012)

Section II: Nestlé Expansion

Roland Décor vet, the food giant’s China chief executive, said that in spite of facing its own economic slowdown, offers Nestlé 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 Nestlé with larger markets they don’t assume before. Hsu Fu Chi, a famous candy company, Nestlé 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 Nestlé. 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)

Nestlé is one of the largest food and beverage company in the world. There are more than 450 manufacturing facilities in over 80 countries and Nestlé markets its products in 130 countries across the world. Nestlé 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, Nestlé has more than 400 factories and employs abundant employees of local person. Nestlé has expanded almost the entire world and it is a super company. (Facts and figures Nescafe Plan, Nestlé,

page 1, November 8, 2012)

As a transnational enterprise who has a long-term development plan, the most important development strategy for Nestlé 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, Nestlé constructed a new farming institute in Heilongjiang province. Nestlé agreed to support technical assistance and train for local famers. Nestlé want to get win-win by working with famers in this way. (Nestlé leads dairy development in China with new training institute, Nestlé,

, November 8, 2012)

For Nestlé 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, Nestlé 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 Nestlé. In this way, not only did Nestlé 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 it’s help. The development of ways that could assist the local economic development and help farmers to improve the income which got the Chinese government’ high approval, meanwhile it helped Nescafe win a good social image. (Nestlé’s management of dairy supply chain in China, Nestlé,

, November 8, 2012)

China’s coffee’s consumption is few at that time, so Nescafe had the problems of supplement at the beginning. Traditional Chinese didn’t have the habit to drink coffee. With natural, healthy concept winning the support among the people, tea beverage grows steadily in china. Nestlé’s opponent is not the “coffee sugar “, but Chinese traditional tea. When Nescafe’s 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 one’s measures to local conditions, Nestlé designed promotional strategy that minimized the SP activity, 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 Nestlé People Development Review, Nestlé,

page 37, November 8, 2012)

Mr. Décor vet who is Chairman of Nestlé (China) thought that the Chinese conceptualize food and western’s have much difference, and Nestlé must respect Chinese brand’s 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: Nestlé in China

When Nestlé first came into china in 1987, it chose Shuangcheng which is located in Heilongjiang province to develop itself. However, at that time, Nestlé didn’t have much power, so it chose partnership. In order to improve the level of training that was provided to the local farmers, Nestlé decided to cooperate with the Shuangcheng government. In this way, Nestlé 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 people’s overall quality which plays an important role in team work. Considering that local farmers lacked money, Nestlé provided economic assistance for them and distributed many free milking machines to them. Due to this help, local farmers didn’t 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. Nestlé 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 Nestlé and Shuangcheng government is called ‘Creating Shared Value’, which tried to make profits for the company’s shareholders and those communities where it operates at the same time. During decades, Nestlé has made Shuangcheng play the important role in the dairy districts. (Nestlé leads dairy development in China with new training institute, Nestlé,

, October 30, 2012f)

After cooperating with Shuangcheng government, Nestlé has made many profits, and it also helped the local city develop a lot. Nestlé didn’t 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. Nestlé wanted to combine its technology with Yinlu’s reputation to make much progress. Therefore, Nestlé declared that it had taken some stake in Yinlu. Considering that Yinlu is a co-manufacturer for ready-to-drink Nescafe coffee in China, Nestlé has decided to cooperate with it and achieved successful achievement with Yinlu before this agreement. The CEO of Nestlé considered that the partnership between two companies would bring healthy, affordable and tasty products to all consumers in China. Of course, the foregoing goal must be based not only on Yinlu’s entrepreneurship, product expertise, and consumer understanding, but also on Nestlé’s innovation and renovation capabilities. The chairman Chen of Yinlu thought that the partnership represents a very significant landmark which is in Yinlu’s long-standing aspiration to be a typical and favorite brand for customers. As Nestlé 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. (Nestlé to enter partnership with Chinese food company Yinlu, Nestlé,

, October 30, 2012)

However, partnership was not the only option of Nestlé to come into China. As Nestlé develops many years in China, it chose partnership at first and then it expanded for joint venture. Nestlé uses two R&D 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, Nestlé and Hsu Fu Chi had got much benefit from the joint venture. Two companies looked forward to the long-term cooperation. Head of R&D in Nestlé thought that Nestlé would continue to invest in their R&D 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 joint venture helps Nestlé become more popular among Chinese and now almost every young person knows the watchword of Nestlé which says ‘Good Food, Good Life’. (Nestlé strengthens research and development capability in China, Nestlé,

, October 30, 2012)

Nestlé 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 wasn’t developed fast in 1980s. As this current condition in China, Nestlé decided to expand its investment and development. Therefore, Nestlé decided to exploit this potential market. However, at that time, Chinese couldn’t be used to and accept Nestlé’s products. In this way, Nestlé 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. Nestlé believed that its partnership and joint venture would get success. What’s more, Nestlé will go further in China. (Cereal partners worldwide transcript, Nestlé,

page 3, October 30, 2012)

Section IV: Organization Structure in China

The strategy is the most important contingency. The key strategy taken by Nestlé in coming to China is developing partnership. In order to create supply chains, Nestlé has built great infrastructure through the China. Through these years, Nestlé 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.

Nestlé Company focuses on 3 platforms. All of platforms have clear strengths and expertise. Each of platforms has planned explicit strategies. Key accounts of Nestlé 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 Nestlé’s capability, Nestlé,

page 10, October 29, 2012)

Besides, the human resources are also the most important contingency. Today, across the country, there are 21 factories and Nestlé’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. Nestlé’s will also employ 1,500 workers to meet the goals that that have settled for 2013.

Nestlé’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 Nestlé cultivate its culture through employee learning and foster its sustained growth by ensuring employee passion is directed to help deliver on business goals. (Nestlé 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 Nestlé’s with Yinlu, Hsu Fu Chi and so on. Human resources of Nestlé 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, Nestlé has an all-round system and uses part of job characteristics to manage its employees. Nestlé applies good compliance to help it earn trust with its employees, consumers, investors and governments. Nestlé opened Nestlé Business Services Africa in Accra, Ghana. Result from Nestlé’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 Nestlé, no matter in manufacturing or purchasing, which reflects skill variety. Furthermore, Nestlé makes a project concerning health and safety regimes in all countries, and these countries make many operations. Nestlé also pay much attention to protection of the health and welfare of employees and contractors. Therefore, employees can focus on the task, and be responsible for whole of it, which reflects the task identity. (Nestlé annual report 2011, Nestlé, , October 29, 2012)

The CEO of Nestlé (China) said that Nestlé’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. (Nestlé’s management of dairy supply chain in China, Nestlé,

,) October 30, 2012

As a manger of Nestlé 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.

Nestlé 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, Nestlé’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 Nestlé – 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 Nestlé 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 member’s path. Besides, a functional organization which is included in a product group can share information about its particular discipline. What’s more, cross-functional 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 world’s biggest food company, the factories and markets of Nestlé 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 China’s 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 Nestlé 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.

What’s more, as the world’s 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.