Final SM

Submitted by:
Amber Mazhar
Ayesha Zaheer Bajwa
Faiqa Muazzam
Major in Finance and Minors in Environmental Policy

Hira Arshad
Salman Shahid Dar
Samiya Iqbal
Umme Laila Shirazi
Section E
Lahore School of economics
Strategic Management
We have done our work with no Plagiarism.

Amber Mazhar
Ayesha Zaheer Bajwa
Faiqa Muazzam
Hira Arshad
Salman Shahid Dar
Samiya Iqbal
Umme Laila Shirazi
Lahore School of Economics
ACKNOWLEDGEMENT
Firstly we would like to thanks Allah Almighty who blessed us with His Blessings. By the
grace of Him we are able to complete our project. We would like to express our gratefulness
to all of those who helped us for this project. We are very grateful to Ms. Farah Zarak who
continuously supported us and helped me to in this project and gave us her precious time.
Executive summary
It all began from a little venture by a Swiss pharmacist, Henri Nestl, to develop an
alternative for infants who cannot be breastfed, with a combination of milk, wheat flour, and
sugar. Not only did this formula help reduce infant mortality from malnutrition across
Europe, but also formed the basis for the worlds largest food and beverages company. To this
end, Nestl soon added chocolate, milk, and Nescafe coffee to its line of items through
mergers and research. Nestl kept increasing the length and width of its product lines to cater
to a wide range of consumer needs. As Nestl was making its operations global, it found an
eager market in Pakistan. Nestl has been serving Pakistani consumers since 1988, when its
parent company, the Switzerland-based Nestl SA, first acquired a share in Milkpak Ltd.
Nestle is the worlds largest food and beverage company. Few of the milestones achieved by
Nestl Pakistan and Milkpak Ltd. In this project we are going to research vision and mission
statement of Nestle and will provide with proposed vision and mission statement along with
the Swot analysis and IFE, CPM, EFE, SWOT, SPACE, QSPM, I/E matrix and financial
ratios of Nestle Dairy and factors contributing in environmental changes. We conducted an
informal interview from Mr. Uzair Imran of nestle and we used secondary data from internet.
Content
Nestle History:...........................................................................................................................6
Projects:......................................................................................................................................9
Milk Collection Manager, Kabirwala......................................................................9
Milk Collection Manager, Ludden...........................................................................9
Vision and Mission Statement....................................................................................................9
Current Vision:.....................................................................................................................9
Swot Analysis of Nestle:..........................................................................................................11
Porters five forces Analysis....................................................................................................14
Threat of New Entrants........................................................................................................15
Bargaining Power of Suppliers.............................................................................................15
Bargaining Power of Buyers.................................................................................................15
Threats from Substitutes.......................................................................................................16
Competitive Rivalry.............................................................................................................16
IFE matrix of Nestle.................................................................................................................19
Economical Factor:..................................................................................................................21
Environmental Factor:..............................................................................................................21
Political Factor:........................................................................................................................21
Financial ratios........................................................................................................................21
Space Matrix...........................................................................................................................25
BCG Matrix.............................................................................................................................28
Grand Strategy........................................................................................................................29
IE Matrix.................................................................................................................................30
QSPM matrix...........................................................................................................................30
SWOT Matrix.........................................................................................................................32
Positioning Map.....................................................................................................................39
Organization Chart................................................................................................................42
Strategy Evaluation...............................................................................................................71
Recommendations.................................................................................................................
History
Nestle History:
Nestl began in Switzerland in the mid 1860s when founder Henri Nestl created one of the
first baby formulas. Henri realized the need for a healthy and economical product to serve as
an alternative for mothers who could not breastfeed their babies. Mothers who were unable to
breastfeed often lost their infants to malnutrition. Henris product was a carefully formulated
mixture of cows milk, flour and sugar. Nestls first product was called Farine Lacte
(cornflour gruel in French) Henri Nestl. The product was first used on a premature baby
who could not tolerate his mothers milk or other alternative products of that time. Doctors
gave up on treating the infant. Miraculously the baby tolerated Henris new formula and it
provided the nourishment that saved his life. Within a few years the first Nestl product was
marketed in Europe.
In 1874 the Nestl Company was purchased by Jules Monnerat. Nestl developed its own
condensed milk to contend with its competitor, the Anglo-Swiss Condensed Milk Company.
The Anglo-Swiss Condensed Milk Company made products like cheese and instant formulas.
The two companies merged in 1905, the year after Nestl added chocolate to its line of foods.
The newly formed Nestl and Anglo-Swiss Milk Company had factories in the United States,
Britain, Spain and Germany. Soon the company was full-scale manufacturing in Australia
with warehouses in Singapore, Hong Kong and Bombay. Most production still took place in
Europe.
The start of World War I made it difficult for Nestl to buy raw ingredients and distribute
products. Fresh milk was scarce in Europe, and factories had to sell milk for the public need
instead of using it as an ingredient in foods. Nestl purchased several factories in the U.S. to
keep up with the increasing demand for condensed milk and dairy products via government
contracts. The companys production doubled by the end of the war and then fresh milk
became available again after the war, Nestl suffered and slipped into debt. The price of
ingredients was increasing, the economy has slowed and exchange rates deteriorated because
of the war.
An expert banker helped Nestl find ways to reduce its debt. By the 1920s Nestl was
creating new chocolate and powdered beverage products. Adding to the product line once
again, Nestl developed Nescafe in the 1930s and Nestea followed. Nescafe, a soluble
powder, revolutionized coffee drinking and became an instant hit.
With the onset of the Second World War, profits plummeted. Switzerland was neutral in the
war and became increasingly isolated in Europe. Many of Nestls executive officers were
transferred to offices in the U.S. Because of distribution problems in Europe and Asia, Nestl
opened factories in developing countries in Latin America. Production increased dramatically
after America entered the war. Nescafe became a main beverage for the American servicemen
in Europe and Asia. Total sales increased by $125 million from 1938 to 1945.
Nestl continued to prosper, merging with Alimentana S.A., a company that manufactured
soups and seasonings, in 1947. In the coming years, Nestl acquired Crosse & Blackwell,
Findus frozen foods, Libbys fruit juices, and Stouffers frozen foods. Nescafe instant coffee
sales quadrupled from 1960 to 1974, and the new technology of freeze-drying allowed the
company to create a new kind of instant coffee, which they named Tasters Choice.
Expanding its product line outside of the food market, Nestl became a major stockholder in
Many organized groups began boycotting all of Nestls products because they disapproved
of Nestl marketing its baby formula in developing countries. Problems like illiteracy and
poverty caused some mothers to use less formula than recommended. In a watered down
formula, vital nutrients are lessoned. Contaminated water presented another problem, since
the formulas had to be mixed with water. The organizations argued that the misuse of formula
resulted in the malnutrition or death of many infants in developing countries.
According to Nestl the World Health Organization never made statements tying infant death
or malnutrition with baby formulas. The company didnt deny the superiority of breastfeeding
and agreed that substituting breast milk for other substances could be very dangerous. Nestl
explained that breastfeeding and non-breastfeeding mothers in developing countries often
gave their babies whole cows milk, tea, cornstarch, rice water or a mix of flour and water.
These alternatives were very unhealthy and a nutritional baby formula was a better choice.
Nestl says that it has never discouraged breastfeeding when it was possible. Nestl agreed to
follow the International Code in developing countries in 1984, and the boycott was
suspended. It resumed several years later when the organizations believed Nestl was sending
free or low cost baby formulas to developing countries. Nestl said it only sent formula to
countries that allow donations for orphans, multiple births, and babies with no access to
breast milk. The company has stopped all public advertising for formula in developing
countries for almost 20 years. The boycott continues to some extent to this day without
satisfactory resolution.
By the 1980s Nestl had a new Chief Executive Officer. The company focused on improving
its financial situation and continuing to expand. In the one of the largest takeovers at that
time, Nestl bought Carnation for $3 billion and parted with any unprofitable businesses.
International trade barriers diminished in the 1990s, opening trade with parts of Europe and
China. In the 1990s Nestl acquired San Pellegrino, and Spillers Petfoods of the UK. With the
acquisition of Ralston Purina in 2002, the Nestl-owned pet care businesses joined to form
the industry leader Nestl Purina PetCare. The leading in the food industry, Nestl brings in
$81 billion in overall sales and has 470 factories around the world. Nestl will continue to
grow, introduce new products and renovate existing ones. The companys mission is to focus
on
long-term
potential
over
short-term
performance.
Nestls Main Brands

Nestl expands across many different markets including beverages, ice cream, baby
foods/formulas, soups, frozen foods, snacks, pet care and of course candy. Some of Nestls
main brands include:
Kit Kat, Butterfinger, Smarties, Crunch, Quality Street, Milky bar/Galak, Tollhouse
Nestea, Nescafe, Tasters Choice, Nesquick, Carnation, Libbys
Stouffers, Lean Cuisine, Hot Pockets, Biotin, Power bar
Purina, Friskies, Fancy Feast, Dog & Cat Chow, Tidy Cats
Deer Park, Ice Mountain, Pure Life, Arrowhead
Good Start, Nan, Lactogen, Beba
Projects:
April 2006 August 2007 (1 year 5 months)
-Based at Nestle Sheikhupura Factory, managing the milk shed regarding Agricultural
Services activities, Leading a team of 40 veterinarian and 7 Lady Teams.
-Established Best Farm Practices to CF and Mega Farm.
-Pioneer in importation of 2300 Cross Bred and Pure Friesian/Jersey cows from
Australia
-Established Training and Development wing of Agricultural Services at Sarsabz
Farm
Milk Collection Manager, Kabirwala
2002 2006 (4 years)

10
-Based at Kabirwala Factory, managed the field plus all factory related MCAS
business
-Developed Kabirwala, Bhakkar and Kot Addu area which as independent main
centers starting from the very scratch
-Looked after almost 7 areas as the highest amongst all MCMs in terms of Volume
and geographical area
-Got different certificates and awards on lowest cost, no rejection, lowest TPC,
highest number of cold lines

Milk Collection Manager, Ludden
1995 2002 (7 years)
-Initial assignment was to take control of the single main center activity of Ex-KDL to
three Nestls main centers, Ludden, Chishtian and Mailsi with 12 tons/day volume
-Developed the area with the highest milk collection volumes to present 150 tons with
3 main centers of Chishtian, Dunya Pur and Ludden.
-Developed Cholistan for the first time in history of milk collection with Toba self
collection model at Bunglow Quresh and Yazman PHEs having 120 tons/day quality
milk without ice.
-Developed and executed Cold Line Concept for the first time in the history of Nestle
Pakistan in Ludden and Chishtian with minimum resources.
Vision and Mission Statement

Current Vision:
11
Nestls global vision is to be the recognized leading Nutrition, Health and Wellness
Company. Nestl Pakistan subscribes fully to this vision of being the number one Nutrition,
Health, and Wellness Company in Pakistan. In particular, we envision to;
Lead a dynamic, passionate and professional workforce proud of our heritage and
positive about the future.
Meet the nutrition needs of consumers of all ages from infancy to old age, from
nutrition to pleasure, through an innovative portfolio of branded food and beverage products
of the highest quality.
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
Pakistan
Evaluation:
A better way would be to focus on the future position of the company mainly; values can be
incorporated in the mission statement.
Proposed vision statement:
We strive to be the leading company ensuring healthy living by delivering nutritious,
sustainable and a better future.
Current Mission
To positively enhance the quality of life of the people of Pakistan by all that we do through
our people, our brands and products and our CSV activities
Evaluation:
Nestls current mission statement is not very clear; by looking at it we do not know what the
company is providing and the other important components of an effective mission statement
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like technology, customers, products, philosophy, self concept, survival and concern for
employees are missing.
Proposed Mission Statement:
Our mission is to serve the worldwide need for best nutrition by providing unmatched
product and brand portfolio at a fair profit with maximum value to our shareholders using the
most sustainable technology and energy sources available to us. We are socially and
ecologically responsive and strive for equality and healthy relationships that promote growth.
We aim to build a sense of community among our employees and promote personal
development of our human resource.
External and Internal Assessment
Swot Analysis of Nestle:

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses
internally, and for identifying both the Opportunities open to you and the Threats you face
due to change in external environment.
Table 1.1 Relative Market Share
Low
High
Stars
Low
Question Marks
Milk pack
Cream
Nesvita
Raita
Everyday
Fruit Yougurt
Yougurt
High
Cash cows
Dogs
Nido
Desi ghee
Neslac
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Strengths:
Excellent advertising and visibility of dairy products.

Good product distribution and availability.
Ability to leverage strong brand name to generate sales
Ability to customize products to the local market conditions
Strong global operations with diversified revenue based
Research and development capabilities Nestle has worldwide network of centres in 17
locations on four continents. An international staff of 3500 engaged in the search for
innovative new products and the renovation of existing ones.

Investment in R&D, and innovative products
Market research about shopper segmentation and distribution channels
Integrated and centralized information systems
Efficient consumer service builds loyalty
Creating shared value for all strategic partners
Flat structure and decentralized
Matrix organization and growth oriented culture with motivated workforce.
Coordination among departments achieved by Business Partners, Category Mangers,
etc
Diverse workforce Effective and efficient HR systems
Knowledge sharing and training programs
Effective performance appraisals
Achievement based compensation
Competitive remuneration benchmarked against industry
Monopoly in tea whitener because of technology
Opportunities:
Different flavoured milk.

Tie-ups with corporate/hotels.
Transition to a nutrition and wellbeing company
Focus on developing and emerging Economies
Expansion: Potential to expand to smaller towns and other geographies.
Product offerings: The Company has the option to expand its product folio by
introducing more brands. With Pakistans demographic profile changing in favour of
the consuming class, the consumption of most FMCG products likely to grow.
Exemption of dairy sector from taxes
Compliance with environmental laws
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Social responsibility & social investment programs to build a positive corporate
image
Partnerships with farmers for sustainable agriculture and providing farm assistance to
create greater value for all

High brand value of Nestl, which denotes quality; this cannot be matched by
rivals such as Tarang

A larger consumer base can be acquired as much population still uses Gowalla milk
Entry into more niches possible by defining finer market segments. Like low cal milk,
more innovative products can be launched, such as foods for cardiac patients, drinking
yogurt, etc. These are value added products in the premium market that offer
consumers more value for more money and can fetch higher revenues for
the company. Furthermore, the more differentiated the products, the more difficult it is
for rivals to copy.

Market share: Another thing is high level of market share that people all over the
world trust and recognize Nestle as a big brand.

Low cost: They are low cost operations which allow them to not only beat
competition but also edging ahead operating excellence, innovation, renovation,
product availability and communication are major strengths.

Product innovation: The Company has been continuously introducing new products
for its Pakistani patterns on frequent basis, thus expanding its product offerings.
Booming out of home eating market
Global hub: Since manufacturing of some products is cheaper in ASIA than in any
other continent. Countries, Nestle Pakistan could become an export hub for the parent
in certain product categories.

Nestle has the health-based products are becoming more popular in the world,
including in the United States.
Weaknesses:
Not good for diabetic patients.

Milk products have a limited shelf life.
Increasing instances of product
15
Recalls hampering brand equity

Mature Markets (Nestle is entering to a mature market that can give a tough
competition to new entrants)

Plain yogurt: It is unable to take market shares.(in USA specially)
It has less consumer research in few areas.
The company has a complex supply chain management.
Company image and consumer base can be adversely affected by stock outs, caused
by either inefficient distribution or untimely delivery by suppliers

The Managing Director and Head of Finance are foreigners, which hinders effective
communication
Multiple indirect reporting relationships might result in ambiguous accountability
lines
More generalists than specialists in the matrix
The common man perceives Nestl as a premium brand and thinks it is expensive.
Threats:
Threat from pure milk.

Substitute milk sweeteners.
Local sweet dish makers.
Compliance issue resulting in penalty payments
The soaring inflation rate is eroding the purchasing power of consumers
Dependent on distribution channels and supermarket shelves, which can be acquired
by competitors as well, who can influence retailers

The bargaining power of suppliers increases as demand for milk rises, so price rises.
Engro offers subsidized fertilizers for providing milk to Olpers.

The industry is fast growing; very low barriers to entry, new competitors are springing
up every day.
Milk is not differentiated, in cost or product variety, so consumers are indifferent
about buying a Milkpak or Olpers.

After Nestl creates a market, rival firms move in, e.g. UHT milk was not widely used
before Nestl,
Macro economic factors
Allegations of unethical business activities
Competition: immense competition from the organized as well as the unorganized
sectors. Off late, to liberalise its trade and investment policies to enable the country to
16
better function in the globalised economy, the Indian Government has reduced the
import duty of food segments thus intensifying the battle.

Changing consumer trends: This has increased consumer spending on consumer
durables resulting in lower spending on FMCG (fast moving consumer goods)
products. In the past 2-3 years, the performance of the FMCG sector has been lack
lustre.
International marketing standards: Nestle is facing the threats by worldwide
community due to its violation of international marketing standards. Many
conferences and campaigns have been held against Nestle in this regard which can
damage the name and trust of its customers.

Sectoral woes: Rising prices of raw material and fuel, and intern, increasing
packaging and manufacturing costs but the companies may not be able to pass on the
full burden of these onto the customers.

Adverse public opinion due to links with Israel.
Porters five forces Analysis

Michael Potter's five forces framework can be used to
d e t e r m i n e whether the industry is attractive enough to sustain a small or medium
size e n t e r p r i s e .
T h e f i v e f o r c e s o f E n t r y, R i v a l r y, S u b s t i t u t e s , a n d B u ye r s
a n d Suppliers jointly determine the intensity of competition and profit potential for
a small and medium size firm in a given industry or market sector. In
analyzing each market force, the question is whether it is sufficiently strong to reduce or
17
eliminate industry profits. The focus at this stage is at the industry level
because industry dynamics and profits of necessity dictate profits of other firms
that enter the industry.
Threat of New Entrants
The threat of new entrance means when any other company that is not operate in that product
category but operate in the other product market or the company that start it new venture see
a opportunity in this field like juices and they decided to enter in this market. So the
current company that is operating in the market has a Low threat for the new
entrance. New entry can raise the threat of competition. But however the Nestle is
big organization being it competitor is not an easy task. There is some
barrier for stop the new entrance economies of scale product differentiation capital requirements
switching costs access to distribution channels cost disadvantages independent of scale government
policy if all these things present in the market then no company want to enter in that market because
they know there is no any opportunity for it.
Bargaining Power of Suppliers
The company needs raw material, labors, component and other supplies. This
requirement leads to buyers-suppliers relationships between industry a n d t h e
suppliers. Suppliers, if powerful can exert an influence on
t h e producing industry, such as selling raw materials at high price to
capture some of the industry profits. Suppliers have great bargaining power
if the company cannot produce its raw materials or other ingredients.
Suppliers have weak bargaining powers, if in the market many suppliers and demand
of raw material is low. The bargaining power is low because Nestle doesnt rely on any
supplier they produce there on raw material or import it from parent company, even
18
they have no reliance on the distributors they have their own factory trucks to supply
the material.
Bargaining Power of Buyers
Buyer power is the most important factor of porters fiver forces model,
b e c a u s e b u ye r a r e t h e c o n s u m e r s o f t h e p r o d u c t , f o r n e s t l e i t s a
m a j o r impact factor because the competition is intense & competitors have
the same products may differs in quality but providing the same needs. For that
particular reason we can say that Nestle have high bargaining power from
buyers. They can lose the customer if the prices &
q u a l i t y f o r m t h e competitor meet their products. S o i f N e s t l e c a n c o n t r o l
t h e f a c t o r o f t h e i r c o m p e t i t o r s m a y b e t h e y eliminate this buyer power all
to gather. After all switching cost not as much h i g h t o e n g a g e i n u s i n g a n o t h e r
b r a n d h o w e v e r n e s t l e w i t h t h e t i m e & quality became a Generic brand in Pakistan.
Threats from Substitutes
Substitute products refer to products in other industries. To the economist, a threat of substitutes
exists when a product demand is affected by the price change of a substitute
product. A products price elasticity is effected by substitute product as more
substitute become available, demand becomes m o r e e l a s t i c s i n c e c u s t o m e r
h a v e m o r e a l t e r n a t i v e . A c l o s e s u b s t i t u t e products constrains the ability of
firms in an industry to raise prices. N e s t l e h a v e a m a j o r t h r e a t f r o m i t
s u b s t i t u t e p r o d u c t s f r o m o t h e r competitor due to which there product can
lost the market share, there are many competitors so the threat from substitutes product are
high.
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Competitive Rivalry
The big factors determining the strength of rivalry is how actively and
aggressively are rivals employing the various weapons of competition in
jockeying for a stronger market position and seeking bigger sales. In the
market rival create a great threat. Many companies introduce same product su c h a s m i l k ,
w a t e r, c e r e a l s & m a n y m o r e i t e ms t o h a m p e r t h e N e s t l s impact in
market and increase threat. Many local company enter in market, there is also great
threat for establish company. Nestle also face lot of HIGH competitor rivalry.
In a nutshell now we can conclude whether the company is MNC or local it will face the
tough competition from its competitors because competitive edge is the most
volatile thing in business world now-a-days companies are reactive & they react to the
change.
External Factor Evaluation (EFE) matrix
Table 1.2 Key External Factors
Weighted
Opportunities
Weight
Rating
Score
1.
Launch new packing 300 ml
0.15
0.45
2.
Population increase by 2.18%
0.05
0.15
3.
Collaborate with schools such as LGS, BSS
0.15
0.6
4. Target rural areas which is more than 60% in Pakistan
0.07
0.14
5.
Potential in dairy market
0.08
0.24
6.
7.
Consumer expenditure on food increased by 3.6%

0.05
Expand the milk collection circle to 100000 in next 2
0.1
years
0.09
8. Collaborate with coffee shops/hotels such as Gloria
0.36
Jeans
0.27
0.09
Threats
20
1.
Rising fuel prices diesel prices RS 110
0.05
0.15
2.
Increase in the GST to 16%
0.04
0.08
3.
Lack of education causing inefficiency
0.03
0.6
4.
Inflation rate of 14%
0.03
0.06
5.
6.
Engro and Shakarganj major competitors

Market segment growth could attract
0.03
0.06
competitors
0.09
0.18
Total
new
3.44
The opportunities and threats are assigned weights according to the industry. Which are then
assigned rates according to the companys responsiveness to these factors. If we interpret the
ratings, these range from 1-4. Where 4= the response is superior, 3= the response is above
average, 2= the response is average and 1= the response is poor
This method is a strategic-management tool which often used for assessment of current
business conditions. The EFE matrix is a good tool to visualize and prioritize the
opportunities and threats that a business is facing. The average is 2.5. Nestle has a total of
3.44 which means its above average and is doing ok. It has potential to work on the
opportunities in the market and eliminate the major threats in the market.
Table 1.3 Competitive Profile Matrix:
Critical
Success
Nestle
Weight
Olpers
Haleeb
Rating
Score
Rating
Score
Rating
Score
0.25
0.75
0.5
2. Financial Position 0.05
0.2
0.15
0.1
3. quality of product 0.25
0.75
0.75
4. Market Share
0.4
0.3
0.1
Factor
1. Advertising
0.1
21
5.distribution
0.075
0.3
0.3
0.15
0.45
0.6
0.15
0.225
0.15
0.075
0.15
0.15
0.1
channels
6.
Consumer 0.15
Demands
7.
Technological 0.075
advancements
8. Price
0.05
Total
3.475
3.4
1.925
Competitive profile matrix is a vital strategic management tool to compare the firm with the
major companies of the industry. Competitive profile matrix displays the well-defined picture
to the firm about their strong points and weak points relative to their competitors. The
primary competitors to Nestle are Olpers and Haleeb. Once we were done with the SWOT
analysis, we formulated IFE matrix and EFE matrix and the derivation of these two matrixes
leads us to decide the critical success factors for Nestle and other two companies. The scale
is from 1 4. Where 4= major strength, 3= minor strength, 2= major weakness and 1=minor
weakness.
The model above shows a total score for nestle of 3.475. 3.4 for Olpers and a 1.925 for
Haleeb. Therefore we can interpret from the result that nestle is still the strongest amongst its
competitors despite of the fierce competition from them. There major strengths include
product quality distribution channels and the market share. These few success factors are
efficiently utilized by the company and thus difficult for the competitors to achieve them. On
the other hand Oplers through its extensive advertisements where it has a major strength, has
successfully achieved an increase in the consumer demand and has helped them to get a fair
enough market share of the milk industry. Haleeb is facing a decline as compared to its
22
competitors they do not have as such major strength therefore resulting into a score of 2
which is below average.
Table 1.4 IFE matrix of Nestle

Key Internal Factors
Weight
Rating
Weighted Scores
3
3
4
0.03
0.09
0.8
dairy 0.02
0.06
production company
Global operations with 0.04
0.16
diversified revenues
Research
and 0.06
0.18
0.8
3
4
0.09
0.24
Strengths
Increase in net profit
0.01
Strong brand image
0.03
Increase in sales by 0.2
12.9 % (undeveloped
countries)
Largest
development
capabilities (17 centers
and
3500
no.
employees)
Market share
of
(high 0.2
market share as people

trust
and
recognize
Nestle as a big brand)

Socially responsible
0.03
Low cost operations 0.06
(operating excellence,
innovation,
renovation,
product
availability
and
23
communication)
Product
innovation 0.03
0.09
expansion)
Weaknesses
Penalty payments
0.04
Macro
economic 0.03
1
2
0.04
0.06
factors
Lack of
awareness 0.02
0.2
among target market

Nestle dairy products 0.03
0.06
0.04
0.06
0.06
spending on FMCG)
Low credit sales and 0.03
0.06
margins to retailers
International
0.02
(introducing
products
new
for
its
Pakistani patterns on
frequent
basis
and
are at last due to less

advertisement.
Allegations
unethical
of 0.04
business
activities
Competition from the 0.03
organized
and
unorganized sectors.
Changing consumer 0.03
trends
(increased
consumer spending on
consumer
resulting
durables
in
lower
0.02
24
marketing
standards
(Nestle is facing the

threats by community
due to its violation of
international
marketing standards)
Weak
promotional 0.02
activities
0.02
0.03
through
websites
Sector woes
(rising 0.03
prices of raw material

and fuel, and intern,
increasing
and
packaging
manufacturing
costs)
Total
3.19
Internal factor evaluation is to analyze the internal audit of Nestle Company. Total weighted
score is 3.19 which is more than average score i.e. 2.5, which shows that this company has a
strong internal and has more potential compete its rivals. The rating and weights for IFE
matrix are set by group consensus. 3 is minor strength and 4 is major strength. 1 is major
weakness and 2 is minor weakness.
Other Forces that affects the Company:
Technological Factor:
The type of the technology available within the industry states the competitive environment
because creative use of new technology is what often gives firm there competitive advantage.
25
This environment does not change that much quickly but the changes that come are strong
enough that can change the way the industry is currently running. Milkpak production
process uses UHT (Ultra High Treatment) technology as well as using molasses. The idea
behind UHT investment was to provide consumers with the best quality of packaged dairy
and food products that no other company can produce.
Economical Factor:
Nestle is strongly affected by both the Economic and the Demographic environment around
and have to keep on taking different steps to respond accordingly. Material supply and
shortages are faced by the company for both Packaging and for the product it, as milks
production is seasonal and keeps fluctuating and adequate steps are required to be taken in
order to keep it working smoothly. Nestle also dont charge interest on its products which
also makes a huge difference economically.
Environmental Factor:
As, the environment always effect the way strategies are being carried out and implemented.
Nestle Foods like all the organizations they also have to face such kind of environment which
is very dynamic. Being in the market as a challenger they have to face all the external factors
and have to cope with them accordingly. Nestle have the strategies to positively engage the
staff in work and boost up their moral. Nestle food has a friendly environmental culture
within the organization to make their employees comfortable and to deal with the external
problems.
Political Factor:
Nestle food also abides by the rules formed by the Government and set their strategies that
are according to the laws and legislations of the Government they are working under. Tetra
26
Pack (brick pack), that was for the first time that milk came in that form soon followed by the
Nestls Milk Pak which as a multinational rocked the UHT Milk industry of Pakistan. As far
as the employment laws are concerned Nestle food abides to laws set by the government for
trade policies, government policies and completes its responsibilities in a better manner.
Table 1.5 Ratio Analysis:
2011
liquidity ratio
0.79787
CA/CL
current ratio
13395017 /16,788,455
1
0.37709
CA-INVENTORY/CL
quick ratio
13395017-(7,064,170)/16788455
activity ratio:
9.17650
sales/inventory
inventory turnover
64,824,364/7064170
1
2.97566
sales/F.A
fixed asset turnover
64824364/21784842
4
1.84265
sales/total assets
total asset turnover
64824364/35179859
The liquidity ratio tells the firms ability to meet the maturing long term obligations. Current
ratio tells you the relationship of current assets to current liabilities. 0.797 shows that the
company is effectively managing its current assets and liabilities. As the average value is 0.5
and the highest value is 1. The company is doing very well and efficiently. The company is
able to meet its short term obligations and cash flow problems.
The quick ration or acid test ratio indicates the relationship between the amounts of assets
that can quickly be turned into cash versus the amount of current liabilities. It is a better
liquidity indicator than current ratio as it only incorporates the most liquid assets. The ratio is
27
0.377 which means that there were a lot of cash tied up as inventory because of which the
ratio is less than average.
The activity ratio measures how effectively the firm is using its resources. The inventory
turnover ratio tells the number of times per year that Inventory turns over. The ratio of 9.176
shows that the firm holds excessive stocks of inventory.
The fixed asset turnover shows the sales productivity and fixes asset utilization.
The total asset turnover ratio shows that whether the firm is generating a sufficient volume of
business form the size of its assets.
Table 1.6
debt
commo
financin
n stock
recessio
n
combinatio
n financing
recessio
normal
boom
recessio
normal
boom
normal
boom
ebit
interet
7612116.3
8,457,907
9303697.7
7612116.3
8457907
9303698
7612116.3
8457907
9303697.7
17%
1700000
1700000
1700000
850000
850000
850000
ebt
7612116.3
8,457,907
9303697.7
5912116.3
6757907
7603698
6762116.3
7607907
8453697.7
3256294.19
2069240.70
2365267.45
2661294
2366740.71
2662767.45
2958794.2
6047403.50
3842875.59
2664240.70
tax 35%
2,960,267
4947875.59
5494903.5
eat
no.share
46349584
46,349,584
46349584
45349584
45,349,584
eps
0.106
0.1304
0.8446
0.0968
5,497,640
4392639.55
4942404
4395375.6
4945139.55
45849584
45,849,584
45849584
1.0863
0.09586
0.10785
0.11984
4534958
28
market penetration: 10million

10 million/10= 1000000
half debt half equity=
5000000+ (500000shares)
Financial Analysis of Nestle Pakistan:

In order to assess the performance of the company it is very essential to consider its financial
aspects as compared to those of its competitors or the overall industry. Therefore we have
gained data for the past two financial years and calculated liquidity, leverage, activity and
profitability ratios and on the basis of these ratios will evaluate the performance of the
company.
Table 1.7
For the leverage ratios we have calculated firstly, a debt to total assets ratio, this ratio shows
the percentage of total funds that are provided by the creditors and are used to finance the
total assets of the company. In 2011 the ratio is 22.3% which has been reduced from 2010
when it was 24.3%. secondly, debt to total equity was calculated. This ratios shows the
29
percentage of funds provided by the creditors as compared to that of the owners. This ratios
has increased from 99.8% to 103% from 2010 to 2011.
On account of profitability ratios, gross profit margin was evaluated. This is the total margin
available to cover operating expenses and yield a profit for the company. The data in the
above table shows that there is a slight decrease in the ratio from 2010 to 2011 i.e. 27% in
2010 and almost 26% in 2011. The operating profit margin has almost remained the same for
the two years period i.e. 13%. This ratio shows the profitability without the concerns of taxes
and interest. Whereas to show an impact on profitability after the payment of taxes and
interest net profit margin was calculated which also reduced from 2010 to 2011 from 8% to
7.2% respectively. After this return on companies total assets and equity was calculated they
also showed a downwards trend from 2010 to 2011. ROA was 13.3 in 2011 and 17.9 in 2010
where as ROE was 61 % in 2011 and 73.7% in 2010. On the whole we can safely comment
on the condition that financially the companys profitability conditions were worsening. And
were posing a threat towards its competitive edge over its competitors. Nestle claims this
slow down of financial position is due their recent expansion strategies which they are
pursuing.
Figure 2.1 Graphical Representation:
30
Above is the trend analysis of the sales and EPS (Earning per share) of nestle for the past six
years. The above figure shows a continuous increase in the level of sales or we can say in
other words that the sale of the company have followed a continuous growth in the past few
years. It is 64,824 (Rs. In million) in 2011 which was 51,487 (Rs. In million) in 2010. On the
other hand EPS has also followed the same trend it was Rs. 90.69 in 2010 which has
increased to Rs. 102.94 in 2011. This shows a favourable aspect for the investors.
Table 1.8
31
The liquidity ratio tells the firms ability to meet the maturing long term obligations. Current
ratio tells you the relationship of current assets to current liabilities. 0.797 shows that the
company is effectively managing its current assets and liabilities, but the ratio has reduces as
compared to that of 2010 when it was 85.2%.But as the average value is 0.5 and the highest
value is 1. The company is doing very well and efficiently. The company is able to meet its
short term obligations and cash flow problems.
The quick ratio or acid test ratio indicates the relationship between the amounts of assets that
can quickly be turned into cash versus the amount of current liabilities. It is a better liquidity
indicator than current ratio as it only incorporates the most liquid assets. The ratio is 0.377
which means that there were a lot of cash tied up as inventory because of which the ratio is
less than average. Comparatively the ratio has reduced from 2010 to 2011 where it is almost
38%.
The activity ratio measures how effectively the firm is using its resources. The inventory
turnover ratio tells the number of times per year that Inventory turns over. The ratio is 9.17
times in 2011 which was 11 times in 2010. Whereas fixed asset turnover shows the sales
32
productivity and fixed asset utilization for the company. The ratio is 2.97 times in 2011 and
3.53 times in 2010. Which also shows a downwards trend.
The total asset turnover ratio shows that whether the firm is generating a sufficient volume of
business form the size of its assets. This ratio is 1.84 times in 2011 and 2.24 times in 2010.
Competitive Edge
They have competitive advantage over their rivals of unmatched portfolio, unmatched
geographical presence, people culture values and attitude, unmatched research and
development capabilities that allow it to lead the way in innovation and provide maximum
portfolio flexibility and nutritious products. Nestle is leading overall market position and
number one or two brands in most areas. The extraordinarily large scope of Nestles business
provides for significant economies of scale in manufacturing, marketing and administration.
Global Strategy:
Global strategy of Nestle is it has concentrated its growth strategy toward emerging markets
such as Eastern Europe, Asia, and Latin America. These markets present attractive
opportunities for the company as they have entered a stage of economic and population
growth combined with the adoption of market-oriented economic policies by the government.
Moreover, with rising income levels, consumers in these nations are more likely to buy
branded food products instead of basic "no name" food. And more over countries in where
they were offering their food items were concentrated with other rival companies too so there
was a rising price competition so in order to avoid that they started adopting first mover
advantage in Asian countries.
The core strategy of Nestle, concerning emerging markets, is to enter them early, i.e. before
its competitors. This creates a first mover advantage for the Nestle.
33
This shows a clear link between Nestls FMA (first mover advantage) strategy and its
M&A(mergers and acquisitions) activities. The firm maintains local companies with regional
staff in local markets as to better customize its performance by creating share value and local
expertise. Significantly, the success of Nestl in growing local companies also depends on the
management development programmes that Nestl uses in order to come closer and train its
local managers.
The process of entry for a company influences its ability to create value. Nestl has benefited
by acting as a first mover in emerging markets. In terms of business development, the
company sometimes involves mergers and acquisition activities as a way to grow and create
value. Moreover, the reasons behind the M&A activities can vary according to expectations.
Nestle has acquainted Maggi in 1947, thus has achieved to extend its geographic presence
and product line. They adopt the combination of strategies because of may be the economies
of scale, speed of entry, shareholder expectations and so on. Mergers and acquisitions are
considered as one of the most dynamic ways in which a firm can recombine assets to create
value.
Generic Strategy:
The first generic strategy is cost leadership, a strategy which strongly emphasizes working
towards a unified goal of a lower-priced product, Nestle business strategy is integrated cost
leadership/differentiation-wide range of products (over 20 categories: coffee, milk, water, pet
foods and cereals) low cost operators. In nestle they are pursuing the Focus or niche strategy
as well as a product differentiation strategy. Nestl has employed a wide-area strategy for
Asia that involves producing different products in each country to supply the region with a
given product from one country. For example, Nestl produces soy milk in Indonesia, coffee
creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in the
34
Philippines, all for regional distribution. So it may be a niche (focus) strategy they are
adopting because they are focusing on strengthening a specific product. In Nestls business
strategy they encourage product growth through innovation and renovation.
Core business:
Nestl describes itself as a food, nutrition, health, and wellness company. Recently they
created Nestl Nutrition, a global business organization designed to strengthen the focus on
their core nutrition business. They believe strengthening their leadership in this market is the
key element of their corporate strategy. This market is characterized as one in which the
consumers primary motivation for a purchase is the claims made by the product based on
nutritional content.
In order to reinforce their competitive advantage in this area, Nestl created Nestl Nutrition
as an autonomous global business unit within the organization, and charged it with the
operational and profit and loss responsibility for the claim-based business of Infant Nutrition,
HealthCare Nutrition, and Performance Nutrition. This unit aims to deliver superior business
performance by offering consumers trusted, science based nutrition products and services.
The Corporate Wellness Unit was designed to integrate nutritional value-added in their food
and beverage businesses. This unit will drive the nutrition, health and wellness organization
across all their food and beverage businesses. It encompasses a major communication effort,
both internally and externally, and strives to closely align Nestls scientific and R&D
expertise with consumer benefits. This unit is responsible for coordinating horizontal, crossbusiness projects that address current customer concerns as well as anticipating future
consumer trends.
Differentiation:
35
In marketing, product differentiation is the process of distinguishing a product or offering

from others, to make it more attractive to a particular target market. This involves
differentiating it from competitors' products as well as a firm's own product offerings.
Its portfolio is positioned to drive growth and value in all categories as the nutrition, health
and wellness leader. Nestls differentiation strategy starts with the knowing insight of what
is needed by consumers, creating shared value, scientific capacity and commercial capacity.
Nestle gives high commitment to high quality products and brands. Respect of other cultures
and traditions and strong work ethic, integrity, trust and mutual respect tolerance,
pragmatism, openness and curiosity. Their differentiation from peers is in their ability to
deliver in all areas: Leveraging their competitive advantages, optimising their drivers for
accelerated growth and Excelling in their operational pillars. Market share performance in all
geographies and categories, profitable growth in emerging and developed markets,
competitive gaps across the value chain i-e to lead competitive advantage in the market place,
rich pipeline of innovation with accelerating roll-outs, consistent delivery of the Nestle
Model i-e (Long term thinking and short term actions, fast and flexible, Aligned and
Entrepreneurial, devolved accountabilities and shared values and society and shareholders)
and delivering shareholders returns in short and long term.
Nestle strategies:
The competitive strategies of Nestle, which are associated mainly with foreign direct
investment in dairy and other food businesses, include the following:
1. Balance sales between low risk but low growth countries of the developed world and high
risk and potentially high growth markets of Africa and Latin America.
36
2. Double Nestle's sales from 1991 to 2000 especially by expanding direct investment in the
high growth markets of Asia.
3. Keep brands local and people regional; only technology goes global.
4. In developed markets, grow and gain economies of scale through foreign direct investment
in big companies such as Carnation, Perrier, and Stouffer. In the developing world, grow by
manipulating ingredients or processing technology for local conditions, and employ the
appropriate (often local) brand.
5. In developing countries, first establish sales channels by making basic mass-produced
Food stuffs that the locals can afford, then as consumers grow richer, pump higher-valued
products through these same channels.
6. Deepen the pool of cross-border Asian managers to gain a cadre of autonomous regional
managers who know more about the culture of the local markets than Americans or
Europeans.
7. Employ a wide-area strategy for Asia which involves producing different products in each
country to supply the region with a given product from one country.
8. Fashion products for Asians and South Americans from native ingredients.
9. If the firm has spare capacity in a particular country and if such action would not destroy
the market for the firm's branded goods, then consider manufacturing "own brands" for
supermarket chains
10. Strike strategic partnerships when this produces advantages for the developed markets.
Vertical Integration:
37
When a company expands its business into areas that are at different points on the same
production path, such as when a manufacturer owns its supplier and/or distributor. Vertical
integration can help companies reduce costs and improve efficiency by decreasing
transportation expenses and reducing turnaround time, among other advantages. However,
sometimes it is more effective for a company to rely on the expertise and economies of scale
of other vendors rather than be vertically integrated.
The proximity to the consumer of R&D, manufacturing and distribution, helps the company
deliver global platform products with high local relevance. Through its close collaboration
with local farmers, manufacturers and distribution mechanisms, Nestl demonstrates a unique
and vertically integrated view on developing ethical, nutrition-rich products that competitors
find difficult to match. Its joint ventures include Cereal Partners with General Mills,
Beverage Partners with Coca-Cola and Dairy Partners with Fonterra. Nestle is increasingly
operating in an open innovation mode to enhance their own internal R and capability by
tapping into external resources. By doing vertical integration this has helped mutually
because of their access to Nestls specialist knowledge. Nestle has a sound base for
maximising R and D efficiency through vertical alignment in category specific product and
process development, while retaining horizontal interactivity across the market place.
Full integration: Where one firm has full ownership and control over all the stages of a
value chain in the manufacturing of a product and tapered integration is when a firm produces
part of its own requirements and buys the rest from outside suppliers with a variable degree
of ownership and control. Usually the firm concentrates on its core activities, and out-sources
the non-core activities.
Subcontracting/Outsourcing
38
A key strategy in Nestle products and services is Subcontracting (also known as comanufacturing & co-packing or contract- manufacturing & contract-packing)/ Outsourcing.
The responsibility of subcontracting activities relating to manufacturing rests with Technical
and Production.
Normally a Strategic Buyer will lead this process and manage cross functional teams to
safeguard the commercial relationship as well as to ensure optimum terms and conditions for
Nestle. It is using tapered integration as farms are not owned by Nestle itself; they acquaint
suppliers for the purchase of raw material and e-procurement etc.
Diversifications:
Diversification is a risk management technique that mixes a wide variety of investments
within a portfolio. The rationale behind this technique contends that a portfolio of different
kinds of investments will, on average, yield higher returns and pose a lower risk than any
individual investment found within the portfolio. Unrelated diversification is a term which
refers to the manufacture of diverse products which have no relation to each other. And
related diversification is when a business expands its activities into product lines that are
similar to those it currently offers.
Nestle has a large portfolio of well known brands and products: Nestle Chocolates, Lean
Cuisine, Stouffers, Hot and Lean Pockets, Gerber baby foods and a strong pet food business
to name a few.
Nestle has related diversification and unrelated diversification. For the related diversification,
it can be seen from the wide product portfolio which encompassing baby foods, dairy
products, chocolates, breakfast cereals, food seasoning etc.
39
For unrelated diversification, Nestle did it by acquiring or joint venturing with other big
companies. For example Nestle acquired Alcon Laboratories Inc. in Texas which is a
pharmaceutical company specializing in eye care (Company Related, 2009).
Another example of unrelated diversification is the joint venture with LOreal. Nestl and
L'Oral have a close relationship dating back to a shareholder pact made in 1974. Nestl
holds a 26.4% stake in the world's largest cosmetics group. Whilst it is unlikely that Nestl
will take over L'Oral in the immediate future, it could well do so in a few years (Nestle SA,
2009).
For the future days, Nestle may still come out with market development, product
development and diversification. Nestle with its R&D team can come out with more and
more innovative idea in developing the products and try looking for new market segment.
The new market segments can be new geographical unit or based on demographic factor.
However for the unrelated diversification Nestle shouldnt go to extensive. It is because the
more extensive the unrelated diversification the lower the performance will be.
Recommendations:
Nestle has drawn flak for its unethical marketing practices in the case of baby food in
developing countries by advertising that the infant formula was superior than mother's
milk which has diminished the brand image of the company. Hence it must be ensured
that such acts are not repeated and measures must be taken to improve its brand
image. They can utilize the social media as a catalyst for this change.
40
Nestls chilled dairy sector has been classified as unsatisfactory by the company
itself. In order to resurrect it, they can opt for more acquisitions or joint ventures with
the major players in the market.

the cost of raw materials has been on a rise over the past few years which have caused
an increase in the production costs. Acquiring local farms for their raw materials will
reduce their production cost and hence they can improve their profit.
educating the consumers through campaigning is a possible way to grow their
business. As Nestle is producing health conscious food products, they can use the
packaging as a means to describe the nutrition benefits of their products.

Currently, Nestle sells its products through wholesalers and retailers. Nestle can
improve its profit margin further by establishing their own retail outlets
Monitoring and evaluating their products and market continuously gives them a clear
vision of their market position and it will helps them to shape a proper competition to
take advantage over their competitors and also to set up a better brand image.
Space Matrix
Table 1.9
Financial Strength:
Increase in net profit by 13.5% in 2011
Increase in sales by 26%
Global operations with diversified revenues
Market share (high market share as people trust and recognize Nestle as a big 4
brand)
Low credit sales and margins to retailers
1
16
41
Industry Strength:
Launch new packing 300 ml
Lack of awareness among target market
International marketing standards
Sector woes (rising prices of raw material and fuel, and intern, increasing 5
packaging and manufacturing costs)
Competition from the organized and unorganized sectors
4
22
Competitive Advantage:
Expand the milk collection circle to 100000 in next 2 years
-3
Potential in dairy market
-3
Population increase by 2.18%
-3
Consumer expenditure on food increased by 3.6%
-2
-11
Environmental Stability:
Target rural areas which is more than 60% in Pakistan
Collaborate with coffee shops/hotels such as Gloria Jeans
Market segment growth could attract new competitors
Rising fuel prices diesel prices RS 110
Engro and Haleeb major competitors
-4
-5
-7
-3
-7
-4
-30
FS and IS from 1 (worst) to 7 (best).

ES and CA from -1 (best) to -7 (worst).
FS average is 16 5 = 3.2
IS average is 22 5 = 4.4
CA average is -11 4 = - 2.75
ES average is -30 6 = -5
42
Figure 2.2
FS
Conservative
Aggressive
+7
+6
+5
+4
43
+3
+2
+1
-7
-6
-5
-4
-3
-2
-1
IS
CA
+1
+2
+3
+4
+5
+6
+7
-1
-2
(1.65, -1.8)
-3
-4
-5
-6
Defensive
-7
ES
Competitive
Adding average scores of x-axis variables:

IS + CA = 4.4 + (- 2.75) = 1.65
Adding average scores of y-axis variables:
FS + ES = 3.2 + (-5) = -1.8
44
According to calculations, competitive strategies are recommended.
Backward, forward horizontal integration

Market penetration
Market development
Product development
BCG Matrix of Nestle Pakistan (Dairy)
Table 1.10
Star
Question Mark
MilkPak
Nesvita
Milk Pak Cream
Fruity Yougurt
Cash Cow
Dog
Desi Ghee
NIDO
Every Day
Business Growth
High
Low
45
High
Low
Market Share
High
Low
Star
Question Mark
Olpers
Haleeb
Cash Cow
Dog
MilkPak
Good Milk
In all the dairy products of Nestle, we have placed MilkPak in the Star because it has a high
market share and it is still growing as compared to other products of Nestle Dairy
Nido and Everyday are other dairy products of Nestle acting as cash cows, they have low
growth but they have a high market share, so Nestle needs to invest more money in these
products as well.
Nesvita has low market share, while its still growing and Nestle is investing in this product.
MilkPak cream has lower market share and less growth, hence it is coming in the section of
Dog.
Grand Strategy
46
Table 1.11
Rapid Market Growth
47
Quad 2
Quad 1
Rapid Market Growth WeakStrategic

CompletiveManagement
Rapid
Market
Position
Strong
Nestle dairy products need product
Nestle should continuously focus
development
on the new product development in
development in maintain strong
the dairy product

It should continuously develop new
market share
Nestle should diversify its product
range within the dairy section

Forward integration such as Nestle
markets for its dairy products ; for

example flavored milk for young
children
Nestle have
Competitive Position
Growth
penetration
and
market
own dairy stores can be done

to
do
through
market
extensive
marketing efforts, which it is doing

already but now its facing a strong
competition from olpers
Nestle is already doing
the
successful backward integration of

its dairy products and has its own
farms
Quad 3
Quad 4
Weak Completive Position Slow Market Strong Completive Position Slow Market
Growth
Growth
Nestle should follow retrenchment
strategy in its Milkpak cream.

Divestiture or liquidation can be
done for Nestle Milkpak cream

Diversification can lead to a strong
growth
Ready to eat dairy and desserts
Nestle can go either in related

diversification such as flavored
milk or refrigerated milk like Prema
should School
be introduce
to gain a
Lahore
of Economics
competitive market share
or it can do unrelated diversification

Nestle must have joint ventures to
increase its market growth
48
Slow Market Growth

Nestle is currently in Quad 1 following the strategies of , market development, product
development , market penetration , backward and forward integrations and related
diversification. Quad 1 represents the strategies that Nestle should adopt to maintain its rapid
growth and strong competitive position
The strategies in the other three quadrants represent the actions Nestle should take to get
itself into the best position, which is quadrant No. 1
Hence Nestle is enjoying a rapid growth and strong completive position so we recommend
that Nestle should continue to follow the strategies of Quad 1
The internal external matrix IE Matrix
Figure 2.3
IFE total score

4.0
3.5
3.0
2.0
Strong
Average
Weak
3.0-4.0
2.0-2.99
1.0-1.99
1.0
High
EFE
3.0-4.0
score
4.0
3.19 ,
3.44
score
3.44
Medium
=
IFE
=
3.19
3.5
2.0-2.99
Low
1.0-1.99
49
IFE score calculated above is lies on x-axis and EFE score on-axis. IFE score is 3.19 and EFE
score is 3.44. Nestls external and internal factors falls in quadrant I, this describes as a
growth and build for this company. Strategies proposed for this quadrant are integration
(market penetration, market development, and product development) or integrative
(backward integration, forward integration, and horizontal integration). Nestle should follow
utilize these strategies of market penetration, market development and product development.
And they should focus on the integrative operations.
Table 1.12
product
development
Key Internal Factors
Weight AS
Strengths
Strong brand name to generate sales
0.01
3
Strong brand image
0.03
4
Increase in sales by 12.9 % (undeveloped
0.2
countries)
1
Customization of products for local market
0.02
conditions
_
Global operations with diversified revenues
0.04
3
Research and development capabilities (17
0.06
centers and 3500 no. of employees)
3
Market share (high market share as people
0.2
trust and recognize Nestle as a big brand)
4
Socially responsible
0.03
_
Low cost operations (operating excellence,
market
TAS
penetration
AS
TAS
0.03
0.12
4
3
0.04
0.09
0.2
0.8
_
0.12
_
1
_
0.04
0.18
0.12
0.8
_
2
_
0.4
_
0.12
0.24
0.09
0.03
innovation, renovation, product availability 0.06

and communication)
Product innovation
(introducing
new
products for its Pakistani patterns on frequent 0.03

basis and expansion)
50
Weaknesses
Penalty payments
0.04
Macro economic factors
0.03
Lack of awareness among target market
0.02
Nestle dairy products are at last due to less
0.03
advertisement.
Allegations of unethical business activities
0.04
Competition from the organized and
0.03
Changing consumer trends (increased
_
1
2
0
_
0.03
0.04
_
2
1
0
_
0.06
0.02
3
2
0.09
0.08
4
1
0.12
0.04
0.12
0.09
4
_
0.12
_
3
_
0.09
_
0.04
0.08
0.12
0.03
2
3
0.3
0.15
4
4
0.6
0.2
0.3
0.6
2
4
0.14
0.32
3
1
0.21
0.08
3
3
0.15
0.27
4
4
0.2
0.36
consumer spending on consumer durables 0.03

resulting in lower spending on FMCG)
Low credit sales and margins to retailers
0.03
International marketing standards (Nestle is
facing the threats by community due to its
0.02
violation
of
international
standards)
Weak promotional
activities
marketing
through
0.02
websites
Sector woes (rising prices of raw material
and fuel, and intern, increasing packaging 0.03
and manufacturing costs)
Total
Key External Factors
Opportunities
1. Launch new packing 300 ml
2. Population increase by 2.18%
3. Collaborate with schools such as LGS,
1
Weight
0.15
0.05
0.15
BSS
4.
Target rural areas which is more than
0.07
60% in Pakistan
5. Potential in dairy market
0.08
6. Consumer expenditure on food increased
0.05
by 3.6%
7.
Expand the milk collection circle to 0.09
51
100000 in next 2 years

8.
Collaborate with coffee shops/hotels
0.09
such as Gloria Jeans
Threats
1. Rising fuel prices diesel prices RS 110
2. Increase in the GST to 16%
3. Lack of education causing inefficiency
4. Inflation rate of 14%
5.
Engro and Shakarganj major
0.05
0.04
0.03
0.03
1
_
_
_
2
_
0.09
_
_
_
0.06
_
4
_
_
_
1
_
0.36
_
_
_
0.03
_
0.12
0.09
0.03
competitors
6.
Market segment growth could attract
0.09
new competitors
4
0.36
1
0.09
Total
1
4.56
5.11
QSPM shows that they need to penetrate in existing market, integration strategy and market
development for better results.
SWOT Matrix
Table 1.13
Strengths
Weaknesses
52
Excellent advertising
and visibility of dairy
products.
Good product
distribution and
availability.
Ability to leverage
strong brand name to
generate sales
Ability to customize
products to the local
market conditions
Strong global
operations with
diversified revenue
based
Research and
development
capabilities Nestle
has worldwide
network of centres in
17 locations on four
continents. An
international staff of
3500 engaged in the
search for innovative
new products and the
renovation of existing
ones.
Investment in R&D,
and innovative
products
Market research
about shopper
segmentation and
distribution channels
Integrated
and centralized
information systems
Efficient consumer
service builds loyalty
Creating shared value
for all strategic
partners
Not good for diabetic

patients.
Milk products have a
limited shelf life.
Increasing instances
of product
Recalls hampering
brand equity
Mature Markets
(Nestle is entering to
a mature market that
can give a tough
competition to new
entrants)
Plain yogurt: It is
unable to take market
shares.(in USA
specially)
It has less consumer
research in few areas.
The company has a
complex supply chain
management.
Company image and
consumer base can be
adversely affected by
stock outs, caused by
either inefficient
distribution or
untimely delivery by
suppliers
The Managing
Director and Head of
Finance are
foreigners, which
hinders effective
communication
Multiple indirect
reporting
relationships might
result in ambiguous
accountability lines
More generalists than
specialists in the
53
Opportunities
Different flavoured
milk.
Tie-ups with
corporate/hotels.
Transition to a
nutrition and wellbeing
company
Focus on developing
and emerging Economies
Expansion: Potential
to expand to smaller towns
and other geographies.
Product offerings:
The Company has the option
matrix
Flat structure and

decentralized
Matrix organization
and growth oriented
culture with
motivated workforce.
Coordination among
departments achieved
by Business Partners,
Category Mangers,
etc
Diverse workforce
Effective and efficient
HR systems
Knowledge sharing
and training programs
Effective
performance
appraisals
Achievement based
compensation
Competitive
remuneration
benchmarked against
industry
Monopoly in tea
whitener because of
technology
SO Strategy
More
market
WO Strategy
penetration Development
through effective sales force
of
quality
products to target middle
Develop and promote cold class

dairy products as well as for Increase
diabetic customers
Create
awareness
the
sales
of
confectioners items through

and more credit sales to retailers
promote green marketing in to increase their profit margin

people
Start
off
with
the
new
54
to expand its product folio by

introducing more brands.
With Pakistans demographic
profile changing in favour of
the consuming class, the
consumption of most FMCG
products likely to grow.
Exemption of dairy
sector from taxes
Compliance with
environmental laws
Social responsibility
& social investment
programs to build a positive
corporate image
Partnerships with
farmers for sustainable
agriculture and providing
farm assistance to create
greater value for all
High brand value of

Nestl, which denotes
quality; this cannot be
matched by rivals such as
Tarang
A larger consumer
base can be acquired as much
population still uses Gowalla
milk
Entry into more

niches possible by defining
finer market segments. Like
low cal milk, more
innovative products can be
launched, such as foods for
cardiac patients, drinking
yogurt, etc. These are value
added products in the
premium market that offer
consumers more value for
more money and can fetch
higher revenues for the
company. Furthermore, the
more differentiated the
Diversify
product
into product
for
the
diabetic
smaller units in order to cut patients

the costs and in order to cater Compensation to the retailers
more customers of different to have a maximum shelf life
social classes and for those for the dairy products
who are using gawala milk
Collaboration
with
to
product
other diversification and other new
hotels/schools
restaurants
Before
and tasks one should ask to the

raise
their head first.
profit margins
Brand name and visibility of
products can mix up with the
decentralized system and can
develop
the
new
and
demanded product
Launch
new
packing
of
300ml bottle in needed areas

after
research
doing
on
extensive
product
and
target area.
55
products, the more difficult it

is for rivals to copy.
Market share:
Another thing is high level of
market share that people all
over the world trust and
recognize Nestle as a big
brand.
Low cost: They are

low cost operations which
allow them to not only beat
competition but also edging
ahead operating excellence,
innovation, renovation,
product availability and
communication are major
strengths.
Product innovation:
The Company has been
continuously introducing
new products for its Pakistani
patterns on frequent basis,
thus expanding its product
offerings.
Booming out of home

eating market
Global hub: Since

manufacturing of some
products is cheaper in ASIA
than in any other continent.
Countries, Nestle Pakistan
could become an export hub
for the parent in certain
product categories.
Nestle has the healthbased products are becoming

more popular in the world,
including in the United
States.
Launch new packing

300 ml
Population increase
by 2.18%
Collaborate with
56
schools such as LGS, BSS
Target rural areas

which is more than 60% in
Pakistan
Potential in dairy
market
Consumer
expenditure on food
increased by 3.6%
Expand the milk

collection circle to 100000 in
next
2 years
Collaborate with coffee
shops/hotels such as Gloria
Jeans
Threats
Threat from pure

milk.
Substitute milk
sweeteners.
Local sweet dish
makers.
Compliance issue
resulting in penalty
payments
The soaring inflation
rate is eroding the
purchasing power of
consumers
Dependent on
distribution channels
and supermarket
shelves, which can be
acquired by
competitors as well,
who can influence
retailers
The bargaining power
of suppliers
increases as demand
for milk rises, so
price rises.
TS Strategy
Strong
logistics
counter
the
TW Strategy
to
help Strong
advertisement
competitor campaigns to communicate
through market development the value of Nestle products

related diversification to help to target customer better than
in more global expansion
Increase
promotional
Create awareness of quality activities with more web

of sweetener and powder development to lead industry
milk
Allegation
of
unethical
Due to increase in inflation activities can be reduced by

rate it should develop farm of advertising
religiously
or
its own and should explore from a religious scholar

organic foods market
They
should
Market growth can attract

consider new or potential business so
adopting a credit policy to they
should
focus
on
increase the retailers and achieving high market share
57
Engro offers
subsidized fertilizers
for providing milk
to Olpers.
The industry is fast
growing; very low
barriers to entry, new
competitors are
springing up every
day.
Milk is not
differentiated, in cost
or product variety, so
consumers are
indifferent about
buying a Milkpak or
Olpers.
After Nestl creates a
market, rival firms
move in, e.g. UHT
milk was not widely
used before Nestl,
Macro economic
factors
Allegations of
unethical business
activities
Competition:
immense competition
from the organized as
well as the
Off late, to liberalise
its trade and
investment policies to
enable the country to
better function in the
globalised economy,
the Indian
Government has
reduced the import
duty of food
segments thus
intensifying the
farmers profit margin
strategy in potential countries

so
the
barriers
to
new
entrants would increase and

most of the share would be
divided among the existing
market leaders
58
battle.
Changing consumer
trends: This has
increased consumer
spending on
consumer durables
resulting in lower
spending on FMCG
(fast moving
consumer goods)
products. In the past
2-3 years, the
performance of the
FMCG sector has
been lack lustre.
International
marketing standards:
Nestle is facing the
threats by worldwide
community due to its
violation of
international
marketing standards.
Many conferences
and campaigns have
been held against
Nestle in this regard
which can damage
the name and trust of
its customers.
Sectoral woes: Rising
prices of raw material
and fuel, and intern,
increasing packaging
and manufacturing
costs but the
companies may not
be able to pass on the
full burden of these
onto the customers.
Adverse public
opinion due to links
with Israel.
59
Rising fuel prices

diesel prices RS 110
Increase in the GST
to 16%
Lack of education
causing inefficiency
Strategy Implementation
Positioning map:
It is a graphic depiction of consumers' perception of several competing products or services,
presented on a two-dimensional graph.
Comparison is done on the basis of milk additives and the knowledge of the consumers
pertaining to such additives and the market share of the milk manufacturing companies and
their prices.
Figure 2.4
60
Figure 2.5
Long-term Company objectives
10% growth in nutrition unit
Division 1 annual Objective

3 annual objective
Division 2 Annual Objective
Division
61
(Providing 200 billion servings

reducing green house gas
micronutrient fortified products)
emissions per tons of
Ensuring all relevant products

worldwide has guideline daily
Labeling on front of pack
product by 35%
Marketing objectives
and D annual objectives
Production annual objectives
Providing portion guidance on

childrens products meet
Achieving certified responsibly
All children and family products

Nutritional foundation
sourced and palm oil and reducing
Water with drawl

Criteria for children
Advertising
Quality control
Promotion
Purchasing
Research
Shipping
Public relations
Figure 2.5 Organizational Chart:
62
Organization structure:
Nestle is organized in a matrix structure because of the large number of categories it is
operating in. The matrix structure in nestle is based on products and geography. Products
refer to the type of business unit and the strategies are defined for the business units
accordingly.
Geographies refer to the fact that the businesses have their central head units all over the
world for example zone America/ Africa/ Asia/ Europe and so on
The matrix structure is used for Nestle because for a large global organization like nestle it is
profitable to operate in geographical markets all over the world and with a wide range of
products in several categories. Nestle has a manager for each product line and this manager is
also managed by a manager of the specific geographic area.
63
Employees:
The Nestl team comprises 327 537 people .29% are based in Europe, 33.7% in the Americas
and 37.4% in Asia, Oceania and Africa. It is a large organization in terms of employees,
products, geographical markets.
Decision making:
At Nestle the working environment is very informal. People are encouraged to participate and
they could easily communicate with their co-workers. Few of the things that we came across
our interview were:
Downward communication is a vital part and employees are welcomed to give suggestions
and they can easily approach their superiors and they are encouraged to take part in decision
making which makes them more committed towards the organization. At higher levels when
a decision is to be made general managers meet and come to a decision after collaborative
discussion and then it is communicated to the lower levels.
The decision making is decentralized at nestle. With decentralized approach to decision
making Nestle aim to establish flat and flexible structure ensuring minimal level of
management and broad span of control. In flat structured organizations there is
communication and people are connected and work together towards a common goal.
Another advantage of being flat is that management becomes easy and effective and feedback
reaches the upper management timely. Employees can reach people above them which give
them a sense of worth in the company and they show loyalty towards the management and
the company.
CEO and his Leadership qualities:
64
The CEO of nestle is Paul Bulcke. One of the statements he made in an interview shows his
leader ship and style of management in particular Our concern is to ensure that different
ways of thinking are integrated in all our decision processes. This shows the open and
participative decision making at nestle at all levels which contributes to higher commitment
and productivity of the employees.
At Nestl, The CEO leadership style refers to the principals of leading to win, managing for
results, growing talent and teams and proactively competing and connecting with the
environment helps them grow and create value for the customers globally.
He has a long term approach and value people and environment and that is evident from his
efforts to create shared value for the customers.
Hierarchy of aims:
Nestle is aiming for long-term organic growth of 10 percent in its nutrition unit.
Ensuring all childrens products meet the Nestl Nutritional Foundation criteria for
children by 2014.
Providing portion guidance on all childrens and family products by 2015.
Reducing direct water withdrawal per tonne of product by 40% compared to 2005, by
2015.
Reducing direct water withdrawal per tonne of product by 40% compared to 2005, by
2015.
Achieving 100% certified responsibly sourced, sustainable palm oil by the end of
2013, two years ahead of its initial public commitment.

Reducing direct greenhouse gas emissions per tonne of product by 35% compared to
2005, by 2015.
Ensuring all relevant products worldwide has guideline daily amount (GDA) labeling
on front of pack by 2016.
65
Providing 200 billion servings of micronutrient fortified products worldwide by 2016,

with a special focus on children and women of childbearing age.
Strategy Control and Evaluation
Nestle Pakistan is a multinational and a very well established company of Pakistan. Therefore
they tend to follow a number of techniques and procedures in order to ensure efficiencies in
their organization.
When examined about the current situation it was evaluated that the company, as the part of
its audit of financial statements are required to obtain an understanding of the accounting and
internal control systems sufficient to plan the audit and develop an effective audit approach.
At the same time they claimed that no special review or evaluation technique of the internal
control system to enable them to express an opinion as to whether the Boards statement on
internal control covers all controls and the effectiveness of such internal controls.
On account of management the company declared its human resource as its best and most
significant resource which further ensures success of the company therefore, their new
performance management process got further embedded, encouraging employees towards
high performance through strengthened goal alignment and discussion on achievements and
development needs. They said:
We have also introduced the Nestl Continuous Excellence (NCE) in F&C, which will
further help in enhancing our operational efficiency throughout the organization, focusing on
creating value for our Consumers and Customers, and to all our stakeholders.
Whereas for strategic planning they were of the view that the companys strategic direction is
reviewed at the meeting of Directors. A process has been put in place whereby long term
Market Business Strategies and Annual Operational Plans established by management are
regularly reviewed by the Directors in line with the companys overall business objectives.
Part of the process involves the setting of measurable Key Performance Indicators (KPls).
Conclusion and Recommendation:
Competitive Edge
66
Nestle have competitive advantage over their new rivals of unmatched portfolio, unmatched
geographical presence, people culture values and attitude, unmatched research and
development capabilities that allow it to show the way in innovation and provide maximum
portfolio flexibility and nutritious products they are also concern with quality. Nestle leading
overall market position and are on high brands in most areas. Nestles business provides for
important economies of scale in manufacturing, marketing and administration.
Company vision and mission
Mission
Nestls current mission statement is not very clear; by looking at it we do not know what the
company is providing and the other important components of an effective mission statement
like technology, customers, products, philosophy, self concept, survival and concern for
employees are missing. And by looking at the existing mission statement we create a new
mission statement in which we add all the nine components.
Vision
They are not focusing on the future and their vision statement was too too long, and long
vision statement was not attractive by the customers. A better way would be to focus on the
future position of the company mainly; values can be incorporated in the mission statement.
Organizational structure
Nestle structure is good enough because it has more than twenty one
products. And it has a diversified and a wide range of product is each
category. The matrix structure is used for Nestle because for a large global
organization like nestle it is profitable to operate in geographical markets
all over the world. Nestle has a manager for each product line and this
67
manager is also managed by a manager of the specific geographic area.

So we dont need to change its organizational structure of nestle.
Strategies
They should use the integration strategy .When a company expands its business into areas
that are at different points on the same production path, such as when a manufacturer owns its
supplier and/or distributor. This strategy can help companies reduce costs and improve
efficiency by decreasing transportation expenses and reducing turnaround time.
Strategies based on the strategy selection matrices that you formulated
We formulated market penetration because its an already existing in market, As their
competitors are also growing day by day so they should use more strategies and come with
more new innovation and target the whole market by providing the best quality and satisfy
their customers.
Recommended strategies
Intensive strategy
Market penetrate
Product development
Product development
So, we are recommended them the Market Penetrate because its an already existing in
market, As their competitors are also rising day by day so they should apply more strategies
and come with more new creative innovative ideas and target the whole market by providing
the best quality and price to satisfy their customers.
68
69

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Submitted by:

Major in Finance and Minors in Environmental Policy

Major in Finance and Minors in Environmental Policy

Salman Shahid Dar

Major in Finance and Minors in Environmental Policy

Major in Finance and Minors in Environmental Policy

Umme Laila Shirazi

Major in Finance and Minors in Environmental Policy

We have done our work with no Plagiarism.

Lahore School of Economics

Lahore School of Economics

Lahore School of Economics

Lahore School of Economics

Lahore School of Economics

Lahore School of Economics

Lahore School of Economics

Nestls Main Brands

2002 2006 (4 years)

highest number of cold lines

1995 2002 (7 years)

Vision and Mission Statement

Lahore School of Economics

Deliver shareholder value through profitable long-term growth, while continuing to

Swot Analysis of Nestle:

Lahore School of Economics

Excellent advertising and visibility of dairy products.

innovative new products and the renovation of existing ones.

Different flavoured milk.

Lahore School of Economics

Social responsibility & social investment programs to build a positive corporate

create greater value for all

rivals such as Tarang

for rivals to copy.

world trust and recognize Nestle as a big brand.

product availability and communication are major strengths.

in certain product categories.

Not good for diabetic patients.

Recalls hampering brand equity

competition to new entrants)

by either inefficient distribution or untimely delivery by suppliers

Threat from pure milk.

by competitors as well, who can influence retailers

Engro offers subsidized fertilizers for providing milk to Olpers.

about buying a Milkpak or Olpers.

import duty of food segments thus intensifying the battle.

damage the name and trust of its customers.

full burden of these onto the customers.

Porters five forces Analysis

Lahore School of Economics

Lahore School of Economics

Launch new packing 300 ml

Population increase by 2.18%

Collaborate with schools such as LGS, BSS

4. Target rural areas which is more than 60% in Pakistan

Potential in dairy market

Consumer expenditure on food increased by 3.6%

Rising fuel prices diesel prices RS 110

Increase in the GST to 16%

Lack of education causing inefficiency

Inflation rate of 14%

Engro and Shakarganj major competitors

2. Financial Position 0.05

3. quality of product 0.25