Nestle in Asia
Overview of Nestle Involvement in Asia
Asia is a top priority market for the company. This is not surprising since Asia boasts two of the largest populations, China and India, and many developing economies providing opportunities for the entry of various consumer products. The company has a long history in Asia. Earliest record of Nestle products in Asia was in 1890, with a newspaper advertisement in a Siam newspaper of Bear Brand, a Nestle milk brand. In 1904, Nestle was the first to register its trademark in Asia. It was during the 1960s that Nestle decided to invest actively in the region through foreign direct investment in creating subsidiaries (Cohen 2007) and this proved to be an effective application of first mover advantage (Porter 1990; Doh 2000) since the company remains a significant player in the Asian market. Strong performing countries in Asia are China and India, with both contributing double- digit growth. These reflected the company’s ability to capture the biggest markets in Asia. Of its product lines, culinary, chocolate, powdered and shelf-stable dairy brands were high performing. This reflects the ability of the company to gain households as its market. Nestle health and nutrition brands continue to grow in Asia because of the establishment of its nutrition subsidiary, particularly pertaining to infant nutrition. In 2007, the company experienced rise in raw material costs and it heavily invested in research and development but the company expects stable growth rate between 5 to 6 percent in the next 5 years.
Success of Nestle in Asia
Nestle is one of the multinational corporations able to successfully venture into the Asian market. While it continuous to experience success, it also faced a number of challenges requiring the company to develop sound strategies.
In entering and investing in Asia, Nestle recognized the potential of the regional market as the buttress to the company’s growth in the region. As such, Nestle has established and maintained a foothold (Prahalad & Hamel 1990) in Asia. Asia has many countries experiencing economic growth creating a huge market for Nestle products. As such, the company sought to establish the company and its brand early on in the market. However, it also experienced the problem of aligning with varying customer demands in Asia.
As a region, the Asian market is diverse politically, culturally, and socio-demographically, which means the expression of needs and marketing strategies differed.
This problem found expression through a number of resulting situations that Nestle found itself. In Asian countries with low levels of education, Nestle experienced difficulties marketing its products. The lower income groups, the company find difficulty marketing its range of milk products for babies and children in stages, starting with newborn formula, infant formula, and young children based on the varying formulations and nutritional needs of children. There are some instances of problems due to the failure of consumers to recognize and select the right formula for their children.
To address the major problem of considering different demands, Nestle implemented a number of responsive strategies. One strategy is to establish local firms in different countries focusing on various product ranges together with the bringing together of a groups of regional managers with knowledge about the culture of the various markets they represent (Cohen, 2007). Nestle establish various subsidiaries in different key markets with local managers handling product development and marketing to match the needs and preferences of the local markets but within the umbrella strategy of Nestle. The strong cash flow of the company enabled it to engage in wide-scale foreign direct investments and sufficient flexibility for takeovers of local firms able to provide the company with a stronghold in the market. Another strategy is the specialization of production in different geographic locations (Cohen, 2007) to take advantage of the abundant and cheap resources in each Asian country. Nestle in Indonesia specializes in soymilk products because of the cheaper and easy access to soymilk in the country with soymilk products for distribution in other Asian markets. In the same way, Nestle Thailand produce coffee creamers, Nestle in Singapore makes soybean flour, Nestle in Malaysia produces confectionary products, and Nestle in the Philippines manufacture cereals. These products are for region-wide distribution.
Another manifestation of this problem is language barrier in communicating its value offering and in packaging its products. In more developed and newly industrializing countries in Asia, Nestle could use English as a means of communicating its value offering. However, even in Hong Kong and mainland China with the local dialect used in the mainstream, Nestle still had to deal with the ways of connecting with its market.
To able to reach out to specific markets while at the same time strengthening its global brand, Nestle utilizes an umbrella brand for all of its products but develops and distributes products depending on the culture-based demand of the market (Prahalad & Hamel 1990). There are products distributed in one Asian country but not in another or product development are made to suit the tastes of different cultures with spicy and strong flavors in East Asian and South Asian countries and sweet and milder flavors in South-East Asian markets. In addition, the packaging of Nestle products involves translations in various local dialects of the market where the product is distributed.
Another major problem is competition. Even if Nestle entered Asia by capitalizing on its first mover advantage (Doh 2000), it had to contend with new entrants in the market. Nestle contends with many domestic and international competitors in its various products ranges. In powdered milk products alone, Nestle competes with various multinational corporations such as Abbott and Mead Johnson together with a number of domestic milk producers in each country. The intense competition challenged the first mover advantage of Nestle.
Nestle addresses this challenge by continuously strengthening its hold on the market by immersing in the local culture (Porter 1990) to understand needs. In addition, Nestle also implements support services for its products such as provision of nutritional health information and advocacy to the local markets.
References
Cohen, SD 2007, Multinational corporations and foreign direct investment: avoiding simplicity, embracing complexity, Oxford University Press, New York.Doh, JP 2000, Entrepreneurial privatization strategies: order of entry and local partner collaboration as sources of competitive advantage, Academy of Management Review, vol. 3, pp. 551-57`.
Porter, ME 1990, Competitive advantage of nations, Free Press, New York.
Prahalad, CK & Hamel, G 1990, The core competence of corporations, Harvard Business Review, vol. 68, no. 3, pp. 79-91.
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