Nestle Boxed Water Executive Summary Management Essay
The main point of this report is to show how Nestle will implement their Boxed Water products in the United Kingdom for diversification of their product line. The report starts by giving some historical data about Nestle, and providing a list of products that Nestle offers to their customers worldwide. It will analyze the business proficiency of Nestle, and analyze the bottled water industry, supplemented by a further analysis of our competitors and the macro environment. It continues by discussing the business principles of the United Kingdom, and show some key business challenges for Nestle. Finally, the study recommends some suggestions to Nestle regarding the business principles and products required to achieve sustainable growth in the long run and the process of the manufacture and sale of Boxed Water in the United Kingdom.
Table of Contents
1.0 Nestle
Nestle is a well-known Swiss multinational company that specializes in nutritional food and consumer goods. The company is headquartered in Vevey, Switzerland, and was established by Henri Nestle in the year 1866. In its initial year they were named Anglo-Swiss Condensed Milk Company, and in the next thirty nine years the company would change their name twice. Finally, in the year 1905 the company changed their name to Nestle. Nestle is the largest food company in the world in terms of annual revenue, and also acts as major shareholder for L’Oreal (largest cosmetics company in the world). Nestle offers various products such as Maggi, Stouffer’s, Nespresso, KitKat, Nescafe, Smarties, Vittel, and Nesquik to global customers. Nestle employs more than 330000 people all together in over 150 countries, and has 461 factories established across the globe. Sales revenue for the company in the year 2011 was CHF 83.7 billion. Major milestones for the company can be summarized in the following manner:
Time Period
Event
1866-1905
The Anglo-Swiss Condensed Milk Company merged with Nestle.
1906-1918
Number of factories decreased due to world war I but the company started their operations in the USA.
1919-1945
The company launched Nescafe.
1946-1975
The company acquired Alimentana in order to gain access to Maggi products. They also became a major shareholder with L’Oreal.
1976-1980
The company entered in pharmaceutical market by acquiring Alcon Laboratories of USA
1981-1995
The company acquired American food giant Carnation to improve their bottom line. In 1986, the company entered espresso coffee segment by launching Nespresso.
1996-2005
The company expanded their operation in the segment of health, nutrition, and wellness with the help of series of acquisition.
2006-2009
The company acquired Medical Nutrition unit of Novartis. The company established shared value forum in New York.
2010-2012
The company launched Cocoa Plan in order to supply disease resistant plantlets to farmers.
(Source: Nestle, 2012)
1.1 Nestle Bottled Water
The bottled water segment contributes a significant amount of product diversification for the company. A way that Nestle has been able to maintain their dominance of the bottled water industry worldwide is through offering different brands of bottled water. Some of these brands are:
Nestle Pure Life – The company launched Pure Life in the year 1998. This product is currently being sold in over twenty countries.
Perrier – This is a form of sparkling mineral water. Nestle introduced this brand in order to enter the sparkling mineral water segment.
Poland Spring – This is the oldest mineral water brand in the world. Nestle has maintained the brand for many years.
S. Pellegrino – Nestle launched this brand in order to gain access to top restaurants in the world. S. Pellegrino is a form of drinking water mixed with minerals (Nestle, 2012).
1.2 Analysis of Product portfolio of Nestle
Most people know Nestle by their brand and product portfolio. The product portfolio of Nestle can be summarized in the following chart:
(Source: Nestle, 2012)
The company maintains a broad product portfolio in order to compensate loss from any single segment. Sales volume for the company is increasing at a rate of more than 3% during the last few years. Segment wise product portfolio can be divided into three segments like food & beverages, nutrition and ice cream. The company is always thriving to find excellence in product innovation and service delivery. The company achieved 7.7% of organic growth in the year of 2011 by maintain their large product portfolio.
The following section will discuss about product innovation in Nestle.
Segment
Product
Target Market
Business Strategy
Ice Cream
Nestle Gold
Portugal, Spain, and Greece
The company collaborated with Haagen- Dazs in order to provide premium quality ice cream to customers and they did it in order to achieve product diversification
Water
Perrier
150 countries across the globe
Nestle diversified their business into the bottled water segment. The company used a digital platform to engage customers with the Perrier brand
Coffee
Nescafe Alegria
More than 60 countries
The company launched an easy to use instant coffee machine to flip the brand.
Pet Product
Purina
Netherlands , Austria and Germany
Special TV commercial for dogs and dog owners. With help of this activity the company entered the web 4.0 era
Nutritional milk
MOM & me
South Asian countries
They expanded their distribution channels by recruiting nutrition officers
(Source: Nestle, 2012a)
Top performing brands of the company have helped them earn respect from customers. The following section will discuss contribution of brands carried by the company towards overall organic growth.
Overall Organic Growth 7.7%
Nescafe
Nan
Milo
Nespresso
Pure Life
Nido
Maggi
11%
18%
13%
22%
11%
11%
10%
(Source: Nestle, 2012)
1.3 Organizational Structure of Nestle (Nestle, 2012)
D. P. Frick (Corporate Service & Governance)
J.-M. Duvoisin (Human Resource)
R. Ramsauer (Corporate Communication)
P. Bulcke (CEO)
L. Cantarell (Nestle Health Science)
P. Brabeck-Letmathe (Chairman)
Executive Board (P. Bulcke, W. Bauer, J. Lopez, J. J. Harris, L. Freixe, C. Johnson, P. Bula, N. Nandkishore, W.L. Martello, M. Caira, J.-M. Duvoisin, K. Schmidt and D.P. Frick
C. Johnson (USA Head)
N. Nandkishore (Asia/Africa/Oceania Head)
L. Freixe (Europe Zone Head)
J. J. Harris (Nestle Water)
M. Caira (Nestle Professional)
K. Schmidt (Nestle Nutrition)
W. Bauer (Technology,
R&D
P. Bula (Marketing& Sales)
J. Lopez (Operation)
W.L. Martello (Finance & Control)
P. Bulcke (CEO)
1.4 Global Presence of Nestle
The company operates in more than one hundred and fifty countries. Recently the company has launched their nutrition product segment in the South Asian Market. Africa is also becoming lucrative in terms of nutritional product for the company. The corporation started their first global operation almost 100 years ago, and the business has segmented their international operation into two parts: developed market and emerging market. The following chart will explain the international business growth of Nestle.
Developed Market
Total Contribution to group Sales
Organic Growth
60%
4.3%
France
6.4%
Portugal, Spain, UK
3.7%
Japan
3.6%
North America
2.5%
Emerging Market
Total Contribution to group Sales
Organic Growth
40%
13%
China
23%
India
20%
Africa
18%
Mexico
14%
(Source: Nestle, 2012)
Global operation of the company understood with the help of zone wide analysis:
1.4.1 American Zone
The American market is already saturated due to the presence of a large number of consumer durable companies. In this situation Nestle has diversified their business into the frozen foods and chocolate segment by launching DiGiorno and Skinny Cow to attract customers. The company also did partnership with Häagen-Dazs in order to increase variation in their ice cream products. In Latin America, the company performed well with their soluble coffee products and achieved double digit growth.
1.4.2 Europe Zone
The European market is going through a financial crisis, so overall sales growth for the company has not been very attractive for last two years. In this uncertain period, Nestle has adopted an innovation strategy to counterbalance poor performance in their different product segments. Nestle has introduced an innovative product line: Nescafe Dolce Gusto, Herta, and Nescafe Sensazione, to attract customers. This strategy was successful for the company to fetch sales from east and central Europe.
1.4.3 Asia, Africa & Oceania Zone
The company has had a presence in this region for more than 100 years. Recently, they have celebrated their 100 year anniversary in the following countries: Turkey (1908-2008), Philippines (1911-2011) and India (1912-2012). Maggi and Nescafe are one of the most popular products in this region while the company extended their product line with Nido essential and Nescafe Milky in order to cater demand of people belong to the Afro-Asian region. The company recently launched their nutrition division to increase penetration in the region.
1.5 Mission & Objective of Nestle
The company always thrives for achieving leadership position in Health &Wellness, and nutrition segment. Nestle also wants to be a reference in the industry for their financial performance.
1.6 Strategic Advantage of Nestle
1.6.1 Competitive Advantage
The company has carefully designed their product portfolio in order to a maintain balance with market demand. The product portfolio maintained by the company cannot be easily copied by their competitors. The company has planned their product portfolio in accordance to demand of each zone such as America, Europe and Asia.
The corporation invests large amount of capital on research and development to produce better products. The company already made an agreement with a renowned university to open a research division for their nutritional products. Nestle emphasizes on using local ingredients in their products in order to satisfy demand of local customers. For example, in Malaysia, the company introduced a nutritional product complemented with Asian ingredients such as ginger, Chinese red grass and ginseng to lure local customers (Oxford Business Group Malaysia, 2008, p. 132).
The brand has presence in more than 150 countries. They have the opportunity to channelize revenue from strong business unit to a poor performing region. The company also adopted a parent company strategy to control business operations internationally. Nestle has opened multiple strategic business units (SBU) across the globe to expand their business (Pride & Ferrell, 2007, p. 32).
The company believes employees are their asset and treat them with utmost care. Nestle feels that their employees are their biggest strength. The company has also adopted green earth strategy to decrease their carbon footprint caused by their products, working with Forest Trust in order to prevent Deforestation and decrease carbon footprint in the supply chain (Emmett & Sood, 2010, p. 192). The company has announced that they will use befouls instead of tree oils in their future products in order to make their products more environment friendly.
1.6.2 Growth Drivers
The business has understood that the consumer food market is becoming saturated day by day due to presence of many players. Nestle has diversified their business into Nutrition & Health, and Wellness segment in order to avoid saturation in food market. Nutrition segment is showing more than 20% growth rate for past three years, which is greater than their overall organic growth of 7.7%.
The company has shifted their focus on emerging markets because developed markets are already becoming saturated. Nutrition product segment of the company has readily become popular in Asian markets, while Oceanic region has contributed high sales volume for the company’s coffee segment.
Nestle has recently launched instant coffee machine for customers in order to give them out of home consumption experience. Many schools, colleges, and offices have already installed instant coffee machine to enjoy Nescafe. The strategy helped the company to increase their brand equity among young people.
The company adopted premium pricing for their products in order to show status and quality to customers. Customers purchase Nestle products in order to experience high quality products and they are ready to pay for it.
1.7 Shared Value Model for Nestle
Shared value model for the company works in triplet format such as sustainable development in water management and nutrition products, protect environment, and maintaining ethical business practices.
Stage 1
The corporation invested a huge amount of money in research and development in order to create nutritional products for customers. In recent times, the Vevey based company has introduced nutritional compass customers to measure the nutrition value of food. Nutritional compass is complemented with the nutrition information box, which indicates amount of specific nutrients such as carbohydrates, fats, protein and sugars present in a Nestle product, as well as health related tips, and question boxes. In Poland, the company has partnered with two major retailers to provide health related advice to customers. Ninety nine percent of Nestle products contain nutrient specification in order to provide information to customers.
The brand has opened rural factories in order to provide agricultural support to farmers. They have taken an open system approach to boost the growth of the rural economy. Nestle established factories in order to employ rural people and help farmers to sell their product without any middlemen. Survey reports suggest that the company is performing pretty well in developing nations to generate revenue and incentivize the morale of rural people.
The company took various initiatives for water resource management. They have planned to implement aquifers, watersheds, and artificial river basins to create efficient water resource management. Nestle started water management initiatives by engaging stakeholders into multiphase pilot projects to increase sustainability of the development. (Sources: Nestle, 2011)
Stage 2
Nestle has changed their supply chain management and product packaging in order to decrease their overall carbon footprint. The company uses 12% renewable energy in their factories and also they have planned to achieve zero wastage within the next two years. The company is using recyclable products for packaging in order to decrease plastic contamination and hazards. For example, the company used recyclable packaging products instead of plastic for Ninho caps in Brazil and Purina ONE packaged drinking water in France.
The corporation not only reduced the use of plastic in their product, but also optimized environmental performance of the product. Nestle uses Global Environmental Footprint (GEF) and Packaging Impact Quick Evaluation Tool (PIQET) to measure the environment sustainability of bottled water. Environment impact of new packaging systems for bottled water can be analyzed by the following picture:
(Source: Nestle, 2011)
Stage 3
Nestle has established an Alignment board to measure quarterly performance share value objectives. This board acts as an Umbrella Corporation to design strategic implementation Shared Value objectives. The company implements leadership principles to design proper business ethics conduct. Also, United Nation’s Global Compact Principles helped the company to create a sustainable business environment. Nestle follows the United Nation’s guidelines for creating shared value in terms of labor law, human rights, corruption free business policy, sustainable environment, and other important issues.
1.8 Value Chain of Nestle (Bottled Water)
1.8.1 Source
The company has developed spring water sites to source their water products. Nestle has transformed open land sources into spring water resources to strengthen their value chain. Generally, the business uses 87% of their spring water sites to source water products.
1.8.2 Manufacturing
Nestle has implemented solar panels in their water plants in order to reduce energy consumption and maintain purity of minerals used in the manufacturing process. The company manufactures 98% of packaged bottles in their owned plants in order to reduce cost regarding transportation of empty bottles. The total manufacturing process saves 6.5 million gallons of fuel and eliminates more than 6,100 metric tons of CO2 emissions.
1.8.3 Packaging
Nestle has invested a huge amount of capital to change packaging of the water bottles in order to create an eco-friendly bottled water. The corporation is planning to use paper instead of plastic to reduce the carbon footprint produced by their company. The Vevey based company has already introduced the Eco Shape bottle which contains only 60% PET plastic in order to save 250 million pounds of plastic per year. Nestle reduced the bottle size by 33% in order to save 10 million pounds of packaging paper yearly.
1.8.4 Transportation
Nestle started to use hybrid vehicles for transportation in the year 2008. Heavy duty trucks and environment friendly trucks are used by the company for transportation purposes. The company has forecasted that they will reach 25% fuel economy within the next three years by using hybrid transportation models.
1.8.5 Retail
Retail channels for Nestle water products are focused regionally in order to increase penetration levels. The company transports 90% of bottled water directly to the retailers in order to eliminate warehouse storage and costs associated with storing products. The whole process helped the company to reduce 10,900 metric tons of carbon footprint or carbon dioxide emissions yearly. Benefits of green value chain maintained by Nestle can be summarized in the following chart:
(Source: Nestle-water, 2011)
1.9 Financial Performance of Nestle
Total group sales for the company were $ 83.6 billion in year 2011 with an organic growth of more than 7.5% annually. It is interesting to note that the company has achieved annual sales growth in a multi-dimensional way without depending on a single product segment. The company achieved maximum sales growth from their nutritional product division. Operating profit has also increased to $ 12.5 billion with a growth rate of 15.0%. The company has also performed well in terms of shareholder’s value and return on investment.
Shareholder’s return can be analyzed in the following table:
Net Cash Returned to Shareholders
Return on Investment
Dividend per Share
$10.7 billion
44.4%
$ 5.9 billion through dividend
$ 4.8 billion through share buy back
14.1% from goodwill
30.3% from external operation
$1.95 + 5.4%
(Source: Nestle, 2012)
Financial statement of the company is explained in the Appendix A to C.
2.0 Global Bottled Water Industry
Research scholars and market research reports suggest that the bottled water industry is dynamic as well as multidimensional. Global reports suggest various companies sold more than 200 billion water bottles in the year 2011. Consumer Food Companies such as Nestle or beverage giant, Coca-Cola, and many others have entered the bottled water market in order to explore business opportunities. Retail channel sales are growing at rate of 11% and analysts have forecasted that the market will reach $150 billion within next couple of years. Although bottled water market is growing at a steady rate, the penetration level is not homogeneous in the entire region.
Customers prefer to drink mineral water in order to experience purity and freshness. Nestle also emphasizes on the purity of their bottled water in order to sell the item. Global players try to create their bottled water using underground aquifers, minerals, and springs in order to show purity. Nestle also did the same by changing their product line by adding minerals and aquifers in three of the products: S.Pellegrino, Perrier, and Poland Spring. Industry analysis shows that bottled water market can be segmented into three portions.
2.1 Product Characteristics
Bottled water can be segregated into three types: Still (dominant with more than 70% penetration), Sparkling (penetration level is low such as 21%), and Flavored (near about 6% penetration). Nestle has maintained a product line complemented with Still and Sparkling category while they have not took any initiative to add flavored water in portfolio
2.2 Water Source
Two types of water sources are available for manufacturers are chemically purified and natural spring water, and both are used in order to manufacture bottled water. Water sourced from natural spring has two subdivisions: Single Spring (bottled near the source location without any chemical treatment except filtration) and Multiple Spring (bottled far from source location after multiple chemical treatments). Nestle offers customers only Single Spring bottled water but they have a future plan of entering in the Multi Spring segment.
2.3 Marketing Channel
Companies in the bottled water industry follow two types of marketing channel: on trade- off trade, or retail sales in order to distribute their products to customers. On trade channels focus on distributing bottled water directly to business, houses, hospitals, catering, and various event sponsors while retail channel focuses on tertiary sales. Global sales volume in terms of unit for on trade channel is only 16% but striking fact is that sales volume in terms of monetary value for on trade channel is 55%. These differentiation occurs due to the fact that water bottle price is three times higher in contrast to off trade channel (Gimeno, 2012).
3.0 Competitors Analysis
3.1 Danone
Danone is the major competitor for Nestle in the water industry. The company is the market leader in Spain and United Kingdom for purified water business. Danone uses merger & acquisitions in order to expand their business and they have achieved more than 24% market penetration by following the same strategy. The company maintains product portfolio complemented with Sparkletts, Alhambra, and Crystal in order to offer still and spring water to customers.
3.2 PepsiCo
The company entered the packaged drinking water industry in the year 1994 by establishing cooperation with bottlers. The company provides spring, flavored, and still water to global customers. Aquafina is the major bottle water brand for the company while the brand has achieved more than 10% penetration in UK market. Distribution channels maintained by the company can be termed as their core competency. PepsiCo sells their water product in UK with the help of Directo Store Delivery Method (DSD) and also the company is planning for category extension in the sparkling water segment.
3.3 Coca Cola
The company launched their bottled water brand Dasani in the year 1999, spending more than $20 million dollars in sales promotion and advertising to push the brand during its initial period. Coca Cola Enterprise (CCE) is also a big bottler worldwide. The company has launched their multi spring water brand BonAqua in European countries. Market share for the company in the UK is not more than 3%. Hence they have planned to increase market share by incorporating product differentiation in the future.
4.0 Analysis of the Packaged Water Industry in United Kingdom
4.1 SWOT
The SWOT analysis method can be done in order to analyze business scenario for the packaged water segment in UK (Ferrell & Hartline, 2010, p. 122).
4.1.1 Strength
The lifestyle of people in the country is changing with time, and as a result, the demand for pure water is increasing. Packaged water gives people the opportunity to carry mineral water or sparkling water with convenience.
4.1.2 Weakness
Companies need to find open water sources to manufacture bottled water, but availability of such resources is low in the UK compared to other European countries. Government is strict about environment norms and pushes foreign companies to decrease carbon footprint throughout business operation. Companies trying to expand business in UK need to redesign value chain in order to decrease environment pollution. Because of this, the Boxed Water product is fitting to combat this weakness.
4.1.3 Opportunity
People in the country have become more health conscious in recent times due to the increase of epidemic diseases. The quality of open source water has also degraded randomly within the last ten years. Companies have the opportunity to manipulate market demand by offering mineral and spring waters to customers of the country, and it is Nestle’s opportunity to offer the Boxed Water idea to fulfill this demand.
4.1.4 Threat
Multinational companies are facing threat from regional and small local players in the country. Many small level companies are counterfeiting and imitating product portfolios of large players such as Nestle, Danone, and others. Counterfeiters are selling products at a price lower than market average in order to spoil competition.
4.2 Porter’s Five Forces
Porter’s five force model can be used to analyze bottled water industry in United Kingdom (Ahlstrom & Bruton, 2009, pp. 131-140).
4.2.1 Threat of Substitute
There is no substitute for water but the same cannot be said for bottled drinking water. Substitutes such as vitamin and mineral water, and single and multi-spring water can be termed as close competitor for purified bottled water. Tea, beer, and soft drinks are the distant competitors for packaged drinking water; therefore, the threat of substitute for packaged water is moderate.
4.2.2 Threat of New Entrants
Threat of new entrant is low for the packaged water industry due to three reasons.
Huge financial resources are needed to establish water plants and a wide distribution channels to retailers nationwide.
Companies must have sufficient resources to offer high retail margins to distributors (industry average is more than 15% but Nestle offers 33%) in order to survive in market competition.
Companies must have the capability to compete against multinational giants such as Coca Cola, PepsiCo, Nestle, and Danone to be successful in the long run.
4.2.3 Bargaining Power of Supplier
Nestle uses their own hybrid transportation model in order to decrease dependency on suppliers. In general, companies manufacture and bottle their products near the water source in order to decrease stages of value chain. Large bottlers can purchase bulk volume of 1 liter, 2 liter or 5 liter bottles from manufacturers at minimal cost. Presence of many alternatives has decreased bargaining power of suppliers.
4.2.4 Bargaining Power of Customers
Packaged water is seen as a basic product and price sensitivity issue of customers is not a major concern. This means that big brands such as Nestle can charge a premium price for their multi spring and single spring water segments. Bargaining power of customers is moderate for the industry.
4.2.5 Competition
Market competition is high for the bottled water industry due to presence multinational players as well as regional sellers. They mainly compete in terms of retailer margin, product price, and product differentiation. Companies are investing a huge amount money in developing distribution channels while there is no doubt that beverage giants such as PepsiCo and Coca Cola have a clear advantage due to their long association with retailers. Nestle needs to design distribution network by maintaining equilibrium between on trade and off trade channel.
Factors
Threat of new Entrants
Threat of substitutes products
Bargaining power of buyers
Bargaining Power of Suppliers
Existing Rivalry
Level of Impact
High Medium Low
4.3 Porter’s Diamond Model
Nestle needs to use porter’s diamond model in order to explore opportunity in the country (Walker, 2003, p. 177)
Uncertain events such as Euro zone crisis can impede the growth of business
Market competition in bottled water industry is high from both regional and international players
Demand for packaged drinking water is high in the UK
Nestle can use both skilled and unskilled labor for their business due to abundance of human resource pool in the country
Presence of supporting players such as paper suppliers and other members of the value chain is abundant
Government of the country provides tax exemptions to companies investing more than £10,000 on research & development
5.0 Why the United Kingdom?
There were three countries, each in three different continents that seemed very interesting for Nestle to introduce the idea of a new packaging, Boxed Water. The idea of boxed water consists of redesigning the container into a complete new design with no damaging chemicals for human consumption, and at the same time being better for the environment.
The first country taken into account in this report is Singapore. Singapore is one of the nations in the world with a well-established and efficient free-market economy. The government of Singapore has a significant control in most corporations, which constitutes about 60% of the GDP through business entities like Sovereign Wealth Fund. The country has a free business environment with comparatively low levels of corruption, transparency in management of public affairs and constant/predictable prices changes. Compared to other developed countries Singapore has low tax rates with a very high per capita GDP globally. Singapore has a very innovative and stable economy, which is merged with efficient economic planning under the Economic Development Board that helped to establish a free market. Moreover, Singapore has a port that is strategic enough to give it an edge over the neighboring countries that carries trade. Most of its labor comes within the population, which is owed to the efficient education policy in the country that produces skilled labor for the industries in the country.
The government of Singapore also ensures free trade agreements and employment laws in industries where a majority of the foreigners are in the job market. The main countries that have set up businesses in the country include China, Europe and the United States. As such, most foreigners use this country as an avenue to establish and expand their businesses through a process of networking and making use of the open trade agreements established by the government. The nation is dominated by immigrants with 42% being foreigners who contribute to the country’s 6th ranking globally with aliens. Moreover, the country is very small that the temples of Chinatown can be viewed from specific towns in Singapore. The culture of Singapore is best defined as the concentration of Indian, British and Malay cultures due to its history of immigration. Even though Singapore has the required characteristics for Nestle to be successful with Boxed Water, the company believes that Singapore has a very low population to introduce the idea. In addition, the country experiences a very low supply of water with a limited arable land for agriculture.
Another option taken into consideration is Argentina. Argentina is a very rich country in terms of natural resources. The Argentinean economy is dominated by agriculture, which contributes the largest percentage of the GDP. The country has fair economic policies that aim at increasing the exports from the main productive sectors. The country does not have a free economy like that of Singapore hence its economy is not that well established. The industries operating in Argentina include: oil refinery, food processing, machinery and equipment, petrochemicals and textile industry. The tax revenues are slowly growing with the debt services reducing. There is a probability of volatility in the financial markets due to the conflict that exist between the central bank and the federal government. The country has strong ties with foreign states such as Brazil, Bolivia, Peru, Paraguay, Venezuela and Ecuador; which enhances business relations among the alliances due to an expanded business base. Argentina has made significant steps towards enhancing an efficient economy in the market. The competition policy for the country has been quite uneven due to the frequent conflicts in the political and economic environment. Argentina first set up a Competition Act in 1980 and was not well put into force. The forces behind this failure include the hyperinflation, which was not controlled up to 1992. It can be noted that it has very high corruption and very high taxes. Because of this, it is not appealing to Nestle to introduce its Boxed Water in the country.
The Third country taken into account and wisely selected to introduce the new design of the boxed water is the UK. In this context the study will focus on how the euro crisis has affected the business scenario in Europe in contrast to the United Kingdom. Although the United Kingdom uses Pounds as its official currency, other seventeen countries like Spain, Greece, and Italy use the Euro as their official currency. Many researchers have warned that setting a single currency for many countries might create a sovereign debt problem in near future. The Euro crisis started with sovereign debt problem for Greece and later impacted the other European countries, as well as the rest of the world.
The unemployment rate and inflation rate in many European countries has increased tenfold due to the sovereign debt crisis, and economists have pointed out that the root cause for the crisis is the fragile banking system maintained by many European countries. The fragile banking service triggered private debts in some countries where as it triggered the public sector debt in others. The governments of many European countries failed to act rationally in this situation in order to stop from further downfall, since the governments failed to control remuneration and pension plans in order to decrease public debt. In this situation, economists believe Euro zone debt crisis can be counter balanced with the help of regional currencies such as the Pound. Eurozone finance ministers had a collaborative meeting in Luxembourg in order to establish a rational solution for sovereign debt crisis. The Governments of Greece and Spain have requested for full bail out to crisis managers, while solutions such as the bold auction can only mitigate the problem on a temporary basis (they can’t fill out the big gaping hole that was created by Greece). The UK and Germany are guiding other European countries to move out of this financial trap. The effect of the euro crisis is comparatively low in United Kingdom in comparison to other European countries. From the financial viewpoint UK and Germany are the best option left for Nestle to launch their product in Europe in order to achieve sustainable business growth (Yahoo Finance, 2012)
6.0 Macro environment analysis of United Kingdom
The company has decided to launch the Boxed Water concept in the United Kingdom. A macro environment audit for the country is needed to analyze present business opportunities in the country.
6.1 Political
The political factors correspond to the current political situations of a particular country. Such variables include tax policies, political changes, trade policies of governments, tariffs, and the government’s sustainability. The political classification of the United Kingdom is dependent on two factors: legitimate monarchy and parliamentary system. The country is politically stable from the government’s point of view. Business function of any consumer durable company is subject to change with respect to globalization. Government in the United Kingdom helps foreign companies to invest and expand their businesses. For this reason, many consumer durable companies and food giants are planning to enter into the British market via joint venture and foreign direct investment (FDI). The government of the United Kingdom is doing research in order to fix prices of certain merchandises and products. The British government is investigating critical issues such as profit earnings ratio of top foreign players and retail giants; therefore, Nestle needs to design their business policy after doing careful investigation of British government’s financial policy. Many retail outlets in the country charge premium price on distributed products and Nestle needs to control them to be successful in the country. The company needs to revise a pricing strategy for their bottled drinking water to survive in market competition, and add the diversity of Boxed Water to their product line. The British government has already slashed down corporate tax rate from 30% to 28% to boost confidence among business players, which means that the tax policy will help Nestle to save huge amount of money during its operational period in the United Kingdom.
6.2 Economical
The economic factors comprise of the Gross Domestic Product, interest rates, unemployment rates, inflation rate and growth rate of the economy. The economy of United Kingdom is the sixth strongest economy around the globe. The UK is famous for retail chains and manufacturing industry, as well as important sectors comprising of tourism, agricultural, and financial services. The official currency of the UK is the British pound sterling. Fuel costs in the country have increased sharply within the last few years, which directly affect the transportation costs supply chain of food companies. Nestle needs to adopt competitive pricing, which will be accomplished with their Boxed Water products, to maintain a good profit margin. The global credit crunch has painfully impacted the sales volume of major food companies in the country, and the purchasing power of consumers has decreased due to recession. Consequently, consumers are giving importance to the purchasing of low cost merchandise. Financial services and banks are playing safe in this tumultuous economic condition and they have restricted credit limits to various small players. The entry barrier for food businesses has increased for small players due to this weak financial support from banks and other financial institutes. Nestle has the opportunity to diversify their packaged mineral water bottle segment with the boxed water product in the low price segment to fulfill the requirement of price sensitive customers.
6.3 Social
The social factors include demographic trends such as cultural factors, population size, age, and consumer lifestyle. The culture of UK refers to the characteristic cultural norms. It is characterized by the subsistence of dissimilar types of customers in the market. British people are familiarized with global trends in terms of living life, buying behavior and dressing, and a grand majority likes to purchase fresh and pure products with unique style factor. They have a preference to lead a healthy lifestyle; hence food items with low cholesterol level, exercise kits, and nutritional drinks are quite popular in Britain. Many social organizations and NGOs are raising their voice on environmental concern such as global warming issues and increased carbon footprint in United Kingdom. Nestle needs to reduce carbon foot print level in their value chain. Online retail sales in Europe and other associated countries have amplified by more than 240 billion Euros and this fact signifies the popularity of online shopping among customers. Many customers prefer online shopping due to lack of time and a hectic lifestyle. Nestle needs to adopt online sales concept in order to engage more British customers with their packaged drinking water. The company has already adopted shared value forum initiatives to decrease environment pollution across the world. From the above discussion it is evident that Nestle’s decision to change packaging by introducing Boxed Water in order to decrease plastic usage will be welcomed by the people of the UK.
6.4 Technological
Technological factors include increase in process automation, new product development and other technical systems such as technology transfer, technology inducements, R&D activity and impact of internet. In the UK, technology is one of the central key requirements of any business. Companies operating in the UK try to use technology in almost every sector to achieve business excellence. The UK is also considered as one of the noteworthy destination for companies trying to expand business in the field of technology. Many companies are working on RFID (Radio frequency Identification) technology to combine with supply chain cycle in order to save time. RFID can be used by Nestle to increase efficiency levels in terms of service and supply chain management. Implementation of Enterprise Resource Planning (ERP) to maintain customer database and other important business information is a common phenomenon for large food companies. Nestle need to think about implementing ERP in their supply chain management to cut down the cost.
6.5 Environmental
The environmental factors of a particular country involve natural observable facts such as natural weather patterns, disasters and climate changes. The weather of the country remains cool all through the year, and there are occurrences of storms and snowfall during the winter season. Nonetheless, in the summer season, demand for packaged drinking water increases. Nestle can design a sales promotion technique to boost sales for other seasons.
6.6 Legal
The legal factors of a particular country contain favoritism, laws for employment, business, and health & safety issues. The United Kingdom has a very well controlled legal framework. The English legal structure was developed and modified for last eight hundred years and is considered as the underpinning of many laws throughout the Anglo Saxon sphere. Unwavering legal systems will help Nestle to fight against any kind future legal proceeding against competitors.
7.0 Business Practices in United Kingdom
7.1 Political and Economic Condition
Political and economic conditions of the United Kingdom are explained in the macro environmental audit section; therefore, no further discussion is done in this section.
7.2 Cultural Orientation
One of the key aspects of British culture is giving importance on high specifics. This culture can be classified as low context. Business houses give importance on shared knowledge, knowing opponent party before communication and citing valid reference to prove viewpoint. British people give supreme importance to maintain privacy regarding business deals, yet people tend to not fear to criticizing people openly. Nestle needs to maintain business in the United Kingdom without hurting the sentiment of British people in order to achieve sustainable growth.
7.3 Currency Risk
In accordance with current financial trends, the exchange for pound to euro has increased by 11% which shows that the currency of the UK is going through a stable period. Market analysts have predicted that the exchange rate will grow more than 0.6% during the next six months. This kind of optimistic forecast will definitely help Nestle design business strategies in the future.
7.4 Communication Style
British business communication is almost similar to Asia in terms of using a diplomatic language instead of a direct approach. Common business belief is that blunt and open confrontation defeats the purpose of communication and also offends third parties. British people use coded language for business communication but that is common for all European countries (except Belgium). Nestle is a European company; hence adopting British communication style will not be a problem for them.
7.5 Negotiation styles
In the UK it is formal rule for business parties to put agreements in writing during negotiations. The contract is judged by British principle of universalism. British people do not like business with unfaithful partners and give utmost importance on maintaining business ethics. British companies prefer third party intervention or presence of a lawyer during negotiations. Nestle officials need to discuss legal details of contract with British business house in order to complete the deal successfully. Transparency and consistency of the negotiation plays a major role for British business people.
7.6 Business Etiquette
British companies give utmost importance to punctuality as key aspect of business etiquette. Objectives of business meetings are indicated at least one week ahead of the event so that business parties have sufficient time to prepare for the meeting. Business people in the country prefer that a business meeting should not last longer than predefined; therefore, Nestle officials needs to design their business presentations strategically. Business meetings starts with introducing person with highest respect to other members present in the room. Nestle can use British business manuals in order to get a guideline how to act in British business meeting.
7.7 Ethical Orientation
Nestle needs to maintain the following aspects of British business ethics in order to achieve organic as well as sustainable growth in the United Kingdom.
Doing business with maximum honesty and integrity without involving in any kind of unethical trade practice.
Nestle needs to show professional integrity in terms of maintaining privacy regarding business deals with third parties.
The company needs to show responsibility towards British society by investing sufficient amounts of money on corporate social responsibility.
Nestle needs to show accountability for all their decisions while operating in the United Kingdom
7.8 Availability of Skilled/ Unskilled Labor
Nestle needs quite a few skilled and unskilled labor personnel for their production plant in United Kingdom. In water plants, the majority of the workers belong to unskilled migrants emigrated from various continents such as America, Africa, Asia, Oceania, and other European countries. Last year more than twelve thousand unskilled foreign nationals worked in various sectors of UK. The British government has introduced a point based system for immigrants in order to test English proficiency. In accordance to official statistics more than 300,000 immigrants (skilled as well as unskilled) work in various sectors of the country hence Nestle will get a supply of low cost labor during their operation in the country. The company will also get support of the British human resource pool in order to expand their business in the country.
7.9 Specific Guidelines
The British Government has established guidelines for packaged water sellers to do business in the country. They have passed regulatory amendments regarding natural mineral water, bottled water, sparkling water, spring water, and flavored water in the year 1999. Bottled water manufactured by companies need to comply with European Parliament Directives such as 96/70/EC & 80/777/EEC. The Food Standards Agency has created strict product quality norms for sellers in order to provide safe and healthy water to consumers. Nestle needs to maintain and incorporate the above mentioned guidelines in their boxed water in order to earn trust of British governments.
7.10 Infrastructure
Companies planning to expand business operations in the United Kingdom need to establish water packaging and warehouse facilities near water sources in order to cut down operation costs. Nestle has already opened a water plant in Buxton last year. The UK government also supports foreign players by providing land and infrastructural facilities in order to help them. Companies need to submit planning applications to the government at least one year prior to actual project starting period. For example, Cass Associates had submitted planning application to the British government on behalf of Nestle Waters. Nestle invested £35million in order to develop a warehouse and bottling facility in Buxton. Companies need to have a wave like roof, capacity of more than 20000 square meters, and site boundaries in their plant locations. They also need at least a 2.5-kilometer long water pipeline in their water plant to manufacture products without any limitation. The ideal water plant in United Kingdom should look like following figure (Packaging-Gateway, 2012).
1-waterswallows
(Source: Packaging-Gateway, 2012)
7.11 Trade Agreement
The United Kingdom is the fifth largest trading nation in the globe. Trade policies of the country synchronize with global trading systems. The country has reduced tariff levels in various sectors such as the manufacturing industry, the bottled water industry, and the retail sector. Recently, the British government has eliminated nuisance tariffs (tariffs of below or equal to 2%). Regional and bilateral trade agreements for the country are decided through negotiations supervised by the European Union. The United Kingdom has bilateral trade agreement with foreign countries completely on ad-hoc basis. The country has a bilateral agreement with the government of Switzerland which will help Nestle to invest directly in UK to expand their business (Centre of International Development, 2004).
7.12 Firm’s Operation
Companies wanting to expand their business in the United Kingdom need to establish a manufacturing plant in the country, otherwise they need to spend a huge amount of money to the government as export duties. Nestle has opened fourteen manufacturing plants across various regions of the country, with their water plant located in Buxton. Companies need to explore business not only in Britain but also in Scotland and Ireland as well. Market concentration for the bottled water production industry is more than fifty percent, and so companies need to diversify their product portfolio in order to survive the market competition. Nestle will be diversifying their water bottling practices by introducing the Boxed water product. Companies with a strong financial position, such as Nestle, need to do mergers & acquisitions in order to expand their businesses. Researchers have suggested that companies need to use consolidation strategies for the next five years in order to cut costs and increase the profit margin because companies are also facing financial uncertainties due to the Eurozone crisis, and in this situation, cutting costs is a must. Major players in the bottled water industry in UK are Nestle, Highland Spring, Eden Springs, Princes Limited, Coca Cola and PepsiCo.
8.0 Recommendations
8.1 Negotiation & Conflict Resolution
In the long run conflict might occur between companies and their partners and in such situation they use third party arbitration and mediation in order to resolve conflicts. Conflicts generally arise due to informational advantages gained by one party in contrast to its business partner. Concealing trade related information from a business partner is the key reason for creation of conflict during negotiation. Nestle should avoid such kind of situation in their future business operations in the country and they need to establish friendly relationship with their business partners of the United Kingdom. Conflicts in business negotiations can be solved by using the following strategies:
The informed party should share trade related information with their suppliers, vendors, shareholders and business partners.
The uninformed decision maker should ask questions about business operations to informed business partner.
8.2 Human Resource Management
8.2.1 Staffing Approach
British people are hard-working and prefer to maintain work ethics in the workplace. British culture is a little different from culture of other European countries, and so the company should hire local employees in order to cut down cost that would be incurred from cultural adaptations. Living costs in United Kingdom is high with respect to other European countries; therefore, using expatriates means the company would need to provide living cost to the expatriates. Companies can reduce employee retention costs by hiring local people that are familiar with the customs of the region. The unemployment rate in the country is almost 7.9%, so hiring local people also help companies to contribute to the economic development of the country in which they are doing business.
8.2.2 Employee Motivation
A motivated workforce is key requirement for companies to achieve sustainable business success. In Britain employees are very particular about their requirements. As already mentioned, they do not fear to criticize unethical work, so companies planning to expand business in the country need to design a transparent communication network. Nestle needs to take the following steps in order to create a powerful human resource pool.
The company needs to establish innovation communities within the organization in terms of creating intra level network for building economic and social relationships. Technological innovation decides the cordiality of the innovation community structure.
The company needs to form a substructure and superstructure for technical committee to increase productivity of their water plant.
Total business operation in the country should be channelized through three factors such as value chain network, organizational structure and customer relationship management.
8.2.3 Theory Z
Nestle needs to involve their employees in important decision making; otherwise, employees might be demotivated. In many cases it has been observed that the human resource pool of the organization feels demotivated due to neglecting behavior of top level management. Nestle can adopt theory Z concept in order to motivate employees. In general communication gaps between employees and management creates demotivation among employees. The concept of Theory Z should be implemented in the communication process. Theory Z emphasizes on a consensual approach of management in terms of taking decision with the help of group discussion, brainstorming and employee involvement. Employee related issues can be sorted out by the company by implementing the above mentioned theoretical framework (Montana & Charnov, 2008, p. 34).
8.3 Physical Assets
Nestle can increase their physical assets by using following format of asset acquisition. The company needs to do a careful investigation before investing huge amounts of money on asset acquisitions.
Type of asset
Investment Type
Description
Vehicle for investment
Pros
Cons
Equity
Direct investment in physical asset and real estate
Investing on buying physical assets such as plant machinery or land acquisition
Nestle can use segregated account for direct investment
The company will get regular cash flow from the investment and they can also have the opportunity to invest in tangible assets
Asset specific risk is high and transaction cost is also high
Pooled investment in physical asset and real estate
Investing on funds associated with physical property
Investing in open end or close end fund
Company can increase liquidity in future
Selling underlying takes long period
Debt
Investment Type
Description
Vehicle for investment
Pros
Cons
Mortgage debt
Loan from banks in order to purchase physical assets backed by commercial properties
Nestle can get ownership of physical assets with the help of segregated accounts
Nestle will get continuous income throughout the investment period
There is no certainty that company can increase liquidity in future
Mezzanine
Investing on capital stock in terms of preferred equity position
Ownership of physical asset can be earned by using open ended or close ended fund
Mezzanine is able to provide high return in comparison other models
Nestle can use the hybrid model complemented by all four types of investment models (to reduce risk factor) in order to purchase physical assets.
8.4 Communications with Clients
Nestle should give importance to the following predefined project plan in order to do business successfully with British clients. Generally British project managers do not falling behind predetermined schedules, which means that Nestle officials need to clearly specify project deadlines to project managers in order to gain trust with their clients.
8.5 Possible Approaches for Nestle to Initiate Business in United Kingdom
Nestle already has a presence in the country and they have established water plants in the country. The company is planning to introduce boxed water for British customers, so they need to establish a research hub in order to explore possible ways to use paper in packaging.
The company needs to establish strategic partnership with existing paper suppliers (such as Payperbox Ltd. of Hatfield, Paper Innovation Ltd of Preston and many others) of the country.
Finally they need to use their existing bottled water distribution channels for their boxed water items in order to cut down cost of appointing new distributor.
8.6 Learning Organization
Nestle should use the concept of a learning organization in order to achieve sustainable business growth in the United Kingdom. The learning organization concept focuses on sharing knowledge throughout all the employees of the organization. Nestle should remember three key points in order to transform their UK operation into learning organization:
Share knowledge and business related information with stakeholders. There should not be any communication barrier between employees and management of the company.
The concept of ethnocentrism can be applied to earn trust of local community. Nestle should appoint maximum number of British citizens (not expatriates) in the work operation because local candidates will help the company understand culture of the country.
Nestle should not involve in any kind of financial or transactional fraud in order to maintain their reputation.
9.0 Conclusion and Boxed Water explanation
Boxed water containers are more eco-friendly than plastic bottled water, and over 70% of the cartons used for boxed water come from renewable sources such as trees. Nowadays all of us know that we are running out of natural resources. We want to implement our Boxed Water idea in the UK in order to make people conscious about our natural awareness strategies and to diversify our product line. We will keep well-managed forests growing, by planting 2 trees for every single tree we use in order to get the resources for the packaging we need. We also have an idea to give 10% of all recycle paper profit to the World Wild Fund for Nature (WWF) in order to help the environment all together.
In general, having the cartons shipped flat to the water plants cuts down transportation cost. Another benefit is that the carton used in the boxed waters is 100% recyclable and most of paper used is taken from well-managed forests, eliminating CO2 from the environment. Our forests are always undergoing replanting which keeps them healthy and stable.
Boxed Water requires less energy consumption per bottle than Bottled water, and this reduces energy costs and increases energy savings. Another big advantage is that since products in carton boxes do not require refrigeration it would save energy during transportation and storage, which would reduce transportation costs overall. One of the main reasons we want to introduce this product is for Nestle to launch an innovative idea in order to give consumers who are ecofriendly an option when buying water.
Order Now