Assignment 2 Case Study Reportnestlé’s International Strategy To Vietnam.pdf

Nestlé Vietnam:Figure 1: Nestlé Vietnam products Source: Nestlé Vietnam Nestlé’s first sales office in Saigon was established in 1912.. Figure 2: Nestlé Vietnam development history Sourc

HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND FINANCE

ASSIGNMENT 2: CASE STUDY REPORT

NESTLÉ’S INTERNATIONAL STRATEGY TO VIETNAM

Course: Principles of International

HO CHI MINH CITY - 2022

Executive summary:

Nestlé is one of the well-known international companies and market leaders in the world Their business has been operating in more than 180 countries with thousands of

products manufactured and distributed The company has effectively used the methods of international strategies and market penetration strategies for entering new markets Based on the research directly from Nestlé, it shows that throughout the history and operations, the successful factors coming from the utilization of both geographic structure and

multi-domestic strategy

Vietnam was one of the very first Asian countries that Nestlé decided to expand during the period 1990s Over more than 25 years, Nestlé Vietnam has created lots of value not only in Vietnam, but also all around the world

I Introduction

I.1 Company overview - The Nestlé Group:

Nestlé is the world’s largest food and beverage company, headquartered in Vevey, Switzerland Nestlé has a wide range of products from baby food, mineral water, coffee, and dairy products The Nestlé Group is a global leader in Food and Beverages, with an extensive global production and business network Nestlé SA Global, a well-known multinational food products

manufacturer headquartered in Vevey, Switzerland, which was founded by Henri Nestlé in 1866 and originated from milk-based baby food products manufacturer

It then expanded their business into the United States and Europe Until 1905, the company merged with Anglo-Swiss (an American condensed milk company) to form the new business as Nestlé Group Currently, Nestlé has products in more than 180 countries and operates nearly 500 factories with more than 230,000 employees worldwide

I.2 Business history and its internationalization process:

In the 1860s, Henri Nestlé – a pharmacist invented a food for babies who could not be breastfed His first success was to save the life of a premature baby who could not be fed breast milk or other conventional substitutes After that remarkable event, the value of this new product was quickly recognized Since then, the milk powder Farine Lactée Henrie Nestlé has been widely sold in Europe

The Nestlé Group has had many international expansions of their business dated from their formation in 1866:

- In the period from 1944 to 1975, Nestlé had been diversifying their product lines within the food sector to meet the needs of consumers The company in these years had made significant merges and acquisitions, including Alimentana S.A., The

manufacturer of Maggi seasonings and soups (1947), Crosse & Blackwell, the British manufacturer of preserves and canned foods (1960), Findus frozen foods (1963), etc

- Until the period of 1981-1995, after witnessing slowdowns of the company’s

performance in the market, which associated with risks, the company changed the scope in order to improve its financial situation by adjusting its internal operations, as well as keeping their strategies of expansion The company over this period also expanded their market by establishing their headquarters and had Foreign Direct Investments in Asian countries such as India, China, Japan, Singapore, and Vietnam, etc

I.3 Nestlé Vietnam:

Figure 1: Nestlé Vietnam products (Source: Nestlé Vietnam)

Nestlé’s first sales office in Saigon was established in 1912 Until now, Nestlé has had nearly 2,300 employees in their 06 operating factories nationwide Nestlé is responsible for both

manufacturing as well as distributing products in Vietnam and internationally Here are the

milestones documenting the company's rapid growth in Vietnam:

1992 The establishment of La Vie Company, derived from a joint venture between Perrier

Vittel of Nestlé and Long An Trading company

1993 Nestlé returned to Vietnam It then officially established a representative office in Ho

Chi Minh City

1995 Nestlé Vietnam was born and started to settle the construction of the first factory in

Dong Nai province

2002 Put into operation the second factory of La Vie in Hung Yen Province

2007 Dielthem was selected to be the official distributor for confectionery products and

chocolate

2008 Special Nutrition Division was established

2011 In 08/2011 built Tri An factory; In 11/2011 acquired Binh An factory (Gannon) in

Dong Nai

2013 Nestlé Vietnam built a NESCAFÉ factory in Amata Industrial Park, Dong Nai

province

2013 On September 9th, Nestlé Vietnam moved their head office to a new location at 5th

Floor, Empress Tower, District 1

2015 Installation of $80 million decaffeinated coffee bean factory

2016 Commencement of construction of Nestlé Bong Sen Factory in Hung Yen worth USD

70 million

2017 Establishment of Bong Sen Factory in Hung Yen and Modern Distribution Center in

Dong Nai

2018 Establishment of NESCAFÉ Dolce Gusto Pellet Production Line at Nestlé Tri An

Factory

Center

province

Figure 2: Nestlé Vietnam development history (Source: Nestlé)

As Nestlé has pronounced it a multinational company, the information below will clarify the reasons for this company’s internationalization that has contributed to the success of Nestlé until now

Nestlé themselves clarifies as an multi-national company The factors to their success are the decentralized management and geographic organizational structure

Nestlé previously used a complicated, decentralized matrix organizational structure that allowed for a prominent level of autonomy and independence within its subsidiary brands and companies To manage its global business, the company underwent a major restructuring in October 2021 and was reorganized into five new geographical zones These are, according to an official press release:

Figure 3: Nestlé Global organizational structure (Source: Nestlé)

The decentralized management makes them flexible with the challenges in the widely diverse market, with 186 countries being operated by Nestlé around the world And according to Nestlé, for decentralized management, their organizational structure is mostly based on their geographic divisions, in which each of the primary areas has different directors and managers This model of management makes them agile for the continuous changes in terms of supply chain and market demands Moreover, this structure allows them to have strategies for different markets, to

effortlessly localize their products and meet the market needs

Nestlé focuses on internal growth, attempting to increase quantity by innovating new

products and renovating existing ones Nestlé has been able to grow a wide range of products through this strategy, including processed foods, breakfast cereals, dairy products, baby foods, beverages, ice cream, bottled water, chocolate confectionary, and pet care Nestlé is also a low-cost operator, this enables them to not only stay ahead with low operating low-costs, but also to outperform their competitors by producing low-cost products Nestlé moreover has the ability to

tailor global products to local consumer preferences Nestlé's subsidiaries develop products that match consumer preferences in the local market, which is one of the company's key strengths

In general, from the above-mentioned information, we can see that Nestlé had used the multi-national strategy to expand their business This gives Nestlé itself the immediate responds for the local changes, high local authorization, and values created often match with culture of the market which attracts high and stable consumption However, Nestlé has to face the challenges that their value chains will vary in each different market

In Vietnam, Nestlé started as a joint venture with the Long An trading company; however, a year later they officially established their office in Vietnam by using multi-national strategy They have directly invested to Vietnam billions of dollars counted to now, by establishing factories and technical improvements

The strategies that Nestlé chose to penetrate in Vietnam’s market was the same with other markets in the area The period 1981-1995 they started to move the concentration from North America and Europe to Asia, Eastern Europe, and Latin America In these developing countries, Nestlé had a universal and logical mindset that the profit growth of the company would increase along with the increase in the population and economy of a country Nestlé settling in, which is the thing that Nestlé has been following over the years

Firstly, Nestlé took advantage of the political normalization in Asian countries to expand their business without any barriers relating to the conflicts between countries In the 1990s, Vietnam had just been liberated from the United States because of the elimination of their

embargoes This allowed Vietnam to have numerous opportunities to the international markets by attracting lots of potential investments From that remarkable period in politics, Vietnam always welcomes and creates opportunities for foreign direct investments from companies worldwide, with long-term commitment for further support Nestlé at that time was one of the first

international companies came and settled their business officially in Vietnam

Figure 4: Vietnam’s GDP from 1995 to 2021 (Source: World Bank)

Vietnam’s economy has shown the stability of growth over the years Significantly, there has been an increase in GDP, there is 1.700 per cent growth in 2021 when compared to the number in 1995 The economic performance of Vietnam over the years not only shows the potential for business’s profitability, but also attracts more sources of foreign investment in In

1995, there were only 1.409 FDI projects operated, worth 18.3 billion US dollars, and in 2021, there were about 33.000 FDI projects from 140 countries operated nationwide, worth 394 billion

US dollars Nestlé early started their business in Vietnam when the country economy was young, they took that benefit because at that time there was little limitations as well as competitiveness for international company coming to Vietnam

The government has been focusing on industrialization since the very first Industrial Revolutions Since then, there have been many large-scale industrial parks established

Additionally, industrial production gradually developed stably with an average annual growth rate of 13.6%, of which the foreign-invested sector increased by 22.5% In terms of production value, the scale of industrial production in 2000 was 3.6 times higher than in 1990, of which the foreign-invested sector is 7.6 times higher Until these years, on average, FDI in industrial parks and economic zones accounts for about 35-40 per cent of the total additional registered FDI of the whole country; In the field of processing and manufacturing alone, FDI in industrial parks and economic zones accounts for 70-80% of the total registered capital in this field of the whole country

Although Vietnam had relatively low economic powers, they still had positive points regarding the low cost of labour forces and high growth rates These high growth rates would lead to higher incomes of people, as well as the tendency to choose widely known products with

reasonable prices The Vietnamese were well-educated with high rates of literacy; furthermore, because of the specifications of the food processing industries or fast-moving consuming goods (FMCG) industries does not require skillful labor to be employed Nestlé had lots of

opportunities in both manufacturing and consuming their products in Vietnam, when the cost for labor forces was relatively low as well as the high rates of consumptions

Both Vietnamese authorities and Nestlé are also focusing on the advancements in

Technologies Over 25 years, Vietnam has considerable improvements in Technologies, by learning and applying innovative technologies from the world to the country The government has taken importance on collaboration with businesses in order to implement technological advances in the manufacturing process for more efficient processes and better product quality Nestlé has continuously improved their manufacturing chain in factories as well as built

additional factories For the stable sources nationwide and internationally, there are six factories with modern technology equipment Recently in 2021, With the goal of making Vietnam a center for producing and supplying high-value Vietnamese coffee for the domestic and world markets, Nestlé Vietnam has announced an additional investment of US$132 million to double the

processing capacity of high-quality coffee lines at Nestlé Tri An factory, Dong Nai province

Figure 5: Inside the Caffeine Instant Coffee Production Area in Nestlé Tri An Factory, Dong Nai

of being the first international companies coming to Vietnam Since Vietnam in the 1990s was a poor country with low economic power, all of the costs were reasonable and controllable

In general, the company's strategy is to enter emerging markets from the early days ahead

of competitors and build a strong position by selling basic foods that appeal to the local

population such as infant formula, condensed milk, noodles, and tofu Initially by narrowing the market, focusing only on a few strategic brands, Nestlé insists the company can simplify life, minimize risks, and focus its marketing and management efforts in several key niches The goal

is to build a leading position in each of these niches

According to Nestlé, their appropriate strategies in Vietnam has contributed not only to the profit growth of the company, but also to the national growth Counted to now, Nestlé has been investing nearly 730 million US dollars, and nearly 700 million US dollars in the average coffee purchase every year for Vietnam Since 2011, Nestlé has cooperated with the Central Highlands Institute of Agricultural and Forestry Science and Technology (Wasi) to conduct research

programs on coffee varieties, transfer technical equipment for coffee production thereby looking for ways to increase productivity and quality, contributing to the development of

sustainable coffee in Vietnam The project also enhances sustainable farming techniques for hundreds of thousands of farmers, helping them increase their income by 30% In 2020, Nestlé Vietnam has officially exported MAGGI spice products to "fastidious" markets with many technical standards requirements such as the US, Australia, Japan, and neighboring markets such

as the Philippines, Thailand, etc witnessed high growth in volume and value, contributing to Nestlé Vietnam's export growth

Over more than 25 years, Nestlé Vietnam has shown to the world that they had chosen the appropriate method of market expansion as well as market entry strategy to establish the new business in Vietnam Their contribution goes along with the prosperity of the national growth; furthermore, it also creates lots of meaningful values to Vietnam by creating job opportunities, increasing the export turnover value, and making the very first steps for further foreign direct investment coming to Vietnam after that period