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

lOMoARcPSD|38146348 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 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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: Time Events 1992 1993 The establishment of La Vie Company, derived from a joint venture between Perrier 1995 Vittel of Nestlé and Long An Trading company 2002 Nestlé returned to Vietnam It then officially established a representative office in Ho 2007 Chi Minh City 2008 2011 Nestlé Vietnam was born and started to settle the construction of the first factory in 2013 Dong Nai province 2013 10/2014 Put into operation the second factory of La Vie in Hung Yen Province 2015 2016 Dielthem was selected to be the official distributor for confectionery products and chocolate Special Nutrition Division was established In 08/2011 built Tri An factory; In 11/2011 acquired Binh An factory (Gannon) in Dong Nai Nestlé Vietnam built a NESCAFÉ factory in Amata Industrial Park, Dong Nai province On September 9th, Nestlé Vietnam moved their head office to a new location at 5th Floor, Empress Tower, District Nestlé launched a factory worth US $ 37 million at Nestlé Binh An factory Installation of $80 million decaffeinated coffee bean factory Commencement of construction of Nestlé Bong Sen Factory in Hung Yen worth USD 70 million Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 2017 Establishment of Bong Sen Factory in Hung Yen and Modern Distribution Center in 2018 Dong Nai 03/2019 Establishment of NESCAFÉ Dolce Gusto Pellet Production Line at Nestlé Tri An 09/2019 Factory 10/2019 For applying logistics technology 4.0, Nestlé operated Nestlé Bong Sen Distribution Center Nestlé completed Phase of Nestlé Bong Sen Factory expansion project in Hung Yen province Built a modern and creative workspace at Ho Chi Minh City Figure 2: Nestlé Vietnam development history (Source: Nestlé) II Company’s Internationalization to Vietnam 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 II.1 Internationalization Strategy: 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: Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 costs, but also to outperform their competitors by producing low-cost products Nestlé moreover has the ability to Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 II.2 Nestlé’s market penetration: 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 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 Province (Source: Nestlé) Even though the disadvantages of the multi-domestic strategy mostly come from the cost when coming to the new market; however, Nestlé had minimized that by take use of the benefits Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 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 III Conclusion 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 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com) lOMoARcPSD|38146348 References General Statistics Office of Vietnam (2020, October 13) SOCIO-ECONOMIC SITUATION 10 YEARS 1991-2000 General Statistics Office of Vietnam Retrieved December 30, 2022, from https://www.gso.gov.vn/du-lieu-va-so-lieu-thong-ke/2020/10/tinh-hinh-kinh-te-xa-hoi-10-nam- 1991-2000/ Ministry of Planning and Investment of Foreign Investment Agency (2022, August 15) Vietnam has many opportunities to welcome a new wave of investment Ministry of Planning and Investment of Foreign Investment Agency Retrieved December 20, 2022, from https://fia.mpi.gov.vn/Detail/CatID/b6c45656-cd81-419d-acd8-e8c90dbf7806/NewsID/cfa06bdf- 9d4e-4e9b-a9d7-369b1f47fa14 MSC DO THI THAO, MSC NGUYEN THI PHONG LAN, & HO CHI MINH NATIONAL ACADEMY OF POLITICS AND ADMINISTRATION (2013, May 26) Basic achievements of Vietnam's socio-economic development since Doi Moi period POLITICAL THEORY AGENCY OF THE CENTRAL COMMITTEE OF THE COMMUNIST PARTY OF VIETNAM Retrieved December 20, 2022, from https://www.tapchicongsan.org.vn/kinh-te/-/2018/21694/nhung-thanh- tuu-co-ban-ve-phat-trien-kinh-te -xa-hoi-cua-viet-nam-tu-khi-doi-moi-den-nay.aspx Nestlé (2000) Letter to Shareholders Nestlé Retrieved December 20, 2022, from https://www.nestle.com/sites/default/files/asset- library/documents/library/documents/annual_reports/2000-management-report-keyfigures-en.pdf Nestle (2021, September 29) Nestlé invests $132 million to double coffee processing capacity Nestle Retrieved December 30, 2022, from https://www.nestle.com.vn/vi/media/dau-tu-132tr-dola-tang- gap-doi-cong-suat-che-bien-ca-phe Nestlé (2021, December) Nestlé We unlock the power of food to enhance quality of life for everyone, today and for generations to come Annual Review 2021 Nestle Retrieved December 20, 2022, from https://www.nestle.com/sites/default/files/2022-03/2021-annual-review-en.pdf Nestle (2022) Nestlé strategy Nestle Retrieved December 20, 2022, from https://www.nestle.com/about/strategy Nestlé Global (2020) About us: our strategy at Nestlé Nestlé Central & West Africa Retrieved December 20, 2022, from https://www.nestle-cwa.com/en/aboutus/strategy Nestlé Viet Nam (n.d.) Nestlé Viet Nam History Nestlé Retrieved December 30, 2022, from https://www.nestle.com.vn/vi/aboutus/nestlevietnam Nguyễn Ngọc Hoa, Nguyễn Thị Thúy Vân, & Đại học Kinh tế & Quản trị Kinh doanh Thái Nguyên (2017, December 23) Current situation of FDI attraction in Vietnam in the period 1988-2016 Tap Chi Tai Chinh Retrieved December 20, 2022, from https://tapchitaichinh.vn/thuc-trang-thu- hut-fdi-tai-viet-nam-giai-doan-1988-2016.html VietnamPlus (2021, October 12) Nestlé's CEO: Vietnam has proved its strong attraction VietnamPlus Retrieved December 20, 2022, from https://www.vietnamplus.vn/tong-giam-doc-nestle-viet- nam-da-chung-to-suc-hut-manh-me/746197.vnp 10 Downloaded by van Nguyen (hacngocbachvan.1003@gmail.com)