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Nestle is one of the worlds leader in the food processing and consumer packed goods industry. Founded by Henri Nestle in 1866 in Vevey Switzerland, it has become worldwide with almost 85 branches around the world specializing in a variety of products ranging from baby food, drinks and bottled water to confectionery and ice cream. (Micheloud & Cie, 2008) In the race to achieve a high market share in the ice cream industry, Nestle is followed closely by its global competitor Unilever, a Dutch/British multinational operating across many countries in the world with its thriving brand name and products. In order to perform better, Nestle followed a series of acquisitions to grow in the global market.
In order to find out its resources, capabilities and core competencies, an internal environmental analysis (SWOT Analysis) of Nestle has to be conducted.
Resources can be divided into tangible and intangible resources. Tangible resources include Human resources, equipment, financial resources or capital and raw materials. Such resources are easier to put a value on, but they are also easy to copy and hence are not unique to an organization. On the other hand, intangible resources include technology, knowledge, expertise, brand name, copyright, patent, goodwill etc. Such resources are not easy to copy. Hence being unique, a company having such resources should be able to achieve sustained competitive advantage.
SWOT Analysis of Nestle:
Good Brand Name: Nestle has created a brand name for itself in international markets and also owns brands such as Kit Kat and Lion Bar.
Acquisitions: Nestle grew through acquiring various national companies. This meant they had to prepare them to also face the necessary risks involved in the process of acquisition and even after. Also global integration proved to be a hindrance.
Licensed Brands: It has licensed brands from Disney and in turn has used this to develop exclusive ice cream products such as Extreme ice cream cones. This grew to Nestles advantage the Disney characters were now linked to Nestle.
Weak distribution links: Nestle suffered as they did could not reach their products to all the local markets due to poor distribution links. On the other hand Unilever maintained good relationships with the local companies and retailers to as to ensure adequate freezer space in most of the small outlets in the country. Their objective was to gain maximum freezer space in order to make their products available to the customers at all times. In certain cases the company also rented its freezer to smaller stores.
Technology: Nestle has invested a great deal in modern technology. It has used this technical development wide range of new to develop innovations in ice cream and have also launched a chain of patented products. Nestle set up a research laboratory in North America and Europe to research and develop new technologies in ice cream. By doing this the company hoped to achieved a sustained competitive advantage.
Local Competition: It was difficult for Nestle to compete on a local level. Nestle allowed its national companies to develop local flavors which did not prove to be effective. They also could not compete with the low overhead costs from the local supermarket chains and companies.
Successful Diversification: Nestle has not only succeeded and advanced in the ice cream industry but has also used its knowledge and spread into breakfast cereals, chocolate and confectionery, dairy products, coffee, drinks, baby food and bottled water. Taking this risk of entering new market has proved to be extremely successful for Nestle over the years.
Achieving Profitability: In countries where Nestle could not achieve a significant market share, achieving profitability also proved to be a major predicament.
Economies of Scale: Nestle has been able to achieve lower costs as a result of higher volumes of production. They achieved economies of scale by branding the products that were usually manufactured at a central location with the national company name, thus reducing cost of storage and transportation.
Costs: Yet another limitation of Nestle was to overcome the high fixed costs of developing and distributing ice cream. In order to reduce such high fixed costs, Nestle needs a high market share so that profitability can also be increased.
Unilever definitely established a competitive advantage by maintain strong distribution links with its suppliers, an important factor that Nestle did not take into consideration. Unilever also achieved competitive advantages in terms of satisfying local tastes and prices. These strengths of Unilever have proved to be threats for Nestle.
Comparative Analysis of the Strategies used by Unilever and Nestle
Market Challenger on the attack
Market leader on defense
Approach to Strategy
Prescriptive Approach: Nestle definitely followed a more planned approach to achieve its organizational objectives. They stuck to their plans without making major changes. As a result of this planned approach they were able to put their resources to a much more efficient use.
Mix of Prescriptive and Emergent Approach: Although Unilever had its planned objectives of becoming the world leader in ice cream, they kept developing strategies to improve and work on their weaknesses. They kept up with the changes in the environment and were able to satisfy its huge customer base thus achieving a competitive advantage over Nestle. Unilever developed flexibility and adaptability.
Nestle differentiated itself from its major competitor Unilever by using its huge investment in technology to develop various patented products. It also associated itself with Disney characters by obtaining licensed brands.
Unilever was able to achieve economies of scale which in turn made it easier for them to also achieve cost leadership. They were able to reduce the costs and thus successfully enter the local markets.
Nestle followed an inorganic growth strategy through a series of acquisitions. It teamed up with other major companies to expand and develop a quicker market share. They acquired ice cream companies in more 30 major countries. Some major acquisitions included Dreyers, the US market leader and Scholler, a principal ice cream company in 2002.
By achieving economies of scale, Unilever was able to keep out new entrants that could not achieve such low costs. In addition to keeping out new entrants, Unilever also worked alongside local brand names thus following an inorganic method of growth.
Nestle diversified by producing new products and entering new markets, thus spreading its risk. It developed breakfast cereal, confectionary, baby food, dairy products etc.
Unilever on the other hand followed a product development strategy. They developed new products in the existing market. They acquired local brands and developed additional variety of ice cream products.
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