Abstract
This essay discusses the competitive strategies of Nestle, a multinational food and beverage company that aims to improve the quality of life and make an input to a healthier future. Specifically, it analyzes the company’s internal and external environment and financial performance using tools such as SWOT analysis, PESTLE analysis, Porter’s Five Forces analysis, and ratio analysis.
Ratio analysis shows that Nestlé’s short-term liquidity has weakened over time. On the other hand, the external environment analysis reveals that the company faces challenges such as changing consumer preferences, regulatory pressures, and increasing competition. In addition, the analysis also identifies the problem of forced labor and modern slavery in Nestlé’s supply chain and proposes strategic alternatives to address it. The strategic alternatives discussed include strengthening supplier auditing and risk management, investing in community development and education, and partnering with NGOs to increase transparency and accountability.
Introduction
Nestle is a multinational food and beverage company founded in 1866 by Henri Nestle. Initially, Nestlé produced infant food to combat malnutrition, but over time, it expanded its offerings to include a wide range of products such as coffee, bottled water, and pet food. The company’s products are sold under a wide range of well-known brands, such as Nescafe, KitKat, and Gerber (Singh & Alazmi, 2019).
Today, Nestlé operates in over 190 countries and employs approximately 330,000 people worldwide (Singh & Alazmi, 2019). Its mission is to enhance the quality of life and contribute to a healthier future by offering tasty and nutritious products designed to cater to consumer needs at various life stages. In terms of objectives, Nestlé has stated its ambition to be a leader in sustainability, with targets to achieve zero greenhouse gas emissions by 2050 and eliminate single-use plastics (Schirmeister & Mülhaupt, 2022). The purpose of this essay is to analyze Nestle’s competitive strategies, internal and external environment, and financial performance and to propose strategic alternatives that Nestle can pursue to eliminate modern slavery from its supply chain.
Nestlé’s Competitive Strategies
Nestlé’s competitive strategies focus on product differentiation and diversification. The company aims to provide unique, high-quality products that stand out from competitors, such as Nescafe instant coffee and KitKat chocolate bars (Tze et al., 2022). Nestlé also diversifies its product offerings across various categories and geographic markets, reducing reliance on any single product or region. Additionally, it invests heavily in research and development to continually innovate and improve its products (Tze et al., 2022). The company’s sustainability efforts also play a significant role in its competitive strategies, including a commitment to responsible sourcing, environmental sustainability, and social responsibility.
Analysis of Internal Environment
SWOT Analysis
Analysis of External Environment
PESTLE Analysis
Five Forces Analysis
Ratio Analysis
Current Ratio
The current ratio measures a company’s short-term liquidity, indicating its ability to meet its current liabilities using its current assets. Table 1 shows Nestlé’s current ratio decreased from 0.44 in 2020 to 0.46 in 2021 and to 0.37 in 2022, indicating that the company’s short-term liquidity has weakened over time (The Wall Street Journal, n.d.). To put it differently, Nestlé may have difficulty paying off its short-term liabilities using its current assets, especially in 2022, where the current ratio was significantly lower.
Table 1 – Nestlé’s Current Ratio (Source: The Wall Street Journal).
The decrease in the current ratio could be attributed to the company’s current assets, which decreased by approximately 10% between 2021 and 2022 (The Wall Street Journal, n.d.). At the same time, the company’s current liabilities increased by approximately 8% in 2022 compared to the previous year. Therefore, the lower current ratio in 2022 suggests that Nestle’s current assets are insufficient to cover its current liabilities, which is a cause for concern.
Net Profit Margin
From Table 2, it can be seen that the net profit margin of Nestlé Company has fluctuated over the years. In 2021, the net profit margin was the highest at 19.41%, followed by 2020 with a net profit margin of 14.50%. However, in 2022, the net profit margin decreased to 9.82% (The Wall Street Journal, n.d.).
Table 2 – Nestlé’s Net Profit Margin (Source: The Wall Street Journal).
A decreasing trend in net profit margin could indicate several things, such as increasing costs or decreasing revenue. In Nestle’s case, it could mean that the company is experiencing rising expenses or a reduction in sales revenue, leading to lower profit margins. A lower net profit margin also suggests that Nestlé may work harder to generate the same profit level as before. This could result in management taking measures such as cutting costs, increasing revenue, or restructuring the company to improve profitability.
Statement of Problem and Purpose of Analysis
Nestlé has discovered cases of forced labor and modern slavery within its supply chain, which violate the company’s principles and commitments toward ethical and responsible sourcing. The purpose of the analysis is to identify strategic alternatives that Nestlé can pursue to address these human rights violations and eliminate modern slavery from its supply chain.
Strategic Alternatives
Strengthening Supplier Auditing and Risk Management
Nestlé can enhance supplier audits and risk management to detect and prevent human rights violations in its supply chain. This could involve more frequent and rigorous auditing of suppliers, increased transparency and traceability of suppliers’ sourcing practices, and establishing more robust criteria for supplier selection and evaluation. Advantages of this alternative include improved transparency and accountability, increased supplier awareness and training on ethical and responsible sourcing, and reduced risk of reputational damage from human rights abuses. Disadvantages include the potential cost and resource burden of implementing more rigorous auditing and risk management processes and potential supplier resistance or non-compliance.
Collaboration and Partnership with Industry Peers and NGOs
In addition to auditing and risk management, Nestlé could collaborate with industry peers and non-governmental organizations (NGOs) to leverage collective knowledge and resources to eliminate modern slavery from supply chains. The company may participate in multi-stakeholder initiatives, such as the Ethical Trading Initiative, or partner with NGOs like the International Labor Organization. The advantages are increased collective impact and shared responsibility for ethical and responsible sourcing, improved stakeholder engagement and reputation, and enhanced access to knowledge and resources. The approach, however, suffers from potential conflicts of interest among stakeholders, the potential for competition and free-riding among industry peers, and the complexity and coordination challenges of multi-stakeholder initiatives.
Vertical Integration and In-House Sourcing
Nestlé could vertically integrate its supply chain and increase in-house sourcing to control and monitor its sourcing practices better and reduce the risk of human rights abuses. This alternative involves acquiring suppliers or establishing joint ventures with suppliers, as well as investing in internal capacity and resources for sourcing and production. This approach leads to increased control and oversight of sourcing practices, enhanced accountability and transparency, and a lower likelihood of human rights violations. The drawbacks include the potential cost and complexity of vertical integration, as well as the potential loss of expertise and flexibility from relying solely on in-house sourcing.
Recommended Strategic Alternative
The proposed strategic alternative for Nestlé involves reinforcing supplier audits, collaboration, and partnership with industry peers and NGOs. This alternative builds on the strengths and advantages of both alternatives while addressing the potential disadvantages and challenges. Through enhanced supplier audits and risk management, Nestlé can better identify and prevent human rights abuses in its supply chain while increasing transparency and accountability. On the other hand, by collaborating, the company can leverage collective knowledge and resources to more effectively address the complex and systemic issues of modern slavery in supply chains while enhancing stakeholder engagement and reputation.
Ethical and Social Responsibility Theory Support
The ethical and social responsibility framework supports Nestlé’s proposed strategic alternative, especially the stakeholder theory. The theory holds that a corporation should consider the interests of all stakeholders, including employees, customers, suppliers, and communities, and not just the shareholders (O’Connell & Ward, 2020). In the case of Nestlé, the proposed alternative addresses the concerns and interests of various stakeholders, including employees, suppliers, customers, NGOs, and communities affected by modern slavery in supply chains. Therefore, corporations have a moral obligation to ensure that their actions do not harm their stakeholders and promote their welfare whenever possible.
By strengthening supplier auditing and risk management, Nestlé would proactively address potential human rights abuses in its supply chain, which would benefit its suppliers and their employees. It would also enhance transparency and accountability, which are critical factors in promoting corporate social responsibility. Moreover, addressing the risks of modern slavery in its supply chain can avoid reputational damage, legal liability, and loss of customer trust, which are crucial factors for its long-term sustainability.
Collaborating with industry peers and NGOs can help Nestle fulfill its ethical and social responsibilities. Partnering with other companies and organizations can help the company share best practices, pool resources, and jointly advocate for stronger regulations and standards that protect human rights. This approach aligns with the ethical principles of solidarity, cooperation, and responsibility, which are central to stakeholder theory. Moreover, engaging with NGOs and communities affected by modern slavery demonstrates its commitment to addressing its business operations’ social and environmental challenges and enhances its reputation as a responsible and trustworthy corporation.
Implementation Plan
Conduct a Human Rights Risk Assessment
Nestlé must identify and assess the potential human rights risks in its supply chains. This includes identifying the countries, commodities, and suppliers most at risk of using forced or child labor. The risk assessment should involve collaboration with external stakeholders, including NGOs, labor rights groups, and affected communities.
Develop a Human Rights Policy and Code of Conduct
The company should develop comprehensive human rights guidelines and a code of conduct applicable to all suppliers. This policy should include eliminating forced and child labor, protecting workers’ rights, and ensuring safe working conditions. Nestlé should also communicate this policy and code of conduct to all its suppliers and ensure compliance.
Conduct Due Diligence on Suppliers
Nestlé should conduct due diligence on all its suppliers to ensure they comply with the human rights policy and code of conduct. The process entails conducting regular audits, engaging with suppliers to address any issues, and monitoring compliance with the policy.
Establish a Grievance Mechanism
Finally, Nestlé should establish an accessible, transparent, and effective grievance mechanism for workers and communities to report human rights violations in its supply chains.
Challenges and Issues
Resistance from Suppliers
Nestlé may face resistance from suppliers who may not be willing to adhere to the human rights guidelines and code of conduct. Thus, the company needs to work with these suppliers to address their concerns and provide support to help them comply.
Capacity Building
Capacity building for suppliers on human rights issues can be time-consuming and expensive. Nestlé must allocate sufficient resources to this activity and work with external stakeholders to leverage their expertise.
Monitoring Compliance
Monitoring compliance with the human rights policy and code of conduct can be challenging, especially in complex supply chains. Investing in robust monitoring and reporting systems is essential to ensure compliance.
Evaluation and Control Plan
Performance Metric
- Track progress against key performance indicators related to human rights and labor practices in the supply chain, such as the number of supplier audits conducted, the number of human rights violations identified and addressed, and the percentage of suppliers compliant with Nestle’s code of conduct.
- Evaluate the effectiveness of partnerships and collaborations by tracking the number of joint initiatives, the impact of these initiatives, and the feedback received from partners and stakeholders.
- Monitor the level of stakeholder engagement and satisfaction with Nestle’s measures to handle human rights violations in the supply chain.
Review and update the strategy
- Conduct regular progress reviews against goals and targets and adjust strategies and initiatives to address challenges and ensure continued progress.
- Seek input and feedback from stakeholders, including workers, NGOs, and consumers, on Nestle’s efforts to address human rights abuses in the supply chain.
- Continuously improve and evolve auditing and risk management processes based on feedback and results.
Conclusion
In conclusion, Nestlé is a global food and beverage company with a long-standing reputation for offering high-quality products that meet the needs of consumers across different life stages. However, the company has identified instances of forced labor and modern slavery in its supply chain, which go against its values and commitments to ethical and responsible sourcing. To address this issue, Nestlé can pursue several strategic alternatives, such as reinforcing its supplier auditing and risk management, partnering with external organizations to promote responsible sourcing, and investing in technology to enhance supply chain traceability. At the same time, Nestlé must also focus on improving its short-term liquidity by addressing the decrease in its current ratio and increasing its net profit margin through measures such as reducing costs and increasing revenue.
References
O’Connell, M., & Ward, A. M. (2020). Shareholder theory/shareholder value. Encyclopedia of sustainable management, 1-7. Web.
Schirmeister, C. G., & Mülhaupt, R. (2022). Closing the carbon loop in the circular plastics economy. Macromolecular Rapid Communications, 43(13), 1-41. Closing the Carbon Loop in the Circular Plastics Economy. Web.
Singh, A., & Alazmi, F. K. (2019). A case study on Nestle. Journal of International Conference Proceedings (JICP), 2 (2), 80-85. Web.
The Wall Street Journal. (n.d.). NSRGY | Nestle S.A. ADR Financial Statements – WSJ. Web.
Tze, X. C., Zhe, X. C., Sin, C. C., & Shieh, H. C. (2022). A study on marketing strategy of Nestle in Asia. Advances in Global Economics and Business Journal, 3(1), 1-14. Web.
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