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Nestlé Enters China. Global Business Development Report (Assessment)

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Updated: Sep 7th, 2021

Introduction

The food industry has undergone massive changes over the past several decades, yet most of the organizations that constituted the foundation thereof have retained their presence in the original markets due to the success of these companies. Nestlé is one of those companies, with the brand has become a household name and cemented its presence in the American market, as well as a range of others on all continents (Appiah-Adu & Amoako 2016). However, to remain relevant in the global market and attract new audiences, the company needs to expand and embrace other markets that have high potential as the platform for Nestlé’s further growth.

China is one of the economic areas that contain a wide variety of opportunities for organizations that operate in the food industry. Moreover, recent alterations in the demand for domestic food have created even greater chances for foreign companies to succeed in the Chinese food market (United States Department of Agriculture 2019). The goal of the report is to evaluate Nestlé’s chances for succeeding in the selected area and define the strategy that will help the firm to gain an immediate following among the new audiences.

Entering into the Chinese market for Nestlé is necessitated by the alterations in the market trends and the overall focus of the food industry. Similar to other areas of trade, the designated industry has been experiencing a strong influence of globalization as a driving force behind the changes in its focus and goals. Globalization has had a tremendous effect on companies’ approach toward marketing creating the need for expansion, Nestlé not being an exception (Romaniuk, Dawes & Nenycz-Thiel 2018). The described changes have entailed the reconsideration of the process of corporate governance within large companies, causing the phenomenon of foreign direct investment (FDI) to emerge (Ng’ambi 2015). FDI is traditionally defined as the “investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in pone economy” (Ng’ambi 2015, p. 14). FDI can be seen as a method of keeping a corporate brand easily recognizable, at the same time shaping it to meet the expectations and needs of the global market (Romaniuk, Dawes & Nenycz-Thiel 2018). For Nestlé, it will be critical to focus on the promotion of FDI as a tool for keeping its brand image consistent.

This paper follows a rigid structure that allows navigating its content effectively. After the introduction, in which general facts about the topic are established, a more detailed description of Nestlé, its brand, and “Butterfingers” as the key product that will be introduced into the Chinese market will be provided. Afterward, the Chinese food market will be described and evaluated in terms of its friendliness for Nestlé and its “Butterfingers.” As the FDI strategy is selected in the next section of the paper, the approach toward building Nestlé’s profitability rates in the Chinese market will be located.

Background Company Information, the Brand, and the Product

Having warranted an important place in the hierarchy of organizations functioning in the food industry, Nestlé currently represents a typical multinational enterprise (MNE). Nestlé shares a range of characteristics with a traditional MNE. For example, the company has an impressive range of assets, as well as a vast variety of branches that operate in different markets.

China as the New Target Market: Description and Analysis

While the Chinese market seems to currently represent a perfect opportunity for Nestlé to pursue, there are some aspects thereof that require more detailed scrutiny. A closer look at the present-day situation in the Chinese economy will reveal that it is rooted in the idea of luxury and novelty being the key selling point for a significant portion of products, including food (Chan et al. 2017). In addition, the comparatively low prices combined with the rapid economic growth produce a rather promising environment for Nestlé to use as the foundation for promoting its new brand (see Table 1).

Similarly, sociocultural factors can be considered rather positive for the introduction of “Butterfingers” into the market once its brand is associated with high social status (Chan et al. 2017). Similarly, no political constraints currently prevent Nestlé from entering the market. As far as the technical issues are concerned, Nestlé should bear in mind that most Chinese customers prefer online shopping as opposed to its offline equivalent (Chan et al. 2017). Therefore, creating a site and a mobile application using which Chinese customers can purchase the product and have it delivered to them should be seen as a necessity. Legal issues are unlikely to pose any obstacle for Nestlé, as well as environmental ones since the organization deploys green strategies (Chan et al. 2017). Overall, the results of the PESTLE analysis show that Nestlé only needs an elaborate change in the sociocultural appeal of its product to attract Chinese customers.

Table 1. Chinese Market: PESTLE.

Political No significant political constraints can be observed.
Economic
  • Recent economic growth due to the increase in production;
  • Focus on creating ties with foreign partners
Sociocultural
  • The propensity toward luxury as the signifier of high social status;
  • Focus on innovative and novel products
Technological
  • Increase in the use of IT;
  • High levels of online economic activity
Legal No significant legal constraints currently exist.
Environmental The necessity to focus on sustainability: Nestlé’s asset

However, the process of entering the product into the designated market is simplified by the fact that Nestlé has already established a tangible influence in the Chinese market as a major producer of sweets, particularly, chocolate (Bharucha 2016). Therefore, the process of introducing a new product into the identified setting will be simplified. However, in order to maintain its appeal to the target demographic, the company will need to take several facts into account. For instance, it is worth mentioning that the Chinese audience tends to purchase chocolate and sweets from well-established brands such as Nestlé for purposes such as gifts for specific events (Bharucha 2016). Therefore, the luxury by which a range of products created by Nestlé is characterized has been enjoying impressive success in China.

However, unlike other brand products that Nestlé offers, “Butterfinger” does not meet the standards of luxury. Quite the contrary, the initial branding positioned the chocolate bar as clumsily charming (Akhtar, Xicang & Iqbal 2017). Therefore, one could argue that “Butterfinger” is far from being the best candidate for the Chinese market. However, with the creation of rebranding techniques and the change in the marketing strategy, the product is bound to enjoy significant popularity once the idea of novelty and unique experiences is incorporated into the brand (Akhtar, Xicang & Iqbal 2017). As Table 2 shows, the current position of Nestlé in the Chinese market is quite firm, with the organization’s competitive advantage being very strong compared to other firms. However, Nestlé should also focus on catering to the culture-specific needs of its market, the main ones being the need for new experiences and unique products, as well as luxury items (Akhtar, Xicang & Iqbal 2017). Therefore, Nestlé has a chance at introducing “Butterfingers” into the Chinese market and gaining the needed recognition, yet it will require a substantial effort to rebrand the product as unique and fulfill the promises that its marketing campaign makes.

Table 2. Porter’s Five Forces: Nestlé’s “Butterfingers”.

Bargaining power of buyers High: the presence of similar products; demand for unique experiences
Bargaining power of suppliers Medium: the presence of similar organizations; abundance of raw materials
Threat of substitutes Medium: Nestlé’s strong presence in the market; a product that is easy to replicate and produce
The threat of new entries Medium: Nestlé’s presencebeing established in China;
Competition Moderate

The current economic trends observed in China also signify that Nestlé’s decision to introduce “Butterfingers” to its market has quite a potential. According to the recent data, the GDP rates have been on the increase over the past few years in China, with the current GDP reaching 72039.80 CNY HML (‘China GDP from industry’ 2019). Therefore, the overall situation in the Chinese market can be deemed as fairly favorable for Nestlé’s foray into the selected niche. At the same time, it is worth noting that the confectionery and chocolate industry in China has been rooted in the idea of luxury as the most lucrative vehicle for promoting the product (‘China GDP from industry’ 2019). With the levels of competitiveness reaching medium, Nestlé may need to consider incorporating the elements of luxury and uniqueness into its product, thus adjusting the brand of “Butterfingers” to the Chinese market.

Overall, the product suits the market quite well since it meets the needs of the target audiences, specifically, the need for new experiences and original taste. Thus, the market is fully suitable for investment. Moreover, the cheap workforce and opportunities for attracting potential investors along with partners in business should be mentioned as critical factors that define the value of the market. Thus, “Butterfingers” is an ideal choice for the Chinese food market.

International Business Strategy: The Pressure of Local Prices

When considering the strategies that Nestlé should deploy in the context of the Chinese market, one should bear in mind that the need for luxurious items is coupled with comparatively low prices in the Chinese market (Teagarden, Von Glinow & Mellahi 2018). Therefore, the organization will need to seek a compromise in navigating in the Chinese food industry setting. Applying Hofstede’s Model of Cultural Dimensions, one will realize that the most reasonable step for Nestlé to take currently concerns representing its “Butterfinger” brand as a confectionary with a unique flavor that provides exclusive experiences to its customers. The represented approach will help to keep the price of the product reasonably low, at the same time creating the flair of luxury around it. As a result, the company will gain success in its designated market without betraying the expectations of its audiences and keeping the pricing framework within the needed boundaries.

Applying Hofstede’s Model of Cultural Dimensions, one will realize that the adjustment of the brand to the Chinese market will require a compromise between the company’s pricing strategy and the brand image of the product. Specifically, the market seems to be driven by Collectivism rather than Individualism, with a distinct Power Distance between its players (see Table 3). In addition, although China seems to steer away from the concept of gender roles as rigid and inflexible constructs, yet its market is still rooted in a range of gender-related preconceptions. Thus, it will be a sensible step for Nestlé to omit the idea of coding the product in a gender-specific way. Instead, the company should position it as a confectionary for all types of customers, thus embracing a huge audience (Hu & Scott 2016). Avoiding uncertainty and setting long- and short-term objectives should also be regarded as critical characteristics for the company to consider based on Hofstede’s model. The current propensity among Chinese audiences to promoting clarity and transparency in public relationships, as well as the focus on short-term objectives can be seen as critical characteristics of the market, which is why Nestlé will need the support of a promotion technique that will make the product’s characteristics clearly delineated and communicated to its buyers.

FDI Entry Mode Strategy: Selection and Justification

Selecting the FDI approach that the organization will need to apply in order to succeed in the Chinese food market, Nestlé will need to take into account that the required framework should be focused on cost reduction, yet the pressure for local responsibility is not significantly high at present. Nevertheless, it is reasonable for Nestlé to set the bar for responsiveness and quality higher in order to make its competitive advantage even more pronounced in the Chinese economic setting. Therefore, the organization should deploy a combination of Global Standardization and Localization as the means of appealing to its customers, at the same time retaining its brand name recognition (Teagarden, Von Glinow & Mellahi 2018). Thus, the firm will need to alter its brand image so that it could be seen as more prestigious than it is currently positioned in its target market, which aligns with the principles of Localization. At the same time, the quality standards must remain in place along with the general requirements for the brand identity of a light snack with a unique taste.

When considering the company’s priorities and the brand image that it strives to create, one will have to con=cede that the focus should be placed on localization as the gateway to winning customers’ affections. Similarly, the pricing framework will require changing toward a more charitable one. However, the use of a standardized approach toward issues such as the brand color, logo, and other important signifiers of Nestlé’s essence and quality will have to remain in their place. Thus, the organization will establish its product as a strong and competitive one.

Strategy for Increasing Profitability: Selection and Justification

In addition to a well-designed vehicle for promoting its product in the Chinese food market, Nestlé will also need a tool for expanding its profit margins. Currently, the company seems to focus on a rather broad market segment since it strives to cater to a wide variety of customers with its new product, hence the need to deploy either the Cost Leadership approach or the Cist Differentiation strategy. While the former will allow creating a more sensible pricing framework, the latter will emphasize the uniqueness of the brand, which makes the decision quite difficult to make. Nevertheless, due to the need to build a clear easily distinguishable brand image in the Chinese market, Nestlé should adopt the Differentiation Strategy (Teagarden, Von Glinow & Mellahi 2018). Thus, the company will attract a vast range of customers and build their loyalty.

Conclusion

By adjusting its marketing approach toward the specifics of the Chinese market and hiring a local workforce to reduce the costs of production, Nestlé will be able to establish a very powerful presence in the Chinese market with its “Butterfingers” brand. Due to the constraints of the market, the firm should consider deploying the strategies that will allow investors to consider the firm as a potential partner. Simultaneously, the organization will have to work on the arrangement of a strong supply chain in the Chinese market by shaping the corporate governance approach to improve the speed and efficacy of decision-making. With the shift toward the corporate governance practices that will allow local managers to make decisions informed by market-specific factors, Nestlé will be able to enhance the performance of its Chinese supply chain, causing a rapid rise in efficacy and profit margins. The described step does not diminish the role of the firm’s shareholders in the corporate decision-making but, instead, introduces better opportunities for managing local issues of which shareholders may not be aware.

The integration of Hofstede’s CDM is crucial in entering the Chinese market successfully. With a proper understanding of the mentality of Chinese buyers and the factors that define their decision-making, Nestlé will be able to adjust its “Butterfingers” brand to the context of the Chinese market in a way that will appeal to the target audiences immediately. Finally, Nestlé should make projections of its further growth in the designated market based on the results of its analysis. Currently, the organization has ample chances at attracting new customers in its new target market by revisiting some of the aspects of its brand and making it more palatable for the Chinese audience. Due to the strong competitive advantage that Nestlé has over its potential rivals in the Chinese market, as Porter’s Five Forces analysis has shown, Nestlé should be quite confident in its foray into the designated area.

Reference List

Akhtar, S, Xiang, Z & Iqbal, S 2017, ‘Impact of brand image on the profitability of firm, analysis of Nestle Company Pakistan,’ Review of Public Administration and Management, vol. 5, no. 3, pp. 1-12.

Appiah-Adu, K & Amoako, G 2016, ‘The execution of marketing strategies in a developing economy’, African Journal of Economic and Management Studies, vol. 7, no. 1, pp. 9-29.

Bharucha, J 2016, ‘Cadbury vs Nestle: a study of the chocolate war’, International Journal of Research in Social Sciences, vol. 6, no. 9, pp. 609-620.

Chan, TH, Leung, FF, Tan, P & David, KT 2015, ‘Role of conventional ads in a digital age: effects of internet and conventional advertising on brand awareness and brand desire in China,’ International Journal of Electronic Commerce Studies, vol. 6, no. 1, pp. 87-98.

2019, Trading Economics, Web.

Hu, Y & Scott, J 2016, ‘Family and gender values in China: generational, geographic, and gender differences’, Journal of Family Issues, vol. 37, no. 9, pp. 1267-1293.

Ng’ambi, SP 2015, Resource nationalism in international investment law, Routledge, New York, NY.

Romaniuk, J, Dawes, J & Nenycz-Thiel, M 2018, “Modeling brand market share change in emerging markets”, International Marketing Review, vol. 35, no. 5, pp. 785-805.

Teagarden, M, Von Glinow, M & Mellahi, K 2018, ‘Contextualizing international business research: enhancing rigor and relevance’, Journal of World Business, vol. 53, no. 3, pp. 303-306.

United States Department of Agriculture 2019, , Web.

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