Four Strategic Goals of Location
Nestle is a worldwide food producer, and as such, it has numerous production facilities and brands located in different parts of the world. Nestle’s strategic goals that define chosen locations are as follows:
- Establish the company in the local market. Being able to produce foods domestically significantly reduces costs of logistics and makes a good reputation for the brand by employing locals.
- Economic feasibility. Producing foods domestically may be cheaper than importing them due to the proximity of resources necessary for production.
- Labor market accessibility. Hiring labor force in countries such as Brazil and Argentina is cheaper than doing so in Europe, which contributes to choices of certain locations.
Institution-Based View
The institution-based view is a type of international business strategy that encompasses the elements of industry-based and resource-based strategy, as well as adding the analysis of societal differences and cultures added into the mix. Nestle operates using institution-based views and incorporating them into their location and pricing strategy. For instance, their policy on how much should a product be charged for in different countries is based on what the local population could afford without jeopardizing their family budgets. Nestle’s goals, as stated in the case study, are about promoting good food and a good life for their customers. Affordability is one of the qualities necessary for achieving that goal. It ties in with location strategy, as producing cheaper goods domestically means a lower price for the local markets.
Five Dimensions of Culture
Hofstede’s five dimensions of culture can be applied to any international business for analysis. The dimensions include power distance/proximity, individualism/collectivism, masculinity/femininity, uncertainty avoidance/acceptance, and short/long-term orientation. In the case of Nestle, it is a Power Distance company due to large distances between lowest and highest-ranking employees. It is a collectivist company due to the nature of mass production. Its strategic approach to the markets is feminine, as Nestle seeks to collaborate and establish joint ventures rather than suppress the local competition. It establishes structured environments to avoid uncertainty, with a clear chain of responsibilities and a command structure. Lastly, the company shows a clear orientation for long-term gains, as it establishes alliances and builds factories in promising markets.
Equity and Non-Equity Alliances
Equity alliances are alliances based on cross-shareholding and supplemented by passive equity investments, meaning that companies owe equity to one another. It is a complex system of relationships that ensure reduced incentives for competition between members of the alliance and reduce chances of a takeover. An example of an equity alliance would be the alliance between Nestle and Polar Beverages, as they share knowledge and resources to make products under both brand names.
Non-equity alliances are closer to gentlemanly agreements between companies, usually not official, which are made to ensure coexistence and cooperation between companies. Although less complex, they are also more prone to being broken. An example of such an agreement involves the NaturALL bottle alliance between Nestle, Danone, and Origin Materials.
Liability of Foreignness
Liability of foreignness is a concept that defines additional costs international companies face when operating outside of their country of origin. It is genuinely motivated by difficulties imposed by foreign legal systems as well as competition with domestic brands and distrust of foreigners by the local populace. Nestle deals with the liability of foreignness in several ways. It builds production facilities to establish itself as a domestic brand. Additionally, it purchases local brands and forms joint ventures and alliances with them to mask itself for a domestic brand as well. Lastly, it establishes a good reputation in the market by implementing region-focused pricing policies.