Strategic Management for Nestle

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TABLE OF CONTENTS NO CONTENTS PAGE NUMBER 1 EXECUTIVE SUMMARY 1-2 2 INTRODUCTION 3 3 PESTLE ANALYSIS 4-5 4 SWOT ANALYSIS 6-8 5 VALUE CHAIN ANALYSIS 9-11 6 PORTER FIVE FORCES 12-13 7 CONCLUSION 14 8 RECOMMENDATIONS 15 9 APPENDICES 16-20 10 REFERENCES 21-25

Transcript of Strategic Management for Nestle

Page 1: Strategic Management for Nestle

TABLE OF CONTENTS

NO CONTENTS PAGE NUMBER

1 EXECUTIVE SUMMARY 1-2

2 INTRODUCTION 3

3 PESTLE ANALYSIS 4-5

4 SWOT ANALYSIS 6-8

5 VALUE CHAIN ANALYSIS 9-11

6 PORTER FIVE FORCES 12-13

7 CONCLUSION 14

8 RECOMMENDATIONS 15

9 APPENDICES 16-20

10 REFERENCES 21-25

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Executive Summary

Nestlé is widely known as the world’s largest multinational food and beverage company,

with a 148-year history and operations in virtually every country in the world. Nestlé was

founded in the year 1866 by Swiss pharmacist Henri Nestlé in Vevey, Switzerland.With

successful product expansion and business strategies, Nestlé now employs roughly 339000

people and has factories or operations in almost every region. Nestlé owns a variety of major

consumer brands such as Nescafe, Kit-Kat, Carnation, PowerBar and so forth that has a

dominant position in a variety of markets. The industry leadership of Nestlé largely depends

on the company’s Research and Development (R&D) networks and activities. This enables

Nestlé to provide high quality, safe and healthy food and beverage categories for worldwide

consumers on a continuous basis. Aiming to become the food industry leader in nutrition,

health and wellness, Nestlé is committed to promote corporate common goals and create

shared values within a decentralized organizational model.

The company typically implements differentiation and low-cost leadership strategies to

occupy or retain the target markets. They also established a global hybrid or mixed structure

that empower regional managers, who report back to the headquarters, to have autonomy for

their specific business operations and decision-making processes. Although Nestlé has certain

competitive advantages for persevering in the market, the company still faces challenges due

to external environments and internal factors in today’s dynamic and high velocity global

markets.

The purpose of this report is to evaluate Nestle Company industry based on the case

study and comprehend how the company develop strategic intent for their business

organisations following the analysis of external and internal business environments. It also

aims to identify market place opportunities and threats in the external environment and to

decide how to use their resources, capabilities and core competencies in the firm’s internal

environment to pursue opportunities and overcome threats. In order to strengthen this

assignment about Nestle, there are several methods of gathering data has been conducted,

such as PEST analysis, Porter’s 5 forces model, value chain analysis and SWOT analysis.

By the end of this assignment, future strategy will be mentioned as well as my

recommendations about Nestle that will fit into strategic orientation in order to perform better

in their business world. And continue to develop and implement its learning approach as the

chosen large company by using different strategies.

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In the end of this report, there are also research regarding Nestle’s strategy to overcome

other competitor as well recommendation and conclusion. In the Apendix, there are some

information regarding Nestle’s growth and histotry throughout time.

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1.0 Introduction

Nestle founder is Henri Nestle, a trained pharmacist and it was founded in the year of

1866. It is now one of the dominant leader in the environment of food and beverage

throughout the world (Osiris, 2014). It was began in Vevey, Switzerland when Henri Nestle

first invented Farine Lactée Henri Nestlé, which was filled with various combination such as

wheat flour, sugar and cow’s milk. The product was bought by a mother for her premature

infant whom couldn’t accept mother’s milk nor any other milk substances (Anon, 2015).

After the disruption of World War I in 1908, this created more demand, mostly from the

government contracts for dairy products. Nestle took chance of purchasing some of existing

factories in US and as the war ends, they have approximately 40 factories worldwide (Nestle,

2015). For partnership, they also merged with Alimentana S.A for Maggi products in 1945. In

addition, they are a major shareholder in L’Oreal, Cosmetics Company. The portfolio of their

brand is almost 2,000 global brands, sold worldwide based 196 different countries

(MarketLine, 2014). Not only that, this made Nestle to be in lead for some other industries

(refer Appendix 1). Financially, Nestle performance is defined as profitable. As stated in

Financial Times (2014), (refer Appendix 2), Nestle in 2013 had stream of revenue about

$99.5 billion which is calculated to be 2.7% more than the year 2012 end revenue. Nestle is

also awarded 41st most respected and well-known brand globally (Forbes, 2014).

For social responsibility, they have launched Nestle Cocoa Plan in 2012 to help farmers

rejuvenate farms and their productivity. They have reached a milestone whereby through

Cocoa Plan, by the year 2015 they are building 40 schools to help provide education for more

than 10,000 young children (Nestle, 2015).

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2.0 PESTLE Analysis

According to Mindtools.com (2015), PESTLE creator was taught to be a Harvard

professor Francis Aguilar. In 1967, he included EPTS in his book “Scanning the Business

Environment”, a scanning tool. Later the name was changed in order to create current

acronym. It is used to help warn advanced significant threats and spot business and personal

opportunities. Not only that, PESTLE helps to develop objective for environment. It is a

business measuring tool that take count of external factors of an organization. PESTLE stands

for acronym of Political, Economic, Social, Technological and Environmental factors

(Rapidbi.com, 2015).

2.1 Political

It is categorized as one of the concern to operate internationally for companies

global wide. Taxation policies and political stability plays crucial parts for an

operation of international business like Nestle. The company budget as well company

policies would be affected. In order to provide their consumers the food assurance

that their foods are manufactured, distributed and imported in the strictest sanitary and

hygiene condition. When it comes to products, Nestle products have guarantee seal.

This allows customers to have more confidence and trust towards Nestle products. In

addition, quality control plays vital role too. Products quality for all over the world

would not be different (Nestle, 2014).

2.2 Economic

According to Nestle (2014), they share knowledge and collaborate with local

companies even when Nestle is in the lad in food industry. By this, entrepreneurs get

to compete in a free trade environment in the terms of market growth. This too would

benefit the industry that takes part. Nestle along with the local government

collaborates in order to ensure technical help for farmers in harvesting and planting

crops. Both parties would be leaving with profits, farmers with their income and

Nestle gets raw materials to produce food. This is because the raise of price in raw

materials in need of source from a sustainable suppliers as stated in Kumar et al

(2013, pg. 205). They got to save money as they don’t have to import materials from

other countries. Customers too would be benefited as they get to buy products in low

prices.

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2.3 Social

Newman et al (2014, pg. 15) clarified that one of the main attention is to make

difference in consumers’ attitude and lifestyle. This terms constantly change as

different countries have different lifestyle as in religions, foods, taste, and also

language. In order to achieve targeted people in a region, Nestle comes up with

strategic plans. Not only that, customers’ value towards food is health. They

prefer food health conscious compared to junk foods (Watrous, 2015). Nestle is up

to the challenge in taking pace of consumer’s health in advance for their product.

2.4 Technological

Small change in technology could make an impact to business. Nestle as one

of the largest food and beverage company in the world have various products from

Baby foods, to cereals, coffee, and chocolate till ice-cream. They developed

technologies such as Extrusion, Malt extraction, Fermentation and Healthier fats

(Nestle.com, 2014). Refer Appendix ( ). Furthermore, the usage of Internet and

social media to interact with consumers enables Nestle to make difference in

development (Lin et al, 2014, pg. 3).

2.5 Legal

As Nestle is established worldwide, there are changes in regulation for each

countries. There would a need to adapt changes in global regulation in

international market (Schaffer et al, 2014, pg. 12).

2.6 Environmental

Nestle have increase their corporate social responsibility as in they have

established Cocoa Plan where they help poor ones to study and create a living

life for people in Africa (Nestle, 2015). Not only that, Nestle is one of the top

ten company worldwide to report corporate social responsibility by KPMG

(2013).

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3.0 SWOT Analysis SWOT is originated by Albert Humphrey from Stanford University in 1960s and

1970s by leading a research project with many top companies. His main goal was to

identify reason corporate planning fails. The results was identified as tools and key areas

called SOFT Analysis (Morrison, 2014). SWOT stands for Strength, Weakness,

Opportunity and Threat. Chron.com (2014) stated SWOT is a process to identify internal

and external factors by the management team that would affect future performance of

company. The strength and weakness is their internal factors while opportunity and threat

is external factors.

The table below states the SWOT analysis;

STRENGTH

1. Committed to their stockholders in

the approach of business and strong

cultural values (Schein, 2012).

2. Strong commitment in social

responsibility whereby as stated in

CSR Wire (2014) “long term

commitment never being sacrificed

for short term performance”.

3. Diversity in products, have 8000

products sold in markets (Nestle,

2014).

4. Operation in more than 197

countries including indirect and

direct channels (Nestle, 2015).

5. Refereed to Forbes (2015), Nestle

was the 43th in World’s Most

Valuable Brands position and 14th

WEAKNESS

1. Certain Nestle products

encountered criticism in

nutritional value. Often blamed

because of poor supplies

(GotAbout, 2015)

2. India government sued for unfair

trade practices ($100m) for Maggi

product (BBC News, 2015).

3. Being tainted in negative public

relations; baby milk scandal (the

Guardian, 2013).

Commentaries: Unilever manages to

breakthrough packaging technology by

using 15 less plastic whereby it is to

build more environmental awareness

(CSR Wire.com, 2015). While Nestle is

tainted with many health concerned

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in the market value. issues, Unilever is progressing with

proper health awareness product

packaging.

OPPORTUNITY

1. Developed their selling channel to

Africa with Coca Cola (Mark,

2012).

2. Disposable income increased in

China, demanding pet food, water

and ice cream (Decorvet, 2012).

3. Opened Nestle Café in many

locations (Nestlecafefranchise.com,

2015).

4. Collaboration with Global

Chocolate Market 2015-2019 with

companies as Mars, Ferrero Group

and Mondelez International

(Markets, 2015).

Commentaries: By 2020, Unilever is

focused in improving well-being and

health where there are taking actions to

improve nutritional and taste quality in

product for health. Not only that, they are

giving priority for women and fairness in

workplace by empowering 5 million

women in Unilever by 2020 (Unilever,

THREAT

1. People more health conscious as

chocolate related products are one

of the major products.

2. Major competitors such as

Unilever, Hersheys, Cadbury and

also Starbucks

3. Rising in price for raw materials

as global population increases

where Nestle might be forced to

increase their selling price

(Nestle, 2014).

4. Could lose dominance in India as

Nestle products are getting

banned in India states (Firstpost,

2015).

Commentaries: As stated in a press

release by Unilever (2013), they are

sourcing 1/3 of their own agricultural

raw materials as it is one of their target

to source 100% of it by year 2020 as they

are in the midst of doubling their

company size. As for Nestle, they are

facing high raw materials price which

encounters them increase their product

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2015). Nestle and Unilever both are

progressing towards making a change for

organization and community by taking

opportunity in hand.

price instead of enhancing their business.

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4.0 Value Chain

(Source: Imanet.org, 2015)

This idea was defined by Michael Porter in 1985 in order to know how

customer value gets along with activity chain which in the end lead to product or

service. He too describes value chain as an internal process in company which “to

design, produce, market, deliver and support its product” (Imanet.org, 2015).

Referring to the diagram above, Porter have stated in his book “Competitive

Advantage: Creating and Sustaining Superior Performance” that business activity is

split into two: Primary and support activities (Refer to Appendix 4 (Porter, 1998).

4.1 Primary Activity

4.1.1 Inbound Logistics

Nestle works worldwide with more than 165,000 direct supplier and 695

individual farmers (Nestle.com, 2015).there are also 26 language of supplier code for

worldwide suppliers. They too have established warehouses in different countries,

example in China and Malaysia.

4.1.2 Operations

Packaging water filling and account maintenance is Nestle operation. Major

improvement was held to speed up production by bringing facility par with

international standards. The top priority of Nestle for consumer is quality and safety

as it is one of our corporate principle.

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4.1.3 Sales and Marketing

Nestle promote their products by advertisement, personal marketing, TVC,

public relation and sales promotion. In Pakistan, they charge value price by producing

water in plastic bottles. “Brand Building the Nestle Way” is Nestle’s commercial and

career point of view. Nestle provide end-to-end marketing in brand management,

consumer insight and communications. Their main focus is to make sure they are able

to provide a hand to the customer.

4.1.4 Outbound Logistics

Customers knew Nestle through their brand where most food and beverage are

covered by them. From Baby foods and bottled water, culinary to coffee and

chocolates to drinks. Innovations by bottling packaging, delivering to regional offices

as demanded by customer and also having eco-efficient packaging (Nestle, 2014).

4.1.5 Services

Nestle have delivery services. They deliver to shops, hotels, offices and also

restaurants (Nestle, 2014).

4.2 Supporting Activities

4.2.1 Procurement

Main raw materials by Nestle is cocoa, milk and coffee. From farmers, Nestle

receive vegetables, potatoes, cereals and fruits. Through trading, Nestle also receive

spices, meat, oil, sugar and more on. All this requires specific quality of raw materials

but in the lowest cost system.

4.2.2 Technological

Nestle is enlarging their Product Technology Centre in United Kingdom for

confectionary because it strengthens the leadership and research and development.

The main two roles of enlarging is to use the technology in company operations and

second to enhance new product development.

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4.2.3 Human Resource

To make sure their employee have full rights, Nestle dedicate human research.

The aim of Management Trainee Programme is to develop young people in order

to help them in achieving a dynamic organization.

4.2.4 Firm Infrastructure

Nestle.com (2015) states in the Nestle Report that they have helped creating

labour forces in Africa and also help educating children. Not only that, they too

have built infrastructure like water treatment systems.

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5.0 Porter 5 Forces

Michael E. Porter came up with five forces model in 1979 while working for Harvard

Business School. The aim of this model was to show new way to identify, analyse and

manage factors by using effective strategy in an organization. It is divided into two parts;

Horizontal forces and Vertical Forces. (Kaumba et al, 2014). This was a framework which

shows the overall profitability and attractiveness in a market. Refer to Appendix 5 for the

Diagram.

5.1 Threat of New Entrants

The food industry is a large industry. It is common for companies in the industry to do

well for years and also to do poor in short period. Nestle luckily have been around for more

than a century and produces good products as well satisfaction of consumers. In order for

new threats to survive, they must be able to seize one of a Nestlé’s market share portion.

Example, Unilever is a threat for Nestle in certain products such as beverages. But somehow

Nestle is still on lead because of their trademark of healthy and long lasting credibility in

market. This made Nestle a target, and hereby the new entrants’ threat is moderate.

5.2 Threat of Substitute

There would be always something new on the market. Like every other company, Nestle

too encounter threat of substitute products. Comparing from Pet food, confectionaries and

ice-creams, there are similar products out there to Nestle products. To be in lead

continuously, Nestle got to find innovative ways in bringing up their products and also to

come up with new products to ensure their future plans for the company. Example, Spray

(2015) stated in Marketing Magazine that Kit Kat by Nestle has been blocked from

registering the four finger shape chocolate by Cadbury and the case is still ongoing.

Competitions in food industry is vigilant as Nestle has now turned to focus on healthy food

aspects while maintaining their place in market. The threat of it is high.

5.3 Competitive Rivalry

Being one of a powerhouse in the industry of food processing, Nestle have competition in

national and international level. Example of competition Nestle have is Unilever, Cadbury,

Masterfoods and Kraft. These are strong companies, battling continuously to overcome one

another. Refer Appendix ( ), as in Global Food Market Share 2004, Unilever, Kraft and

Nestle have been competing closely to be in lead.

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5.4 Bargaining Power of Buyers

Customers have high bargaining power as they are consuming the products. As there are

many substitute products for Nestle, customers could change perception and get influenced

by the factor of healthy food, low cost, and easy attainable. Nestle knows the steps to take in

order to meet their customers’ expectation. Since customers are nowadays health conscious in

products, Nestle have included health factor in their products (Nestle, 2015).

5.5 Bargaining Power of Supplier

Nestle have more power over suppliers as they have large purchasing power and the

suppliers too offer unique products. Moreover, Nestle have long duration relationship with

their suppliers as they need to preserve the availability of raw materials and also the quality

of it. Nestle took initiative to offer their suppliers regarding the efficiency to perform and

minimize the cost of production.

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6.0Conclusion

“Your most unhappy customers are your greatest source of learning” by Bill Gates.

This quotes show clearly that Nestle too have bad experiences in the past, and yet they are

striving to make a change to their organization, family and also to the community.

Nestlé’s official website shows that they have huge potential in most developing countries

if they could keep up the pace. Nestle company is known internationally and their

company is able to deliver more goodness than they do before for the future. I am sure

that Nestle Company could do even better by applying more strategies then their

competitors.

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7.0Recommendation

As stated in Nestle.com (2014), the important source in competitive advantage is the

image of Nestle brand. Nestlé’s big scope of business enables a significant scale in

administrating, marketing and manufacturing. Example, Nestle comes up with ventures

into new areas for growth in the reason of nutrition and wellness. Nestle joined a venture

by L’Oreal in the name of Inneoy. This joint venture takes place because of Nestlé’s

strong reputation. In order to be different, they invest in many new industry such as

nutricosmetics. Being innovative is also an advantage for Nestle. They make sure that

their 140 years of research that takes place in their globally renowned R&D Centres main

activity is for their customers’ benefit. Price could be a threat for Nestle as there are many

competitors and if their price is higher than ceiling, other competitors would win over the

customers. To ensure this don’t take place, Nestle have long availability for their raw

materials, thanks to their good relationship with their suppliers. “If you don’t have a

competitive advantage, don’t compete” says the CEO of General Electric – Jack Welch. If

Nestle apply more of their competitive advantage strategy, they could be able to be in the

lead in market for a long period.

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Appendices

Appendix 1

General information

Founded in 1866 by Henri Nestlé in Vevey, Switzerland, Nestlé is one of the world’s largest

food and nutrition company. Nestlé now operates 115 countries and has around 280,000

employees worldwide. Nestlé is ranked third by milk intake and first by turnover among

world dairy companies in 2010.

The timeline below reviews the significant events that mark the history of Nestlé:

1866‐1905

In 1866, two separae Swiss enterprises that would later form the core of Nestle, the Anglo‐Swiss Condensed Milk Company and the Farine Lactee Henri Nestle Company, were established.

1905‐1918

The Company formed by the merger was called the Nestlé and Anglo‐Swiss Milk

Company. By the early 1900s, the Company was operating factories in the United States,

Britain, Germany and Spain. In 1907, the Company began full‐scale manufacturing in

Australia, its second‐largest export market. Warehouses were built in Singapore, Hong

Kong, and Bombay to supply the rapidly growing Asian markets.

1918‐1938

The manufacture of chocolate became the Company's second most important activity. New

products appeared steadily: malted milk, a powdered beverage called Milo, a powdered

buttermilk for infants, and, in 1938, Nescafé.

1938‐1944

Due to World War II, neutral Switzerland became increasingly isolated, and many of

Nestlé's executives were transferred to offices in Stamford, Connecticut. To overcome

distribution problems, factories were established in developing countries, particularly in

Latin America.

1944‐1975

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Throughout this period, Nestlé's growth was based on its policy of diversifying within the

food sector to meet the needs of consumers. Mergers and acquisitions made by Nestlé

within this period include 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), Libby's fruit juices (1971), Stouffer's frozen foods

(1973), and finally becoming a shareholder in L'Oréal (1974), which is outside the food

industry .

1975‐1981

Nestlé's rapid growth in the developing world partially offset a slowdown in the Company's

traditional markets, but it also carried with it the risks associated with unstable political and

economic conditions. To maintain a balance, Nestlé made its second venture outside the

food industry by acquiring Alcon Laboratories, Inc., a U.S. manufacturer of pharmaceutical

and ophthalmic products.

1981‐1995

The Company's strategy for this period was twofold: improve its financial situation through

internal adjustments and divestments, and continue its policy of strategic acquisitions. In

1984, Nestlé's improved bottom line allowed the Company to launch a new round of

acquisitions, including a public offer of $3 billion for the

1996‐2002

In July 2000, Nestlé launched a Group‐wide initiative called GLOBE (Global Business

Excellence), aimed at harmonizing and simplifying business process architecture. Two

major acquisitions took place in North America in 2002 Dreyer's and Chef America, Inc.

Also in 2002, the joint venture Dairy Partners Americas was set up with Fonterra; and

Laboratoires innéov was set up, another joint venture, this time with L'Oréal.

2003‐2009

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Acquisitions made during this period include Mövenpick Ice Cream, Jenny Craig, Uncle

Toby's, Novartis Medical Nutrition, Gerber and Henniez. Also, Nestlé entered into a strategic

alliance with the Belgian chocolatier Pierre Marcolini. In 2008, Nestlé began a process of

selling Alcon by divesting 24.8% to Novartis. In 2009, Nestlé opened the Chocolate Centre

of Excellence in Broc, Switzerland, with Pierre Marcolini one of the master chocolatiers

Mission

Nestlé does not have a formal mission statement. Instead of a mission statement, Nestlé

uses a

clear set of principles and values to guide it through its business and corporate decisions.7

Nestlé

believes that attempting to capture all of its values and principles in a couple of sentences

would

fall short of what Nestlé strives to achieve. Nestlé operates under ten guiding principles of

operations. These ten principles are: 1) Nutrition, health and wellness, 2) Quality

assurance and

product safety, 3) Consumer communication, 4) Human rights in business activities, 5)

Leadership and personal responsibility, 6) Safety and health at work, 7) Suppler and

customer

relations, 8) Agriculture and rural development, 9) Environmental sustainability, and 10)

Water.8

Nestlé management believes that the company cannot create value society and for its

shareholders if it does not abide by its guiding principles.

The first three principles are in reference to Nestlé’s consumer. Nestlé works to

enhance the nutritional value, taste, and enjoyment of its products while guaranteeing a safe

product that fully informs the consumer about the benefits and pitfalls of its products. The

fourth principle is about recognizing the necessity of human rights and exercising and

promoting good human rights practices. Guiding principles five and six are about requiring

that employees respect each other and their management while also ensuring healthy and safe

conditions for all employees

worldwide. Principles seven and eight require that Nestlé’s customers and suppliers

adhere to the

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same high standards of honesty, integrity and fairness that it expects of itself. Lastly,

Nestlé’s

ninth and tenth principles revolve around environmental sustainability, and Nestlé

continuing

attempts to advance its environmentally safe practices and sustainability initiatives.9 It is

through adherence to these ten principles that Nestlé can give shared value to society,

customers,

and shareholders (its top priority stakeholders).

While Nestlé has a bit of a checkered past when it comes to corporate values due the

infant formula scandal of the 1970s, its new principles seem to be working very well. Per the

2011 Annual Report, in the last year Nestlé experienced internal growth in several important

areas, in spite of overall disappointing results.10 Additionally, both Chairman Peter Brabeck-

Letmathe and CEO Paul Bulcke agree that Nestlé’s principles will help the company to grow

in the future.

Apendix 2

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Appendix 4

Value Chain

Inbound logistics: This refers to everything involved in receiving, storing and distributing the raw materials used in the production process.

Operations: This is the stage where raw products are turned into the final product. Outbound logistics: This is the distribution of the final product to consumers. Marketing and sales: This stage involves activities like advertising,

promotions, sales-force organization, selecting distribution channels, pricing, and managing customer relationships of the final product to ensure it is targeted to the correct consumer groups.

Service: This refers to the activities that are needed to maintain the product's

performance after it has been produced. This stage includes things like installation, training,

maintenance, repair, warranty and after-sales services.

Appendix 5

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