Strategy Analysis of

Regional strategies for Global

Leadership by Pankaj Ghemavat

– An Idea in Practice

An Idea – Regional strategies for Global Leadership

It’s often a mistake to set out to create a worldwide strategy.

Better results come from strong regional strategies, brought together into a global whole.

This idea is shared by Shri Pankaj Ghemavat, a renowned strategist, the Jaime and Josefina ChuaTiampo Professor of Business Administration at Harvard Business School in Boston and the author

of “The Forgotten Strategy” (HBR November 2003).

Despite Globalization, there is a wide regional distinction in global markets (read regional) withrespect to cultural, political, legal & economic factors which the affect the globalization of an industryor economy. A lot of companies competing globally expect to succeed with a global strategy andor economy. A lot of companies competing globally expect to succeed with a global strategy andignore the regional differences and the result they get is no surprise! The success mantra is tocapitalize on the regional differences and adopt strategies that complement their global strategy butblend them well with regional tactics. Shri Pankaj Ghemawat identifies & suggests 5 Regionalstrategies while aiming to conduct successful business in foreign markets.

�Home Base Strategy

�Portfolio Strategy

�Hub Strategy

�Platform Strategy

�Mandate Strategy

The Idea described…

Taking a more practical orientation than other researchers within regional studies, Ghemawat (Ghemawat 2005) provide five different

tangible types of regional strategies that incorporate and balance both global integration and local responsiveness as well upstream and

downstream activities. In his own words, “...regionally focused strategies are not just a halfway house between local (country-focused)

and global strategies but a discrete family of strategies that, used in conjunction with local and global initiatives, can significantly boost

a company's performance.”

The Home Base

StrategyThe strategy of the

home base strategy

resembles very much a

normal export strategy

and it is difficult to tell

the difference as the

main point of

The Portfolio

strategyBy acquiring or setting

up organisations

outside the home

region that reports

directly to the home

base companies

engage in the portfolio

The Hub StrategyA hub strategy builds

regional bases or hubs,

which provide a variety of

shared resources and

services to local operations.

By adopting this strategy

companies seek to add

value at the regional level.

The Platform StrategyThe Platform strategy is

looking for economies of

scale across regions in its

effort to spread fixed costs.

This strategy tend to be

especially important for

upstream activities that can

deliver economies of scale

The Mandate

StrategyThe mandate strategy

can be seen as an

extension of the

platform strategy.

Constituting the last

strategy introduced by

Ghemawat it focusesmain point of

Ghemawat is that the

company develops and

produces in their home

country and export it

to suitable markets.

Companies usually

start by serving the

home-, and near

markets from their

home base, naturally

locating their R&D and

manufacturing in the

country of origin.

engage in the portfolio

strategy. This is usually

the first type of

strategy that is used by

companies that seek

to establish a market

outside their home

base.

value at the regional level.

Setting up such centres on

a country basis is normally

not justified having such a

hub for cross country

operations to utilize

economy of scale may

make them practical. The

indirect goal of this strategy

is to make the hub a

standalone unit.

deliver economies of scale

and scope. The platform

strategy refers to the attempt

by companies to share

platforms that provide the

companies a way of launching

products in a wide variety

more cost effectively - this by

sharing components, enabling

reduced cost in sourcing,

administration, and

operations. Ideally platform

strategies are almost invisible

to a company's customers, if

not as the platform strategy

runs into difficulties when

managers take

standardization too far.

Ghemawat it focuses

on economies of

specialization as well

as scale. The main trait

of this strategy is that

companies adopting

this strategy: “...award

certain regions broad

mandates to supply

particular products or

perform particular

roles for the whole

organization.”

The Idea in Practice – Strategies at

About Nestlé

Nestlé SA, Switzerland is amongst the world’s largest food and beverages companies. The company

is progressively evolving from a respected, trustworthy food and beverage company to a respected,

trustworthy food, beverage, nutrition, health and wellness company. This objective is encapsulated

in “Good Food, Good Life”. The principle activities of the group encompass: beverages, milk

products, nutrition and ice cream; prepared dishes and cooking aids; chocolate, confectionery

and biscuits; water; and pet care. It has 511 factories in 86 countries around the world.

Global Footprint

The Home Strategy -

Nestlé is a Swiss based company and originated with Henri Nestlé's search for a healthy, economical

alternative to breastfeeding for mothers who could not feed their infants at the breast.

Nestlé's first customer was a premature infant who could tolerate neither his mother's milk nor any of

the conventional substitutes, and had been given up for lost by local physicians. People quickly

recognized the value of the new product, after Nestlé's new formula saved the child's life and within a

few years, Farine Lactee Nestlé was being marketed in much of Europe.

Since then Nestlé focussed on development of products at home but would be of vital utility to people

in various countries across the globe.

Henri Nestlé also showed early understanding of the power of branding. He had adopted his own coat of

arms as a trademark; in his German dialect, Nestlé means 'little nest'. One of his agents suggested that

the nest could be exchanged for the white cross of the Swiss flag. His response was firm: "I regret that I

cannot allow you to change my nest for a Swiss cross .... I cannot have a different trademark in every

country; anyone can make use of a cross, but no-one else may use my coat of arms.“ This clearly

indicates the vision of the leader of the company who had a home based invention and a goal to serve

global customers. Nestlé invests around USD 1.2 Bi in R & D every year.

Nestlé has a dynamic network of R&D centres globally working on scientific research and product

development. Its scope and reach are global with about 5000 people working in R&D. Nestlé's global R&D

is applied locally to meet different consumer needs and preferences through 320 Application Groups

worldwide. However the headquarters at Swiss has also taken up some functions itself. Quality and

safety control is in the hands of 30 people in headquarters who watch over all 511 factories. Coffee and

Cocoa, the key ingredients of Nestlé products worldwide, is pooled into five corporate-led regional

centres. Nestlé CEO once summarized – “everything that can be centralized, will be centralized… the

company is getting fitter and fitter everyday”.

The Portfolio Strategy -

A network of Local Companies

Nestlé's unmatched geographic presence is one of its competitive advantages. From Swiss

beginnings, the company grew to establish a presence in almost every country in the world.

Today, Nestlé's presence in most markets, including emerging markets, dates back many

generations, and in some cases more than a century.

Inspite of operating in 130 countries, it considers itself a conglomerate with network of local

companies. In early 2000s, a Swiss bank analyst commented that Nestlé was basically a holding

company with hundreds of companies reporting in.

It’s a genuine paradox. Although Nestlé is one of today’s global giants, they are a local company inIt’s a genuine paradox. Although Nestlé is one of today’s global giants, they are a local company in

each of the 130 countries where they market their products. In many of them, they are present

for more than 100 years. With time they have learned and understood the cultures and habits,

and how to benefit their economies and communities. Local Nestlé units work within a global

framework based on the Nestlé principle: “Centralise what you must, but decentralise what you

can“. In this way they combine the advantages of a worldwide company with the advantages of

smaller, local businesses. Although Nestlé is very global, essentially it’s a company made up of

smaller local units. So wherever Nestlé is, it is not an anonymous giant. Their global sales are

simply the result of adding together the sales of each local company. Around the world, the

average number of employees in their factories is 270, and the average number of employees in

any single country is around 3,000.

The Hub Strategy -

Nestlé’s objectives are to be

recognised as the world leader in

Nutrition, Health and Wellness,

trusted by all its stakeholders, and

to be the reference for financial

performance in its industry. Theperformance in its industry. The

Corporation believes that

leadership is not just about size; it

is also about behaviour. Trust, too,

is about behaviour; and they

recognise that trust is earned only

over a long period of time by

consistently delivering on their

promises. These objectives and

behaviours are encapsulated in the

simple phrase, “Good Food, Good

Life”, a phrase that sums up the

Corporation’s corporate ambition

The Hub Strategy contd -

Nestlé in Original Triad: Nestlé has its own local companies in most countries. The Head Office in Switzerland works very

closely with them, and sets the overall strategy which is managed through Management and the Strategic Business Units.

Geographically, Nestlé’s three Zones (Europe; the Americas; Asia, Oceania, Africa and the Middle East)work closely with the local

markets and the Strategic Business Units. Their primary role is that of enablers, acting as the voice of the headquarters to the

markets, and the voice of the markets to the headquarters. All Zones and Units share Nestlé’s vision so that everyone around the

world understands the direction to take and how to get there with common tools, common strategies and common values. The

Strategic Business Units specialise in a given category, for example Coffee and Beverages, or Pet Care, or Chocolate and

Confectionery. Corporation works with Research and Development (R&D) to ensure that everything the Corporation produces is

led by consumer insights and relevant innovation; and they help the markets to achieve their business and brand objectives. To

make it all happen, Nestlé has 511 factories in 86 countries, and 29 Research Centres.

When operating in a developed market, Nestlé strives to grow and gain economies of scale through foreign direct investment in

big companies. Recently, Nestlé licensed the LC1 brand to Müller (a large German dairy producer) in Germany and Austria.

In the developing markets, Nestlé grows by manipulating ingredients or processing technology for local conditions, and employIn the developing markets, Nestlé grows by manipulating ingredients or processing technology for local conditions, and employ

the appropriate brand. For example, in many European countries most chilled dairy products contain sometimes two to three

times the fat content of American Nestlé products and are released under the Sveltesse brand name.

Nestlé in Asia: In Asia, Nestlé’s strategy has been to acquire local companies in order to form a group of autonomous regional

managers who know more about the culture of the local markets than Americans or Europeans. Nestlé’s strong cash flow and

comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestlé acquired Indofood, Indonesia’s largest

noodle producer. Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export

Indonesian food products to other countries.

Nestlé has employed a wide-area strategy for Asia that involves producing different products in each country to supply the

region with a given product from one country. For example, Nestlé produces soy milk in Indonesia, coffee creamers in Thailand,

soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for regional distribution.

Nestlé in China: Long-term investment, transfer of technology, and training in agriculture are just three ways in which Nestlé is

a force for good around the world. An example is Nestléin China. In 1987, the first joint-venture company, Nestlé Shuangcheng

Ltd, wase stablished in Heilongjiang Province. Applying the expertise in nutrition and food processing, the first local production

in mainland China started in 1990. With that, Nestlé added another region in the original triad of business zones.

FDI in Developed Market

When operating in a developed market, Nestlé strives to grow and gain economies of scale through foreigndirect investment in big companies. Recently, Nestlé licensed the LC1 brand to Müller (a large Germandairy producer) in Germany and Austria.

In the developing markets, Nestlé grows by manipulating ingredients or processing technology for localconditions, and employ the appropriate brand. For example, in many European countries most chilled dairyproducts contain sometimes two to three times the fat content of American Nestlé products and arereleased under the Sveltesse brand name.

European and American food markets are seen by Nestlé to be flat and fiercely competitive. Therefore,Nestlé is setting is sights on new markets and new business for growth.

The Hub Strategy contd -

Nestlé is setting is sights on new markets and new business for growth.

Strategy in Asia Market

In Asia, Nestlé’s strategy has been to acquire local companies in order to form a group of autonomousregional managers who know more about the culture of the local markets than Americans or Europeans.Nestlé’s strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers.Recently, Nestlé acquired Indofood, Indonesia’s largest noodle producer. Their focus will be primarily onexpanding sales in the Indonesian market, and in time will look to export Indonesian food products toother countries.

Nestlé has employed a wide-area strategy for Asia that involves producing different products in eachcountry to supply the region with a given product from one country. For example, Nestlé produces soy milkin Indonesia, coffee creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in thePhilippines, all for regional distribution.

The Platform Strategy -

Nestlé – a company built on brands

The Nestlé brand portfolio covers practically all food and beverage categories: milk and dairy

products, nutrition (infant, healthcare, performance and weight management), ice cream, breakfast

cereals, coffee and beverages, culinary products (prepared dishes, cooking aids, sauces etc.),

chocolate and confectionery, petcare, bottled water.

Starting out as a baby-milk powder, in the late 19th century, it grew steadily as a global food

company. It branches out into cosmetics by taking a stake in Loreal and added eye care company

Alcon to the portfolio in seventies. The company also made short diversion into the hotel &

restaurant industry but these businesses were subsequently divested. In early 2000s, a Swiss bank

analyst commented that Nestlé was basically a holding company with hundreds of companiesanalyst commented that Nestlé was basically a holding company with hundreds of companies

reporting in. Lagging behind all of its main competitors in operating margin, the company had to

be streamlined and restructured. Nestlé refocused around its core brands – Nestlé, Nescafe,

Nestea, Maggi, Buitoni and Friskies which together contributed 70% of the group’s sales. Several

businesses such as roast coffee, cheese and frozen potatoes were divested. Nestlé is now more

integrated towards ‘food, nutrition, health & wellness’ leveraging the same message of swiss

reliability around the world.

Nestlé adopts the platforms of Nutrition, Health & Wellness while producing new products to serve

global customers, nutrition being a core platform for their products since the inception in 1866 with

the launch of an innovative, nutritious baby food. Almost 150 years later also, the company

continues to focus on this core element of “Nutrition” for all their product innovation while not

over-riding the taste factor and hence their slogan – “Good Food, Good Life”.

The Mandate Strategy -

Nestlé’s 10 Corporate Business Principles & concepts of Creating Shared value showcase

their Mandate Strategy.

As Nestlé is a principle-based company, the

Nestlé Corporate Business Principles form

the foundation of all that they do.

Compliance with

Nestlé Corporate Business Principles, and

with specific policies related to each

principle, is non-negotiable for all

employees and their application isemployees and their application is

monitored and regularly audited. As shown

in the diagram, compliance with Nestlé

Corporate Business Principles is the

foundation for the Company’s commitment

to be environmentally sustainable and to

create shared value. Creating Shared Value

is the basic way they do business, which

states that in order to create long-term

value for shareholders, they have to create

value for society. But they cannot be either

environmentally sustainable or create

shared value for shareholders and society if

they fail to comply with the Business

Principles.

The Mandate Strategy contd -

Nestlé’s 10 Corporate Business Principles

An Idea indeed in Practice -

While Shri Pankaj Ghemawat has broadly specified 5

regional strategies to choose from, it is not

necessary that the Companies necessarily progress

through the strategies as they evolve. Whereas

some companies may indeed adopt the strategies in

the order as presented, others may find themselves

abandoning more-advanced strategies in favor of

simpler ones— good business is about striving to

maximize value, not complexity. And capablemaximize value, not complexity. And capable

companies will often use elements of several

strategies simultaneously.

Nestlé as an organization has gone through various

phases growth in it’s aged old history of inception,

expansion, diversification and Globalization. The

Nestlé Road Map guided under the visionary leader

Henri Nestlé in earlier days, this organization has

been more of a Regional Transnational Company

operating across the globe!