Category: Nestle

NESTLE Unethical Behavior on Child Issues

The below paper will investigate the ethical issues in regards to the use of child labour, with in the supply chain of Nestle, the international consumer goods manufacturing company.Thes report will look into what ethics in international business is , how this is defined and how it applies to the case of Nestle’s Supply chain , it will also explore the ethical dilemmas faced by Nestle SA. Secondly it will try to identify what are the root causes of these ethical dilemmas, how the company is currently facing them and what are the drivers of this kind of behavior.

This paper will also look at what Nestle is currently doing in regard to addressing any ethical concerns in its supply chain and analyzing what its current effectiveness will be. Lastly, it will look at ways in which Nestle can address any ethical issues within its supply chain and find solutions to the ethical dilemmas identified, that it may want to implement to combat any negative consequences that may arise from such unethical practices.

Introduction

This paper seeks to investigate and critique the notion that “The sole purpose of a firm is to make money for its shareholders” it will look at the firm itself and how it is set up, what drives the decisions of the firm and what external factors will influence the future and current actions of the ferm in how it runs its operations as well as how ethics plays its part in the profitable operation of the business. In this essay more focus will be given to the ethical questions of the firm and how this impacts the business and how it interacts with its diverse stakeholders, including actions in communities in which it operates as well as looking into what impact these ethical or unethical actions will have on the profitability of the firm if any.

In the second part of this essay an analysis of the actions of a multinational corporation such as Nestle will be investigated (Specificly in its Cocoa Supply Chain, where issues of Child Labor have been Raised by the media) to determine how companies are currently handling this issue of ethics in international business and identify any current issues of ethics that may be faced by the company. Lastly this paper will look at possible recommendations as to how a company such a Nestle will be able to manage its ethical responsibilities and take actions if needed to mitigate and minimize the company’s risk of being exposed to unethical behavior. By doing this it will be possible to confirm or renounce the above statement and provide more insight as to the current state of ethical behavior in multinational companies in the current global economy.

Analysis

Description of ethics in an international business context

Business Ethics, is the demand for moral and ethical behaviour in all aspects of business either national or international companies.

Business ethics is about the social responsibility, corporate compliance, employer and staff rights that every company has to take into account when running its operations. The aspect of ethics like morality, responsibility, accountability, decisions and actions of any corporate organizations has to be addressed from the lowest point to the highest level. Basically, the foundations for the business ethics are behavior, attitude, values, demands of courtesy, manners, honesty and integrity. (Universal Class, 2019) Companies and their acts were considered “responsible for the consequences of their actions in a sphere wider than that covered by their Income statement” (Wood,2015). CRS unfold among multinational companies due to the loopholes in the international regulatory framework. MNCs abused differentiation in social and environmental gauges for “commercial advantage” utilizing escape clauses to maximize their worth. (Zerk, 2006: 1). CSR provided the chance to companies to demonstrate their sincere goals.

Ethical dilemmas

An ethical dilemma is a situation in the decision-making process regarding two possible choices, neither of which is absolutely correct from an ethical viewpoint. Although we face many ethical and moral issues in our daily life, most of them come with relatively simple solutions. In a perfect world ,we would – it can be said that there would be no conflict and that all people involved in activities with each other would be treated fairly and justly and that there would be no corruption and peace among all.

And that corporations doing business in communities would consider all stakeholders and their needs into account when making business decisions that affect all involved. There may be various challenges in the world of business depending upon the nature, size and type of organisation. It is important that business organisation maintain a certain benchmark of ethics in order to regulate dilemmas that are obvious to businesses.

Some of the ethical dilemmas in business are human resources issues, safety issues of the employee, conflicts of interest and maintenance of customer confidentiality. As well as conflicts between differing cultural views.

Drivers for unethical behaviour

Cost reduction

Nestle, after its major economic breakdown and due to World War, it faced prominent dropped in profit from $20 million to $6 million. Due to this, the company established factories in developing countries as the labour cost is minimum in those countries.

Unrealistic Performance Expectations

In MNC’s there is excessive pressure from the parent company to meet unrealistic performance goals which can be met only by cutting corners or acting in an unethical manner. In order to meet those goals Nestle have forced children to work up to 14 hours per day, six days per week. There are around 14,986 child labour cases on the cocoa farms only in Cote d’Ivoire and Ghana since 2012. (Douglas Yu,2018)

Decision Making Process

In a world of business there comes a situation where meeting a business target and achieving organisational goal seems above than realizing whether the behaviour are unethical simply because they fail to ask,” Is this decision or action ethical?” Instead they focus on straightforward business calculus to what they perceive to call a business decision forgetting that the decision may have an inevitable ethical dimension. The fault lies in the processes that do not incorporate ethical considerations into business decision making.

Cultural differences

The climate in some business does not encourage people to think via ethical consequences of business decisions resulting to bring unethical behaviour in an organization. Child labour seems to be unethical to many developed countries but for the under developed and undeveloped countries child labour might be the only option to feed their family, to fulfill their daily necessity. And for MNC this might seem to be an acceptable way of doing business in order to meet its target.

Socio economic factors

Socio Economic factor may have an impact on the propensity of people, and organisation to behave in an unethical manner. The existence of child labour in Nestle supply chain for its chocolate products due to consumer not willing to support such labour with their purchasing power define the root cause for companies toward unethical behaviour. (Oliver Nieburg, 2018)

Some people seem overly driven to make money and succeed at any cost. In this pursuit, ethics often take second place to the pursuit of profit (Schwartz 1986). In collectivistic societies, many people aspire to some form of socio-economic egalitarianism where income and benefits are roughly evenly divided; no one is either too rich or too poor, and harmony prevails as an ultimate goal (Gelfand et al. 2004; Hall and Hall 1987) In Individualistic societies, many people aspire to self-determination and independence and personal success with financial and material as a measure of that success.

Nestle in Sub-Saharan Africa

The root causes that lead to child right exploitation in Sub Saharan Africa and South Asian countries is poverty. It is an assumption that due to the poverty the children must work by necessity. It is estimated that as of year 2013-20144 around 2 million children(1.15 million in Cote d’ Ivoire and 880,000 in Ghana) were working in the cocoa sector in Sub saharan Africa as per the report published by “International Law and Policy Institute,2015”

Nestlé SA, a multinational manufacturer of food products that has been doing business since 1866 with its head office in Vevey, Switzerland, it operates factories in more than 80 nations. Nestlé’s chief offerings are condensed and powdered milk, baby foods, chocolate products, candies, instant coffees and teas, soups, seasonings and condiments, frozen foods, ice cream, and bottled water as well as pharmaceuticals. (Britannica)

Nestle being such a large and diversified MultiNational corporation faces many of the above ethical dilemmas in its day to day operation around the globe. One of which that has sparked a lot of intrest by the media and communities around the world has been the ethical dilema in regards to the use of child labour in the Cocoa Supply Chan of Nestle

Nestle being one of the biggest manufacturers of Chocolate in the world uses a significant amount of cocoa in its chocolate production , as cocoa is a key ingredient in the manufacturing process of making chocolate.

Nestle currently procures most of its cocoa supply from the international cocoa market , but due to the nature of the cocoa plant that produces the cocoa bean that only grows in certain climatic conditions around the world this supply has been concentrated in countries such as Ghana , Ivory Coast, Indonisia , Papua New Guinea and Central ammerican countries .

The 2 main supplying nations of cocoa beans to Nestle being Ghana and Ivory Coast

However, there is a dark side to chocolate produced from the above beans , thousands of children in West Africa are forced to work in the cultivation of cocoa beans, the primary ingredient of chocolate. Ivory Coast, the leading supplier of cocoa, accounts for more than 40% of global supply (Salaam-Blyther, Hanrahan & Cook 2005).

Due to the increased demand for cocoa beans by the world market and the naturaly limited supply of beans as well as the geografic limitations of growing areas , countries such as Ghana and Ivery Cost have leading roles in the supply of the important bean to the market , but due to facters inharnat to the two countries such as scatterd suppliers and small produsers ,high poverty levals , low economic development and littel or no regulation by govermants that can be seen to be corrupt , the production of cocoa beans has fell victum to ethical abuses and explotations , one of which takes the form of child labour in the farming of the much needed cocoa bean where children are used by small scale cocoa farments in the growing of beans to do tascs such as harvesting , cleaning, carring, and genaral taking cear of the cocoa trees.

Resulting is children being exploited by this need for cheap labour in the cocoa industry, due to may consumers now taking intrest in the responsabil production and sustainability of the products they buy many larg corporations have started to see more intrest in how there supply chains are effected by such ethical dilemas as the use of child labour , as this delema is now impaciting the corparations brand in bouth a ethical as well as economic asprect .

Facing this threat companies have now been placing more focus on managing such ethical dilemmas.

In 2001, the cocoa industry (including major multi national companies such as Hershey, Nestle and M&M/Mars) made a voluntary promise to implement the Harkin Engel Protocol (commonly known as the Cocoa Protocol), to certify their cocoa as a “child labour free” product (Salaam-Blyther, Hanrahan & Cook 2005; Chocolate Manufacturers Association 1989).

In 2012, Nestle was the first company in the industry to approach a comprehensive supply chain: the Child Labour Monitoring and Remediation System (CLMRS) which identifies issues of child labour within Nestle supply chain and provides targeted solutions to prevent similar situations going forwards. Since the adoption of Child labour Monitoring Remediation System Nestle has succeed to reduce incidents of child labour by 51% . Probably 100% never will be quite possible but still Nestle is in its continuous journey.

To do this companies are using audit and certification services from third party companies such as Fair Trade Certified, Rainforest Alliance (RA) and UTZ

Child labour in cocoa industry is a biggest challenge. Understanding the scale and complexity of the problem is the first step towards finding the right solutions. Nestle continuous effort to minimize child labour from it’s supply chain has remained in it’s paper work rather than implementation. In spite of having child labour, Nestle can focus on professional body of farmers for better farming practices. Moreover, it can focus on community awareness support programs as an appropriate and well-targeted educational initiative can change the attitude of the entire community.

Nestle has been claiming that forced child labour is unacceptable and has no space in their supply chain and there is no tolerance for the use of forced labour or child labour in their operations. However, nestle has not been following what it is saying. There are various policies and system established by Nestle like Fair Labour Association which led to Child Labour Monitoring Remediation System (CLMRS). There is an implementation gap between what it has been saying and what it is doing. Nestle need to increase its transparency and credibility to enhance its effort. Nestle should be accountable to their degree of responsibility to respect and protect human rights. Further, it is recommended to pursue government statute and regulation to bring sustainable transformation to the overall cocoa industry.

Conclusion

The most common ethical issues in global business so far involved human rights, employment practices, environmental issues and the moral obligation of multinational companies. Ethical issues and dilemmas in international business are rooted in the various forms of political systems, law, economic development and culture & tradition depending upon nation to nation. This paper has discussed the child labour issues in Nestle supply chain. The extent and nature of child labour is influenced by poverty, weak enforcement of laws and policies designed to overcome child labour. Despite initiation of various guidelines, protocol (Harkin-Engel), polices and collective efforts of NGO and INGO, we can still question ‘Has there actually had any effect in reducing child labour?’, the effort to reduce child labour is indeed the step to eradicate the child labour or it is just a vested interest of certain parties to have positive aspects of their concern organisation.

Analysis of Nestle As a Transnational Organization

Executive Summary

Nestle is a Transnational Organisation that sells and distributes manufactured goods worldwide. Their products include confectionery, skin care products, perfume, pet food as well as major shops services like Starbucks. It is a wealthy business that operates in both developed and developing country. Nestle plays a major role in contributing to the global economic growth each year, with factories in 85 different countries. Nestle’s widespread nature improves the standard of living to people worldwide, due to the investment and employment it creates.

• Subsidiaries
• Nestle is secondary
• Established etc.

This report with outlines the features of Nestle being the location, the size, the core business and its prime function. It will then continue on to explain the operations of the business, specifically referring to the ITO of a KitKat. It will then describe three human resources facing the business being the employees pay rise, child labour and —. A discussion of the positive and negative reasons of financial, marketing and legal management issues will follow. The positive reasons are —. The negative reasons are –. The report will then go on to discuss the two ethical issues of Nestle which include the positive and negative use of palm oil and both the positive and negative movement towards zero waste. Finally, the report will identify and explain the strategy of —– to increase the competitive advantage of Nestle.

Features

There are many features of a Transnational Organisation, that makes a business — . The report will outline the specific features of Nestle including its size, annual sales and profit, the industry’s classification, location and the business’s prime function.

1) Size

Nestle is a major, well-known organisation, that needs a significant number of employees and factories to handle the production needs of the company. With Nestle supporting over 2000 brands that range from drink products to pet food, the demand for workers is high. In 2018, it was reported that Nestle had 308 000 employees working for them in 418 factories worldwide.

2) Sales and Profit

Through supplying consumers with a various range of goods, Nestle’s receives a significant amount of income. Annually, Nestle’s total reported sales were at a total of 91.4 Billion CHF (136.81 billion AUD) as shown in Figure 1. This was a 2.1 % increase from 2017 (89.6 Billion CHF). From that total, Nestle earns a net profit of 10.1

3) Industry Classification

Nestle is classified a secondary ‘??’ as it manufactures and processes raw materials, into finished goods.

4) Location

Nestle has factories in 85 different countries around the world. Its headquarters are located in Vevey, Switzerland. The specific address is Rue Entre-deux-Villes 10 1814 La Tour-de-Peilz Switzerland. Figure 2 shows the amount of Nestle’s factories located around the globe, where they are and what the factory produced. This is shown by the key below on Figure 2.

5) Prime Function

Operations

The operations of a business are how the products are changed from the input to the output, through the transformation process. The report will explain the manufacturing and production process of a KitKat, showing the inputs, transformations and outputs of one of Nestle’s most well-known, worldwide chocolate.

1) Inputs

There are many raw materials that goes into the making of the iconic KitKat. The ingredients include the sheets of wafers, the cocoa beans, wheat, sugar cane, yeast, sodium bicarbonate and full cream powdered milk. The cocoa beans are sourced from the Ivory Coast in West Africa. Before the transformation process of the KitKat begins the beans must be transferred into a usable ingredient. This is done before they reach the factories of Nestle. The cocoa beans are fermented, dried and roasted. They are separated from their hulls to produce the cocoa nib, which is used to make cocoa butter and cocoa liquor. The cocoa butter and liquor are the two key raw materials needed in order to make a KitKat. The sugar cane goes through a list of purification steps before being sent to Nestle as raw sugar. The machinery needed to undergo this transformation include the cocoa grinder, the cocoa bean roaster, the sweltering tunnel, the conveyor belts, winnowing machine, nib-grinding machine, rectangular molds, hydraulic press, conchers, the cold tunnel and the packaging machines.

2) Transformation DIAGRAM

Through Nestle factories worldwide, these raw materials are transformed using high quality bulk machinery into the finished product, increasing the product’s value. The raw materials are brought to the factory. There they start to be processed into a KitKat. To start, the wafer sheets are combined and pasted together using a small layer of chocolate. The wafers are cut into their specific size, in order to fit the molds. The wafers are passed onto a conveyer belt where the chocolate flows constantly, leaving the wafers coated in one layer of chocolate. The chocolate wafers are placed into their molds and pass around the conveyor belt again, this time the chocolate filling the mold. The wafers are smoothed out as they pass a – set at the perfect height to remove excess chocolate. The chocolate is now taken out of the mold and placed on a new conveyor belt sent to be packaged in the iconic red packet. It is then placed into a major bucket, where it is collected for Nestle to sell. These processes increase the value of the raw materials as they are turned into a favourable treat that is hard to produce at home.

3) Outputs

The finished product is the KitKat. It is then distributed worldwide for consumers to buy. The product’s value is increased to the customer. TALK MORE ABOUT VALUE

Human Resource

There are 3 main human resource issues facing Nestle. This report will describe the three main human resource issues facing Nestle being the pay rise workers gained, the child labour work on the Ivory Coast and —

1) Wage Increase

Nestle has had a human resource issue that has benefitted Nestle employees now and for the future generation. In 2014, Nestle in the UK agreed to pay all employees the living wage. This agreement was to be implemented by December 2017. Nestle were the first leading manufacturer who committed to this change. This change by Nestle meant that not only do workers received an 3% increase on their wage that was already ‘well above the cost-of-living rate,’ but they also received Work, Health and Safety benefits. The wage was already 40% above the minimum wage, so this made an additional increase. The benefits included in the agreement the use of leave for members affected by family violence and flexible hours for older workers who ‘wish to transition towards retirement’. The company also agreed to train and take on extra apprentices, benefiting the outside community too. The chief executive of Nestle in the UK and Ireland stated ‘As a major UK employer, we know that this is the right thing to do. Not only does it benefit our employees but also the communities they live and work in.’ As a result of the feedback, Nestle received a positive reputation on the media. Living Wage Foundation director Rhys Moore commended Nestle on their achievements stating ‘The accreditation of Nestle as a living wage employer marks a significant milestone in the campaign to tackle in-work poverty. We hope that the leadership they have shown will encourage others in this industry to follow suit and improve conditions for those at the lowest end of the pay scale and sub-contracted staff.” Nestle’s action not only was resourceful for people in or hoping to be in the Nestle industry, but to people in other companies who were not receiving the living wage. There was pressure in other business to do so if they didn’t want to lose their workers.

2) Child Labour

Nestle has been publicly shamed against a major human resource issue – using child slaves to farm their cocoa beans. The Transnational Corporation receives it cocoa beans from the Ivory Coast. This is a place that has no laws against human trafficking and a place where children are being stolen from their homes to work. These child slaves do not get paid and are forced work in abysmal conditions, held against their will. On the Ivory Coast alone, 200 000 children are enslaved, with Nestle as their biggest offender. These children age around 11- 15 sometimes even younger, yet still undergoing 80 – 100 hour weeks, according to the CNN. Nestle pledged nearly 20 years ago to stop using cocoa harvested by children, however still to this day are using cocoa from these areas. Each child is watched by a farmer to ensure they are doing the right work. They do not speak often and have to lie their age to make this business seem ‘legal’. Abou Ouedrago (Figure 6) is one of the many children enslaved on the Ivory Coast. He is only 15 years old, but is told to say 19 to make the business seem legal. Like all child slaves that work there, he does not attend school and was taken from his family by a bus 5 years ago. Whilst Nestle is UTZ certified, the program only enables farmers better opportunities – the people onlooking the child slaves. The unreliability of this cocoa being certified is shown through the 2019 statistic that Nestle can only trace 49% of their cocoa. In 2005, a law suit was filed on behalf of three Malian children, allegedly trafficked, forced into slavery and beaten. In defence of the International Labour Rights Fund Nestle’s Executive Vice President stated that “No company sourcing cocoa from the Ivory Coast can guarantee that it doesn’t happen, but we can say that tackling child labour is a top priority for our company.” This statement shows that there is no guarantee that child slavery will end. Therefore, another human resource issue is the use of children in the farming of the cocoa beans.

3) Job Loss

In 2017, Nestle has stated that in Singapore employees will lose their job. They did not specify how many workers, but an approximation of 3% of 1400 employees (42 employees) would lose their job. It was stated that ‘some roles will no longer be available’, with employees from finance and other departments given the retrenchment letters. Nestle Singapore has stated that they will give the employees satisfactory compensation, expert support and connect the employees with other job opportunities.

Management Issue

1) Nestle’s Growth Rate

In 2018, it was reported that Nestle’s sales grew ‘at their slowest rate in more than two decades’ according to the Financial Times. It was stated that Nestle’s shares fell 2.6% to 75 Swiss Francs.

2) False Marketing Claims on Baby Milk Formula

Nestle’s manipulative marketing issues about the nutritional claims on its baby milk formula became a major management issue in 2018. It was marketed that the formula was ‘identical structure’ and ‘inspired by’ human breastmilk, despite the prohibition by the World Health Organisation in 2018. It was promoted that it was healthier as it was free from vanilla flavourings. Changing Markets Foundation campaign director Nusa Urbanic stated “If the science is clear that an ingredient is safe and beneficial for babies then such ingredients should be in all products. If an ingredient is not healthy, such as sucrose, then it should be in no products. Nestle’s inconsistency on this point calls into serious question whether it is committed to science, as it professes to be.” The management of the product by Nestle, has been miscommunicated towards the target market and has had a detrimental impact on the consumers trust on Nestle. The formulas that were most misleading were S-26 Gold, Nan, Illuma, Nido and Gerber by stating ‘closer to breastmilk’. Professor George Kent of the University of Hawaii stated that “closer to breastmilk … is not the same as saying it is close to breastmilk. New York is closer than New Jersey to Paris, but that does not mean New York is close to Paris.” Nestle has used marketing tactics by carefully choosing the wording to make the product seem more superior and more valuable to customers. The product was fed to newborns in hospitals, if the baby rejected breast milk. This led to malnutrition in newborns. Due to the effect on children, the World Health Organisation create guidelines for advertising breastmilk. However, once facts about the baby formula started being released, boycott campaign posters against Nestle started to become familiar. Figure 24 indicates the public disapproval by these baby milk formulas. This help spread awareness about Nestle’s false accusations. Despite this, a study by the ‘Changing Market Foundation’ found Nestle is still promoting their formula as ‘scientifically equal/ or superior to human breast milk, despite evidence to the contrary’. Nestle has specifically exploited low income mothers by targeting them with this product in a chance to make their baby healthier.

3) Legal

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Ethical

Many Transitional Corporations like Nestle, having ethical issues that they are facing, as the production of their goods have made them morally correct in certain aspects, yet morally incorrect in other aspects. This report will discuss the two major ethical issues affecting this business which are, the company’s use of palm oil and Nestle’s proposal to reduce their waste.

1) Use of palm oil

Nestle has been shamed over the use of unsustainable palm oil, with individuals questioning Nestle’s environmental concerns. The palm oil Nestle was using contributed to deforestation, habitat lost as well as the removal of Indigenous people from their land. Nestle has been flooded with disapproval after an incident in 2010, that caused damage to the Transnational Corporation’s reputation. Figure X shows the image of a worker biting into an orangutan’s finger, a movement that showed Nestle as an unsustainable company. Consumers explored the use of Nestle’s ‘sustainable palm oil’ that is supplied by Sinar Mas. Greenpeace spoke out about this issue stating that Indonesia has the 3rd highest level of carbon emissions due to the deforestation. Nestle can no longer claim to use certified sustainable palm oil in its chocolate or other products, after breaching the contract and being suspended by RSPO (Roundtable on Sustainable Palm Oil). This became a flaw in Nestle’s business as consumers became hesitant to trust Nestle’s ‘certified’ products. However, the suspension was not due to the viral orangutan finger KitKat but due to Nestle not submitting a progress report and the unpaid membership fee that was overdue. Nestle had owed 2000 Euros to RSPO. As a result of Figure X, Nestle has spoken out saying that ‘Sometimes those messages don’t go down from the top to the bottom or rise from the top to the bottom” meaning that Nestle was unaware of the issues that their food manufacturing was creating. A spokeswoman from Switzerland head office stated that ‘Once it became evident that the Facebook page had been overwhelmed by protesters, we decided that our best course of action was to step back, listen and take note.’ Whilst this issue was deeply concerning, Figure X sparked movement for Nestle to gain customers trust again and this issue gave them the light to voice their next steps towards the reduction of unsustainable palm oil. As soon as the news came out, Nestle had a plan implemented to prevent the backlash which positively affected the environment. Nestle decided to suspend all purchases from Sinar Mas ‘after it admitted to mistakes in the area of deforestation’. They made a goal that by 2020 all palm oil purchased by Nestle would be 100% responsibly sourced. In 2018, the statistics show that 64% has been locally sourced, showing the improvement in their use of palm oil. Nestle has taken actions to focus on the palm oil that is traceable and has excluded companies that are linked to deforestation. Figure 3 shows that the WWF believes that they are making acceptable progress in the community and are trying not to affect the environment – their 2030 ambition (zero environmental impact). Therefore, the ethical issue surrounding Nestle’s use of palm oil has had some negative effects, but seems as if this incident has made Nestle learn about how to become a sustainable palm oil consumer.

2) Reduction of waste

One of Nestle’s major ethical issues is the amount of waste that they produce annually- something Nestle is trying to overcome. As a result from Nestle having a wide variety of products, their reduction of waste is vital, in order to contribute to the building of a sustainable world. Nestle contributes tonnes of waste annually into landfill and to overcome this, Nestle has stated in its 2018 annual report, that by 2020 they are going to be landfill- free. Whilst this is ideal and would be ethically correct, the goals seem unreachable when considering approximate figures of how many tonnes of waste Nestle produces each year. From every imperfect chocolate that cannot be sold at full price, the plastic bottles that Nestle produces annually, the Starbuck plastic cups and straws, the goal seems merely possible to reach. Nestle estimated that they have had ‘losses along our entire vale chain at 12%. This includes the losses upstream of the raw materials that we buy, and the losses in manufacturing, distribution and at the consumption stage.’ However, Nestle has stated that 293 factories have achieved zero waste, over 70% of all factories Nestle owns. This is shown by Figure 4 which demonstrates Nestle’s consideration of the environment. However, whilst Nestle may achieve zero waste in factories, the goods that are produced are wrapped in plastic packaging – something that affects the environment detrimentally. With thousands of Nestle products sold daily, the company realized that to in order to combat this issue they must make 100% of the packaging recyclable or reusable by 2025. Figure 5 shows the desperate need to develop another solution, as all the plastic that is created on the conveyor belt will end up in landfill. The Nestle Institute of Packaging Sciences is researching and developing alternatives to plastic. Those in which include recyclable, biodegradable, compostable polymers and paper alternatives. They state it ‘is expected to deliver a pipeline of functional, safe and environmentally-friendly packaging solutions.’ This would be ethically correct as not only does it take some pressure of the environment and reduce the amount of waste ending up in landfills, but it puts pressure on other major companies to rethink their packaging materials. Therefore, Nestle is trying to reduce the amount of waste they have in their factories and are also trying to make the waste that their goods are packed in more environmentally sustainable.

Competitive Advantage

To increase the competitive advantage of Nestle, there needs to be shops around the world where Nestle can promote their items and can sell the goods that were not fit on the shelves i.e the second shop.

Outcomes

This report has outlined the features of Nestle being —-. It then explained the operations of the business, specifically referring to the ITO of a KitKat. It described three human resources facing the business being the employees pay rise, child labour, and —. A discussion occured of the positive and negative reasons of financial, marketing and legal management issues will follow. The report discussed the two ethical issues of Nestle including the positive and negative use of palm oil and both the positive and negative movement toward zero waste. Finally, the report has identified and explained the strategy of —– which would increase the competitive advantage of Nestle.

Essay on Nestle: Analysis of Industry, Background Information, Organizational and Market Structure

Task 1

To classify the types of industries, there are three types of industries which are Primary, Secondary, and Tertiary. Primary factor are the basic production of the company. For the Secondary factor, it is based on the production of goods like industries and construction craft. The industry which based on the providing services is the tertiary. As Nestle is a company which includes these three industries form, it has a good relationship with their farmers which provide the source raw materials for their product. Then, it also has a factory which made the raw materials to become finished goods. As well as it also has a distribution and retailing. And it always remains fully aware of changes in consumer behavior and consumer taste. Therefore it can satisfy the customer expectation.

There are three types of organization size. They are Small, Medium and Large. Therefore, we can measure the size of organization by Number of Employees, Sales turnover and Capital employed. Among them, the Number of employees can be said it’s the most effective one. So, the firm which has less than 50 employees can be said to be small firms. And the firm which has less than 250 employees is medium-firm and more than 250 employees is large firm. For Nestle Company it has340, 000 employees over the world. Therefore the size of it is large. Sales turnover of Nestle Company for 2016 to 2018 has increased. That is, the sales for 2016 is about 89469, 2017 is 89590 and 2018 is 91439.With percentage, we can say that it has increased about 2% from 2016 to 2018.

Legal structure can be classified into four groups. They are sole traders, partnership, private limited company and public limited company.

Sole traders are the smallest form and most common type of organization. But it is said to be “One Man Show “and has unlimited liability.

Partnership means that at least two people are needed in the business and it is small but it has unlimited liability.

Private limited company means the share of the company cannot be sold to public. It also has limited liability.

Public limited company is a very large business and it must have a minimum of one shareholder. Then, the shares of the company can sell to the public and it has also has limited liability.

Nestle is a public limited company which has a stock exchange which means that it is easy to buy and sell the shares to shareholder. And the Capital invest to Nestle is large amount.

The sectors of the organization are public sector, private sector and voluntary (third) sector. Public sector means it is run by the government and wellbeing of citizens. Private sector is for profit making organization. Voluntary sector is for non-profit making organization. Nestle is a private sector because its objectives is for profit-making and it is public limited company which includes in private sector.

Stakeholder is a person that interest what is happening in the organization. Stakeholder is classified into two forms (internal and external). Internal Stakeholders means that he/she is a part of the organization and External is that he is not in an organization but will be affected by the organization.

Power Interest Matrix for Nestle Company

High power Director, NGO Government, Owner

Low power Community, Employees Media, Competitor, Suppliers

Low Interest High Interest

This is a part of the stakeholders that affect the Nestle Company in direct or indirect way. Government, communities, employees, consumers, NGOs, trade association and academia are the stakeholders group of Nestle which is their continuing business success therefore it has been helped by them for creating shared value (CSV) strategy.

Task 2 Background Information of Nestle

Nestle was started in 1886 and Henri Nestle, the founder of Nestle develops a breakthrough infant food in 1867 and in 1905 the company merges with Anglo-Swiss, which become well-known Nestle. The headquarters of Nestle is at Vevey, Switzerland. Nestle is the world largest food and beverage company and it have over 2000 brands ranging from global icons and local favorites, and are present in 190 countries worldwide. But the main brands of Nestle are Coffee like Nescafe. Water, Drinks like Milo, Chocolate like Kit-Kat and frozen food like Maggi. (Nestle.com, 2019)

The ambition of Nestle is that “To enhance quality of life and contribute to a healthier future.” (Nestle.com, 2019)

The mission of it was “Good Food, Good Life” which means “to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.” (Nestle.com, 2019)

The vision and values of it was “To be a leading, competitive, Nutrition, Health and Wellness Company delivering improved shareholder value by being a preferred corporate citizen, preferred employer, and preferred supplier selling preferred products.” (Nestle.com, 2019)

Task 3

Functional organization plays an important role in organization. The function of organization are based on the size of the organization, this means that the function will increase when the size of organization becomes large. A functional organization is the process that carries out within a department of a company. It includes operation, marketing, human resources, information technology, finance and warehousing. The importance functions of Nestle are Marketing, Finance, Human Resource and Production.

In Marketing, it classified into four departments which are Customer Relation Department, Sales, Distribution and Research & Development. The Marketing function of Nestle is to fulfill the objectives of organization. Therefore it collects the survey in order to know the customer’s taste and satisfy the customer their expectation. As well as it always need to observe the lifestyle of people. There must have a good relationship to the retailers in order to have better estimation of demand of the product and get a feedback from the sales person. In Nestle, marketing FOUR P’s is also important. Therefore the production will know how much demand is there and how much units will be needed. But to be fixed with the objectives of the business it always maintains the quality of the product.

Then the finance function in Nestle controls all the expenses of the departments. But in Human resource function, that it is to hire people if there are no sufficient employees and it also settle down all issues related to employee’s needs and wants. It also needs to prepare salaries and some financial rewards or non-financial rewards for employees. Therefore in Nestle, the employees of HR departments visit the fields in order to have in touch with farmers and they also arrange events and some meeting in an organization.

In addition Nestle also has a Safety, health and environment Department to ensure the hygiene of the product. This department ensures the employees are covered by a safety environment and health management system (Nestle.com, 2019).

The Organizational Structure

The Organizational Structure means the arrangement of lines of authority, right and duties of an organization. It determines how the roles and responsibilities are assigned and coordinated and how information flows between the different levels of management. BusinessDictionary.com. (2019) .There is four types of organizational structure. They are Functional, Divisional, Matrix and Project-Team.

Functional is the structure based on the arrangement of the Department such as marketing, Production, Finance and HR. It arranges people in their techniques and specialist expertise which can make the organization get facilitate their coordination in the service of the whole enterprise. Therefore functional arrangement gives better opportunities for promotion and career development.

Divisional structure is a design which an organization is split into a number of self-contained business units, each of which operates as a profit center. Usually this structure is based on the products/services, or geography or both and with certain key of functions such as planning, finance reserved for headquarters.

Matrix structure is a structure based on combination of functional organization with structure built around products, projects or programs.

Project team is a temporary structure that carries out a particular task, often in a highly unstable environment. Once the task is finished, the group is disbanded and individuals return to their usual department or assigned a new project.

Organizational structure of Nestle

The Organizational structure of Nestle is global matrix structure which means that it has a functional organization with a structure of product/ project type based and in addition it also has a geographical division which let the market and distribution of the organization wide. (Nestle.com, 2019)

Organizational structure of Nestle

Task 4 (a)

There are two types of environments which are internal and external.

The general environment (PESTLE) of Nestle

A PESTLE analysis is an analytic tool used by an organization to track the environment they are operating in and it also has a wide view from many different angles for the environment.

Political factors

Political factors relate to how the government takes place in the economy. . Political factors include Government Stability, Taxation, Industrial policy and foreign trade policy .As Nestle is a multinational food and beverage company which sell its products in190 countries. Therefore the government stability and taxation are important because each country’s political is not the same. Thus Nestle is unprotected to political power in different regions of the world then it is exposed to government authority and overlook in the diverse regions that it operates in. The risk of production bottlenecks has been happened because of the government policies and changes. If the taxation for government increases, it will cause the price of Nestle selling increase. Then this will let the demand of the product decrease and will cause our customers decrease. But Nestle has prevention this to happen.

Economic factors

Economic factors include Inflation, Income, Interest rates, Economic growth and Exchange rates.

As Nestle is a multinational company in more than 190 countries, foreign exchange rate are an issue. Therefore the exchange rate and prices always be eased to affect the company. As Nestle product is sell in reasonable price, if the customers income increase, the demand of the product will also be increase. If in other hand, the demand will decrease. But Nestle tries to maintain the price of the product. Because of the inflation of U.S dollars in 2018, the prices have been raised but these tendencies will help them for 2019 and beyond.

Social factors

Sociocultural influences businesses vary from country to country. Social factors include Demographic trends, Lifestyles, Health and Taste & Preference. It also must be enable to offer products and services that aim to complement and benefit people’s life style and behavior. As Nestle mission is “Good Food, Good life”, it has focused the food they produce in good quality which is healthy and nutrients. So, Nestle focus on reducing salt, sugar and saturated fat in some product for obesity. Nowadays, food and beverage is important for people according to their lifestyle therefore they have a segmentations for them and also aware of changes in their behavior and taste. For example Magi soups in China and Indonesia have different flavors according to the local taste, habits and culture. Thus Nestle always fulfill the expectation and requirements of customers. (Nestle.com, 2019)

Technological factor

Technology todays affect company in their production process and marketing. For Nestle, technologies are a vital part of their R&D. Therefore the technologies and processes enable the safe development and the nutrient of foods and beverages. It also has advance technology in packaging and equipment and new beverage system. (Nestle.com, 2019) This helps in increasing production. Mobile technology, social media and internet is important for nowadays. Thus Nestle creates a website for customer who wants to get the information from them. As well as it can get the feedback of customer. It also promotes and advertises their product in social media in order to increase the sales.

Legal factors

Legal factors involve the labeling rule, employment law and consumer protection law which influence on the operation. They have GDA based labels which is to give consumers the information about calories, sugars, fat and other nutrients in a food and beverage. It has QR code on certain packaging which can get the information and ingredients of the product by scanning. (Nestle.com, 2019) Nestle has child labor in the supply chain of cocoa plan. Therefore Nestle is tackling child labor in cocoa. In 2012, they setup a Child Labor Monitoring and Remediation System (CLMRS) in Côte d’Ivoire and in 2016 it began rolling out in Ghana. Therefore Nestle helps children in cocoa plan to attend school and built schools for them. Nestle has the health and safety laws for their employees and they must sure the quality and hygiene of the product for consumers. (Nestle.com, 2019)

Environmental/ Ethical factors

Nestle has taking action in plastics and pollution. This means that their packaging, plastics, has been ended or as little. Therefore they have Nestle institute for packaging sciences to develop sustainable packaging material. Not only this, they also looked at water usage, non-renewable energy use and solid waste generation. They also committed to use a communication method s to engage consumers on environment. Therefore they have launched an application to help recycle waste packaging correctly. (Nestle.com, 2019) Nestle has unethical in the baby milk formula in 1970s which cause the baby to die and suffer the infants. This happens as they promote it as an option to breastfeeding. From this, Nestle has been has an unethical in the formula of the product and advertising.

Conclusion

Nestle is a multinational of food and beverage company which exists in more than 190 countries. Therefore in PESTLE analysis, the social factors can affect the company as it is a company to enhance “Good Food, Good Life”. So, the life-style, culture and the consumer behaviors are important for the taste and preference of the product. (Nestle.com, 2019)

Task 4 (b) Market Structure

There are four kinds of market structure. They are the perfect competition, monopolistic, oligopoly and monopoly. Perfect competition is the most competitive market structure which means it has many buyers and sellers. It is homogeneous and it has no barriers to enter the market. And there is only one price for the good so it is a price taker. And the profit for this market is normal. An example is fruit and vegetables market.

Monopolistic competition is slightly different from perfect competition because it has different products instead of identical products. Therefore customers have many choices and the price is little difference. An example is restaurant.

In oligopoly, there is only small number of firms in the market. The competitors of this market are few and it is difficult to entry and exists. The price is stable and this price is set by the price leadership. Also the abnormal profits can exists in this market. An example is Music Entertainment, Pharmaceuticals.

Monopoly is at the end of the market competition which means it has no competitive at all. That is, it has only a single producer who supplies the whole market which means only one seller. Therefore it is difficult to entry and the power in this market is absolute. Abnormal profits are exits due to the price discrimination which is a price marker. An example is Microsoft Word.

Nestlé’s Market Structure

Nestle is a monopolistic market structure because it has many competitors in this market. The competitors are not only for the large company, but also the product which competitive with Nestle in local and international competitor. And key competitors of Nestle are Mondelez, Kraft Heinz, Hershey’s and Unilever. Therefore to survive and growth in this market which has many competitors, Nestle has to develop new products which can satisfy the customer. As Nestle has market in EU, ASEAN, BRICS, MINT/MIST therefore to find new market it is not easy as Nestle exits in 190 countries worldwide. And the world has 193 countries so in this way Nestle do not need to find new market. But instead of this, Nestle can produce some luxury goods and accessories for kitchen.

To differentiate the product with the competitors, Nestle can change the packaging of the product in creative design which is recycle to environment. And the qualities of the product can always develop and the taste of the product can always change according to the lifestyle of the people. It can also have promotion in seasonal movements and events like Back to School Program and Mother’s Day. The price of the nestle is affordable because it is a First moving Consumer Goods ( FMCG ) product which means it can be used or eat easily in this fast social lifestyle. Therefore the price of the products cannot be raise and it is price maker. But if it wants to raise the price, it must do the packaging, advertising and the quality of the product to be suitable with the price, but the price range cannot so be high.

Task 5 SWOT analysis of Nestle

A SWOT analysis is an analytic tool which states the internal and external factors that affects the business. And it also helps to work out a plan for future.

Strengths

It is the advantages of internal factors to the firm. Nestle is the most famous brand name in the world because it has established a good reputation in the food and beverage system which provides the products’ quality high for daily life in global. It is a multinational company which operates in 190 countries and it is the largest FMCG market with variety of product brand name. Therefore it has over 2000 brand and the most famous brand is Maggi, Milo, Kit-Kat and Nescafe. And it has strong relationships with suppliers, retailers and distributors. It has maintained a strong supply chain and R&D network. It also has mergers, acquisitions and joint ventures to enhance its market share. And the company also has CSR for the environment. And the company always improves the product’s taste and quality due to the customer’s behavior.

Weakness

It is the disadvantages of internal factors to the firm. As it is company which operates in worldwide therefore it has different controversies in each country and this cause issues to the brand image of the company. This issue is unethical like child labor which is used in cocoa farms. Therefore to decrease the issues and controversy, Nestle should announce new rules, principles and strategy to this case in order to reduce the harm to company. Or it can also do some prevention to let the issues be prevented. It has many competitors in the market. Therefore to competitive with others, it always has to find new product and market. The product of the Nestle is plenty and this are under in the same group therefore to manage the product is a challenge work. So, to be easy to manage, it must find a new structure or develop new advanced technologies to manage with system in the computer.

Opportunities

It is the advantages of the external factors to the firm. Nowadays, people are taking care of their health so they have high requirement on food. Therefore Nestle has focus on the Nutrition and hygiene of the food which is to introduce healthy food products to consumers. Due to the decreasing of tax, the price can decrease so that the consumers and product demand will increase. And the income levels increase will also carry out the sales demand. The decrease of taxation and increase of incomes are due to the government stability and inflation rate. The less power the competitor have, the more power Nestle will get. This means that Nestle can have less competitive. The Foreign Direct Investment can also be opened as it is a large multinational company.

Threats

It is the disadvantages of the external factors to the firm. Due to the increase of government taxation, the price of the products will increase which will cause the demand of the consumers and product decrease. This can be maintain if Nestle has a good relation with government and pay government the tax regularly due to the law and regulations. If the power of the competitor is high, Nestle cannot be able to competitive with them. To solve this problem, nestle should find out new product and market to be competitive with competitor. The irregular movement like disasters and climate change causes the raw materials they planted be decreased or destroyed. To prevent this, Nestle should have a backup plan in order to decrease the harm of it.

Conclusions

This analysis can help the Nestle when expanding the company. And the threats and weakness of the company can be prevented and reduced. Strengths and Opportunities can let the company be growth than before. Therefore, the SWOT analysis an useful analytic tool.

Task 6 Trade Bloc

It is a group of countries within a geographic region that protect themselves from impact from non-members. It is a form of economic integration and shaped the world trade pattern rapidly. There are four types of trading bloc. They are Preferential Trade Area, Free Trade Area, Custom Union, Common Market and Economic Union. The advantages of Trade Bloc are the trade barriers among the member countries is reduced, the better relations can be maintained, the free transfer of labor, capital and other factors can be promoted, common currency is created and higher employment is being promoted. The disadvantages are that the benefit of free trade between countries in different bloc is lost and the inefficient producer within the bloc can be protected from more efficient ones outside the bloc.

As Nestle headquarters is in Switzerland, therefore it is the main trading partner for EU. And Swiss is also a member of the European Free Trade Association (EFTA) which is competitive in several sectors vital to global economy. EFTA was set up in 1960 for promotion of free trade and economic integration between its members. It also developing EFTA’s worldwide network of free trade agreements (FTA). Therefore there are 7 countries in EFTA Joint declarations on cooperation which include Myanmar, 4 countries in Negotiations currently on hold which include Thailand, 4 countries in Ongoing Negotiations or Talks which include Vietnam, India and Malaysia, 29 countries in FTA which include Singapore, Hong Kong, China, Korean, Indonesia and Philippines.

Globalization

Globalization is the growing interdependence of the economy of the world, cultures and population which is joined together by the world’s developing network of trade and communication. The economies of nations are brought closer by trade, foreign direct investment, capital flows and the spread of technology. And the key drivers of globalization are technology, transportation, GPS and containerization.

Nestle has operates in 190 countries, so the transportation of it is easy whether by land, air and water. The technology of Nestle is that it has a global website of its company and has good advertising through social media. It also has GPS to know the location for the headquarters and factories.

Therefore trade bloc and globalization factors are important for Nestle while operating.

Essay on Nestlé: Industrial and SWOT Analysis

“Nestlé” is the largest food and beverage manufacturer in the world, it is founded at 1866 by Henry Nestlé. They promised to offer ‘GOOD FOOD, GOOD LIFE’ to all customers. The firm’s headquarter placed at Vevey, Switzerland (Nestle, n.d). Nestlé also a firm of nutriment and health which undertake in produce, supply, and production of prepared dishes and cooking aids, baby foods and cereals, medicines and ophthalmic supplies, and dairy products. Moreover, their output are in certain types which included confectionery, beverage in liquid or powdered, pet cares, water, dairy products and ice cream, prepared dishes and cooking aids, nutrition and health science (CNN Business, n.d). Nestlé have been nourishing Malaysian by their goods and quality brand such as MILO, MAGGI, KITKAT, and NESCAFÉ, simultaneously maintain Halal excellence and integrity since 1912.

The main purpose of Nestlé Company is improve quality of life and create better and healthy world. They encourage people to live in healthier live, this is how Nestlé Company dedicate to the society and ensure their long-term successful. Besides, they set 3 primarily goals for 2030 which instruct their job and support the achievement of the UN Sustainable Development Goals (Nestle, n.d). Diagram below shows the 3 goals:

Furthermore, Nestlé Company also strictly follow on the principle of policies and commitment (Nestlé, n.d):

1. Nutrition, health, and wellness Nestlé’s kernel target is provide delicious, healthier food and beverage to improve the quality of customer.
2. Quality assurance and product safety Nestlé guarantee to produce safety and high standard of outputs through the world.
3. Consumer communication Nestlé’s respect on customers’ privacy.
4. Human rights in Nestlé’s activities Nestlé’s support the UNCG (United Nations Global Compact) guiding the principle on human rights and labour.
5. Leadership and personal responsibility Nestlé’s respect on their employee and recruit people is capable and motivated.
6. Safety and health at work Nestlé has the responsibility to protect employee from the accident and injuries.
7. Supplier and customer relations Nestlé hope their employee expression in honesty, integrity and fairness to their non-negotiable standard.
8. Agriculture and rural development To ensure the environmental sustainability, Nestlé determine to engage the farming product.
9. Environmental sustainability To ensure the environment sustainability, Nestlé try hard to use natural resources.
10. Water Nestlé manage the usage of water since the world are faces growing water challenge.

Nestlé Performance:

Progress against commitments-Nestlé disclose their performance every year since their commitment. Their commitments related to their ambitions on 2030 and most of commitments support the UN’s sustainable development goals.

External assessment-Nestlé feel proud while their result recognized by the world’s leading rating and ranking agencies.

Breast-milk substitute marketing: Compliance record-Nestlé guarantee their breast-milk substitutes (BMS) complies with the Nestlé Policy and Instructions for Implementation of the WHO International Code of Marketing of Breast-milk Substitutes

Assurance-Nestlé hire third party to provide independent assurance for the data.

Environmental performance indicators-Help Nestlé to gauged their progress and illustrate compliance.

Corporate Responsibility Reporting Awards 2018-Nestlé’s shared value report 2016 gain 2 CR Reporting Award 2018 which include ‘Credibility through Assurance’ and ‘Innovation in Reporting’ (Nestlé, n.d).

Moreover, there also challenge faced by Nestlé. The executors state that Nestlé are facing the resk of having supply chain that cause by the climate change. Pascal Gréverath said that, climate change can make the food sector in European faced a serious risk on supply on agricultural raw materials (Frédéric Simon, 2015).

SWOT

Strengths, Weakness, Opportunities, and Weaknesses (SWOT) analysis is a tool where organizations use it to further understand their strengths and the weaknesses, and the opportunities the organization has, and the threats faced by the organization. Therefore, organization that uses SWOT analysis to understand and be more aware of the organization’s environment. When an organization understands their weaknesses, they can minimize or eliminate the threats that can damage the organization in the long run. SWOT analysis allows Nestle Malaysia to look at the new business directions, where they can take advantage of the internal strength and opportunities, at the same time reducing their internal weakness and threats.

Strengths

Firstly, in terms of internal analysis is Strengths and Weaknesses. For strengths, it assesses what does the strengths that Nestle possess, what are the unique features of Nestle, and what does Nestle has that provides them a competitive advantage. Nestle has to consider their strengths through both internal and external perspective. For internal, Nestle Malaysia has to look into the strategies and their operations. For external, customer’s point of view also must be considered. Nestle Malaysia has to look into their competitors in order to do comparison on what their competitors’ absence that provides Nestle a competitive position. One of the strengths that Nestle Malaysia possess is superior technology which is from one of the remote environment factors. The technology that Nestle Malaysia possess allows them to meet their customer needs in ways that the competitors does not fully fulfil. Nestle’s technologies enable the development of safe, nutritious foods and beverages. For example, Nestle uses healthier fats in processing foods and the use of portion dispensing system in the beverage system. (Food science and Technology , n.d.).

Next, Nestle Malaysia are environmentally aware and strive to reduce environmental impact of their packaging. Based on Nestle’s 2007 report, Nestle uses resources from renewable resources in terms of packaging and manufacturing of product performance. Nestle also supports the initiatives towards recover and reuse energy from used packaging, and to provide environmental benefit by using recycled materials. (Nestle, 2013) The Nestle policy on the worldwide environment, since the year 1991 has been communicated and implemented in Nestle Malaysia. Nestle Malaysia can contribute to the global environment by minimizing waste and preserving natural resources. (Nestle, 2007) This encourages loyal customers to feel better, buying from Nestle as they are environmentally aware because they strive on lessening negative impacts on the environment.

Furthermore, one of the major strengths of Nestle Malaysia is the strong brand name as it is the largest food and beverage industry in the world that is headquartered in Switzerland. (Nestle , n.d.) Nestle is also fortune 500 company ranked 69th in the year 2018 with the revenue of $91,222 million. (Fortune Global 500, n.d.) Therefore, this gives Nestle Malaysia the upper hand above their competitors in setting higher prices for their products. This is because consumers place additional value in the Nestle brand. Nestle Malaysia was able to penetrate into the Malaysian market easily with additional 500 halal products.

Weaknesses

One of the weaknesses of Nestle (Malaysia) Berhad is overstocking. Based on a study by Nur Zakeerah Binti Mat Khanin from Universiti Utara Malaysia, there is overstocking problem in Nestle (Malaysia) Berhad. It shows that the company has issues and difficulty paying its current liabilities when the need arises, and therefore the company will not be able to pay off the current liabilities of the company without winding up its existing inventories. This can lead into a major issue into the future if there is any surplus of existing inventories where it will lead to insolvency. (Khanin, 2017) This shows that Nestle (Malaysia) Berhad is not very good with demand forecasting which will lead to high inventory and eventually overstocking the inventory.

Next weakness of Nestle Berhad is the brand structure. There are over 2,000 brands over 150 countries where in Malaysia there are brands which is the favourites among the customers. (Nestle, n.d.) Brands such as Nescafe, Milo and Maggi are the favourites in Malaysia, however too many brands under one management can lead to conflict of interest. For example, Nestle Berhad cannot create a strategy to fulfil the needs of all customers whenever they are focusing on other category. (SWOT analysis of Nestle – Nestle SWOT analysis and 4 P’s, 2018)

Opportunities

Malaysia was considered one of the most obese country in Asia over the recent years therefore the Ministry of Health (MOH) has come out with a solution by implementing new national health policies to reduce the issue of obesity. (Meiyi, 2018) Therefore, Nestle Malaysia needs to do more market advertising and penetration on the healthy cereals. Nestle Malaysia can also come up with a healthier choice of beverages and snacks as well, to further improve on their healthy selection of food and beverages. Consumers who are health conscious will focus on Nestle’s healthier choices of product.

The next opportunity for Nestle (Malaysia) Berhad is creating strategic alliance with other big brands in Malaysia, to further captivate and fulfil customer’s needs and wants. Nestle has already engaged with many big companies such as Coca-Cola and L’Oreal, but they can partner with more food giants and other product line brands to further increase their growth of their company. Increasing alliance of other brands can further increase Nestle’s product line and enable people to listen, learn and contribute effectively. (Nestle, n.d.)

Moreover, Nestle (Malaysia) Berhad should also focus more on research and development to handle ethical issue. There were many products that Nestle has to recall due to various issues such as the Maggi noodles in India where the noodles has lead, also the Alfamino infant formula in Germany and Maggi beef and chicken noodles recalled in Philippines due to found salmonella in 2 batches of noodles. (Reuters, 2015), (Reuters, 2018), (ABS-CBN News, 2011). To avoid any of the following issues to be repeated in Malaysia or internationally that can affect the Nestle’s brand image, Nestle has to be more cautious in their operations and invest more in Research and Development to further bring up more hygienic food products and ingredients.

Threats

For Nestle (Malaysia) Berhad, one of the threats in Malaysia is the competition in the market. It is an external threat that the company cannot control but to adapt or to change for improvement. It can be local or international brands. Cheaper cereal brands such as Tesco brands goods sells at a cheaper price with bigger serving size which is more reasonably price, compared to Nestle which is set at a higher price with smaller serving size. With increasing numbers of competitors, it gives Nestle difficulties to differentiate from others with emerging products which is similar functions and might be better in terms of advertising and cost.

In addition, buyers’ power or the customer’s buying power also plays a very big role in determining the growth of Nestle. In Malaysia market, it is highly diversified in goods which offers different benefits and characteristics. It is difficult for a consumer to stick to one brand and be loyal towards a single company. Therefore, this will result to brand switching where customers has the power to choose other brands beside Nestle, based on different factors. Factors such as availability, price, portion size and group recommendation. It is difficult for Nestle to ensure customer are loyal to their products due to different types of products which offer different flavours which Nestle has not created one.

Industrial analysis

Nestle (Malaysia) Berhad is a Malaysian investment holding company owned by Nestle. Nestle (Malaysia) Berhad manufactures and sells food and beverage products in Malaysia and internationally. It provides junior foods, powdered milk and drinks, liquid milk and juices, breakfast cereals, instant coffee and other beverages, instant noodles, chilled dairy products, ice creams, culinary products, chocolate confectionery products, health science products, yogurt and related products, and ready-to-drink beverage products, as well as infant and maternal nutrition products. The main geography is the domestic market, representing approximately 80% of total sales.

It offers its products primarily under the well-known Brands are MILO, NESCAFÉ, MAGGI, NESTLÉ OMEGA PLUS, DRUMSTICK, NESTLÉ BLISS, LACTOKID, COMFORTIS, and KIT KAT.

Nestle (Malaysia) Berhad is using Porter Five Forces analysis to enhance and secure its business and competitiveness in the industry.

Threat of New Entrance

The threat of entry is affected by many factors which are economies of scale, capital requirements, access to supply or distribution channel, customer of supplier loyalty, experience, expected retaliation, legislation or government action and differentiation (Johnson et al, 2005).

It is very important for Nestle to set up numbers of entrance barriers. Nestle is well experience and understand the customers’ need. They have developed customer loyalty over time (Othman, 2014).

Nestle has developed strong distribution networks and economies of scale that allow that to produce or manufacture as well as deliver at a very low cost. Nestle has the most important thing to retain its customers which is the brand name itself. In 2008, Nestle is one of the companies in the list of 100 Best Global Brand (Best Global Brands, 2008). Capital also play a very important roll, most of the time when they is a new product launched, advertisement and promotion are needed. This will cost a lot of money, thus this tough for new entrance trying to grab some market share in this industry. Hence, it has low threat of new entrants.

Threat of Substitute

Threat of substitute is high in the food and beverages industry. Threat can be assessed using price/performance ratio and extra industry effects. Nestle may use product selling price to tackle the product substitute from the competitors.

Nestle is strives to highlight the healthy aspect of the products so as to tackle the substitute. It strives to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs. In addition it also brings the vital ingredients of taste Nestle is to deliver nutritional value for the customers.

Nestle may use the strategy of manufacture or produce broad range of similar products. These products may compete with one another to gain market share. It means that they become substitute for each other. For example Nestle Koko Krunch Cereal can be the substitute for Nestle Nesvita cereal drink since both of them are intended for breakfast consumption. The product are substitute but from the same company with different brand name. Nestle has strong capital to produce same range of product to gain market share in this industry. This industry is said to be having high threat of substitute.

Bargaining power of buyer

The bargaining power of buyers at growth stage is not high but it will increase as the industry goes further in the life cycle. The main reason for this is because of increasing number of competitors to offer more products to the customers. Nestle needs to emphasis on its products to meet customers’ need and demand. Whether on products ingredients, freshness, nutritious, health and wellness. For example Nestle MILO has strong market share and remains a perennial favorite amongst Malaysia consumers. In order to further strengthening the brands image, the company added MILO GOLD to its product range. This was done to keep the consumers loyalty towards the product (Business Review, 2008).

Nestle needs to carry out more often on market survey, interview and event that to provide more feedback from different group of age customers consuming products so that it can cover different range of products. Thus, it has a high bargaining power of buyers because Nestle can meets the needs of their buyers.

Bargaining power of supplier

The power of supplier in food and beverages industry tends to be medium. The basis of Nestle products are agricultural raw materials such as milk, cocoa, and coffee. They not only rely on the suppliers to provide the raw materials. Nestle itself purchases agricultural materials in either raw or semi-processed form directly from farmers or via trade channels (Raw Materials, 2009).

Nestle holds the largest market share in the industry. As a result it requires supplies in massive quantities. Therefore any supplier get started supply raw material to Nestle will never interferes with its or attempts to bargain or influence the price. Nestle, in return hold its supplier in esteem and take of them (Tavsar, 2013) Nestle prefer long term relationship with supplier in order to ensure the quality of raw material and stable pricing.

Switching cost of Nestle or change supplier is moderate as it need to ensure that quality from the supplier. The bargaining power of supplier depends heavily on the strength of the company’s brand. In this case, big companies such as Nestle can take advantage in bargaining. Small scale companies or local companies may feel that the power of supplier is higher as compared to the well-established companies. In short, bargaining power of supplier is low.

Competitive Rivalry

Nestle are facing competitors too in the market. The main competitors are Kellog, Danone, Kraft Foods, Hershey’s and many others. The competition is not only price, but product varieties, creativities, promotions and so on.

Nestle has made the company reached the first place in the industry. Quality which is the most important factor for food and beverages industry. Nestle knows that innovation and quality are the key determinants. It means that for the company to success in this industry, the product quality should be taken care the most while innovation process is also carried out. Nestle brand has been the symbol of quality. Innovation is said to be the critical factor because in this kind of industry the company should be able to come out with new ideas to keep pace with the changing customer preferences.

Nestle has which is becomes the first in the industry to offer a full range of chilled dairy products with “No Artificial Colouring” in 2008 (Business Review, 2008). Some examples of the products are BLISS Yogurt Drink, NESTLE Yogurt and YOCO Cultured Milk Drink. Nestle can take advantage of location economies to lower the cost of value creation thus it can achieve low cost position which will give the company even better market shares (Nestle: Global Strategy, 2009).. For Nestle to sustain its competitive advantage shouldn’t be a problem. This is due to the value and inimitable of the core competencies of Nestle especially for its corporate brand image and commitment. The most important thing is that Nestle is aware of the intense competition and keeps improving itself. Nestle also has competencies in leading and developing people (Roongrerngsuke, 2006). As the market in each country is different from the others, the company needs to adapt itself to the macro-environment accordingly. Therefore, the competitive rivalry is high.

Last but not least, the industry has high competitiveness because it has low threat of new entrants, high threat of substitute, low bargaining power of supplier, high bargaining power of buyers and high competitive rivalry.

Nestle Maggi Crisis: Critical Analysis

Abstract

Whenever we think about Nestle, we think about a story about organizational success. Since its inception in 1866, the company has seen rapid growth, profit, and earned reputations all around the world. Even its company in India is doing exceptionally well. Since 1959 Nestle has been operating in India. It is selling noodles to a rice/wheat-eating country. Sells chocolates to people who are famous for their sweets. Sells powder milk to a country obsessed with fresh milk. Unfortunately, the company lost its reputation in India in 2015 and faced a never before seen crisis. The 104-year-old reputation was inked when a lab found high amount of lead in its most famous brand of noodles, Maggi. This finding lead to a subsequent nationwide ban of India’s most beloved product. Nestle India faced its worst nightmare. However, the company managed to jump back from the situation and regained its once-held reputation. What’s more impressive about Nestle is how they reacted in the face of its worst crisis. The way they solved their problem, remained in business, and now growing faster than ever before is a case for study and research. This paper delves deep into how the crisis began and how the company efficiently and effectively came out of it.

Nestle Maggi Crisis

A Brief History

It all started in 1867 in Vevey, Switzerland. The founder of Nestle is Henri Nestle. It’s first product was created as an alternative for mothers who could not breastfeed their babies. It was called Farine Lactée Henri Nestlé. Within a few years it gained popularity in the Europe.

At that time their main competitor was Anglo-Swiss Condensed Milk Company. The companies merged in 1905, on that year Nestle also added Chocolates on their product of foods. Initially they had factories in the United States, Britain, Spain and Germany. And soon they started manufacturing in Australia, Singapore, Hong Kong and Bombay. They faced some complications during the World War 1 but their production boosted back after the World War.

By the 1920s Nestle was Creating chocolate and powdered beverage products. The developed their one of the successful Product in 1930s Nescafe along with Nestea and it became an instant hit. Nescafe became a main Beverage for the American Soldiers in Europe and Asia. Their total sales increase by $125 million from 1938-1945 during the World War 2. After the World war they expanded their product line. And within a matter of time Nescafe became one of the largest stock holders in the market.

The First logo of Nestle in 1868.

Current operations around the world

• Nestle and Starbucks will work closely together on the existing Starbucks range of roast and ground coffee, whole beans as well as instant and portioned coffee. The companies are working on a new innovation with the goal of enhancing its product offerings for Coffee lovers globally. The agreement significantly strengthens Nestle’s portfolio in The North American premium roast and ground and portioned coffee business.

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• Nestle launches free online chef’s academy with WORLDCHEFS. It will be a great help for the aspiring chefs to take the first step. This academy is a partnership between the World Association of Chefs Societies (WORLDCHEFS) and Nestle Professional Academy is free of cost and accessible for anyone, no matter what their background is or what skills they have.

Introduction in India

Nestle’s relationship with India dates back to 1912.After India’s independence in 1947, the economic policies of the Indian Government emphasized the need for local production.

Nestle responded to India’s aspirations by forming a company in India and set up its first factory in 1961 at Mega, Punjab, where the Government wanted NESTLÉ to develop the milk economy. Nestle has been a partner in India’s growth for over a century now and has built a very special relationship of trust and commitment with the people of India. The Company’s activities in India have facilitated direct and indirect employment and provides livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods.

Operations in India

The main operation of Nestle is to serve Good quality food. Nestle India manufactures products of truly international quality under internationally famous brand names such as Nescafe, Maggi, Milky bar, Kit Kat, Bar-One, Milkmaid and Nestea and in recent years the Company has also introduced products of daily consumption and use such as Nestle Milk, Nestle Slim Milk, Nestle Dahi and Nestle Jeera Raita.

Nestlé India Head Office, Gurgaon, Haryana

Nestle Contribution to India’s Economy

Nestle’s contribution to India’s economy till now is quite good. Their first factory was created in 1961 in Moga. Their total sales are Rs. 7,546 crores as of September 2017 and their net profit after tax is Rs. 913 crores as of September 2017. Nestle has given a major push to the dairy sector of the country and has developed the Milk economy. Nestle is the market leader in various categories such as Infant Cereals (96.5%), Instant Pasta (65.2%), Instant Noodles (59.5%), White Chocolates and wafers (62.6%).

The Beginning of the crisis

Before Maggi was launched in India in 1983, nobody imagined that a snack can be prepared in just 2 minutes. Within a short period of time it gained popularity all over the sub-continent. It was mainly targeted for the middle-class families of the country.

Everything was going smoothly for three decades but then a storm struck in 2014. On a laboratory in Gorakhpur proved that the samples of Maggi contained lead and monosodium glutamate 1 (MSG) much beyond the permissible limit. Then several state governments tested the samples and banned the product. Within a matter of time Maggie was off the Market.

The Crisis

Maggi instant noodles came under the scanner for three main reasons. The first was the aforementioned violation of the regulations for adding lead and MSG into the product. As against the maximum limit of 2.50 parts per million (ppm), the amount of lead detected in the Maggi samples was perilously high at 17.2 ppm. The second offence was mentioning ‘No added MSG’ on the packaging, which is an act of mislabeling. Also, it launched ‘Maggi Oats Masala Noodles’ without meeting the appropriate norms of standardization. Maggi owned 80% of The market share in the instant noodles segment. After the ban it dropped to 0%. The crisis was very serious and it was state of emergency for Nestle India. Maggi’s all hard work of 30 years was at stake. So, Nestle India had to take some necessary steps.

The Financial Downturn

As a result, Nestlé India slipped into a loss for its second quarter after being battered by a national ban on its popular Maggi noodles due to safety concerns.

The Maggi meltdown would prove costly. Nestlé lost at least $277 million in missed sales. Another $70 million was spent to execute one of the largest food recalls in history. Add the damage to its brand value—which one consultancy pegged at $200 million—and the total price tag for the debacle could easily be more than half a billion dollars. And the fallout continues. [image: https://fortunedotcom.files.wordpress.com/2016/04/nestle-maggi-stock.png]

In a statement to the Bombay Stock Exchange, Nestlé India reported a net loss of Rs 644m ($10m) in the three months ending in June 2015, compared with a Rs 2.8bn profit during the same period in 2014.

The loss of Reputation

With Indian Food Inspectors ordering Nestle India to recall a batch of Maggi instant noodles identifying dangerous levels of lead and MSG (click for entire report), Maggi (Nestle India) was caught into a vicious circle of bad reputation.

Maggi till date has been enjoying a brand that could connect people to not only a product but to the whole concept. Maggi has become the other name for “Instant Noodles”. Even if someone purchases Top Ramen Noodles or Sunfeast Yippe Noodles, it would still be assumed as another type of noodles but not instant noodles. At times Maggi is been sought for as a quick alternative to the staple food. However, what problems the present crisis would create to Maggi is to be watched.

Due to the scandal, the internet had started talking more and more about the ill effects of Maggi which is considered as itself a brand. This gave an opportunity to rumor-mongers and gossipers to start talking more and more about the ill effects of Maggi. Social media sites such as Facebook, twitter , and google+ were abundantly supplied with information of what is good and what is bad and how Maggi (Nestle India) is cheating its customers. Hashtags like #Maggi, #Maggi ban is being voiced over in the internet. Famous mobile messaging apps like WhatsApp, WeChat, etc., will now spit the venom against Maggi.

The loss of Market Share

1. Nestlé India said its sales plunged by 20% in the second quarter, as a food-safety scandal and a large-scale product recall weighed on its earnings.
2. [image: https://fortunedotcom.files.wordpress.com/2016/04/nes-05-01-16-print-charts.png]
3. Nestlé Noodle’s market share in India also took a nosedive from 63% in 2014 to 23% in 2015 due to the Maggi noodle scandal.
4. The Indian arm of Nestlé SA said its revenue declined to 19.34 billion rupees ($302 million) in the three months ended June 30th 2015, compared with 24.19 billion in the same period a year earlier.

The loss of Public Trust

Due to the reports of the lead contamination in Maggi noodles, consumers lost their trust on Nestle. Trust metric for Maggi noodles dropped to as low as 3% in 2015. On top of all that, enraged consumers wasted no time venting their anger. In some cities protesters in the street smashed and set fire to packs of noodles and photos of Bollywood stars who were paid Maggi endorsers. One prominent newscaster compared the situation to Bhopal, the worst industrial accident of all time, in which a toxic gas leak at a Union Carbide pesticide plant in central India killed thousands of people. From commanding 80% share of India’s noodles market, (as estimated by Nomura Securities in May 2015) Maggi went down to zero in just a month.

Legal Ramifications

The Maggi sample which was tested contained more than seven times the permissible level of lead—over 1,000 times more than the company claimed was in the product. Due to this debacle, Nestle had to face several legal ramifications such as the ban imposed on Maggi noodles for an indefinite period and it had to take all Maggi packs — or 35,000 tones — off the shelves of about four million retailers.

Other nations such as Nepal indefinitely banned Maggi over concerns about the lead levels in the product. Maggi noodles were subsequently withdrawn from the market of five African nations: Kenya, Uganda, Tanzania, Zimbabwe and South Sudan.

Dealing with the crisis

The Uttar Pradesh food safety commissioner sent a formal notice to Nestle seeking clarification on presence of MSG and lead in Maggi samples. The company did mail its response along with its internal monitoring documents on 5 May 2015, but did not take any proactive step to counter any possible aftershock. On 7 May, there was a small news item on the episode in one of the Hindi newspapers in Uttar Pradesh.

Still, Nestle did not react. It never thought the news could lead to an estimated half a billion-dollar loss for the company (including erosion of brand value) that would shake the Swiss multinational and that the subject would be debated at length in television studios.

Nestle failed to gauge the depth of the crisis even after national newspapers started writing about it. It did not issue any statement till 21 May. And in its first official statement, it said there was “no order to recall Maggi noodles being sold” and the popular instant noodle was “safe to eat”.

On 5 June 2015, the day FSSAI asked Nestle to recall Maggi noodles, the company’s global chief executive Paul Buckle met the regulators, and addressed the media in New Delhi. Buckle said: “This is a matter of clarification and we need to sit down together and clear the air… We will look into the safety concerns. We do not add MSG in Maggi noodles… We apply the same quality standards everywhere. Everything we do is keeping consumers in mind. We will do everything it takes, and are fully engaged with the authorities.”

But by then, things had spun out of control. Buckle was left with little choice but to recall the popular noodles from the market. The company got Luca Fichera, then executive vice-president (supply chain) at Nestle India, to lead the recall process.

Between 5 June and 1 September 2015, Fichera’s team collected 38,000 tons of Maggi noodles from retail stores, and destroyed them by first crushing the noodles and then mixing them with fuel and burning in incinerators at 11 cement plants across the country.

How Nestle managed to jump back

“Clinically dead”, is how the company’s India boss loves to describe the Nestle of those days.

Swiss parent controlled Nestle India, makers of Maggi noodles, has made a strong comeback to regain its lost ground in 2017 – nearly two years after it was forced to withdraw its largest selling noodle brand from shops across the country following its failure to meet certain food safety standards.

After two years, Maggi noodles commands a market share of 60 percent, having regained most of its lost share during the ban days.

The brand equity and customer trust has been built over generations and this has helped the brand bounce back after a near ‘death’ experience, Suresh Narayanan had said in an interview to First post last year. After the five-month ban, in November 2016, Nestle India relaunched Maggi noodles in the Indian market.

The company is not just relying on Maggi brand, although it still accounts for a major portion to its overall revenue. In the last few quarters, Nestle has launched several products like Greek yoghurt, kids breakfast cereal Nestle Ceregrow, health food drink Nestle A+ Pro-Grow, Nescafe RTD chilled Latte, everyday masala, Maggi Hot Heads, and variants of Maggi noodles.

Going forwards, the company plans to launch Nespresso (a coffee machine), Dolce Gusto (a coffee capsule system), besides products in pet care, healthcare and skincare. Despite the planned launches, Nestle parent sells just 20 brands in India as against its global bouquet of around 20,000 odd brands, a Mint report said.

The company wants to tap India’s top 600 cities that will account for half of the consumption growth over the next 10 years or so.

Nestle’s current performance

Nestle is a story of organizational success. Even after its 2015 Maggie debacle, Nestle managed to turn back from the disaster, and established itself as one of the most durable companies in the world. Nestle India released the annual report for the year 2017 (the food and beverages major maintain a January-December format). It revealed, among other things, that the firm had managed to grow volumes in all four product categories for the first time since 2010 — milk products & nutrition, prepared dishes & cooking aids, beverages and chocolates & confectioneries — grew.

In the late afternoon of May 17, Nestle India’s stock was trading at Rs 9,865 a piece at the Bombay Stock Exchange. In other words, the company had bounced back from the biggest existential threat in its 104-year history in India.

In the quarter ended March 2018, domestic sales remained strong (up 10.9 per cent year on year), primarily led by higher volumes across categories. Nestle’s domestic growth was comparatively better than the growth reported by other large FMCG players this far for the quarter,” analysts from Edelweiss said in May.

So, we can see that even after such a huge crisis, Nestle has managed to recover its market share, profit and it is growing faster than ever before.

Innovating with existing products

Suresh Narayanan, chairman and managing director of Nestle India, who was brought in to handle the crisis in August of 2015 said that they were innovating with their existing products. Nestle has introduced six new variants of Maggi called HotHeads. They have high levels of spice and they come in exotic flavors. There is also Munch Nuts, a chocolate wafer with peanuts, and Nescafe Cappuccino ready-to-drink premixes.

As Suresh Narayanan said, “We have launched 25 new products or variants since the Maggi crisis. All of these are in the incubator. Some will gallop in the future; others will canter, some may die. People ask me, what has changed? How did Nestlé suddenly acquire this pace? We’ve never had so many product launches in such a short time in the history of the company”.

Change in Attitude

Often times, success or failure of an organization depends on its attitude. The same is true for Nestle.

Suresh Narayanan believes that the reason for Nestle’s recent success is its changed attitude.

In one interview Narayanan said, “Today I see an attitude and mindset of growth. There is an instinct growth opportunity among people working across verticals. Part of this is reflected in our new motto of growth through innovation and renovation,” he said. Earlier it used to take some two years to come up with a new product; now the time has been cut to less than six months”.

“In the past we have had periods of rapid launches but could never sustain the momentum,’ he added.

With its changed attitude Nestle proved what the former American professional baseball player, Wade Boggs said, “A positive attitude causes a chain reaction of positive thoughts, events, and outcomes. It is a catalyst and it sparks extraordinary results”.

How the crisis affected the organization

In one interview the Chairman and Managing Director of Nestle India, Suresh Narayanan said, “Nestle probably required such shock treatment as the June 2015 ban on Maggi noodles to jerk it out of its ennui”.

Narayanan had spoken about how the Maggi Noodles crisis was the most challenging and dramatic situation in his entire professional career. Maggi is the worst crisis that they have faced in the 104 years of their existence in India, also the worst crisis the company has faced globally in a long time.

Narayanan also talks about the mood of the workers and employees of Nestle India. He said, “The team was shattered. Our factory workers were extremely upset…. I had an empty feeling. At that time, I realized as a leader, the weight of responsibility on my shoulders is so big during a crisis”.

Change in Organizational Structure

Due to the Maggie crisis Nestle realized that the way things had been going on needed to change. Nestle was quick to change with the changing situations. They brought about changes to the decision-making process.

To increase focus on the market, Nestle has decentralized the decision-making process by creating 15 verticals that now target specific geographies with their respective hyper-local strategies.

Crisis and Organizational Culture

An organizations culture can give an estimation as to how an organization would react if they faced any crisis. It is evident that during the face of crisis the strong and weak cultures have an important role to play. Moreover, the rigidity or flexibility of an organization’s culture will give an idea as to how soon an organization can overcome its crisis or give into it.

Various studies have revealed that a multinational corporation with over a century of presence in the country struggled to align itself to the complexities of the cultures of the host country. In the case of Nestle India, whereas environmental variables such as political economy and Westernization of urban India boosted the growth of its instant noodles, the multinational company struggled to cope with the rise of media corporatization, activist pressure.

It is evident that Nestle’s crisis response was governed more by its traditional corporate culture than by an ability to keep pace with the changing demands of its environment, leading to the amplification of an issue into a crisis.

So, we can see that multinationals that ignore culture will be forced to pay a heavy price both in terms of reputation and finance.

Lessons for Management

The omnipotent view of management shows that managers are completely responsible for the success or failure of an organization. Although that is not completely true, Management in an organization bears the most important roles for an organization to succeed. As the top-level management reap most of the profits gained by the organization it is also their responsibility to see if anything goes wrong. Besides the real competency of the managers are tested during a crisis.

Since its inception in India in 1959, Nestle India is a story of organizational success. But, the 2015 Maggie crisis put them to their test in 2015. There are multiple lessons for management here.

• No matter how successful an organization is they can always face crisis
• Consumers won’t remember the years or hard work and service, rather they will remember that one mistake the organization made
• Public trust is easier to lose than to gain
• In the cutthroat world of business no one is truly your friend
• You should always be prepared for change

Nestle realized this during their 2015 Maggie crisis. Fortunately, they bounced back from their state and is now performing better than before.

Lessons for students

As business students, we are learning various theories about how business is operated. Without practical knowledge these theories are not much of help. The story of Nestle has a lot to teach to us students also.

Analyzing its 104-year history and ways of operation, we cannot but marvel at the success of an organization. In a rice country they make noodles; in a tea country they sell coffee; in a sweets country they sell chocolates; in a fresh milk country they sell powder. They must be doing something right.

However, the 2015 scandal was a shock for all. What makes this company different from others is how they solved their problems and overcame the crisis. Nestle’s crisis management should be a case study and a matter of research. We as students learned a lot as to how the role of Management, Culture, Commitment and attitude can take a company to the top.

References

1. Dhanesh, G. S. (2017, December 21). Culture and Crisis Communication: Nestle India’s Maggi Noodles Case. Retrieved from Journal of International Management: www.sciencedirect.com
2. Dubey, A. S. (2017, December 4). ‘Maggi is the worst crisis that we have faced in the 104 years of our existence in this country’. Business Today, p. 6.
3. Fry, E. (2016, April 26). Nestlé’s Half-Billion-Dollar Noodle Debacle in India. Retrieved from Fortune: fortune.com
4. Money Control. (2017, August 29). Post-Maggi Crisis: How Nestle India is stepping up its game. Retrieved from Money control: www.moneycontrol.com
5. Nestle. (2016, April 11). MAGGI Noodles timeline of events. Retrieved from Nestle: www.nestle.in
6. Rediff Business. (2018, June 8). How Nestle bounced back from the Maggie Crisis. Retrieved from Rediff Business: www.rediff.com
7. Robbins, S. P. (2017-18). Organizational Culture. In S. P. Robbins, Management (pp. 465-467). New York: Pearson.
8. Sharat Pradhan. (2015, June 9). Maggi noodle crisis: How it all began. Business Today, p. 7.
9. The Quint. (2017, September 9). Excerpts: How Nestle Overcame the Maggie crisis. Retrieved from The Quint website: www.thequint.com

Essay on Nestle Corporate Social Responsibility

“Children are like buds in a garden and should be carefully and lovingly nurtured, as they are the future of the nation and the citizens of tomorrow” – Jawaharlal Nehru. Unfortunately, child labor heartlessly engulfs children across the world. The term “child labor” is defined as children who “are either too young to work or are involved in hazardous activities that may compromise their physical, mental, social, and educational development” (UNICEF, 2019). According to the International Labour Organization (ILO) worldwide, there are 218 million children aged 5 to 17 are in employment while 158 million are victims of child labor; accounting for almost 11% of the child population (ILO, 2017).

This paper examines the child labor practices of American company Coca-Cola and Suisse company Nestle and their child labor practices in Cote d’Ivoire (Ivory Coast). Although governments and corporations are trying to tackle child labor, it remains a large-scale issue worldwide. Hence, companies must make a sustainable effort to stop child labor in their system and supply chain. Coca-Cola is well-known for its strict prohibition of child labor. In contrast, Nestle faces a lawsuit for affirmatively misleading customers about the use of child labor in its supply chain. Both Coca-Cola and Nestlé have productions occurring in the Ivory Coast, the world’s largest exporter of cocoa beans yet an extremely impoverished country where citizens suffer from poverty, dangers of farm work, and lack of access to education. As a result, multinational companies often outsource their production to the Ivory Coast to take advantage of the existing child labor and keep their prices competitive.

Nestlé has been a prime contributor to child labor, with countless media outlets and organizations exposing their unethical business practices. Many of these unethical practices stem from their management systems. If we look at the Principles of [Global] Corporate Citizenship, we see multiple violations of ethical business practices. First and foremost is their information accuracy. Over the last 15 years, Nestlé has been criticized for its promotion of baby formula over traditional breast milk. This campaign was used to encourage mothers to use Nestlé’s baby formula instead of breast milk in hopes of higher product sales. There were even reports that Nestle was using advertising campaigns to target groups of people in certain countries, such as Malaysia, South Africa, and Ireland (Wolf, 2015). This directly violates the international symbols of breast milk marketing substitutes and the WHO code, showcasing Nestlé’s promotion of unhealthy foods (Wolf, 2015).

Nestle has also suffered backlash for how they treat their employees, with countless accusations made by Columbian workers that Nestle was threatening to fire employees if they didn’t leave their union (Wolf, 2015). This violates workers’ rights and the Principles of [Global] Corporate Citizenship. The media has also been pressuring Nestle to cease its use of cocoa farms in the Ivory Coast and Ghana.

Many of their suppliers are known to use child slaves purchased or stolen from their families. These children are living in unsanitary conditions, being overworked, beaten, underfed, and unpaid. Nestle has acknowledged that they don’t intentionally use child labor, but only know where 49% of their supply comes from (Whoriskey, Siegal, 2019). All of these examples not only show poor business practices but ignorance of their products, impacts, and their workers.

Coke provides a more positive model for an ethical company. The lack of disputes involving Coke is in part due to its management system which is built around ethics. A series of checks and balances are in place to ensure that management, suppliers, and stakeholders are all held to a standard (Ethical Business Conduct, 2018). Coke also has a more proactive outlook when it comes to correcting any mistakes in its business model. If we look at their ethical business practices, we can see that they’ve been very active in combating child labor and have been involved in beach cleanups in the Ivory Coast, a region where Nestle has exploited child labor (Cola Ivory Coast Saves a Day to Save the Beaches). They’ve also been forward when working with unethical suppliers, having repeatedly ceased work with different companies even before any business interaction has occurred. Coke’s only ethical issue has stemmed from its production of plastic waste. When looking at Coke objectively we can see they have a firm grasp on ethical issues regarding child labor but are not quite as successful when it comes to environmental practices.

The journey towards good corporate citizenship requires planning, funding creating new programs, and a clear initiative. A five-stage model developed at the Center for Global Citizenship can be used to demonstrate a company’s level of corporate citizenship. Although the model offers five distinct stages a company can be operating in multiple stages at once. Coke has taken on the issue of child labor by addressing it both internally and externally. Using strict anti-child labor policies and third-party organizations that assess Coke’s 28 largest sugar-supplying countries Coke can ensure that no breaches occur (Wilton, 2018). In a report for the Ivory Coast done by Coke’s partner organization, Partner Africa, it was found that there was “ no evidence of child labor in the sugar supply chain…”. Coke also plays a role in the complete eradication of child labor worldwide. By joining the Child Labor Platform with the hope of ending Child labor by 2025, Coke demonstrated its support of the cause on a global scale (Wilton, 2018). The integration of Child Labor into Coke’s key initiatives, shown through their internal policies and global support, places Coke in the highest stage of corporate citizenship, the Transforming stage. In this stage, companies are leaders of the issue, have proactive systems to address them, and also have strong multi-organizational alliances to ensure that the problem is given the most attention possible.

Nestlé, on the other hand, has pledged for over two decades to fight against child labor but has been unsuccessful in doing so. Although aware of the issue as seen through the creation of the Cocoa Plan, which specifically aims to identify and eradicate child labor used by Nestle suppliers in the Ivory Coast, in 2018 a lawsuit was brought against the company for their use of children. The Nestle Cocoa Plan Report from 2017 states that 51% of children involved in the Cocoa Plan program are no longer involved in any form of child labor, (Introducing the Nestlé Cocoa Plan) however, Nestle can only trace 49% of its cocoa supply back to a specific farm Therefore, Nestlé could be unaware of child labor occurring due to their inability to trace cocoa directly back to farms (Whoriskey, Siegal, 2019). The ineffectiveness of the Cocoa Plan places Nestle in the Engaged stage of the Global Corporate Citizenship Model. Although aware of the issue and its impact on their ability to operate their programs are unable to effectively solicit change and still allow for violation to occur.

Social auditing is the act of looking at the business activities of an organization and analyzing their impact. A company can either design specific standards for the company or adhere to industry-wide standards. Both Coca-Cola and Nestle follow a mix of company-wide standards and industry-wide standards which are overlooked by Audit Committees.

At Coca-Cola, the audit committee is selected by the Board of Directors. Coke’s audit committee charter states that “Each Committee member shall meet the requirements of the New York Stock Exchange listing standards, and federal laws and regulations, concerning audit committees,” (Audit Committee Charter, 2019). Both Coke and Nestle’s stated purpose of the audit committees is to oversee both the independent and external auditors and create annual reports stating compliance with legal requirements, company conduct codes, and ethics programs. At Nestlé the committee is also appointed by the Board of Directors but is required to have at least two board members present on the committee who are not the CEO. The information gathered in audits is then used by both Coke and Nestle to produce annual sustainability reports documenting their environmental and ethical impact.

Based on the analysis and assessment provided in Exhibit 1, both companies have stated their commitments and publicly addressed the child labor issue. Therefore, Coca-Cola earns an A on its corporate social responsibility in both the United States and Ivory Coast since the company has been realistically making efforts to maintain child labor in its supply chain. In contrast, Nestlé receives an A in Switzerland and a C in Ivory Coast as obviously child labor still exists in its supply chains. In conclusion, it is recommended that Coca-Cola should continue to help end child labor. Whereas, Nestlé should be more proactive in promoting human rights in the workplace and combating the use of child labor in its global supply chains. As such, Nestlé should establish strong contractual agreements with its suppliers to enforce child labor laws and incentivize good labor practices through price premiums or long-term contracts. Additionally, Nestlé should conduct more audits of its suppliers to measure compliance with child labor laws and its supply chain standards. The process could include non-scheduled visits to the production facilities or farms, interviews with workers, and document reviews (KnowTheChain, 2018). The benefits of eradicating child labor will far outweigh the costs as it will help save more than 150 million children around the world from the worst form of child labor and eventually reap rewards in the form of enhanced reputation, legitimacy, and customer loyalty.

Commitments

The company makes the following commitments:

• Working with the Fair Labor Association (FLA) since 2011 to reduce children working in hazelnut supply chain
• Making progress in tackling child labor in cocoa and improving farmers’ lives and their communities with the Nestle Cocoa Plan
• Building schools in cocoa-growing communities to allow children to attend school and prevent child labor

The company makes the following commitments:

• Establishing two contractual agreements, Supplier Guiding Principles (SGP), and Human Rights Policy with direct and authorized suppliers to strictly prohibit the use of child labor and embrace responsible workplace practices
• Since 2013, the company has been working with third-party organizations to examine the realities of forced labor and child labor rights issues in the company supply chain (Wilton, 2018)

What steps does the company take to ensure no child labor in their facilities and supply chain systems?

Information is included in the Nestle Responsible Sourcing Standard. However, the company uses the word ‘shall not employ under the age of 15’ and has a different section saying if the suppliers employ young workers, ‘it shall demonstrate that the employment of young people contributes to their education and does not expose them to undue physical risks’ (Nestect Ltd., 2018)

Information is included in the SGP and Human Rights Policy. The policy says, ‘We prohibit the hiring of individuals that are under 18 years of age for positions in which hazardous work is required. And adhere to minimum age provisions of applicable laws and regulations (Wilton, 2018)

What steps does the company audit its suppliers to ensure regulations are properly enforced?

The company does not mention how they would audit their suppliers. Instead, the company encourages suppliers to make internal programs for continuous improvement and report any suspected violations of regulations, laws, and standards

It completes approximately 2,500 independent audits within the company system and supply chain. Additionally, it works on a due-diligence process through third-party organizations to examine the company’s 28 largest sugar-sourcing countries

Does the company conduct any labor rights monitoring or inspections of its facilities and suppliers in Ivory Coast?

Running a Child Labour Monitoring and Remediation System (CLMRS) in all its cooperatives. This system includes monitoring, training, and awareness of child labor. However, the company does not run any inspections

Farm and mill owners were asked what policy, management, and monitoring systems were in place to ensure no child labor occurred in the supply chain. This process is done by one of the largest sugar mills in Ivory Coast, which directly feeds into the Coca-Cola supply chain

Does the company have any corrective action plans with suppliers if found to violate child labor laws?

Nestlé has known for a decade that child labor exists in its supply chain. However, the company does not seem to make any significant impact or change to tackle child labor, especially in Ivory Coast

In 2004, Coca-Cola was claimed for purchasing sugar from El Salvador that used child labor. Since then, the company has been making huge efforts to ensure direct or authorized suppliers are not involved in any form of child labor

Does the company conduct any child labor practices in their headquartered countries?

No. Due to the strict child labor laws of the United States and Switzerland

References

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