SWOT and PESTEL Analysis of Nestle Corporation

Date:  2021-06-16 05:24:43
7 pages  (1795 words)
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Harvey Mudd College
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i.)    Opportunities

Nestle Corporation is facing some of opportunities in the areas of operations worldwide. Nestle has shown a significant improvement since it started in1866. Some of the opportunities that it faces in Europe and the United States are the ability to reach out to new consumers in these regions. Although the company had expanded its operations in Europe especially in the UK, it has not managed to reach out to new consumers that continue to increase. The USA serves as one of the international markets to Nestles operations; therefore, it is important to consider the ability to reach out to the new consumer markets in the USA and its environs.

In Asia and Asia-Pacific, Nestle is exposed to more opportunities through expansion of its market area to a wider region. Nestle has an opportunity in the BRICS economies (Brazil, Russia, India, China, and South Africa). Some of the countries in the BRICS economies such as India and China can largely help the Nestle expand its operations. Although some of the products such as Nescafe have reached the Asia and Asia-Pacific regions, it has not dominated the area as it is in Europe and its environs. Therefore, Nestle needs to further its internalization with particular emphasis on the Asian and Asian-Pacific BRICS economies. One of the main factors that have significantly reduced the operations of Nestle in the United States, Asia, Asia-Pacific, and Europe is the inadequate innovative development of distribution systems. Therefore, if the company can come up with more systematic and innovative development of distribution strategies, it can realize the potentialities and opportunities in the external market.

ii.) Threats

Nestle as a beverage company is faced with some threats. Poor infrastructure is one of the key challenges or threats that affect the operations of Nestle in the external market. This challenge is mostly experienced in Asia and Asia-Pacific regions where physical resource capacity is particularly low as compared to the areas where the company has been operating in. Asia and Asia-Pacific regions are emerging markets for Nestle Corporation, and the poor infrastructure affects the energy use and consequently increases the operation costs. This, however, is not witnessed in Europe and United States as compared to the new emerging market areas in Asia.

Variability of raw material prices further affects the performance and operations of Nestle in the external market. Sometimes the prices may go higher than normal; this may affect the organizations ability to maintain sustainable prices in the market for the products in spite of the companys commitment to more and diverse responsibilities apart from making profits. Water is one of the materials needed in the production of different products in Nestle Inc. Climate change may have adverse effects on the availability of water. As food and beverage company, Nestle is most likely to be affected by water scarcity problem that is experienced in some of the emerging markets such as China, USA. And other parts of Europe like Belgium. Therefore, it is important to consider such important natural resource that companies need to carry out their operations effectively.

PESTEL Analysis of Nestle

A PESTLE analysis is a technique that most business organizations use to strategically measure the organizations dynamics through the recognition and consideration of diverse factors affecting the performance and operations of the firm. Some of the factors involved in PESTEL analysis include political, economic, social, technological, legal, and environmental factors. The above-highlighted factors have great influence on the firms operations.

i.) Political

Multinational business like Nestle needs to consider the stability and direction of political factors that majorly defines the formulation of the firms strategies. The political threats to a business may be manifested through fair-trade decisions, antitrust laws, tax mechanisms, pollution, and pricing policies. These factors depend on the area of operation. However, in the case of Nestle, political constraints are experienced in the emerging market areas such as Asia and Asia-Pacific. In Asia and its environs, Nestles mega-environment has always been experienced with some political constraints. The political restraints Nestle has experienced in Asia include Pakistan where the government has always dictated the way the company carries its operations. This includes the imposition of quotas on the company; this has consequently reduced the revenue the firm produces. High taxes in the Asian and Asian-Pacific has also affected the operations of Nestle Inc. This has, in turn, forced the company to increase its product prices in the regions where it is taxed heavily as compared to the regions where it has to pay lower taxes. This, however, depends on the policies of the involved country,

ii.) Economic

The economic factors include the employment, income, inflation, and productivity. Nestle has managed to expand its operations to over 86 countries, worldwide due to its quality food products. Economic factors significantly influence the nature and direction of the business environment where the business operates. The consumption patterns are influenced by different market segment factors; however, every business needs to consider the economic trends in the market segment that may probably affect the business organization. Nestle contributes heavily to the development of economic growth of the countries where it operates. In Asia, Pakistan to be specific, Nestle contributes over 2.3 million rupees to the government. However, this implies that the economic factors in Pakistan support the operations of Nestle. The rising of raw material cost in the areas of its operations makes it difficult for Nestle Inc. to expand its operations to new areas.

iii.) Social

The social factors that impact the organizations performance and operations include the values, beliefs, attitudes, opinions, and lifestyles of the surrounding communities where it operates. Some of the social factors affecting the operations of Nestle include the dynamism in the consumer attitudes. With the emergence of different health complications and diseases such as cancer and diabetes, consumers have moved towards adopting healthier products. This involves reducing consumption of certain products that may be associated with such health problems such as chocolate. Nestle is further expected to conform to the cultural set-ups of the communities in the region where it operates. Some of the areas like Asia and Asia-Pacific where most people use their native languages, the company is forced to adapt to the cultural settings of the people around where it operates. This is not only limited to the language but also extends to the religious beliefs and family settings. Understanding the language of the communities around and their lifestyles will help the company understand the consumer behavior of the target population.

iv.) Technological

Development of technology continues to influence the way organizations to carry to out their businesses. Business organizations need to promote innovation and minimize the obsolescence cases that may affect the competitiveness of the business. As a food and beverage company, Nestle Inc. is expected to adopt more innovative packaging system, food processing and manufacturing systems that conform to the new technological developments. Nestle has tried to develop and promote new and innovative technologies; for example, fermentation, extrusion, healthier fats, and malt extraction that have greatly assisted the company to improve its competitiveness in the international market.

v.) Legal

The legal factors are closely related to the political factors because they also affect the business operations the way the political factors do. Every country has regulations that the business firms operating around are expected to conform to. Nestle operates in more than 86 countries and it is expected to conform to the laws and policies of each of the states. Every country has regulations that regulate the way companies are expected to pay taxes and other laws of operations. Since it has succeeded to operate in more than 86 countries across the world; Nestle is equipped for the countries laws and legal processes. This has enabled the company to create a good relationship with the governments of these countries; for instance, in Asia, Nestle operates in Saudi Arabia and the Arab Emirates where it has established some of its great branches that suppliers various food and beverage products to millions of residents. Despite the changing nature of regulations and policies, Nestle has tried to conform and abide by the dynamism.

vi.) Environmental

Environmental or ecological factors influence the operations of the business organization. This includes the relationship between the firm and the environment. Food and beverage companies contribute heavily to the wastes that pollute the environment. The environmental factors impacting the operations of Nestle include the consumers concern over the packaging or recycling. Some countries have now adopted the environmental rules and guidelines that include prohibiting the use of plastics to package food products. Therefore, as the company thinks of expanding its operations to other regions to explore new markets, it should consider the environmental issues especially the packaging.

The Key Economic Drivers in the Industry

The economic environment or factors that drive the growth of Nestle ranges from suppliers to consumers or customers. However, there are other drivers such as political stability and good business policies in certain countries like the USA, Europe and also some parts of Asia. Therefore, it is important to look at some of these factors in detail to determine how each influences the economic growth of the company.

i.) Consumers

Nestle has created an extensive marketing network that ensures that all customers demands are met through constant supplies. The company has ensured that the products that are most desired by consumers do not miss on the shelves in various shops. Through the marketing specialists, the company understands the market and consumer behavior. Again, Nestle Inc. is spending a lot to determine the consumer preferences regarding its products so as to ensure that customers, who are significant stakeholders in the business, are included in the decision making. By 2014, the company had realized that Nescafe was one of the most desired products across the market areas in over 86 countries worldwide. Therefore, Nestle has tried to conform to customers desires by ensuring that such products are constantly supplied to various regions despite the market challenges. Further, the extensive market share is created with the fact that its customers are brand loyal and emphasize on quality of products and also the firms quality assurance (QA) department. However, achieving the unique products that do not confuse customers is not easy especially with the emergence of new companies dealing with the same products that Nestle produces. Through its marketing strategies that include using differentiated products for each group of brands, Nestle Inc. has continuously increased its market share and customer preferences over the competitors in the market.

One of the marketing strategies is differentiation that involves producing distinct products that are able to be identified with the company and separates it from the competitors. Nestles focus is mainly on improving the quality of their consumers by enhancing the quality of products. This involves ensuring that they produce tastier and healthier food and beverage products that d...

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