Comparison of Management Nestle vs Kraft

Globalization has been popular since last century, which provided opportunities for multinational enterprises to obtain overseas development. In food and beverage industries, Nestle and Kraft are first two largest manufactures. Nestle is making large efforts on searching for growth opportunities in emerging markets, transferring from the subdued trading environment in many developed ones (BBC, 2012). Meantime, Kraft gets fully prepared for accelerating its global expansion, focusing more on fast growing markets than on primary grocery b usiness in North American markets (Mondelez International, 2013).

Figure 1 shows that Nestle emphasizes on multinational mentality and high level of localization. However, Kraft applies international strategy and undergoes the mentality movement towards multinational strategy, aiming to localize its products and capabilities. According to Figure 2, Nestle utilizes its national differences to achieve global efficiency, multinational flexibility and worldwide learning, yet Kraft aims to achieve higher flexibility to fit its strategy transfer intension. This essay compares how Nestle and Kraft accomplish three goals through developing their international business strategies, and HR functions.

Efficiency

Enhancing efficiency is essential for MNEs to achieve sustainable competitive advantage (Bartlett and Beamish, 2011). It is positively related to firms’ net profit margins and can be improved by lessening cost, enhancing revenue or both (ibid). From 2011 to 2012, Nestle’s net profit margin was increased to 11. 5%, while Kraft’s was eroded towards 8. 95% (Figure 3) (Kraft, 2013a; Nestle, 2013a).

The 2. 56% difference in net profit margin indicates that Nestle achieved better global-scale efficiency.

The analysis of efficiency gap is conducted from two influential factors: cost-reduction and revenue-improvement. Cost reduction 1. 1 Scale and scope economy are two significant means for obtaining cost advantage (Bartlett and Beamish, 2011). Both Nestle and Kraft emphasize on reaching scale and scope economy, taking advantage of massive production and products diversification. Kraft has approximately 80 brands and its products are operated by 220 facilities (Kraft, 2012a). Nestle is even larger, whose brands reached almost 8000 and factories approached nearly 450 worldwide in 1990s (Rapoport, 1994).

However, due to different corporate-level strategies employed by Nestle and Kraft, the ranges of cost control adopted are dissimilar. Within regional markets, Nestle benefits from cost advantage through acquisition and strategic alliance. For example, the collaboration of Nestle and General Mills enriched Nestle’s product mix with breakfast cereals in Europe market and strengthened benefits of scope economy (Stenzel, n. d. ). Unlike Nestle, Kraft attaches higher importance on pursuing low-cost operation (Bartlett and Beamish, 2011). Kraft stresses cost reduction not only in regional markets, but also among corporation.

The acquisition of Danone’s biscuits division in 2007 complemented Kraft’s biscuit business capacity, diversified products in snack segment and helped Kraft attain accumulated learning through the boosted production volume (Jones, 2007). Specifically in China, the combination enabled Kraft’s distribution network to be shared by more products, and intensified its scale and scope economy (Contineo Media, 2007). Revenue improvement 1. 2 In terms of Nestle, not only acquisition and strategic alliance but also localization is emphasized to gain higher market share.

For example, Nestle established partnership with Hsu FU Chi in 2011, aiming to increase market share of candy in emerging markets (Hook, 2011). Moreover, Nestle planned to build new R&D center in Guangdong, supporting Hsu Fu Chi in production and aiming to have deeper understanding of Chinese customers’ preferences to increase revenue (Li, 2012). Accordingly, in 2012, Nestle expected to double its sales in China (ibid).

Lu LU On the contrary, Kraft increases sales revenue by cooperating with worldwide-known enterprises to make up the shortage of brand awareness.

For example, the strategic alliance with Starbucks in 1988 resulted to the synergy in sales revenue. According to Geller and Baertlein (2010), with Kraft’s highly-integrated distribution network, annual revenue from selling Starbucks coffee in global grocery stores reached 500 million dollar and brought Kraft more than 20% operating margin.

Benchmark

In the beverage industry, Coca-Cola’s performance on achieving global-scale efficiency is better than both Nestle and Kraft. In addition to deliver cost-reduction via global standardized production, CocaCola strengthens sales mainly through unique branding and marketing strategies, such as ssociating with mega global celebrations and events (Siddiqui, 2011). In 2010, Coca-Cola recreated the song Waving Flag to celebrate FIFA World Cup, which brought about 26 billion people’s attention and boosted sales greatly, and reported as the Best Global Brand (ibid). With comparison, Nestle and Kraft’s performance on obtaining efficiency reach 80% and 60% of Coca-Cola’s.

Flexibility

In order to be responsive to the dynamic environment and national differences, MNEs need to develop appropriate organization structures and strategies (Bartlett and Beamish, 2011).

Both Nestle and Kraft are attempting to increase multinational flexibility, which is crucial for their sustainable competitive advantage.

Structure Changes

Nestle is a highly diversified and localized company with only 2% of turnover in Swiss. Most of the Nestle’s products are foods, which are often very local and require specific marketing skills instead of general communications in global strategy (Parsons, 1996). Before the 1990s, Nestle was managed through global-area structure by pursuing a localization strategy, and major decisions of acquisition, expansion and corporate resource are regulated by headquarter manager.

However, in 1990s, it made Nestle difficult in responding to the fast-changing food products in each market, maintaining market share and competitiveness (Hill and Jones, 2009). Consequently, Nestle decentralized authority to seven global-product groups, and transformed to matrix structure. For example, Nestle Water decentralizes the authority to subsidiaries, NW Italy, NW France and others (Cristiano et al. , 2008).

Lu LU After restructuring, Nestle kept growing in early 2000s. In 2008, Nestle’s gross profit exceeded 14 million, which increased 11. 3% (Nestle Group, 2008).

Different from Nestle, Kraft inherited American management style, which enlarged and centralized company with seven major groups and thousands of products. Restructuring happened due to the increasingly competitive environment in 2008. Kraft decentralized the critical divisions and some people in critical positions have much more responsibility than before. To achieve such change, Kraft dismantled the existing organizational matrix and made more key assets, resources and responsibilities decentralized with loose personal controls in a decentralized structure (Rosenfeld 2009). Localized strategies .

By configuring its value chain, Nestle has successfully achieved localization in R&D, production, and marketing. From the marketing aspect, Nestle developed several different marketing strategies according to cultural differences. For example, the word “Nestle” meant little nest in German, which linked Nestle’s product with family and care, and created a strong brand image in Germany (Parsons, 1996). Additionally, in Japan, since “KitKat” meant surely win, Nestle partnered with local postal services to create a postcard-like product sold only at the post office during exam seasons.

This 5 6505403 Lu LU strategy led to sales increase of KitKat, moreover, contributed to Nestle as a major promotion (Madden, 2010). In R&D, Nestle developed different flavors and brands to meet suffice consumers. For instance, Nestle created 19 unique flavors for KitKat such as miso flavor, were sold only in Japan (ibid). As a result, KitKat became No. 1 brand confectionery brand in Japan in 2009. Compared with Nestle’s Localized strategies, Kraft also aims to better serve local consumers’ needs, especially after restructuring in 2008.

For example, Chinese consumers dislike Oreo cookies so much as Americans did at before because of the tastes. After investigation, Kraft began to fill less cloying cream so that the cookies would be more appealing to Chinese customers ( Brady, 2012). While in developed countries, Kraft paid more attention to low-fat and natural ingredients. In France, R&D Centre primarily works on improving nutrition profiles, which helped reduce Oreo’s saturated fat by 20% (Kraft, 2012b).

For improving flexibility, in 2000, Coca-Cola transformed concentration from pursuing global strategy to localization (Yan, 2006).

Innovation and R&D centers were increased in several countries, which enabled local marketing managers to develop new packages and drinks (Hofstede and Mooij, 2002). In China, a website was designed on the basis of Chinese culture to improve communication with customers, took advantage of underlining its relationship with the Chinese government, contributions to Chinese community and some sponsorships (Yan, 2006). It brought Coca-Cola successes in the Chinese market, which indicated the crucial of maintaining the balance between global homogenization and local customization.

As a benchmark, Nestle’s performance reaches 110% while Kraft only gets 60% of Coca-Cola’s.

Innovation and learning Innovation has been regarded as a dominant way to achieve global intelligence and economic growth (The Economist, 2006). For companies, innovation enhances the core competencies and sustains the competitive advantage (Bartlett and Beamish, 2011). Moreover, in food industry, innovation indicates products’ inherent value to consumer, combined with elements of services and solutions, good & healthy, and convenience (Traitler and Saguy, 2009).

Generally, there are three approaches to innovation: central-for-global, local-for-local, and transnational innovation (global leverage and locally leverage) (Bartlett and Beamish, 2011). The way adopted by Nestle and Kraft is different.

Nestle’s approaches Lu LU With the world largest R&D network and over 140 years of R&D effor ts, Nestle is considered as a giant of food innovation in three areas – safety and quality; nutrition and health; and taste, texture and convenience (Nestle Global, 2013).

Their new launches included diet pet -food, fortified milks, Chinese herb soups, low-salt noodles, low-fat ice cream and new home cappuccinos (Innovation Leaders, 2013). Relying on R&D network, Nestle applies centre-for-local innovation model globally with local flavor research strategy, which vertically integrated its global products and processes development into all core businesses. In 2006, Nestle launched its “Innovation Partnership Approach”, which built partnerships and strategic alliance with universities, venture capital, suppliers, and government laboratories, as a source of conducting open innovations (Traitler and Saguy, 2009).

The basic model is demonstrated in the following figure. These open innovation partnerships contributed to more than $200 million in new business developments, ranging through Nestle’s integrated businesses(Moskowitz and Saguy, 2009; Nestle Research, 2010). It also provided some creative problem-solving methods to Nestle, such as FastPack, which is a tool for packaging innovation that has come out many successful ideas like the Movenpick ice cream tub, new Nescafe containers, and new baby food containers (Traitler and Saguy, 2009).

Kraft’s Approaches Lu LU

As described in Figure 5, similar to Nestle, Kraft relies on open innovation infrastructure to publish new products quickly (FoofNavigator, 2012). However, rather than building professional partnerships, Kraft conducted open innovation by collecting ideas from publics, for strategically satisfying consumers’ needs better. For example, the website ‘Innovate with Kraft’ was established in 2008 to seek creative ideas of product, package, and process from customers (Kuhn, 2008). It responds to local opportunities, which allows subsidiaries to use local resources and capabilities for accomplishing and implementing innovations.

Another innovation spotlight of Kraft is upstream cooperation with suppliers. It helps to fuel Kraft’s worldwide growth in specific product segments, such as Oreo Cakesters, LiveActive cereal, and Jell-O Fruit Passions (ibid). However, there are 17 out of 19 Kraft’s products that launched in 2008 were considered failures (Forbes, 2013). To solve this problem, in 2010, Kraft applied a strategy named ‘enough was enough’ to figure out how to create processes for meaningful innovation. It led to three new $100 million platforms: MiO beverage mixes, Oscar Mayer Selects deli meats, and Velveeta Skillet packaged meals (ibid).

In 2013, blue-sky development of Kraft’s innovation pipeline will be replaced by line extensions. Kraft will refresh pantry staple with bolder flavors and capitalize towards healthier choices, flexible meals and customizability. Moreover, new production lines will be established as brand extensions, such as new Spicy Jalapeno Cream Cheese of Philadelphia and new Cherry Flavor Peanut Butter of Planters (FoodNavigator, 2013).

Coca-Cola puts innovation as a priority in its future growth, aiming to achieve disruptive innovation in the business models and technology evelopment (Coca-Cola, 2013). It innovates via venturing and its emerging brands, making further step. For Coca-Cola, innovation is driving its sustainability as its core product coke has been mature. Nestle and Kraft have different focus, therefore, they can learn from Coca-Cola to handle with the mature products and improve worldwide learning, enhancing performance percentage from 90 and 70 to higher level respectively.

HR Managers

Without effective managers in place, even sophisticated strategies and organizational structures will perform weakly (Bartlett and Beamish, 2011).

In order to implement co mpany strategies effectively, and improve efficiency and flexibility, Nestle and Kraft use different task -based human resources with respect to managers’ responsibilities. Nestle employs country managers to resolve the conflict regional demands. Country managers of Nestle are crucial to be responsible for the overall performance in specific countries, to effectively implement promotion strategies to fit local tastes, and to manage the risks and exploit opportunities in the particular output market s (Nestle Global, 2013).

Kraft has global business managers to shape future configuration by leveraging existing resource and capabilities to increase multinational responsiveness. Tim Cofer, Europe executive president, leads team in Switzerland continuously to maximize efficiency in the Europe districts (Mondelez International, 2013). He would take advantage of the new Biscuits R&D Center in France to efficiently allocate resources for all 17 European markets, resulting in higher cost reduction and better benefit enhancements (Kraft, 2013b).

However, with the multinational mentality, Tim should focus more on how to flexibly utilize research in new Biscuits R&D center to satisfy different tastes within the 17 markets.

Individual Comments

With demonstrating the agreed opinions, some individual ideas from 4 perspectives are come out as complements and criticisms.

Mentality

In introduction, both Nestle and Kraft’s mentality are estimated to be multinational in future. However, from individual perspective, they are more inclined to be transnational.

Nestle emphasizes on not only sufficing customers through localized strategic decisions, but also reducing cost via strategic alliance, acquisition and innovation. According to the examples illustrated 1. 1 and 1. 2, strategic alliance and acquisition complement and enlarge Nestle’s business, and help boost scale and scope economies. Nestle also invests in innovative waste and energy management to saving costs (Nestle, 2012b). By emphasising both cost-reduction and localization, Nestle is more consistent with transnational strategic mentality.

The tendency to transnational mentality is even more obvious in Kraft, who is keeping on strategic alliance and acquisition in not only mature markets but also emerging markets. Especially, the combine with Cadbury in 2010 resulted yearly cost savings of $675 and long-term revenue grow about at least 5% (Reynolds, 2010). Kraft has made progress in localization as well, which are assessed in 2. 2. Therefore, Kraft’s mentality should be more transnational other than multinational. Efficiency with Corporate-Social-Responsibility (CSR)

In terms of assessing Nestle and Kraft’s sustainable efficiency, only use past financial data is insufficient. For being a going concern, Hofstrand (2009) stressed that firms’ economic profit should be demonstrated as the long-term result, which involve the opportunity cost led from adapting CSR. Therefore, both Nestle and Kraft need to add the related investments into operation cost, as a part of cost-reduction analysis. Correspondingly, revenue-enhancement comparison should consider future benefits of developing CSR as well.

Both Nestle and Kraft benefited from concerning CSR, especially in the treatment efficiency of resources, energies and wastes. According to Nestle (2012b), 489 water -saving projects economized about 6500000m? water and 39 factories generated zero waste for disposal, which facilitated costreduction and revenue-improvement simultaneously. And Kraft (2010), since 2005, has reduced water consumption and wastes by a third. Furthermore, those programs won global CSR award in 2012, which intensified Kraft’s brand awareness and profit-margin.

However, potential profit from CSR is incalculable, which make it harder to figure out which of them attains the higher efficiency.

Innovation and Learning with CSR Lu LU

In addition to differentiating their products, both Nestle and Kraft concern CSR projects as alternatives. For example, Nestle is undergoing the innovation of bio -plastic, a renewable resource for reaching sustainable packaging in future (Roulin, 2011). It reflects Nestle’s responsibility to social environment and assists to achieve lone-term competitiveness (ibid).

Different from researching on new resources, Kraft made innovation in resource supply. In a fiveyear commitment with USAID, Kraft established Cocoa Partnership with Dominican Republic in 2008, and promised a 70-million-dollar investment over 10-year period (IIP Digital, 2011). It benefited local farmers with higher income, promoted local economic growth and nurtured the next generation of cocoa farmers (ibid). Future 5. 4 Future perspectives of Nestle and Kraft are also necessary to be compared, hich would exert influences on current strategic decisions. Since globalization brought MNEs rapid growth and overseas expansions, divergent viewpoints between developing a nd developed nations have occurred: the former has believed that, as a return, MNEs should equally distribute their benefits to narrow the gap between rich and poor nations; while others disagree and argued that livings in poor nation were continuously improved via globalization (Bartlett and Beamish, 2011).

Adding with the shifty globalized business environment, challenges are inevitably faced by Nestle and Kraft in the process of becoming transnational, even though they both devote themselves in sustaining not only financial benefits but also social responsibility. Nestle exploited emerging markets with high expectations in contribution margin (above 40%), but disappointments were received in 2012 (Seth, 2012). Particularly in India, margin was less than 2%, owing to inappropriate responses towards emerging affluent segment.

To remedy the poor returns, Seth planned to inaugurate a global R&D plant in Manesar, for making innovative products that can catch up with city growth and upgrading the progress in nutrition area (ibid). Although the current performance is far less well than Cadbury’s in India, with continuing efforts on innovation and social responsible, Nestle is promising to grasp the market leadership. Unlike Nestle, Kraft performed well in emerging market, especially in India (Reuters, 2011). The subsidiary business Cadbury generated huge benefits and made Kraft into one of the top 5 food companies in India (ibid).

What troubles Kraft most was the operations in developed market. The Lu LU instable economy in developed world caused financial dilemma (Brown, 2013). To gain survival, in the March 2012, its slow-growing North American grocery business was split off from the faster growing international snack unit (ibid). However, with the smaller market value, Kraft may suffer more threats from the fierce globalized competition and became less competitive in future. In conclusion, though Nestle and Kraft are similar in otivations, part of means and mentality tendency, current performance and future perspective deduced from global challenges are different. For obtaining sustainable competitiveness and long-term survival, both Nestle and Kraft have to keep maintaining global-scale efficiency, flexibility and innovation, with considering CSR and the corresponding HR management.

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