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The Nestle company started in 1866 with the foundation of the Anglo-Swiss Condensed Milk Company (Nestle, 2018). One year later, with the increase of the railroads and overseas shipping, and after a break through in producing a new infant food, the company grew into what is known today. Nestlé, the world's largest food company, is one of the most multinational of companies, with more than 450 manufacturing facilities in over 80 countries spread over six continents (Mattera, 2013). The company, however, does have its share of controversies, and due to these focusing around two specific lines of their products, breaking them from the main company would increase the profits of the company.
Currently Nestle corporation markets a wide variety of brands and products. Having dramatically expanded from its original incarnation of condensed milk and infant food, Nestle now produces some of the following products:
These products are produced globally, with different product names and manufactured for each area's specific needs.
By focusing on each area's specific, unique needs, Nestle can help create a greater economic value by making that society more raised in value. There are three distinct ways to do this: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company’s locations (Kramer, 2011, p. 7). It is up to those in charge at Nestle to research and follow the country or nation's product requirements, as well as any laws regarding manufacturing of their products.
Additionally, Nestle corporation is required to pay whatever tariffs, taxes, and operation fees that each area requires for them to produce their products. With the amount of sales Nestle does, this can quickly add up. The Swiss company Nestlé S.A. was rated as the world’s largest fast-moving consumer goods company, in terms of revenue amounting to a staggering 27.8 billion U.S. dollars in 2017, with a worldwide net sale of $90, 832 for the same year (Statista, 2018).
When starting a new manufacturing plant in an area, Nestle does provide the local residents with information regarding the number of new jobs that will open, potential city growth, and increased amount of tax revenue the city can expect. Sadly, however, not all of the jobs will be filled by local residents. At their more remote, third world country sites, it is even harder to ensure that proper hiring procedures are implemented. A new report by the Fair Labor Association (FLA), commissioned by Nestlé, saw researchers visit 260 cocoa farms used by the company in Ivory Coast from September to December 2014, of which found 56 workers under the age of 18, of which 27 were under 15 (Collingsworth, 2015). Some of these child workers had went a year without receiving a single form of payment at one farm.
The chocolate farms are not the only place that have encountered the darker side of Nestle's employment procedures. In a rural county in the state of Michigan, Nestle owns and operates a bottling water plant the size of a palace. Within the walls, bottles are made from recycled materials, then filled with water both from one of the local springs and water trucked in from another county. In terms of sales, Nestle brought in $7.7 billion worth worldwide, with more than $343 million of it coming from Michigan alone (Winter, 2017). The complaints arise from the public due to Nestle's fondness of picking places with tax bases favorable to their water plants, as well as very loose water usage laws.
A recent example of this is Nestle's proposal to build a bottled water factory in Cascade Locks, Oregon. Not only is this proposed site in the heart of a nature park that draws a high volume of tourists, but also the price of water residents pay is very low. The profit Nestle could make from this, combined with the damage it could do to the local area, has residents fighting to stop the approval of the plant. Water sold by the city for $.00225 per gallon could be resold by Nestlé as bottled spring water or municipal water for $2.63 and $1.70 per gallon (Sheeran & Zhou, 2011, p. 13).
Baby formula, however, is the biggest area Nestle receives negative notice for, and yet is often one of its biggest sellers. In October 1984, the International Nestle Boycott Committee announced the termination of a seven-year consumer boycott of Nestle, one of the world's largest food companies (Post, 1985). The boycott had come about due to Nestle promoting their breastfeeding formula in what are often known as 'third world countries', or those that are not as economically developed as the United States. The following marketing practices were implemented, which led to the deaths of many infants:
(Robinson, 2002, p. 143).
This was not the only time Nestle faced serious consequences over their infant food. During the summer of 1977, the Australian Department of Health reported that 134 infants had fallen seriously ill as a result of being fed contaminated infant milk formulas produced by the Nestle Corporation (Clement, 2001, p. 60). Australia was not the only country at the time who was experiencing infant deaths. Both China and Columbia experienced infant deaths due to fatal bacteria being present in the infant foods. Part of these deaths were not only contributed to the fatal bacteria, but also to contaminated drinking water, as mothers in remote areas often did not have access to clean drinking water to mix with the baby's powdered formula. The public reaction was to globally call for boycotts of Nestle products, and faith in Nestle products as well as their sales plummeted. Even today, Nestle is still scarred by these deaths, and the public opinion of the company for both its infant food and its bottle water is low.
Programs such as free medical screenings and care, women empowerment groups, and better farming techniques are being introduced globally to aid the farmers who work with Nestle Nestle repeatedly has been shown to attempt to circumvent water use restrictions in towns they are bottling water in, going so far as to go to court to get their usage approved.
These figures reveal that Nestle's foreign exchange rating has dropped, in part due to the lingering stigma regarding its infant food and its restructuring of that division. In the United States, the activist investor Daniel S. Loeb, a major stock holder in Nestlé with about $3.5 billion of its stock, announced to the company that he would like to see the company make big changes (Strom, 2017). Some of these changes include dropping products that are not food related, such as hair coloring, as well as to drop product lines that are not performing as well. This will cause Nestle to have to undergo a large amount of reconstructing
Organizational strategy, Value chain analysis
Nestle is globally known, with brands and divisions recognized in almost every corner of the world. While it does not engage primarily in branding marketing with such things as t shirt sales, memorabilia and other items, the name Nestle and its products are known. With such a wide range of products, it can reach consumers on many departments and become seen as a normal part of their daily lives. Additionally, Nestle has begun to focus on more 'healthy' based product lines, meeting the needs and demands of the consumers. Nestle being the biggest global food manufacturer has allowed it to acquire massive financial holdings, allowing for more expansion around the world. Globally, Nestle operates three science and research centers and 31 product technology centers and R&D centers worldwide. The group established innovation partnerships with leading companies of the world at each stage of the product development process from early stage collaborations with start up and bio-tech companies to late stage partnerships with its key suppliers (Nestle, 2017).
Nestle has been increasingly coming under fire in the public eye due to its use of strong-arm tactics to obtain more water or more favorable terms for its water bottling plants. The continued number of lawsuits Nestle has been facing, from water consumption, plant production, human rights violations and false advertising continues to increase, costing the company both money and negative publicity. Product recalls as well have also threatened the image of the company as well as public faith in the products and safety of the brands. For example, Nestle Prepared Foods Company, a Mount Sterling, Ky. establishment, is recalling approximately 26,400 pounds of pork and beef products due to misbranding and undeclared allergens, the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS) announced (Murphy, 2017). These items had been donated to charity and to food banks, though no complaints of negative reactions from consuming of the products had been reported.
Past negative exposure in the press has not aided Nestle either, ranging from their issues with infant foods to their misleading advertisements. The numerous present lawsuits in regards to Nestle attempting to acquire more water from places they already have contracts with, even in times of severe drought, have let many embittered against the company. The use of natural resources for their other product lines has also angered many conservationists, and with the explosion of social media and the world wide web, the ability to release such information out on a worldwide basis is both easy and instant.
With decades of negative publicity surrounding Nestle's infant food line, and now additional negativity coming in through the production of their bottled waters, Nestle would do well to separate these two lines from their main company. By reintroducing them under a separate unit, the undesired stigma from both lines can be removed from the main parent company. In the case of the bottled water company, this may prove most lucrative, as The United Nations expects that 1.8 billion people will live in places with dire water shortage by 2025, and two-thirds of the world’s population could be living under stressed water conditions (Winter,
Nestle, due to their ruthless tactics in trying to negotiate with town leaders and government officials without letting the citizens of the town know what is going on, has received long been vilified for the immense profits they make from paying next to nothing for water. In one case, in 2000 Nestle had begun negotiating a 99-year renewable lease with private land owners to pump 4000 gallons a minute from a deer hunting preserve called Sanctuary Springs that eventually feeds into Lake Michigan (Conlin, 2008, p. 46). Before the contracts were even finished, Nestle began construction on the plant, angering residents. There is an ongoing lawsuit right now, between Nestle and the town people to stop the usage of the spring's water. By removing the bottled water division from the main parent group and restructuring it under another entity, Nestle can stop the negative feedback it receives due to the mounting lawsuits over their water usage as well as their continued expansion into other water resources.
When it comes to the infant food division, that has been a base part of Nestle's company and image since the company's conception. Recently Nestle has expanded in that area with the purchase of Pfizer's baby food division. Acquiring Pfizer Nutrition, which derives 85% of its sales in emerging markets, will mean a boost in earnings in the first full year and cost synergies of $160 million (Brown, 2012). The expansion of their baby food division could lead to more failures in ensuring their product is market safe, as well as another ardent push for use among the more impoverished areas of the world. With more women in more developed countries having to work outside the home and unable to breastfeed, there is an ever-growing need for healthy, trusted infant foods for busy mothers and fathers to feed their offspring with.
Gerber baby foods is one of the products in the infant food lines produced by Nestle, and one of the most known and trusted. Recently they have partnered with Tree Top Food Ingredients to supply the fruits and vegetable that will go into each product. Tree Top is one of the world’s largest producers of fruit products and a primary ingredient supplier to the U.S. and global food and beverage industry (Herron, 2018, p. 21). With Gerber having been in business for over ninety years, breaking from Nestle and reinventing the line under the Gerber brand would be easy and reinstall faith from consumers. In January 2011 Nestle announced to launch its global infant foods and nutrition brand Neslac in Indian market, which makes it now the largest baby food supplier in India ('Industry Overview,' 2011). With the size of that market alone, the profit would be great.
The Nestle corporation is the largest food manufacturing company in the world. With production factories of all kinds in countries all over the globe, it is in a unique position to know the exact needs of each individual market as well as meet them. At the present, however, with such an enormous array of product lines, Nestle is in danger of becoming too large and losing focus on the two lines that can bring them the most profit. These two lines are also the ones that also bring Nestle the most controversy. By removing them from the main company and reintroducing them in individual companies, Nestle can remove the stigma that is attached to their brand from past and ongoing issues around them and move on into the future.
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