Analysis Of The Nestle Company And Its Operation In Malaysia
Introduction
Henri Nestlé was the founder alongside with George Page and Charles Page. In 1867, Henri Nestle produced a product called “Farine Lactée Henri Nestlé”. Henri’s goal was to provide for infants as healthy and affordable substitutes for mothers who are unable to breastfeed their young. This product was initially sold in European regions. Due to the outstanding response this enabled Henri to form a company known as “Société Farine Lactée Henri Nestlé”. In 1874 when Henri decided to manufacture condense milk, Henri Nestlé found himself in fierce rivalry and competition with the Anglo-Swiss Condensed Milk Company, founded by Charles and George Page, which produces dairy products and infant formulas. During 1882, Anglo-Swiss Company expands into the United States of America. However, one of the founders, George Page dies, creating uncertainty in the future of the company. This causes Anglo-Swiss Company to sell its US-based of operations. This was an opportunity for Henri to form a merge with Anglo-Swiss Company. By 1905, the 2 companies successful merged under the name “Nestlé & Anglo-Swiss Milk Company” after Nestle decided to add chocolate to the production. The newly formed Nestlé and Anglo-Swiss Milk Company had factories in the United States, Britain, Spain and Germany.
However, most of the production still took place in Europe. In 1912, Nestlé began in Malaysia under the Anglo-Swiss Condensed Milk Company in Penang where it open its first factory. By 1939, there was substantial growth and this provided an opportunity for Nestle to expand to Kuala Lumpur, the capital of Malaysia. Nestlé opens its first factory in Petaling Jaya 1962. 1989, the company was successfully publicly listed on the KLSE under the name Nestle (Malaysia) Berhad.
Nestlé’s Logo
The Nestlé trademark was based on Henri’s family’s coat of arms, which showcase a bird on a nest. This was a reference to the family name, which means ‘nest’ in German.
Henri Nestlé adapted the coat of arms by adding three young birds being fed by a mother, to create a visual relationship between Henri and his company’s infant products. He started using the image as a trademark. Subsidiaries are given standardized names together with 'Nestlé'. Three young birds are reduced to two young birds with the writing below. Logo became the strategic umbrella trademark.
Nestlé Today
Nestlé is the world’s largest food and beverage manufacturer and is located in 191 countries around the world and employs more than 200, 000 people. In Malaysia, the company has more than 5500 employees and manufactures as well as providing more than 500 Halal products such as MILO, MAGGI, NESCAFÉ and KIT KAT. Nestlé Malaysia now manufactures its products in 8 factories and operates from its head office at Mutiara Damansara.
Nestle has invested almost 5 billion dollars in the Research and Development Department. Nestle has 34 research, development and technology facilities worldwide. Nestlé has the largest R&D network of any food company. Together with local market application groups, Nestle employs over 5, 000 people to ensure continuous development of the quality and safety of its food products. It is Nestlé’s goal to provide healthy alternative consumables that are safe and affordable for many Malaysians to enjoy.
Nestlé’s Objectives
“Good food, good life”
Nestlé aims to be the world leader in providing nutrition, health and wellness to society. Nestle also aims to be a trustworthy company to encourage shareholders to invest in Nestle. These objectives can be summarize in a simple phrase, “Good Food, Good Life”.
Nestle and Other Companies
There were a few notable partnerships formed together with Nestle such as a strategic alliance formed with Polar Beverages. The purpose for this strategic alliance was to produce cans under “Nestea” and “Poland Spring” brand names. The agreement is named “Polar Strategic Ventures”.
This is potentially aid both companies to increase its revenue. This strategic alliance allows both companies reduce cost in manufacturing as well as distribution costs such as freight charges and import fees. Nestlé and R&R Ice Cream successfully launched a new, joint-venture brand in the ice-cream, frozen food and chilled dairy industry called Foneri. Foneri will also include Nestlé’s European frozen food business. This joint venture is a great way to target more consumers by providing a wider range of products to its consumers.
Valuation of Nestle Malaysia
Nestle has generated over generated RM 5. 06 Billion dollars in revenue during the financial year of 2016. This was a significant increase of RM2 Billion generated during 2015. This is mainly due to the new products Nestle Malaysia launch on that year that targeted a wider range of consumers. One of the products being Nestle a variant of “Green Tea Kit Kat” that had such a high demand in Malaysian markets. Nestle also had an increase in its cost of goods sold of RM 3 Billion, an increase of RM1 Billion as compared to 2015. Nestlé’s expenses also increased roughly around RM1. 3 Billion, of which selling and distribution expenses were a major contributor to the expenses incurred.
Nestle has therefore obtain a net profit of around RM700 Million, an increase of RM100 million in net profits as compared to 2015. It was recorded that on 2016, the highest share price is RM81. 80 per share and the lowest was RM73. 00. Earnings per share was valued at 271. 70 cents. As compared to the past 5 years from 2012 to 2016, there has been a significant improvement in the share price. Report based on 2017. Currently at 2017, it was recorded that the average price of the share is now RM74. 14 to RM102. 20. Nestle has currently a market capital of RM 23. 450 billion.
Ethics and Social Responsibility
Nestle were well known as a diversified company in the worldwide including Malaysia, which multinational milk production is a major of the production. Recently, a popular ethical issue regarding on their multinational milk production are causing illness or death to the babies in the poor communities by promoting their product (bottle feeding) and discouraging the healthy method of feeding – breast-feeding. In order to deal with this, the company had complying with the WHO’s International Code of Marketing of Breastmilk- Substitutes and the Malaysian Code of Ethics for Marketing of Infant Foods and Related Products. From the CSR (Corporate Social Responsibility) report on 2016, there are many contribution of this company to social and was awarded gold for the Best CSR reporting.
Besides, they also aim to respond to their consumer expectations, security threats and regulation on concerning data. They treat the personal data of consumers, employees and other stakeholders with utmost respect and transparency. They respects the rights toward the privacy when they use website or electronic devices to communicate with public. They also had no tolerance on discrimination since it is their part of NCBP (Nestle’s Corporate Business Principles).
On handling the environmental sustainability, they are committed to the environmentally sustainable business practice – by using natural source efficiently, achieving zero waste, and use sustainably managed renewable source. With the guidance of Nestle Policy of Environmental Sustainability, it enables them in making environmental conscious decision. This policy incorporates the environmental of United Nations Global Compact (UNGC) that states that businesses should adopt precautionary approach to environmental challenges and undertake initiatives to promote greater environmental responsibility. Same goes to their water management, they use the method of Waste Water Treatment Plant in order to reduce the waste of water as the scarce of water may changes along with the climates.
As part of the rural development, they respects human rights and ensuring the compliance with the international laws and standards. They do not accept child labour in their value chain. Their policy prohibits child labour and their recruitment procedures verify the legal working age. There still can be an ethical dilemma – which there might be potential conflict in countries where human rights are compromised and they keep the abreast of potential issues in concern. They also enhance gender balance in the workforce. They believe that they have the social responsibility to promote diversity and it continues to be their top agenda.
Managers and Managing
Alois Hofbauer was the Chief Executive Officer since 22nd February 2013 and served the company over four years, he was a Member of Compensation comitee. He brought more than 25 years of global experience to the business and in Asia as he held many senior positions over various businesses within Nestlé’s regional front As a Chief Executive Officer, he performed the decisional roles to plan the business strategic for the company and also using conceptual skills to analyze the situation of the market in order to make the companies a professional and successful. There is management team that helps the board director to manage the company. The management team consists of Chief Financial Officer, Executive Director, Technical & Production, Executive Director, Group Human Resources, Executive Director, Supply Chain, Executive Director, Sales and Executive Director, Legal & Secretarial.
The Chief Financial Officer of the Company is Martin Peter Kruegel. He joined the Company on 1 October 2014. His career with Nestlé began in 1995 with Nestlé Germany where he held various positions in the areas of Supply Chain, Finance, Accounting and Controlling, after which he was transferred to the Nordics in 2006, where he assumed the role of Finance Manager for Cereal Partners. As a Chief Financial Officer of the Company, Mr. Martin Peter Kruegel is responsible for financial planning and record-keeping, as well as financial reporting to higher management. Adnan Pawanteh is the Executive Director, Technical & Production of the Company. As an Engineering degree holder with a Masters of Business Administration in Management, he began as a Trainee Engineer with the Company in 1984. He subsequently held various positions in the Technical area. In 2001, he was posted to Nestlé Australia where he was assigned to the position of Industrial Performance Manager and Production Manager before returning to Malaysia as the Factory Manager of Nestlé Shah Alam Complex in 2002. As a Executive Director of Technical & Production, Mr. Adnan Pawanteh is responsible for write risk assessments and method statements for Nestlé productions and ensuring that Health and Safety policies and Licensing requirements are adhered to at all time.
Shahzad Umar was appointed Executive Director, Group Human Resources on 1 March 2016. He started his career as a Management Trainee with Nestlé Pakistan in 2001, where he held various managerial posts in Human Resources. He was then expatriate to Malaysia in April 2009 as the Group Human Resources Manager for Organisational Development. As a Human Resources Director, Mr. Shahzad Umar is practicing human skill and performing interpersonal roles to understand and maintains employee benefits programs and informs employees of benefits needs and trends. Gavin Schwarzenbach was appointed Executive Director, Supply Chain on 2 June 2014. His career with Nestlé began in 1987 when he joined Nestlé United Kingdom in Operations Research. He later embarked on an expatriate career in 1994. He was the Supply Chain Director of Nestlé Denmark from 2001 to 2004, after which he was appointed as Head of Supply Chain for the European Nutrition Business. As an Executive Director of Supply Chain, Mr. Gavin Schwarzenbach responsible for production, logistics and procurement for Malaysia operation as well as production for the export markets. He is practicing technical skill to ensure the machinery and transportation facilities are follow up with the existing technology.
Chew Soi Ping was appointed as the Executive Director, Sales on 1 October 2015. He started his career in the Company in 1988 as a Management Trainee, where he first gained experience in Sales. In 2008, he was appointed Executive Director (Ice Cream) in Malaysia before transitioning to the role of Executive Director, Nestlé Continuous Excellence. This was followed by an expatriation to the Philippines as the Senior Vice President (Ice Cream) in 2013, a position he held until August 2015. As an Executive Director of Sales, Mr. Chew is responsible for the sales and distribution functions of the duty-paid business in the Malaysia operation.
Tengku Ida Adura Tengku Ismail has been the Company Secretary of the Group since 2013. She is a certified Company Secretary, being a member of the Malaysian Association of Company Secretaries.
The Manager as a Planner and Strategist
Nestle (Malaysia) Berhad is considered one of the top international related diversified company with providing various type of food, beverages and pet healthcare, as well as nutritional product with large market position across 86 countries. Nestle had their strategy established called Creating Shared Value (CSV) strategy that comprises of: “Nutrition, Water and Rural Development” and it is implemented across all of their business. This strategy implementation directs to their sustainability objective. In all of the work progress, the management are guided by a set of valued principles that has been developed over the past of 150 years – Nestle Corporate Business Principles (NCBP) that known as the basis of their culture, values and CSV strategy. In order to strengthen the basis of their strategies, this NCBP consist of 5 principles: consumers, human rights and labour practises, suppliers and customers, and the environment sustainability that may strengthen the strategy to achieve their target.
Besides, they paid attention closely to the opinion of all their key stakeholders in order to be successful. The stakeholders have a varied and specific area of their interest that may bring an impact in the business. They use a dialogue engagement with their stakeholders as a way to improve their corporate policies and commitments. Therefore, it may enable the company to identify the current and emerging issues. For example, in 2016, a research called “Stakeholder Equity Research, (Key Opinion Leaders survey, KOL) was conducted to analyze the Strength, Weakness, Opportunities, and Threats (SWOT). It comprises of:
Strength: The product quality, Halal products, and nutritional value of product.
Weakness: Sourcing of raw materials, waters, conserving environment, and rural development.
Opportunities: They focus on rural development contribution that may able to improve the Nestle overall perception of those stakeholders.
Threats: The ethical issues (ethics in sourcing raw material and promoting Infant formula).
In order to overcome the results from SWOT analysis above, they used the Stakeholder Engagement Strategy – Protect and Building Trust and it brought an improvement on their performance based on Key Performance Data report. They have several initiatives that may improve the 5 principles of NCBP in order to strengthen their CSV strategy.
In the global strategy however, Nestle had only implement multinational strategy which only brings the benefit of attaining cost efficiency and responsiveness of locals. Most of their food and beverages business are managed by geographies. However in the standardization of the products, they have used the same process and production activities as well as centralized capabilities in R&D and their global scale efficiency, they had standardized distribution networks, data collections and centralized decision making.
Organization Structure
When the director set up a company, organization structure become very significant as the outlines show various work roles allocated. Besides how the information flows from the lower management to top management, it also determine by organization chart. Apart from that, organization chart determine how efficiently and effectively organization resources are used. Hence, three elements should be taken into account by director in order to achieve company objective.
For Nestlé (Malaysia) Berhad, workers not involved in all task of job from the beginning to the end. Peculiar undertaking is conducted rather than full undertaking for specializations purpose. Efficiency and productiveness may be achieved as worker are fully satisfied and concentrate on specific and narrowed job, not all of the occupation undertaking. In Nestlé (Malaysia) Berhad, people with similar occupations undertaking grouped into work units. Each section will hold the experts and the exports will be given authorization to do determinations within their countries of exportation. For example, Board Director does not involve in the whole process and what he need to do is just planning and setting the organizational objective and task identity is interpreted.
Skill variety defined as employee uses a wide range of skills but Nestlé (Malaysia) Berhad’s director really put a lot of effort in order to make the organization flexible and not rigid. Thus, Nestlé (Malaysia) Berhad already conducted division of labor and job specialization which means splitting the job to separate occupation undertaking. Workers do not need to process different skill variety in order to fulfill job duties as job specialization is introduced.
Employees who work in Nestlé (Malaysia) Berhad confirmed to feel their job important as if the Board Director of Nestlé (Malaysia) Berhad made a slightly error, it may cause the share price of company to fall and it will worsen the conflict between shareholders and management team.
Conclusion
The Nestle company is definitely a reputable company. Nestle will soon celebrate its 150th anniversary. Nestle has decided to award its shareholders with a bonus upon the shares they buy to appreciate their investment. Nestle company has expanded internationally and also helping other countries to grow economically. Nestle also has great concern with environment and also to create joint ventures with other companies in which enhances Nestlé’s performance. Generally, this company made their commitment by responding to the society’s expectation towards the security and regulation of the data that been used for public advertise exposure. This reflects that they have the demand for ethical value in the business. Besides, they also have tried to take initiative by solving their threats - the healthiness of their product (Multinational milk vs. Breast milk issues) by compliance with several organizations. Furthermore, they also used the efficient method for the natural resource usage in order to maintain the environmental balance. Alois Baufer, the Chief Executive Officer, has performed decisional roles and conceptual skills on market situation analysis. The management team of Nestlé (Malaysia) Berhad. consists of Chief Financial Officer, Executive Director, Technical & Production, Executive Director, Group Human Resources, Executive Director, Supply Chain, Executive Director, Sales and Executive Director, Legal & Secretarial. In order to strive the business continuity, they have established the strategy of Creating Shared Value and was implemented across all of their business, putting attention to their stakeholders by using SWOT analysis on their research called KOL survey. This was proven that they were using these R&D methods on their business globally and domestically. Nestle will continue to embrace their proud achievement of being the top producer of affordable and quality foods and beverage.
