nestle – addressing non market constraints in india
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Nestle – Addressing Non-market Constraints in India
An integrated approach to non-market issues
3/29/2014 1
Bhaskar Jayaraman
Agenda
3/29/2014 2
Case & Issue Introduction • Introduction • Nestle’s country focus – India • Beverage Industry & Water Use – Recent Industry Impact • Industry related issue – Coca-Cola
Issue analysis • Competition’s response to issue & strategy • Unilever’s Integrated Strategy • Response Outcome
• Non-Market approach • Emerging Trend • Evolving Issue & Impact - New Ground Water Regulation • Evolving Issue’s Relevance to Nestle
3/29/2014 3
Issue Analysis Non-Market approach Case & Issue Introduction
Introduction • Nestle
– Major US food & beverage co. with global footprint
– Turnover 2010 – $ 75 Billion
– Food Categories
• Liquid
– Hot drinks, alcoholic beverages, soft drinks, dairy, sauces
• Solid/Semi-solid
– Baked goods, cereals, confectionery, snacks, soups and prepared meals
– Sales distribution
3/29/2014 4
Americas, 40%
EMEA, 37%
Asia, 23%
Issue Analysis Non-Market Approach Case & Issue Introduction
Nestle’s country focus – India • Parameters of business growth (Industry Anal. – Appendix I)
– Emerging economy
– High GDP growth, wealth creation, labor force growth
– Demand for better products/services
– Large population with significant youth numbers
– Retail market • 2011 size - $ 450 Billion
• Expected 2021 size - $ 1000 Billion
• India specific Non-market issue sources – Labor
– Regulation
– Environmental
– Resource depletion
• India specific non-market issue focus – Industry Water Use (Ground water only source)
– Affected people (Near manufacturing area)
– Interest group backlash (Mostly affected people)
3/29/2014 5
Milk, Coffee,
Tea, Water 95%
Soft drinks
5% Indian Beverage Market
Split
Issue Analysis Non-Market Approach Case & Issue Introduction
Beverage Industry & Water Use – Recent Industry Impact
Issue – Industry water use
Regulatory Body Pressure
Old regulation
• Ambiguous
New Regulation
• Developing
Information
Industry information impact
• Water/Soil pollution
• Image, Brand, Reputation
New Information Impact
• Ground water depletion discovery
Interest groups
Activist Pressure
• Farmers/Home Owners/NGO
• Consumers
Other Industries
• Competitive pressure
Institutions
Activist Pressure
• Political
Judicial Pressure
• Ambiguous interpretation
• Penalties
Media Pressure
• Reputational loss
3/29/2014 6 Issue Analysis Non-Market Approach Case & Issue Introduction
Industry related issue – Coca-Cola Overuse of Water
3/29/2014 7
Issue’s -ve Impact on Firm
Issue Identification
Interest group formation
Legislation Administration Enforcement
2002 – Incidents of ground water depletion
2002 – 2005 Farmer/NGO activism www.globalresearch.ca www.indiaresource.org infochangeindia.org
2005 – Political Activism
2005 – 2011 Plant shutdowns
2011 Judiciary - Penalty/Compensation
Issue Life Cycle
Decreasing Discretion
Issue Analysis Non-Market Approach Case & Issue Introduction
Coca-Cola Issue origination
3/29/2014 8
Decreasing Discretion
Interest group – Public
Interest group – Corporate
Institutional action – Pvt.
Institutional action – Public
New Understanding
Market forces
Scientific (discovery/advances/uncertainty)
Moral concerns
Farmer protests
Negative media coverage
Administration & Judiciary
Issue Analysis Non-Market Approach
Issue’s -ve Impact on Firm
Case & Issue Introduction
Issue impact – Coca-Cola (2002 - 2011)
3/29/2014 9
Legislation Administration Judiciary Media Buyers
Increased exit barriers (M)
Reputation loss
Less bargaining power (M)
Penalties & Compensation
Plant shutdowns
Issue Analysis Non-Market Approach
Issue’s -ve Impact on Firm
Farmers/Home Owners Coca-Cola
Water share
(M) – Market Impact
Case & Issue Introduction
3/29/2014 10
Issue Analysis Non-Market approach Case & Issue Introduction
Issue response – Overuse of Water
3/29/2014 11
Respond only when compelled to act
Damage control once challenged
Anticipatory, prepared, tackle before problem arises
Proactive, affect what issues arise & how they’re framed
Coca-Cola
Unilever, Pepsi, SABMiller
Increasing Discretion
Issue’s -ve Impact on Firm
Issue Analysis Non-Market Approach Case & Issue Introduction
Response Strategy
Address the Issue
What?
• Industry Water Use Backlash
Where?
• Semi-urban/rural area
Why?
• Land/Water availability
• Low population density
Address Information Availability
What?
• Inform
• Create Awareness
• Increase transparency
Whom?
• NGO/Activists
• Institutions
• Consumers
How?
• Web, Social media etc.
• Events
Address Interest groups
What?
• Educate/Engage
• Gain trust, influence
Whom?
• Farmers
• Consumers
• Other Businesses
• Consumers
• Activists/NGOs
• Trade Assn.
How?
• Partner
• Sponsor
Address the Institutions
What?
• Influence/Engage
• Gain support, approval
• Build relations
Whom?
• Administrative
• International
• Political
• Media
How?
• Events
• Sponsorships
• Awards
3/29/2014 12 Issue Analysis Non-Market Approach Case & Issue Introduction
Competitive Response to Issue – Examples
3/29/2014 13
Pepsi, SABMiller (Appendix - II)
Unilever (Global Approach) Sustainable Tea Farming
Institutions & Interest Groups Rainforest Alliance Certified™ (Association)
Farmers
McDonalds (Corp.)
NatGeo (Media)
Department for International Development (U.K. Gov.)
India Water Body Initiative Assess water demand-supply gap
Rainwater harvesting at Co. and Farms
Reduce on site water use
Institutions & Interest Groups DHAN (Advocacy group)
NABARD (Gov.)
Issue Analysis Non-Market Approach Case & Issue Introduction
Unilever’s Integrated Strategy – Industrial Water Use
3/29/2014 14
Pepsi
McDonalds
Activists, Consumers,
Media
Market
NGO Non-Market
Strategy
Market Strategy
Inform, Educate
Non-Mkt. Alliance
Develop marketing capability
Engage, Collaborate
Farmers
Engage, Support
Administration
Build Relations
Supply
Market to
Retailers
Influence consumer
choice
Issue Analysis Non-Market Approach Case & Issue Introduction
Response Outcome
3/29/2014 15
Farmers/Home Owners
Industries
Consumer Administration Partners & Collaborators
Consumer, Media
Buyers
(M) – Market Impact
Issue’s +ve Impact on Firm
Increased Preference (M)
Reputation improved /preserved
Reduced Regulatory pressure
More tie-ups
More bargaining power (M)
Farmers/Home Owners
Water share
Issue Analysis Non-Market Approach Case & Issue Introduction
Emerging Trend – Address issue early
3/29/2014 16
Issue Identification
Interest group formation
Legislation Administration Enforcement
Issue Life Cycle
Address Issue Here
Issue’s -ve Impact on Firm
Decreasing Discretion
Issue Analysis Non-Market Approach Case & Issue Introduction
3/29/2014 17
Issue Analysis Non-Market approach Case & Issue Introduction
Evolving Issue & Impact - New Ground Water Regulation
Evolving Issue
What?
• Industry ground water usage
Where?
• Regional level
Guardians
• State Government
• Administration
Impact Cause
Why?
• New regulations
• Ambiguous clauses
Whom?
• Industries
• Existing users
• New users
Related to
• Water quality
• Water quantity
• Competitive landscape
• Nature (falling table etc.)
• Industry profile
Impact
Company effects
• Risk to availability
• Cost
• Scalability
• Profitability
Consumer effects
• Global brand image
• Product availability
• Price point
• Global reputation
• Preference
Industry effects
• New co. affected more
• Existing co. less
• Increased rivalry, exit barriers, & capital requirements
3/29/2014 18 Issue Analysis Non-Market Approach Case & Issue Introduction
Evolving Issue Relevance to Nestle
3/29/2014 19
Impact relevance
Consumer Competitors Legislation Administration Judiciary Media Buyers & Suppliers
Partners & Collaborators
High
Switching consumer preference (M)
Mkt. share loss , New entrants, Substitutes (M)
Bargaining power loss (M)
Reputation loss
Plant shutdowns Loss of non-
market allies
Penalties & Compensation
Inc. exit barriers (M)
(M) – Market Impact
Issue Analysis Non-Market Approach Case & Issue Introduction
Addressing the Evolving Issue – Water Usage & Regulation
Relevant impact regions & response history
•Regions of issue and business relevance
•Competitive, institutional & interest group action
•Executed by – Political Science B.A., Policy & Institutions expertise (Allotted time, 3 weeks)
Consumer trends & business impact
•Consumer & media trends vs. regions vs. product mix
•Consumer, NGO, institutional, & interest group activity
• Identifying the right message
•Strategy to address trends and information channels (Old/New media campaigns)
•Executed by – Psychology Ph.D. – Veteran, Consumers expertise (Allotted time, 3 weeks)
Relevant markets & competition
•Market analysis vs. product mix vs. issue
• Identify potential markets
•Competitive response, strategy, & threats in non-mkt. area
•Executed by – Business B.A. – Intern, Markets and Regions expertise (Allotted time, 3 weeks)
Identify collaborators & marketing potential
•Businesses, interest groups, institutions to partner (Differentiation, pool costs)
•Partnership strategy w.r.t. non-market goals
•Aligning strategy outcome with business goals (economies of scale/scope , marketing potential, bargaining power, competitive advantage etc.)
•Frame the integrated strategy
•Executed by – Bhaskar Jayaraman, Strategy expertise (Allotted time, 3 weeks)
3/29/2014 20 Issue Analysis Non-Market Approach Case & Issue Introduction
Questions?
3/29/2014 21
A balanced water share
Beverage Industry Analysis – Appendix I
• Bargaining Power of Supplier (Medium)
– Main input product “Water” – No substitutes
– Beverage Industry Source (India) – Private or Co. real estate
– Large volumes required
– Important to product quality
– Industry important to supplier (Other consumers diff. sources)
– Local sourcing (Supplier concentration)
– Low input cost & switching cost
– Water Supply Constraints
• Natural – Unavailability, Scarcity
– Seasonal, Uneven
– Falling ground water table
• Man-made
– Competition (Other Industries)
– Pollution
3/29/2014 22
Beverage Industry Analysis contd… – Appendix I
• Bargaining power of buyer (High) – Retailers/Consumer switching costs low – Product differentiation high – Products low in importance to buyer usage (not essential to livelihood)
• Threat from substitutes (High) – Milk/Coffee/Tea usage already high vs. packaged drinks
• Threat from new entrants (Low) – High capital costs – Economies of scale – Product differentiation high – Access to distribution channels/resources – Cost advantages independent of scale (Brand value, reputation)
• Rivalry (High) – Few equally powerful players – Fixed costs high – Lack of switching costs (Retailer, consumer) – Capacity increased in large increments
3/29/2014 23
Competitive Response to Issue – Appendix – II
• Pepsi Co (Local Approach)
– Positive Water Balance Initiative
– Performance With Purpose
– Institutions & Interest Groups • Farmers
• Unilever (Corp.)
• SABMiller (Local Approach)
– Ground Water Management
– Community Water Management
– Institutions & Interest Groups
• CII (Trade assn.)
• ACWADAM (Advocacy group)
• Gridline Consultancy (Corp.)
• Humana People to People (Watchdog)
3/29/2014 24
Emerging trend – “Corporations fend for self” – Appendix III
Interest groups observed
Corporate initiatives
Activism
• Consumers
• Organizations
• Watchdogs
Political agenda
Interest group examples
“Coca-Cola …Depletion...”
• http://www.globalresearch.ca
• http://www.indiaresource.org
• http://infochangeindia.org
“AIDMK election campaign… drinking water supply” – Oct. 2011
“Human Elephant Conflict Inside Coffee Forests”
• http://www.ineedcoffee.com
Institutions observed
Policy making
• Mandatory water harvesting
• New Ground Water Regulation
3/29/2014 25
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