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Strategy Analysis of
Regional strategies for Global
Leadership by Pankaj Ghemavat
– An Idea in Practice
An Idea – Regional strategies for Global Leadership
It’s often a mistake to set out to create a worldwide strategy.
Better results come from strong regional strategies, brought together into a global whole.
This idea is shared by Shri Pankaj Ghemavat, a renowned strategist, the Jaime and Josefina ChuaTiampo Professor of Business Administration at Harvard Business School in Boston and the author
of “The Forgotten Strategy” (HBR November 2003).
Despite Globalization, there is a wide regional distinction in global markets (read regional) withrespect to cultural, political, legal & economic factors which the affect the globalization of an industryor economy. A lot of companies competing globally expect to succeed with a global strategy andor economy. A lot of companies competing globally expect to succeed with a global strategy andignore the regional differences and the result they get is no surprise! The success mantra is tocapitalize on the regional differences and adopt strategies that complement their global strategy butblend them well with regional tactics. Shri Pankaj Ghemawat identifies & suggests 5 Regionalstrategies while aiming to conduct successful business in foreign markets.
�Home Base Strategy
�Portfolio Strategy
�Hub Strategy
�Platform Strategy
�Mandate Strategy
The Idea described…
Taking a more practical orientation than other researchers within regional studies, Ghemawat (Ghemawat 2005) provide five different
tangible types of regional strategies that incorporate and balance both global integration and local responsiveness as well upstream and
downstream activities. In his own words, “...regionally focused strategies are not just a halfway house between local (country-focused)
and global strategies but a discrete family of strategies that, used in conjunction with local and global initiatives, can significantly boost
a company's performance.”
The Home Base
StrategyThe strategy of the
home base strategy
resembles very much a
normal export strategy
and it is difficult to tell
the difference as the
main point of
The Portfolio
strategyBy acquiring or setting
up organisations
outside the home
region that reports
directly to the home
base companies
engage in the portfolio
The Hub StrategyA hub strategy builds
regional bases or hubs,
which provide a variety of
shared resources and
services to local operations.
By adopting this strategy
companies seek to add
value at the regional level.
The Platform StrategyThe Platform strategy is
looking for economies of
scale across regions in its
effort to spread fixed costs.
This strategy tend to be
especially important for
upstream activities that can
deliver economies of scale
The Mandate
StrategyThe mandate strategy
can be seen as an
extension of the
platform strategy.
Constituting the last
strategy introduced by
Ghemawat it focusesmain point of
Ghemawat is that the
company develops and
produces in their home
country and export it
to suitable markets.
Companies usually
start by serving the
home-, and near
markets from their
home base, naturally
locating their R&D and
manufacturing in the
country of origin.
engage in the portfolio
strategy. This is usually
the first type of
strategy that is used by
companies that seek
to establish a market
outside their home
base.
value at the regional level.
Setting up such centres on
a country basis is normally
not justified having such a
hub for cross country
operations to utilize
economy of scale may
make them practical. The
indirect goal of this strategy
is to make the hub a
standalone unit.
deliver economies of scale
and scope. The platform
strategy refers to the attempt
by companies to share
platforms that provide the
companies a way of launching
products in a wide variety
more cost effectively - this by
sharing components, enabling
reduced cost in sourcing,
administration, and
operations. Ideally platform
strategies are almost invisible
to a company's customers, if
not as the platform strategy
runs into difficulties when
managers take
standardization too far.
Ghemawat it focuses
on economies of
specialization as well
as scale. The main trait
of this strategy is that
companies adopting
this strategy: “...award
certain regions broad
mandates to supply
particular products or
perform particular
roles for the whole
organization.”
The Idea in Practice – Strategies at
About Nestlé
Nestlé SA, Switzerland is amongst the world’s largest food and beverages companies. The company
is progressively evolving from a respected, trustworthy food and beverage company to a respected,
trustworthy food, beverage, nutrition, health and wellness company. This objective is encapsulated
in “Good Food, Good Life”. The principle activities of the group encompass: beverages, milk
products, nutrition and ice cream; prepared dishes and cooking aids; chocolate, confectionery
and biscuits; water; and pet care. It has 511 factories in 86 countries around the world.
Global Footprint
The Home Strategy -
Nestlé is a Swiss based company and originated with Henri Nestlé's search for a healthy, economical
alternative to breastfeeding for mothers who could not feed their infants at the breast.
Nestlé's first customer was a premature infant who could tolerate neither his mother's milk nor any of
the conventional substitutes, and had been given up for lost by local physicians. People quickly
recognized the value of the new product, after Nestlé's new formula saved the child's life and within a
few years, Farine Lactee Nestlé was being marketed in much of Europe.
Since then Nestlé focussed on development of products at home but would be of vital utility to people
in various countries across the globe.
Henri Nestlé also showed early understanding of the power of branding. He had adopted his own coat of
arms as a trademark; in his German dialect, Nestlé means 'little nest'. One of his agents suggested that
the nest could be exchanged for the white cross of the Swiss flag. His response was firm: "I regret that I
cannot allow you to change my nest for a Swiss cross .... I cannot have a different trademark in every
country; anyone can make use of a cross, but no-one else may use my coat of arms.“ This clearly
indicates the vision of the leader of the company who had a home based invention and a goal to serve
global customers. Nestlé invests around USD 1.2 Bi in R & D every year.
Nestlé has a dynamic network of R&D centres globally working on scientific research and product
development. Its scope and reach are global with about 5000 people working in R&D. Nestlé's global R&D
is applied locally to meet different consumer needs and preferences through 320 Application Groups
worldwide. However the headquarters at Swiss has also taken up some functions itself. Quality and
safety control is in the hands of 30 people in headquarters who watch over all 511 factories. Coffee and
Cocoa, the key ingredients of Nestlé products worldwide, is pooled into five corporate-led regional
centres. Nestlé CEO once summarized – “everything that can be centralized, will be centralized… the
company is getting fitter and fitter everyday”.
The Portfolio Strategy -
A network of Local Companies
Nestlé's unmatched geographic presence is one of its competitive advantages. From Swiss
beginnings, the company grew to establish a presence in almost every country in the world.
Today, Nestlé's presence in most markets, including emerging markets, dates back many
generations, and in some cases more than a century.
Inspite of operating in 130 countries, it considers itself a conglomerate with network of local
companies. In early 2000s, a Swiss bank analyst commented that Nestlé was basically a holding
company with hundreds of companies reporting in.
It’s a genuine paradox. Although Nestlé is one of today’s global giants, they are a local company inIt’s a genuine paradox. Although Nestlé is one of today’s global giants, they are a local company in
each of the 130 countries where they market their products. In many of them, they are present
for more than 100 years. With time they have learned and understood the cultures and habits,
and how to benefit their economies and communities. Local Nestlé units work within a global
framework based on the Nestlé principle: “Centralise what you must, but decentralise what you
can“. In this way they combine the advantages of a worldwide company with the advantages of
smaller, local businesses. Although Nestlé is very global, essentially it’s a company made up of
smaller local units. So wherever Nestlé is, it is not an anonymous giant. Their global sales are
simply the result of adding together the sales of each local company. Around the world, the
average number of employees in their factories is 270, and the average number of employees in
any single country is around 3,000.
The Hub Strategy -
Nestlé’s objectives are to be
recognised as the world leader in
Nutrition, Health and Wellness,
trusted by all its stakeholders, and
to be the reference for financial
performance in its industry. Theperformance in its industry. The
Corporation believes that
leadership is not just about size; it
is also about behaviour. Trust, too,
is about behaviour; and they
recognise that trust is earned only
over a long period of time by
consistently delivering on their
promises. These objectives and
behaviours are encapsulated in the
simple phrase, “Good Food, Good
Life”, a phrase that sums up the
Corporation’s corporate ambition
The Hub Strategy contd -
Nestlé in Original Triad: Nestlé has its own local companies in most countries. The Head Office in Switzerland works very
closely with them, and sets the overall strategy which is managed through Management and the Strategic Business Units.
Geographically, Nestlé’s three Zones (Europe; the Americas; Asia, Oceania, Africa and the Middle East)work closely with the local
markets and the Strategic Business Units. Their primary role is that of enablers, acting as the voice of the headquarters to the
markets, and the voice of the markets to the headquarters. All Zones and Units share Nestlé’s vision so that everyone around the
world understands the direction to take and how to get there with common tools, common strategies and common values. The
Strategic Business Units specialise in a given category, for example Coffee and Beverages, or Pet Care, or Chocolate and
Confectionery. Corporation works with Research and Development (R&D) to ensure that everything the Corporation produces is
led by consumer insights and relevant innovation; and they help the markets to achieve their business and brand objectives. To
make it all happen, Nestlé has 511 factories in 86 countries, and 29 Research Centres.
When operating in a developed market, Nestlé strives to grow and gain economies of scale through foreign direct investment in
big companies. Recently, Nestlé licensed the LC1 brand to Müller (a large German dairy producer) in Germany and Austria.
In the developing markets, Nestlé grows by manipulating ingredients or processing technology for local conditions, and employIn the developing markets, Nestlé grows by manipulating ingredients or processing technology for local conditions, and employ
the appropriate brand. For example, in many European countries most chilled dairy products contain sometimes two to three
times the fat content of American Nestlé products and are released under the Sveltesse brand name.
Nestlé in Asia: In Asia, Nestlé’s strategy has been to acquire local companies in order to form a group of autonomous regional
managers who know more about the culture of the local markets than Americans or Europeans. Nestlé’s strong cash flow and
comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestlé acquired Indofood, Indonesia’s largest
noodle producer. Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export
Indonesian food products to other countries.
Nestlé has employed a wide-area strategy for Asia that involves producing different products in each country to supply the
region with a given product from one country. For example, Nestlé produces soy milk in Indonesia, coffee creamers in Thailand,
soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for regional distribution.
Nestlé in China: Long-term investment, transfer of technology, and training in agriculture are just three ways in which Nestlé is
a force for good around the world. An example is Nestléin China. In 1987, the first joint-venture company, Nestlé Shuangcheng
Ltd, wase stablished in Heilongjiang Province. Applying the expertise in nutrition and food processing, the first local production
in mainland China started in 1990. With that, Nestlé added another region in the original triad of business zones.
FDI in Developed Market
When operating in a developed market, Nestlé strives to grow and gain economies of scale through foreigndirect investment in big companies. Recently, Nestlé licensed the LC1 brand to Müller (a large Germandairy producer) in Germany and Austria.
In the developing markets, Nestlé grows by manipulating ingredients or processing technology for localconditions, and employ the appropriate brand. For example, in many European countries most chilled dairyproducts contain sometimes two to three times the fat content of American Nestlé products and arereleased under the Sveltesse brand name.
European and American food markets are seen by Nestlé to be flat and fiercely competitive. Therefore,Nestlé is setting is sights on new markets and new business for growth.
The Hub Strategy contd -
Nestlé is setting is sights on new markets and new business for growth.
Strategy in Asia Market
In Asia, Nestlé’s strategy has been to acquire local companies in order to form a group of autonomousregional managers who know more about the culture of the local markets than Americans or Europeans.Nestlé’s strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers.Recently, Nestlé acquired Indofood, Indonesia’s largest noodle producer. Their focus will be primarily onexpanding sales in the Indonesian market, and in time will look to export Indonesian food products toother countries.
Nestlé has employed a wide-area strategy for Asia that involves producing different products in eachcountry to supply the region with a given product from one country. For example, Nestlé produces soy milkin Indonesia, coffee creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in thePhilippines, all for regional distribution.
The Platform Strategy -
Nestlé – a company built on brands
The Nestlé brand portfolio covers practically all food and beverage categories: milk and dairy
products, nutrition (infant, healthcare, performance and weight management), ice cream, breakfast
cereals, coffee and beverages, culinary products (prepared dishes, cooking aids, sauces etc.),
chocolate and confectionery, petcare, bottled water.
Starting out as a baby-milk powder, in the late 19th century, it grew steadily as a global food
company. It branches out into cosmetics by taking a stake in Loreal and added eye care company
Alcon to the portfolio in seventies. The company also made short diversion into the hotel &
restaurant industry but these businesses were subsequently divested. In early 2000s, a Swiss bank
analyst commented that Nestlé was basically a holding company with hundreds of companiesanalyst commented that Nestlé was basically a holding company with hundreds of companies
reporting in. Lagging behind all of its main competitors in operating margin, the company had to
be streamlined and restructured. Nestlé refocused around its core brands – Nestlé, Nescafe,
Nestea, Maggi, Buitoni and Friskies which together contributed 70% of the group’s sales. Several
businesses such as roast coffee, cheese and frozen potatoes were divested. Nestlé is now more
integrated towards ‘food, nutrition, health & wellness’ leveraging the same message of swiss
reliability around the world.
Nestlé adopts the platforms of Nutrition, Health & Wellness while producing new products to serve
global customers, nutrition being a core platform for their products since the inception in 1866 with
the launch of an innovative, nutritious baby food. Almost 150 years later also, the company
continues to focus on this core element of “Nutrition” for all their product innovation while not
over-riding the taste factor and hence their slogan – “Good Food, Good Life”.
The Mandate Strategy -
Nestlé’s 10 Corporate Business Principles & concepts of Creating Shared value showcase
their Mandate Strategy.
As Nestlé is a principle-based company, the
Nestlé Corporate Business Principles form
the foundation of all that they do.
Compliance with
Nestlé Corporate Business Principles, and
with specific policies related to each
principle, is non-negotiable for all
employees and their application isemployees and their application is
monitored and regularly audited. As shown
in the diagram, compliance with Nestlé
Corporate Business Principles is the
foundation for the Company’s commitment
to be environmentally sustainable and to
create shared value. Creating Shared Value
is the basic way they do business, which
states that in order to create long-term
value for shareholders, they have to create
value for society. But they cannot be either
environmentally sustainable or create
shared value for shareholders and society if
they fail to comply with the Business
Principles.
The Mandate Strategy contd -
Nestlé’s 10 Corporate Business Principles
An Idea indeed in Practice -
While Shri Pankaj Ghemawat has broadly specified 5
regional strategies to choose from, it is not
necessary that the Companies necessarily progress
through the strategies as they evolve. Whereas
some companies may indeed adopt the strategies in
the order as presented, others may find themselves
abandoning more-advanced strategies in favor of
simpler ones— good business is about striving to
maximize value, not complexity. And capablemaximize value, not complexity. And capable
companies will often use elements of several
strategies simultaneously.
Nestlé as an organization has gone through various
phases growth in it’s aged old history of inception,
expansion, diversification and Globalization. The
Nestlé Road Map guided under the visionary leader
Henri Nestlé in earlier days, this organization has
been more of a Regional Transnational Company
operating across the globe!