Nestlé and Kraft's Transnational Way

Topics: Innovation, Nabisco, Kraft Foods Pages: 12 (3605 words) Published: March 29, 2012
In order to dominate other rivals in the global fierce competition, a company operating globally needs to transform its initial mentality which might be international, multinational or global to transnational in order to pursue the goals of efficiency, flexibility and innovation and learning simultaneously. Furthermore, these goals can be achieved by economies of scale and scope and national differences.

Global Efficiency refers to the overall efficiency of a company can be regarded as the ratio of the value of their outputs to the value of their inputs, which means the company can increase their efficiency by reducing the costs or enhancing the revenue.

Multinational Flexibility mainly depends on the capability of a company to reduce the risks and leverage the opportunities, which may appear due to the diversity and volatility of the global environment.

Worldwide Innovation and Learning is considered as the vital factor to achieve both efficiency and flexibility. Four approaches, including centre-for-global and local-for-local innovation, locally leveraged innovation and globally linked innovation, are used by companies to win the competition in the global market.

Nestlé is the world’s largest food company based in Vevey, Switzerland. Headquartered in Northfield, United States, Kraft is the world’s second largest food company. In 2009, Nestlé has 280,000 employees while Kraft has 97,000. They challenge each other in global dominance in 3 sectors: beverages, convenient meals, snacks. Nestlé has a “Good Food, Good Life” ambition, which emphasizes nutrition, health and wellness. Kraft responds to Nestlé globally by “making today delicious”.

Nestlé’s initial motivation for globalization was resource and market seeking as domestic market potential and resources are restricted. Kraft’s primary motivation for global expansion was to exploit new market based on its advanced technologies and abundant resources in the US. Additionally, competitive positioning is another common motivation for large MNCs such as Nestlé and Kraft. The most frequent means utilized by both firms to expand globally is mergers and acquisitions.

Different mentalities are also established in Nestlé and Kraft. Nestlé adopts Multinational Strategy by exploiting national differences while Kraft pursues the International Strategy to leverage efficiency. With different mentalities, Nestlé is more flexible and both companies are good at innovation and learning. However, they are struggling to achieve transnational efficiency.

(Composed from annual reports 2005-2009)
Figure 1 and Figure 2 indicate that both firms achieved stable growth in revenues and employee numbers from 2005 to 2008. In 2009, both companied reduced stuff, responding to the financial crisis 2008.

(Composed from annual reports 2005-2009)
Figure 3 indicates that Nestlé’s net profit rate was always higher than Kraft’s from 2005 to 2009. In 2008, Nestlé’s net profit dramatically increased while Kraft’s decreased. It seems that Nestlé is more efficient than Kraft in the past 5 years.

Figure 4: Revenue by region 2009

(Composed from annual reports 2005-2009)
Figure 4 illustrates that in 2009, both Nestlé and Kraft performed well in their domestic markets. However, the revenue of both firms in developing nations occupied less than 20%.

Figure 5: Revenue by segment 2009

(Composed from annual reports 2005-2009)
Figure 5 shows that Nestlé has more diversified products than Kraft. Multinational mentality, which provides Nestlé with higher flexibility and more innovative opportunities, is probably the crucial factor for this advantage over Kraft.

Two exhibits above reveal the latest organizational structures of both firms. Nestlé employs a decentralized organizational structure and geocentric HR policies, which will achieve better learning and innovation than Kraft’s Business Unit Structure with ethnocentric HR policies.


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