CASE NESTLE

The former managing director of Nestle", Pierre Liotard-Vogt, said, "Perhaps we are the only real multinational company existing." Although this may be something of an exaggeration, it is difficult to find other companies with such a high dependence on foreign involvement. The Swiss-based company, one of the 50 largest industrials in the world, was international from the start. Nestle" was formed by a 1905 merger between an American-owned and a German-owned firm. About 98 percent of Nestld's sales are outside of Switzerland, and about half of the top management at the Vevey headquarters is non-Swiss. A Frenchman, an Italian, a German, and a Swiss who took out American citizenship have at various times held the position of chief executive officer. Map 17.1 shows Nestle's factories by country. The one area in which the company is still primarily Swiss is in ownership. Until 1988, two thirds of the shares were registered and could be bought only by other Swiss. With the 1988 change, Nestle expects that eventually Swiss owners will be in a minority. The earlier ownership identification with neutral Switzerland, a country that never colonized, allowed the company to do business where some of its worldwide rivals were restricted, such as in Chile under Allende, in Cuba, and in Vietnam. The 1988 change in owner­ship restrictions was in response to criticism about Swiss companies' take­overs abroad, particularly unfriendly ones.

In 1989 Nestle's sales from 421 factories around the world were more than $32 billion. About 46 percent of the company's sales were in Europe, 27 percent in North America, and 27 percent elsewhere. With such a geographic spread of operations, Nestle maintains clear-cut policies on where decisions will be made and what roles corporate and country managers will play.

A major responsibility of Nestle's corporate management is to give stra­tegic direction to the firm. To do this, the corporate man­agement decides in which geographic areas and to which products it plans to allocate efforts. For instance, in the early 1980s Nestle became less dependent on chocolate and Third World countries by placing more emphasis on culinary products and on the North American market. To maintain this control, Nestle's headquarters staff handles all acquisition decisions as well as decisions as to which products will be researched at the centralized facilities in Switzerland. To support these functions, each geographic is expected to provide a positive cash flow to the parent. In fact, Nestle tries to move almost all cash to Switzerland where a specialized staff decides in which currencies it will be held and to what countries it may be transferred.

Headquarters also researches commodity situations and mandates purchase amounts and prices, such as requiring that all overseas companies contract a supply of green coffee for, say, three to six months at some maximum price. Because of a heavy dependence on the introduction of new products that may take several years to become profitable, the company must ensure that the more established products remain sufficiently profitable for generating needed funds. If a new product does not become profitable within a reasonable period of time, such as its mineral water in Brazil, or if it has run its cycle of profitability, such as its Libby's vegetable canning operations, or if its development potential seems low, such as Beech-Nut's baby food, the management in Switzerland decides to divest the business. Other divestments occur because certain activities of acquired firms do not fit the corporate development strategy, such as the spin-off of a printing and packaging business that was part of the acquired Buitoni-Perugina operations.

The budget that originates from the country area level is the main means used to ensure that each area carries its share within the corporation. Budgets are set up on an annual basis, revised quarterly, and subject to approval in Switzerland. Actual performance reports are sent to Switzerland monthly where they are compared with budgets and the previous year's performance. The market head must explain any deviations satisfactorily or headquarters personnel will intervene. Another corporate function is to serve as a source for information: The successes, failures, and general experiences of product programs in one country are passed on to managers in other countries. Information on the success of a white chocolate bar in New Zealand and on a line of Lean Cuisine frozen food in the United States was disseminated this way.

In spite of the centralized directives described above, Nestle's area managers have a great deal of discretion in certain matters, especially marketing. Product research is centralized so that duplication of efforts is kept to a minimum. When a new product is developed, the corporate management offers it to the subsidiaries and may urge initial trials. However, they will not force the subsidiaries to launch a new product if the subsidiary managements do not find it acceptable. If the product is introduced, local management is fairly free to adapt it as long as corporate management does not find the changes harmful. One of Nestle's best selling products, Nescafe instant coffee, is blended and colored slightly differently from country to country.

In addition to budgets and reports, Nestle relies heavily on information-gathering visits to the local operations. Several things are done to try to bring corporate and country management closer together. One is to alternate people between jobs in the field and jobs at headquarters; another is the scheduling of meetings and training programs to bring large groups of managers together; still another is to ensure that top management can converse with area management in at least French and English and preferably in German and Spanish as well. The compensation system and management style are established purposely to limit turnover among employees. The combination of these various methods contributes to many long-term interactions designed to break down barriers between headquarters and the field.

The method of making decisions at headquarters has not remained the same. During the 1980s Nestle became more decentralized, largely because of the management philosophy of Helmut Maucher, who became managing director in 1982. When he took over, three levels of management approval were necessary even to put out a press release. He reduced the corporate staff, pushed more authority down to the operating level, and replaced 25-page monthly reports with a one-page reporting form. At one point Nestle sought to balance functional, area, and product viewpoints by putting different people in charge of each activity at headquarters. This meant that the person in charge of each activity would have to agree before a decision could be made, which sometimes meant a slow process. This structure was abandoned in the mid-1980s in order to slim down the corporate staff and speed decision making. This was replaced with a board of general managers, primarily representing the zones into which Nestle divides the world.

Many company actions necessitate new decisions on where control will I be vested. Nestle's policy of expanding largely through acquisition of existing firms is one type of action that has resulted in situations not quite fitting the established lines of responsibility. The acquisition policy is premised on the belief that it is more prudent to enter an already highly competitive market by buying an existing firm and infusing resources into it. Since acquired firms are unlikely to have the exact product and geographic basis to fit Nestle's structure, these operations must be accommodated.

For example, Nestlе acquired Libby, McNeil! & Libby, a U.S. company with substantial international operations including a subsidiary in the United Kingdom. Nestle had to iron out not only how Libby, McNeill & Libby would relate to Nestle's existing U.S. operations, but also whether the U.K. subsidiary should continue to report to Libby or to Nestle's European operations. (There was a gradual transition whereby the subsidiary eventually reported to the European division.) Fifteen years later, in 1985, the Libby, McNeill & Libby production facilities and distribution center were closed; however, two other Nestle divisions took on the manufacture and sale of products using the Libby name. In another case, the acquisition of Stouffer Foods put Nestle into hotel ownership for the first time. Because Stouffer had been highly profitable and because the Swiss headquarters management lacked hotel experience, many more decisions were initially made at the subsidiary level than would normally be the case.

A notable Nestle acquisition was the U.S. company Carnation for $3 billion, the largest nonoil merger in history. This was eclipsed by the nearly $4 billion acquisition of the British firm Rowntree, the creator of KitKat and other candy bars. U.S. acquisitions reported directly to Switzerland until 1981, when Nestle named a head of North American operations for the first time. This move was designed to consolidate much of the U.S. operations. The managing director of Nestle worldwide supported this so that he could spend time on strategic planning instead of supervising day-to-day opera­tions. Carnation, acquired in 1985, initially reported directly to Switzerland, and its foreign operations were acquired by local Nestle organizations. In 1990 Carnation became consolidated with other U.S. food businesses in a move to save overhead expenses and to gain advantages of scale in combating such U.S. rivals as Kraft General Foods and Con-Agra.

Competitive factors have influenced Nestle's decisions on where to place emphasis. For example, the rapid growth strategy in the United States has been based partially on the realization that the company must maintain a certain size relative to its competitors (which have been growing internally and through acquisition). This size helps in dealing with the few large supermarket chains that account for most of Nestle's sales.

Another factor that has influenced decision-making authority has been a need to share subsidiary ownership of some facilities because of host-country requirements, as in Malaysia. This in turn has reduced the flexibility of corporate decision making.

New words:

chief executive officer (CEO) – главный исполнительный директор

shares - акции

takeover - поглощение

to allocate - размещать

headquarters – штаб-квартира

to abandon – покинуть, оставить

decision making – принимать решения

to save - экономить

overhead expenses – накладные расходы

to reduce - сокращать