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  • Published on: 14th September 2019
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What was Nestlé initial organizational approach as an MNE (centralized exporter, international projector, international coordinator or multi-centre MNE)?

Nestlé's initial organizational approach was the multi-centre MNE designed to have a large number of independent entrepreneurial subsidiaries abroad. This strategy would perfectly match with firm intent to maximize national and local responsiveness trying to deeply engage with local environments. In fact each subsidiaries abroad was almost considerate as an independent business, mostly because of the imminent importance of location bound and of the advanced knowledge developed with local experiences.  

Nestlé CEO from 1997 to 2008, Peter Brabeck-Latmathe, mentioned this as one of the unique features of the company, describing how the attention to local preferences has always been an important key of success.  

However, the Nestlé's multi-centre organization was not really efficient. In many cases in fact the high level of decentralization drove the company to have losses of efficiency. In many cases this factor was offset from really competitive environments but this did not happen for every market. The firm also incurred into other issues especially related to the low margin of profits if compared to their main and direct competitors. Moreover, Nestlé also had to face some organization problems related to an insufficient information communication technology system, especially when the senior management needed to communicate with subsidiary and to access to their data. For this reason, in the late 1990s, Nestlé went through a strong review of its business organization involving important changes of strategy.

Has Nestlé transformed itself toward a less homogenous, more multidimensional model? Can you identify certain Nestlé subsidiaries with specific role - e.g., strategic leaders contributors?

Nestlé transformations toward a more multidimensional model could be the example of Purina PetCare. This product was leading the US market, holding more than 31% of the entire market share. However, on the European market, the same product was not achieving the same sales results, holding just the 24%. Purina direct competitors, Mars, was holding more than 40% of the market share at that time, having a really big gap between this two firms. However, Nestlé's animal nutrition brand, tried to introduce a new product concept that helped Purina on being successful on the US market. The sales immediately increased whit this new product offering smaller service can. At this point Nestlé took the decision to mainly focus on two main markets: France and UK. However they kept selling the same product in Germany as well but without the intention to become the number one on the animal nutrition market. In this case is in fact possible to notice that UK and France represent the strategic leaders while Germany will be a contributor perfectly describing the multidimensional design of the firm.

Has Nestlé been able to transfer knowledge from “strategic leaders” subsidiaries to other types of subsidiaries? Please identify an example on the case.

For many years Nestlé tired to improve its level of communication and knowledge transportation between subsidiaries developing new solutions and achieving great results. A perfect instance of this would be Nestlé Purina PetCare. On the US market the product was really successful taking over more than 30% of the national pet food sales. However, Purina was not achieving the same results in Europe and managers had to change their strategy. The first adjustment consisted into the reduction of size of cans. This improvement was imported from the US market where customers prefer to have smaller serving concept. This example perfectly represent how increasing the collaboration between subsidiaries, transferring knowledge to each other, can have an extremely positive impact on market sales.

What is different between the subsidiary discussed in this case and the model in the paper by Barlett and Ghoshal?

The subsidiary network in the case is different from the network described from Bartlett and Ghoshal. In the case Nestle has multiple subsidiaries, from which the managers are working together with good communication and sharing their knowledge. On other  hand the the model developed by Bartlett and Ghoshal clearly separate the subsidiaries with specific role assigned form the headquartered. The idea in the case is that the subsidiaries can develop strategies together, help each other and taking advantages from those collaborations. Nestle idea of transferring information between the subsidiaries makes the model even more complicated than Bartlett and Ghoshal's one.

Lecture Questions

What is a multinational (MNE)?

An MNE could be defined as a business organization which conducts business operations many countries operating through its subsidiaries and affiliates. To be considerate MNEs, firms need to have incredibly large human resources, finance, expertise and technology as well as strong substantial competitive advantage.

What is exports, and what is the difference between MNE activity and exports?

The main difference between MNE exports and activity is related to the behavior into foreign markets. In fact MNE export their production to other country. Activities instead relates to all the action that will take place into the home or host environment.

 What different types of FDI exist?

Exist 4 different types of FDI explaining different reason to directly invest into a foreign environment. They are: Natural resources seeking, Market seeking, Strategic resources seeking and efficiency seeking.

(a) What does it mean that Australia has 52458 million dollar of sales in 2003? How much of that goes back to the US? How much to local Australian customers? And how much is shipped to third countries?

The sales of 52458 million dollar in 2003 in Australia shows the sales of goods by the Majority-Owned Nonbank foreign affiliates of Nonbank US. However only 1609 minion of dollar are transferred back to the US. To foreign country also needs to be separate as 41839 million dollars represents the sales on Australian market while the remaining 9011 minion dollars are to sales from Australia shipped to third countries.

4.   (b)In question 3 we asked for a theoretical distinction. What different types of FDI can you distinguish empirically using the sales data? Make for each type of FDI a new column and calculate the share of each type of US MNE activity in total US MNE activity.

Which three countries have the highest fraction of efficiency seeking MNE activity?

The three countries with the highest fraction of efficiency seeking are Costa Rica, Israel and Malaysia. All there countries are expanding and this will attract many MNEs to seek efficiency activities.

Why would that be? Which country has the highest fraction of market seeking MNE activity? Why would that be?

New Zealand is the country with the highest market seeking MNE activity. The usually operate in relatively small local market, especially when compared with bigger countries. For this reason they will research for bigger markets aboard.

What type of MNE activity of US multinationals is most important for the Netherlands? Why would that be?

  The most important for the Netherlands would are export platform. In fact, as most of the population is well remunerate, they will afford to seek these products.

What factors would play a role in determining how much MNE activity a country attracts? Are all these factors equally important for all the different types of MNE activity? Explain.

There are three important factor that play fundamental roles into the determination of how much MNE activity attracts country and they are: cheap labor, host country location advantages and competitiveness. Those three factors will have different influences on each MNE depending on specific features.

Calculate the mean of the different types of MNE activity

In the globalization debate proponents and opponents discuss the different positive and negative aspects of globalization. Opponents frequently refer to the damaging role of multinationals in the context of child labour, pollution, and abuse of power in countries with weak governments. This boils down to a view on multinationals that locate production in those places where production is the most efficient. This is an often heard claim that opponents make. Having calculated the mean scores of different types of FDI, can you say that these opponents or anti-globalists are right?

What are the two key observations that are the basic starting point for Bartlett and Ghoshal?

Bartlett and Ghoshal suggested two key observations describing MNEs mistakes when adopting homogenization and centralization strategy.

What is the consequence of the above observations?

Homogenization usually bring to the seat identical treat for each subsidiary, reducing their freedom to operated applying specific local knowledge.

The consequences of centralization would have all strategic decisions made at the headquarters. This strategy would incredibly increase the risks of bounded reliability and rationality. In fact the MNE do not see that subsidiaries would have the opportunity to develop their own strength with the possibility to increase the value of MNE existing FSAs.

What difficult and important managerial question does this trigger?

What would be the best level of autonomy for each subsidiary? How would it be possible to evaluate it?

What factors determine how much autonomy you give to a subsidiary?

There are two specific factor that senior management needs to evaluate before deciding how much freedom to give to each subsidiary. Firstly it needs to be determinate the strategic importance of a specific market. The second factor refers to the evaluation of sales, marketing achievements, production capabilities, research and development, and all other strength that could relate to firm competitiveness on the market.

Based on these two factors, Bartlett and Ghoshal have developed a 2 x 2 taxonomy. Draw this and explain it in your own words.

Bartlett and Ghoshal have designed a simple 2 x 2 taxonomy to assign different rules of each subsidiary, distinguishing 4 different types of subsidiary:

Black Hole: this kind of subsidiaries are usually located on strategic important factors but they only dispose of a few specialized resources. In a long term is usually convenient to engage strategic alliance so to have the right to access to many complementary recourses.

  Implementer: this type of subsidiaries are usually located into non strategically important market. Although they do not own any specific specialized resource. However they represents one of the key element of firms success, being the most common category and creating a constant flow of cash.

Strategic leader: this model is usually located into strategic markets and has really high competences. This subsidiaries goal is to identify new industry trends and try to develop new FSAs out of those.

Contributor: this last model is mostly developed into low importance market, but on the other hand represents a high competent national subsidiary. It is usually common to have new FSA developed from this subsidiaries, mostly for the great entrepreneurial skills shown by host country management teams.

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