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Merger &Acquisition

First Mover advantage is defined as the benefits generatedfor a firm that breaks in new markets first (Johnson et.al,2008). The aim is to build a strong and sustainable positionwithin the market as a way to defend potential competitivenewcomers. Regarding Nestl, the company entersemerging markets early before prospective competitors inorder to build a significant position within them (Case Study,2011). Thus the company is able to respond to anypotential economic and population growth within emerging

markets as well as to any possible upcoming competition.

Mergers & Acquisitions are strategic components dealingwith buying or combining different companies that canassist the company to a speedy growth and improve itsfinancial performance especially in the long term(Narayanan&Nanda, 2004). During the 20th century, Nestlhas undertaken a number of mergers and acquisitions,

most notably the acquisition of Maggi in 1947, and thus hasachieved to extend its geographic presence and productline (Case Study, 2011).

Nestls acquisition of Goplana, is an interesting example ofhow its activities link with the companys long-term strategyof achieving first mover advantage within the Polish market(Case Study, 2011). The company was aiming to rush its

development inside the market and maintain its authority.As such, Nestl retained the local staff and management ofthe acquired company and carefully adjusted the Goplanaproduct line to better fit local opportunities (Case Study,2011). Overall, acquisitions have been an importantfunction for Nestls growth (Cook et.al, 2003). Alongsidethe M&A group, the firm uses people from the financesector as to assist the financial analysis of M&A process(Cullinan et.al, 2003).


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This shows a clear link between Nestls FMA strategy andits M&A activities. The firm maintains local companies withregional staff in local markets as to better customize its

performance by creating share value and local expertise.Significantly, the success of Nestl in growing localcompanies also depends on the management developmentprogrammes that Nestl uses in order to come closer andtrain its local managers (Case Study, 2011).

The process of entry for a company influences its ability tocreate value. According to Rahman & Bhattacharyya

(2003), Nestl has benefited by acting as a first mover inemerging markets. In terms of business development, thecompany sometimes involves mergers and acquisitionactivities as a way to grow and create value. Moreover, thereasons behind the M&A activities can vary according toexpectations. These may be the economies of scale, speedof entry, shareholder expectations and so on (Johnsonet.al, 2008). Mergers and acquisitions are considered as

one of the most dynamic ways in which a firm canrecombine assets to create value (Ahern&Weston, 2007).

By being the first mover into a market it may hidessome drawbacks. Hill & Jones (2009) noted thatfirst movers have to tolerate large costs ofpioneering that later movers may not. Also first

movers may fall into substantial mistakes and risksas they lack experience, where second moverscan enjoy knowledge and improvements throughfirst movers gaffes. Similarly, M&A is a particularlystressful practice for people involved within thenew corporate culture and structure that can

create ambiguity, anxiety and antipathy amongst


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companys staff (Appelbaum et al 2000). Such afact can destroy the organisations value.

2nd Question: Does it make sense for Nestl tofocus its growth efforts on emerging markets?Why?

According to the Case Study (2011), by the early1990s Nestl realised that it faced importantchallenges in maintaining its rate of growth within

the markets of Western Europe and NorthAmerica. Therefore, the company has turned itsattention to emerging markets for further growth.

Rapoport (1994) stated that developed marketsare in the saturated phase of their life cycle wherethe competition is becoming higher, creating the

war of price and substitution. Due to the economicdownturn in such markets, people incomes havebeen characterised as incomplete and thusconsumers are becoming more price conscious.Additionally, population indexes show that thepopulation growth rate has been stagnated incontrast with the emerging world which is expected

to expand by the year 2015 (Delegge, 2009).

Delegge (2009) stated that emerging marketeconomies are growing at a faster pace than thosein developed countries. Furthermore, theresearcher indicates that due to the combination ofthe global recession and the downturn of realestate prices, residents of emerging markets are


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expected to outperform both American andEuropean consumers in terms of spendingdynamics. Thereby Nestl translated emerging

markets as an opportunity of higher growth returnswith the promise of significant market share in thelong term.

In order to maintain its growth rate, it does makeabsolute sense for Nestl to focus its growthefforts on emerging markets. Goldman Sachsintroduced the BRIC acronym (Brazil, Russia, Indiaand China) that refers to the countries which areestimated for the next decades to be at a betterstage than the current developed markets(ONeil&Stupnytska, 2009). Furthermore, theyannounced the concept of the Next Eleven (N-11)

countries such as Nigeria, Mexico and Turkeywhich have the potential of becoming along withBRICs, the worlds dynamic markets by 2032(ONeil&Stupnytska, 2009).

Nestl has already been active in developingeconomies but it is therefore slight in contrast with

their rival company Unilever. Moreover, the USfood &drink report (2010) notes that even with thegreatest exposure in such markets; Unilever hasexperienced negative average revenue. This wasdue to its poor business management andincorrect decisions made over the last five years.


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Nestls core competencies and capabilities canenable the company to continue performing inemerging markets. Nestl has the ability to create

brands quickly and in a sustainable fashion withproducts such as Nescafe, which also give strongfocus on R&D which enables the company togenerate greater profits (Datamonitor, 2010). Thecompany has the unique strength to customizeglobal products with the same quality standards

based on customer needs in the local market.Also, the firm has unmatched geographicexistence in the emerging markets and so thecompany has the flexibility to deal withcircumstances that sometimes cannot be easilypredicted (Singh&Child-Villiers, 2010). Applyingthose distinctive competencies, Nestl can earn

greater returns and gain a sustainable advantageover its competitors. Rahman & Bhattacharyya(2003) supported that unique performance withinemerging markets can offer differential advantagesfor a first mover company.

Following a first mover strategy, Nestl hasbenefited in many emerging markets as it was thefirst company which offered differentiatedaffordable products in local markets(Rahman&Bhattacharyya, 2003). Nestl aims tobuild a substantial position by achieving successfulcustomer perceptions. Moreover, as the market

grows and income levels rise, Nestl can


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potentially benefit by being responsive in suchpossible situations.

Nestl can also take advantage of locationeconomies, which are created from performing avalue creation activity in the best location possible(Hill&Jones, 2009). For instance, Nestl hasopened a new factory in Nigeria which wasdedicated in Popularity Positioned Products(Nestle, 2011a). This enabled the company toachieve lower costs and therefore facilitated thecompany to customizing its products in terms ofprice and accessibility. Thus, by enduring in suchlocation economies, Nestl can gain a competitiveplace in each single location.

3rd Question: What is the companys strategy withregard to business development in emergingmarkets? Does this strategy make sense? From anorganisational perspective, what is required for thisstrategy to work effectively?

Regarding the business development in emergingmarkets, Nestls strategy was to enter markets

before competitors in order to get the first moveradvantage. The company aims to build asignificant position within the developing world andthus be able to understand and satisfy therequirements of local population.

Nestl acquires local firms when valuable

opportunities arise during the entry process of the


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company into new emerging markets. A goodexample is that of 1995 where Nestl acquiredRossia, one of the leaders of chocolate

manufacturer in Russia (Nestle, 2009). Nestlrealised the chances that have been offered fromthe opening of Russian market and the increase ofincome levels, by making this new investment.

In addition, there are times when Nestl entersemerging markets by building its own infrastructurefrom scratch, such as in China. Considering such amethod, the company enters markets where noactual competitors exist and thus creates its ownpaths as a way to establish a market presence.

Nestls product portfolio includes a strongpresence of numerous key brands which focus ondeveloping local marques for their respectivemarkets thereby escaping its global brands forthese customers (Urde, 1999). Overall, thecompany owns 8500 brands under itsorganisational umbrella and less than 10% areregistered in more than one country.

As an alternative way of trying to force a product ina market, the company customizes its productbased on the needs of the local consumer andfocuses at the extent of achieving economies ofscale. At the moment, Nestl follows the strategyof adaptation to local conditions by using its in


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house PPP (Popularity Position Products) methodwhich offers affordable products of high quality to

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