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Case 33 Nestl Global Strategy 1 Does it make sense for Nestl to focus its growth on emerging markets Why Due to saturation and increased competition in the European and North American markets it makes sense for Nestl to focus its growth on emerging markets These markets have a huge potential as they were closed to foreign companies because of their political system China Russia Thus there are only a few consumer industries in these markets and Nestl can benefit from first-mover advantages Nestl can earn greater return from its distinctive competencies ie unique strengths that allow a company to achieve superior efficiency quality innovation and customer responsiveness By applying those competencies and the products they produce to foreign markets where indigenous competitors lack similar competencies and products Nestl can realize enormous returns Furthermore Nestl can take advantage of location economies Location economies arise from performing a value creation activity in the optimal location for that activity anywhere in the world The optimal location for a value creating activity lowers the costs of value creation therefore helping the company achieve a low-cost position Moreover it enables Nestl to differentiate its products offerings and charge a premium price Consequently by dispersing value creation activities to optimal locations Nestl should have a competitive advantage over a company that places all its value creation activities in a single location Another reason why it makes sense for Nestl to focus its growth on emerging markets is that the company is able to move down the experience curve The experience curve is a systematic decrease in production costs that occur over the life of a product Learning effects and economies of scale underlie the experience curve and a company that moves down the experience curve will have a cost advantage over its competitor and is therefore consistent with the business-level strategy of cost leadership Nevertheless Nestl must evaluate basic entry decisions before entering an emergent market The
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