BUSINESS ANALYSIS ON “NESTLE MALAYSIA BERHAD”

Introduction

[Nestle Logo (Famouslogos.us, 2012)]
Nestle is a Swiss-based brand founded in 1866 by Henri Nestlé, a German pharmacist. Henri was a very enthusiastic person to globalise his company and advocates pragmatism, flexibility, learning initiatives, respect towards foreign cultures and many other key attitudes and values to stake a corporate culture that lasts until today. (Nestle, 2012)
In 1912, Nestle was introduced as the Anglo Swiss Condensed Milk Company to Malaysia. Today, more than 140 years after born, the world’s leading nutrition, health and wellness company continue to improve human lives with nutritious food products. (Nestle, 2013)

1.0 PESTEC 1.0.1 Political, Legal & Governmental Forces

[Religion Distribution (Department of Statistics, 2011)]
To cater the major ethnic of Muslim market in Malaysia, Nestle has to restrict the process of food productions to ingratiate the Trade Description Order 1957 bound by the Syariah Law (Islamic Law). Under the Act, Nestle is prohibited to produce any food items which contain any parts from haram prohibited animals. During the process and preparation of product, Nestle must not use or touch any ingredients or equipments which are deemed to be unclean. (Malaysian Government, 2013)
1.0.2 Economic Forces

[Gross Domestic Product 2007-2012 (MIER, 2013)]

[Employment Index for 2007-2012 (MIER, 2013)]
Based on Malaysian Institute of Economic Research (MIER), Gross Domestic Product (GDP) of Malaysia grew moderately 5.2% with strong driven domestic demand. Meanwhile, net exports had contracted further due to a deteriorate external demand for manufactured goods and commodities. Lately in 2012, Consumer Price Index (CPI) in Malaysia has increased 1.7% from year 2012, which was under forecast by the Ministry of Finance (MoF). It was forecasted that the unemployment rate will remain at 3.0% for 2013 and the following year. The inflation rate is also expected to increase to 2.5% in 2014. (MIER, 2013)
Although the inflation rate in Malaysia is increasing in a moderate pace, the purchasing power in the country is still increasing. Besides, the low unemployment rate in Malaysia illustrates that in average, all citizens have great buying power for consumer goods either manufactured locally, or imported goods.

1.0.3 Social, cultural & demographic forces

(Trading Economics, 2012)
According to Malaysian International Tourism Exchange (MITE), Malaysia has a population of 28.86 million, with the distribution of more than 50% Malays, 25% Chineses, and 10% Indians. The remaining population comprises of indigenous groups, aboriginals and non-citizens in Malaysia. (Ping Technologies Sdn. Bhd., 2013)

[Ethnic Composition (Department of Statistic, 2011)]
In the globalised 21st century, the urban consumers are usually chasing time across earnings. An instant and simple but healthy and nutritious product is what they need for daily-life. Besides, the marital status of each individual also carry weight when comes to a decision of buying food and beverages (F&B). Married consumers may buy cereals and drinks for their family, while the single individuals may try on a nutritious diet for health and some other reasons.

[Urbanisation (Department of Statistic, 201t1)]

[Matital Status (Department of Statistic, 201t1)]

1.0.4 Technological forces
Internet had become a very useful and powerful platform for advertising and promoting brands. Nestle has it’s very global site and Malaysia site for information about the firm and its products. Meanwhile, Nestle also advertises its products through television channels and through social community websites. It is an instant way to introduce the brand to the worldwide market. (adbrands.net, 2013)

1.0.5 Environmental & natural forces
“Earth mother is sick”, a very reknown slogan encouraging everyone to reduce wastage. Nestle had revised the material they used for production to improve food security, raise environmental standards and also save costs for natural resources. Nestle also collaborate with companies such as Tetra Pak Sdn. Bhd. to promote a recycling habit among consumers. (The Tech Insider, 2012)

1.0.6 Competitive Force
Nestle continuously renovate their product innovatively to meet consumers’ needs and demands to fight after competitors. It has been an advantage to compare with firms without halal licensed in the Malaysian market. (The Edge Communications Sdn. Bhd., 2009)
Drumstick, MatKool and Cremeria are supplement brands to Nestle which having high competition with Unilever’s Wall’s and Magnum in Malaysia. Both firms compete aggressively to pursue market penetration to make ice-cream available nationwide. (Fred R. David, 2005)

1.1 Porter’s Five Forces
Milo a cocoa drink, Nescafe coffee, Nestum hot cereal, Cerelac infant food, Coffee-mate creamer, Nestea iced lemon tea, Maggi culinary products, Bliss yoghurt drink, Kit Kat chocolate crunch, Power Bar energy nutrition bar, and Nutren nutrition drink are examples of Nestle brands sale in Malaysia. The company also sell breakfast cereal, ice-cream, dairy beverage under its own name. In each product line, there are a lot of small firms and also large firms competing. (Nestle, 2013)

1.1.1 Rivalry Among Competing Firms
In Malaysian Fast-moving consumer good (FMCG) industry, a lot of firms are competing under edible goods with halal logo. Therefore, Nestle need an symbolic and iconic strategy or plan to imply a brand loyalty to customers. Nestls’s Wonka lost in a rejection that Cadbury’s Dairy Milk claiming a trademark to Pantone 2685C, the Cadbury product packaging colour since 1914. (Kate Abbott, 2012)
Yeo Hiap Seng (Malaysia) Berhad offers a wide range of F&B products which is very similar to Nestle. Yeo’s culinary products and beverages, and Cintan noodles are high competitive FMCG to Nestle in supermarkets. It has been a non price-based rivalry among these firms as the price of products is very similar. Consumers often differentiate the products with the ingredients, nutrition, and packaging to determine which product to buy. (Yeo Hiap Seng, 2013) (Unilever, 2013)

1.1.2 Potential Entry of New Competitors
First of all, Nestle is a big firm which survived through World War!! and owns brands of different type of F&B in the market. A smaller capital is required to enter some of its brands’ market but to acquire a complete range of F&B product, time and large capital is needed to expand the business step by step. For firms which refuse to pay and bear with the cost and requirements of government regulations for a halal logo, they lose the majority of consumer market in Malaysia. (Nestle, 2013)
To start a business in Malaysia, a RM100,000 is needed for initial capital. Besides, an easy access to distribution channel is required as F&B are perishable goods, they have to be sold out to be consumed before the expiry date, any returned goods are a loss to be bound by the company. (Yycadvisors.com, 2012) 1.1.3 Potential Development of Substitute Products
FMCG can be obtained anywhere and there are too many choices for customers to choose from, there will be no switching costs to consumers for. A report from University Putra Malaysia shows that urban consumers increased their consumptions of fast breakfast. Rather than going for an expansive fast food or time consuming take-away procedure, an advantage had been created for Nestle products to substitute the main course meals. (Mad Nasir Shamsudin, 2008)
***table (Malaysia Watch, 2012)
Unfortunately, some people prefer soy milk to cocoa drink, spirulina to hot cereal, bread to cereals, dark chocolate to chocolate crunch, fruit juices to yoghurt drinks. Taste is a very personalise and hard to influence factor. Therefore, Nestle would lose customers who are in favour in other product than what they produced. On the other hand, when the prices of the substitute goods are lower than Nestle’s products, consumers may decide to switch their usual choice to other products.
1.1.4 Bargaining Power of Suppliers
Olam is an international company which supplies cocoa and coffee bean to Nestle. Nestle launched The Nestle Cocoa Plan to improve supply chain and to adopt good agricultural practices to obtain high quality of cocoa beans. (Nestle Cocoa Plan, 2013)

1.1.5 Bargaining Power of Consumers
Teenagers should eat a protein diet, while elderly age group should maintain a light and plain diet. The F&B industry must act sensitively with its wide stage of market as the need, taste, diet, flavor liking and interest of consumers varies from gender different age groups. Nestle has a wide range of product line to develop and produce different products with variable ingredients to attract consumers from infant to elderly people. In comparison, it sustains strong competition towards other firms as it can create a brand loyalty in consumer to further for their business relationship when they grow up. (Nestle, 2013)

[Age & Gender (Department of Statistic, 201t1)]
*** Infant, junior food, Cerelac -

2.0 Resources
There are several type of resources that can be identify if Nestle Malaysia Berhad. This type of resources can be categorized into tangible resources and intangible resources.
2.0.1 Tangible Resources a) Financial Resources
Nestle Malaysia Berhad has always managed its cash well. In the financial year 2011, the food industry had generated RM 4.7 billion with an operating income of RM 580.1 million. The most impressive thing is the company been able to reduce the percentage of sales devoted to selling, general and administrative costs from 21.00% to 20.37%.

Current Ratio = Current Assets / Current Liabilities = RM 1,015,064,000 / RM 914,740,000 = 1.1x

[Nestle Malaysia Berhad Current Ratio 2011]

Current ratio of Nestle Malaysia Berhad in year 2011 is 1.1 times increase than last year of only 1.0 times. Based on the current ratio calculated, it shows that the company is able to meet their short term obligation.

b) Physical Resources
Nestle Malaysia Berhad physical resources are plant and machinery, buildings, motor vehicles and technological equipment.

c) Technological Resources
Nestle Malaysia Berhad has its technological resources which are used in research and development to create a certain products. This technology is used to cut additional cost while researching for new products. These technologies are like computers, machine, microscope and others technologies.
2.0.2 Intangible Resources a) Human Resources
Nestle Malaysia Berhad aim to attract best talents in the markets. They nurture and train their employees to add value to the company. They increased woman in senior position from 23% to 29% in 2011. They increased its employees from 5,004 to 5,424 in 2011.

Nestle Malaysia Berhad invested RM 11 million in employee training and development in 2011 which are covered both in-house training and external programmes to sharpen on technical skills, leadership, soft skills, and added benefits for all employees. From result of their training, they managed to increased productivity and performance of their employees over a year. The company’s management team was excellent be it the president Tan Sri Dato’ Seri Syed Zainol Anwar Jamalullail, CEO Peter R Vogt and COO Mark Seiler.

b) Reputation resources
The brand value of Nestle Malaysia Berhad is one of the most unique brands in the Malaysia and had spread to all over the world. It’s the being known as healthy food products have ever created over 100 years. Its product is affordable and healthy for people to consume for everyday life. The consumer associates the name of Nestle as a healthy food for good life.

2.1 Capabilities 2.1.1 Human Resources Management
Nestle Malaysia Berhad has always maintained good relations with the employees. The company had invested in training employees and development for 11 million to increase productivity and efficiency, happier employees and also more satisfied customers. The hiring policy is very unique because it revolves finding employees with right attitude that will thrive in Nestle. Out of 463 referrals in 2011, only 14 were successful place in organization.

2.1.2 Management
The management of Nestle Malaysia Berhad is considered to be one of the most dynamic in all the time. The management policies introduced by Peter R Vogt and considered by analyst to be intuitive and effective. The halal policies also had been used since 1980 and this had made Nestle as one of the biggest halal producer all over the world. These halal policy is an opportunities to gain consumer’s trust and confidence. It also made non-muslim appreciated for quality and safety of the product.

2.1.3 Distribution
Nestle Malaysia had been establish since 1912 and had been operates all over the world since then. The growth plan has been conservative after halal policy had been established in Malaysia. Now, the halal products are exports through 50 countries and now, Nestle Malaysia is one of the bigger producers of halal product all over the world. The products now expand each year with research made all over the countries.

2.1.4 Marketing
Nestle Malaysia Berhad has always been aggressive in promoting itself. The slogans of the company are always known as “Good Food, Good Life” and its product is well known all over the world. This food product always been promoted in television and internet as healthy and affordable halal product for customers consumes. This product had been in market since 1912 and also been promoted through the newspaper and magazines.
2.2 Distinctive competencies
Nestle Company was founded in the 1866 in Switzerland by Henri Nestle. The company was established in Malaysia around 1912 as halal food manufactures all over the world. It has grown rapid and become worldwide food product. Due to the competitive edge maintained by the company, some of the distinctive competencies are described below: a) Strong financial growth
Nestle Malaysia Berhad has reported a steady increase in income and operating profits over the years. This has helped increases the perception in the minds of consumers as a successful company food product that can be trusted.

Type/Year | 2011 | 2010 | 2009 | Revenues(RM million) | 4,701.1 | 4,026.3 | 3,744.2 | Gross Profit(RM million) | 1,542.1 | 1,344.3 | 1,281.5 | Operating Income(RM million) | 580.1 | 489.0 | 464.3 |
[Nestle Berhad 2011]
Based on the diagram above, it’s described that Nestle Malaysia Berhad had gain more profit over the years and a growth of 15% in its business. These mean that the business is doing great and had a potential growth in throughout the world market. b) Brand reputation
For over 100 years, the company had been able to build a reputation for its healthy products, good quality and also trusted halal products over the customer around the world. This is quite important for customer to trust over this product and which is do apart from other competitors which are hard to gain consumer’s trust over product.

c) 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, it helps the company achieve a low-cost position. It enables Nestle to differentiate products offering and charge over a premium price. Nestle gain an advantages over other whom only place its value creation activities in a single location.

d) Superior quality/innovation
There are a lot of competitors in this world. Never forget that the customers have a choice to choose a product. That’s why Nestle Malaysia Berhad provides superior value in every food product by offer high quality of food product at reasonable price. That’s why good quality and good taste of product created based on demand of customers so that they loyal and trust to Nestle product that others.

In the current Malaysian market, Nestle owns more than 300 Halal products and employs up to 5000 people and manufactures since the company was publicly listed in the Bursa Malaysia Berhad on 13 December 1989. With the Halal logo, Nestle products have no limitations in the Malaysian market as Muslims consumers will always go for halal products. (Nestle, 2013)

[Nestle Products in Malaysia (Puveneass Tarummal, 2010)]

2.3 Strength and weaknesses Internal Analysis Strengths | Weaknesses | a) Ability to leverage strong brand name to generates sales | a) Low sales margin due to highly value added. | b) Ability to customize products to the local market conditions. | b) Physically impossibility to have target market. | c) Strong global operations with diversified revenue base. | c) Potential conflict between health and wellness image. | d) Good quality products and educated staff. | d) Lack of awareness among the target market | e) Efficient distribution network throughout the country. | e) Shortage of supply due to sudden and unexpected increase in demand | f) Financial, marketing and sales strategies are formulated by gauging the customers demand. | f) Inaccuracy of orders received in inventory. | g) Aggressive marketing | |

3.0 SWOT Matrix | OpportunitiesO1 Few Competitors in the marketO2 Transitions to a ‘nutrition and well-being’ companyO3 Focus in developing and emerging economiesO4 Booming out of home eating marketO5 Potential cold dairy market | ThreatsT1 Agreement issue resulting in penalty paymentsT2 Macro economic factorsT3 Allegations of unethical business activitiesT4 Potential Competition in market | StrengthsS1 Ability to leverage strong brand name S2 Sales force as major physical resource S3 Ability to customize products to the local market conditionsS4 Strong global operations with diversified revenue baseS5 Research and development capabilities | SO-Strategies * More marketing penetration through effective sale force (S2,O1) * Develop and promote cold dairy products(O5,S3,S4,O3) * Create awareness and promote(S5,O2) * Green marketing concept among consumers(S5,O4) | ST- Strategies * Strong logistics to help counter the competitors through market development(T4,S1) * Related diversification to help in more global expansion(S4,T2) |

WeaknessesW1 Increasing requests of product recalls hampering brand equityW2 Lack of awareness among target marketW3 Low credit sales and profit margin to retailersW4 Weak online promotional activities | WO- Strategy * Development of quality product to target the middle class(O4,W2,) * Increase the sales of confectionaries items through more credit sales to retailers to increase their profit margin | WT- Strategies * Strong advertisement campaigns to communicate the value of nestle products to the target customers better than competitors(W1,W3,T4) * Increase promotional activities with more web development; to lead the industry(W4,W2,T4) * Aid non-profit organization to boost image (T1,T3,W3,W4) | http://www.nestle.com.my/Pages/Nestle.aspx 3.1 Space Matrix
Below matrix shows us the diversification strategy on Nestle Malaysia Berhad.

[Nestle Malaysia Space Analysis Map]

4.0 Issues and Recommendations
Below are some issues and problems faced by Nestle and its recommendations on how these problems can be overcome. Issues & Problems | Recommendations | a) Unexpected demand by customers. | a) Build multiple relationships with suppliers. | b) Inaccuracy of orders receives in inventory or stocks in hands. | b) Clear the stocks by sell surplus products with promotion. | c) Unethical marketing of baby foods to customers. | c) Improve marketing strategies and state in writing to required in changes of baby food marketing. | d) High competitive from hypermarkets in food products like Giant, Tesco and Carrefour. | d) Keep price competitive and repackaging the product to suit consumer needs and affordability. | e) Waste of warehouse’s space due to defective inventories. | e) Sell these products in big organized event at lower price. | f) Poor partnership relationship between dealership and consumers. | f) Use Dealer Management System (DMS) in dealing with dealers and manufacturers to create integrated marketing campaign in managing inventories. | g) Aging workforce and retirements. | g) Hired new experience young generations. | h) Lack investment in training and education. | h) Focus on more training and education towards employees to increase efficiency in productivity. |

Conclusion
Nestle Malaysia is now part of today world’s largest food and beverages company with its mission to provide healthier lifestyle. They have launched many products here in Malaysia and also other countries as a Halal food producer. They have grown popular in food industry and now among the market leaders. They now installing new plants and importing new technologies to improve more in the future. Although they have their own problems, they managed to growth more successful every year and managed to defect any problem time by time. In fact, they also focuses on its missions and ensures consistency by making the right decisions to manage and build its business to deliver the promise of Good Food, Good Life all over the world.

References
Books
Fred R. David (2005), Strategic Management: Concepts and Cases, 10th ed, New Jersey, Pearson Education

Online Article
The Edge Communications Sdn. Bhd. (2009), Nestle (Malaysia) Berhad (Online) Available from: http://www.theedgemalaysia.com/the-edge-billion-ringgit-club/176386-nestle-malaysia-bhd.html (Assessed on 30 January 2013)
Ping Technologies Sdn. Bhd. (2013), About Malaysia (Online) Available from: http://www.witm-mite2013.com/AbtMalaysia.aspx (Assesed on 29 January 2013)
The Tech Insider (2012), Nestle & Tetra Pak Promotes Recycling Habit Among Consumers (Online) Available from: http://www.thetechinsider.net/nestle-tetra-pak-promotes-recycling-habit-among-consumers/ (Assessed on 30 January 2013)
Department of Statistics (2011), Population and Housing Census, Malaysia 2010 (Online) Available from: http://www.statistics.gov.my/portal/index.php?option=com_content&view=article&id=1215 (Assessed on 30 January 2013)
Puveneass Tarummal (2010), My Company Background (Online) Available from: http://puveneasstarummal.blogspot.com/2010/05/my-company-background.html
(Assessed on 29 January 2013)
The Edge Malaysia (2009), Nestle Get the Root of the Problem (Online) Available from: http://www.theedgemalaysia.com/first/157550-nestle-gets-to-the-root-of-the-problem.html
(Assessed on 30 January 2013)
Arno Maierbrugger (2012). Good Growth Potential. [ONLINE] Available at: http://investvine.com/good-growth-potential-in-malaysia-and-the-region/. [Last Accessed 31 January 2013].

Websites
Nestle (2012), History – Nestle Global (Online) Available from: http://www.nestle.com/aboutus/history (Assessed on 29 January 2013)
Nestle (2013), About Us – Nestle Malaysia (Online) Available from: http://www.nestle.com.my/ABOUTUS/Pages/index.aspx (Assessed on 29 January 2013)
Malaysian Government (2013), Acts on Halal (Online) Available from: http://www.malaysia.gov.my/EN/Relevant%20Topics/IndustryInMalaysia/Business/AgricultureAndAgroBasedIndustry/AgroHalalCertification/AgroActOnHalal/Pages/AgroActOnHalal.aspx (Assessed on 29 January 2013)
Nestle (2013), Nestle in Malaysia (Online) Available from: http://www.nestle.com.my/AboutUs/Nestle_in_Malaysia/Pages/nestle_in_malaysia.aspx (Assessed on 29 January 2013)
Famouslogos.us (2012), Nestle Logo, Available from: http://www.famouslogos.us/nestle-logo/ (Assessed on 29 January 2013)
Malaysian Institute of Economic Research (2013), Malaysian Economic Outlook (Online) Available from: http://www.mier.org.my/outlook/ (Assessed on 29 January 2013)
Malaysian Institute of Economic Research (2013), Consumer Sentiments Index: CSI4Q2012 (Online) Available from: http://www.mier.org.my/csi/ (Assessed on 29 January 2013)
Malaysian Institute of Economic Research (2013), Business Conditions Index: BCI4Q2012 (Online) Available from: http://www.mier.org.my/bci/ (Assessed on 29 January 2013)
Trading Economics (2012), Malaysian Population (Online) Available from: http://www.tradingeconomics.com/malaysia/population (Assessed on 30 January 2013)
Nestle (2013), Brands Search (Online) Available from: http://www.nestle.com.my/Brands/Pages/BrandsSearchList.aspx?brandAlpha=B (Assessed on 30 January 2013)
Adbrands.net (2013), Nestle SA (Switzerland) (Online) Available from: http://www.adbrands.net/ch/nestle_ch.htm (Assessed on 30 January 2013)
Bloomberg Businessweek (2013). Nestle Malaysia Berhad . [ONLINE] Available at: http://investing.businessweek.com. [Last Accessed 31 January 2013].
Nestle (2011). Financial Charts. [ONLINE] Available at: http://www.nestle.com.my/AboutUs/Investors/Pages/financial_charts.aspx. [Last Accessed 31 January 2013].
Nestle (2013). Research and Development. [ONLINE] Available at: http://www.nestle.com.my/Nestle_Research/Pages/index.aspx. [Last Accessed 31 January 2013].
Nestle (2013). Business Review. [ONLINE] Available at: http://www.nestle.com.my/AboutUs/Investors/Pages/business_review.aspx. [Last Accessed 31 January 2013].
UKESSAYS (2010). Nestle Malaysia Executive Summary. [ONLINE] Available at: http://www.ukessays.com/essays/management/nestle-and-nestle-malaysia-management-essay.php. [Last Accessed e.g. 31 January 2013].
Nestle (2011). Performance and challenges. [ONLINE] Available at: http://www.nestle.com/csv/ourpeople/Labourpractices/Performanceandchallenges. [Last Accessed 31 January 2013].

Appendices

Turnover Chart

Earnings Per Share Chart

Pre-Tax Profit Chart

Net Dividend Per Share Chart