Acquisitions and the emerging market strategy
Since Nestlé is a global organization, the strategy of acquisitions and mergers is widely and frequently followed by it. Its competitive strategies are associated mainly with foreign direct investment in dairy and other food businesses. Nestlé aims to balance sales between low risk but low growth countries of the developed world and high risk and potentially high growth markets of Africa, Latin America and Asia. Nestlé recognizes the profitability possibilities in these high-risk countries, but pledges not to take unnecessary risks for the sake of growth. This process of hedging keeps growth steady and shareholders happy.
In Asia, Nestlé’s strategy has been to acquire local companies in order to form a group of autonomous regional managers who know more about the culture of the local markets than Americans or Europeans. Nestlé’s strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestlé acquired Indofood, Indonesia’s largest noodle producer. Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export Indonesian food products to other countries.
A flurry of acquisitions which has made Nestle the biggest food company on Earth
In the 1920s, Peter, Cailler, Kohler Swiss Chocolate Company was acquired and with it chocolate became an integral part of Nestlé’s business. This sparked further variety in the products offered – including a powdered drink called Milo and powdered milk products.
In 1977, Nestle acquiring Alcon Laboratories Inc., a U.S. manufacturer of pharmaceutical and ophthalmic products. This was its second venture outside the food industry.
In 1984, through a public offer of USD 3 billion, Nestle acquired the American food giant, Carnation. At the time, this was one of the largest acquisitions in the history of the food industry. Through this it entered the pet care business and Friskies®, Fancy Feast®, and Mighty Dog® brands became a part of the Nestlé brand portfolio.
The Italian brand Buitoni, became part of Nestlé’s portfolio in 1988. Buitoni became a symbol of the brand’s ongoing commitment to quality, creativity, and tradition through its premium and exclusive positioning.
Since 1996 through the acquisition outright of the Italian mineral water concern San Pellegrino (1997) and Spillers Petfoods of the UK (1998) the company has consolidated its position in petfoods and waters.
In 2001, Nestle merged with the Ralston Purina Company, to form a new pet food company, Nestlé Purina PetCare Company. Through this acquisition it further consolidated its position in the petfood business.

Two major acquisitions were made in North America in 2002: in July, the merger of Nestlé’s U.S. ice cream business with Dreyer’s; and in August, an acquisition of Chef America Inc., a leading frozen food product business for USD 2.6 billion. With the merger with Dreyer, Nestle became a major player in the ice cream market and with Chef America it increased its offering in the frozen food category.
Nestlé acquired Mövenpick Ice Cream in 2003 which enhanced its position as a market leader in the super premium category of ice cream with an existing brand like Häagen-Dazs.

In 2006, Nestle acquired Jenny Craig and entered the weight management category of foods. It also acquired Uncle Toby a breakfast food manufacturer.

In 2007, Nestle acquired Novartis Medical Nutrition, Gerber and Henniez. This gave it an addition in Baby foods(Gerber) category and mineral waters category (Henniez)

In 2010 it acquired Kraft's frozen Pizza business to add to its already large frozen foods product line.
Internationally, Nestlé formed a partnership with the Chinese food company, Yinlu, to manufacture their ready-to-drink peanut milk and canned rice porridge, then with Hsu Fu Chi, a confectionery and snacks manufacturer.

Late April 2012, Nestle agreed to buy Pfizer's infant-nutrition unit for $11.9 billion, after edging out Danone in a contest for a business that gets most of its sales in fast-growing emerging markets. With this it acquired the 5th largest baby food brand and consolidated its position as the No. 1 player in that category worldwide.

Eventually, through all these acquisitions, Nestle moved from a milk food products manufacturer to a company that is synonymous with nutrition, health and wellness.

The Coffee Supply Chain
A supply chain is the sequence of activities and processes required to bring a product from its raw state to the finished goods sold to the consumer.

As an example highlighting the capabilities of Nestle in managing its supply chains efficiently, we look at the coffee supply chain from bean to instant coffee. The coffee supply chain usually consists of the following players:-

Growers - usually work on a very small plot of land of just one or two hectares. Most of the times primary processing (drying or hulling) is done by them.

Intermediaries - They are present at various stages of the supply chain. They might be engaged in primary processing, collection of coffee beans from individual producers to transport or sell to processors or they even sell it to a bigger dealer.
There may be as many as five intermediary links in the chain processors - individual farmers who have the equipment to process coffee, or a separate processor, or a farmers’ co-operative that pools resources to buy the equipment to convert ‘cherries’ into green coffee beans

Government agencies - in some countries the government controls the coffee trade, perhaps by buying the coffee from processors at a fixed price and selling it in auctions for export exporters - they buy from cooperatives or auctions and then sell to dealers. Their expert knowledge of the local area and producers generally enables them to guarantee the quality of the shipment dealers/brokers - supply the coffee beans to the roasters in the right quantities, at the right time, at a price acceptable to buyer and seller.

Roasters - people like Nestlé whose expertise is to turn the green coffee beans into products people enjoy drinking. The company also adds value to the product through marketing, branding and packaging activities

Retailers - sellers of coffee products which range from large supermarkets, to hotel and catering organisations, to small independent retailers.

Manufacturing of coffee
Briefly, the steps involved in the manufacturing of coffee are : 1. Picking (done by growers) 2. Drying and hulling (done by growers or intermediaries) 3. Sorting, grading and packing (Done by intermediaries) 4. Bulking (Done by intermediaries) 5. Blending (Done by experts employed by companies like Nestle) 6. Roasting (Done by companies like Nestle)

Nestlé’s procurement strategy
Nestle buys most of its coffee directly from growers and it is consequently one of the world's largest direct purchasers. In regions where it is not possible to do so (maybe due to regulations), Nestle tries to make the buy as close to the grower as possible.

The price at which coffee is procured depends mainly on the market price. Coffee is a traded commodity and the trading that happens at the stock exchanges determines the prices a farmer gets. Supply and Demand are the determinants of the amount of coffee traded and its price. Fair price to be given to the producer is determined by Nestle according to the market prices and the growers benefit from selling to Nestle due to the absence of middlemen who take away some margin which increases the price to the producer.

In countries where Nestle is able to buy directly, it advertises a Nestle price and a minimum base price. Due tot this, other traders are forced to offer competitive prices too. In the Philippines, farmers bring their produce to Nestlé’s buying centers where the beans are analyzed for quality and growers are paid on the spot.

In regions/countries where direct buying is not possible, Nestle buys from the international market. But it thoroughly inspects every link in the dealer - exporter supply chain and often trains some of the exporters in quality assurance to maintain a certain level of quality with regards to the coffee beans. From pest control to packaging of the beans, Nestle tries to ensure that quality is never compromised.

Open Innovations and Partnerships

Open Innovation (OI) is a term promoted by Henry Chesbrough and defined as “a paradigm that assumes firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology”

OI is founded on the fact that, in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, and consequently should rely also on outside sources and buy or license processes or inventions.

Nestlé applies OI by tapping into technologies and expertise of more than a million researchers worldwide, including science universities, venture capital, strategic suppliers, and government laboratories. In general, Nestlé has three types of worldwide collaborations: (1) simple contract work carrying out clinical trials or analytical work, (2) more than 140 collaborations with universities, research institutes, and medical centers, and (3) a select number of special strategic Innovation Partnerships (INP).

Innovation partnerships require appropriate strategic technology planning processes including the extension of product technology to integrated roadmaps for open innovation processes and external technology exploitation. At Nestle, the journey toward a “perfect” INP passes through three essential stages: (1) establishing trust, (2) good will, and (3) creating value.

Some of Nestlé’s key partners who have been participating in its INP strategy include Barry Callebaut, BASF, Cargill, Cognis, DSM, DuPont, Firmenich, Fonterra, Givaudan, IFF, Kerry, Mane, Symrise, and Tetra Pak, to name only a few. These Innovation Partnerships have already contributed to more than $200 million in new business with co-developments ranging from new functional soy ingredients, better-tasting soybased drinks, and new coating systems for ice cream to new nutritional ingredient solutions in pet food and new dairy-based nutritional functionalities.

World-class project management in NPD is also paramount. It is vital, upfront, to define and specify crystal-clear goals, resources, timelines, and milestones as well as assigning of intellectual property and value-sharing solutions.

Partnerships involve upstream and downstream partners. Upstream partners represent early, mid, and mature stages of innovation. Typically, these partners come from universities, start-up companies, and inventors. They also include large industrial partners (i.e., ingredient and packaging suppliers). Downstream partnerships occur with a select group of large customers (i.e., retailers), with the goal of identifying innovation based on shoppers’ insights and having strong consumer relevance. We have come a long way from the time when manufacturer-retailer relationships were at arms’ length. This two pronged character of partnerships often leads to NPD that is clearly shopper-insight driven, potentially resulting in services and products that “fly off the shelf.”

Any transfer of knowledge comes from sharing of vital and confidential information, so legal issues need to be considered before any such transfer occurs. Establishing the legal framework in which to conduct the transfer and further development is paramount. Nestlé initially used existing agreements (e.g., confidentiality agreements) that spell out under which terms strategic and confidential information could be shared. However, as progress on the path of shared innovation was made, it was found that some secrecy or nondisclosure agreements were inadequate, mainly due to their narrow coverage of mostly only one specific topic.

In order to avoid such obstacles, Nestlé has established master joint development agreements (MJDAs). In principle, a typical MJDA comprises two parts: (1) terms of confidentiality between the two parties as well as possible affiliates of each partner (it may also contain a definition of the potential ownership of the jointly created innovation solutions), and (2) a detailed description of a project resulting from one or more joint ideation meetings or discussions between the partners. Typically, the main body of a MJDA details the project, expectations, resources, timelines, intellectual property, and all other elements necessary for best practices.

Apart from legal issues, certain frameworks and working mechanisms are often very useful while sharing knowledge to co produce. Nestlé uses various creative-problem-solving tools. For instance, a tool for packaging innovation is called FastPack™- designed exclusively to generate a limited number of packaging concepts. The timeline for FastPack is accelerated— concepts can move toward rapid prototyping and consumer research and potential feedback within only a few week. Efficiency, focus, and speed are of the essence. FastPack is a well-proven tool. Many successful Nestlé packaging innovations have come out of FastPack, such as the Mövenpick iconic ice cream tub, new Nescafé containers, coffee creamer containers, new baby food containers, but also shelf-ready packaging solutions, so-called pdq’s (“pretty darn quick”) for large retailers such as Wal-Mart.

Co-Opetition
Nestlé and Coca-Cola have developed a unique co-branding relationship. Nestea is a trademark of Nestlé and is distributed under license by Coca-Cola. Being late entrants in the iced tea beverage industry, Nestlé and Coca-Cola decided to unite against Unilever’s market leading Lipton brand. The product was created and marketed by Nestlé while Coca-Cola managed the distribution. In this way both companies benefited from the expertise of the other without compromising the sales of other competing brands.