BTEC Regent College NESTLE Company Business Environment Report. - Essay Prowess
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BTEC Regent College NESTLE Company Business Environment Report.

BTEC Regent College NESTLE Company Business Environment Report.

  

1.0 Introduction

NESTLE Company is one of the best performing companies across the world. The company was started in 1866 and it headquarter are located in Switzerland. For the period of time, NESTLE Company   has opened various branches or shops in both locally and internationally covering a wide range of market share. Nestle has grown to be world’s largest food and nutrition company. Apart from food and nutrition, the company is a major shareholder in the cosmetic company known as L”Oreal. The paper discusses the internal goals and different strategies used by the NESTLE Company to build its business environment and take advantages of the market operation (Nestle.com.2012).  In addition, the paper discusses how the company have been affected by national factors and regulations.

2.0 Understanding the organization purpose of the business

 LO1.1 Purpose of different types of organizations 

Different types of organizations have their own business policies, structure, and strategies and so are their purposes. So, whatever the business organizations there must be some specific purposes for which the organization was established.

The major organization’s types are Sole proprietorship, partnership and corporation. The following organizations are analyzed to find out their business types and purposes;

  1. Virgin Group LTD:

Virgin Group LTD is a private limited company established in 1970 in UK. The purposes of this business organization are to raise the capital through the issuance of shares not exceeding total number of 50 shareholders. Here, another purpose of this business is to operate the business in such a way so that none can take over the company easily. There are some restrictions and legal rules for the shareholders like the shareholders cannot public trade their shares to others (Boston Consulting Group, 2011).

  • Tesco PLC:

Tesco PLC is a public limited company established in United Kingdom by Jack Cohen. Though the organization was at first established as the sole proprietorship company but it has been public limited company. The purpose of a public limited company is to increase a lot of capital through the capital market. Here, when the size of the organization becomes too high and the company has a good growth rate then it becomes difficult to operate the organization based on the sole proprietorship structure. So, public limited company’s purpose is to raise the fund through the capital market with distributing the ownership among the stock holders (Boston Consulting Group, 2011).

  • MC Donald’s:

MC Donald’s is the world’s largest fast food company that is considered under the franchising organization. Here every one can take the franchise from the organization through a standard agreement and contract with the MC Donald’s. MC Donald’s gives the opportunity to the local business person to use the product idea and brand name of the company. Here, MC Donald’s get commissions and do not take any risk from the local market. The purpose of the franchising is to minimize the risk and cost of being global.

  •  National Health services (NHS) UK:

NHS is a publicly funded non-profit company established in UK to provide free health services for the citizen of the country. This is a non-profit public company established in the purposes of providing free services. So, there are no strict rules of making profit and the organization is operated by the government fund (Belch & Belch, 2003).

  • A corner shop near where you live:

 Light Shop is a small shop near my house that is established by a sole proprietor. The purpose of such kind of sole proprietorship business is to get full freedom while doing the business for the own capital maximization. Such kind of business organization is established so that the proprietor can utilize all of his knowledge in his own way taking a lot of risk and higher earnings. These are the purposes of the different types of organization where every organization has its own specific purposes and rules in the organization.

LO 1.2 Extent to which the NESTLE Company meets the different objectives of its shareholders

Everyone related to the organization is called the stakeholders. Different stakeholders have need and expectation from the organization considering that extent the organization has to meet all the need and expectation of these stakeholders (Nestle.com.2012). The major extents that NESTLE Company considers to meet the objectives of the stakeholders are discussed below.

Customers:

Customer is the key player of the organization who expects quality products, reliable services, good customer care services and fair and rational prices, among other factors in return of their payment. This is the first extent or sector that NESTLE Company has to consider before meeting objectives of other stakeholders as if customers are not satisfied then the organization will suffer in the long run.

Shareholders or investors:

 Shareholders are the real owner of the organization where management works for the interest of the shareholders. Shareholders demand is to have a good capital gain, handsome dividend amount and growth in the value of the shares but these expectations are not limited to these. They want a rational return against the risk they are taking investing in the organization (Gitman & McDaniel, 2009).

Employees:

NESTLE Company has more than 537,000 employees all over the world. This large number of employees expects a good opportunities and remuneration from the company. Besides that employees are interested in the free flow of information to assess the prospect of the organization considering the remuneration, retirement benefits and employment opportunities (Nestle.com.2012).

Government:

 Government provides specific rules and guidelines regarding tax payment, licensing, standardization and protection of consumer welfare that NESTLE Company has to abide by. So, here NESTLE Company has these responsibilities to meet the objectives of the government.

Suppliers and other trade creditors:

NESTLE Company has many suppliers as the company has diversified products for the customers. These suppliers want good payment systems, flexible terms of credit and business agreement and the behavior of the organization. So, these are the major fields or extent that NESTLE Company has to consider to meet the objectives of the stakeholders. Every stakeholder should be given priority regarding their position and expectation from the organization.

LO 1.3 Responsibilities of NESTLE Company

An organization has different responsibilities to the stakeholders to meet the objectives and expectation of these stakeholders discussed above. Different responsibilities and strategies of NESTLE Company are shown below;

Responsibilities to Customers:

NESTLE Company has to provide a good customer service and quality products for the customers. For these reasons NESTLE Company maintains an efficient CRM policy to provide the best service for the customers as satisfied customers become the loyal that has a positive impact on the profitability of the company (Nestle.com.2012).

Responsibilities to the Shareholders:

 Responsibilities to the shareholders are to make the information available for the shareholders, to maximize the growth of the organization through good profitability and to help the stockholders providing the reliable financial statements (Nordhaus, 2009). NESTLE Company has its own website through which the stockholders can know everything for the investment decision making.

Responsibilities to employees:

            NESTLE Company has the responsibility of providing a good environment and opportunities for the employees. For these reasons, NESTLE Company has efficient HRM policies that work for the objectives of the employees. According to the customer service, profit chain model implies that if employees are satisfied then it will have a good impact on the performance and profitability of the organization. So, NESTLE Company maintains a structured policy where all employees are cared to participate in the decision making (John & Peter, 2005).

Responsibilities to Society or CSR of NESTLE Company:

The corporate social responsibilities of the organization like NESTLE Company are shown in the following figure;

3.0 Nature of national environment in which business operates 

LO 2.0 How economic system tempt to allocate resources

There are different economic systems followed by the government. These economic systems are normally introduced to allocate the resources more efficiently that are shown in the following;

Command or planned economy:

            In a command or planned economic system, government controls the full economy allocating the scarce resources like soil, capital, labor etc. Here, the planning body or the government has the full information and can take better decisions for the resource allocation but this economic system normally cannot allocate the resources efficiently. This is because the planning body does not have the full knowledge or efficiency to decide how much should be produced. In such kind of economic system, there is always shortage or surplus of the inputs where a company like NESTLE faces difficulties to operate the business activities properly (Nordhaus, 2009).

Free enterprise economic system:

 In the free enterprise economic system all the organizations can operate the business activities with little government intervention. Here, the government has very small number of companies in the market and rules and regulations are flexible to operate the business activities. For this reasons there works a strong positive competition in the market that leads a strong efficient resource allocation. As government does not intervene in the market company like NESTLE can produce the products what they really want considering the demand of the market (Nordhaus, 2009).

Mixed Economic System:

 A mixed economic system is like the free enterprise economic system but here the government has a little bit intervention with different policies like monetary and fiscal policies. The mix policies include; what to produce, how to produce and for whom to produce.

Here, though the private sector has the freedom to operate the business activities freely government makes some regulations and policies to make the market stable. This economic system can efficiently allocate the resources as there remains both the free trade and some restrictions through which the market players can operate effectively. So, in this economic system resources are efficiently allocated with little wastage. In this economic system, private companies can apply their own policies managing the government policies and regulations (John & Peter, 2005).

LO 2.2 Monetary and fiscal policies

Government makes different monetary and fiscal policies to control the economy and the business organizations. These policies are taken by the government bodies considering the economic positions that also have a good impact on the business activities of a company that are shown below;

Changes in the interest rate:

 When government changes the interest rate through the monetary policy then it has an impact on the business activities. If interest rates rise then NESTLE Company will face difficulties on financing as the cost of capital will increase while the customers will reduce their consumption level that will reduce the sales volume of NESTLE Company. On the other hand, If Interest rate reduces then NESTLE Company will be able to get more financing at lower cost. This will help Company to operate its business activities (John & Peter, 2005).

Changes in the reserve requirements:

            If monetary policy changes the reserve requirement then it will also have an impact on the overall business activities. High reserve requirement will push the interest rate high that will influence the consumers to deposit more rather than consumption. So the Company has to change the business activities as its sales volume will reduce (John & Peter, 2005).

Changes in the exchange rates:

If exchange rate changes, then it will also affect the activities of NESTLE Company. If pound appreciates then the business sector of the Company that is operating in other countries will face problems while home country sales will increase more value for NESTLE.

Changes in the tax rate:

 If government changes the tax rate through the fiscal policy then it will affect the business activities from different perspective (Belch & Belch, 2003). If tax rate is reduced then NESTLE will be benefited and company may increase the quality of the products without considering the changes in the price. Or NESTLE can increase more expenses on the advertisement or other sector as reduction in the tax rate has made the company more profitable.

Changes in the government spending:

If the government increases the government spending in different sector than a business organization will face reduction in the sales volume. On the other hand, reduction in the government spending will increase the demand for the private sector so is it for NESTLE Company.

LO2.3 Impact of competition policies on the company

In UK food and nutrition shops face a severe competition among them as there are different super shops with equal capital and business policies. Though there are different companies, NESTLE Company is almost holding 35% of the food and nutrition shops across the world. Changes in the policy of the competitors will change the activities of NESTLE Company. As an organization, it has to adjust its policies with the existing market to cope with the competition (Belch & Belch, 2003). So, when other organization changes the policy to stay in the competitive position then NESTLE has to change the business policy. NESTLE Company normally makes its competition policy considering the cost and product diversification.

  • Regulatory policies

UK government makes different regulatory policies that have a direct impact on the activities of NESTLE Company and these impacts may be both positive and negative considering the type of the mechanism (Burnes, 2009). As operating in the EU zone, NESTLE also has to follow some regulations made by the EU while operating in EU countries. So, any changes in the regulations will affect the activities of NESTLE in different ways. For Example; if government imposes a standard quality that NESTLE has to maintain, then to produce within that guidelines the cost of NESTLE may rise. SO, in this case NESTLE has to change the policy like to increase the price or reduce the cost.

3.0 Understanding the behavior of organization in the market

LO3.1 How market structure determine the pricing

There are different market structure like Monopoly, oligopoly and perfectly competitive market. In different market the company has to make different strategies to determine the output and price of the company’s product.

  • Monopoly market structure:

When there are one or two company operating in the market is called the monopoly. In this market structure company normally impose the price what they really wants to maximize the profit and does not care about what the customers are willing to pay for the products (Belch & Belch, 2003). Here, in the monopoly market, Profit maximization will be achieved by setting price so that MC=MR and One cannot choose both P and Q. on the other hand, Like any firm, the monopolist is constrained by their demand curve.

  • Oligopoly market structure:

 In an oligopoly market the company normally considers the top level competitors pricing system and considers the customers demand. In the oligopoly market, the company set prices low as signal to possible entrants or other competitors. This is to shown the willingness and ability to defend the market share.

  • Perfect competition market:

 In the perfect competition, there are many companies operating in the same industry with extreme competition among the companies. NESTLE Company is under the perfect competition as in the UK food and nutrition sale is perfectly competitive industry where there are many companies operating with high efficiency (Michael & Porter, 2008). Here, NESTLE does not choose price for the products for the pricing strategy but the company choose output sales volume considering the total cost including the opportunity cost of capital invested. On the basis of the output level NESTLE Company decides or analyze the market through the following questions;

  1. What will be the possible profit or loss from the expected sales decisions?
  2. Considering that should the company produce now?
  3. Is it possible to stay in the Industry?

This is how in a perfect competition market, NESTLE makes the pricing strategy considering different ways. So, NESTLE normally focus on the demand of the products and the price is determined considering the customers’ willingness to pay and the competitive position of the price

LO3.2. How market forces shape the behavior of the company

There are different market forces that an organization has to consider to make strategic decision and other purposes. The major market forces are the supply and demand, elasticity of demand and supply, perceptions and actions of customers, economics of scale, and cost and output decisions (Michael & Porter, 2008). How NESTLE Company will respond to these market forces are discussed below;

  • Supply and demand:

The Company has to make supply decisions considering the demand of the market. So, if the demand is high, then NESTLE produces the goods at high volume. So, in this case any company like NESTLE will always has to make the supply available considering the demand position of the market (Burnes, 2009).

  • Customers’ perception and actions:

The company considers what the perception of the customers is and what actions customers take before buying the products. If customers are highly sensitive to the price change and they emphasize on the product quality, then NESTLE finds the way of increasing the product quality keeping the price level under the control (Scaner, 2009).

  • Economic of Scale:

Before going to produce high volume products, a company has to consider the economics of scale as it has a direct impact on the decision of producing the large volume product. Here, NESTLE has a good economic of scale and company can produce a large volume if the demand is high. So, if demand is high then NESTLE can produce large amount of products (Scaner, 2009).

  • Cost and output:

If cost of products rise when NESTLE produce large amount of products then the company consider whether the products is profitable or not.

LO3.3 Cultural environment shapes the company’s behavior.

An organization has to consider the business and cultural environment before making any decision as these environmental factors have a direct impact on the business organization (Dictionar & Cambridge, 2012). Here, the business environment is analyzed through the PEST analysis;

Political factors: In UK political situation is more stable and the government makes different supportive regulations for the business organizations. NESTLE can make policy considering this inductive political situation.

Economic Factors: The economic factors are the interest rate, GDP, employment rate, inflation rate. All of these factors are good position in UK that made the activities of NESTLE easier.

Social Factors: The behavior of the customers, their expectations, perceptions and actions are determined by the social norm and environment that has to be considered by NESTLE for the business activities (Martin &Terblanche, 2003).

Technological factors: As technology is changing fast, NESTLE Company has to adjust the operational activities with the changed technology to increase the product quality and reduce the cost of the products. Besides these business environments, NESTLE also consider the cultural issues of the UK. The culture of a country directly impacts the behavior of the organization. NESTLE makes their marketing policies incorporating the culture of UK. So, the behavior of the organization is highly affected by the business and cultural environment of the organization (Dictionary & Cambridge, 2012).

4.0 Global factors that shape national business activities

LO 4.1 Significance international trade to the company

Because of the modern production techniques, advanced transnational corporations and better transportation system International trade has flourished in the recent years. Through the international trade system, any company like NESTLE can operate in other countries with no or little barriers (Martin & Terblanche, 2003).So, international trade is very significant for the company as NESTLE Company has already become global operating in different countries especially in the EU countries where the company can freely operate the business activities with no barriers. If there were no International trade in the UK then the economics of scale of NESTLE will be useless and the company could not make more revenues. On the other hand, because of the international trade NESTLE can outsource some of its business activities and operations in other countries to reduce the cost and increase the quality. So, a company will always be benefited under the international trade that has been emphasized by David Ricardo in his competitive advantage theory that one country will be benefited by specification while other country will be benefited in reducing the cost.

LO 4.2 Impact of global factors on UK business organization

Global factors are also a major issue for an organization while it is operating in the global way or even if the organization is operating only in the home country (Burnes, 2009). Here different Global factors are considered that have an impact on NESTLE Company.

International competitiveness: While NESTLE is operating in other countries or even in Home countries then the company has to consider other international competitors. If this competition is high then it is tough to compete in the international market.

International Business environment: International Business environment is consists of Political, economic, social, technological, environmental and legal factors (PESTEL) that have a direct impact on the organization (Belch & Belch, 2003). So, NESTLE Company has to consider these factors while operating in the international market.

Tariff and tax: If the global market’s tax and tariff rate is high then NESTLE face difficulties to compete with that countries company though in EU this is not applicable.

Exchanger rates: exchange rate is another important global factor for which company’s ultimate revenue is affected. So, sudden huge change in the Exchange rate of UK with other countries is a great threat for NESTLE Company.

LO4.3 Impact of European policies

EUROPEAN UNION has some rules and regulations that the member countries have to maintain while operating different business activities within and outside the home country (Burnes, 2009). Here the major policies taken by EU are;

 Employment policy

 Regional policy

 Inflation policy

 Education and training policy

 Taxation policy

 International policy

 Establishing the ‘rules of the game’ policy

All of these policies have a direct impact on the business activities of the member country. Here, NESTLE has to consider whether there is any regulation and policy that may limit the business activities. So, while doing the business, the company has to consider all policies imposed by EU otherwise the company will be faced under the common law of violating the agreement of EU member countries (Scaner, 2009). As NESTLE Company is also operating in different EU countries the company has to maintain these regulations though as a company of EU member country, NESTLE is getting more facilities in EU countries.

Conclusion and recommendations

From the report and analysis of different issues it is found that an organization has to consider different internal and external factors very carefully as these factors have a direct or indirect impact on the business. Here, NESTLE Company is a Public limited company operating the business activities meeting all the objectives of the stakeholders more effectively. NESTLE Company has successfully met all the responsibilities to the stakeholders through different strategies like Better customer services, employment policies, and making the information available to all the parties. The food and nutrition industry in UK is actively perfectively competitive where NESTLE has to adjust the policies considering the other competitors’ policies and other economic factors like Fiscal or monetary policies. On the other hand, it is found that NESTLE is operating business in the perfect competition market structure where the company consider the demand of the customers and their willingness for the pricing strategy. Besides that, NESTLE Company is operating in UK so the company should follow the regulations of EU along with the UK government regulations. As food and nutrition industry is getting more competitive NESTLE should focus more on the price and product diversification considering all the international and local factors

References

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