The growing interdependence of countries and internationalization of companies is one of the most extensively discussed topics of the last decades.
Not only international trade has risen strongly, but also foreign direct investments (FDI) have been increasingly conducted by expanding companies worldwide.
Companies widening their range by seizing opportunities internationally are most likely able to fuel their growth, whereas the position of organizations that only operate nationally is continuously weakened.
Therefore, especially big multinational corporations from developed countries, like Nestle or Unilever, strive to steadily expand their global presence in order to thrive in a highly competitive global market.
Whereas emerging countries, like China or India, are popular to invest in for MNCs, internationalization is increasingly including companies from those developing nations as well. Additionally, those Emerging Market Multinationals (EMNCs) are not only gaining power on an international level but are also becoming effective local competitors for multinationals in their home markets. Hence, losing their market shares to the local competition, MNCs are forced to rethink their strategy in emerging markets.
According to the new challenges, multinationals have to face in developing markets the following paper aims to analyze the competitive environment in emerging countries and thus derive promising approaches for MNCs to successfully stabilize their position.
The analysis will be based on a theoretical background, including the description of general reasons for internationalization, foreign direct investments as an entry mode as well as the “Being International Strategies” according to Bartlett/Ghoshal (1989) and broader relevant models. Afterwards, the current situation and competitive environment in emerging markets will be outlined.
The analysis itself will be conducted on the example of Nestlé in the Chinese market in order to further assess MNCs’ position in developing countries. After giving a short company introduction, the Chinese food processing industry, as well as Nestlé's internationalization strategy, will be examined. In order to further assess the company`s position and performance in China Porter’s 5 forces framework will be applied.
To conclude, general implications for the competitive situation in emerging markets and MNC’s strategies as well as an evaluation of Nestlé’s position in China are derived and outlined.
Table of Contents
1 Introduction
2 Theoretical Background
2.1 Reasons and Motivation behind Internationalization
2.2 Foreign Direct Investment
2.3 Being-international Strategies
2.3.1 Multinational Organization
2.3.2 Global Organization
2.3.3 Transnational Organization
2.3.4 Local Integration
2.4 Porter’s 5 Forces
2.5 Competitive Environment in Emerging Markets
3 Analysis: Nestlé in China
3.1 Company Introduction
3.2 Nestlé’s International Strategy
3.3 The Chinese Agro-Food Market
3.4 Nestlé in China
3.4.1 Bargaining power of suppliers
3.4.2 Bargaining power of customers
3.4.3 Threat of substitutes
3.4.4 Competitive rivalry within the industry
4 Conclusion
Objectives and Research Themes
The primary objective of this paper is to examine the competitive challenges faced by multinational corporations in emerging markets, specifically focusing on the Chinese food processing sector. By analyzing Nestlé's internationalization strategy and its performance in China, the paper seeks to derive effective approaches for multinationals to stabilize their market position amidst rising local competition.
- Theoretical foundations of internationalization and foreign direct investment (FDI).
- Strategic frameworks for global operations, including the transnational approach.
- Evaluation of industry attractiveness using Porter's 5 Forces model.
- Analysis of the competitive dynamics between global incumbents and local emerging market multinationals (EMNCs).
- Assessment of the importance of local integration and "guanxi" in the Chinese market.
Excerpt from the Book
3.4.1 Bargaining power of suppliers
Good relationships with suppliers are an important key factor for companies to conduct business successfully. Nestlé has always been keen to establish strong relationships with suppliers all over the world. As the company is a global giant, the firm benefits from its own worldwide supplier network and immense buyer power. Especially in China, were farmers are rather poor and infrastructure is mostly undeveloped, Nestlé established its own distribution network, by building the so called “milk roads” between 27 villages and therefore improved the local infrastructure and integrated itself locally. Furthermore, within their program of “Creating Shared Value”, Nestlé has built up a network of local farmers, training them and providing economic assistance as well as new technologies.
Hence, as the company has extensive buying power and local suppliers are mutually benefitting from a good relationship with Nestlé, the bargaining power of suppliers is rather low.
Summary of Chapters
1 Introduction: Introduces the growing importance of internationalization and the challenges multinational corporations face in emerging markets.
2 Theoretical Background: Provides an overview of internationalization motives, FDI entry modes, management strategies, and the Porter's 5 Forces framework.
3 Analysis: Nestlé in China: Examines Nestlé’s historical growth, its strategic evolution, and the specific competitive dynamics in the Chinese agro-food market.
4 Conclusion: Summarizes that multinationals must adopt more transnational and locally integrated approaches to compete against rising local firms in emerging markets.
Keywords
Internationalization, Foreign Direct Investment, Multinational Corporations, Emerging Markets, Nestlé, China, Agro-Food Industry, Porter's 5 Forces, Local Responsiveness, Global Integration, Transnational Strategy, Local Integration, Competitive Advantage, Value Creation, Guanxi.
Frequently Asked Questions
What is the core focus of this research?
The paper explores the competitive challenges that multinational corporations encounter when operating in developing markets, using the example of Nestlé in China.
What are the central thematic areas covered?
Key areas include internationalization strategies, foreign direct investment, organizational structures (e.g., multinational vs. transnational), and industry-specific competitive forces.
What is the primary research goal?
The goal is to determine how multinational corporations can successfully maintain or stabilize their competitive position against local emerging market competitors.
Which scientific framework is utilized?
The paper employs the Bartlett/Ghoshal "Being International" framework for strategy and Porter’s 5 Forces model to assess industry attractiveness.
What does the main body address?
It covers theoretical background models, an analysis of the Chinese food processing industry, and a deep dive into Nestlé's specific market entry and operational strategies in China.
Which keywords best characterize this work?
Core keywords include Internationalization, Emerging Markets, Nestlé, China, Transnational Strategy, and Competitive Advantage.
Why are local companies in China becoming more dangerous for MNCs?
Local competitors are gaining market share by duplicating MNC practices, building "guanxi" (relationship networks), and catering to mass-market segments with affordable, quality-improved products.
What is the significance of the "milk roads" project?
It exemplifies Nestlé's strategy of local integration by improving infrastructure and supporting local farmers, which secures their supply chain and reinforces their market presence.
- Quote paper
- Julia Schwieger (Author), 2017, Multinationals in Emerging Markets by means of Nestlé in China, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/369443
