Analysis of Nestle As a Transnational Organization

Executive Summary

Nestle is a Transnational Organisation that sells and distributes manufactured goods worldwide. Their products include confectionery, skin care products, perfume, pet food as well as major shops services like Starbucks. It is a wealthy business that operates in both developed and developing country. Nestle plays a major role in contributing to the global economic growth each year, with factories in 85 different countries. Nestle’s widespread nature improves the standard of living to people worldwide, due to the investment and employment it creates.

• Subsidiaries
• Nestle is secondary
• Established etc.

This report with outlines the features of Nestle being the location, the size, the core business and its prime function. It will then continue on to explain the operations of the business, specifically referring to the ITO of a KitKat. It will then describe three human resources facing the business being the employees pay rise, child labour and ---. A discussion of the positive and negative reasons of financial, marketing and legal management issues will follow. The positive reasons are ---. The negative reasons are --. The report will then go on to discuss the two ethical issues of Nestle which include the positive and negative use of palm oil and both the positive and negative movement towards zero waste. Finally, the report will identify and explain the strategy of ----- to increase the competitive advantage of Nestle.

Features

There are many features of a Transnational Organisation, that makes a business --- . The report will outline the specific features of Nestle including its size, annual sales and profit, the industry’s classification, location and the business’s prime function.

1) Size

Nestle is a major, well-known organisation, that needs a significant number of employees and factories to handle the production needs of the company. With Nestle supporting over 2000 brands that range from drink products to pet food, the demand for workers is high. In 2018, it was reported that Nestle had 308 000 employees working for them in 418 factories worldwide.

2) Sales and Profit

Through supplying consumers with a various range of goods, Nestle’s receives a significant amount of income. Annually, Nestle’s total reported sales were at a total of 91.4 Billion CHF (136.81 billion AUD) as shown in Figure 1. This was a 2.1 % increase from 2017 (89.6 Billion CHF). From that total, Nestle earns a net profit of 10.1

3) Industry Classification

Nestle is classified a secondary ‘??’ as it manufactures and processes raw materials, into finished goods.

4) Location

Nestle has factories in 85 different countries around the world. Its headquarters are located in Vevey, Switzerland. The specific address is Rue Entre-deux-Villes 10 1814 La Tour-de-Peilz Switzerland. Figure 2 shows the amount of Nestle’s factories located around the globe, where they are and what the factory produced. This is shown by the key below on Figure 2.

5) Prime Function

Operations

The operations of a business are how the products are changed from the input to the output, through the transformation process. The report will explain the manufacturing and production process of a KitKat, showing the inputs, transformations and outputs of one of Nestle’s most well-known, worldwide chocolate.

1) Inputs

There are many raw materials that goes into the making of the iconic KitKat. The ingredients include the sheets of wafers, the cocoa beans, wheat, sugar cane, yeast, sodium bicarbonate and full cream powdered milk. The cocoa beans are sourced from the Ivory Coast in West Africa. Before the transformation process of the KitKat begins the beans must be transferred into a usable ingredient. This is done before they reach the factories of Nestle. The cocoa beans are fermented, dried and roasted. They are separated from their hulls to produce the cocoa nib, which is used to make cocoa butter and cocoa liquor. The cocoa butter and liquor are the two key raw materials needed in order to make a KitKat. The sugar cane goes through a list of purification steps before being sent to Nestle as raw sugar. The machinery needed to undergo this transformation include the cocoa grinder, the cocoa bean roaster, the sweltering tunnel, the conveyor belts, winnowing machine, nib-grinding machine, rectangular molds, hydraulic press, conchers, the cold tunnel and the packaging machines.

2) Transformation DIAGRAM

Through Nestle factories worldwide, these raw materials are transformed using high quality bulk machinery into the finished product, increasing the product’s value. The raw materials are brought to the factory. There they start to be processed into a KitKat. To start, the wafer sheets are combined and pasted together using a small layer of chocolate. The wafers are cut into their specific size, in order to fit the molds. The wafers are passed onto a conveyer belt where the chocolate flows constantly, leaving the wafers coated in one layer of chocolate. The chocolate wafers are placed into their molds and pass around the conveyor belt again, this time the chocolate filling the mold. The wafers are smoothed out as they pass a – set at the perfect height to remove excess chocolate. The chocolate is now taken out of the mold and placed on a new conveyor belt sent to be packaged in the iconic red packet. It is then placed into a major bucket, where it is collected for Nestle to sell. These processes increase the value of the raw materials as they are turned into a favourable treat that is hard to produce at home.

3) Outputs

The finished product is the KitKat. It is then distributed worldwide for consumers to buy. The product’s value is increased to the customer. TALK MORE ABOUT VALUE

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Human Resource

There are 3 main human resource issues facing Nestle. This report will describe the three main human resource issues facing Nestle being the pay rise workers gained, the child labour work on the Ivory Coast and ---

1) Wage Increase

Nestle has had a human resource issue that has benefitted Nestle employees now and for the future generation. In 2014, Nestle in the UK agreed to pay all employees the living wage. This agreement was to be implemented by December 2017. Nestle were the first leading manufacturer who committed to this change. This change by Nestle meant that not only do workers received an 3% increase on their wage that was already ‘well above the cost-of-living rate,’ but they also received Work, Health and Safety benefits. The wage was already 40% above the minimum wage, so this made an additional increase. The benefits included in the agreement the use of leave for members affected by family violence and flexible hours for older workers who ‘wish to transition towards retirement’. The company also agreed to train and take on extra apprentices, benefiting the outside community too. The chief executive of Nestle in the UK and Ireland stated 'As a major UK employer, we know that this is the right thing to do. Not only does it benefit our employees but also the communities they live and work in.' As a result of the feedback, Nestle received a positive reputation on the media. Living Wage Foundation director Rhys Moore commended Nestle on their achievements stating 'The accreditation of Nestle as a living wage employer marks a significant milestone in the campaign to tackle in-work poverty. We hope that the leadership they have shown will encourage others in this industry to follow suit and improve conditions for those at the lowest end of the pay scale and sub-contracted staff.” Nestle’s action not only was resourceful for people in or hoping to be in the Nestle industry, but to people in other companies who were not receiving the living wage. There was pressure in other business to do so if they didn’t want to lose their workers.

2) Child Labour

Nestle has been publicly shamed against a major human resource issue - using child slaves to farm their cocoa beans. The Transnational Corporation receives it cocoa beans from the Ivory Coast. This is a place that has no laws against human trafficking and a place where children are being stolen from their homes to work. These child slaves do not get paid and are forced work in abysmal conditions, held against their will. On the Ivory Coast alone, 200 000 children are enslaved, with Nestle as their biggest offender. These children age around 11- 15 sometimes even younger, yet still undergoing 80 – 100 hour weeks, according to the CNN. Nestle pledged nearly 20 years ago to stop using cocoa harvested by children, however still to this day are using cocoa from these areas. Each child is watched by a farmer to ensure they are doing the right work. They do not speak often and have to lie their age to make this business seem ‘legal’. Abou Ouedrago (Figure 6) is one of the many children enslaved on the Ivory Coast. He is only 15 years old, but is told to say 19 to make the business seem legal. Like all child slaves that work there, he does not attend school and was taken from his family by a bus 5 years ago. Whilst Nestle is UTZ certified, the program only enables farmers better opportunities – the people onlooking the child slaves. The unreliability of this cocoa being certified is shown through the 2019 statistic that Nestle can only trace 49% of their cocoa. In 2005, a law suit was filed on behalf of three Malian children, allegedly trafficked, forced into slavery and beaten. In defence of the International Labour Rights Fund Nestle’s Executive Vice President stated that “No company sourcing cocoa from the Ivory Coast can guarantee that it doesn’t happen, but we can say that tackling child labour is a top priority for our company.” This statement shows that there is no guarantee that child slavery will end. Therefore, another human resource issue is the use of children in the farming of the cocoa beans.

3) Job Loss

In 2017, Nestle has stated that in Singapore employees will lose their job. They did not specify how many workers, but an approximation of 3% of 1400 employees (42 employees) would lose their job. It was stated that ‘some roles will no longer be available’, with employees from finance and other departments given the retrenchment letters. Nestle Singapore has stated that they will give the employees satisfactory compensation, expert support and connect the employees with other job opportunities.

Management Issue

1) Nestle’s Growth Rate

In 2018, it was reported that Nestle’s sales grew ‘at their slowest rate in more than two decades’ according to the Financial Times. It was stated that Nestle’s shares fell 2.6% to 75 Swiss Francs.

2) False Marketing Claims on Baby Milk Formula

Nestle’s manipulative marketing issues about the nutritional claims on its baby milk formula became a major management issue in 2018. It was marketed that the formula was ‘identical structure’ and ‘inspired by’ human breastmilk, despite the prohibition by the World Health Organisation in 2018. It was promoted that it was healthier as it was free from vanilla flavourings. Changing Markets Foundation campaign director Nusa Urbanic stated “If the science is clear that an ingredient is safe and beneficial for babies then such ingredients should be in all products. If an ingredient is not healthy, such as sucrose, then it should be in no products. Nestle’s inconsistency on this point calls into serious question whether it is committed to science, as it professes to be.” The management of the product by Nestle, has been miscommunicated towards the target market and has had a detrimental impact on the consumers trust on Nestle. The formulas that were most misleading were S-26 Gold, Nan, Illuma, Nido and Gerber by stating ‘closer to breastmilk’. Professor George Kent of the University of Hawaii stated that “closer to breastmilk … is not the same as saying it is close to breastmilk. New York is closer than New Jersey to Paris, but that does not mean New York is close to Paris.” Nestle has used marketing tactics by carefully choosing the wording to make the product seem more superior and more valuable to customers. The product was fed to newborns in hospitals, if the baby rejected breast milk. This led to malnutrition in newborns. Due to the effect on children, the World Health Organisation create guidelines for advertising breastmilk. However, once facts about the baby formula started being released, boycott campaign posters against Nestle started to become familiar. Figure 24 indicates the public disapproval by these baby milk formulas. This help spread awareness about Nestle’s false accusations. Despite this, a study by the ‘Changing Market Foundation’ found Nestle is still promoting their formula as ‘scientifically equal/ or superior to human breast milk, despite evidence to the contrary’. Nestle has specifically exploited low income mothers by targeting them with this product in a chance to make their baby healthier.

3) Legal

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Ethical

Many Transitional Corporations like Nestle, having ethical issues that they are facing, as the production of their goods have made them morally correct in certain aspects, yet morally incorrect in other aspects. This report will discuss the two major ethical issues affecting this business which are, the company’s use of palm oil and Nestle’s proposal to reduce their waste.

1) Use of palm oil

Nestle has been shamed over the use of unsustainable palm oil, with individuals questioning Nestle’s environmental concerns. The palm oil Nestle was using contributed to deforestation, habitat lost as well as the removal of Indigenous people from their land. Nestle has been flooded with disapproval after an incident in 2010, that caused damage to the Transnational Corporation’s reputation. Figure X shows the image of a worker biting into an orangutan’s finger, a movement that showed Nestle as an unsustainable company. Consumers explored the use of Nestle’s ‘sustainable palm oil’ that is supplied by Sinar Mas. Greenpeace spoke out about this issue stating that Indonesia has the 3rd highest level of carbon emissions due to the deforestation. Nestle can no longer claim to use certified sustainable palm oil in its chocolate or other products, after breaching the contract and being suspended by RSPO (Roundtable on Sustainable Palm Oil). This became a flaw in Nestle’s business as consumers became hesitant to trust Nestle’s ‘certified’ products. However, the suspension was not due to the viral orangutan finger KitKat but due to Nestle not submitting a progress report and the unpaid membership fee that was overdue. Nestle had owed 2000 Euros to RSPO. As a result of Figure X, Nestle has spoken out saying that 'Sometimes those messages don't go down from the top to the bottom or rise from the top to the bottom” meaning that Nestle was unaware of the issues that their food manufacturing was creating. A spokeswoman from Switzerland head office stated that 'Once it became evident that the Facebook page had been overwhelmed by protesters, we decided that our best course of action was to step back, listen and take note.' Whilst this issue was deeply concerning, Figure X sparked movement for Nestle to gain customers trust again and this issue gave them the light to voice their next steps towards the reduction of unsustainable palm oil. As soon as the news came out, Nestle had a plan implemented to prevent the backlash which positively affected the environment. Nestle decided to suspend all purchases from Sinar Mas ‘after it admitted to mistakes in the area of deforestation’. They made a goal that by 2020 all palm oil purchased by Nestle would be 100% responsibly sourced. In 2018, the statistics show that 64% has been locally sourced, showing the improvement in their use of palm oil. Nestle has taken actions to focus on the palm oil that is traceable and has excluded companies that are linked to deforestation. Figure 3 shows that the WWF believes that they are making acceptable progress in the community and are trying not to affect the environment – their 2030 ambition (zero environmental impact). Therefore, the ethical issue surrounding Nestle’s use of palm oil has had some negative effects, but seems as if this incident has made Nestle learn about how to become a sustainable palm oil consumer.

2) Reduction of waste

One of Nestle’s major ethical issues is the amount of waste that they produce annually- something Nestle is trying to overcome. As a result from Nestle having a wide variety of products, their reduction of waste is vital, in order to contribute to the building of a sustainable world. Nestle contributes tonnes of waste annually into landfill and to overcome this, Nestle has stated in its 2018 annual report, that by 2020 they are going to be landfill- free. Whilst this is ideal and would be ethically correct, the goals seem unreachable when considering approximate figures of how many tonnes of waste Nestle produces each year. From every imperfect chocolate that cannot be sold at full price, the plastic bottles that Nestle produces annually, the Starbuck plastic cups and straws, the goal seems merely possible to reach. Nestle estimated that they have had ‘losses along our entire vale chain at 12%. This includes the losses upstream of the raw materials that we buy, and the losses in manufacturing, distribution and at the consumption stage.’ However, Nestle has stated that 293 factories have achieved zero waste, over 70% of all factories Nestle owns. This is shown by Figure 4 which demonstrates Nestle’s consideration of the environment. However, whilst Nestle may achieve zero waste in factories, the goods that are produced are wrapped in plastic packaging – something that affects the environment detrimentally. With thousands of Nestle products sold daily, the company realized that to in order to combat this issue they must make 100% of the packaging recyclable or reusable by 2025. Figure 5 shows the desperate need to develop another solution, as all the plastic that is created on the conveyor belt will end up in landfill. The Nestle Institute of Packaging Sciences is researching and developing alternatives to plastic. Those in which include recyclable, biodegradable, compostable polymers and paper alternatives. They state it ‘is expected to deliver a pipeline of functional, safe and environmentally-friendly packaging solutions.’ This would be ethically correct as not only does it take some pressure of the environment and reduce the amount of waste ending up in landfills, but it puts pressure on other major companies to rethink their packaging materials. Therefore, Nestle is trying to reduce the amount of waste they have in their factories and are also trying to make the waste that their goods are packed in more environmentally sustainable.

Competitive Advantage

To increase the competitive advantage of Nestle, there needs to be shops around the world where Nestle can promote their items and can sell the goods that were not fit on the shelves i.e the second shop.

Outcomes

This report has outlined the features of Nestle being ----. It then explained the operations of the business, specifically referring to the ITO of a KitKat. It described three human resources facing the business being the employees pay rise, child labour, and ---. A discussion occured of the positive and negative reasons of financial, marketing and legal management issues will follow. The report discussed the two ethical issues of Nestle including the positive and negative use of palm oil and both the positive and negative movement toward zero waste. Finally, the report has identified and explained the strategy of ----- which would increase the competitive advantage of Nestle.