Sajvprojectgroup5nestle Generalmills 131205120330 Phpapp02

8/9/2019 Sajvprojectgroup5nestle Generalmills 131205120330 Phpapp02

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Competitor Radar Screen for Nestle


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Competitor Radar Screen for Nestle Identifying the Competitors

MondelezInternational

General Mills

Nestle

Heinz

KraftFoods

Hershey

Kellogg's

Coca Cola

Starbucks

PepsiCo

Mars,Incorporated

GroupDanone

Unilever

AssociatedBritish Foods

Conagra

CurrentCompetitors

DistantCompetitors

Near-TermCompetitors

Among the possible suggested:

! Group Danone

! General Millscompetitor

! FAGE and Ccompetitor rad


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Yoplait Yogurt


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Yoplait Yogurt General Mills

1 2 3 4 5

General Mills 0.9 1.3 1.4 1.55 1.65

Nestle 0.6 1.1 1.35 1.5 1.6

Bright Foods 0.7 1.2

Lactalis 0.6 1

General Mills won thebidding war forYoplait after a grimbattle with Nestle,valuing the companyat $2.3billion

However, after acquisition, the market share of Yoplait has decreased in the Americas from 32% to 26% and is currently no.2 in the yogurt space after Danone andNo.3 in the Greek Yogurt space after Chobani and Danone. The expansion of Yoplait in the emerging markets has also taken a hit due to decreasing sales figures inthe US market. Thus, expansion has taken a backseat and consolidation of the US market is more important to General Mills as of now. Hence, Nestle with its globaldistribution network seems like the best candidate to help GM in expanding the brand in emerging markets without much recourse on its finances and resources.

Formation of Joint Venture


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Formation of Joint VentureKey Motives for Nestle

Internal Benefits

Competitive BenefitsStrategic Benefits

Nestle will be able reducosts in the production

new product line –

Most of Nestle’s current and near-term getting into the production of Greek yo

venture allows Nestle to level the

Nestle has been working towardstransforming itself into a leader in

Nutrition, Health and Business. Addition ofthe yoghurt product line is another step

in this directionx

Formation of Joint Venture


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Formation of Joint VentureKey Motives for General Mills

Internal Benefits

Competitive BenefitsStrategic Benefits

General Mills would bemarketing a new product

of setting up a global d

General Mills derives 75% of its revenue fromature market in USA, General Mills and its

been trying to increase their presence in emerg

This will be an important step inincreasing the brand value of General

Mills across the globe and will be a steptowards the transformation into a truly

global company

Nestle + General Mills


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Nestle + General MillsTheoretical Justications for the Joint Venture

Theory Understanding This Joint Venture

Resource Based View

! Nestle:! Nestle is known for having a strong global distribution network! Also, it is ranked number 4 in the Effie Effectiveness Index which m

the advertising and marketing effectiveness of companies! It wants to build up on its nutrition portfolio

! General Mills! It has a strong history of innovation! It has got strong yoghurt brand (Yoplait was named as the Yoghurt Br

of the Year 2013 in USA)! It wants to increase its presence outside USA

! The companies have complementary resources and capabilities and bothcan gain by co-operating


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Theoretical Justications for the Joint Venture

Theory Understanding This Joint Venture

Organization Knowledgeand Learning Theory

! Nestle:! Most recent additions to Nestle’s portfolio have been through

acquisitions rather than organic growth! This JV in which Nestle would get to work with General Mills to inn

new dairy products will be an important learning ground for Nestle! General Mills

! General Mills marketing skills need to be improved upon! Further, it is still majorly a US centric company. It needs to learn how

mould and innovate products which suit the tastes of the developing

and emerging nations! This JV will allow General Mills to learn key elements of these whil

working with Nestle! Thus, both companies would be able to add to their learning and experience

with this joint venture.



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Alliance v/s Acquisition

Synergies

Modular Sequential Reciprocal

In case of Yoplait, General Mills would be involved inthe production of the products. The completed

products would be passed on to Nestle, who wouldbe responsible for marketing and distributing the

product

The joint venture would also brintechnical and managerial acumen of

companies so as to create new prinnovations in the field of dairy. Thisinteractive knowledge-sharing proce

firms’ personnel closely working



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Assets

Hard Soft

The companies would be sharing hard assets likeproduction facilities, distribution network

The companies would be contributing manpo(both technical and managerial)



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Degree ofUncertainty

Low Medium High

The degree of uncertainty is medium. The two fir mshave a joint venture already. Thus, there has already

been a fair degree of due diligence. However, astheir earlier venture focussed on cereals, there is stillsome uncertainty about the other businesses of the

each firm.


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Criteria Type Alliance v/s Acquisition

SynergiesSequential (initially)andReciprocal (over time) Equity Alliance (curren

Assets Hard and Soft Equity Alliance/Acquisition

Degree of Uncertainty Medium Equity Alliance

Forces of Competition High Acquisition

An equity alliance is more appropriate than an acquisition. An acquisition isfurther ruled out because of the existing joint venture agreement betweenNestle and General Mills whereby either company cannot put in a hostile

takeover bid for the other company before three years from the terminationof the joint venture agreement.



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Snapshot of Rationale

! Entry into a growing category! An important addition to its

nutrition portfolio! Greater innovation and new

product development throughclose interactions with General

Mills! Leveraging strong brand names ofGeneral Mills’ product

! Sharing of costs and risks

! Entry into the emerging economies! Leveraging the strong brand

name and the strong distributionchannel of Nestle

! Learning how to create products

which satisfy the needs of thecustomers in emerging economies! Learning advertisement and

marketing skills

DairyA Nestle an


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Joint Venture: Theoretic


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Strategic Alliance/Joint Venture Orientation K R d Ri k


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Key Resources and Risks

Control Flexibility

Security Productivity

Primary RiskRelational Risk Performance Risk

K n o w

l e d g e

P r o p e r t y

P r i m a

r y R e s o u r c e

" Key Resource: Property

! The alliance would involve sharfacilities, distribution network an

" Key Risk: Performance Risk

! As the company already has a suventure, the relational risk is low

! Performance risk is high as theyintroducing a product across sevgeographies. Thus, the macroeco

may worsen, the product may nocompetition may be high etc.

" In this case, the strategic alliance orienbe focussed on flexibility

" This can be done by having an incremeto the alliance and having clear perform

Nature of Alliance/Joint Venture Proactive v/s Defensive


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Proactive v/s Defensive

Criteria Proactive Alliance Defensive Alliance Reason

BusinessFuture Expand Business

Survival in ExistingBusiness

Nestle is entering into new product

lines. General Mills is expandingits geographic presence

CompetitionCompetitive Advantage

CompetitivePressures

Nestle’s competitors have alreadyentered into this product line.General Mills’ competitors are

expanding into emerging markets

MarketPhase Growing Market Declining Market

The dairy product market isgrowing in most geographies

Other Firms’Resources Leverage

CriticalDependency

To effectively ward off competition,the companies need each other’s

resources

StrategicOption Create Options No Option

Most other potential partners arealready collaborating with

competitors

Proactiv

Defensiv


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Key RisksFrom The Perspective of Co-opetition


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From The Perspective of Co opetition

Technology Leakage

• General Mills and Nestle had a face-off in the acquisition of Yoplait in which General Mills emerged victorious• However, General Mills has till now been unable to effectively market and distribute its yoghurts products• While this alliance will allow it to leverage the marketing expertise of Nestle, but at the same time there is a risk that Nestle

might be able to glean into the technology/processes involved in the production of yoghurt

Telegraphing Strategic Intention

• The two companies may come to know which geographies and products the other company is planning to target based onthe nuances of management decisions

Customer Defection

• Based on how the products of the joint venture are promoted and marketed (use of brand names/company names),customers of one company may come in contact with the other company, hence increasing the risk of defection

Slow Decision Making

• This is a major drawback of strategic alliances and joint ventures. As the alliance’s/ joint venture’s decision affects both thecompanies, and as the companies may have differing goals and objectives, there is slow decision making so as to satisfyboth the parties

Typology of Alliance/Joint Venture Organizational Interaction and Conict Potential


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Organizational Interaction and Conict Potential

Pro-competitive

Alliance

Non-competitive

Alliance

Pre-Competitive

Alliance

CompetitiveAlliance

Extent of OrganizationalInteraction

Low High

H i g h

L o w

C o n f

l i c

t P o

t e n

t i a

l

Alliance TypeStrategic Objectiv

Flexibility CoreProtection L

Pre-Competitive

Competitive

Non-Competitive

Pro-Competitive

" In this alliance, given the lower extent of geographic and product ovconflict potential is low-medium. Further, the success of their earliealso points towards a low conflict potential

" The extent of organizational interaction will be high as of shared codecisions

" Thus in this alliance, the key strategic objective would be learning fadding, flexibility and core protection


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Negotiations: Role Play

Dairy Partners Worldwide Financial Ownership and Management Control


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p g

Financial Control 50:50

Joint VentureStructure

The parties are equally strong and have a history of a successful 50:50 IJV called CPW

Management Control

Nestle’s Perspective and GeneralMills Perspective Our Recommendation

Both companies would want

greater managerial control. They

would want to choose the CEO

to ensure that their companies’

interests are met

CEO should be externally appointed so that the JV’s objectives are not subordinated

the individual objectives of the two companies.

Split Control : Nestle responsible for marketing communication, distribution, operat

logistics. General Mills responsible for branding, content and manufacturing.

Shared Control : R&D, HR and talent management and finance

Dairy Partners Worldwide Scope of Joint Venture


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Nestle’s Perspective General Mills Perspective Our Recommendation

Nestle would want the joint venture to

be involved in production and

distribution of dairy products across all

geographies (including USA)

General Mills would not want to give up

its control on the US market as it derives

75% of its revenue from this geography

USA should not be a

venture because that wo

direct competition bet

Mills and Nestle and he

to mis-alignment o

If either firm com

competing/substitute

own, the JV should g

distribution/promotio

market g

Dairy Partners Worldwide Governance Regulatory Issues


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Nestle’s Perspective and General Mills Perspective Our Recommendation

Both would want greater representation on the board.

Further, they would prefer to have their own CEO and

Chairperson heading the joint venture

CEO should be externally appointe

Chairperson should be rotated every 3 y

Both would want the JV to be situated in their home country

of operation to lend greater influence on the JV implicitly

The JV should be located in Switzerland as the cou

of the one of the most favourable tax regulations stipulations, along with being a favourable busin

as regulatory approvals are required only in financ

companies, real estate business, healthcare and tr

specific goods

Dairy Partners Worldwide Exit Options


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Our Recommendation

Initial lock-in period of 5 years with no change in equity structure

If the firm suffers increasing net losses for three consecutive years, the JV should be re-evaluated

If there is change in ownership in any of the partner firms, the JV will be dissolved with first right of refusal to the other partner

If one partner is looking to sell, the other partner has first right of refusal

In case of any breach of covenants of the JV by any partner, the aggrieved party can buy out the stake of this partner in the JV or

liquidate the JV


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Management of the Joint

Nestle + General Mills = International Joint Venture Determinants of Performance


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KeyDeterminants

Control of the IJVby Parent Firms

Autonomy Grantedto IJV

Management

Trust Between theIJV Partners

National CulturalDifferences

Corporate CulturalDifferences

Addressed duringcontro

Should have beduring the p

Corporate and National Differences exist,but as the company has been able to worksuccessfully in the past, future co-operation

is expected to be fruitful

Role of the Joint Venture Manager 5 Key tenets to effective Joint Venture Management


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Joint VentureManagement

Inter-Organizational

Trust

ContributionMonitoring

EfficientInformation

Flow

PeriodicStrategic

Assessment

Focus onInternal

Harmony

Alliance Management Inter-organizational trust


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Inter-Organizational

Trust

• Nestle and General trusted partners in omarket

• This JV should be lextension of that rel

• Regular meetings bmanagement and R&Nestle and General convened

• Bring on board peopworked in CPW precredibility to DPW,

Alliance Management Partner Contribution Monitoring


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ContributionMonitoring

• Nestle and General global partners for o

• The JV manager shoauthority to initiate case either partner iresource contributioNestle-Market)

• The best product demade available to Dbest marketers shouavailable to DPW b

• JV has to be monitosome aspects perioddaily

Alliance Management Efcient Information Flow Management


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EfficientInformation

Flow

• CPW has been one successful and longFMCG industry priefficient processing

• Managing informatpriority task rather tmanagement mecha

• Care has to be takenproprietary knowleanother while maininterests

• A decentralized apptaken as product-msuffer from problemdecision making

Alliance Management Periodic Strategic Assessment


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• General MillsCPW was a decounter the th

• DPW is enviscounter compyogurt marketfocus on latenNestle’s distri

• There should least 5 years toploughed into productive gro

• GM currentlygeographic diaiming for promight change case of which exit policy sinby both partie


PeriodicStrategic

Assessment

Alliance Management Focus on Internal Harmony


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• Internal relationshipmanagers and divisibe kept intact and aw

related pressures an• JV managers selectfirm should be credprior track record at

• Importance of the Jfirm has to be clearlmiddle level managcoherence in the par

• People involved in tare replaced by the Jstreamlined into theinternal harmony anstrategic intentions


Focus onInternal

Harmony


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Assessment of the Joint

Assessment of Alliance Key Factors


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Shared Risk

SharedResources

Shared RewardsShared Vision

Shared Values

Both partners bear a fair and appin the alliance, no partner has

Eaappropria

it capital

Both partners sharewards, the partners

mutual wins – whethsimilar market, sim

The partners share a common vision, commonviews of the objectives, results and outcomes

of the alliance

Both partners share common valuesystems and complement eachothers’ corporate culture. Such

shared value systems is thefoundation of this relationship

providing the means, motivationand commitment to resolve

partnership related problems andmutually grow the relationship

Performance MetricsAssessment of the Key Factors


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A precise set of meaningful parameters is the best way to drive performance and produce desired benefits from the partnership. These metricsshould include shared measurements that are similar to both partners.

Metrics

Operational

Timeliness Productivity QualityMeasurements

Innovation

Processimprovement

TechnologyIntegration

New businegained

Developing an Evaluation Plan Assessment of Joint Venture


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Rationale for the Relationship• A strategic intent by partner companies establishes the need/business case for a relationship.• The nature of the objectives will drive the type of partners sought, the manner in which the relationship operates, and thus the type of evaluation

metrics selected

Strategic Objectives of Relationship• They provide a critical part of the foundation on which the management control system for the relationship is built• The evaluation criteria for assessing the per formance should be developed according to the relative importance of the various strategic objectives

established by managers• However, it follows that as strategic objectives are modified during the lifetime of the alliance, to remain effective the evaluation criteria must be

adapted as well.

Selection of Evaluation Criteria• The balanced scorecard framework can be used for this purpose. It shows how the strategy of a firm can be translated into performance mea

based upon four perspectives: financial, customer, internal business process, and l earning and growth• These four perspectives provide the balance necessary for a company to focus on issues that are indicative of longer-term success, rather than

concentrating on short-term financial measures

• Customization is necessary in using the balanced scorecard in an alliance relationship.

Emphasizing Specific Metrics• Another benefit of the balanced scorecard approach is the potential to tailor the system to meet the needs of a given relationship

Implementing the Evaluation Plan• Formalized and regular assessment is essential for those involved in the alliance to attach credibility to the process and to learn from the results• The evaluation process will also need to be refined throughout the life cycle of the alliance to assure that timely information is being collected• The final link in the evaluation process is to consider how the output of the evaluation will be used to determine individual and team performance

and rewards• Assessment frequency should consider the evaluation metrics, as well as the environment in general


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