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Nestlé’s Business Principle of Cross-border Acquisitions Nestlémainly uses cross-border acquisitions as a mode of entrying in a new industry or market or to increase its current market share in certain area.Throughout its long history,Nestléhas always targeted to achieve long term and sustainable profit.Nestléwould never favor a short term profit at the cost of successful long-term business development When considering cross-borders acquisitions,Nestléhas three unique principles committing to follow in all M&A activities.First,Nestléperforms M&As under the condition of free will from both parties.Nestlé’s executives know it well that the key factors influencing the success of an acquisition are the level of acceptance that the targets top management and its employees have upon the acquisition,as well as whether the integration is done smoothly.Acquisitions performed with any of the sides unwilling usually ended in failure.Nestléunderstands this principle and never being hostile on its acquisition activities.Second,Nestléwould prioritize an acquisition of a company that can improve its current products on market.Even though Nestléhas a reputation of acquiring other companies,its acquisitions in history was not done blindly.It always insisted in acquisitions where both parties can be mutually benefited,or getting into partnership to strengthen their strategic target.The third one is the principle of competitive advantage.After an acquisition,Nestléwill invest into the target in terms of fund,technology and management.As return,Nestléwould maintain the targets’original business models to better improve their competitive advantage after the integration.
Nestléhas four main objectives of performing cross-border acquisitions.
First,a direct access to resources from the company acquired.Through acquisition,Nestlécan have a direct access to the targets'factories,machines and equipment,HR,and many other tangible and intangible assets.In this way,Nestlécan fully skip the preparation of the whole process of purchasing equipment and employing new staff,and directly starts production,which is a time and cost saving advantage.In addition to this,Nestlécan use low cost local labor and raw materials from the country of the acquired company to save production cost.
This is very frequently seen in developing countries Moreover,through acquisition,Nestlécan utilize the sales channel that the acquired company originally had,relying on the good image and consumer loyalty to the acquired company to rapidly promote its products in local market.
A good example is Nestlé’s acquisition of the well-known Chinese confectionary company,Hsu Fu Chi(徐福记),in 2011.Through the acquisition,Nestléwas able to promote its product through accessing Hsu Fu Chis 128 sales points allover China as well as the 20,000 sales branches.The second value is to increase its market share.Nestléhas since the beginning constantly acquired overseas companies to increase its market share and defeat its competitors,hence taking over the leading position.
At the beginning of the 21st century,Nestlé,Dreyer and Unilever were three competitors in the ice-cream market.To change this situation,Nestlépurchased the brand Haagen-dazs,and acquired Dreyer,Nestlé’s market share immediately increased to 60%.
The third value is its diversification in its productsand operations.As mentioned early,diversification can lower the business risk of a company.In order to achieve diversification,acquisition is the most important means.From a small scale dairy product business,developed into today's diversified product line of baby food,beverages,confectionary,ice-cream,seasonings,nutrition and many other categories,and having more than 20 brand throughout the world,Nestlé’s diversification of products and operation comes from its numerous acquisitions.The forth value is to explore new market.At the end of last century,Nestléexperienced a downturn in its market share and revenue.Nestléthen decided to explore new overseas market and expanded to the Asia Pacific region,which at that time was undergoing fast economic growth,and with a huge potential market suitable for Nestlédevelopment.
Moving to a different region where the culture was different was risky and full of barriers.Through partnering with or acquisition of local companies,Nestlésuccessfully overcame these barriers and quickly become the leading player in many Asian countries.
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