Nestle Final Project Report

Institute of Business and Information Technology

International Marketing Final Project

Submitted to: Mr. Aly Raza Syed By:

04 Qasim Arsalan F06MD003 08 Talat Hussain Khan F06MD015 11 Rabya Jalil F06MD019 18 Hassaan Muzaffar F06MD040 22 Syed Rizwan Ali Jafri F06MD053

Table of Contents Title

Page 3

INTRODUCTION HISTORY

4

Notable Facts Company Information, Business Lines

HIERARCHY Pakistan – Key positions occupied Site locations – Head Offices and Factory Locations

STRATEGIC POSTURE OF LOCAL BUSINESS Nestlé in Pakistan, Mission Statement, Vision and Strategy Corporate Social Responsibility in Pakistan Nestlé Framework for CSR

INTERNATIONAL BUSINESS INVOLVEMENT

5 6 8 8 9 10 10 11 12 13

Phase of International Involvement, Cultural Borrowing and Cultural Impacts

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THE MODE OF INTERNATIONAL OPERATION

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Mergers and Acquisitions, Joint Ventures Tariff and Non-Tariff Barriers, Duties and Taxes

14 15 15

STRATEGIES ADOPTED TO REDUCE VULNERABILITIES Corporate Business Principles – Pakistan Regulatory Authorities Regulatory Authorities within Pakistan

FINANCIALS Figures - International 9 Month Sales Presentation Figures - Pakistan

STRATEGIES FOR INTERNATIONAL BUSINESS OPERATIONS 8

19 19 20 21 21 23 24 25

PROBLEMS/OPPORTUNITIES Problems, Growth drivers, Opportunities, Direction for 2008

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INTRODUCTION (SOURCE: www.Nestlé.pk, www.Nestlé.com) Nestlé is a Switzerland Based International Food Group and is a merger of two companies:

Henri Nestlé (1867) Merged (1905)

+

Anglo Swiss (1886)

=

Through its effective marketing and a vast sales and distribution network throughout the country, it ensure that its products are made available to consumers whenever, where ever and however. Nestlé has the unique ability to provide a complete range of food products, services and well known brands to meet the needs of consumers around the world. It is not a faceless corporation catering to faceless consumers, but a human company providing a response to individual human needs. It respects the cultures of the countries it operates in and recognizes the need for quality of life of their people. Nestlé’ Pakistan is proud of its commitment to excellence in providing value and services to its consumers Nestlé’ Pakistan Ltd is registered on the Karachi and Lahore stock exchange. It operates in many ways but people, products and brands are the main flag bearers of the company’s image. Nestlé Pakistan envisage to grow in the shortest possible time into a food company with the unique ability to meet the needs of consumers of every age group - from infancy to old age, for nutrition and pleasure, through development of a large variety of food categories of the highest quality. The Company's strategy is guided by several fundamental principles. Nestlé's existing products grow through innovation and renovation while maintaining a balance in geographic activities and product lines. Long-term potential is never sacrificed for short-term performance. Nestlé Pakistan visualizes the company to develop an extremely motivated and professionally trained work force, which would drive growth through innovation and renovation. It fulfills its social responsibilities and environment is also taken care of. The Company's priority is to bring the best and most relevant products to people, wherever they are, whatever their needs, throughout their lives.

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Now Nestlé is undisputed leader in food industry, with more than 509 factories in 83 countries out of which 220 are in Europe, 153 in America, 136 in Africa and Oceania.

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HISTORY (SOURCE: www.Nestlé.pk, www.Nestlé.com)

1860-1905 In the 1860s Henri Nestlé, a pharmacist, developed a food for babies who were unable to breastfeed. His first success was a premature infant who could not tolerate his mother's milk or any of the usual substitutes. People quickly recognized the value of the new product, after Nestlé's new formula saved the child's life, and soon, Farine Lactée Henri Nestlé was being sold in much of Europe. Henri Nestlé endowed his company with the symbol derived from his name. His family coat of arms, the nest with a mother bird protecting her young, became the Company's logo and a symbol of the Company's care and attitude to life-long nutrition. The Nestlé nest represents the nourishment, security and sense of family that are so essential to life.

1905-1938 In 1905 Nestlé merged with the Anglo-Swiss Condensed Milk Company. By the early 1900s, the company was operating factories in the United States, Britain, Germany and Spain. World War I created new demand for dairy products in the form of government contracts. By the end of the war, Nestlé's production had more than doubled. After the war Government contracts dried up and consumers switched back to fresh milk. However, Nestlé's management responded quickly, streamlining operations and reducing debt. The 1920s saw Nestlé's first expansion into new products, with chocolate the Company's second most important activity.

1938-1975 Nestlé felt the effects of World War II immediately. Profits dropped from $20 million in 1938 to $6 million in 1939. Factories were established in developing countries, particularly Latin America. Ironically, the war helped with the introduction of the Company's newest product, Nescafé, which was a staple drink of the US military. Nestlé's production and sales rose in the wartime economy. The end of World War II was the beginning of a dynamic phase for Nestlé. Growth accelerated and companies were acquired. In 1947 came a lot of mergers. Diversification came with a shareholding in L'Oréal in 1974.

1975-1996 Nestlé divested a number of businesses1980 / 1984. In 1984, Nestlé's improved bottom line allowed the Company to launch a new round of acquisitions, the most important being American food giant Carnation.

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Nestlé's growth in the developing world partially offset a slowdown in the Company's traditional markets.

1996-2000 The first half of the 1990s proved to be a favorable time for Nestlé: trade barriers crumbled and world economic markets developed into a series of more or less integrated trading areas. The opening of Central and Eastern Europe, as well as China, and a general trend towards liberalization of direct foreign investment was good news for a company with interests as far-flung and diverse as Nestlé. While progress since then has not been as encouraging, the overall trends remain positive. Nestlé opened the 20th century by merging with the Anglo-Swiss Condensed Milk Company to broaden its product range and widen its geographical scope.

2000-present In July 2000, Nestlé launched a Group-wide initiative called GLOBE (Global Business Excellence), aimed at harmonizing and simplifying business process architecture; enabling Nestlé to realize the advantages of a global leader while minimizing the drawbacks of size. Nestlé was First to Produce: Infant milk, Condensed milk, Milk chocolate, Soluble coffee and Freeze-dried coffee.

NOTABLE FACTS Nestlé, based in Switzerland, is the world's largest food company. It manufactures a wide variety of food products, from chocolate to frozen dinners to pet food, and is one of the top four water bottling companies in the world. It controls one-third of the American bottled water market, selling water under 70 different brand names.  Bottled water contributes to the plastic waste problem and seizes water that should remain a shared public resource. Nestlé has been repeatedly sued for the impacts of its bottled water operations on communities and for false advertising of its products.  Nestlé has been criticized internationally for its aggressive marketing of infant formula in countries where potable water is scarce, leading to a reduction in breastfeeding and increased risk for infants.  Nestlé is also one of the world's largest chocolate producers, and critics charge that this makes it a contributor to child and forced labor problems in cocoa-growing nations.

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 Switzerland-based

Nestlé S.A. manufactures a wide variety of food products from chocolate to frozen dinners to pet food. In addition, Nestlé is one of the most prominent bottled water companies in the world, and also produces personal and health care products. Nestlé SA employs 247,000.

 According to a 2006 global survey of online consumers by the Reputation Institute, Nestlé has a reputation score of 70.4 on a scale of 1–100.

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COMPANY INFORMATION Ticker: NESTLÉ Country: PAKISTAN Major Industry: Food & Beverages Sub Industry: Diversified Food 2007 Sales: 28,235,393,000 (Year Ending Jan 2008) Employees: 2,345 (Pakistan – as of January 2008) Currency: Pakistan Rupee Market Capital: 61,221,938,400 Fiscal Year Ends: December Shares Outstanding: 45,349,584 Share Type: Ordinary

BUSINESS LINES Coffee Nescafé, Taster’s Choice, Ricoré, Ricoffy, Nespresso, Bonka, Zoégas, Loumidis

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Water Nestlé Pure Life, Nestlé Aquarel, Perrier, Vittel, Contrex, S.Pellegrino, Acqua Panna, Levissima, Arrowhead, Poland Spring, Deer Park, Ozarka, Hépar, Ice Mountain, Zephyrhills Other beverages Nestea, Nesquik, Nescau, Milo, Carnation, Libby’s, Caro, Nestomalt, Nestlé Shelf stable Nestlé Nido, Nespray, Ninho, Carnation, Milkmaid, La Lechera, Moça, Klim, Gloria, Svelty, Molico, Nestlé Omega Plus, Bear Brand, CoffeeMate Chilled Nestlé Sveltesse, La Laitière, La Lechera, Ski, Yoco, Svelty, Molico, LC1, Chiquitin Ice cream Nestlé Antica Gelateria del Corso, Dreyer's/Edy's, Drumstick/Extrême, Maxibon/Tandem, Mega, Mövenpick, Sin Parar/Sem Parar/Non Stop Infant nutrition Nestlé Nan, Lactogen, Beba, Nestogen, Cerelac, Neslac, Nestum, Guigoz, Good Start Performance nutrition PowerBar, Pria, Musashi HealthCare nutrition Nutren, Clinutren, Peptamen, Modulen Bouillons, soups, seasonings, pasta, sauces Maggi, Buitoni, Thomy, Winiary,Torchin Frozen foods (prepared dishes, pizzas) Stouffer’s, Lean Cuisine, Hot Pockets, Buitoni, Maggi Refrigerated products (cold meat products, dough, pasta, pizzas, sauces, snacks) Nestlé, Buitoni, Herta, Toll House Chocolate, confectionery and biscuits Nestlé, Crunch, Cailler, Galak/Milkybar, Kit Kat, Smarties, Butterfinger, Aero, Polo FoodServices and professional products Chef, Davigel, Minor’s 8

L’Oréal (equity interest)

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HIERARCHY (Source:

International website www.Nestlé.com)

Organizational Chart - International

Pakistan – Key Positions Occupied

Trevor Clayton, Managing Director, MD Office (Country Head of Operations)

Syed Yawar Ali, Chairman Raymond Franke, Head of Finance and Controls, Finance & Control Division

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Haseeb Aslam, Country Business Manager Water, Water Division

Peter Wuethrich, Head of Technical, Technical Division Salman Nazir, Head of Supply Chain, Supply Chain Division

Uzma Qaiser Butt, Head of Human Resources, Human Resources Division

•

Zafar Hussain, Head of Sales, Sales Division

SITE LOCATIONS INCLUDING HEAD OFFICE AND FACTORY LOCATIONS (Source:

www.Nestlé.pk)

Registered and Corporate Offices 308 – Upper Mall, Lahore +92 042 111.637.853 +92 042 578 9303 +92 042 578 9304 Corporate Office Annex 304 – Upper Mall, Lahore +92 042 111.637.853 Park Lane Tower 72-Tufail Road, Lahore Cantt Lahore +92 042 609 9300 Sheikhupura Factory 29thK.M.Lahore-Sheikhupura Road, Shiekhupura +92 056 340 6615-25 +92 042 636 8710 Kabirwala Factory Kabirwala-Kabirwala Road, Kabirwala, District Khanewal +92 065 111.637.853 +92 065 241 1432 Islamabad Factory (Water) Plot no. 32, Street 3, Sector 1 – 10/3, Islamabad

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+92 051 444 5991-3 +92 051 444 5997 Karachi Factory (Water) 23-A, North Western Industrial State, Port Qasim Authority, Karachi +92 021 472 0151-3 +92 021 472 0154

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STRATEGIC POSTURE

OF

LOCAL BUSINESS

(SOURCE: www.Nestlé.pk, www.Nestlé.com)

NESTLÉ IN PAKISTAN Nestlé has been serving Pakistani consumers since 1988, when parent company, the Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd. Today Nestlé is fully integrated in Pakistani life, and is recognized as the producer of safe, nutritious and tasty food, and leaders in developing and uplifting the communities in which they operate. Nestlé Pakistan ensures that their products are made available to consumers wherever in the country they might be. Convenience is at the heart of the Nestlé philosophy, and there aim is to bring products to people's doorsteps

Mission Statement At Nestlé, we believe that research can help us make better food so that people live a better life. Good Food is the primary source of Good Health throughout life. We strive to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs. In addition to nutrition, health and wellness, Nestlé products bring consumers the vital ingredients of taste and pleasure. As consumers continue to make choices regarding foods and beverages they consume, Nestlé helps provide selections for all individual taste and lifestyle preferences. Research is a key part of our heritage at Nestlé and an essential element our future. We know there is still much to discover about health, wellness and the role of food in our lives, and we continue to search for answers to bring consumers Good Food for Good Life.

Vision and Strategy  The Nestlé global vision is to be the leading health, wellness, and Nutrition Company in the world. Nestlé Pakistan subscribes fully to this vision. In particular, we envision to:  Lead a dynamic motivated and professional workforce – proud of its heritage and bullish about the future.  Meet the nutritional needs of consumers of all age groups – from infancy to old age, from nutrition to pleasure, through an

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







     

innovative portfolio of branded food and beverage products of the highest quality. Deliver shareholder value through profitable long-term growth, while continuing to play a significant and responsible role in the social, economic and environmental sectors of the country. We have profitable and diversified high quality food and beverage product portfolio, delivering 60:40+ advantage to consumers, available across all sales channels. Our brands are the preferred choice in their categories. Consumer insight drives all aspects of our marketing and communication efforts. Our communications to the consumer are relevant, cutting-edge, and adhere to the highest standards of responsible communication. Our company is seen as the No. 1 career destination for talented, motivated and ambitious professionals. Our result-oriented organizational structure ensures effective communication and empowered self-management. Our milk collection and agro services will continue to play the primary role in development of the dairy sector in rural Pakistan. Our proactive innovation and renovation culture is the key to our success in the marketplace. Fully integrated systems (Nestlé Pakistan, suppliers, customers) ensure efficient business processes. Non-strategic activities and products are outsourced or discontinued.

Corporate Social Responsibility in Pakistan In 140 years of experience, Nestlé have learnt that businesses and the societies in which they operate are in a symbiotic relationship. If society flourishes, business is good. If a business does well, it brings wealth and stability to a society. From this organic interdependence comes Nestlé’s conception of corporate Social Responsibility (CSR). Nestlé tries to Create Shared Value at every step of the value chain, to ensure that their actions benefit not only the company, but also society at large. Both are, after all, interdependent. This consideration affects all of Nestlé’s corporate initiatives.

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Nestlé Framework for CSR:

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INTERNATIONAL BUSINESS INVOLVEMENT Phase of International involvement Nestlé is in the Global Marketing phase of international involvement. It has more standardization but still it adopts products to countries where for example culture or religion require products to be manufactured from different raw materials or packaging to be made in a different way or show something more suited to their understanding and conform to their cultural norms. Thus there is more standardization and a little adaptation.

Cultural Borrowing and Cultural Impacts Nestlé, while being a Swiss company has adopted the culture and norms of Pakistan in the respect that besides the Zonal Manager and Country Head of Operations, all other positions are filled by Pakistani citizens. In this way, the cost of labor is reduced by hiring local human resources to fill positions. Another impact of following this strategy is that locals do not feel alienated and do not alienate Nestlé as a “strange foreign firm” having nothing but foreigners selling foreign products. In addition, local know-how and cultural norms are better understood and situations involving local market knowledge or supply chains and in dealing with negotiations are much better handled by having locals perform those duties.

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THE

MODE OF INTERNATIONAL OPERATION (Source: Nestlé Factbook, Nestlé, 2007 )

MERGERS & ACQUISITIONS Key Dates 1866 1905

Company Founded Merger between Nestlé and Anglo-Swiss Condensed Milk Company 1929 Merger with Peter, Cailler, Kohler Chocolats Suisses S.A. 1947 Merger with Alimentana S.A. (Maggi) 1969 Vittel (equity interest) 1971 Merger with Ursina-Franck 1974 L'Oréal (equity interest) 1977 Acquisition of Alcon (2002: partial IPO) 1985 Acquisition of Carnation 1988 Acquisition of Buitoni-Perugina 1988 Acquisition of Rowntree 1992 Acquisition of Perrier 1998 Acquisitions of San Pellegrino and Spillers Petfoods 2000 Acquisition of PowerBar 2001 Acquisition of Ralston Purina 2002 Acquisition of Schöller and Chef America 2003 Acquisition of Mövenpick, Powwow and Dreyer's 2004 Acquisition of Valio (ice cream activities) 2005 Acquisition of Wagner, Protéika, Musashi

JOINT VENTURES Key Dates 1974 1981 1990 Mills) 1991 2002

L’Oréal Galderma - (joint venture with L’Oréal) Cereal Partners Worldwide - (joint venture with General Beverage Partners Worldwide (formerly CCNR) – (joint venture with Coca Cola) Dairy Partners Americas - (joint venture with Fonterra) 8

Laboratories innéov - (joint venture with L’Oréal)

TARIFF AND NON-TARIFF BARRIERS As per information provided by the Nestlé official we interviewed for this information, we were told that “Being a Multinational company, Nestlé is exempted from almost all tariff and non-tariff barriers”. However a finance official was not available for interview to provide more thorough detail as to which barriers Nestlé is in fact exempted from and which barriers it isn’t exempted from. However, we would disagree with this information and evaluate the trade, tariff and non-tariff barriers and the regulations laid out in this regard by local law and government regulatory authorities. A detail of these barriers can be obtained from legal documentation about the Statutes, Rules, Regulations and Guidelines from the Securities and Exchange Commission of Pakistan website: http://www.secp.gov.pk/laws.asp

DUTIES AND TAXES APPLIED A similar set of information was provided to us in this regard as well. However we can safely say that the duties and taxes applied upon Nestlé conform to the rules and regulations by Government Regulatory authorities like the State Bank of Pakistan, The Chamber of Commerce and The Securities and Exchange Commission of Pakistan. In that respect, Nestlé conforms to the rules laid out by local law and duties and taxes applied are duly paid out by Nestlé as is stated later on in the financial reports, e.g. in the year ending on December 2007 Taxation on Nestlé was Rs. 744, 544, 000

STRATEGIES ADOPTED TO REDUCE POLITICAL, OPERATIONAL AND ADMINISTRATIVE VULNERABILITIES Corporate Business Principles (International) (Source: Nestlé Corporate Business Principles Document, Third Edition, September 2004, Nestlé S.A., Public Affairs.) Nestlé is committed to the following Business Principles in all countries, taking into account local legislation, cultural and religious practices:  Nestlé’s business objective, and that of management and employees at all levels, is to manufacture and market the Company’s products in such a way as to create value that can be sustained over the long term for shareholders, employees,

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consumers, business partners and the large number of national economies in which Nestlé operates;

 Nestlé does not favor short-term profit at the expense of successful long-term business development, but recognizes the need to generate a healthy profit each year in order to maintain the support of our shareholders and the financial markets, and to finance investments;

 Nestlé recognizes that its consumers have a sincere and legitimate interest in the behavior, beliefs and actions of the Company behind brands in which they place their trust, and that without its consumers the Company would not exist;

 Nestlé

believes that, as a general rule, legislation is the most effective safeguard of responsible conduct, although in certain areas, additional guidance to staff in the form of voluntary business principles is beneficial in order to ensure that the highest standards are met throughout the organization;  Nestlé is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and the responsible attitude of its management and employees. Therefore recruitment of the right people and ongoing training and development are crucial;

 Nestlé operates in many countries and in many cultures throughout the world. This rich diversity is an invaluable source for our leadership. No single document can capture every legal obligation that may be required in each of these countries. Indeed, there may be conflicting legal requirements. Nestlé continues to maintain its commitment to follow and respect all applicable local laws in each of its markets. If an interpretation of anything contained in Nestlé’s Corporate Business Principles is construed as contrary to local laws, such interpretation should not be followed in that country.

1. Customer Meeting Consumers’ Needs: Nestlé aims to create value that can be sustained over the long term by meeting consumer needs for nutrition, enjoyment, and quality they can trust. Nestlé’s Communication with consumers is based on the following Basic Principles: 1. Nestlé consumer communication should reflect moderation in food consumption, and not encourage over-eating. This is especially important regarding children.

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2. Wherever possible, we should show children in healthy energetic pursuits and avoid the portrayal of an inactive lifestyle combined with unhealthy dietary patterns. 3. Nestlé consumer communication must be congruent with healthy, balanced diets. Our advertising must not imply the replacement of meals with indulgence or snack foods, nor encourage heavy snacking. 4. Nestlé is committed to advertising to children in a way that does not undermine the authority, responsibility, or judgment of parents or care providers. It must not encourage “pester power”. 5. Nestlé advertising to children must not portray children in unsafe situations nor encourage them to accept invitations from people they do not know. 6. Nestlé consumer communication about health benefits of products must have a sound nutritional basis. 7. Nestlé consumer communication should not exploit violence, bad manners, or profanity. Its content must reflect good taste in a given country and culture. It should not depict attitudes that are discriminatory or offensive to religious, ethnic, political, cultural, or social groups. 8. Nestlé communications must not show or encourage the consumption of our products in a way that could be considered dangerous. 9. Regarding advertising placement, it is against our principles to sponsor television and radio programmes or magazines whose strategy for attracting viewers or readers relies on exploiting violence, sex, or encouraging offensive behavior toward others. 10. Nestlé consumer communication should not portray competitors’ products inaccurately, nor denigrate them.

2. Infant Health and Nutrition When Henri Nestlé developed his milk food for babies over 130 years ago, it saved the life of a baby who could not be breast-fed. Nestlé’s invention responded to the need for a nutritionally safe alternative to breast milk. Today, Nestlé research and development creates high quality infant formula products for use when an alternative to breast milk is needed that is specifically nutritionally adapted. Nestlé also offers superior complementary (weaning) foods. Henri Nestlé also insisted that every mother able to breast-feed should do so. This principle is still the cornerstone of Nestlé policy today, and is in line with the aim of the International (WHO) Code of Marketing of Breastmilk Substitutes, which was adopted by the World Health Assembly in 1981. The International Code recognizes a legitimate market for breast-milk substitutes and provides recommendations to governments on how its marketing should be regulated. Therefore Nestlé: – encourages and supports breastfeeding as the best start in life;

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– carries out research and development aimed at the constant improvement of infant formula products for use when a safe alternative to breast milk is needed; – ensures that its infant food marketing practices conform strictly to national legislation, regulations, or other measures taken by governments to give effect to the aim and principles of the International Code. In addition, in all developing countries, whether or not their governments have taken action to fully implement the International Code, Nestlé: – gives detailed instructions to its staff on how to implement the International Code; – provides a summary of its policy for the information of employees and the public in the form of the Nestlé Instructions, which is translated into many languages; – regularly conducts training of employees to ensure complete understanding of the Company’s responsibilities under the International Code; – develops its infant formula labels and educational materials in line with the International Code, after field research and consultation with health authorities – has an internal ombudsman system enabling employees to alert the Company on potential non-compliance with the International Code in a confidential way, outside line management structures. In each country the designated ombudsman investigates and reports alleged violations of the International Code directly to a member of the Nestlé S.A. Executive Committee at the Company’s global headquarters; – conducts audits on a regular basis of its companies’ infant formula marketing practices. Nestlé is a founding member of the International Association of Infant Food Manufacturers (IFM), which was formed to facilitate industry dialogue with WHO and governments, and to encourage responsible marketing standards for the infant food industry.

3. Human Rights Nestlé fully supports the United Nations Global Compact’s two guiding principles on human rights. Nestlé therefore: Supports and respects the protection of international human rights within its sphere of influence (Principle 1) and Ensures that its own companies are not complicit in human rights’ abuses (Principle 2) Nestlé aims to provide an example of good human rights’ practices throughout its business activities and has an interest in encouraging the improvement of social conditions, which are an important factor for sustainable development. Nestlé also recognizes that governments are ultimately responsible for the establishment of a legal framework for protecting human rights within their markets. Nestlé expects each market to

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respect and follow the local laws and regulations concerning human rights’ practices.

4. Human Resources and the Workplace Nestlé fully supports the United Nations Global Compact’s four guiding principles on labor. Nestlé therefore upholds: Freedom of association and the effective recognition of the right to collective bargaining (Principle 3) The elimination of all forms of forced and compulsory labor (Principle 4) The effective abolition of child labor (Principle 5) The elimination of discrimination in respect of employment occupation (Principle 6) Nestlé also respects the local laws and regulations applicable to human resources in each of its markets. Human Resource Policy is also set by the local markets, which must follow local legal requirements Nestlé regards its personnel as its most valuable asset. Involvement at all levels starts with open communication, whether on specific aspects of the business, or about the activities of the Company in general. Suggestions for changes and proposals for improvements of Nestlé’s practices are encouraged.

5. Child Labor It is generally acknowledged that the causes of child labor are complex and include poverty, differing stages of economic development, social values and cultural circumstances. Nestlé believes policy development must take into account the social and legal situation of individual countries. Action to eliminate child labor must be guided by the best interests of the child, as ill-considered policies and commercial measures can make the situation worse for children. Therefore, Nestlé: – is against all forms of exploitation of children. The Company does not provide employment to children before they have reached the age to have completed their compulsory education, as defined by the appropriate authorities. Nestlé expects its industrial suppliers and business partners to apply policies that have the same standards as the Company’s Business Principles and reserves the right to audit their compliance. – abides by national laws in all countries in which it has operations and complies with the International Labor Organization (ILO) Convention 138 on the Minimum Age for Employment and the ILO Convention 182 on the Worst Forms of Child Labor. The ILO recommendations are based on the United Nations Convention of the Rights of the Child (Article 32); – offers its co-operation with the relevant United Nations agencies, governments and the business community in their efforts to deal with the problem of child labor, which include the encouragement of universal primary education and all aspects of economic development worldwide. 8

Corporate Business Principles (Pakistan) We are dedicated to following the best practices laid down by our parent company, Nestlé SA. We have implemented the Corporate Governance Principles established by Nestlé SA, covering four core areas:

 Rights and responsibilities of shareholders  Equitable treatment of shareholders  Duties and responsibilities of the board of directors  Disclosure and transparency

Corporate Internal Audit Recognizing the need to maintain transparency and verify the application of corporate standards, Nestlé Pakistan has established an internal audit department that monitors administrative and operational functions throughout the company. Thanks to its operations, we can be assured that adequate internal controls are in place, management information is reliable, resources are used effectively, and company assets are safeguarded.

Regulatory Authorities (Source:

Nestlé Corporate Business Principles Document, Third Edition,

September 2004, Nestlé S.A., Public Affairs.)

National Legislation Recommendations

and

International

Nestlé emphasizes that, as a minimum, its employees must comply with the laws applicable in the countries in which it operates. Nestlé ensures that the highest standards of responsible conduct are met throughout the organization, by complying in a responsible way with the Nestlé Corporate Business Principles, which guide Company activities and relationships worldwide in each sector of business interest. Nestlé supports and publicly advocates the United Nations Global Compact and its ten principles, an initiative of the United Nations SecretaryGeneral. The Global Compact asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labor standards and the environment. Nestlé recognizes that increasing globalization is leading to the development of more and more international recommendations. Although, as a general rule, these recommendations are addressed to governments, they inevitably impact on business practices. Among others, Nestlé has incorporated relevant International Labor Organization Conventions, and the International (WHO) Code of Marketing of Breast-milk Substitutes into its policies.

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Nestlé endorses relevant commitments and recommendations for voluntary self-regulation issued by competent sectoral organizations, provided they have been developed in full consultation with the parties concerned. These include the International Chamber of Commerce (ICC) Business Charter for Sustainable Development. Also, Nestlé uses the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, approved in June 2000, as a reference point for its Corporate Business Principles.

Regulatory Authorities within Pakistan Nestlé is in constant contact with the following three main government organizations whilst operating in Pakistan: While representatives of Nestlé were unable to give any specific details on the direct influence of any of these organizations, we can see that they have obvious implications on local operations of Nestlé as an MNC operating within Pakistan. 1. State Bank of Pakistan (SBP) State Bank of Pakistan is responsible for formulating and conducting monetary and credit policy in a manner consistent with the Government’s targets for growth and inflation and the recommendations of the Monetary and Fiscal Policies Co-ordination Board with respect to macro-economic policy objectives. The basic objective underlying its functions is two-fold i.e. the maintenance of monetary stability, thereby leading towards the stability in the domestic prices, as well as the promotion of economic growth. The "Rules of Business" for NBFIs became effective since the day NBFIs came under State Bank’s jurisdiction. As from January, 1997, modarbas and leasing companies, which are also specialized type of NBFIs, are being regulated/supervised by the Securities and Exchange Commission (SECP), rather than the State Bank of Pakistan. As the custodian of country’s external reserves, the State Bank is also responsible for the management of the foreign exchange reserves. The task is being performed by an Investment Committee which, after taking into consideration the overall level of reserves, maturities and payment obligations, takes decision to make investment of surplus funds in such a manner that ensures liquidity of funds as well as maximizes the earnings. These reserves are also being used for intervention in the foreign exchange market.

2. Pakistan Chamber of Commerce & Industry

The PCCI serves as a bridge between the private sector and the Government. It plays an important role in policy formulation by maintaining a constant interaction with the relevant authorities in both the Government and businesses. 3. Securities and Exchange Commission of Pakistan (SECP) The SECP is responsible for providing the rules regulations, policies and guidelines for MNCs, SMEs and all other businesses operating within the 8

boundaries of Pakistan. The SECP is responsible for promoting Corporate Social Responsibility in Pakistan and Regulation, Supervision and Performance in Corporate Governance. The Nestlé officials who were interviewed for this purpose mentioned that the policies that Nestlé is following are in accordance to the rules stated by the legal requirements of the Government of Pakistan.

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(Source:

FINANCIALS Nestlé Pakistan Limited, Financial Report for the year ending 31

December 2007, Nestlé Group 2007 Company profile)

Figures - International Note: CHF means Swiss Franc

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2008 – 9 month sales presentation Source: - Roddy Child-Villiers, Head of Investor Relations

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Figures - Pakistan Sales: Sales – net Own manufactured Local Export 1,355,324

2007

2006 (Rupees in ‘000)

27,959,032 1,902,751

22,050,093

29,861,783 23,405,417 Goods purchased for resale 593,669 656,591 Less: Sales tax (588,870) (700,703) Trade discounts (1,631,189) (1,330,347) 28,235,393 22,030,958 Profits Profit before taxation 2,005,455 Taxation (642,165) Profit after taxation 1,363,290

2007 2006 (Rupees in ‘000) 2,549,756 (744,544) 1,805,212

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STRATEGIES FOR INTERNATIONAL BUSINESS OPERATIONS

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(SOURCE:

NESTLÉ 2008 HALF-YEAR ROADSHOW – SEPTEMBER 2008, JAMES SINGH, CFO)

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PROBLEMS/OPPORTUNITIES (Source:

Yasir Malik, Operations Officer, Nestlé Pakistan Limited,

www.Nestlé.com)

Problems: As such, there seems to be no problem that Nestlé is facing in almost all zones it is operating in, including The Asia, Oceana and Australia (AOA) region including Pakistan. Also, local competition, although high, provides little in the way of taking away profits from Nestlé. There is constant market growth and potential in the market for future growth. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.

Growth in Key markets driven by:   

The strength of the Nestlé Brands Clear priorities for innovations Above average growth with top customers & Discounters

Opportunities:     

AOA: growth opportunity Performance is on track Potential for continued growth is promising Aligned organization and portfolio with a vision and a plan Strong management with local expertise

Direction for 2008   

Focus on growing business Focus on delivering return on investment Focus on profitable growth

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