Monday, April 30, 2012

Nestle buys Pfizer's emerging market infant nutrition business

More and more, companies are looking at emerging markets to grow revenues and international brand recognition. I read an article in the news recently, on Nestle's purchase of Pfizer's infant formula business, which is a move to reinforce its emerging markets strategy.

Nestle's main goal is to expand into the fast-growing Asian markets. Nestle has previously defined bottled water and instant formula as 'Popularly Positioned Products' for low-income consumers in emerging markets. Nestle's CEO Paul Bulcke has outlined Nestle's current growth drivers as follows: emerging markets, emerging consumers and premiumization (http://blogs.wsj.com/source/2012/04/23/nestles-pfizer-deal-is-all-about-the-growth/).

In carrying out their growth strategy through acquisition of an established business, Nestle has saved itself the hassle of "spotting institutional voids" (as described in the HBR article "Strategies that Fit Emerging Markets"). Nevertheless, buying Pfizer's infant-nutrition unit, which is mostly active in Asia, is a smart move. Of all the developing regions, Asia (and particularly South-East Asia) probably performs the best on the majority of the five contexts (political/social, openness, product markets, labor markets, capital markets) to consider for business in emerging markets.

Meanwhile, Nestle is retaining its core business proposition even as it adapts its business models: "Infant nutrition has been at the heart of our company since it was founded in 1866" (Nestle CEO, Paul Bulcke). Furthermore, the acquisition will generate annual synergies of around $160 million by combining sales forces and reducing costs.

Bibliography:
http://hbr.org/product/strategies-that-fit-emerging-markets/an/R0506C-PDF-ENG
http://www.huffingtonpost.com/huff-wires/20120423/eu-switzerland-nestle-pfizer/

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