Posted: May 25th, 2022

Introduction to Human Resource Management

Human Resources Management (HRM) Strategy at Nestle S.A.

Introduction to Human Resource Management (HRM)

The process of human resource planning is essential for organizations of any size and scope, but the number of employees working for the organization ranks among the most influential factors in guiding the construction of human resource policies. In order to more efficiently achieve strategic objectives, complex organizations require a perfectly calibrated blend of human capital to facilitate a variety of functions and operations. The development of a strategic plan is the first step in proper HMR strategy, because “overall organizational strategy defines the human resource objectives that are accomplished through the implementation of appropriate human resource plans” (Schwind, Das, Werther, & Davis, 1995, p. 219). Simply put, an organization cannot become capable of fully actualizing its strategic goals unless it hires the employees who are best suited for their particular position and role. Another important step in the HMR process is identifying the carious causes of demand that will potentially cause shortfalls in personnel. Assessing the various external, organizational, and workforce causes of demand that can impact an enterprise’s staffing situation is crucial if potential needs are to be anticipated and mitigated effectively. By forecasting future human resources needs through expert, trend, or other predictive methods, which is another step in the planning process, an organization can formulate accurate calculations as to the exact level of staffing needed to keep pace with expected growth.

As the modernization of the global workforce continues at an accelerated rate, scholars have observed that “successful organizations — both large and small, and public as well as private — recognize the importance of ‘intellectual’ or ‘human’ capital” (Schwind, Das, Werther, & Davis, 1995, p. 236). This fact necessarily informs the human resource planning process, as the number of employees needed to achieve organizational objectives plays a role in shaping those very objectives. For a smaller firm consisting of less than 50 employees, human resource planning would occur on a more personalized level, with the expectation that employees will be working for the firm for an extended period of time. Conversely, larger firms with more than 500 employees must approach human resource planning from a purely mathematical standpoint, calculating the exact levels of staffing needed to operate integrated divisions, while transferring valuable human capital throughout the company in the most efficient manner possible.

Nestle S.A. As a Major Multinational Company

The Nestle Corporation as we know it today was formed in 1905, when a merger combined two preexisting companies which were originally formed in 1866. The Anglo-Swiss Milk Company was created by brothers George Page and Charles Page, while Farine Lactee Henri Nestle was the brainchild of Henri Nestle. By combining the assets and expertise of two established, successful companies, the newly formed Nestle S.A. positioned itself for immediate growth within the European continent, but the advent of two World Wars within a span of four decades forced the company’s upper management to explore expansion to markets in North and South America, Asia and Africa. A series of major mergers and acquisitions followed the conclusion of WWII, and Nestle soon expanded through its purchase of competing firms like Crosse and Blackwell (1950), Findus (1963), Stouffer’s (1973), Carnation (1984), San Pellegrino (1997), and Ralston Purina (2002). What had begun as a simple purveyor of milk chocolate and condensed milk in the 19th century had flourished into one of the world’s true multinational conglomerates, with Nestle know holding vested interests in markets such as bottled water, pet food, makeup and cosmetics, candy bars, ice cream, breakfast cereals, and dozens of other product lines (Rapoport, 1994, p. 3).

The Role of Offshore Outsourcing in HRM

In order to maintain a vibrant and fully functioning national economy, industrialized countries across the globe strive to create a manufacturing infrastructure capable of producing quality products for global export. From timber and cotton in the 19th century to mechanized goods and tools in decades after, the United States has always positioned itself as one of the most productive nations on the planet, building and shipping on a monumental scale to serve the ceaseless cycle of supply and demand. This legacy of production has been undercut, however, as the 21st century has dawned, with American corporations — along with European enterprises like Nestle — continuing the alarming trend of outsourcing jobs to overseas markets as part of their overall cost reduction strategy. The advent of internet technologies in particular has spurred the transfer of jobs from Western soil to foreign enclaves like India, Bangladesh, Singapore and China, and the software development industry has become one of the primary culprits. Confronted with the option of easily moving the system development and maintenance branches of their operations to lesser developed nations, while instantly garnering significant reductions in their cost expenditures, hundreds of major companies have happily departed American and European shores for greener pastures. While it is indeed true that “in many large organizations, information technology (IT) outsourcing is being considered as a viable cost reduction alternative because cost reduction is the main driving factor for outsourcing their IT activities” (Dhar & Balakrishnan, 2006), many economists and social scientists have concluded that the practice is ultimately harmful to companies and communities alike.

Nestle and its HRM Strategy of Offshore Outsourcing

In the case of Nestle, a concerted HRM policy based on offshore outsourcing to the Philippines has recently been undertaken. Recently, Nestle Philippines Chairman and Chief Executive Nandu Nandkishore issued a statement confirming that “the company opted to establish Nestle Business Services AOA (NBS) in the country because of talent availability and cost efficiency & #8230; (and) NBS will serve the financial and employee service requirements of Nestle companies in Zone AOA (Asia, Oceania and Africa) & #8230; a zone which includes the Philippines, Malaysia/Singapore, Indonesia, Indochina, Australia and New Zealand” (Rubio, 2007, p. 27). By diversifying the company’s human resources strategy in such a bold manner, the managerial structure in place at Nestle is attempting to align its HRM policy in a pragmatic manner. Recognizing that a company long known for “boasting that it has factories or operations in almost every country in the world” (Birkinshaw, Bouquet & Ambos, 2007, p. 62) must also identify viable methods of procuring human capital throughout the scope of its multinational reach, Nestle’s corporate hierarchy has positioned the company to source, manufacture, and deliver in a far more effective and efficient manner than could be provided by the traditional model of domestic hiring.

There are a number of external and internal factors which have motivated Nestle’s decades-long policy of aggressive HRM expansion within developing nations, but perhaps the most pressing has been the company’s diminished performance in the crucial American and European markets. According to a company profile published by The Economist, “in the second quarter of 2009, 44% of Nestle’s product lines lost market share in America, and none of its products gained market share there, based on surveys of retail-data by ACNielsen, a market-research firm & #8230; (and) skepticism about Nestle’s prospects can also been seen in its share price, as its shares trade at a lower multiple of earnings than those of its main European competitors” (DiPalma, 2009, p. 21). Knowing that Western consumers have become increasingly wary of the health risks posed by chocolate-based drinks — which remain Nestle’s staple product — the company has expanded its scope of operations to emerging markets in developing nations, ostensibly because consumers there have not yet recognized that sugary concoctions should not be ingested on a regular basis. To pursue this strategic shift in the most effective and efficient manner, the company elected to build plants and factories in countries like Malaysia, the Philippines, and throughout Central and South America, seeking to reduce expenditures associated with marketing, manufacturing and delivering to these promising markets. As such, the company’s process of human resource planning has also experienced a fundamental adjustment, with Nestle establishing HRM centers in conjunction with production plants and factories (Rubio, 2007, p. 30). By utilizing workers and staff from local populations, the company has centralized its spheres of production within various global zones, while reaping the financial benefits associated with traditional offshore outsourcing methods. This novel shift in the multinational approach to offshore outsourcing is recognized today as a representation of sound human resource planning, with Nestle now hiring local workers to staff its plants and factories throughout more than 70 countries around the globe.

The Nestle Canada Expansion Experiment

Despite an already pervasive presence within the American food manufacturing market, Nestle’s managerial structure saw fit to continue its aggressive policy of global expansion in Canada. Rather than simply sell existing products to Canadian grocers and foodstuff purveyors, however, Nestle recognized that developing niche products specifically designed to appeal to Canadian consumers presented the optimal path to capturing a dominant share of the market. To achieve this strategic objective, Nestle’s chief executives knew that establishing a foundation of human resource planning in Canada would enable the company to extract the most value from its new product lines, simply because Canadian workers and employees would be better suited to the development of Nestle-branded goods marketed and sold to their countrymen (Rossman & Greenfield, 2006, p. 60). As revealed in a thorough review of Nestle Canada — the multinational corporation’s localized representative throughout Canada — “in the years following the North American Free Trade Agreement, Nestle Canada, like many Canadian subsidiaries, found it increasingly difficult to add value to the company’s low-growth lines of business” (Birkinshaw, Bouquet & Ambos, 2007, p. 74), and this trend motivated the company to pursue an even more centralized HRM strategy. By hiring factory workers, product designers, marketers and other key stakeholders Nestle Canada’s ultimate success or failure directly from Canada, rather than importing Swiss or American employees to perform these functions, Nestle ensured that its Canadian expansion would be well received by local consumers. As reported by Frank Cella, former president and chief executive of Nestle Canada, the expansion effort “has turned into a major success story & #8230; (and) in 2006, Nestle Canada employed 3,600 people in 16 facilities across the country, with sales of $2.3 billion, mostly from direct exports to 70 countries worldwide” Birkinshaw, Bouquet & Ambos, 2007, p. 76), and Cella attributes this rapid ascendency within the Canadian market to the fact that Canadian consumers have gravitated to the company in light of its localized hiring practices and HRM strategies.

Conclusion

The unique array of challenges posed by the prospect of international business expansion are daunting indeed, and history offers many instances of companies expanding too aggressively within several foreign markets simultaneously, with the fracturing of their product line and inability to implement sound HRM strategies ultimately dooming them to stagnant growth, or even bankruptcy. In the case of Nestle S.A., however, a combination of responsible offshore outsourcing practices and targeted HRM policies designed to hire from within newly-expanded to countries has enabled the company to weather the proverbial storm. Today, Nestle-branded products can be found on store shelves from Seattle to Shanghai, and everywhere in between, simply because the company’s recognized the pressing need for modern human resource planning and management. By identifying pools of talent within local populations, and instituting hiring policies designed to ingratiate the company on a collective level, Nestle has assembled a vibrant team of employees — from entry-level workers to executives — who hail from the same nations in which Nestle seeks to conduct business. This innovative HRM strategy has worked wonders in terms of market penetration and product acclimation, with Nescafe coffee replacing local roasts in South American locales, and San Pellegrino bottled water becoming fashionable in Asian metropolises.

References

Birkinshaw, J., Bouquet, C., & Ambos, T.C. (2007). Managing executive attention in the global company. MIT Sloan Management Review. Summer 2007. 62-78.

Dhar, S. & Balakrishnan, B. (2006) Risks, benefits, and challenges in global IT outsourcing:

Perspectives and practices. Journal of Global Information Management 14(3), 39-69.

Moran, J. (1999) Outsourcing successful if bottom line improves. Computing Canada 25(34),

27 — 28.

Rapoport, C. (1994, September 19). Nestle’s brand building machine: The swiss powerhouse is racing across the developing world building brands, roads, farms, factories, and whatever else it needs to capture new markets. Fortune Magazine, Retrieved from http://money.cnn.com/magazines/fortune/fortune_archive/1994/09/19/79744/index.htm

Rossman, P., & Greenfield, G. (2006). Financialization: New routes to profit, new challenges for trade unions. ILO, 2006, 55-62. Retrieved from http://global-labour.net/wp-content/uploads/2012/06/Rossman-Greenfield-Financialization.pdf

Rubio, R.A.M. (2007, August 23). Nestle forms outsourcing firm. Business World, 27-31.

Retrieved from http://www.gmanetwork.com/news/story/57432/economy/nestl-forms-outsourcing-firm

Schwind, H.F., Das, H., Werther, W.B., & Davis, K. (1995). Canadian human resource management (Ninth Edition). McGraw-Hill Ryerson.

DiPalma, V. (2009, October 29). The unrepentant chocolatier. The Economist, 17-26. Retrieved

from http://www.economist.com/node/14744982

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