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Nestl'e: An Elephant Dances

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DQI Bureau
New Update

The tranquil town of Vevey, Switzerland, perches among the vineyards above

glimmering Lake Geneva. Wealthy retirees take in Alpine vistas as they pass

their afternoons strolling along the peaceful waterfront. The most exciting

event is the annual grape harvest. Silicon Valley and the hubbub of high

technology seem worlds away.

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But this bucolic setting is the epicenter of one of Europe’s most ambitious

Internet initiatives. At the town’s edge stands the glass and steel global

headquarters of the world’s largest food producer, Nestlé–which plans to

invest as much as $1.8 billion over the next three years to become one of the

world’s Web-smart elite. The venerable company wants to overhaul everything

from buying raw materials such as cocoa beans to producing, marketing, and

selling products such as KitKat chocolate bars and Nescafe instant coffee. Peter

Brabeck-Letmathe, Nestlé’s chief executive, calls the process "an

e-revolution’’–albeit one that will take several more years to fully bear

fruit. "This might sound slow for Silicon Valley, but it’s very fast’’

for a company like Nestlé, Brabeck says.

Nestlé in India

Carlo M V Donati, chairman and

managing director

Revenues: January-December 1999: Rs 15 billion (profits Rs 984

million)

Q3 2000 (July-September):



Rs 4.7 billion (profits Rs 497 million)

Nestlé’s plants in India: Bicholim Taluka, Goa; Mogra,

Punjab; Mysore, Karnataka; Nilgiris, Tamil Nadu; Panipat, Haryana; Ponda,

Goa

Key products: KitKat chocolates, Maggie noodles, Nescafe instant

coffee, Lactogen milk powder, Ceralac baby food, Milo chocolate/malt

drink, Sunrise coffee

DQ

Dot-com companies may capture the headlines, but Europe’s real New Economy

litmus test will come from slow, old-line multinationals striving to transform

themselves into e-businesses. It’s a Herculean task. The Continent’s giants

suffer from elephantine structures and the weight of decades or even centuries

of management tradition. The 134-year-old Nestlé, for instance, booked $46.6

billion in revenues in 1999. It employs 230,000 people and runs 509 factories in

83 countries, producing an astounding 8,000-plus different products.

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The Web promises to make this lumbering behemoth more agile–and put a

serious dent in the cash Nestlé lays out for everything from supplies to

marketing. "For big companies like us, the Internet is particularly good

because it shakes you up,’’ says Mario Corti, Nestlé’s chief financial

officer and head of its Internet offensive. Early results are promising: Because

of new e-commerce initiatives as well as other restructuring efforts, Nestlé’s

net profit rose nearly 35% in the first half of this year, to $1.7 billion. Its

net margins grew almost a full point, to 7.2%.

The Swiss giant isn’t the only European industrial titan attempting to

become a nimble New Economy sprinter. Old-line Continental conglomerates from

the Swedish-Swiss group ABB Asea Brown Boveri Ltd. to Germany’s Siemens are

planning ambitious Internet investments. Unlike ABB’s power stations or the

trains and electronics that Siemens builds, food remains a local product that’s

hard to globalize. As Brabeck says: "You can’t sell a Bavarian soup to a

Taiwanese noodle-lover.’’ So Nestlé must practice a delicate balancing act:

wielding the Net to gain economies of scale, while catering to a wide variety of

cultural preferences.

Quick response. Because its task is so daunting, the Swiss food conglomerate’s

experiment is being watched across the globe. "This is about taking the

world’s largest elephant and making it dance,’’ says Thomas Baur, a

vice-president at software maker SAP. Nestlé inked a $200 million contract last

June with SAP–the German company’s largest sale ever–to streamline its

technology operations and give far-flung employees quick access to information

from around the globe. That should speed up financial reporting by more than a

month. And it will let Nestlé know, for the first time, how much it buys from

various suppliers around the world. As information flows more smoothly, Brabeck

says underperforming business units should be detected more quickly–and

responses formulated faster.

By William Echikson Contributing: Arlene Weintraub in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

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