External Factor Analysis of (EFAS) of Nestle Food Company



External Factors Weight Ratings Weighted score Remarks


venturing to the online retail sector. 1.0 4.2 4.2  The weight of 1.0 shows that this opportunity is very important to the overall success of Nestle. While a rating of 4.2 has been estimated since Nestle has online presence in some markets such as China.
Strong partnerships with other successful companies such as Coca-Cola. 0.8 4.4 3.52 The partnership with coca cola will enable the two companies to maximally exploit new opportunities that arise in the beverages markets.
The rising middle class population in India and China will create new markets for Nestles’ products. 0.9 4.0 3.6 The emerging markets in Asia present a good opportunity that Nestle should pursue. It is for this reason that this factor has a weight of 0.9 and a rate of 4.0. Asia is experiencing massive economic growth.
Health Consciousness; today most people are more cautious of the products they consume. 0.7 4.1 2.87 This opportunity creates more demand for bottled water and energy drinks. The factor is crucial to the victory of Nestle and has thus been given a weight of 0.7 and a rate of 4.1
Increased mobility and car ownership in such Nations as China. 0.8 3.9 3.12 This new development will probably lead to a rise in the demand for Nestlé’s products. Such products include; candy, snacks and bottled water.
Nestle has a strong and vibrant research and development (R&D) team.  The team may present new and unique products to the market in future. 0.7 4.0 2.8 Markets and customer tastes and preferences are constantly changing. The strong R&D team will frequently update the company on the recent developments in the environment.


Competition from business rivals. 1.0 4.4 4.4 Competition is a concern of all companies in nearly all industries. The weight of 1.0 and a rate of 4.4 are based on the fact Nestle continuously launches new brands and flavors that meet the market demands. Its competitors are; Walmart, Kroger and Aldi retailers.
Entry of new company into the industry 0.8 4.0 3.2 New entrants such as Whole Foods Market are an issue of concern as they have disrupted the grocery industry more so in America. However, the weight of 0.8 and a rate of 4.0 shows that Nestle is not heavily affected by their presence.
Nestle still employs old marketing strategies as a way of promoting its products 0.7 3.9 2.73 The rate of 3.9 is justifiable since Nestle has not embraced modern marketing techniques. This factor may affect the marketability of its products in future.
Increased government regulations and oversight 0.8 4.0 3.2 Government and other laws significantly have an impact on a business. Nestle has been given a rating of 4.0 since it always ensures that it complies with all existing regulations
Currently, most consumers prefer to eat in a hotel rather than at home. 0.7 4.1 2.87 The weight and the ratings are based on the fact that most Americans and other consumers spend more in hotels and restaurants than on groceries.
In the recent period, people have developed a dislike for prepackaged foods. 0.6 3.9 2.34 The weight of 0.6 and a rate of 3.9 are estimated based on the idea that some customer groups prefer prepacked foods.

Total weighted score                                                               38.85

Overall, Nestle is doing better than other companies in the same industry. Since it is its ability to exploit all opportunities that arise and to deal with threats that made to emerge as the world biggest food company in 2014.

External environmental factors

Companies do not exist in isolation; they operate in an environment where there are external factors that greatly impact on their operations. Examples of this external threats include the technological, socio-cultural, political-legal and economic environment. Companies do not have control over external environment forces. Therefore, to remain in business, they must find ways of dealing with these forces.

Nestle addresses socio-cultural factors by manufacturing their products using raw-materials that are acceptable by the Islamic culture and the society in general. Similarly, Nestle is a greatly participates in Corporate Social Responsibility (CSR) activities. Nestle also attempts to solve local and global issues relating to water, nutrition, and rural development. The Cocoa project is an example of an undertaking that was launched to assist Cocoa farmers in Africa.

Nestle has greatly invested in modern machinery and technology, and this gives it a competitive advantage.  The company manufactures, process and packages its products using modern technology. As far business cycles are concerned, Nestle is at the prosperity stage. In this regard, the only economic force that can affect it is inflation. Nestle responds to inflation by selling its products at a higher price during inflationary periods to avoid making losses.

As regards the political-legal forces; Nestle ensures that it comply with all regulations and laws that exist in all areas of operation. However, it also opposes unjustified and discriminatory measures and prohibitions.

Difference between a fragmented and a consolidated industry

Nestle operates in a fragmented industry since there are many competitors. A fragmented industry is one in which each firm in the industry serves only a small segment of the market, and the rest is served by competitors. On the other hand, a consolidated industry consists of few firms that are large. Each firm in the industry continuously undertakes product differentiation so as to gain a competitive advantage. Competition is more intense in a fragmented than in a consolidated industry. For instance, the nail industry is fragmented while the petroleum automobile industry is consolidated.

Organization structure and culture of Nestle

An organization’s culture defines the way people behave while a structure outlines how authority and responsibilities are shared. A simple structure is a source of strength while an unclear and complex organization structure is an indicator of weaknesses. A culture that is well understood and accepted by an organizations staff is a source of strength for the business. A culture that oppresses staff and is rejected by them points out to the weaknesses in the business.

Nestle has a strong culture that appreciates people irrespective of their ethnic and cultural background.  There are minimal hindrances to team work and innovation. Accordingly, Nestle has a vertical organization structure which is a source of strength as the authority and the responsibility of each person are well defined. The culture and structure should not be the same in every country of operation.  Equally, Communication is poor within the organization structure. This weakness can be improved by having a different organization structure and culture in every country. Communications channels should also be streamlined. An IFAS table would be useful as it would identify the most significant weakness in the culture and structure of Nestle. Then the company management would then find ways of converting the weaknesses to strengths

Conclusively, the success of Nestle can be attributed to its strong ability to cope with external environmental factors. Nestle operates in a fragmented industry where there are many competitors such as Walmart, Unilever and Whole Foods Market. Companies in a fragmented industry control a small market segment. In such industries competition levels are high. An organization culture can be a source of strength or weakness to the business. Thus to be successful companies should design a stable organization structure and culture.