Intercultural Management: MBA Masterclass (MBA Masterclass Series)

Case Study: Nestl

In 2001, Nestl was the largest and most diversified food company in the world, with nearly 500 factories in more than 100 countries . In fact, over the period 1867 “2000 it surpassed other food manufacturers and purchasers of agricultural raw materials in scale of operations. Over 230,000 people worldwide work in Nestl 's factories, research laboratories and offices. In 1999 Nestl generated a total income of 4,007 million Swiss francs.

This case study is based on a series of interviews with prominent Nestl managers engaged in strengthening Nestl 's core values. Niels Christiansen, Vice President, Public Affairs of Nestl SA, explains that even though 98 per cent of Nestl operations are outside Switzerland, the company still originated in Switzerland. The corporate headquarters is located in Switzerland. Hence some Swiss cultural values are an integral part of Nestl core values. Many Swiss values are embedded in the Nestl General Management and Leadership Principles and the Nestl Corporate Business Principles. These Principles reflect not only Nestl 's basic corporate values, but some of the 'Swissness' of the company as well. What has been described as the Swissness of the company refers to the pragmatic and resultsoriented nature of the Principles. The Nestl General Management and Leadership Principles are presented in our case study on communications and intercultural management (see Chapter 2). The box on page 87 reproduces the Nestl Corporate Business Principles.

Nestl is committed to the following business principles in all countries taking into account local legislation, culture and religious practice:

• Nestl '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 customers, shareholders, employees , business partners and the large number of national economies in which Nestl operates.

• Nestl does not favour short-term profit at the expense of successful long-term business development, but recognizes the need to generate profit each year in order to maintain the support of the financial markets, and to finance investments.

• Nestl believes that, as a general rule, legislation is the most effective safeguard of ethical conduct, although in certain areas, additional guidance to management and employees, in the form of voluntary business principles, is beneficial in order to ensure that the highest standards are met throughout the organization.

• Nestl is conscious of the fact that the success of a corporation is a reflection of the professionalism , conduct and ethical values of its management and employees, therefore recruitment of the right people and ongoing training and development are crucial.

• Nestl recognizes that consumers have a legitimate interest in the company behind the Nestl brands, and the way in which the Nestl company operates.

Although core values can be propagated across a multicultural corporation in a variety of ways, Nestl adopts certain approaches that are characteristic of it. These approaches have been used consistently and for a considerable length of time, even though the company's various Principles have been written down only recently. One important approach is careful and meticulous selection of personnel. This approach has been enshrined in the Nestl Corporate Business Principles. Potential employees are assessed as to whether they possess the attributes that would enable them to fit into the Nestl way of life. An assessment is also made of whether they can achieve complete integration into Nestl culture over time. Nestl 's selection process has been so effective that most of its employees have pursued a lifetime career, spanning at least 30 years with the company. This lifetime association with Nestl enables employees to completely imbibe and operationalize the Nestl core values. Additionally, new recruits are given extensive coaching as well as training, to ensure that they fully understand Nestl 's core values. Both the Nestl Management and Leadership Principles document and the Nestl Corporate Business Principles document contain personal messages from the CEO. The CEO, as well as all senior managers, make it clear that they expect all employees to subscribe to and implement the company core values. Of course, members of the top management echelon also live the core values themselves so that they serve as role models.

Nestl uses extensively another means to propagate its core values: its international management cadre. Members of this cadre go from country to country working as managers in different Nestl branches. These international management cadre managers ensure that the Nestl core values are institutionalized at all Nestl locations. They occupy a significant proportion of the key positions at all Nestl branches, and can therefore exert a tremendous amount of influence. All managers of Nestl , irrespective of ethnic origin or geographic location, are part of the Nestl culture and share the same core values. Additionally, by rotation, they spend some time at the Nestl headquarters in Vevey, Switzerland. During the initial stages of their career, Nestl employees (from all over the world) attend residential training programmes at Vevey, which are of approximately one month's duration. These programmes reinforce the core values which Nestl employees have already assimilated. They also make Nestl employees realize that regardless of where they are from, they all share these core values.

Although Nestl 's core values are the glue that holds together all its managers distributed across more than 100 countries, the company is also sensitive to local cultures. Brabeck, CEO of Nestl , has remarked, 'Since Nestl 's activities in Switzerland, its country of origin, account for less than 2 per cent of its global turnover , Nestl learned very early to respect the social, political and cultural traditions of all countries in which the products are produced and sold, and to be a highly decentralized people and products oriented company rather than a systems oriented company.' The interesting question that presents itself is, how does Nestl manage the dialectic between having well-entrenched core values, and respecting national cultures?

Vietnam is a country in which Nestl has established a branch only recently (in 1996). It is a challenging country in which to start operations. In the first instance, it is a communist country with a state controlled market. Additionally, the cultural ethos and ambience of Vietnam are quite unique. When Nestl started its branch in Vietnam, it had to embed and institutionalize its core values there from scratch.

Nestl 's initial step was to translate the two documents, Nestl Management and Leadership Principles, and Nestl Corporate Business Principles, into Vietnamese. During translation, it was found that some concepts could not be translated literally. Literal translations would lead to some loss of intended meaning. Hence, some of the concepts were elucidated using Vietnamese metaphors and symbols. For example, recourse was made to the metaphor of the family. The sort of relationship that Nestl expects from employees was compared to the sort of relationship that exists between family members. The importance of teamwork and team spirit was likewise advocated by reference to family values. Thus, a document was created especially for Nestl Vietnam that encapsulated the Nestl core values in the local idiom. This document is given to every employee who joins the branch.

Before employees can join Nestl Vietnam, they have to satisfy the recruitment criteria. This includes whether the prospective employees can understand and appreciate the core values of Nestl , and align themselves with these core values. Individuals who will be unable to operationalize Nestl core values, because of either their background or their personality, are screened out. The background of a prospective employee is thoroughly checked. This is to ascertain what kinds of influence have conditioned him or her. At Nestl branches that have been in existence for some time, considerable autonomy is given to line managers in the matter of recruitment. In start-up branches like Nestl Vietnam, however, the HR department and top management are very closely involved in the recruitment process. They admit into their fold only those individuals who can subscribe to Nestl core values. Nestl believes that if employees are deficient in technical skills, but have the appropriate attitudes and values, they can be trained and learn those skills. On the other hand, values are more difficult to change. If prospective employees have attitudes incompatible with Nestl 's core values, then no amount of coaching can successfully bring them in line with Nestl 's expectations.

One of the core values of Nestl is that its employees should have intercultural competencies and be able to interact effectively with people from all over the world. Hence, as part of the recruitment process at Nestl Vietnam, prospective employees' attitudes to foreigners are assessed. Also assessed is how they view people from other parts of Vietnam. Preference is given to prospective employees who are tolerant and liberal thinking, and have experience of associating with people from diverse backgrounds.

Sometimes it transpires that prospective employees would not like to work with foreigners from other parts of Asia, such as Malaysians, Japanese or Taiwanese. They do not mind working with Europeans, however. In such cases, Nestl Vietnam tries to ascertain whether the prejudice emanates from ignorance or from a deep-rooted emotion. If it is the former, training and coaching can eradicate the prejudice, as can first-hand experience of working with Malaysian, Japanese or Taiwanese managers. This is particularly true of young recruits who are perceived as being malleable. They are very receptive to being guided by a coach or mentor, much more so than in the case of their European counterparts. Thien Luong Van My, currently Issues Manager - Public Affairs at Nestl headquarters in Vevey, Switzerland, and Country Head of Nestl Vietnam for the period 1996 “2000, comments:

They really enjoy this coaching like from an elder brother to a younger brother or sister. They really like to be guided not only about how they should work, but about how they should behave as well. And we pay a lot of importance to our newly joined recruits' patterns of interaction. We observe them closely. And the elder brother recommends to his younger sibling how he can improve himself. This system appears to be working for us. We started in 1996 with three employees. I had a driver and a secretary. Today, there are 300 employees with Nestl Vietnam, all of whom are committed to Nestl 's core values.

The core value of team spirit had to be nurtured with special effort at Nestl Vietnam in its early years. It is the experience of Nestl Vietnam that the Vietnamese are a fairly individualistic people. They may be loyal to a small group of people who are usually family members. Nestl Vietnam was in its crucial initial six years when headed by Thien, who is Vietnamese and grew up there. He therefore positioned himself as the patriarch of the company, somebody who could be considered an uncle or elder brother. He then capitalized on his position to encourage team spirit. He also ensured that team spirit was propagated in a manner appropriate to the Vietnamese culture. For instance, a practice integral to Vietnamese culture is showing respect and deference to elders . At Nestl Vietnam, a few units are headed by individuals who are younger than a few of their subordinates. A careful watch is kept on these individuals, to ascertain whether they treat those subordinates who are older than them with respect and regard.

Nestl Vietnam has tried to design approaches for institutionalizing the Principles that comprise the Nestl core values. For example, consider the Nestl Corporate Business Principle regarding protection of the environment:

• Nestl integrates environmental policies, programs, and practices into each business as an element of management in all its functions,

• develops, designs and operates facilities and conducts its activities taking into consideration the efficient use of energy and materials, the sustainable use of renewable resources, the minimization of adverse environmental impact and waste generation, and the safe and responsible disposal of residual wastes,

• applies Nestl internal standards suitable to local conditions in those regions where specific environmental legislation is not yet in place,

• improves environmental protection relevant to its activities on a continuous basis,

• provides appropriate information, communication and training to build internal and external understanding about its environmental commitment and action.

Nestl Vietnam has had to work very hard to inculcate the value of conducting business in an environmentally sound manner amongst its employees. Many of the non-management staff come from rustic backgrounds with no higher education. Hence, courses are organized regularly so that these staff members can be educated on how to conduct themselves in an environmentally friendly fashion. When any staff members deviate from the Nestl standards for hygiene and environmental protection, their lapse is pointed out to them. Newly joined staff members have to be told that trash should not be littered anywhere , but should be put into garbage bins .

On one occasion, a newly joined member of the cleaning staff was asked to clean the warehouse adjacent to a Nestl factory. He was asked to do this on a Sunday when there were no senior managers at the factory site. While cleaning, he threw some discarded paints and oil into the drainage system. It was entirely a spontaneous act. Fortunately, a manager came to know about this occurrence the following day, and the drainage system was stopped before it discharged its contents into a river flowing nearby. If the paints and oil had found their way into the river, a major catastrophe would have resulted. After this incident, Nestl Vietnam provided even more stringent instructions about hygiene and environment protection to its entire staff.

Another core value that had to be addressed explicitly by Nestl Vietnam was one termed 'Conflict of Interest' in the Nestl Corporate Business Principles document. This core value stated that Nestl requires its management and employees to avoid personal activities and financial interests that could conflict, or appear to conflict, with their jobs. In Vietnam, it is customary for people to hold more than one job. They might work for half a day at a primary job, and then be employed elsewhere, in a job that is in some way competitive with the primary job. Nestl Vietnam has had to adopt a firm stance here.

Thien and the other expatriate Nestl employees who set up Nestl Vietnam were succeeded by Vietnamese managers in early 2001. This has contributed to institutionalizing the Nestl core values at the branch. It also signifies that the branch has assimilated the Nestl core values. In fact, the job success of Thien and his expatriate colleagues is being evaluated in terms of the performance of their successors.

Inferences

Fostering of uniform core values in a global corporation is a key to successful intercultural management

The challenge of intercultural management for organizations lies in the appropriate juxtaposition of corporate culture and ethnic cultures. This is the challenge that Nestl , with its many, many branches located all around the globe, had to grapple with constantly. Ultimately, however, corporate culture transcends ethnic culture. In other words, corporate culture, which is governed by the organization's core values, is superordinate to other cultures such as ethnic culture. This has been the mode of functioning of all the organizations profiled in this book: Nestl , Credit Suisse, BMW, International Committee of the Red Cross, IBM, ICAS and so on. These companies have not specifically articulated that this is their mode of functioning. It may not even be recognized as a conscious strategy by the top management echelons. Certainly, the key players in the individual companies are not aware that this is a mode of functioning shared by high-performance transnational organizations. Nonetheless, we record in this book that this is the case.

The core values of an organization determine the nature of its corporate culture. The corporate culture can influence the mind-sets of its employees, which in turn will have been shaped by a wide variety of factors. For individual employees, one of these factors is definitely their ethnic culture. When an organization has branches in different locations and cultures, it is inevitable that those branches are affected by local cultures in more ways than one. In the first instance, the products and services offered by the organization must find a resonance in the local culture. Otherwise there would be no market for those products and services. Thus, Nestl offers many food products that are culture-specific in that they reflect the food preferences of the local consumers. One of Nestl 's food products is Maggi instant noodles. These noodles are available in a wide variety of cultures, and offer a feature that is appreciated in all these cultures - they can be prepared in a matter of minutes. However, the noodles are concocted differently in different cultures. In Switzerland, for instance, the noodles are sold with a cheese garnish. In India, Maggi masala noodles are a runaway success. Maggi masala noodles have a pungent, spicy flavour, which might not find favour in Switzerland. Likewise, Maggi noodles as sold in Switzerland would be too bland for the average Indian.

Local cultures can impact on organizations in more complex ways, however. They can influence (though not determine) corporate culture. This happens when a significant number of employees of an organization hail from a specific ethnic culture. The corporate culture of Nestl has a certain 'Swissness' about it, as observed by Hans J hr, Assistant Vice-President at Nestl headquarters. This is to be expected, since Nestl originated in Switzerland, and is headquartered in that country. However, the fact that Vietnamese personnel staff Nestl Vietnam signifies that elements of Vietnamese culture that are venerable are incorporated into Nestl Vietnam. This enables the Vietnamese workforce to be productive and happy. For instance, the notion of projecting the CEO of Nestl Vietnam as a father figure, who can then engage in team building by encouraging employees to think of each other as siblings, was an approach that reflected Vietnamese culture. This is a case where the dialectic between corporate culture and ethnic culture has been managed successfully. This in fact is an objective of intercultural management: to harmonize the juxtaposition of corporate cultures and ethnic cultures.

However, there may be individual employees whose cultural backgrounds give rise to values that conflict with the core values of an organization. The resulting dissonance can be resolved satisfactorily by the employees either leaving the organization, or modifying their values. In other words, the core values of an organization are superordinate. The International Committee of the Red Cross faces the dilemma of dealing continuously with conflicts between corporate culture and ethnic culture. For example, in Afghanistan they are determined not to uphold conventional local attitudes to the treatment of women. If this entails having to enact a more diminished role in Afghanistan, then so be it.

The dialectic between corporate culture and ethnic culture has been described by Nestl as follows : 'The Company's business practices are designed to promote a sense of identification among all employees all over the world, and apply a number of common rules, while at the same time adapting the expression of these rules to local customs and traditions' (Nestl Corporate Business Principles). This of course is easier said than done. However, it must be emphasized that high-performance companies have strong cultures with well-defined core values. These core values are capable of adaptation to local customs , traditions and cultures. They cannot be supplanted by the values of other cultures.

CASE DISCUSSION QUESTIONS

1. Why is Nestl successful in inculcating its core values in its branches around the world?

2. What is the dialectic between corporate core values and ethnic culture? How does this impact on the performance of cross-cultural managers?

3. What would be the differences in the dissemination process of Nestl core values in Vietnam and in Germany?

4. Do core values play a special role for a transnational corporation?

5. Should Nestl rest content with its core values? What likely modifications could Nestl make in the next decade ?

6. Why is it not incongruous for a transnational corporation like Nestl to have some core values that originate in Switzerland?