Start-Up Business Consulting Firm

How is this a strategic challenge for Nestle? How is it an international strategic challenge?

Nestle company’s water extraction controversies pose a multifaceted strategic challenge internationally. It risks the company’s ethical position and reputation since it is associated with water exploitation in affected areas, resulting in an unhealthy environment (Morris, 2016). It undermines global trust amongst consumers, negatively affecting sales and market presence. It also raises regulatory challenges in different countries, leading to enforcement actions and further operational complexity. Succeeding at it calls for a balance of profit-making against responsibilities clearly defined by culture and jurisdiction wherever it operates. A single effective program on water extraction suits all different socioeconomic contexts and countries in which Nestle operates.

What kind of effects does this challenge have on Nestle? How does it harm them?

Due to the challenge, Nestle suffered a loss of corporate reputation, market acceptability, and stakeholders’ confidence, impeding prospects for survival in an ever-informed environment. This poses a significant challenge to the potential growth of the company. It weakens the relationships between the company and the stakeholders (Parag et al., 2023). Such legal conflicts consume resources essential for initiating economic growth efforts in a company. Such publicity negatively impacts Nestlé’s international persona, reducing its rating while raising doubt about its ethical and responsible principles. It tarnishes customers’ views and perceptions of the company, translating into fewer sales and less authority in the market. It also hinders the innovation process and partnering.

The international external business environment

Analyse aspects of the international external macro and industry environments that are relevant to the challenge identified earlier.

First, regulatory variances between countries explain the Nestle water extraction scandal. The reason is that the company operates in different regions and countries where the regulations on water extraction differ. For example, obtaining water rights in the United States is complicated, so Nestlé will have to get permission to extract water from the authority of a town (Perkins, 2019). The specifics and conditions of these permits may differ from state to state, thus requiring some procedure. In California, where there is a notorious lack of water, regulation may be more severe than that of a state with adequate water supply (Perkins, 2019). This is also evident in Europe, where companies must comprehensively assess their environmental impact before establishing water projects (European Commission, 2023). Therefore, Nestle must navigate different regions’ legal and regulatory frameworks to avoid bad publicity on its operations. The second aspect is the industry aspect, where the increased demand for bottled water might have led to Nestle being a food and beverage company expanding to the water bottling niche. According to Parag et al. (2023), bottled water has become increasingly popular worldwide for various reasons, including changes in consumer tastes, uncertainty regarding the safety of tap water in some regions, and lifestyle issues. Therefore, the growing market niche could have accelerated the Nestle water extraction scandal.

Source: (Grand et al., 2023)

 Use relevant theoretical frameworks to support analysis as necessary. [PESTEL] – use the PEE format

The water extraction practices of a Swiss multinational enterprise, Nestlé, have raised the question of strategic challenge and global criticism that the company profits during water scarcity. This problem goes beyond boundaries, impacting Nestlé’s image in Europe and North America. In the political dimension, the company faces intense tensions on accusations of offering insufficient compensation on the water extraction issue. As a result, it has ignited political debates, raising questions about Nestle’s ethical practices, which have led to legal challenges and regulatory scrutiny (Alexandra, 2018). For example, the governments from regions that Nestle’s water extraction practices have impacted will respond with stricter regulations and file lawsuits against the company to protect its local communities. Second, from an economic perspective, the company faces public backlash from its water extraction practices, impacting its financial performance and sales. This is especially true in the regions impacted by water scarcity, where the initial demand for the company’s products has drastically decreased. Zeng et al. (2020) support this, stating that with increased consumer awareness of social responsibility, companies’ customers are boycotting companies that do not observe social responsibility. Third, from an environmental perspective, Nestle has disrupted the sustainability image that it had implanted in its customers and other stakeholders and is under threat due to the negative environmental impacts of the company’s water extraction processes. Kumar et al. (2021) state that this reduces the company’s customer base, especially the environmentally conscious ones. As a result, this could impact the company’s market positioning as a sustainable and responsible corporate entity.

Source: (Winter, 2017)

Recommendations

1. Transparency and stakeholder engagement.

Nestlé company can consider engaging with NGOs, local communities, and authorities to identify and fathom the pressing concerns about water extraction and establish fair policies (Bokova, 2013). Collaborating with experts and abiding by sustainable water management practices will showcase their commitment to responsible water usage. Also, engagement and collaboration will assist in increased support to ensure that the desired management practices are adopted.

2. Invest in technology and conservation initiatives.

Nestle could proactively deal with the challenge of its freshwater collection operations by investing in advanced technologies and creating efficient conservation initiatives (Yang et al., 2022). For example, Nestle can plant trees, restore watersheds, and promote community-based water conservation at its operation locations. Such an approach shows the willingness to restore the ecosystems and save the drinking water supply. Above all, such investments would indicate that Nestle is an environmentally-friendly company.

References

Alexandra, S. (2018). While Nestlé extracts millions of liters from their land, residents have no drinking water, The Guardian. Available at: https://www.theguardian.com/global/2018/oct/04/ontario-six-nations-nestle-running-water

Bokova (2013) FREE FLOW REACHING WATER SECURITY THROUGH COOPERATION, Unesdoc.unesco.org. Available at: https://unesdoc.unesco.org/ark:/48223/pf0000222893

European Commission (2023). Environmental impact assessment, Environment. Available at: https://environment.ec.europa.eu/law-and-governance/environmental-assessments/environmental-impact-assessment_en

Grand Review Research (2023). Bottled water market size, share & trends report, 2030, Bottled Water Market Size, Share & Trends Report, 2030. Available at: https://www.grandviewresearch.com/industry-analysis/bottled-water-market

Kumar, A., Prakash, G. and Kumar, G. (2021). ‘Does environmentally responsible purchase intention matter for consumers? A predictive sustainable model developed through an empirical study, Journal of Retailing and Consumer Services, 58, p. 102270. doi:10.1016/j.jretconser.2020.102270.

Morris, R. (2016). Nestle: Bottling water in Drought-hit California, BBC News. Available at:

Parag, Y., Elimelech, E. & Opher, T. (2023). ‘Bottled water: An evidence-based overview of economic viability, environmental impact, and social equity,’ Sustainability, 15(12), p. 9760. doi:10.3390/su15129760.

Parag, Y., Elimelech, E. & Opher, T. (2023). Bottled water: An evidence-based overview of economic viability, environmental impact, and social equity, MDPI. Available at: https://doi.org/10.3390/su15129760

Perkins, T. (2019). The fight to stop Nestlé from taking America’s water to sell in plastic bottles, The Guardian. Available at: https://www.theguardian.com/environment/2019/oct/29/the-fight-over-water-how-nestle-dries-up-us-creeks-to-sell-water-in-plastic-bottles

Winter, C. (2017). Nestlé makes billions bottling water it pays nearly nothing for, Bloomberg.com. Available at: https://www.bloomberg.com/news/features/2017-09-21/nestl-makes-billions-bottling-water-it-pays-nearly-nothing-for#xj4y7vzkg

Yang, X. et al. (2022). Dual effects of technology change: How does technological progress affect China’s water consumption?iScience. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9263992/

Zeng, T., Audrain‐Pontevia, A. and Durif, F. (2020). ‘Does Corporate Social Responsibility affect consumer boycotts? A cost-benefit approach’, Corporate Social Responsibility and Environmental Management, 28(2), pp. 796–807. doi:10.1002/csr.2089.