2021/2022–Semester I

MKT-264: Assignment-1 (5%)

Submission due date: 9th Oct 2021

Students are required to read the case thoroughly and answer the
question keeping in mind the concepts presented in this case

Case study Questions

1. Describe what is meant by the supply chain. (1marks)

2. Using examples from the case study, analyse how Nestle’s Creating
Shared Value contributes to its corporate social responsibility
activities. (5 marks)
3. Evaluate how the values of an organisation can be used to benefit
the different groups of stakeholders. (4 marks)

Good Luck

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Introduction

Nestlé is the world’s leading nutrition, health and wellness company. It employs around
330,000 people and has 461 factories in 83 countries around the world; almost half of
these are in developing countries. In the UK, Nestlé employs more than 7,000 people
across 19 sites. The company is one of the UK and Ireland’s major exporters, exporting
over £300 million worth of products every year to over 50 countries around the world.

Nestlé is a household name within the UK, producing some of Britain’s most popular
brands such as KIT KAT®, NESCAFÉ®, SMARTIES®,GO CAT® and
SHREDDIES®. Over one billionKIT KATs are produced in the UK every year.

Nestlé has a series of corporate business principles designed to guide the way in which
the organisation and its employees operate. These principles are at the basis of Nestlé’s
culture and aim to protect the trust of its consumers and other stakeholders. The
principles and their associated policies are concerned with activities related to:

• consumers
• human rights and labour practices
• employees
• suppliers and customers
• the environment.

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Nestlé works within the secondary sector of industry, creating and supplying products
to customers. It converts raw materials into finished goods for consumers to enjoy. Raw
materials used in many of Nestlé’s products are sourced from the primary sector. For
example, Nestlé brands such as KIT KAT, AERO® and SMARTIES contain cocoa
sourced from cocoa farmers around the world.

Nestlé works with cocoa farmers in order to help them run profitable farms and
eliminate child labour, whilst developing a sustainable supply of cocoa for Nestlé
products.

This case study looks at the importance of applying the principles of corporate social
responsibility to a business’ activities. It will demonstrate how Nestlé creates shared
value within its cocoa supply chain to enhance the lives of cocoa farmers whilst also
improving the quality of its products for consumers.

Corporate Social Responsibility

In Business Studies curriculum terms, Corporate Social Responsibility (CSR) involves

the business taking a broad view of its activities, looking beyond profits for
shareholders and focusing on other stakeholders. A stakeholder is anyone that has an
interest in or may affect the decisions and actions of a business. Stakeholders can be
internal or external to the business. Internal stakeholders include employees and
shareholders. External stakeholders include suppliers, customers, the communities in
which the business operates and the environment.

For companies like Nestlé, which work with suppliers from a range of countries, many
in poorer regions of the world, it is becoming increasingly important to take a wider
view of its responsibilities. Nestlé believes for a company to be successful in the long
term and create value for its shareholders, it must also create value for society. It calls
this Creating Shared Value.

Creating Shared Value has become an integral part of the way in which Nestlé does
business. It is based on compliance with international laws and codes of conduct, the
company’s business principles and a focus on environmental sustainability. However,
Creating Shared Value goes beyond compliance and sustainability. It aims to create
new and greater value for society and shareholders in the areas where the company can
have the biggest impact – nutrition, water and rural development. These are core to its
business activities and vital for its value chain:

• Water: because the ongoing quality and availability of it is critical to life, to the
production of food and to Nestlé’s operations.
• Rural development: because the overall well-being of farmers, rural
communities, workers and small businesses and suppliers is intrinsic to the
long-term success of Nestlé’s business.

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 • Nutrition: because food and nutrition are the basis of health and of Nestlé’s
business as the leading Nutrition, Health and Wellness company.

Nestlé actively seeks engagement and partnerships with external stakeholders to

optimise positive impact. It aims to use the power of its core activities and partnerships
for the joint benefit of the people in the countries where it operates and of its
shareholders.

Global principles and goals set by organisations such as the United Nations also help
to shape a company’s approach to corporate social responsibility. For example, Nestlé’s
Corporate Business Principles incorporate the 10 United Nations Global Compact
Principles on Human Rights, Labour, the Environment and Corruption. Nestlé is an
active member of several of the Compact’s Working Groups and Initiatives.

Creating Shared Value along the supply chain – The Nestlé Cocoa Plan

Supply chain activities transform natural resources and raw materials into finished
products which are delivered to the end consumer. Each stage of the process adds value
to the overall end product.

Nestlé operates within complex supply chains. Its cocoa supply chain goes from cocoa
bean to chocolate bar. This path starts with cocoa from farmers, who grow the crops; to
cooperatives, which manage the sale of the crops; to processors and manufacturers,
such as Nestlé which create chocolate products; to retailers such as supermarkets; and
finally to consumers who purchase the products.

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Nestlé sources materials from thousands of farms, many of them small farmers in
poorer rural regions of the world. In many rural communities, a lack of investment in
infrastructure has a serious impact on the quality and quantity of raw materials that
Nestlé and other companies rely on. Nestlé provides training in order to encourage
sustainable production, protect the supply and quality of its raw materials and have a
positive, long-term impact on the local economy and farmers’ standards of living.

Around two-thirds of Nestlé’s worldwide expenditure is on raw materials. Nearly 40%

of this goes on three main ingredients: milk, coffee and cocoa. Cocoa is the main
ingredient in chocolate and as such is vital to Nestlé. It comes from cocoa beans that
grow in a pod on a cocoa tree.

The Nestlé Cocoa Plan was launched in October 2009 in the Côte d’Ivoire, Africa. It is
a prime example of Nestlé’s Creating Shared Value approach to business and involves
investment of £67 million between 2010 and 2020, building on £37 million in the 15
years before the plan. The initiative aims to help cocoa farmers to run profitable farms,
respect the environment, have a good quality of life and give their children a better
education.

However, it also aims to ensure a sustainable and high quality supply of cocoa for
Nestlé in the long-term. Some of the areas it focuses on to achieve this are improved
farmer training, buying from cooperatives and paying a premium, and working with
certification programmes such as Fairtrade. This creates value through the supply chain,
particularly for farmers and their families along the way.

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The Cocoa Plan has become a key way in which Nestlé is tackling issues facing cocoa
farmers as well as their families and communities. Nestlé sources most of its cocoa
production from Côte d’Ivoire. Both the quality and quantity of cocoa supplies are in
decline. The average cocoa farmer is over 55 years old and so the industry needs to
consider where the next generation of cocoa farmers will come from. Many younger
people in the region are leaving the countryside to work in cities. As a result there is a
shortage of labour and skills. Ultimately, the aim is to raise the standard of living of
cocoa farmers to ensure a new generation of cocoa farmers will take over and benefit.

Benefits of responsible behaviour

The Cocoa Plan is a clear example of Nestlé Creating Shared Value both for the
company and for cocoa farmers, their families and their local communities. Through it,
Nestlé benefits from ensuring the supply of high-quality and sustainably sourced cocoa
for its products. It also ensures it supports the cocoa farming community’s development
and meets certified ethical and environmental standards.

Nestlé’s focus on improving supply has delivered benefits in many areas:

a) Investing in plant research - By developing higher quality seedlings which produce

typically 50%–200% more cocoa, this enables cocoa farmers to grow more and sustain
a higher income. Nestlé has set up a Research and Development Centre in Abidjan in
the Côte d’Ivoire to support the development of higher-yielding, disease-tolerant cocoa
plantlets.

b)Investing in training farmers – Training farmers to understand better crop

management techniques and pest management, as well as improving their awareness of
child labour issues helps to improve outputs and boosts farmers’ incomes.

c)Improving social conditions – Nestlé has set up a partnership with the World Cocoa
Foundation to build and repair schools within the cocoa farming regions and support
cocoa farmers and their families. This will mean that attending school will become a
more attractive and viable option for parents and children and that the risk of child
labour will be reduced.

d)The Fairtrade and UTZ labels – Crops are certificated under the Fairtrade label.
Nestlé pays a premium for its cocoa beans, which improves the growers’ levels of
income and helps to secure the future growth of communities. Nestlé is also the first
food company to join the Fair Labor Association (FLA) and has its work in Côte
d’Ivoire assessed openly and independently.

The Cocoa Plan is an evolving and growing programme. Each year more cooperatives
of farmers are being added to the plan. The plan has also been extended to other
countries such as Indonesia, Ghana, Venezuela and Ecuador.

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Communicating with stakeholders

Effective communication with stakeholders is also an important element of responsible

business behaviour. For Nestlé, engaging with stakeholders underpins Creating Shared
Value. It enables it to identify emerging issues, shape its responses and continue to
drive improvements in its performance. Topics raised by stakeholders are discussed
with them in a variety of local and international forums. These include: nutrition, health
and wellness; education and access; Nestlé’s role in public policy issues; auditing and
disclosure of infant formula marketing practices; and food safety.

Nestlé engages with stakeholders through a variety of ways. For example:

• Through Nestlé’s annual reports and Creating Shared Value reports, stakeholders can
see where funds are invested, how the company is addressing issues such as
environmental performance and the positive impact of Creating Shared Value activities.

• Stakeholder convenings, held in various countries where Nestlé has operations,

communicate its approach and invite feedback on its Creating Shared Value efforts.

• The Nestlé Supplier Code establishes the minimum standards that its suppliers, their
employees, agents and subcontractors need to meet. This demonstrates how Nestlé is
committed to developing responsible practices right through its supply chain.

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• The Nestlé corporate website contains information on all company policies, principles
and activities.

• There are dedicated websites to key projects such as the Cocoa Plan. These sites bring
together all the detail of the initiative in an easy-to-read and understandable way.

• This case study aims to help to reveal to young people the complexities of global
supply chains and how companies such as Nestlé respond to these issues.

The Cocoa Plan has led to numerous partnerships with other organisations such as the
Fair Labor Association and the Red Cross/Red Crescent societies. These relationships
help Nestlé to fight illegal labour practices. Nestlé also has partnerships with supply
chain organisations and governments which support good agricultural practices. These
practices have created benefits for stakeholders across the industry, including
consumers, shareholders, farmers and other partners. For example, one partnering
initiative with the Co-operative Group is paying for educational packs for schools in
the Côte d’Ivoire region.

Conclusion

Creating Shared Value has enabled Nestlé to adopt a wider focus to its responsibilities.
In doing so, it has been able to bring about a whole series of benefits to stakeholders,
whether they are farmers and their communities, shareholders or consumers.

The Cocoa Plan is Nestlé’s way of dealing with issues facing cocoa farmers and their
communities. This is a long-term process that has created better outcomes for all
involved in the cocoa industry. It has enabled Nestlé to support local communities as
well as improving both the quality and output of cocoa.

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