Nestle

This video is from http://www.youtube.com/watch?v=ys3kHnSfzyo

      How many of you are there who love chocolate Kit-Kat, Smarties and Drumstisk icecream? Did you know that all of the these is Nestle products? Whether we realize it or not, actually many of us use Nestle brand products as it is available everywhere. In fact, often times we have seen this product advertised in the television to attract us to buy Nestle products. Do you know what is “Nestle” means?  The word “Nestle” is taken from the German language which means little nest. “Now-famous symbol is universally understood to represent nurturing and caring, security, nourishment and family bonding” (Nestle, 2013). Nestle Group is the world's largest food manufacturer. Their headquartered in Vevey, Switzerland ( Nestle, 2013). Henry Nestle who is German’s pharmacist is the founder of Nestle in 1866 (Nestle, 2013). In 1867, Henry Nestle has launched  Farine lactée. The idea to make Farine lactée is get, when he want to help an ailing premature infant who is his neighbor child ( Nestle, 2013). This kids is unable to accept his mother’s milk. On 1905, The Anglo-Swiss Condensed Milk Company has merged with Nestle. Nevertheless, they had to compete with each other all this while. In 1925, Milo is introduced and in 1938, Nescafe coffee was launched followed by Nestea in the early 1940’s and Maggi products in 1947. Nestle is also well known in Malaysia because it has been in Malaysia over 100 years since 1912. Nestle Malaysia also has been entered the Bursa Malaysia since 1989. You can find it in the main market named Nestle (Malaysia) Berhad (BursaMalaysia, 2013). Nestle also is the largest Halal food producer and until now, there are more than 500 halal products has been produced. Nestle is such a high quality brand product. It offers variety of products of baby foods eg : Nestum, chocolate & confectionery such as Kit Kat, coffee eg: Coffee 3in1 , culinary, chilled & frozen food eg : Maggi and many more.

Nestle Malaysia is a normal goods. When price of Milo rises, there will be negative substitution effect. It means, consumer will buy less of Milo and find other substitutes products such Vico. This is reinforced by a negative income effect with respect to the price rise. When the price rise, it reduces people incomes. This will cause the people to buy less. More over, it is monopolistic competition. This is because, Nestle Malaysia has fulfill all the characteristics of monopolistic competition. Nestle has large number of sellers that selling differentiated product such as packaging and quality. Hence, the demand curve is fairly elastic.

It also has many close substitutes. For example, Maggi in Malaysia has to compete with Mi Sedaap and Cintan. However, Maggi has a strong brand influence. This is due, even if some of us who buy other brands like Cintan, we still call it by the name Maggi. Besides that, there is no barrier to entry/exit in Malaysia market.

In economics, resources are called inputs or factors of production whereas goods produced are called outputs. Nestle Malaysia has more than 5,000 employees. The first factory is built at Petaling Jaya and until now, there are a total of seven factories in Malaysia. Their headquartered is in Mutiara Damansara, Selangor. Take MILO is an example of Nestle product. According to the Law of Demands, when price increase, the quantity demanded decrease with a condition other things remain the same (Sloman, Wride, Garatt, 2012, p. 32). Therefore, when price of Milo is increase, the quantity demanded for Milo will decrease. There are two determinants of Milo. Firstly, price of related goods (substitute and complement).

 The substitute for Milo is Vico. When the price of substitutes (Vico) increase, the demand for the good (Milo) increase. This will cause the demand curve to shift to the right. The cross elasticity of demand is positive.

This graph is taken from http://wizznotes.com/economics/markets-and-prices/shifts-in-the-demand-curve

On the other hand, the complement for Milo is condensed milk (eg: F&N Sweetened Vitamised Milk). When the price of complements (F&N Sweetened Vitamised Milk) rises, the demand for Milo decrease. Hence, the demand curve will shift to the left. The cross elasticity of demand is negative.

This graph is taken from http://wizznotes.com/economics/markets-and-prices/shifts-in-the-demand-curve

Secondly, income. In general, when income increase, consumer will buy more. So, the demand curve shift to the right. Since Milo is a normal good, as the income increase, the demand for Milo increase as well.

According to the Law of Supply, when price is increase, the quantity supplied is increase at ceteris paribus (Parkin, 2010, p. 64). Thus, when the price of Milo is rise, the supply for Milo is increase. One of the factor that can affect the supply of Milo is price of factor of production. In this case, if the labour of Nestle increase, the cost of production is also increase and so, the supply will fall.

 

 This graph is taken from http://users.chariot.net.au/~mjarrett/Devel/Demand/Dtheory1.htm

Since Nestle has established well in Malaysia’s market and managed to survive and success until today, Nestle is belong to the long run production. Nestle can change their variable cost.