In an exclusive interview with CNBC-TV18, the global CEO of Nestle, Paul Bulcke said he is very optimistic about the emerging markets. According to him, the dynamics of emerging economies like India and China are likely to be positive for a long time. He further added that despite the problems in Europe, Nestle has been substantially growing its business there.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Let me start by asking you about a comment that you made when you took over and you said 2008-2009 were not the easiest years, but if you actually start at the turbulent times you hope that things will get better. Have things gotten much better since 2008-2009?
A: At least you get used to it. We are in for some turbulence for quite a few more years. If you see the debt crisis in Europe, it is not something that has been built overnight. It is not going to come to a solution overnight either. But, the positive trends are there to stay.
I see the emerging markets coming to the fore and that is not going to be for one year. It is going to be something that is a dynamic and this is going to be positive for a long time. I am always an optimist.
Q: You are an optimist and you hope that the emerging markets will continue to drive growth as far as Nestle is concerned. In fact, that is the big differentiator for both Nestle as well as Unilever in comparison to Danone or P&G for instance, because it has really been your emerging market growth that has been driving sales for you. But I want to pick up on that, because you have actually seen in Asia, Oceania and Africa sales down to 9.4 percent from 11.6 percent. You also believe that China, because of the way the Chinese economy has slowed down has not delivered as per your expectations or its true potential. What are your thoughts now as far as India is concerned and the emerging market in general?
A: We get spurred so fast. The emerging markets are really emerging. I see a refreshing embracing their destiny that we did not see in the past. This is a very, very strong dynamics that is going to come to you over time. We get used to double digit growth in these markets and we feel that should be the permanent way. We are speaking about growth on growth and if something comes to 7-8 percent, that is not bad.
Q: If you compare it to Europe it is not bad at all or the US.
A: But, that part of the world is an increasingly important part of the world and that is growing quite substantially at 5 to 7 percent. When these countries were growing above 10 percent they said, the engines go overheat and then it goes down a bit. I think we are all a little nervous lately, so I tried to maintain perspective on these things. Over time, I see 80 percent of the world population going for and working for a better tomorrow and that is what we want to be part of. That is where I see potential for the future. In the meantime, I do believe there is so much opportunity for a company like ours, even in the Europe of today and we have been growing in Europe.
Q: A substantial chunk of it.
A: Indeed. I do believe in the world of tomorrow, quite a substantial part of growth worldwide is going to come from where there is so much opportunity of growth still.
Q: You talked about nervousness. How nervous are you feeling about the emerging markets? I want to talk to you specifically about China and India because these were the markets that were giving everybody double digit growth. These were the economies that were expected to grow between 8 and 10 percent. China has come down to about 7 percent. India at best is probably going to do about 6-6.5 percent. What does that mean for a company like yours?
A: I am not nervous, I am alert and that is somewhere a strength of Nestle too. We are not only there, we are also in Africa, Latin America and we are growing in Europe. We really tried to see the opportunities everywhere in the world and building the capabilities to grow and go after these opportunities.
The fact that we have been growing in Greece inspite of the problems and our business is not directly related to GDPs. We are related to what consumers' building up of middle classes are going for and that is the interesting dynamics that actually inspires my optimism.
Q: Given the pressure points that we are seeing in various parts of the world, would it be fair to say that you will expect the next year to also deliver 5-6 percent sales growth that you have seen.
A: 5-6 percent growth is somewhere aligned, an average line that we want to walk over time and that I feel is a healthy line if you see the world economy growing at 3-4 percent or 2.2 percent. I do believe that there is ambition in this 5-6 percent. That is what we are aiming for.
Q: I want to talk to you specifically about the India growth story. I know you are in the close period here in India. But, you are talking about 5-6 percent growth. You have seen India in excess of 20 percent kind of growth numbers. What do you now expect as far as Nestle is concerned? Analyst community is pegging CAGR between 18-20 percent. Would that be a fair estimate?
A: The 5-6 percent that we express at Nestle is not something that is translated all over. Every country has other dynamics and what I said before it is the potential of that country that dictates in the area we are operating in.
Q: Double digit growth is a given even as far as India is concerned, no matter the slowdown in the economy.
A: We have been growing at double digit over the last year or so. You may have slower growth in India for 1-2 years. I do believe that intrinsically India has all characteristics of growth.
Q: You were talking about the reforms push that we have just seen in India, specifically with regards to the FDI in multibrand retail. How positive are you about that development? It has been in the making for several years now, in fact almost a decade and we have finally seen it being cleared by parliament. How significant a development is that from your point of view?
A: It has opened up the country for new dynamics, for new, healthy competition and that drives efficiency and effectiveness. I am positive about that in the sense that opening up brings so much more energy, so much more creativity and intensity. And if that is well framed, it can only be positive for the consumer.
Q: What are the things that people say about Nestle is that you have been one of the most aggressive players in India in terms of pricing. Is it clear that Nestle is not going to sacrifice margins to go after market share and that is going to be considered strategy going forward?
A: Pricing is a result of need for pricing. Normally, when raw material prices are going up or you have inflationary pressure etc, we don't go to pricing first, what we do is try to drive cost out. If you have raw material going up faster than foreseen, your intensity to go after driving results is even bigger. That is the first thing.
Secondly, we are primarily driving innovation, new products, but if raw material cost goes up how can you deliver the same nutrients, the same preference in taste? If we have taken all these actions and if there is still a need to increase prices because it would eat up margin, we have to do that because our profit margin is actually our future. That's how we finance our R&D, our innovation and that is how we also contribute to people who have trust in our company by putting their capital in.
That's a normal dimension. We have to do it wisely. We don’t have to do it straightaway and spread it over time because at the end of the day, it is a competitive environment. If you have a price and it is not responding to the value that you give to the consumer, they stay away from your products.
Q: You were talking about R&D and you are here in India to also inaugurate your new R&D centre in Manesar. Is India in a sense going to be the incubator of innovation for the emerging markets for Nestle?
A: It is going to be a part of it. We are inaugurating our R&D centre here and it is going to be part of an R&D set that Nestle has, which is 30 R&D centres in the world and India has conditions to drive a part of that. It is going to focus on PPP which is properly positioned products that have a holistic approach. A part of the population that has specific nutritional needs, has specific purchasing power, patterns, has specific part of distribution connect in a specific way to a local language. And that is going to be something that is going to be on the agenda of the new R&D centre.
Why, because here we have such a country where that plays well. That is going to be exported too because so many of these equations that are working here are exportable. We are going to work on our Maggi Noodles here. Why, because this is a good market for it and we can see what works well, what doesn't work well.
Q: After years and years of Maggi being the undisputed market leader in India, we have suddenly seen the environment become a lot more competitive and you have got a fierce competitor in ITC. What is your India team telling you about competition with regards specifically to Maggi?
A: I hope they are all prepped up because competition motivates. But, there is no such thing as no competition because that is always part of a diet and a diet has many opportunities of being constituted in different ways. In that sense, there is more direct competition which is why we set up the R&D to keep ahead.
Q: What kind of investments are you going to be making into the R&D facility and what kind of incremental investments can we expect from Nestle into India? We have seen a fair amount of capacity utilization and we have seen a fair amount of expansion but what more can we expect?
A: In the last years we have invested a few million dollars or Swiss Francs into India. We saw that acceleration of growth and we needed a capacity. That's a positive investment. In India recently we have invested 50 million Swiss Francs and that's the base. We are going to have 50-60 people working there. That is a start and it depends on how much creativity and new approach we can take out of the R&D centre.
Q: I want to talk to you about what is happening as far as Nestle’s global business strategy is concerned. We have got the Pfizer acquisition, one of the largest that you have actually done in a decade as far as Nestle is concerned. It is still awaiting regulatory compliances and it is not a done deal just yet, but is inorganic growth going to be a big part of your strategy?
A: It has always been. The first thing we embrace is what we have and we make that grow. I think Nestle is present in quite a good set of product categories. We believe in it and that is why we have our own R&D to grow what we have in our hand because we feel we have a complete set of products where we can make meaningful acquisitions.
Q: Growth acquisitions is what you call them.
A: Growth acquisitions should be accredited to what we call ‘The Nestle Model’ which was profitable growth and basically that is common sense for success. We have to take a key area normally when we went for acquisition. First one is that it has to make strategic sense. Second is that it should make business sense and financial sense. The third one is a very important one. It should also be a company that has and shares the same values, the same way of coming about its business. We have a little bit in the sense of this Creating Shared Value (CSV) Forum and that culture is what brings the positive fit. But, the proportion of organic growth and acquired acquisitions is a balance that we have kept in the same proportion.
Q: I want to talk to you about the Creating Shared Value Forum that you are doing in India and this is the first time that you have actually decided to hold a forum in an emerging market. In India at this point in time, there is a lot of talk about whether or not the Indian government should mandate Corporate Social Responsibility (CSR), CSV as you would like to call it. Do you believe making spending mandatory on things like Creating Shared Value or Corporate Social Responsibility is the right way going forward or should companies be allowed to voluntarily decide how they go about it?
A: I would say neither of the two. If you see Creating Shared Value is a concept that actually embraces one thing which is a company being socially responsible should have that embedded sense in its own business strategy. Going about business should be Creating Shared Value.
It is a fundamental belief of Nestle that if we want to be successful as a company over time, we have to be successful in linking up positively with society. I would say going about society should not be done by the company on December 31. It should be done during every moment of the year, by its own activity and that I feel is the compelling concept behind this. It is embedded in the business strategy of a company.
Q: I remember you saying that Nestle does not necessarily need a revolution, it needs an evolution and there is a lot of energy. It is not anxious or hectic, but there is a lot of energy. What can we now expect in terms of evolutionary ideas and evolutionary alignment from where you are today for Nestle?
A: It is hard to express just this spectacle saying tomorrow we are going to have a Plan B, C or D. It is this continuous going towards what we feel is a certain strategic direction. Creating Shared Value is a concept that I think we have been doing and living ever since Nestle was created.
We started by inventing a product that saves life. That is still pretty much in the making and the linking of society is why we do these forums. That is a continuum. I do believe this whole energy of connecting with the emerging markets and how we have invested dramatically fast and more in the last years is an evolution that we have to work on.
We want to be characteristic of no disruptive restructuring. We actually build our success over time in a very continuous way. That is linked with the fact that we are very critical to ourselves. There is nothing worse than complacency. If you have complacency then you have to do these big jumps and I think that is one of our strengths.
Q: Part of the CSV program is of course the focus on water and there has been a lot of attention that has been focused on your India team about when Nestle is actually going to get into the water business here in India? Has there been any rethink on that as far as Nestle is concerned?
A: That we have to see, but we embrace our Creating Shared Valued. We embraced three dimensions because we feel that's where we can create a mutual interest that creates a shared value. There is nutrition, nutritional food, water and rural development. Water is very important to us because it is our livelihood as humanity but, we as a company linked with agriculture produce, with food, water is so much more important for us.
The first thing we do is what can we do about water? First of all, put a problem and give it a right priority and be vocal in the discussion about water. I think Nestle has done that quite visibly. But, also go about yourself to find out how we can reduce water consumption in our factories and that is our water commitment. It is not to have water businesses everywhere because it has to be something that is economically sound.
Q: It doesn't make economic sense for you to get into the water business in India?
A: I don't know. We are not there, there must be some reason.
Q: I remember you said that running a business today is like watching a Roger Federer match because he makes it look easy. How hard is it to actually run a conglomerate like Nestle in an interconnected world, it could be Egypt today, it could be China tomorrow, it could be India, how hard is it for you to run Nestle in turbulent times like this?
A: I want to say it for me, I am not alone but what I said about Nestle and Roger Federer was that when you see him play it looks he is on top of it. They say that sometimes about us too. It is believed that the crisis doesn't affect you. I am sorry to say we are very intense, that is what Federer does too and he is really training hard and is very intense.
But he does that so well and so intensively that it looks like the same is happening with Nestle. Sometimes you say the crisis doesn't affect you, you are delivering your promises and then I say, we have been waking up half an hour earlier because there is a crisis and I think that is how we go about it.
We also have a structure that is totally decentralized. We have and and share a common vision, common values and that is how you can decentralize. We are tapping into the energy of all these people. We don't macro manage because we really delegate and empower the people in the market.
The man responsible for Nestle in India is the one who really manages Nestle here in India and that's our strength.- there is a strategy, there is a strategic direction.
More to come.