A staff member at the Nestlé Coffee Center in Pu'er, Yunnan Province, conducts quality control checks (COURTESY OF Nestlé (CHINA) LTD.) 

A long time ago in a city far, far away, there was a long-standing tradition of planting a special type of Chinese tea—Pu'er, giving the city its name in recognition of the tea.

Surprisingly enough the remote city, situated in southwest China's Yunnan Province, was chosen as the location for a coffee center with a total investment of 50 million yuan ($7.2 million) from Nestlé, the world's largest food and beverage company, in March 2016. The center trains local coffee growers, carries out experiments and stores coffee beans at appropriate temperatures and humidity.

Nestlé's story with Pu'er, however, dates back almost three decades. Early in 1988, the Swiss-headquartered conglomerate began developing coffee farming in the city. The company's agronomists gave on-site, free and on-demand training and technical assistance to local coffee growers, mainly in remote ethnic areas, with the aim of improving yield and quality and imparting market knowledge.

In recent years, along with the increasing global popularity of Pu'er coffee, Nestlé has been supporting local farmers by providing them with training for the Common Code of Coffee Community (4C) certification—a widely accepted standard by international coffee purchasers. The move has greatly increased the farmers' income and lifted many families out of poverty.

“Nestlé's confidence in the Chinese market is not empty talk, but is reflected in continuous investment and long-term strategies. Nestlé is here for the market, but it also wants to be integrated into the local economy. Nestlé has already become an indispensable part of China's dairy and coffee supply chain.” 

—Jonathan Dong, Vice President of Corporate Affairs at Nestlé (China) Ltd. 

Continuous success 

Nestlé started trading activities in China in Hong Kong in 1874 and opened its first sales office in Shanghai in 1908. It was also among the first batch of multinationals to enter the Chinese market after the country started its reform and opening-up drive in the late 1970s.

Nestlé's first factory in China was set up in Shuangcheng, northeast China's Heilongjiang Province, in 1990. In preparation for its launch, the company started collecting milk from local dairy farmers since 1987, so as to ensure the factory could use locally-sourced ingredients, rather than importing milk powder from abroad.

Today, China has already become Nestlé's second-largest market, with sales revenue of 7.1 billion Swiss francs ($6.92 billion) in 2015. Nestlé employs roughly 53,000 staff in China and has established 34 factories in the country. It has also formed joint ventures with leading Chinese brands such as Totole, Yinlu and Hsu Fu Chi. Its wide-ranging product portfolio in China covers coffee, chocolate, confectioneries, dairy products, ice cream, mineral water and pet food, and more than 90 percent of its products sold in China are locally manufactured.

In the harvest season from December 2015 to March 2016, Nestlé purchased around 12,000 tons of coffee beans and 470,000 tons of fresh milk in China.

"A global food company has to localize its products," Jonathan Dong, Vice President of Corporate Affairs at Nestlé (China) Ltd., told Beijing Review. He also attributed Nestlé's success in China to its stringent supply chain management as well as its Swiss reputation, which is considered a benchmark for quality products by many Chinese.

With its "good food, good life" philosophy, Nestlé has four research and development centers in Shanghai, Beijing, Dongguan in south China's Guangdong Province and Xiamen in southeast China's Fujian Province, as well as a food safety research institute in Beijing. These institutions are important components of Nestlé's global research and development network for conducting science-based research and innovation. "When talking about innovation, the first thing that comes to people's mind would be those flashy technology terms such as big data and cloud computing. However, research and development efforts behind food products are as much as, if not more than, those for hi-tech devices," Dong said.

In the face of rising concerns over dairy safety in China, Nestlé established a world-class dairy farming institute in Shuangcheng in October 2014 to help China accelerate the development of its milk industry. The organization has served as a platform for dairy farmers across China to acquire knowledge and skills as well as to communicate with leading universities, companies and research institutes.

"Nestlé's confidence in the Chinese market is not empty talk, but is reflected in continuous investment and long-term strategies," Dong said. "Nestlé is here for the market, but it also wants to be integrated into the local economy. Nestlé has already become an indispensable part of China's dairy and coffee supply chain."

In April 2016, China and Switzerland agreed to formulate an innovative strategic partnership to promote common development and prosperity.

Switzerland was one of the earliest Western countries to establish diplomatic ties with the People's Republic of China. It was also one of the first European countries to recognize China's market economy status and the first in continental Europe to reach a free trade agreement with China.

"The pioneering and innovative spirit is a distinct feature of China-Switzerland relations," said Chinese President Xi Jinping during a meeting with Swiss President Johann Schneider-Ammann in Beijing on April 8, 2016. He called on the two sides to beef up innovation cooperation on the basis of expanding free trade and financial cooperation.

Dong said the Sino-Swiss innovative strategic partnership is a great boost for Swiss companies' confidence in the Chinese market. According to him, Nestlé walks a fine line between catering its products to Chinese tastes while simultaneously maintaining differentiation from local brands.

"Products that are deeply associated with Western culture or technologies, such as coffee, chocolate and baby formula, are branded as Western products, while traditional Chinese food, such as Chinese pastries, snacks and Spring Festival candies, are put under local brands that Nestlé has set up joint ventures with," he said.

Students attend a milking course at the Nestlé Dairy Farming Institute in Shuangcheng, Heilongjiang Province (COURTESY OF Nestlé (CHINA) LTD.) 

Embracing challenges 

As e-commerce and the mobile Internet have recorded stunningly fast growth in China, Nestlé is also quickly adapting itself to the ever-changing business environment. The company has set up a special department to focus on e-commerce affairs, ranging from coordinating product development with online sales to consumer services.

Nestlé has over 2,000 brands across the world. E-commerce has made it possible and more convenient for it to bring those products to Chinese consumers, according to Dong.

"E-commerce is so much more than just a sales channel. It's a completely new business model. To that end, Nestlé has invested heavily, and some segments have been enjoying double-digit growth. We have very good cooperation with major online shopping sites such as Tmall.com and JD.com," Dong said.

According to a 2014 business confidence survey conducted by the European Commission, 46 percent of 552 European businesses surveyed believe the "golden era" for multinationals in China has ended, amid tougher business conditions in a slowing economy.

Dong, however, disagreed with the conclusion, asserting there are still many opportunities. "The market has its ups and downs. It's natural. If a company fails to cash in on the enormous Chinese market, it must be the company's problem, not the market's problem," Dong said. "As long as a company has good products and good consumer communication, selling products is never a problem in such a vast market as China, especially at a time when Chinese people are paying more attention to food safety than ever before."

According to a report on China's food industry in 2017 jointly issued by Bright Food (Group) Co. Ltd. and Rabobank, Chinese consumers' food expenses are expected to grow around 50 percent in the next 10 years to reach over $1 trillion.

"The food industry is quite special. It's always a sunrise industry. People could stop buying this and that, but no one could stop buying food," Dong said.

Over the past 10 years, Dong said his work efficiency has greatly improved, and government officials he's dealing with have become more and more professional. "We don't have too much to complain about," he noted.

However, one thing that needs improving is for local law enforcement authorities to be more aware of the latest law or regulation changes, Dong suggested. "In China, there are so many laws and regulations being unveiled all the time, while local enforcement authorities may have a different understanding of them from central authorities. We have to communicate with them and close the gap between central and local authorities," he explained.

Copyedited by Dominic James Madar 

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