Dr Batato is the Executive Vice President and Head of Operations at Nestlé. He is responsible for Procurement, Nestrade, Manufacturing & Engineering, Supply Chain, Quality Management, Agriculture, Water Resources, Safety & Health, Environmental Sustainability and Operations Strategies. Before taking up his current position, he served as Nestlé Pakistan’s Managing Director for three years. He received his PhD from École Polytechnique Fédérale, Lausanne (EPFL), Switzerland. He is also a Board member of the World Business Council for Sustainable Development and Cambridge Institute for Sustainable Living.

After his exit interview two years ago, BR Research sat with Mr. Magdi on his recent visit to Pakistan. Following are the edited excerpts of the conversation.

BR Research: How does it feel to be back after a gap of two years? What’s familiar and what isn’t?

Magdi Batato: I have to say that it’s an emotional moment, because it’s good to come back and connect with the business and the people, and witness what they’ve done; I had a pleasant time here in Pakistan as the Managing Director, and I’m happy that the team has done a fantastic job. During my visit over the last couple of days, I see that the team is continuing to perform and improve.

BRR: What progress do you see in the projects that you initiated during your tenure?

MB: I’ve learnt over the years that if what you do adds value, people will continue doing it. If what you do needs improvement or is not the right thing to do in the current situation, it is right to quit it. I was happy to see that a lot of the good ideas that we initiated as a team have been continued, strengthened and built upon, which helps me draw the conclusion that they were good ideas.

Alliance for Water Stewardship (AWS) is one good example of the projects started in my time where I signed the MoU with WWF, and I am very happy to see that not only the relationship has continued, Nestlé Pakistan has advanced water stewardship; We have now got the AWS certification for our Sheikhupura factory. We are working not only with WWF but a variety of stakeholders to improve the situation for communities and individuals of the planet.

BRR: Knowing the Pakistani market thoroughly as you served here, do you take home any lessons from Pakistan or use the knowledge in your current roles as the Head of Operations?

MB: At Nestlé, we believe that for global role, you need to have multiple hands-on experience and a more holistic approach. I have been in operations my entire career except for the three and half years that I spent in Pakistan. This is how we proceed at Nestlé; and I can see a lot of additional value of this in my current role; I get to meet the local CEOs when I visit these markets that help me in strategizing the overall operations at Nestlé.

BRR: When you left Pakistan, the economy was going through a rough patch; however, in the past two years, we have experienced a growth of around 5 percent. What is your outlook for Pakistan?

MB: The outlook from the head office perspective is quite positive. Nestlé global is seeking to increase growth to mid-single digit and also improve operating margins. Growth will certainly come from parts of the world where the potential is more. Pakistan is part of that cluster of markets. The country has delivered over the last couple of years as far as growth is concerned, and we hope that it will continue in the same way.

BRR: Does Nestlé have any aggressive expansions or growth plans for Pakistan in the pipeline?

MB: We continue to invest between Rs4-6 billion in this country annually, which is something that is not given in today’s circumstances. This goes on to show that we see potential, and we believe in the country from the global perspective.

BRR: Do you have any message for the global investor looking to invest in Pakistan?

MB: I would say that there are opportunities; one needs to look for them and not shy away from them. The rearticulating of the sense of purpose by enhancing quality of life and contributing to a healthier future is only possible if we are there and contribute to the local communities by being part of them. There are ups and downs in the local economies as well as global economies; it’s good to be around because you benefit in good times, and you stay resilient during the bad times and get ready for better times again. In short, I would say, we invest in consumers in various markets; that’s what we look for and that’s how we gauge the markets.

BRR: What are Nestlé global thoughts on the CPEC development?

MB: Every economic corridor and any kind of facilitation to transit good, competitors, knowledge is a plus. It pushes an economy’s growth and wellbeing of the people. So like other corridors, I hope that CPEC also brings growth and prosperity to the country, and we look forward to it.

BRR: What value and efficiency can Nestlé operations bring to the local supply chain?

MB: I think it’s the sharing of experiences. That’s why the operations network is so important. It’s about solutions, for example, I came across a control tower solution in Brazil, which we have experimented in different places and want to bring in different markets. It’s about looking at various transportation networks, and teaming up sometimes with competitors etc. to control operations across regions.

The idea is of a shared economy, which is synonymous with efficiency and effectiveness of bringing products to the consumers.  What you can also do with this shared system is look at smaller players; for example, where the infrastructure is advanced, you can go for uberisation of transportation in the supply chain. Other applications of the shared economy could be the ecommerce or the use of omni-channel approach to sales. We have a lot to share and at the same time, a lot to learn.

BRR: Loose milk still holds a big segment of the market despite the growth of packaged milk. How can this change?

MB: My view is still the same. When I was the MD here in Pakistan, we looked at the models in different countries that have worked. The Turkish model can be a good example for a country like Pakistan. They have managed to increase packaged milk market from around 20 percent to 70 percent by regulating and providing a level playing field. They decided to put in place regulatory systems and collect more taxes; they structured an incentive system whereby they gave incentives to those farmers who would supply milk to the regulated and documented industry.

Also, they passed a minimum pasteurization law that ensured minimum quality standard.  Such incentives and laws like providing a level playing field and minimum quality standard can also help Pakistan document its milk segment

BRR: Do you think that pricing has anything to do with the size of the undocumented milk segment?

MB: Of course, pricing is important, but it’s different in every country. You need to look at the components of the price. Some governments offer subsidies like energy support. Other countries breakdown the value chain from a cost perspective. I am happy to share that we have brought down various costs; in all the projects we do with the farmers today, we have made a lot of progress on the seeding side.

BRR: Dairy is a big chuck of Nestlé’s portfolio in Pakistan. Do you see Nestlé coming with new product lines in the country, especially in the coffee market?

MB: In many markets, coffee is associated with youngsters. And since this part of the population is growing in Pakistan, coffee could be an interesting story. It’s an opportunity.

BRR: What is Nestlé doing on the CSR front?

MB: Water is a big part of how we want to give back to the communities. We provide a global qualitative framework, which we call Shared Water Plan. Why the word ‘shared’? Because we cannot solve the water issue alone. We are working with the academia, the NGOs, the government and the research institution to move things forward. Pakistan is a water stressed country, and hence a key country of focus for us in waster stewardship.

The Nestlé Pakistan Water Plan aims to bring together multiple partners to preserve and protect water resources by leveraging research and technology to reduce and recycle water, introduce sustainable agricultural techniques to reduce water use vis-à-vis increased yield, and provide access to clean and safe water within communities.

Another example is all we do with the farmers to increase efficiency along the entire value chain. Also, our Global Youth Initiative is another way to create shared value. This initiative was launched recently in New York, and it is about providing employability opportunities.

And yes, CSV has significant effects on our value chain. At the end of the day, it’s all about sharing knowledge and the value we have created. The training, knowledge sharing, and technology make the whole value chain better.