Case Presentation 12.1 Group 4 Matthew Cruz, Brooke Feery,Jacob Hostetler, Daniela Nicula, ManhDuc Tran
Who is Danone?GroupeDanoneis a public Frenchmultinational corporation. It is known forfresh dairy products, bottled water, andmedical nutrition.
GroupeDanone at a Glance Is Danone a MNE? YES!•Industry: Food Processing Forbes Lists•Founded: 1899 #411Global 500•Country: France #25 Innovative•CEO: Franck Riboud Companies•Website: www.danone.com #351 in Sales•Employees: 100,995 #285 in Profit•2012 Sales: $25.02 billion #588 in Assets•Headquarters: Paris, France #164 in Market Value
The Danone PortfolioSubsidiaries:• Many of Danone’s subsidiaries are companies that manufacture specific products for specific markets.• For example, The Dannon Company is a subsidiary of GroupeDanone operating in the United States primarily under the brand name Dannon.Affiliates:• Multiple companies’ supply components go into the final goods sold under DanoneGroupe brand names.• These companies have a presence in the industry already, make packaging materials, and/or produce raw dairy products.• In the case study, Danone formed an affiliation with Wahaha Group to get a better foothold in the expanding Chinese market.
Case Study Questions1. What were the intentions of Wahaha Group and Danone when setting up joint ventures in China?2. How did the relationship between Wahaha Group and Danone change during the 11 years of cooperation? How did the bargaining power of both parties change?3. Did the long-term cooperation between both firms lead to more trust? Did you observe any problems of bounded reliability with the two firms’ cooperation? Was there a vicious cycle of suspicion? Was there a vicious cycle of increasing dependency on a partner?4. Was there a learning asymmetry in the joint ventures?5. Has Danone been able to access the location-bound FSAs of the Wahaha Group? Should Danone have rejected the joint venture entry mode in the first place?6. Can you provide an update on the relationship between Danone and the Wahaha Group, using materials available on the web?
Sales by Region 52.0% Europe 17.2% Asia 30.8% North America, South America, and Africa
Danone and the Four Distances Cultural• In Spain and Italy Danone established relationships with local suppliers.• In Eastern Europe Danone took over local suppliers to exploit growing demand for fresh dairy products.• Fewer Chinese citizens have refrigerators to hold fresh dairy products. Administrative• Danone rarely sends executives (or resources) to their joint ventures, but allows them to be autonomous. o Danone and Wahaha (Chinese) joint venture• Danone has been accused of trying to become a monopoly in the Chinese market.
Danone and the Four Distances Geographic• Citizens of different countries worldwide have different nutritional deficiencies.• Many potential Chinese customers are lactose intolerant. Economic• Products are too expensive for Chinese customers and consumers in developing countries.• The European Union financial crisis is affecting many industries.While Danone was previously an InternationalProjector; it has since transitioned into a Multi- Centered MNE.
Firm Specific AdvantagesTangible Resources • 186 Factories in over 40 countries, 31 R&D facilities, headquarters in Paris • The Yogurt Culture Company in NYC and other yogurt bars worldwideHuman Resources • The Danone Way Programme: o Embodies Danone’s commitment to combining business success and attention to people and the community o Human resource policies represent a dual commitment to success and social progress • Danone hires people with “CODE Leadership Values:” Committed, Open, Do-er, Empowered
Firm Specific Advantages (cont’d)Intangible Resources • Unique recipes for each for each product • Brands and their reputations: o Food: Actimel, Activia, Dannon, Cow & Gate o Water: Evian, Volvic, Bonafont, Salvetat o Medical Nutrition: Ketocal, Lophlex LQ, Neocate • Socially responsible image (factory in Bangladesh) • Environmental sustainability efforts • Highly innovative R&D team (Evian SmartDrop) • Danone Institute, which aims to bring relevant scientific knowledge about nutrition to light • Many nutrition based patents
Country Specific Advantages• Danone’s Law: French government stepped in with a law preventing foreign firms from taking over French companies such as Danone. – This is also a disadvantage in some respects• Many developing countries do not have access to clean drinking water and/or refrigeration.• The factory in Bangladesh is a good way for Danone to learn how to market food to lucrative developing regions and Southeast Asia.
Subsidiary Specific Advantages• Partnerships and joint ventures allow Danone to access new markets and capitalize on consumer trends. o Partnership with subsidiary Stonyfield to create DannonOikos Greek Yogurt. o Acquiring local businesses and its joint ventures with Wahaha Group gained Danone entrance into the Chinese market.• International R&D partnerships with Washington University, Institut Pasteur, and other universities and organizations.
Economic Integration / National ResponsivenessQuadrant 4 • Polycentric (4) Geocentric (3) • Differentiated Products o Focus on the needs of the consumers in the local region o Identified nutrition and health challenges in over 40 regions to determine nutritional deficiencies and adapt products to benefit consumers • Integration is not as important • Decentralized Decision Making Process o Autonomous joint ventures
Conflict Between MatricesDue to the discrepancy between its CSA – FSA matrixposition (Quadrant 3) and its Economic Integration –National Responsiveness matrix position (Quadrant4), Danone struggled as a company until it managedto improve the structure of its joint ventures in host countries.
Global & Organization StructureGlobal Structure: • Multinational Matrix: Global product and global area structures are blended giving responsibilities to regional, product, and matrix managers.Organization Structure: • Polycentric:Danone tailored its strategic plan to meet the needs of the local culture and consumers through semi-autonomous partners and subsidiaries. • Geocentric: Danone now has a more global view and is expanding into emerging markets (Russia, Argentina, Mexico, Indonesia, China) with equal power sharing between headquarters and subsidiaries.
International Expansion• Danone uses a “low-cost, low-risk […] rapid market entry approach.”• Over 80% of Danone’s growth is from the firm’s emerging markets (Russia, Argentina, Mexico, Indonesia, China).• Danone’s core business in Europe (fresh dairy products) has been suffering due to the downturn in the European economy.• Danone is cutting 900 jobs in the next year.
Degree of MultinationalityLicensing – Danonelicenses its food products underlocal labels in its different regions (i.e. China) andengages in international joint ventures.Export – Established in 1993, Danone’s specialexporting division is responsible for assessing theviability of emerging markets.Local Packaging / Assembly – 109 factories in hostregions and 77 factories in its home region.FDI – Danone has 31 R&D facilities in host countriesand is supplied by local agriculture producers.
Foreign Direct InvestmentResource Seeking:Danone hires local workers and scientists to exploittheir expertise and cultural knowledge.Market-seeking:Danoneis exploring markets in underdevelopedcountries. Emerging economies such as LatinAmerica, Asia and Middle East contribute to half ofDanone’stotal revenue.
Foreign Direct InvestmentStrategic Asset -seeking:Danone engages in joint ventures in its host regions.Danone has also merged with foreign rivals tostrengthen joint capabilities (i.e. North American Greekyogurt products).
Recombination PatternPattern VII Foreign affiliates develop location bound FSAs • High level of national responsiveness • R&D facilities focus on the nutritional needs of the local citizens These FSAs are then made internationally transferrable under the guidance of the home country • Danone focuses on immunology, disease treatment, bone health, etc. which is important to consumers all around the world.
Complementary Resources of External Actors• Dynamic 1 Foreign Distributor – Wahaha in China• Dynamic 2 Strategic Alliance – Stonyfield in North America• Dynamic 3 Mergers and Acquisitions – Dairy producers in Eastern Europe
Bounded Reliability• Danone’s lack of commitment to Wahaha in China – Bought out major competitors – Did not provide access to managerial expertise – Created barriers for joint venture expansion• Opportunism and benevolent preference reversal
International Innovation• Two-way information flow between central R&D facilities and subsidiaries• Mix between Home Base Augmenting and Exploiting (Innovation Type 3)• 4 general research centers: Netherlands, France (2), Singapore• R&D teams are made up of locals from each region who can best tailor products to the needs and tastes of consumers.
Summary• Home-region based MNE (European Union)• Activity Level: Licensing, Export, Assembly, FDI• International Performance: Stage 2• Revenues are increasing• MNE Archetype: International Projector Multi-Centered• Global Structure: Polycentric Geocentric (matrix)• FSAs are Primarily Transferrable• CSA – FSA Matrix: Quadrant 3
Summary• Double Diamond Framework• Economic Integration – National Responsiveness: Quadrant 4 3• FDI Types: Resource, Market, and Strategic Asset Seeking• Recombination Pattern: VII• Innovation: Home-Base Exploiting & Augmenting (Type 3)• Foreign distributors, strategic alliances, mergers• Bounded reliability issues with Wahaha in China