Groupe Danone SA, a French manufacturer of yogurt, baby foods, and non-alcoholic beverages, was founded in 1972 and for several decades has been a successful international competitor with multiples joint ventures (JVs) throughout the world. By 2008, the company had already occupied the number 2 position in the baby nutrition sector (and the same – in bottled waters) and number 3 – in medical nutrition. Currently, with its presence in some 40 countries, it is the leading global producer of fresh dairy, 90 percent of which is sold outside France. The organization believes in emerging markets and devises strategies to penetrate into them by allying with domestic producers. Yet, it has faced a number of considerable problems.
The paper will attempt to prove that more advanced preparation and differentiation in approaches to different markets could have helped Danone avoid the problems it had to encounter. The purpose of the paper is to investigate joint ventures of Groupe Danone with companies in developing countries (Bangladesh, Chine, and India) and estimate their advantages and pitfalls for the parties involved. The research will begin with the exploration of a JV between Danone and Grameen Group (analyzing its pros and cons) and then proceed to the analysis of JVs in China and India. The concluding section will be devoted to recommendations that could have safeguarded the company from the challenges it had to overcome.
Joint Venture Analysis
The first JV to be investigated is the one between the for-profit Groupe Danone SA and the nonprofit Grameen Group (Bangladesh). It seems evident from the case that both parties benefit from this alliance as it offers significant opportunities for growth and development. Bangladesh (with its 164 million people) is an untapped market, which implies that Danone has an advantage of the non-competitive promotion of its products in its sectors in the country (Griffin & Pustay, 2015).
Since Grameen Group is a nonprofit organization, its key benefit is seen in improving nutrition quality in the country (being quite poor in Bangladesh) and providing the population with healthier food options. Therefore, the main reason for Danone to participate in the JV is to penetrate new markets (Griffin & Pustay, 2015). However, the main goal of Grameen is to reduce poverty by expanding markets for local farmers.
In order to accomplish the companies’ goals, they have to make certain changes in their regular business practices. For instance, Danone’s local manufacturing facility did not have too much automotive equipment because the company wanted to provide as many jobs as possible. Also, Danone specialists tried to improve the product formula by reducing the level of sugar (Griffin & Pustay, 2015). Therefore, the company’s managers need to check if the business is ready for a new JV. It is necessary to research the achievements and activities of local competitors. Also, a SWOT analysis is crucial, which is why it should be conducted in advance (“Joint ventures and business,” n.d.).
Another important aspect is the collaboration with potential partners. In order to enhance business relationships, it is necessary to analyze their strategies. In addition, the managers should be aware of the opinions of their employees regarding a potential JV.
Several aspects have to be taken into consideration when it comes to choosing a new foreign partner. The culture of a potential partner is one of the key factors (“Joint ventures and business,” n.d.). Due to cultural differences, business models should undergo a certain transformation. The next crucial factor is finances. The managers should pay particular attention to the financial capacity of a potential partner. Therefore, advance preparation should result in business and marketing plans that are based on the in-depth analysis of the existing business opportunities and provide individual approaches to address the needs of different markets.
Regardless of various benefits, this JV also puts both companies at risk. Cooperation with a foreign firm might be very complicated, and thus, drawbacks of a JV can outweigh its advantages under certain circumstances, especially if the resources of one of the partners cannot compliment another one’s (“Joint ventures and partnering,” n.d.). Normally, establishing strong and reliable business relationships take much time. However, even if companies could build a successful JV, potential risks still cannot be fully eliminated.
There are several drawbacks to which this JV might lead. First, due to the different goals, both companies should have modified their normal business models, and such changes increased the risk of an unstable workflow (“Joint ventures and partnering,” n.d.). Second, the unequal level of investments shifted the balance in their relationships, which also might lead to unfavorable outcomes for both companies. Such imbalance often generates insurmountable tension between partners. Finally, cultural differences might negatively affect the management strategies of the companies (“Joint ventures and partnering,” n.d.). Such a situation might result in ineffective collaboration.
Danone’s JVs in China
For Danone, the benefits of the JVs in China are similar to the benefits of the JV in Bangladesh. These JVs provided the opportunity to expand the range of the offered products so that the company could target new markets. Danone’s partners in China had the same goals, which is why the JV resulted in large market shares and considerable development of all parties. For example, one of the leading bottled-water manufacturers in China, Wahaha, had a 39-percent market share (Griffin & Pustay, 2015). Therefore, the main reason why the companies chose to participate in the JV was to increase annual growth.
Problems in China and India
Even though the JV in China was mostly successful, some significant problems did take place. For example, the partnership between Danone and Hangzhou was ended due to internal conflicts. The Chinese company decided to operate “outside of the Danone-Hangzhou agreement” (Griffin & Pustay, 2015, p. 381). The founder of this company explained that he had to do so because he was concerned about his rights to the brand. Had Danone acted more confident or even aggressively, this situation could have been prevented. Also, it should have invested much more in this JV and less in its JVs with other Chinese companies.
Another problem appeared in India. Danone decided to act more vigorously when it distributed its products. However, the contract with the local company, the Wadia family, did not allow Danone to introduce new products without the Wadia family’s permission (Griffin & Pustay, 2015). This situation also led to a partnership collapse. In this case, Danone should have been less aggressive in its marketing strategies. It had an opportunity to negotiate a solution to this conflict or at least give up its demands.
In conclusion, joint ventures provide various benefits to participants. They allow expanding markets and creating new jobs. Companies that take part in a JV get many opportunities for growth and development. The examples of Danone’s JVs demonstrate the effectiveness of this business approach. However, there are certain drawbacks of such collaboration as well. Unequal investments or cultural differences often lead to negative outcomes. However, effective preparation and planning can considerably alleviate all potential risks of JVs.
Griffin, R. & Pustay, M. (2015). International business: A managerial perspective (8th ed.). London, England: Pearson.
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