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Copy of International Management
Transcript of Copy of International Management
International Joint Venture Conflict
Groupe Danone (Danone)
Danone is a French food multinational corporation (MNC) and a Fortune Global 500 company with its headquarter in Paris and 90,000 staff members across five continents.
Danone develops its business across over 120 countries focusing on 4 core categories: fresh dairy products, water, baby nutrition, and medical nutrition
When and how did Danone expand into Chinese market? What problems did Danone Group encounter while operating in China?
Danone entered Chinese market in the end of 1980s
Purchased shares of numerous market and industry leaders
Danone has a network of partnership with local market leader in China including Wahaha Group (51%), Robust Group (98%), Shanghai Maling Aquarius (50%), Shenzhen Yili Mineral Water Company (54.2%), China Huiyuan Group (22.18%), Mengniu (50%) and Bright Dairy (20.01%).
70 factories throughout China, including Danone Biscuits (in Shanghai, Suzhou, and Jiangmen), Robust (in Guangzhou), Wahaha (in Hangzhou) and Health (in Shenzhen) (Luthans & Doh, 2012).
Danone in China Contd…
Challenges in China
Lack of market knowledge
Unfamiliar with the Chinese beverage market that lead them in experiencing a RMB 150 million in lost (2005-2006)
Lack of management control has lead Danone to sell its entire 20.01% of Bright Diary in 2007.
In 2007, Danone pulled out of a new dairy venture with Mengniu, a top mainland milk producer.
Violation at JV Trademark
Understanding cultural differences: power and control
Managing its reputation in the Chinese Market
Hangzhou Wahaha Group Co., Ltd (WHH)
China’s leading domestic beverage products
Its name derived from the Chinese words that describe a child’s laughter.
Wahaha sells mineral water, tea, fruit juices and baby milk under Wahaha brand.
The company is led by China’s most high profile entrepreneurs, Zong Qinghou. A millionaire with high level political connections.
Danone in China
How was the Danone and Wahaha JV Formed? What was its structure? Why did Danone decide to form a joint venture rather than establish a 100 percent-owned subsidiary?
The Danone Wahaha Joint Venture
The JV was formed in 1996. Over the years, the number of Jvs grew from 5 to 39 and annual sale rose from a few hundred million RMB to more than 12 billion in 2006 (Tao & Hillier, 2008)
At start, there were 3 participants: Hangzhou Wahaha Food Group Co.Ltd., Danone Group and Bai fu Qin Ltd. (Luthans & Doh, 2012)
Danone and Baifu did not invest directly in the JV. Instead, Danone and Baifu formed Jin Jia Investment., a Singapore corporation (Jinjia)
The formation of JV, Wahaha Group owned 49% of the shares and Jinjia owned 51%. Day-to-day management was delegated entirely to Zong.
Joint Venture vs Wholly Owned
Local partner knowledge
Sharing development costs and risks
Lack of control over technology
Inability to engage in global strategic coordination
Inability to realize location and experience economies
Protection of technology
Ability to engage in global strategic coordination
Ability to realize location and experience economies
High cost and risk
Why Joint Venture instead of Wholly owned subsidiary?
Joint venture was formed on the desire of Danone in expanding their business in the Chinese market and the need of Wahaha Group for capital and world-class know-how.