Management 315: International Management, Professor In Hyeock Lee Loyola University Chicago Spring 2013

1. Case Presentation 12.1
Group 4
Matthew Cruz, Brooke Feery,
Jacob Hostetler, Daniela Nicula, ManhDuc Tran

2. Who is Danone?
GroupeDanoneis a public French
multinational corporation. It is known for
fresh dairy products, bottled water, and
medical nutrition.

3. 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

4. The Danone Portfolio
Subsidiaries:
• 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.

6. Case Study Questions
1. 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?

7. Sales by Region
52.0% Europe
17.2% Asia
30.8% North America,
South America,
and Africa

8. Sales by Region

9. 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.

10. 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 International
Projector; it has since transitioned into a Multi-
Centered MNE.

11. Firm Specific Advantages
Tangible Resources
• 186 Factories in over 40 countries, 31 R&D facilities,
headquarters in Paris
• The Yogurt Culture Company in NYC and other yogurt
bars worldwide
Human 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

12. 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

13. 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.

14. 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.

15. Economic Integration / National
Responsiveness
Quadrant 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

16. Conflict Between Matrices
Due to the discrepancy between its CSA – FSA matrix
position (Quadrant 3) and its Economic Integration –
National Responsiveness matrix position (Quadrant
4), Danone struggled as a company until it managed
to improve the structure of its joint ventures in host
countries.

17. Global & Organization Structure
Global 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.

18. 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.

19. Danone’s Performance as a MNE

20. Degree of Multinationality
Licensing – Danonelicenses its food products under
local labels in its different regions (i.e. China) and
engages in international joint ventures.
Export – Established in 1993, Danone’s special
exporting division is responsible for assessing the
viability of emerging markets.
Local Packaging / Assembly – 109 factories in host
regions and 77 factories in its home region.
FDI – Danone has 31 R&D facilities in host countries
and is supplied by local agriculture producers.

21. Foreign Direct Investment
Resource Seeking:
Danone hires local workers and scientists to exploit
their expertise and cultural knowledge.
Market-seeking:
Danoneis exploring markets in underdeveloped
countries. Emerging economies such as Latin
America, Asia and Middle East contribute to half of
Danone’stotal revenue.

22. Foreign Direct Investment
Strategic Asset -seeking:
Danone engages in joint ventures in its host regions.
Danone has also merged with foreign rivals to
strengthen joint capabilities (i.e. North American Greek
yogurt products).

23. Recombination Pattern
Pattern 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.

24. Double Diamond Framework

25. 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

26. 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

27. 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.

28. 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

29. 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

30. Works Cited
• http://uk.reuters.com/article/2013/02/19/us-danone-results-
idUKBRE91I08C20130219
• http://www.trendhunter.com/trends/evian-smart-drop
• http://www.grandcentralpartnership.org/news/new-gourmet-yogurt-bar-
from-dannon-opens-in-grand-central-area
• http://en.wikipedia.org/wiki/Groupe_Danone#Main_brands
• http://www.efinancialnews.com/story/2007-06-28/us-companies-may-
bid-for-danone-division
• http://news.bbc.co.uk/2/hi/8100183.stm
• http://mashable.com/2012/06/12/refrigerator-magnet-evian/
• http://books.google.com/books?id=P7aeROk851wC&pg=PA111&lpg=PA11
1&dq=danone+human+resources&source=bl&ots=3_Mthxhx6L&sig=xd6v
uwaTsPDsmH4thY9megrqyCQ&hl=en&sa=X&ei=_8FZUajlKM31rAHM4YHA
Dw&ved=0CGIQ6AEwCA#v=onepage&q=danone%20human%20resources
&f=false
• http://static.skynetblogs.be/media/176062/3623629370.pdf