Case 12.1 Danone’s affair in China
As of 2007, Danone, the French multinational food company, was in a ﬁerce battle with China-based Wahaha Group (the largest beverage producer in China) to win control of their joint ventures (JVs) in China. The ﬁght is reported to have started in 2005 when Danone uncovered some unusual ﬁnancial ﬁgures at the JVs, but this did not become known to the public until 2007, when Danone and Wahaha Group failed to resolve their disputes on the selling price of Wahaha-related non-joint ventures (non-JVs). The quarrel between Danone and Wahaha Group has escalated. It involves disputes on brands, as well as on perceived unequal commitments to the JVs. Lawsuits have been launched, both in China and internationally. How did cooperation turn into a large-scale battle?
Danone and its international expansion
Originally named Boussois-Souchon-Neuvesel (BSN), Danone was founded in 1966 when two glass companies, the Souchon-Neuvesel glassworks and Glaces de Boussois, merged to compete in the expanding Common Market. The setback in the glass industry prompted BSN to switch its focus to its downstream business, namely the beverages industry. In 1969 and 1970, BSN acquired Evian, Kronenbourg and the European Breweries Company, becoming the leading manufacturer of beer, mineral waters and baby food in France in 1970. In 1973, BSN merged with Gervais DANONE, creating the largest French food group. In the mid and late 1970s, BSN Gervais DANONE gradually retreated from the lagging glass sector, focusing solely on food after the group divested Boussois in 1981. After establishing its leadership position in France in the 1970s, BSN Gervais DANONE started to expand in the European market in the 1980s, through a series of acquisitions, joint ventures and partnerships, including the cross-shareholding arrangement with the Agnelli empire in Italy in 1987, the alliance with the Fossati family in Italy in 1989, the acquisition of Generale Biscuit in 1986 and the takeover of Nabisco’s European subsidiaries in 1989. By 1989, Danone had become the third largest food group in Europe, behind only Nestlé and Unilever. It was very well established in southern Europe, England and Germany. During its European expansion, especially in Italy and Spain, Danone used a low-cost, low-risk and relatively rapid market entry approach. Danone established relationships with powerful local businesses by acquiring minority shareholdings, thereby creating beachhead positions for its further expansion into the host country. For example, the alliance with the Agnelli family in Italy helped Danone to acquire Galbani (Italy’s number one fresh cheese producer) and 327
International Business Strategy
Agnesi (a pasta producer), and to start a cooperative relationship with Peroni (a brewer). In the late 1980s and early 1990s, BSN Gervais DANONE expanded into formerly communist Eastern Europe. Initially, it exported goods from Western Europe, but it soon manufactured the same goods in these host countries by either cooperating with or taking control of local ﬁrms such as cookie producers Cokoladovny in the Czech Republic and Bolshevik in Russia. To assess the international potential of its brands and the appropriate locations for its marketing expatriates, BSN Gervais DANONE set up a specialized export division in 1993. Its partnerships and buy-outs helped it expand quickly in emerging markets such as Asia, Latin America and South Africa. In June 1994, it changed its name to Groupe DANONE. Since 1998 Danone has sped up its international expansion, with around 40 acquisitions in Central Europe, Asia, Africa, Latin America and the Middle East. Danone currently has four divisions: Fresh Dairy Products, Biscuits and Cereal Products, Beverages and Asia-Paciﬁc. It employs 89,449 people in more than 120 countries and is the world leader in fresh dairy products and bottled water.13...