• The Dynamics of International Strategy

Read the case, “Danone: Strategy Implementation in an International Food and Beverage Company” on page 727-744.

As you are reading identify and think about the following questions:

1. Does Danone have substantial debt and or challenges that will impact their growth expansion plans? Please provide examples.
2. Formulate a one- to two-sentence summary identifying Danone’s performance surrounding these two key issues:

• Operating efficiency
• Growth strategy
• Competition

Conduct additional research as necessary to provide the most up to date perspective. Search for the following information:

• Annual Report
• SEC Form 10-K
• Annual Shareholders Proxy Statement
• Competitive/Industry Information

When you have completed your research, answer the following question:

Does Danone have substantial debt and or challenges that will impact their growth expansion plans?

Please provide examples from your research.

Click here to place an order  for a similar  paper  and have exceptional work done by our team and get A+results

Attachment

Case 21   Danone: Strategy _UJ      Implementation in an International Food and Beverage Company

At the beginning of 2012, Franck Riboud was beginning his sixteenth year as chair­man and CEO of Danone, the French-based food and beverage multinational. During this period, Riboud had transformed Danone from a diversified food, beverage, and glass container company selling mainly in France, Spain, and Italy, into an interna­tional supplier of dairy products, bottled water, baby foods, and health foods.

During the next three years, Danone would continue to emphasize international expansion with a particular focus on large markets which offered the potential for double-digit growth rates—in particular: Mexico, Indonesia, China, Russia, the US, and Brazil. Riboud believed that the growing demand in emerging market countries for improved nutrition—dairy products in particular—and a growing trend among consumers in the advanced countries toward healthier eating would underpin Danone’s revenue and earnings growth, despite the challenges of global economic uncertainty and rising world food prices.

At the same time, Riboud was concerned over Danone’s ability to manage its increasingly disparate business empire. Under the father-and-son team of Antoine and Franck Riboud, Danone had developed a distinctive management style that combined strong values with a decentralized, entrepreneurial approach to business development.

As a result, Danone’s approach to international expansion had been opportunistic and fragmented. In some countries, it had grown by acquisition; in others, by joint venture or organic growth. Some businesses were built around global brands, for example Evian water and Danone yogurt; other products and brands were specific to individual countries.

Danone’s entrepreneurial approach to developing international business had yielded major successes in penetrating new markets, most notably Russia, which had become Danone’s biggest national market. At the same time, Danone had expe­rienced some painful reversals; most notably in China, when in September 2009, after ten years of dispute and acrimony, Danone sold its 51% interest in its drinks joint ventures to its partner, Wahaha.¹

Written by Robert M. Grant and Angela Amodio. The case draws upon an earlier case: “Danone: The Corporate Strategy of a Food and Beverage Giant,” by A. Amodio and R. M. Grant, Copyright © 2010 SDA Bocconi, Milano. © 2012, Robert M. Grant and Angela Amodio.

For all Danone’s success in becoming the world’s biggest dairy products company, its financial performance lagged behind that of other leading food and beverage multinationals such as Nestle, Unilever, PepsiCo, and Kraft Foods. These companies managed through closely integrated, centralized global business divisions; a more consistent approach to market development; and with stronger headquarters control over national business units.

Danone’s distinctive management style had been molded by the idiosyncratic approach of its CEO. “I was never made for this,” Franck Riboud told the Financial Times. “I preferred surfing. I never planned a career path. I came into Danone by accident.”² The same article described Riboud as “rumpled, tieless, favouring zip-up jumpers and colourful language” and seeking inspiration from people and travel rather than from management books. There was no doubt that Danone’s unusual leadership style and freewheeling approach to business development had encour­aged initiative, adaptation, and growth. But would the next phase of Danone’s busi­ness development require a more disciplined and systematic management style?

Danone’s Development, 1973-2011

Groupe Danone was created by the 1973 merger between the French glassmaker BSN built by Franck Riboud’s father, Antoine, and Gervais Danone, a French/ Spanish dairy products company famous for its Gervais fresh cheese and Danone yogurt. Under Riboud Senior, Danone diversified into beer (Kronenbourg), water (Evian), Italian cheese (Galbani), biscuits (Lu, Nabisco), sauces (HP), and baby food (Bledina).

In 1996, Franck Riboud replaced his father as chairman and CEO. The younger Riboud redirected Danone’s development: divesting the glass, beer, sauces, Italian cheese, and biscuits business and refocusing around four major divisions: dairy products, water, baby foods, and medical nutrition,³ and shifting Danone’s toward international expansion, especially into emerging market countries.

During his 15 years as Danone’s CEO, Franck Riboud imposed a consistent strate­gic direction on the group, even before taking over as CEO he outlined the criteria guiding Danone’s strategy:

Our priorities for international growth are the businesses where our know-how equals or betters that of the world leaders. Which of course means fresh dairy prod­ucts, biscuits and water. But we do not rule out any of our businesses on principle, provided we can rapidly win strategic weight in the region concerned. As for these regions themselves, what counts for us is the size of the population and the outlook for rapidly rising standards of living. Countries in Eastern Europe meet the criteria, as do those in the Asia-Pacific area, in particular India, Indonesia, Malaysia and China. The same goes for Latin America, especially Mexico, Brazil and Argentina.⁴

Franck Riboud’s rebuilding of Danone’s business portfolio involved a multiplicity of acquisitions, piece-by-piece process of divestments, and creation of joint ventures and non-equity alliances. Only rarely did Danone enter a country through greenfield start-up.

• Acquisitions: Between 2000 and November 2010, Danone acquired 37 com­panies (including YoCream in the US and Numico in the Netherlands). In addition, it acquired minority stakes in 26 companies. It divested 34 compa­nies, including its entire biscuit division.

• Joint ventures: Danone has made extensive used of joint ventures to enter new markets and develop new areas of business. These have allowed it to access local knowledge and distribution capability, economize on its limited manage­rial resources, and achieve rapid market penetration. By 2009, joint ventures accounted for almost 30% of its sales. Partners have included Chiquita Brands in the US, Al Safi in Saudi Arabia, Yakult and Avesthagen in India, Alqueria in Colombia, and Grameen in Bangladesh, as well as Mengniu, Bright Foods, Weight Watchers, and the Wahaha Group in China. In 2010, Danone created its biggest joint venture when it announced the merger of its Russian and CIS dairy business with that of Unimilk to create the region’s largest sup­plier of fresh dairy products. Several of these joint ventures have involved Danone in conflicts with its partners: its troubled Chinese joint venture with Wahaha being the most contentious. In some cases, Riboud first built a global business, and then sold it off: in 2007, Danone sold its biscuits (cookies and crackers) division to Kraft Foods and invested the proceeds in acquiring the Dutch-based Numico, thereby creating Danone’s medical nutrition division.

Figures 1 and 2 show the transformation of Danone’s business and geographical scope under Franck Riboud’s leadership.

FIGURE 2   Danone’s sales by geographical area, 1996-2011

1996

2011

Latin America

Asia and Middle East, 8%

Asia Pacific.

7%

North America, j^. 6% JM Eastern JiaH Europe, 2%

Danone in 2012

The Businesses

Danone was organized into four business areas:

• Fresh Dairy Products accounted for almost 60% of total sales, giving Danone a global market share of about 27%. Danone’s dairy products comprised a number of yogurt and homage frais products sold under the brand names Danone (Dannon in the USA) and Gervais. Recent growth had come from several new product lines: probiotic products sold under the Actimel

and Activia brands (Bio in certain countries), low-fat products (Taillehne, Vitalinea, and Ser), and products formulated specially for children under the Danonino. Danimals, and Petit Gervais brands. Fresh dairy products were formulated to meet the nutritional needs and preferences of individual national markets. In China, Bio (sold as Activia in most other countries) established market leadership in the “digestive comfort” category. In South Africa, Nutriday, a yogurt product, has been Danone’s lead dairy product. In Indonesia, Danone’s chocolate milk drink Milkuat Pouch was relaunched as a frozen yogurt. In countries lacking refrigerated distribution networks, Danone relied on localized micro-plants and designed its products for longer shelf-life at room temperature.

• Water. Danone was the world’s second-largest supplier of bottled water (after Nestle). It combined global brands Evian and Volvic with a number of strong local brands—Aqua in Indonesia, Mizone in China, and Bonafont in Brazil and Mexico. Emerging markets (particularly in Asia and Latin America) were especially attractive, because of the health advantages of bot­tled water over both sweetened soft drinks and alternative sources of drink­ing water.
• Baby Nutrition-. Infant formula, to complement breast-feeding, comprised three-quarters of the sales of the Baby Nutrition division. The remaining quarter was made up of sales of cereal-based and other solid foods for infants and toddlers. Sales were mostly under local brands, with products formulated to meet local needs. Western Europe, especially France and the UK, was the biggest market for Baby Nutrition, but the most rapidly growing markets were in Asia, especially China and Indonesia. In Indonesia, Danone’s SGM and Gizikita brands emphasized affordability.
• Medical Nutrition comprised a range of products designed to meet the nutritional needs of people with specific nutritional needs as a result of old age, illness, or medical treatment and convalescence. The 2007 acquisi­tion of Numico had positioned Danone as the European market leader in this sector. Danone regarded medical nutrition as “the most attractive seg­ment in the food industry today” as a result of its growth, potential for innovation, and lack of cyclical vulnerability. It also represented a chal­lenging market for Danone since it required “very extensive research, unre­mitting communication with healthcare and regulatory authorities and a special distribution system.” Danone aimed at developing global brands for its medical nutrition products, including Nutricia, Neocate, Fortimel, and

Respifor. Danone’s entry into medical nutrition represented a return to its origins: Danone was initially founded in 1919 by Dr Isaac Carasso, who had produced yogurt that was sold through pharmacies to counter a variety of ailments.

Tables 1,2, and 3 show the breakdown of Danone’s sales and profits by business and by region.

During 2011, Russia displaced France as Danone’s largest market in terms of sales. This resulted from the Unimilk merger. In terms of percentage share of total

Notes:

³ Water sold in China under the Wahaha brand was not consolidated after July 1,2007.

^b Bledina’s sales and trading operating income, previously included in Fresh Dairy Products figures, were integrated into Baby Nutrition from 2007.

^cThe 2007 data for Baby Nutrition and Medical Nutrition relate to just two months of activity (Numico was acquired on October 31, 2007). ^d Includes sales of the Biscuit and Cereal Products business line that were not sold to Kraft, n.a.: not available.

Source: Danone annual reports, various years.

Notes:

¹ Bledina’s sales and trading operating income, previously included in Fresh Dairy Products figures, were integrated into Baby Nutrition from 2007.

“The 2007 data for Baby Nutrition and Medical Nutrition relate to just two months of activity (Numico was acquired on October 31,2007). n.a.: not available.

Source: Danone annual reports, various years.

sales, Danone’s top-ten markets were: Russia (11%), France (11%), Spain (7%), the US (7%), Indonesia (6%), Mexico (5%), China (5%), Argentina (5%), Germany (5%), and the UK (5%).

Organizational Structure

Groupe Danone is governed by a board of directors which at the beginning of 2012 comprised:

• Franck Riboud, Chairman and Chief Executive Officer of Danone
• Emmanuel Faber, Co-Chief Operating Officer
• Bernard Hours, Co-Chief Operating Officer of Danone
• Bruno Bonnel, Chairman, Sorobot SAS
• Richard Goblet d’Alviella, Vice-Chairman, Sofina SA
• Yoshihiro Kawabata, Managing Director, Yakult Honsha Co., Ltd
• Christian Laubie, College du Haut Conseil du Commissariat aux Comptes
• Jean Laurent, Chairman, Fonciere des Regions
• Hakan Mogren, Company Director
• Benoit Potier, Chairman and CEO, L’Air Liquide SA
• Guylaine Saucier, Company Director
• Jacques Vincent, Chairman, CompassionArt
• Isabelle Seillier, Chairman, JPMorgan, France
• Jean-Michel Severino, Head of Research, FERDI.

FIGURE 3   The organizational structure of Groupe Danone

EXECUTIVE COMMITTEE

Franck Riboud, CEO

Emmanuel Faber, Deputy General Manager Bernard Hours, Deputy General Manager Thomas Kunz, EVP, Fresh Dairy Products Jean-Philippe Pare, EVP, Research & Development Francisco Camacho, EVP, Waters Felix Garcia, EVP, Baby Nutrition Muriel Penicaud, EVP, HR Pierre-Andre Terisse, CFO

Flemming Morgan, General Manager, Medical Nutrition

Finance			R&D				Human Resources			Communication

Fresh Dairy Products

Waters

Baby Nutrition

Medical Nutrition

National operating companies

National operating companies

National operating companies

National operating companies

The top management team of the Danone is the executive committee, the mem­bers of which are shown in Figure 3- Operational management is undertaken by the four business divisions, each of which coordinates a number of national operating companies. These are listed in Appendix 1.

When companies are acquired, they are integrated within Danone’s existing business sectors, often being renamed: Olait, acquired in 2006, became Danone Dairy Egypt; when Danone took 100% ownership of its Japanese joint venture, Calpis Ajinomoto Danone, it was renamed Danone Japan. To accommodate larger acquisitions, Danone may reorganize its corporate structure. On acquiring Numico, Danone created two new business divisions, Baby Nutrition and Medical Nutrition, to which Numico’s different products and brands were allocated together with exist­ing Danone products and products (e.g., Danone transferred its Bledina products from Fresh Dairy Products to Baby Nutrition).

Management Systems and Style

Among large multinational corporations, Danone is distinguished by its exceptional level of decentralization. According to Franck Mougin, a former head of HR:

Our President reiterates his commitment to decentralisation and his desire to remain in touch with the markets. In the group, a managing director who is in

charge of an activity in a country is the decision-maker even if he operates in a cultural environment which helps integration. Headquarters can merely suggest options to him, but cannot impose conditions. We think that there are more disad­vantages than advantages in looking for synergies and the success of our decen­tralised management can be seen in our local brands in China and Indonesia, for example. The desire to preserve our autonomy, while at the same time integrating entities into organisational and cultural plans, led us to develop what we call the networking attitude.”

Franck Riboud viewed decentralization as a key attribute in pursuing Danone’s strategy of growth:

Now is the time to widen our lead on competitors and I’m convinced that Danone is well equipped to do that. We have the right culture for it, and our lean, decen­tralized organization gives the managers of our subsidiaries full responsibility—the most effective motivation. That agility, that freedom from unnecessary constraints, is an even more decisive competitive strength in our current environment.⁶

Decentralization allowed Danone to align its brands and products to the char­acteristics of local markets. Danone both retained and continued to introduce local brands when most other consumer goods multinationals were migrating consumers from national to global brands. Decentralization also meant that Danone could be quicker than competitors in planning and launching new products: Danone’s front­line managers could execute new initiatives without the need for extensive consulta­tion or approvals from above. Such flexibility and speed were central to Danone’s goal of quickly establishing itself as a leading player in markets which were develop­ing rapidly. Thus, in Asia where the demand for dairy products was growing rapidly, Danone sought to move quickly in creating products with high customer accept­ability and sought to ensure extensive distribution.

However, for Danone to add value to its individual business units, it needed to coordinate across its national subsidiaries in order to realize the benefits from global brands, centralized R&D, global products, and the sharing of know-how and best practices. As a result, Danone had put in place a number of systems in place to facilitate communication and coordination and create what Franck Mougin referred to as its “networking approach.” At the basis of this coordination is an ERP system implemented by Accenture in 2000. This provides Danone with the information plat­form and standardized processes that facilitate communication, coordination, control and the exchange of good practices throughout the company.

Reconciling coordination with decentralization was reinforced by cultivating and diffusing a common approach to management. Danone’s leadership development program aimed to develop team leaders “in a distinctive leadership culture inspired by our Danone Values and leveraging the strengths of the Danone Leadership CODE (Committed, Open, Doer, Empowered). Leadership development involved one-week residential programs at the Danone campus for groups of between 100 and 300 managers and Danone Learning Solutions—training programs that could be used by managers in any location. One feature of Danone’s management devel­opment was an emphasis on team learning, including its “High Performing Teams Accelerator Workshop” and “Innovation Labs” methodology to develop collaborative approaches to breakthrough solutions.”

Knowledge Management

Danone’s knowledge management provided the organizational mechanisms for solving problems and sharing know-how. According to Benedikt Benenati, former Director of Communication and Development, the key feature of Danone’s knowl­edge management system was its simplicity. In preference to formal knowledge sharing devices such as databases and PowerPoint presentations, Danone encap­sulated ideas and experiences in pictures, videos, and stories. Communication mechanisms included peer-to-peer problem resolution in which a manager with a problem became a “taker,” a manager with a possible solution a “giver,” and exchange was mediated by a “facilitator.” Once a problem was resolved it became a “nice story.” For broad-based sets of problems where a wider exchange of know-how was needed, Danone established a “Market Place.” The first of these was for R &D managers. To brief participants to Market Place sessions, Danone produces a “Little Book of Practices” in which “good” (not necessarily “best”) practices were listed. The various devices used to simplify knowledge sharing, includes “Message in a Bottle,” in which a participant is allowed just two minutes to outline a problem and request assistance, and where knowledge can be physi­cally shared.

Because of Danone’s geographical spread, most knowledge sharing and problem solving must occur through virtual mechanisms using the group’s intranet. Here the key tool is Danone’s “Who’s Who” directory that allows each manager to identify colleagues with relevant expertise.”

Danone’s informal system of knowledge management was viewed by Mr Riboud as entirely consist with its management system: it allowed a high level of decentralization of initiatives and problem solving and used lateral rather than vertical communication. Also, the process lent itself to be applied within the dif­ferent local contexts according to the different working cultures and attitudes. It has been likened to a neural system in which Danone’s individual subsid­iaries were linked with regional knowledge hubs located in Paris, Barcelona, Amsterdam, Moscow, New York, Buenos Aires, Shanghai, and Singapore, and these hubs are linked with one another. The system allowed adaptability to local conditions, a multiplicity of stimuli, and a linking of stimuli to responses in the form of actions.⁹

As a central strategic thrust for the whole company, research and development played a key role in linking the Danone global network in its mission to “bring health through food to as many people as possible.” Danone Research employed 1,200 technical personnel in 15 different countries developing expertise in:

• microbiology, yogurt starters, and probiotics
• clinical research and epidemiology
• human nutrition and physiology
• immunology
• neurosciences
• metabolic programming
• water sciences
• food design, food preservation, and packaging.

Danone operated two major research centers, the Daniel Carasso Centre outside Paris and the Centre for Specialized Nutrition in the Netherlands. These centers were involved with over 200 scientific partnerships throughout the world. The research efforts of the two corporate research centers were closely linked with R&D activi­ties conducted by four business groups.

Principles and Values

At the core of Danone’s management system was a set of principles and values that were first enunciated by Antoine Riboud in 1972. Underlying them was the belief that there could be no sustainable business development without human development.

In 1996, Danone established a working group to identify the central values which Danone represented and aspired to. Three values were identified: Openness, Enthusiasm, and Humanism, to which a fourth, Proximity, was added in 2004. Danone’s commitment to these values guided its relationships with its employees, its customers, the communities within which it operated, and the natural environment. In 2008, Franck Riboud reiterated Danone’s commitment to social responsibility:

An enterprise exists and lasts only because it creates value for society as a whole . . . The raison d’etre of the enterprise lies in its social usefulness. It is to serve soci­ety and mankind, in the everyday lives of men and women, through the products, services, employment or even the dividends it provides”. In today’s economic con­text, this commitment is more relevant than ever in helping to realise the Danone mission: to bring health through food to as many people as possible.¹⁰

Danone’s human resource policies were articulated in a document first published in 1974 and now in its fourth edition. Every Danone business was required to uphold International Labor Organization conventions as well as committing to the development of skills and talents among all employees and to innovation through diversity.

In relation to environmental sustainability, Danone’s programs included:

• climate change; in 2009, Danone committed to reducing its output of C0₂ per kilogram of product by 30% by 2012, and its energy consumption by 20%;
• biodiversity: Danone established targets for protecting and restoring biodiver­sity through its production and sourcing policies.
• protection of water sources;
• redesigning packaging to minimize its environmental impact;
• supporting eco-friendly agriculture.

In 2009, Danone created the Danone Ecosystem Fund with a budget of €100 million to support projects that created sustainable jobs in activities directly related to Danone’s activities, particularly in agriculture and distribution. Projects included Proxicity, a new distribution service for independent local retailers, and the creation of cooperatives of small milk producers in Ukraine.

Danone’s pursuit of social and environment responsibility was not driven only by altruism: Riboud believed that the pursuit of broad social and environmental goals

also created revenues and profits for the company. Danone’s values were seen as integral to its whole approach to business: “the group has developed a uniquely dis­tinctive corporate culture emphasizing responsiveness, adaptability and the ability to accelerate innovation through networking. Operational responsibilities are broadly decentralised.”¹¹ This culture and the commitment to social goals that it reflected were seen as central to Danone’s business model:

The group’s management believes that this business model constitutes a key competitive advantage. It is primarily a factor in collective efficiency and internal motivation. It is also a factor that is strongly appealing, given the increasing sensi­tivity of employees to the notion of the enterprise being competitive and socially responsible. Finally, it is a powerful lever for developing a relationship of trust between the company and its partners.¹²

The integration of business performance with the creation of social and environ­mental value took the form of a three-year strategy launched by Danone’s executive committee in 2009- The strategy involved four strategic priorities:

Click here to place an order  for a similar  paper  and have exceptional work done by our team and get A+results

• Health: Strengthening of the group’s ability to deliver relevant benefits that address issues of nutrition and health.
• For All: New business and economic models to provide quality nutritional solutions to people with low purchasing power in a growing number of countries around the world.
• Nature: Accelerating the momentum to take into consideration environmental impacts through the reduction of water and carbon footprint.
• People: The company evolving as a venue for development for all employees and encouraging their involvement in social programs.