Danone company in India analysis

Dan cardinal guild in India analysisIn early 1900s a small yogurt producing factory with a day-dream to reach its scrumptious yogurts in every part of the world was started in Barcelona, Spain. Later Danone entered the biscuit manufacturing in 1986 by buying General cooky and in 1989 it added to its portfolio of biscuit brands by acquiring Nabiscos European subsidiaries1. Later Danone began aggressively venturing globally and took over 40 acquisitions in Asia, Latin America, Central Europe, Africa, and the Middle East. The globalisation vision would have been futile if Danone separate would have not entered Indian securities industry where 1/6th of the world population resided. It took 7 decades for Danone to reach India with an bulky hope of stabilizing its brand through a crossroads peril with Wadia group. Together they took over 51 percent holding of Indias leading biscuit manufacturer, Britannia Industries Limited. Danone did figure this opine as a potential growth fo r one its core business lines of biscuits. Along with strengthen its biscuit portfolio, it saw strategical entry of the new(prenominal) two businesses of dairy farm products and beverages (specifically water). Antoine Riboud founder of Danone stated during unveiling of the companies from BSN to Danone thatWe wanted our name to be an added source of momentum for the global expansion that is now our priority. The food industry has in the past treated markets as discreet entities separated from each other by the culinary traditions of countries or regions, but it is now caught up in the aforesaid(prenominal) swing to globalization as others. This is because not only tastes, but also distribution and media are becoming just as global (Franck, 1996).Antoine Riboud and his replacing Franck Riboud knew that they had to develop a response to this allegation by entering the Indian market to strengthen the growth of its biscuits, dairy products and beverages. However Danones association w ith its union venture persuaded a change of strategy which eventually restructured its core business line and future actions. However, Danone stayed consistent with its priority of expansion globally and considering India to be important republic to pursue its vision.About Danone GroupThe Danone Group is a multinational food products company and currently consists of four principal business lines namely fresh dairy products, bottled water, queer nutrition and medical nutrition. Danones fresh dairy products sector represents 60% of the group sales according to 2009 cut across making it the number one company in fresh dairy products. The two lines of probiotic dairy products named as Actimel and Activia are the most accepted products of Danone refer exhibit 2. As for the other business lines, the bottled waters and baby nutrition products were ranked number two in the world and its medical nutrition products as number one in European market (Press Pederson, 2000). The globalisa tion strategy of Danone products commenced in early 1990s. Before entering India, Danones major business lines consisted of fresh dairy, biscuits, sparkler containers and beer refer exhibit 3. Based on world rankings in 1995, Danone was categorise as the world seventh largest food group, and the pioneer in fresh dairy products and biscuits. It was also ranked as number two in pasta, beer and glass containers. In May 1997 Franck Riboud announced the adoption of a new company strategy foc apply on three core business areas namely dairy products, biscuits, and beverages (specifically water and beer)in which the company had global leadership refer exhibit 1. These areas also represented 85 percent of group sales (Press Pederson, 2000).BackgroundIn utmost far away land a small cookie making factory was started and K. Ranjan Pillai sobriquet as Biscuit King was crowned in the late 1980s. The chiffonier of Mr. Pillai resided with Britannia Industries Ltd (BIL), which was a pioneer in Indian Biscuit Industry. However the reign of the Biscuit King soon got over, as the 43-year old Biscuit-King was pleaded guilty to the charge and admitted he had authorised the release of the companys funds to pay debt incurred by two of his cashew-trading firms. The biscuit tycoon was sent to Tihar Central Jail of India in 1995 and whose death in the same year closed whatthe Economic Timesreferred to as one of Indias most dramatic corporate sagas (Padmakshan, 2007). This closed the case of Rajan Pillai, however opened its empire and assets for auction.Group Danone grabbed this opportunity and entered the Indian market by establishing a joint venture with oldest Indian conglomerate Wadia Group. A marriage of two diverse entities was formed full-grown birth to two equal joint venture companies, UK registered Associated Biscuits International Holdings Ltd in 1992 and Wadia BSN in 1995. The Groupe Danone and Wadia together hold 50.96% in Britannia through Associated Biscuits Interna tional Ltd. The ABI Holdings, was a 5050 JV in the midst of Groupe Danone and Wadia group. Nusli Wadia owner of the Wadia Group took over as a chairman for Britannia and Sunil Alag was appointed as the Managing Director. Sunil Alag was known as the Danone man as he was instrumental for Danone to join hands with Wadia.This new entity, Wadia BSN India, was meant to manufacture and sell food products and beverages in India, covering all Danone products, but the venture did not move. As per the Wadia BSN agreement signed in 1995, in case of a deadlock between the partners, Danone is obliged to buy all the shares of the Wadia group at a equitable market value. This agreement does not include Britannias holding firm, ABIH which has a separate agreement signed in 1992 and is subject to the British law (Chatterjee, 2007).Expect the unthoughtOn 29th June 2007, the French dairy major, Group Danone formally initiated arbitration proceedings to fetch up its partnership with the Mumbai base Wadia group. The 15 years of foray came to an end leading to speculations of Danones growth in India. Eight days before the final declaration of end of relation of Danone and Wadia group the sharesof Danone on 21st June 2007 fell by 1.1 percent, to 57.42 Euros in Paris as Frances benchmark CAC 40 stock index dropped 1 percent (Saikat Ladka, 2007). Danone Secretary General,Philippe-Loic Jacob said that We are addressing the current issues with our Indian partner, and this was a priority as Danone wished to continue developing its activities in India. It was revealed by both parties that this discontinuation was advantageous to both parties as Danone was no longer interested in the biscuits business line globally. Whereas The Wadia group having increased its office in Britannia gained an opportunity to focus on its core business of Biscuits. Britannias core business was always biscuits, where it enjoyed 38 percent in value and about 32 percent in volume in 2007 (Babu, 2007). Furthe r, the Rs 6,500-crore2organised biscuit market in India was growing at 14-16 per cent per annum (Archana Rai, 2003).Issue 1 2001On 27th October 2001, Britannia formed a joint venture with Fonterra Co-operative Group of New Zealand, the worlds largest milk company, to explore the potential for dairy products (www.businessweek.com, 2009). Britannia took this stand even though it was associated with one of the most personnelful leaders of dairy products-Danone. Fonterra was among the ten biggest dairy companies in the world and had integrated process where it include every part of the chain from procurement of milk to value-added products such as stop and buttermilk (Krishnan, 2002). This was unlike as that of Danone who did market dairy products such as yoghurt, cheese and desserts.Issue 2 2003On June 04, 2003, Sunil Alag was ousted as a chief executive officer, but it was claimed that Danone was not informed until the last minute. There were speculations that Nusli Wadia had reali zed that outsiders were seeing Britannia as a one man show and Mr. Alag was its face. Alagh took all the critical operational decisions and had shaken up a company associated with staid biscuit brands-like Goodday, Marie and Bourbon-by launching Pure Magic and tiger (Archana Rai, 2003). Mr. Alag had a support from Danone as he was a strong link between the two companies.. Apart from being a successful CEO, Alagh was also flashy, flamboyant, with friends among the page 3 crowd in Bangalore, Mumbai and Delhi. So its likely that he helped his friends in some way, as is common with most Indian CEOs. To oust Alagh, Wadia devised the idea of the canvass report, the logic being Danone would not support a corrupt CEO (Archana Rai, 2003). An internal audit report, which was recently leaked to the media, did find that Alagh probably favoured ad agencies, media houses and ngos run by his friends. Other claims were that Wadia wanted to have a say in the company and eventually get his son, Jeh , on board (Archana Rai, 2003). Mr Alagh, 56, joined Britannia in 1974 and has been MD CEO for over a decade (Chakravarty Kurian, 2009).Issue 3In June, 2006Danone registered the Tiger trademark in over 70 countries without prior consent3. Due to this Britannia demanded royal family from Danone for use of Tiger brand that was registered under them. The tiger brand was the strongest brand of Britnannia which corporate to 20% of the companys revenue4. To this Danone also asked Britannia for royalties for using its trademark recipes for Britannias product small(a) Hearts.Issue 4In November, 2006 the Wadias dragged Groupe Danone to court over the French company plectrum up a minority stake in a Bangalore based bio-nutritional foods company Avestha Gengraine Technologies, through its subsidiary Daninvest.com SA (Sangameshwaran, 2007). This was in violation of the governments Press Note 1, 2005, which requires a foreign company to obtain the consent of its Indian joint venture partner before pursuing an independent business in a similar area5.Actions to be IndiaThe allegation of not informing Danones partner for picking up minority stakes of Avestha Gengraine Technologies was denied by Danone. A letter dated 10th May 2007 was sent to the Indian Government that it is not a joint venture with Britannia and its 25 percent shareholdings in the biscuit company is a joint venture with wadia group ABIH through UK and not India (Chakravarty, 2007). Hence, Danone claimed that it dint have any stead joint venture in India and hence the Press Note 1, 2005 was not applicable to them. However, to this the government repeatedly told Danone that it would require no objection certificate as per the press note regulation governing the joint venture between domestic and foreign market (Chakravarty Kurian, 2009). Shortly within few months, Danone had to address a court case in September 2007, for allegedly usurping the intellectual property rights (IPR). Vinita Bali the new mana ging director of Britannia, said Danone paid 220 million rupees as fee for using the Tiger brand6. However, to this Danone asked Britannia to pay royalty for using its trademark recipe the brand Little Hearts. However this claim was turned around as Britannia had obtained Danones approbation for it and was authorized to sell it elsewhere. Ironically the exchange of technical co-operation and intellectual property was approved during Sunil Alaghs tenure as Britannia CEO, who was known to share a good ringing with the Danone top brass (Vijayraghavan, 2007).On April 14, 2009, Groupe Danone officially exited Britannia Industries by selling its entire 25.48 per cent interest to a Wadia Group company, Leila Lands, which indirectly held a similar stake in the biscuit firm7. In 2007, Danone sold its global biscuit business to Kraft Foods for 5.3 billion, enabling the American company to add the portfolio to its Nabisco cookies and crackers8.Danone position now in IndiaGroup Danone is now particularly keen on focusing on the dairy products in India. The Danone India, the firms fully-owned subsidiary in India, will draw off the dairy and baby foods business, the water business will be managed separately through a new joint venture (JV) with Narang Hospitality Services, which is the distributor for Evian in India. Group Danone is particularly keen on the baby nutrition segment, especially after its $17 billion acquisition of Dutch firm Royal Numico, which make it Europes largest player in the baby foods category and the second-largest in the world after Nestle. According to Yakult group (http//yakult.co.in/), In 2005 Yakult Danone India (P) Ltd was formed with a joint venture between Yakult Honsha, Japan and Group Danone of France. The 5050 Joint venture Yakults probiotic drink was launched in December 20079.ConclusionDanones main motive to enter Indian market was to seek potential growth for its products. Indian market being complex and diverse, the best option Danon e predicted was through Joint Venture. However Danone when coming out of the Indian joint venture certainly learnt about the social environment, consumer behaviour and organizational cultures in India. With this it also got aware factors of strategic asset seeking. The trail and turbulence in the Indian market undoubtedly lost focus of the firms orientation where its earlier core business was of Biscuits, Dairy products and beverages. However during its reign in India Danone completely lose its establishment in biscuit sector and ended up having its new portfolio of nutrional and baby products instead of biscuits. In 2007 it swapped its world number 2 position as producer of cereals and biscuitsfor the same position in baby foods, having sold the biscuits division toKraft Foods10. The 15 years of learning also allowed Danone to change from its diversification strategy to being focused in its Business line. According to Comment/ Jarrell (1995) companies with decrease diversification show better result in the market. This is eventually being straightforward with Danone, however adding its risk due to focused diversification.As observed in the case study, Danone did foresee growth in India. Also as per the Global Competitveness report adjoin 5 India ranked second in world which showed huge opportunity for the Danones growth. Danone assumed that the even though perceived distance of India and France and opposite, its establishment in India through joint venture would minimize any complexity. Moreover unperceived rules, regulations and laws of Indian company made the Danones existence in India more complex. However, one of the profound complexity Danone face was adapting to the managements working ethics. India corruption index is more than double to that of France. Positioning the French company as not to be affected by the political curb was challenging.Lastly the Power Distance Index (PDI) according to Hoftedes model shows that India had higher power index than the France. The higher PDI states that there is unequality of power and acceptance of rule by higher authority. This lead to monopoly in the Indian joint venture by giving rise to diverging and setting of incoherent rules. However, the French had lower power index than India, stating that challenging and opposing inequality was within them. Eventually this was perceptible and which lead French Danone to break its joint venture with the Indian partner.AppendixExhibit 1Consolidated sales report according to business lines in 1995Source http//www.danone.com/images/pdf/10_danone.pdfExhibit 2Best sellers of Danones dairy range Actimel and ActiviaExhibit 3DAIRY PRODUCTS Bledina SA Danone GmbH (Germany 99.9%) Danone SA (Argentina 99.5%) NV Danone SA (Belgium) Danone SA (Brazil) Danone Inc. (Canada) Danone SA (Spain 55.7%) Danone Kft (Hungary) Danone health spa (Italy 99.7%) Danone de Mexico SA de CV Danone Sp zoo (Poland) Danone Portugal SA (52.8%) Danone A/S (Czech Republic 95.1%) D anone Clover SA (South Africa 66.8%) The Dannon Company (U.S.A. 89%) Galbani (Italy 90%). Beverages Aguas de Lanjarn (Spain 78.5%) Aguas Minerales (Argentina 50%) Alken-Maes (Belgium 99.6%) Birra Peroni Industriale (Italy 24.4%) Evian Font Vella SA (Spain 77.8%) Italaquae SpA (Italy 91%) Kronenbourg Mahou SA (Spain 33.3%) San Miguel (Spain 80.5%) Volvic.Biscuits Bagley SA (Argentina 91%) Bolshevik (Russia 72.8%) Danone Cokoldovny A/S (Czech Republic 49.1%) Danone SA (Brazil) Griesson-De Beukelaer GmbH Co.KG (Germany 40%) Heudebert Irish Biscuits (Ireland) The Jacobs Bakery Ltd (U.K.) LU LU Benelux (Belgique) (Belgium 99.6%) LU Benelux (Pays-Bas) (Netherlands 99.6%) LU Espaa (Spain) Papadopoulos (Greece 60%) Saiwa SpA (Italy).OTHER HP Foods Ltd (U.K.) BSN Emballage (44%) Amoy Food Ltd (Hong Kong 90.3%) PT Aqua Golden Mississippi (Indonesia 36.1%) Britannia Brands (Malaysia) SDN BHD (90.3%) Britannia Industries Ltd (India 18.4%) Calpis Ajinomoto Danone Co Ltd (Japan 25%) Continental Biscuits Ltd (Pakistan 44.7%) Griffins Foods Ltd (New Zealand 90.3%) Hangzhou Wahaha Co. Ltd (China 41%) Shanghai Danone Biscuits Foods Co. Ltd (China 54.2%) Shenzhen Danone wellness Drinks Co. Ltd (China 54.2%) Tangshan United European Haomen Brewery Co. Ltd (China 63.2%) Wuhan Euro Dongxihu Brewery Co. Ltd (China 54.2%) Danone International Brands Paris Great Brands of Europe.Exhibit 4The controversial tiger brandExhibit 5Source Global fight report, world economic forum (2009-2010)Link https//members.weforum.org/pdf/GCR09/GCR20092010fullreport.pdfExhibit 6Source Corruption Perception Index (2010)Link http//www.transparency.org/policy_research/surveys_indices/cpi/2010/results