Global business environment - Danone in China and in India

Résumé du document

Today, many multinationals seek to expand their activities in the international market spurred by the growing trends of globalization. By investing substantially in foreign markets, they hope to establish themselves and gain market shares. This expansion of activities can only be undertaken subsequent to a thorough analysis of the external environment.

Indeed, companies' ability to identify and monitor external factors by taking into account their internal strengths will determine their success. In this report, we will focus on the French multinational Danone, in China and India. We will identify which country and market would be most suitable for Danone's business model and its international success.

Our study will be composed of two parts. The first one will deal with an overview of the group while the latter part bring will analyze the business environment of these two markets. Finally, we will conclude by presenting our point of view.

Groupe Danone, created in 1919 in Barcelona by Issac Carasso, initially concentrated on producing yoghurt. In 1929, ten years after its creation, the company was established in France to extend its market shares. A new entity was thus created under the name Gervais Danone following its merger with cheese manufacturer Gervais.

The Danone Group, the number one company on the international market for fresh dairy products, bottled water and infant nutrition, was born in 1970 of a merger between Gervais Danone and Boussois-Souchon-Neuvesel. This merger helped the Group to become the leading French agro-alimentary firm and a well-established multinational.

In 1998, Groupe Danone joined the New York Stock Exchange and was the official partner of the FIFA World Cup in France. Currently, the Group is present in more than 80 countries registering a turnover worth over 12 billion euros in 2007.

Extraits

[...] It will be hard to offer each product in the 23 languages and communicate on its operations. Another point is important to take into account by DANONE: the religion and castes. In spite of the law against racial and religious discriminations, the caste system keeps working. It maintains the majority of local populations in an inferiority position and strongly limits their freedom of expression. It is an unequal society (low social mobility). That can limit the DANONE expansion in this country. [...]

[...] For more than twenty years, Chinese government has undertaken political reforms to attract and accompany overseas investments. Coastal regions, strongly populated, offer the company technological infrastructures and equipment, opening on international markets, qualified and not very expensive labor, and abundant raw materials. It also offers logistics medium more advanced than India. India is indeed late in the development of its infrastructures. Even if it offers a highly qualified labor, and has a strong economic growth, it is a complex market to encircle: many cultural differences, a strong linguistic barrier (23 languages), a very weak purchasing power, important manufacturing costs, a strong rate of corruption and criminality. [...]

[...] For its development in China DANONE will have to adopt several strategies. It will have to focus on its “blockbusters” products. It will have to exploit local raw materials to decrease its production costs and therefore its sales prices. It is necessary to answer the characteristics of the local demand (purchasing power). Lastly, they have to highlights their products possessing a strong “health benefits” because China remains a country in development (human). The Group will thus respect its social responsibilities by actively working for the reduction of poverty. [...]

[...] The Indian government indeed refuses that foreign brands alone implement themselves in the country. Finally the French group will have to take care of the corruption which is strongly present in the Indian political system. CHINA China knows a rapid growth of the diary consumption. That is explained by the improvement of the Chinese living conditions. It is expected that 25 million tons of milk will be consumed from 2015. The country also has 400 million hectares of meadows, which represents an enormous potential of production (milk). [...]

[...] Chinese government tries to control this continuous rise of economic growth rate. The objective is to support a healthy, sustainable development and avoid structural and societal fragilities. China has abundant labor and raw materials at a low-cost. In coastal regions, it is possible to find a qualified labor having an important purchasing power. It is today estimated that 60 million Chinese has a comparable income with Western executives. For DANONE that represents considerable economic and commercial perspectives. It should however be specified that production factors quality (industries) depends on Chinese managers' experiences, knowledge and the presence of multinationals staffs. [...]