DANONE: CASE DISCUSSION AND ANALYSIS

Danone’s development
How has Danone changed under the leadership of the Riboud father-and-son team?
DIVERSIFICACION
 Under Antoine Riboud (1966-96), Danone was transformed from a French glassmaking company into a
diversified food and beverage company with substantial interests in other European countries.
 Under Franck Riboud (1996 to the present), Danone has consolidated around 4 businesses lines: Fresh
Consolidacion dairy products, Waters, Baby nutrition and Medical nutrition and in the process has divested a number of
major businesses (e.g., Kronenbourg beer and the biscuits division). It has also internationalized
considerably—especially beyond Western Europe into Russia and other Eastern European countries,
Asia, the US and Latin America.
At each of these stages of development is useful to consider the underlying logic of the strategic initiatives.
Why the diversification by Antoine Riboud? Was this simply a case of opportunism and empire building? (In
retrospect, it seems difficult to see any clear logic in diversifying from glass into beer and a variety of food
products other than the fact that glass containers have been a slow growing industry).
In the case of Franck Riboud, the logic behind the transformation of the business is clearer. He has focused
Danone on fewer businesses selling off those which either had poor growth prospects (biscuits) or where
Danone lacked critical mass (beer).
In terms of the basic strategic questions Where? and How? Danone’s strategy can be described as:
WHERE? 4 businesses: fresh dairy (especially yogurt), bottled water, baby food, and medical nutrition
(“functional foods”). Broad international spread but particular strength in particular countries notably: France,
Russia, Spain, Mexico, Germany, Indonesia, UK, China and Argentina that together account for 67% of
Danone’s total sales.
HOW? A key linkage between Danone’s businesses and its source of competitive advantage is its mission of
VISION “bringing health through food to as many people as possible.” This mission has taken Danone out of beer and
biscuits and into baby food and medical nutrition and encouraged its increasing focus on populous emerging
markets in Asia and America. It has been underpinned by Danone’s values—notably its emphasis on social
and environmental responsibility and is reflected in Danone’s emphasis on R&D and innovation.

The world market for food and drink: globalization potential

Having established key features of Danone’s development, its strategy and its current performance, the next
stage is to evaluate Danone’s strategy. It is useful to turn attention from Danone to the markets in which it
competes. The central theme of Danone’s strategy has been international expansion. Does this make sense
in the industry in which Danone plays? Variacion del precio en concepto de la oferta y demanda
Given that food and beverages tend to lack economies of scale either in R&D or in production and
transportation costs tend to be high (especially for fresh products), then the benefits of an internationalization
problemas culturales
strategy might be expected to be small. At the same time, because of culinary preferences and traditions tend
to be a central feature of national culture, markets tend to be differentiated both nationally and even at much
more local levels. It is not obvious that global firms would have an advantage over national players in this
sector.
To explore the benefits of global integration versus the need for national differentiation we need to examine
the forces driving globalization and localization. The generic sources of globalization and localization benefits
are:
 Figure 2 The Drivers of Globalization and Localization

Forces for globalization Forces for localization / national

MARKET DRIVERS differentiation
--Common customer needs MARKET DRIVERS
--Global customers --Different languages
--Cross-border network effects
--Different customer preferences
COST DRIVERS --Cultural differences
--Global scale economies COST DRIVERS
--Differences in national --Transportation costs
resource availability --Transaction costs
--Learning --Economic & political risk
--Speed of response
COMPETITIVE DRIVERS GOVERNMENT DRIVERS
--Potential for strategic --Barriers to trade & inward inv.
competition (e.g. cross- --Regulations
subsidization)

At the same time the positioning is very different for different products. For example, in relation to Danone’s
products, water is fairly global product: it is not differentiated by country and the leading brands are exported
worldwide from a single source. Conversely, dairy products are highly localized: preferences for cheese,
yoghurt and other products is highly differentiated by location and production also needs to be undertaken of
the local market. (See Figure).

Figure 3 Danone’s Businesses: Globalization

Potential vs. Need for Localization

Waters

Benefits Medical
of nutrition
global
integration

Baby
foods

Dairy
products

Benefits of national differentiation

The rationale behind Danone’s internationalization

To explore the underling logic to Danone’s strategy of international expansion we need to look more carefully
at the basis of Danone’s competitive advantage in the markets in which it competes—and at the resources
and capabilities which underlie this competitive advantage.
Hence, it is useful to ask: What are the resources and capabilities that offer Danone a competitive advantage
in the markets in which it competes and to what extent can these competitive advantages be transferred across
borders?
The resulting suggestions can be organized into a table that may look something like Table 1 below.
Table 1. Danone’s resources and capabilities and potential to create value from internationalization

Source of
Potential for cross-border transfer of competitive advantage
advantage
Brands Danone has a portfolio of established brands, most of which are established in
multiple national markets—thereby offering economies from spillover from
advertising and promotion. Global brands particularly important in water: Evian,
Volvic. In other business areas, Danone has a mixture of national and international
brand: in dairy products, Danone and Gervais are international brands, as are
Nutricia and Milupa in baby foods. Danone’s ability to exploit its reputation across
national borders extends beyond the appeal of its individual brands.
Research, R&D is an important source of global scale economy in the food sector—especially
innovation, new in research intensive business such as medical nutrition. Also the potential to
product economize on new product develop costs by global rollout of new products.
development
Social and Danone’s system of values and its initiatives in terms of social and environmental
environmental responsibility may be regarded as a distinct capability that provides Danone with a
responsibility reputation and basis for engagement with distributors, consumers, governments
and suppliers that is transferable from country to country.
Responsiveness A key component of Danone’s management system is decentralized decision
and making intended to foster a high degree of initiative and responsiveness among
entrepreneurship business unit executives. This might be expected to offer Danone a competitive
advantage in terms of adaptability to local requirements and the ability to show
initiative and speed in business development.
Operational With some 160 plants throughout the world, Danone has considerable potential for
capability improving efficiency through the transfer of best practices and implementing
process innovation
Learning and The potential to create outstanding operational capability is just one dimension of
knowledge- Danone’s key advantage from its international scope: the ability to learn in multiple
based locations, then disseminate that learning globally. One example: Danone's ability to
advantages tailor its products to local needs and preferences. Danonino, a dairy product for
children has been introduced into 14 countries, its formulation is adapted to the
nutritional needs of children in different locales. Danone’s knowledge management
processes facilitated such cross-border learning.
Human resource From its earliest days, Danone has committed itself both to caring for its
management employees and developing their potential. As the case outlines, Danone makes a
major commitment to training and leadership development with a particular
emphasis on team-based skills.

How Danone manages its international business empire?

Probably the most interesting feature of Danone is its management system which is certainly highly distinctive
and offers an interesting basis for discussion about the nature and role of corporate systems for coordination
and control.
Compared to other large, highly complex companies (i.e. ones that are both diversified and multinational);
Danone is distinguished by its unusually decentralized structure and management style. This is reflected in
the autonomy granted to its large number of country business units and is revealed in the differences in
strategy being pursued in different countries. Thus, Danone’s entry and development strategy in different
countries has been very different. In emerging markets in particular it has focused upon the acquisition of local
companies in some countries, joint-ventures in others, and “greenfield” expansion in others.
This decentralization and adaptability have allowed Danone to adjust to the requirements of individual markets,
the key issue that arises is: How does Danone achieve the integration needed to exploit the advantages
of international scope?
The case suggests that the key to Danone’s ability to manage its dispersed global network and exploit the
benefits of cross-border collaboration and integration is its informal rather than its formal management
structure.
The “glue” that holds Danone together appears to be much more its common values, its business principles,
and the other factors that feed into the unique “Danone culture”.
This is supported by some specific tools and systems—most notably Danone’s knowledge management
system which ensures that product ideas, best practices, and know how is transferred across national and
divisional boundaries.
In creation and maintaining the Danone culture and the Danone “way of management”, 44 years of leadership
by the Ribouds has been the vital component. A Nivel global, danone utiliza estrategias en cada pais que incursa
nuevos negocios y diferencia las estrategias manteniendo los
Recommendations mismos principios y valores
1. The focus on emerging markets. Danone has done a remarkable job of taking products developed initially
for its home market—one of the most sophisticated and discerning food markets in the world—and
adapting and developing them for a wide range of national markets whose culinary traditions are vastly
different from those of France. Danone’s success in countries as different as Mexico, Russia and
Indonesia, suggest that Danone has developed a remarkable capability to develop, market and distribute
products in emerging countries. Given that these markets show a high population growth, economic
growth, and food sectors that are less developed than those of Europe, Danone’s emphasis on emerging
markets is sound.
2. Danone’s commitment to social and environmental responsibility. Given the product markets that Danone
serves (dairy products, water, baby nutrition, and medical nutrition), Danone’s CSR and environmental
sustainability programs are likely to play a key role in brand reputation, relationships with suppliers (dairy
farmers), and relationships with governments. In emerging markets in particular, the controversy that has
been associated with infant milk formula and pharmaceutical marketing and the active role played, means
that social and environmental responsibility activities are likely to contribute both to Danone’s reputational
advantages and to its capacity to find innovatory approaches to new product development, marketing and
distribution.
3. Danone’s structure and system. Achieving the right balance between decentralization and centralization,
adaptability and standardization, entrepreneurial freedom and control is difficult. Given that Danone’s
success depends critically on maintaining its standards of quality, hygiene, and reputation for social and
environmental responsiveness—the imposition of company-wide standards is important. Also, to the
extent that replicating and extending Danone’s competitive advantage depends upon exploiting its
strengths in research and brand equity, and continually transferring know-how and experience, then
keeping the network ties close is essential.
Where things have gone wrong for Danone in the past—most notably its problems in China with its joint-
venture partner Wahaha—is where Danone has had insufficient control.
Hence looking ahead:
 Danone’s emphasis should be upon establishing subsidiaries where it has effective management
control (i.e. a majority equity stake) if only to ensure the maintenance of its business principles and
philosophy.
  Achieving coordination while maintaining decentralized initiative and flexibility is likely to require
informal mechanisms for coordination and control. Maintaining the culture and the business philosophy
must be the primary responsibility for tip management. To keep communication and collaboration
flowing, Danone needs to achieve a global system for developing its managers and managing their
global career paths, it must emphasize events where managers for different countries meet and share
information and insights.
Changes in the business portfolio. Danone’s portfolio of businesses is much more focused than when Franck
Riboud took control of the company. Decisions to add or subtract businesses should be based upon (a) the
long-term attractiveness of the business and (b) Danone’s potential for competitive advantage. One business
that might be seen as a possible “misfit” is the drinks business. Despite the health connotations of water, it
could be argued that selling French bottled water throughout the world conflicts with Danone’s environmental
aspirations and its desire to service the “bottom of the pyramid”. Moreover, this is a slow-growth business
where Danone is unable to use many of its core capabilities in product development and adaptation to local
preferences and requirements. Water industry does not usually show high level of profitability, but it is even
more difficult to manage for Danone, because it cannot provide any synergies with the other business lines,
and because it has high costs of transportation (the case says, “for most of its sales, Danone produces within
its local markets. The exception is bottled water, especially the brands Evian and Volvic. Evian was exported
to approximately 150 countries in 2009”). To be successful in this business, companies need to work on volume
than on price. Also, a high price would be not aligned with Danone overall positioning and strategy. It could be
that, like its biscuits businesses which was a more natural fit with Kraft’s Oreo cookies business, Danone’s
water business might fit better with a major beverage company—e.g. Coca-Cola, PepsiCo or Nestlé.

Do you agree?

Danone debe evaluar si le es rentable producir y embotellar agua a nivel regional para minimizar gastos de transporte.
Puede embotellar en regiones donde obtenga una calidad de agua buena (Ejemplo, EEUU, Colombia, China, Sudafrica) y exportar a los
paises de esa zona geografica. De no poder, danone debe desistir de esta linea de negocio y reforzar su precencia en el mercado de
alimentos infantiles y saludables.