Strategic Benefits and Risks of Alliance Membership

In 2004, an important co-operational agreement evolved with Japanese Yakult Honsha Co. Ltd. Given that their probiotic and fermented milk drinks are similar, the companies initially cooperated on product research and promotion, with options to extend collaboration into more operational areas. Danone is a major shareholder in Yakult Honsha Co., Ltd., with a 20% share.

However, since the differences in areas such as corporate culture and marketing techniques could not be eliminated, the companies decided to replace their strategic alliance with a looser cooperation framework. Without being interested in a takeover, Danone intended instead to strengthen their “friendship”, as the Japanese milk drinks producer described their business relationship, and continued collaboration in markets such as India and Vietnam on probiotics and other products (Cruz/Yamaguchi 2013).

Strategic alliances often lead to benefits for both sides, such as support through sharing expertise and capabilities of major international groups, or strong complementaries in terms of product ranges, R&D, brand positioning, geographical presence, and distribution channels.

Nevertheless, alliances do not always work out as initially intended, as shown in the case of Danone and Chinese Wahaha Group Co. Ltd. The strategic partnership with Danone, which ended in 1996, enabled Wahaha to become the dominant player in the Chinese bottled water and other nonalcoholic beverage market, but broke up only about a decade later. However, in 2007, Wahaha blamed the French food giant for setting up competing joint ventures with other local companies, such as Mengniu Dairy or Bright Dairy & Food, whereas Danone accused Wahaha of using the brand outside the scope of their joint ventures. This contention finally made the French company abandon the alliance, which had accounted for about 10% of Danone's total worldwide sales.

Clearly, Danone initially aimed to gain access to Wahaha's distribution networks in China, one of the fastest-growing regions in the world, with the most lucrative markets, whereas Wahaha was looking for capital, management experience, branding and high technology from the foreign MNC.

This particular case, however, shows explicitly that there might be incompatible managerial, cultural and legal discrepancies inherent in a strategic alliance between global foreign companies and that these are potentially hazardous for international business relationships. Potential foreign investors must therefore make a serious effort toward genuine integration compatibly if they aim to enter different national or geographical markets.

Eventually, in 2013 Danone joined forces with Chinese state-owned COFCO and China's leading dairy company Mengniu to accelerate the development of fresh dairy products in China. One year later, Danone has already announced its intention to increase its share in Mengniu to approve as a shareholder (Melewar 2006, p. 410).

Another strategic alliance which led to unsatisfactory outcomes and was therefore subsequently cancelled was the joint venture called CCDA, which was formed by Danone and the American multinational nonalcoholic beverage corporation Coca-Cola Company. In 2002, the companies decided to collaborate in producing and distributing Danone's luxury brand mineral water Evian to offset declines in sales of its flagship Evian water in the rapidly growing US beverage industry.

This joint venture was unique, because the miscellaneous opponents in the non-alcoholic beverages markets chose to participate in a so called “coopetition” meaning that they placed themselves in the paradoxical situation of being both partners and competitors simultaneously. The alliance was designed to enhance the Evian brand in the US by offering a better-organised distribution network and greater marketing backup to compete with lower priced brands of mineral water, including Coca-Cola's own Dasani brand. The idea of building this joint venture was appealing, because Coca-Cola already distributed Evian in 60% of the US market and the French luxury water brand was considered a good complement to Coca-Cola's Dasani brand.

However, in 2005, after a minimal amount of co-operation time, the alliance was suddenly dissolved. This was surprising given the huge investments the companies had made in the alliance, totalling hundreds of millions of dollars. In effect, Coca-Cola bought out Danone's stake of 49% in CCDA (Bierly/Scott 2007, pp. 137-138).

In the end, the joint venture between Coca-Cola and Danone was a huge mis- understanding of strategic fit. The companies failed in evaluating consumers' willingness to pay for basically the same product which was just positioned differently through branding. In this case, the managers lacked an accurate understanding of the synergetic benefits of the integration of the two firms' resources. This could have been prevented by:

■ installing an effective IT system to collect, integrate and disseminate information

■ ensuring decision makers used the IT systems and other resources available to them

■ involving all key organisational members in the decision-making process

■ creating a knowledge-sharing culture

■ challenging overly optimistic assumptions about the alliance.

 
< Prev   CONTENTS   Next >