Business论文模板 – Global Issues: Grameen Danone Case Study

Introduction

Grameen Danone is a joint venture company designed on the premise of social business (SBE) enterprise with the aim of reducing malnutrition and poverty in Bangladesh. The company was established in 2006 after Yunus, the founder of Grameen Microfinance and Ribound, head of Groupe Danone, signed a memorandum of understanding to establish a social business enterprise. The term social business enterprise was coined by Yunus and refers to a business that maximizes social benefit without paying attention to the profitability of the firm (Short, et al., 2009). An SBE competes with other profit-maximizing enterprises, although it is not profit oriented. However, SBE should operate without making any loss. Geared to the Social Business model, Grameen Danone aims to reduce malnutrition among children while maximizing benefits to the community through the sale of quality yogurt at low prices. The venture has allowed Groupe Danone to operate in the Bangladesh dairy market, although the venture aims at social maximization (Ghalib, et al., 2009).

Using the Grameen Danone case study, this paper aims at examining various international strategies that are utilized by their firms as they expand to other countries. Information on the theory of market entry, international strategic alliances and theories will be included. Additionally, the impact of social, economic, political and legal factors and how they affect international businesses will be included.

PESTEL Analysis

A PESTEL is a framework for analyzing the effects of the macro-environment on the profitability and sustainability of a firm. The framework considers the impact of political, economic, environmental and social on the performance of a firm (Aldakhil & Nataraja, 2014). Grameen Danone operates in Bangladesh, a central Asian country with a population of over 150 million (Ismail, et al., 2011). The push for the venture can be attributed to Groupe Danone’s aim to enter into the Asian market. However the operation of the firm, as are all other international firms, has been affected by the political and legal factors. First, the firm operates or was founded in an unstable country with low political freedom. Such countries are likely to pass regulations that do not favor foreign investments. However, the impacts of the political and legal factors on the operation of Grameen Danone are meager (Rodrigues & Gregory, 2012). In contrast, the social, economic factors in the region have severely affected the operations of the company. Poverty is a major constraint to international expansion; this may be the primary reason Grameen Danone employed the SBE model to gain entry into the market. Around 26% of the Bangladeshi population lives below the poverty line. Illiteracy in the country is high, a factor that has severely affected the sustainability of Grameen Danone in the country. It is estimated that in the year 2008, the firm did not have the necessary human resources to manage its factor in the Bogra firm leading to loss. Environmental factors have also affected the sustainability of the firm. In 2008, monsoon coupled with the slowing global economy, wiped the 1% revenue margins that the firm was making (Ismail, et al., 2011). This was aggravated by rising milk prices, which increased by 50% at the same time. The result was the loss of over 60% of the rural market share. This brief PESTEL analysis shows that the current Bangladeshi environment cannot sustain Grameen Danone operations. In reality, the company has been making losses over the years, resulting in the exhaustion of its capital by 2011. The company had made a loss of US$ 223, 896 in 2007, US$3111, 270 in 2008 and US $443, 696 in 2009 (Humberg & Braun, 2014).

Market Entry Theory

A foreign firm, in this case, Groupe Danone, must make strategic decisions on two related but different issues. The first choice involves selecting either non-equity entry or equity based entry. The non – equity mode is whereby a firm enters a market through export of its goods from its resident country. Business is facilitated by agents and licensing. In contrast, equity entry mode is whereby a firm seeking to enter a foreign market buys or registers a local enterprise, either wholly or partially owned, to facilitate business operations in the business country (Grant & Baden-Fuller, 2004). The second important decision is to decide whether to acquire a local firm (acquisition) or partner with a local firm (joint venture). From the case study, it is evident that Groupe Danone prefers equity entry as opposed to non-equity entry. The establishment of Grameen Danone is as a result of equity mode entry, through a joint venture with a local firm, Grameen Microfinance (Griffin & Pustay, 2012).

Preference of Groupe Danone to equity-entry mode is reinforced by its mode of entry into the Chinese and Indian market. There are various market entry mode theories that can explain why Groupe Danone prefers equity-joint-venture based entry. The most applicable theory is the Organizational Capacity theory (OC) (Isoraite, 2009). OC argues that equity-based joint ventures allow the firm to increase its capability by partnering with other firms as it enters new markets. Grameen Danone can survive better in the Bangladesh market when compared to its parent companies as it borrows the experience of Groupe Danone has in the dairy and food sector and incorporates the knowledge Grameen microfinance has on the citizens of Bangladesh (Griffin & Pustay, 2012).

 Entry into Bangladesh was accomplished by partnering with Grameen Group. Despite the perceived success of the enterprise on paper, it is hardly of any advantage to Groupe Danone. It is a loss making venture with little prospects of breaking even. The comparison between Grameen Danone and other joint ventures with other firms in the Asian regions show similar trends. All the joints ventures are disadvantageous to the company. The Grameen Danone venture employs a business model that is not profit oriented while Groupe is a profit-oriented company. The joint venture with the Wadia family also poses problems to its expansionist strategy. Wadia family is unwilling to allow Groupe Danone to introduce new brands into the market. Similarly in China, the joint venture with Wahaha was characterized by mistrust and internal competition. It is evident the internationalization approach that Danone uses does not suit its needs or its objectives (Kauser & Vivienne, 2004).

International Strategies Alliances

The development of new ventures such as the Grameen Danone Foods Ltd can be best explained by one key theory of strategic alliances, although there are three key theories. The three theories are transaction cost theory (TCT), resource dependence theory (RDT), and Strategic Choice model. TCT argues that a firm enters into a strategic alliance to minimize transaction cost or costs associated with the movement of goods across boundaries (Kauser & Vivienne, 2004). Grameen Danone is a brainchild of Groupe Danone efforts to enter the Bangladesh market. Partnership between the firms allows the Danone Groupe to reduce the costs of trying to understand the new markets. Grameen with its social business model had more know-how on how to reach both the urban population and the rural population in its quest to market its products. Groupe Danone benefits from these international alliances by acquiring knowledge on the political climate of the country, channels of distribution, culture of the country and consumer habits (Zamir, et al., 2014). Developing a new entity would have been costly to Groupe Danone. On the other hand, Grameen Microfinance needed Groupe Danone resources such as capital, manufacturing expertise, branding skills, and superior marketing skills (Griffin & Pustay, 2012).

Through a venture with Groupe Danone, the firm would be able to meet two key objectives. The first is to reduce malnutrition among the Bangladeshi children. Secondly, Grameen wanted to foster prosperity among the citizenry by providing them with a market for the milk and molasses. In addition, the organization would be able to provide jobs for the poor people. Additionally, the firm would benefit from technical expertise that would allow it to build factories easily (Yunus, et al., 2010). However, the theory does not explain why a firm may select equity entry, in this discussion a joint venture, or non-equity entry mode. However, the theory best explains why the two firms came up with Grameen Danone.

Other International Theories

The strategic choice model and the resource dependence theory are also important in understanding international strategic alliances. The RDT argues that firms cannot survive alone (Whitelock, 2002). It postulates that an international or local strategic alliance allows a firm to control the external environment and guarantee profitability it would not otherwise have when operating alone (Wisnieski & Soni, 2004). The establishment of the Grameen Danone firm fits this model for several reasons. First, it allowed the two firms to join and create an entity that could operate in the Bangladesh dairy market providing Danone access to the market. Groupe Danone would not have been able to enter the market alone as a result of low knowledge on the various political, social, cultural, and economic factors in Bangladesh (Uddin & Akhter, 2011). Horizontal alliance that is an alliance that pools resources allowed the Groupe Danone to access and control a market that it would otherwise not have been able to control. In additional, Groupe Danone was insulated from external factors in the market. On the other hand, Grameen Micro-finance gained technical expertise that it needed to establish business operations in the country (Todeva & Knoke, 2005).

The strategic choice theory postulates that a firm should go into a strategic alliance, only if the alliance improves the competitiveness and profitability of the firm. SCM is similar to transaction cost theory, although the choice of the strategic structure is dependent on the extent to which the alliance improves profitability in relation to its competitors (Andersen, et al., 2014). Grameen Danone is a clear example of a strategic alliance, although the theory does not explicitly explain why the two firms developed a venture geared towards social maximization rather than profit maximization. The emergence of Grameen Danone from the two parent companies is not strategic to Groupe Danone since it has resulted in losses due to high levels of poverty in the region. Arguably, the theory does not fit the current allegiance between the two firms, although it does explain the need for an alliance (Das & Teng, 2000).

Conclusion

Groupe Danone has over the years entered new markets through a partnership with local firms. The approach allows the company to enter and operate in challenging markets as it benefits from the resources of the local firms. These resources include, but not limited to, consumer behavior, distribution channels and knowledge on legal frameworks and processes of the new market. The entry of the company into Bangladesh can be attributed to a joint venture with Grameen Microfinance bank. Bangladesh has numerous constraints that can impede the performance of new business. Some of the key impediments include high levels of poverty and illiteracy. The new business venture Grameen Danone operates various factories in the country and mostly deals with yogurt (Griffin & Pustay, 2012). However, Grameen Danone a company established to ensure social maximization is performing poorly due to various macro-environmental factors. From the beginning, the company has been making huge loss that has resulted in the erosion of its starting capital. As such, the venture does not meet its obligation to operate sustainably. While Groupe Danone viewed Bangladesh as a country with immense potential, its dreams are yet to be fulfilled owing to the adoption of a non-familiar business model (Sutton, 2006).

Evidently, there is a need for Grameen Danone to overhaul its activities to ensure sustainability. Failure to carry out proper research and adoption of an unsustainable business model may lead to the collapse of the company. Several theories that explain the international strategic alliance show that there is a need for either if the two companies to reexamine their alliance (Tang & Liu, 2011). While a strategic alliance aims at increasing profitability and performance, the Grameen Danone venture is far from achieving its goals. The venture echoes past problems that Groupe Danone had in its expansion quest.

Bibliography

Aldakhil, A. & Nataraja, S., 2014. Enviromental Factors and Measures that Affect the Success of International Strategic Alliances. Journal of Marketing and Management, 5(1), pp. 17-37.

Andersen, P., Ahmad, S. & Chan, W., 2014. Revisiting the theories of internationalization and foreign market entry mode: a critical review. International Journal of Business and Commerce, 4(1), pp. 37-86.

Das, T. & Teng, B., 2000. A resource based theory of strategic alliances. Journal of Management, 26(1), pp. 31-61.

Ghalib, A., Hossain, F. & Arun, T., 2009. Social responsibility, business strategy and development: the case of Grameen-Danone Foods Limited. Australian Accounting, Business and Finance Journal, 3(4), pp. 1-14.

Grant, R. & Baden-Fuller, C., 2004. A knowledge accessing theory of strategic alliances. Journal of Management Studies, 41(1), pp. 61-84.

Griffin, R. & Pustay, M., 2012. Closing case-look before you leap. In: International Business. 7th ed. s.l.:Pearson, pp. 389-390.

Humberg, K. & Braun, B., 2014. Social business and poverty alleviation: lessons from Grameen Danone and Grameen Veolia. In: Social Business. Berlin: Springer Berlin Heidelberg.

Ismail, K., Sohel, H., Kohar, U. & Ramliy, M., 2011. Can Austin’s model of social entrepreneurship ensure success in Asian perspective. Australian Journal of Basic and Applied Sciences, 5(12), pp. 974-980.

Isoraite, M., 2009. Importance of Strategic Alliances in Company’s Activity. Intelectual Economics, 1(5), pp. 39-46.

Kauser, S. & Vivienne, S., 2004. International Strategic Alliances: Objectives, Motives and Success. Journal of Global Marketing , 17(2), pp. 8-43.

Rodrigues, J. & Gregory, A., 2012. Grameen Danone Foods Limited (GDF). International Food and Agribusiness Management Review, 15(1), pp. 127-158.

Short, J. C., Moss, T. W. & Lumpkin, G. T., 2009. Research in social entrepreneurship: past contributions and future opportunities. Journal of Management, Volume 34, pp. 161-194.

Sutton, J., 2006. Market structure: Theory and evidence, London: London School of Economics.

Tang, J. & Liu, B., 2011. A network based theory of foreign market entry mode and post entry performance. International Journal of Business and Social Science, 2(23), pp. 50-59.

Todeva, E. & Knoke, D., 2005. Strategic Alliances and Models of Collaboration. Management Decisions, 43(1), pp. 1-22.

Uddin, M. & Akhter, B., 2011. Strategic alliance and competitiveness: theoretical framework. International Refereed Research Journal, 2(1), pp. 43-54.

Whitelock, J., 2002. Theories of internationalisation and their impact on market entry. International Marketing Review, 19(4), pp. 342-347.

Wisnieski, J. & Soni, R., 2004. Strategic alliance choice: usefullness of proposed theories. The Journal of Applied Management and Entrepreneurship, 9(3), pp. 74-90.

Yunus, M., Moingeon, B. & Lehmann-Ortega, L., 2010. Building social business model: lessons from the Grameen Experience. Long Range Planning, Volume 43, pp. 308-325.

Zamir, Z., Sahar, A. & Zafar, F., 2014. Strategic alliances: A comparative analysis of successful alliances in large and medium scale entreprises around the world. Educational Research International, 3(1), pp. 25-39.

Scroll to Top