Danon company Anylisis

BSM3104- STRATEGIC MANAGEMENT

“Groupe Danone”
Dr David Yong
DR 3039














ALI ZAHIR

1051108445

alicrow@gmail.com

017-6559160

Question 1:

What are the core competencies for the organization?

Donone is a well establish player in the market for more than 100 years. So they should have generated there good name or reputation through out its existence in the several years of its operation. Donone is established in the global market and it had spread its wing in all most all the parts of the world. This is the biggest competitive advantage which Donone has. They had good reputation since it is owned by French businessmen. France is famous for its business in bread, biscuits and cookies. They are number one in the world. According to Donone website they had won the 2006
-Nº 1 worldwide in Fresh Dairy Products
- Nº 1 worldwide equally placed in Bottled Water (by volume)
- Nº 2 worldwide in Biscuits and Cereal Products
This position of Donone gives us what Donone is capable of doing. There have well establish brands such as “Donone”, ”Evian”, ”lu”, ”Wahaha” are the leading cash cows in the Donone product portfolio. This is one of the main key factor contribute the success of Donone since they gave got a wider range of product line with diversified areas. Of course their main concern is the market of food product but still they have diversified in those areas by producing
Donone has grown world wide and make it easy them to remain in the business by building well establish enterprises in different geographical regions. This will help them during economic fluctuation. The hit on Donone revenue can be minimize, because these economic down tern in one region of the world can be adjusted or set off by the successful revenue earned by well performing regions.

Donone had establish research institutions so it can stay ahead of their rivals such as Nescafe’ and Dutch lady. It is really worthwhile to spend heavy amount of money on research and development because a large global player like Danone need to have a core competitive advantage over its rivals. It is known that in food and beverage industry there always is 5 big companies who dominate the market. It is one of the main aims of Danone to be in that category. Recent tread in the food industry is that most of the consumers are getting concern with health issues and they are moving more towards organic products which have to be one of the areas they have to concentrate on. So doing research on organic food and coming with a great product will help Danone to dominate its products in the market and it will lead to more market share for Danone.

One the other hand achieving economies of scale will help to reduce the price of their product. Danone has build up good networking system to connect it operations in different corners of the world. It has built a supply chain management system so that they have lock in the suppliers in the system. It can guarantee the flow of raw materials needed for it production. Supply chain management system helps them to minimize unnecessary cost such as warehousing and cost of holding unwanted finished stock. They have employed a full enterprise system from which they save millions of dollars a year. This had leaded them to reduce administration and operating costs and this lead to economies of scale. An economy of scale means lower cost per unit. Low cost of goods means that Danone can sell their good cheaper than its rivals so it can stay ahead of rivals.
Over the past 40 years Danone had establish a well know brand name and it cost billions today. This brand loyalty is one of their core competitive factors which had made then to add extra price for its product sold in the market. Brand loyalty will help Danone to increase it profit by raising its prices to a same amount with the brand loyalty.



2- What are the key success factors for the organization?

Generally, the main key factor behind the success of this giant organization is the fact that they value and care about their customers’ in par to the organizations aim to sustain the development. This is clearly known by their mission, “Bringing health through food to a majority of people”. For an organization that had started as early as in 1966, this is a unique mission that these people have come up with. The mission statement has proven that they care about their customers since the beginning, which played a main part to build consumer trust. This statement makes the people realize that they are not set up for the success of their organization, like some of the organizations today, but they are honest people who care about their health. And in today’s people being health concerned people, they have touched the heart of many as they have mentioned as “majority of people” through this concept.

In addition to this, they had penetrated to the market by making sure that they are environment friendly people since the world have been showing a lot of concern for the environment. They have been steadily investing in their products’ safety and made sure that it won’t harm our vulnerable environment, which is something, food companies can do a great extent if they don’t care about it. To accomplish this Donone had come up with product packaging that can be recycled and made sure that it has a minimum of weight so that they can reduce plastic consumption. Furthermore they had shown respect to the environmental standards for they say the food companies are facing a dilemma where there is an increase of consumers and the importance of limiting the pollution of the environment by mankind, which in turn affects the food companies. It had initiated programs in favor of maintaining pollution free programs such as the Green Plants in 1995 which was aimed to limit waste and to get the best out of waste recovery by cutting down the consumption of water and energy.

Apart from this, the strategies used with in the company as well play an important role of its success. Most beneficial strategy that they have came up is that they had made sure of organic growth since the beginning. They extended their business in places where they have good opportunities to expand and tried to capture the market as soon as they can by extending their product line which will prevent from them loosing their monopoly in beverage industry. The key success strategy here is that Danone thinks and act fast, and makes competent decision. For instant, as soon as they found out that they are going to loose their monopoly in beverage industry if they kept on making containers, they shifted from a container manufacturing company to beverage industry in 1970. Furthermore the decision to withdraw glass plate manufacture when there was a threat to their sales due to booming of oil prizes is a good evidence of this strategy.

For the expansion of their company, Danone had partnered with a number of companies that had led to success. The first remarkable movement to this is that they combined with BSN in 1973, making them the leading food group of France. As soon as they captured the French market, they set a target to make a base in the Europe in 1980. With this hope, the company established all over southern Europe, England and Germany. They thought of the best opportunities where they can expand and make them lead in this market. For instance they entered in to biscuit industry as they discovered the change in peoples’ eating habit. To be precise, they meet their consumer needs according to their change in lifestyle as the world modernizes.
Being in food industry Danone had invested and done a great job in producing food that meets their customers desiring taste in every country they are at present. In fact they have been succeeding in every country they enter. They are able to win over customers in countries where people have not tasted diary products. The reality behind this is their well known strategy known as innovation. They research these countries before launching their brands and finds out about their tastes and dietary habits. At the end, as Danone company says they develop “local brands” which makes them successful in every other country they market.

Danone says that they are unique from other companies’ because they have developed a vision that defends its core values. This is major fact behind their success. This vision is applied for internal and external key publics and due to this excellent strategy they had gain their success. Their core values are Openness, Enthusiasm, Humanism and proximity.

Further more the loyal employees who stand and work for this mission is also behind their success. Their dedication to their work and dual commitment to business success and social progress as Danone group says is important. Without them, Danone wouldn’t have succeeded.


3. Where is the organization vulnerable? What should it watch out for?

Danone Company is expending its wing by doing acquisition and mergers. They had practice this in the France as well as in other parts of the world. They buy out small and middle scale rivals and in the countries which they are expending. When talking over another business Danone need to be really prepare for the reluctance of the third party. Managing employees who belong to that organization could be difficult since making changes around that business is not that easy task. Most of the employees morale is lost when Danone buy out those businesses. For example in India when Danone buy out the brand “Britannica” the employees felt left out where most of them have been working for Britannica for years.

Another thing that Danone need to watch out is that when purchasing that business lost of money is needed. So it needs to consider cost of capital and return on that investment. It is really risky when growing globally. There are language barriers, political unrest, currency difference and ethical issues too. In order for Danone to be successful it has to make those factors into consideration. They need to build a master plan to tackle with that kind of situation if they want to be successful in the expending. Danone might face it difficult to finance those investments since it buys out firms in almost all the countries which it expands. Sometimes they might have some types of restriction from the government especially when the government changes and the policies of the new government changes too. It is difficult to take off an investment once it spends. Due to some sunk cost Danone still might have to carry out with those investments which pay them just break even. On those situations Danone has to face some type of loss. In a conclusion, we can say that going global is risky on the other hand taking right risk means higher return.

Danone need to keep well balance product portfolio. It should always research on producing new line of products before existing products gets “Problem child or Dogs”.
It also needs to be careful with out break of bird flue since it used egg as a raw material in their product range such as cereal and biscuits.

In Danone website some of the information needed is not mentioned. Such as the difficulties it faces when doing the business world wide. In order to go more detail we have to get true information.


4. Identify the challenges faced and opportunities available to the
Organization in the industry

Opportunities

Since people are becoming more and more concerned about their diet to maintain a great body shape especially among youngsters, this is good opportunity to make something for these valuable customers. Danone can create new product line targeted to these health conscious people making sure their needs are met. These youngsters are in need of a drink or a diary product that will keep them fit without ruining their physique. For instance young women mostly have an eye on low fat, diet, or low sugar products these days. There fore Danone can create low sugar and low fat products for each existing product. Example of a product can be low sugar biscuits without neglecting the delightful taste of each. This can be a good approach when it is build up these product line are introduce with a new theme indicating that Danone has introduced a new brand for people who doesn’t want fat in their diet since people who would consume these products are increasing. Further more this can be a good product for those who cannot consume Danone products due to certain type of illness such as Diabetes. They can mention this as well, so that Danone can build up a new image in their consumers mind, that they not only care for the health of healthy people but also those who are sick and cannot enjoy the delicious product line that Danone has produced over the years. This will increase another marketing opportunity around the world as there are a lot of diabetes people.

On the other hand the increase of popularity in sports among youngsters can provide a great opportunity to build up energizers to boost up energy for those who play sports. They can easily penetrate this market as they have already gained trust among their consumers for creating healthy products.

Further more with the huge success of past operating years Danone still has the opportunity to penetrate in many other countries market since they have been loyal in the past and they have gained enough trust from the consumers to introduce their products. This can contribute a great deal for their expansion theory.


Challenges

The main challenge that Danone faces will be the fact that they are trying to invade the countries that have already established their own diary products and had made the locals believe in their own country products than that of the products that is made in any other country. These people refuse to accept new products since they have been used to the old ones. Further more increase in competition, as more food industries are growing in countries where Danone had planted a market will be a threat to their sales. These food industries are as well investing a lot to produce innovative products varying the taste to gain customers attention and doing research to meet the changes in their consumers eating habits.

On the other hand, for every product that is made in Danone or any other food industry there will be the same product made from another company with a different name competing it. Even if Danone introduced a new product, the competing companies will introduce a much improved version of that product to the market the next day it self. In another words they have a lot of competition in their product line.

Being established in different countries around the world which is politically unstable will cause a threat to their products. Countries like Africa where Danone had introduced their brands, is very politically unstable. Therefore their no guarantee that these products will survive in a near future in there country and moreover whether it will make the launching of these product a failure where they lost a large amount of sales.



5. Analyze the degree of attractiveness of the industry for the organization
With the Porter’s “Five Forces Model".



Every industry has many members or company in it. They face challenges from all the corner of the industry. According to Potter’s five Forces competition model there is certain five factors which are determining the competitiveness in the industry where the firms exist. On the other hand competitiveness in different geographical area might be different due to competitive five forces and its impact on the first.

Danone is a global player in the business so they need to be well prepared for those issues. There are five forces which determine the competitiveness in the industry which are namely threats of new entrance, Bargaining power if supplies, bargaining power of customers, treat of substitute product and rivalry among the firms.




Threat of New Entrance:

Evidence suggested that companies often find it difficult to identify new competitors. Identifying new entrance is important because they can threaten the market share of existing competitors. One reason new entrance pose such a thereat is that they additional product capacity. Unless demand for a good or service is increasing, additional capacity will move down consumers price because demand remain same and supply increase. This will lead existing firms to lower its revenue because the prices fall.
Danone always have the strategy of buying out the existing firms when it moves into new market or new geographical area. They target to only the best performing businesses so that they can minimize have well known name and easy to penetrate market. They can also eliminate the threats which give by existing players buy ways of cutting prices or using there advantage of economies of scale. On the other hand they don’t add more capacity in the industry since they carry out the operation run by existing firms. Once they capture enough market share then they introduce new products in to the market and dominate the market. This strategy seems really work-out with Danone.

Donone is operating in food and beverages industry; there are a lot of small scale competitors around. Danone had already achieved economies of scale so it will be really difficult for new entrance to compete a giant business like Danone. There brand names are well recognize in the market so they don’t have so much thread from new entrance small firms.


Bargaining power of suppliers.

It is vital to maintain good relationship with ht suppliers of raw materials. Danone needs to make sure that raw materials are reached on time to manufacturing outlets so that it can carry out the business successfully. Failure to deliver raw material might end up in lack of Danone products in the market. This could lead to loose some customers, in other word Danone’s market share.

Danone could establish SCM (Supply Chain Management) system so that the suppliers are locked-in in the process of the organization. Once we build a good relationship with the suppliers then they will start to be loyal to the business. This way the company can minimizes the bargaining power of the suppliers. Most agricultural producer is quite a lot in numbers so Danone might not face so difficult to find the suppliers of raw materials.
On the other hand the supplier of agricultural goods in unpredictable since it will depend on the weather and certain other factors. But the demand for Danone products remains same. So short fall of supply might lead Danone to face difficulties financially and might lead to low profit. So it needs to make a reliable method of delivering the supplies on time.
I believe that the bargaining power of the suppliers in really low because Danone had got alternatives in choosing its suppliers.




Bargaining power of Customers:

It is the most important function for a business to exist in the market. It is almost impossible to run a business without considering their view about our products. So Danone needs to consider it when talking any decisions on that matter. Danone might have large scale buyers who might be distributing Danone products to a local area. These large scale buyers are one of the key factors for high sales turnover. Danone needs to keep good relationship with those large scale buyers in order to maintain them buying from Danone.

But household buyers are important too since they are final party who consume Danone’s products. So think about ways in which Danone can add value to its product, which is best fitted to needs of the consumers.

Bargaining power of customers is quite high since there is many sellers who sell almost same type with Danone’s product for example biscuits, yogurts, Mineral water and cereal product. So Danone has little control over its customers. Single mistake by Danone might lead to loose its customers. They could switch to other brands easily if they are not happy with the Danone brands.


Availability of substitute products:
There is always the threat that a new similar product might hit the market. It is really easy to copy or attack Danone’s product. Danone doesn’t have any control over it.

Danone uses strategy of buying existing well performing businesses. This help them to buy existing market and those customers could be introduces with the new line of Danone products. This strategy worked in the case of Britannica in India. Since India is well populated country and almost 1/6 of the worlds population lives in India. They performed well in that region with high tern over. They successfully completed in attracting the Britannica customers to Danone products.

Danone needs to have clear view of what is going on in the market so that when ever there is a threat of a substitute, and then Danone can come with a new brad which can tackle the substitute products.

Intensity of Rivalry among Competitors.

Firms in an industry are homogenous and the action taken by one firm will be absorbed by others and response in a competitive manner. For example if the rival of Danone increase it’s spending on marketing then in order to catch up with then Danone needs to involve in a same type of promotion activity.

But in case of a monopoly like Telecom’s, the internet service price is set higher than the lost and they earned abnormal profit. Due the fact, that they don’t have any threat from any rivals. They can set what ever price they like and can easily go one and don’t have to care quality of the service.
For every industry there will be five big players in the market. In order to remain competitive a successful Danone need to keep up to date information about the rivals and their action and act accordingly.

6. Recommend appropriate short term and long term strategies for the organization in the industry

Groupe Danone needs to concentrate on its current product range and find ways to sell it to existing market as well as new markets. It needs to do more promotions so that it can create brand royalty and attract more customers.
There are several short term options available to this company since it is large and it is considered as one of the fortune 500 business in the world in 2006. This is a good indication that Danone how Danone is working on its operation through out the world. They have built good reputation and loyal customers.


SHORT TERN STRATEGIES:
• According to the financial statement analysis the most growing market for Danone is in Asia pacific. Therefore Danone needs to plan and establish marketing strategy in Asia Pacific region. It could use internet marketing for that large number of Asia people are mostly internet surfers and online gamers. More marketing and sales force need to be employed in this region so that it can meet the growing demand in this region. Proper methods of production and distribution channels need to be managed in a way so that it can increase the sales more than they did last year.
• Quick reaction to rivals moves. Companies like Nestle’ are the main competitors and Danone need to be ahead of those competitors other wise they have to follow Nestle’ foot step. It can spend more on advertising so that it can take more piece of the market share.
• It can increase the sales by 15 % next year from it’s over all operation. And minimize the cost by 5 % so that the profit will increase to 15% next year.




LONG TERM STRATEGIES:

For any business the long term plan will be the growth in to the market. There achieve economies of scale so that it can sell goods and services at the lowest price and stay ahead of the competitors.
Danone is a global business and it has taken full advantages of globalization by expanding into all the continent of the world. Steady growth is achieved through well established product line and achieving the maximum sales. The main aim of the managing force is to maximize the wealth of its shareholders. Penetrating through different market will help them to grow in future. They were born in European market and had expands its arm. Now it has reached to a maximum and the growth rate is low compare with other areas of the world. So it could no longer concentrate on the European market since it had established and had been there almost 40 years now. Moving other parts of the world will lead Danone to make more profit. Cost of living in Europe has changed last couple of decades. Living s style also had change with it. Individuals are more concern with their health these days and going for more organic products.
It is recommended to Danone to shift its production plants to Asia and South America where they can access to cheap labor as well as cheap raw materials. This will be a competitive factor for then since cost is decreased. In Europe everything is expensive. They have potential market left in South America.