Joint Venture, Nestle-General Mills
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Transcript of Joint Venture, Nestle-General Mills
Sagar Gupta 12P041 Radhika Bhatter 12P096 Rakshit Sharma 12P160 Soumyajit Sengupta 12P171 Varun Gopal 12P174 Aneesha Chandra 12P186 Cristina Morini Exchange
Dairy Partners Worldwide (DPW)
Group 5 Strategic Alliances & Joint Ventures
Agenda Scheme of Presentation
Business Case Partner Selection Negotiations Alliance
Management Alliance
Assessment
Business Case
Nestle (Switzerland)Company Snapshot
Beverages 22%
Milk Products 20%
Prepared Dishes 16%
Pet Care 12%
Nutrition 11%
Confectionary 11%
Water 8%
Headquartered in Vevey, Switzerland, the company is the world leader in food manufacturing
The company has transformed itself into a nutrition, health and wellness company
Well diversified product portfolio with leading global market positions in coffee, infant nutrition, confectionary, ice cream, bottled water and pet food
Brand portfolio consists of 30+ Billionaire brands Nestle employs nearly 339,000 people in 468 factories in 86 countries
Largest packed food company in the world, with focus on nutrition, health and taste
Key brands include Maggi, KitKat, Milo, Nescafe, Purina, Herta, Dreyers and Gerber
#1 player in global infant nutrition Largest global player in coffee (mainly instant coffee) with 22% global
market share
Largest emerging market exposure absolutely There are several nutrition product lines in which Nestle has low or no
presence namely yoghurt, nutrition bars, dark chocolate etc.
CHF 61.9
2011A 2012A 2013E 2014E
Revenue 89,190 100,938 106,994 112,344
% Growth (4.9)% 13.2% 6.0% 5.0%
EBIT 13,278 15,232 16,250 17,247
% Margin 14.9% 15.1% 15.2% 15.4%
Net Income 10,438 12,092 12,802 13,564
% Margin 11.7% 12.0% 12.0% 12.1%
Brief Company Snapshot Competitive Positioning
Business Segment Breakdown Geographic Breakdown Financials
Americas 45%
Europe 28%
ROW 27%
Nestle444 Roadmap
Source: Company website, Company filings
Mission Statement
Objective
Good Food, Good Life To provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and
eating occasions from morning to night
Builds strong alignment within the company of what they want to achieve, strategically and financially, and how to go about it
To be the leader in Nutrition, Health and Wellness, trusted by all stakeholders
444 Roadmap
Competitive Advantages Growth Drivers Operational Pillars
Diverse Product and brand portfolio
Unmatched R&D capability
Unmatched geographic presence
People, culture, values and attitude
Leadership in Nutrition, Health and Wellness
Popularly Positioned Products (PPP)
Premiumization strategy
Out-of-home consumption
Leadership in innovation and renovation
Operational efficiency
Products are available whenever, wherever and however
Consumer engagement
NestleSWOT Analysis
Strengths Diverse product portfolio with several strong
brand names Widespread geographic presence in 86
countries with well-established distribution channel
Strong marketing and advertising skills Strong R&D capabilities and focus on
innovation Proficiency in M&A, strategic alliances and
joint ventures
Weaknesses Lack of consistency in product lines across
geographies Swift strategic decisions and aggressive steps
by competitors has led to lagging behind of Nestle in some areas and business segments
Weak financials (particularly profit margins) Increasing emphasis on mature markets
Opportunities Increasing focus of consumers on health and
nutrition Increased focus on developing nations Penetration of rural markets Tapping into the growing out-of-home eating
market
Threats Deterioration in consumer environment in
developed regions Strengthening of Swiss Franc Higher input cost inflation Increase in competition Increase in competition from private labels Key markets are maturing
Yoghurt IndustryKey Trends
The global dairy industry is undergoing a paradigm shift Advent of functional products Emphasis on low calorie, low sugar, digestive products Instead of the traditional milk, cheese, and butter concepts, more
functional products such as yogurt, probiotics, etc. are now being accepted as the medium of delivery for beneficial functional ingredients
The conventional spoonful of plain yogurt is increasingly substituted by drinkable yogurt, organic yogurt, bio yogurt, or fruited / flavoured yogurts.
Surge in consumer demand in most countries for drinkable yogurt, organic yogurt, bio yogurt, or fruited / flavoured yogurts due to:
The rising awareness about lifestyle related health concerns such as diabetes and obesity
Rising awareness about the benefits of yogurt, with its positioning as a health-promoting product that improves metabolism, has a positive impact on digestive mechanism, and enhances the immune system
Increasing consumers willingness to try the new and innovative product offerings available, as a result of their wider international exposure
Emergence of dual income households with higher disposable incomes
CHF 61.9
Changes in the Dairy Industry Key Growth Drivers
As per the GIA, the European and Asia-Pacific markets, which account for a more than 80% share of volume consumption, dominate the global yogurt market
Within the Asia-Pacific region, China is the fastest growing regional market for yogurt in terms of consumption (value and volume)
As per Euromonitor estimates, emerging markets, including China and India, will contribute 95% of the global dairy markets growth between 2011 and 2016
When compared to high consumption markets as France (which sees an annual consumption of25 kg), Germany (24 kg), and Holland (23 kg), the per capita consumption in India is a meagre 2.3 kg per year
Package Facts estimated the U.S. market for yogurt sold at retail to be $7.3 billion in 2012, up 6.6% from 2011. They also estimated that by 2017, sales will hit almost $9.3 billion. This growth is attributed to one sub category: Greek yogurt whose sales increased more than 50% in the last year in food, drug and mass channels
Refrigerated yogurt is the eighth largest selling subcategory in food, drug and mass market (excluding Walmart)
Yogurt sale is growing in food services menus The top three marketers of yogurt account for almost three quarters of
all yogurt sales in food, drug and mass market channels
CHF 61.9
Yoghurt In Europe and Emerging Economies Yoghurt In USA
Partner Selection
Partner SelectionSelection criteria
Complementary Capabilities
Optimum Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
Technical Resources & Skills should be complementary in nature
There has to be some identifiable mutual need and middle level of dependency, not too much or too less
Elephant & the Ant complex has to be avoided at all costs
The partner should be financially capable of investing in the JV
Goals and objectives of the partners have to have strategic fit
Inconsistencies related to normal operations should be as low as possible, like the accounting system or employee benefits
Cultural, Communication barriers should be as lo as possible to reduce effort and time allocated to solving cultural issues
Close personal rapport if available, should be treated with premium as it helps JVs succeed exponentially
Partners should look at all business issues with the same and highest levels of integrity and honesty
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
Located in Minneapolis, USA the company holds #1 or #2 positions in growing food categories in USA and around the world
Main product categories in the US Retail markets are ready-to-eat products, frozen products, mixes, grain, cereals, snacks and
organic products
Main product categories in the international arena include superpremium ice cream and frozen desserts, refrigerated yogurt, snacks, frozen products, and dry dinners
Brief Company Snapshot
Financial Snapshot
Key Brands
Company Sales
Share Price Performance
Company Overview With 30 manufacturing facilities spread across the world, the company
distributes its products in over 100+ countries
Founded in 1866, the companys goal is to generate balanced long-term growth
The key growth drivers for the company are innovation, brand-building, leading customer growth, margin and international expansion
General Mills (United States)Company Snapshot
US 75%
Non-US 25%
US Retail 63%
International 25%
Bakeries and Foodservice
12%
34
38
42
46
50
54
Jun/2011 Oct/2011 Feb/2012 Jun/2012 Oct/2012 Feb/2013 Jun/2013
USD 2011A 2012A 2013E 2014E
Revenue 14,880 16,658 17,774 18,218
EBIT 2,774 2,562 2,852 3,040
Net Income 1,804 1,589 1,892 1,938
Market Capitalization USD 32,282
Enterprise Value USD 39,966
Share Price USD 48.53
EV/Revenue 2013E 2.2x
EV/EBITDA 2013E 11.2x
P/E 2013E 17.3x
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
General Mills (United States)Company Snapshot
General Mills has the yogurt production capabilities while Nestle has the global marketing & distribution capabilities.
Both General Mills and Nestle are big market players and will be dependent on each other for Yoplaits international expansion
Both General Mills and Nestle are market leaders in their fields of business, one nationally and the other, globally
General Mills and Nestle have been at the forefront of announcing high profits over the years and have given increasing dividends every year
General Mills hopes to increase revenues to touch the $20 billion mark while Nestle wants to increase its product portfolio in emerging nations
Having previously collaborated in a continuing JV globally, GM and Nestle should have lower cultural barriers than most America-European JV partners
CPW has allowed both the managements to get in touch with the different styles of management of the partner and this will help in increasing the success potential of this new JV due to the personal rapport that the top management of GM and Nestle share between themselves
Nestle and General Mills have been highly vocal in their use of organic food and have been donating generously to fund product innovations. Both the firms maintain the highest forms of honesty and integrity in their operations, exhibited by the low number of product recalls or controversies.
Groupe Danone (France)Company Profile
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
French food-based Multinational Corporation Products include fresh dairy products, bottled water, cereals
and baby foods and yogurts
World No.1 in fresh dairy products World No.2 in bottled waters, by volume World No.2 in baby nutrition European No.1 in medical nutrition
Brief Company Snapshot
Financial Snapshot
Key Brands
Company Sales
Share Price Performance
Company Overview
Company strategy is based on two pillars: Strong Brands & Clearly defined Geographies
Over 7 billion customers Over 50 production facilities globally Market Capitalization: 34.5 Billion
56% 20%
17%
6%
Dairy Baby Nutrition Water Medical Nutrition
10%
22%
8% 60%
France BRIC USA Others
20/11/08 20/12/08 20/01/09 20/02/09 20/03/09 20/04/09 20/05/09 20/06/09 20/07/09 20/08/09 20/09/09 20/10/09 20/11/09
Market Capitalization Euro 34,618
Enterprise Value Euro 41,048
Share Price Euro 54.86
EV/Revenue 2013E 1.9x
EV/EBITDA 2013E 12.2x
P/E 2013E 21.6x
Euros 2011A 2012A 2013E 2014E
Revenue 19,310 20,870 21,590 22,570
EBIT 2,843 2,958 2,730 3,044
Net Income 1,671 1,672 1,505 1,795
Groupe Danone (France)Company Profile
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
Danone has the yogurt production capabilities while Nestle has the global marketing & distribution capabilities.
Both Danone and Nestle are market leaders in their fields of business, one in the dairy business globally , the other in the F&B industry globally
Danone and Nestle have been announcing high profits every year with Nestle sales around $90b and Danone at $20b
Both the companies are headquartered in Europe leading to the possibility of low cultural barriers
Danone and Nestle both are highly regarded for their ethical standards of operations and have been voted as two of the most trusted companies globally
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
Started in 2005, after founder CEO- Hamdi purchased an abandoned yogurt production plant from Kraft
Started with 5 employees in 2005 with current strength well above 2000 with the 1st Chobani yogurt hit store shelves in 2007
Products include only yogurt, but in different flavors and sizes Currently present in USA, Canada and Australia Earlier called Agro Farma, name changed in 2012
Brief Company Snapshot
Chobani had to recall its Greek yogurt product line from all across the USA due to product concerns after numerous customers were taken ill, post consumption
Purists have slammed Chobani for using technology to bypass the authenticity of milk required to produce Greek yogurt
Recent Controversies
Key Products
Chobani has partnered with Cornell University to support Dairy Innovation with a $1.5milion gift
Andreas Sokollek was appointed SVP, SC & D to bring about greater coherence throughout the supply chain &
retail distribution chain Recent revenue estimates peg the value at $634m Recently launched 14 new product flavors across all
yogurt product categories
Recent Events
Key Executives
Company Overview
Company thrives to grow over the next few years with primary focus being on new flavor launches every quarter
Fastest growing yogurt manufacturer in USA and Canada Headquartered in New York, Production facility in Idaho Privately listed company
Chobani Inc. (United States)Company Snapshot
Name Designation Hamdi Ulukaya Founder & CEO David Denholm President & COO
Andreas Sokollek Senior VP, Supply Chain & Distribution Peter McGuiness CMO & Chief Branding Officer
James McConeghy CFO
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
Chobani Inc. (United States)Company Snapshot
Chobani has the yogurt production capabilities in Greek yogurt while Nestle has the global marketing & distribution capabilities.
Choabani is a small player in the overall sector, but one of the biggest yogurt producers in the world while Nestle is the global FMCG powerhouse
Chobani is on track to becoming a $1b company by 2015 while Nestles profits have ranged around $13b in recent year
Chobani employees get benefits that have been modelled on Nestles employee benefits program leading to greater coherence among their employee efforts and morale
Chobani has been involved in a number of controversies, most recent being the one in which 89 people were taken ill after consuming Chobani yogurt while Nestle is one of the most respected and relatively blemish-free track record in regards to ethical operations
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
FAGE is an international dairy company with a focus on yoghurt Leading market position in the Greek yoghurt market Primarily distributes its products in USA Sales in over 35 countries Manufactures, distributes and sells dairy products including
yoghurt, dairy dessert, milk, cream and cheese
Brief Company Snapshot
Key Products
FAGE USA recently entered into a long-term agreement with Proliant Dairy that will provide a sustainable outlet for the whey from FAGEs production facility into New York
General Mills and FAGE resolved their trademark conflict on the use of the word Total. Now both can use this word in the names of their respective products
FAGE recently won a court case against Chobani according to which Chobani would not be able to
market its products as Greek yoghurt in UK. Chobani has decided to withdraw from UK currently.
Recent Events
Awards and Recognitions
FAGE Total 0% received BiteoftheBest.com Seal of Approval
FAGE Total was named as the best plain yoghurt by Mens and Womens Health Magazines
Sante, the magazine for restaurant professionals, honored FAGE with their Gold Star Award
Fage S.A. (Greece)Company Snapshot
Complementary Capabilities
Mutual Dependency
Similar Company Size
Financially Stable
Strategic Complementarity
Compatible Operating Philosophy
Low Culture Barriers
Compatible Management
Ethical and Trustworthy
Fage S.A. (Greece)Company Snapshot
FAGE has the yogurt production capabilities in Greek and other low-fat yogurt while Nestle has the global marketing & distribution capabilities.
FAGE is a small player in the overall sector, but one of the few European companies with a pan-USA presence and in 35 other countries
FAGE is is looking at $3b revenues company by 2015 with international expansion being done through internal accruals creating high unutilized debt capacity for the company
FAGE has been trying to enter the emerging markets to drive its revenues but has almost no distribution set up in the high growth regions with most of its revenues coming from developed markets while Nestle wants product access to yogurt
FAGE has not been involved in any major controversy related to its production or operations giving it an image of a well run and honest company, which fits Nestles own story of integrity and success
Competitor Radar Screen for NestleIdentifying the Competitors
Mondelez International
General Mills
Nestle
Heinz
Kraft Foods
Hershey
Kellogg's
Coca Cola
Starbucks
PepsiCo
Mars, Incorporated
Group Danone
Unilever
Associated British Foods
Conagra
Current Competitors
Distant Competitors
Near-Term Competitors
Among the possible partners we have suggested:
Group Danone is a current competitor General Mills is a near-term
competitor
FAGE and Chobani are not on the competitor radar screen currently
Selecting Joint Venture PartnerPartner FIT
Company General Mills Dannone Chobani Fage
Origin Country
Primary Sales Regions
Complementary Capabilities
Optimal Mutual Dependency N/A N/A N/A
Similar Company Size N/A
Financial Stability
Strategic Complementarity N/A N/A
Compatible Operating Policy N/A N/A N/A
Low Culture Barriers N/A N/A
Management Compatibility N/A N/A N/A
Ethics & Trust
Yoplait YogurtGeneral Mills
1 2 3 4 5
General Mills 0.9 1.3 1.4 1.55 1.65
Nestle 0.6 1.1 1.35 1.5 1.6
Bright Foods 0.7 1.2
Lactalis 0.6 1
General Mills won the bidding war for Yoplait after a grim battle with Nestle, valuing the company at $2.3billion
Nestle wanted to acquire Yoplait too due to the market leading brand it had and to augment its product portfolio
However, after acquisition, the market share of Yoplait has decreased in the Americas from 32% to 26% and is currently no.2 in the yogurt space after Danone and No.3 in the Greek Yogurt space after Chobani and Danone. The expansion of Yoplait in the emerging markets has also taken a hit due to decreasing sales figures in the US market. Thus, expansion has taken a backseat and consolidation of the US market is more important to General Mills as of now. Hence, Nestle with its global distribution network seems like the best candidate to help GM in expanding the brand in emerging markets without much recourse on its finances and resources.
Formation of Joint VentureKey Motives for Nestle
Internal Benefits
Competitive Benefits Strategic Benefits
Nestle will be able reduce its risks and share costs in the production and distribution of a
new product line Greek yoghurts
Most of Nestles current and near-term competitors are getting into the production of Greek yoghurt. This joint
venture allows Nestle to level the playing fieldx
Nestle has been working towards transforming itself into a leader in
Nutrition, Health and Business. Addition of the yoghurt product line is another step
in this directionx
Formation of Joint VentureKey Motives for General Mills
Internal Benefits
Competitive Benefits Strategic Benefits
General Mills would be able to share risks of marketing a new product and reduce its costs
of setting up a global distribution channel
General Mills derives 75% of its revenue from USA. Given the mature market in USA, General Mills and its competitors have
been trying to increase their presence in emerging economies
This will be an important step in increasing the brand value of General
Mills across the globe and will be a step towards the transformation into a truly
global company
Nestle + General MillsTheoretical Justifications for the Joint Venture
Theory Understanding This Joint Venture
Resource Based View
Nestle: Nestle is known for having a strong global distribution network Also, it is ranked number 4 in the Effie Effectiveness Index which measures
the advertising and marketing effectiveness of companies
It wants to build up on its nutrition portfolio General Mills
It has a strong history of innovation It has got strong yoghurt brand (Yoplait was named as the Yoghurt Brand
of the Year 2013 in USA)
It wants to increase its presence outside USA The companies have complementary resources and capabilities and both
can gain by co-operating
Nestle + General MillsTheoretical Justifications for the Joint Venture
Theory Understanding This Joint Venture
Transaction Cost Rationale
Nestle: Make: Making is not a viable option, as most competitors have already
entered this market and any further delay should be avoided. Production costs are not low (R&D, advertisement, manufacturing, marketing)
Acquisition: The growing yoghurt market is a new opportunity and an acquisition at this stage may be too risky an alternative. Further, most yoghurt companies have a high valuation currently
A joint venture is appropriate General Mills
Make: The company can either set up its own global distribution network, but that would involve large costs, time and effort
Acquisition: Most companies having a well-established distribution network are too large for General Mills to acquire
A joint venture makes the most sense In case of these two companies, the transaction cost involved in setting up a
JV would be low due to their prior relationship and track record
Nestle + General MillsTheoretical Justifications for the Joint Venture
Theory Understanding This Joint Venture
Organization Knowledge and Learning Theory
Nestle: Most recent additions to Nestles portfolio have been through
acquisitions rather than organic growth
This JV in which Nestle would get to work with General Mills to innovate new dairy products will be an important learning ground for Nestle
General Mills General Mills marketing skills need to be improved upon Further, it is still majorly a US centric company. It needs to learn how to
mould and innovate products which suit the tastes of the developing and emerging nations
This JV will allow General Mills to learn key elements of these while working with Nestle
Thus, both companies would be able to add to their learning and experience with this joint venture.
Nestle + General MillsAlliance v/s Acquisition
Synergies
Modular Sequential Reciprocal
In case of Yoplait, General Mills would be involved in the production of the products. The completed
products would be passed on to Nestle, who would be responsible for marketing and distributing the
product
The joint venture would also bring together the technical and managerial acumen of the both the
companies so as to create new products and innovations in the field of dairy. This would involve an interactive knowledge-sharing process and both the
firms personnel closely working with each other
Nestle + General MillsAlliance v/s Acquisition
Assets
Hard Soft
The companies would be sharing hard assets like production facilities, distribution network
The companies would be contributing manpower (both technical and managerial)
Nestle + General MillsAlliance v/s Acquisition
Degree of Uncertainty
Low Medium High
The degree of uncertainty is medium. The two firms have a joint venture already. Thus, there has already
been a fair degree of due diligence. However, as their earlier venture focussed on cereals, there is still some uncertainty about the other businesses of the
each firm.
Nestle + General MillsAlliance v/s Acquisition
Forces of Competition
Low Medium High
The forces of competition are high. Most of Nestles competitors have already entered the yoghurt
market (through organic growth/alliances/ acquisitions). In case of General Mills, most
competitors are expanding into the emerging economies. Thus, there are high competitive
pressures
Nestle + General MillsAlliance v/s Acquisition
Criteria Type Alliance v/s Acquisition
Synergies Sequential (initially)and Reciprocal (over time) Equity Alliance (currently)
Assets Hard and Soft Equity Alliance/Acquisition
Degree of Uncertainty Medium Equity Alliance
Forces of Competition High Acquisition
An equity alliance is more appropriate than an acquisition. An acquisition is further ruled out because of the existing joint venture agreement between Nestle and General Mills whereby either company cannot put in a hostile
takeover bid for the other company before three years from the termination of the joint venture agreement.
Nestle + General MillsSnapshot of Rationale
Entry into a growing category An important addition to its
nutrition portfolio Greater innovation and new
product development through close interactions with General Mills
Leveraging strong brand names of General Mills product
Sharing of costs and risks
Entry into the emerging economies Leveraging the strong brand
name and the strong distribution channel of Nestle
Learning how to create products which satisfy the needs of the customers in emerging economies
Learning advertisement and marketing skills
Dairy Partners Worldwide A Nestle and General Mills Venture
Joint Venture: Theoretical Tenets
Does the Joint Venture Make Sense?Political Factors and Resource Requirement
Polit
ical
Fac
tors
Resource Requirement High Low
Hig
h Lo
w In case of a strategic alliance
between Nestle and General Mills, the political factors are
low as there are no regulatory requirements which make an alliance mandatory/the only
available option
The resource requirements are high, as General Mills has a product line which has high growth potential and Nestle has a strong distribution system leading to greater market access
Given low political factors and high
resource requirement, a Strategic Alliance/Joint Venture makes sense
this case
Strategic Alliance/Joint Venture OrientationKey Resources and Risks
Control Flexibility
Security Productivity
Primary Risk Relational Risk Performance Risk
Kno
wle
dge
Prop
erty
Pr
imar
y R
esou
rce
Key Resource: Property The alliance would involve sharing of production
facilities, distribution network and product lines
Key Risk: Performance Risk As the company already has a successful joint
venture, the relational risk is low
Performance risk is high as they would be introducing a product across several geographies. Thus, the macroeconomic factors may worsen, the product may not work, the competition may be high etc.
In this case, the strategic alliance orientation needs to be focussed on flexibility
This can be done by having an incremental approach to the alliance and having clear performance metrics
Nature of Alliance/Joint VentureProactive v/s Defensive
Criteria Proactive Alliance Defensive Alliance Reason
Business Future Expand Business
Survival in Existing Business
Nestle is entering into new product lines. General Mills is expanding
its geographic presence
Competition Competitive Advantage Competitive Pressures
Nestles competitors have already entered into this product line. General Mills competitors are
expanding into emerging markets
Market Phase Growing Market Declining Market
The dairy product market is growing in most geographies
Other Firms Resources Leverage
Critical Dependency
To effectively ward off competition, the companies need each others
resources
Strategic Option Create Options No Option
Most other potential partners are already collaborating with
competitors
Proactive Alliance
Defensive Alliance
Nestle +
General Mills
Key DriversFrom The Perspective of Co-opetition
Setting Standards
The yoghurt market is highly fragmented. The coming together of two giants like Nestle and General Mills will set clear standards for the industry
Sharing Risks
With any new product, there is a performance risk attached At the same time, it also involves costs like setting up production facilities and distribution systems, marketing and advertisement
expenditure. This alliance will allow the two companies to share these risks and costs
Entering Emerging Markets
Both companies would be able to increase their presence in the emerging economies
Expanding Product Lines
Nestle will be able to enter into the Greek yoghurt market and hence add to its nutrition portfolio Reducing Costs
By setting up combined production facilities, both the companies would be able to achieve economies of scale Gaining Market Share
With the help of General Mills product line and Nestles strong distribution system, the companies will be able to increase their market share across geographies
Creating New Businesses
The two companies already have a successful joint venture This joint venture would allow them to further strengthen their relationship while addressing a gap in their product portfolios
and geographic strength
Key RisksFrom The Perspective of Co-opetition
Technology Leakage
General Mills and Nestle had a face-off in the acquisition of Yoplait in which General Mills emerged victorious However, General Mills has till now been unable to effectively market and distribute its yoghurts products While this alliance will allow it to leverage the marketing expertise of Nestle, but at the same time there is a risk that Nestle
might be able to glean into the technology/processes involved in the production of yoghurt
Telegraphing Strategic Intention
The two companies may come to know which geographies and products the other company is planning to target based on the nuances of management decisions
Customer Defection
Based on how the products of the joint venture are promoted and marketed (use of brand names/company names), customers of one company may come in contact with the other company, hence increasing the risk of defection
Slow Decision Making
This is a major drawback of strategic alliances and joint ventures. As the alliances/ joint ventures decision affects both the companies, and as the companies may have differing goals and objectives, there is slow decision making so as to satisfy both the parties
Typology of Alliance/Joint VentureOrganizational Interaction and Conflict Potential
Pro-competitive
Alliance
Non-competitive
Alliance
Pre-Competitive
Alliance Competitive
Alliance
Extent of Organizational Interaction
Low High
Hig
h Lo
w
Con
flict
Pot
entia
l
Alliance Type Strategic Objective
Flexibility Core Protection Learning Value
Adding
Pre-Competitive
Competitive
Non-Competitive
Pro-Competitive
In this alliance, given the lower extent of geographic and product overlap, the conflict potential is low-medium. Further, the success of their earlier joint venture also points towards a low conflict potential
The extent of organizational interaction will be high as of shared control on most decisions
Thus in this alliance, the key strategic objective would be learning followed by value adding, flexibility and core protection
Negotiations: Role Play
Dairy Partners WorldwideFinancial Ownership and Management Control
Financial Control 50:50
Joint Venture Structure
The parties are equally strong and have a history of a successful 50:50 IJV called CPW
Management Control
Nestles Perspective and General Mills Perspective Our Recommendation
Both companies would want
greater managerial control. They
would want to choose the CEO
to ensure that their companies
interests are met
CEO should be externally appointed so that the JVs objectives are not subordinated to
the individual objectives of the two companies.
Split Control: Nestle responsible for marketing communication, distribution, operation and
logistics. General Mills responsible for branding, content and manufacturing.
Shared Control: R&D, HR and talent management and finance
Dairy Partners WorldwideScope of Joint Venture
Nestles Perspective General Mills Perspective Our Recommendation
Nestle would want the joint venture to
be involved in production and
distribution of dairy products across all
geographies (including USA)
General Mills would not want to give up
its control on the US market as it derives
75% of its revenue from this geography
USA should not be a part of the joint
venture because that would encourage
direct competition between General
Mills and Nestle and hence could lead
to mis-alignment of incentives.
If either firm comes up with a
competing/substitute product on its
own, the JV should get first right of
distribution/promotion/bringing it to
market globally
Dairy Partners WorldwideGovernance & Regulatory Issues
Nestles Perspective and General Mills Perspective Our Recommendation
Both would want greater representation on the board.
Further, they would prefer to have their own CEO and
Chairperson heading the joint venture
CEO should be externally appointed
Chairperson should be rotated every 3 years
Both would want the JV to be situated in their home country
of operation to lend greater influence on the JV implicitly
The JV should be located in Switzerland as the country boasts
of the one of the most favourable tax regulations and legal
stipulations, along with being a favourable business ground,
as regulatory approvals are required only in financial services
companies, real estate business, healthcare and trading in
specific goods
Dairy Partners WorldwideExit Options
Our Recommendation
Initial lock-in period of 5 years with no change in equity structure
If the firm suffers increasing net losses for three consecutive years, the JV should be re-evaluated
If there is change in ownership in any of the partner firms, the JV will be dissolved with first right of refusal to the other partner
If one partner is looking to sell, the other partner has first right of refusal
In case of any breach of covenants of the JV by any partner, the aggrieved party can buy out the stake of this partner in the JV or
liquidate the JV
Management of the Joint Venture
Nestle + General Mills = International Joint VentureDeterminants of Performance
Key Determinants
Control of the IJV by Parent Firms
Autonomy Granted to IJV
Management
Trust Between the IJV Partners
National Cultural Differences
Corporate Cultural Differences
Addressed during negotiation of structure, control and governance
Should have been strongly established during the previous joint venture
Corporate and National Differences exist, but as the company has been able to work successfully in the past, future co-operation
is expected to be fruitful
Role of the Joint Venture Manager5 Key tenets to effective Joint Venture Management
Joint Venture Management
Inter-Organizational
Trust
Contribution Monitoring
Efficient Information
Flow
Periodic Strategic
Assessment
Focus on Internal
Harmony
Alliance ManagementInter-organizational trust
Joint Venture Management
Inter-Organizational
Trust
Nestle and General Mills have been trusted partners in one segment of the market
This JV should be looked at as an extension of that relationship and more
Regular meetings between the top management and R&D wings of both Nestle and General Mills should be convened
Bring on board people who have worked in CPW previously so as to lend credibility to DPW, as a long lasting bond
Alliance ManagementPartner Contribution Monitoring
Joint Venture Management
Contribution Monitoring
Nestle and General Mills have been global partners for over 20 years
The JV manager should have the authority to initiate corrective action in case either partner is found lacking in its resource contribution (GM-Product // Nestle-Market)
The best product developers should be made available to DPW by GM while the best marketers should be made available to DPW by Nestle, in principle
JV has to be monitored continuously, some aspects periodically while others daily
Alliance ManagementEfficient Information Flow Management
Joint Venture Management
Efficient Information
Flow
CPW has been one of the most successful and long lasting JVs in the FMCG industry primarily due to the efficient processing of information
Managing information flow has to be a priority task rather than an incidental management mechanism
Care has to be taken not to pass on proprietary knowledge from one firm to another while maintaining the JVs interests
A decentralized approach needs to be taken as product-market JVs tend to suffer from problems that require quick decision making
Alliance ManagementPeriodic Strategic Assessment
General Mills and Nestles previous JV: CPW was a defensive alliance to counter the threat of Kelloggs in Europe
DPW is envisaged with a view to counter competitive pressures in the yogurt market globally, but with greater focus on latent geographies where Nestles distribution strength is greatest
There should be a lock-in period of at least 5 years to allow for the resources ploughed into the JV to have room for productive growth and output
GM currently wants to increase its geographic diversity while Nestle is aiming for product diversity which might change in the long run, in the case of which there should be a clear exit policy singled out and accepted by both parties
Joint Venture Management
Periodic Strategic
Assessment
Alliance ManagementFocus on Internal Harmony
Internal relationships between functional managers and divisional managers must be kept intact and away from any JV related pressures and conflict
JV managers selected to run the new firm should be credible with exemplary prior track record at the parent firm
Importance of the JV to the respective firm has to be clearly outlined to the middle level management for greater coherence in the parents activities
People involved in the processes that are replaced by the JV should be streamlined into the JV to promote internal harmony and consistency of strategic intentions of the firm
Joint Venture Management
Focus on Internal
Harmony
Assessment of the Joint Venture
Assessment of AllianceKey Factors
Shared Risk
Shared Resources
Shared Rewards Shared Vision
Shared Values
Both partners bear a fair and appropriate share of risks in the alliance, no partner has unnecessary burden
Each partner commits an appropriate amount of resources be
it capital, people, knowledge etc.
Both partners share appropriately in the rewards, the partners work together to create
mutual wins whether to attain success via similar market, similar customer base etc.
The partners share a common vision, common views of the objectives, results and outcomes
of the alliance
Both partners share common value systems and complement each others corporate culture. Such
shared value systems is the foundation of this relationship
providing the means, motivation and commitment to resolve
partnership related problems and mutually grow the relationship
Performance MetricsAssessment of the Key Factors
A precise set of meaningful parameters is the best way to drive performance and produce desired benefits from the partnership. These metrics should include shared measurements that are similar to both partners.
Metrics
Operational
Timeliness Productivity Quality Measurements
Innovation
Process improvement
Technology Integration
Partnership
New business gained
Profitability gained across
portfolio
Developing an Evaluation PlanAssessment of Joint Venture
Rationale for the Relationship A strategic intent by partner companies establishes the need/business case for a relationship. The nature of the objectives will drive the type of partners sought, the manner in which the relationship operates, and thus the type of evaluation
metrics selected
Strategic Objectives of Relationship They provide a critical part of the foundation on which the management control system for the relationship is built The evaluation criteria for assessing the performance should be developed according to the relative importance of the various strategic objectives
established by managers However, it follows that as strategic objectives are modified during the lifetime of the alliance, to remain effective the evaluation criteria must be
adapted as well.
Selection of Evaluation Criteria The balanced scorecard framework can be used for this purpose. It shows how the strategy of a firm can be translated into performance measures
based upon four perspectives: financial, customer, internal business process, and learning and growth These four perspectives provide the balance necessary for a company to focus on issues that are indicative of longer-term success, rather than
concentrating on short-term financial measures Customization is necessary in using the balanced scorecard in an alliance relationship.
Emphasizing Specific Metrics Another benefit of the balanced scorecard approach is the potential to tailor the system to meet the needs of a given relationship
Implementing the Evaluation Plan Formalized and regular assessment is essential for those involved in the alliance to attach credibility to the process and to learn from the results The evaluation process will also need to be refined throughout the life cycle of the alliance to assure that timely information is being collected The final link in the evaluation process is to consider how the output of the evaluation will be used to determine individual and team performance
and rewards Assessment frequency should consider the evaluation metrics, as well as the environment in general
Thank You