Danone is a step nearer to going it alone in the Chinese dairy market after selling its entire 20.01 per cent stake in Shanghai-based Bright Dairy and Food and terminating a distribution agreement for its products.
A spokesperson for the France-based company yesterday told DairyReporter.com that the sale, which he claims was scheduled for some time, allowed Danone to "regain room for manoeuvre" in order to develop fresh dairy products in the country. Danone refused to give the financial details about the sale of its stake in Bright Dairy or who the buyer was.
Bright Dairy stated that Danone would pay 330m yuan (€31m) to terminate the existing distribution and production agreement between the two businesses. Danone refused to comment about the terms. Though an increasing number of food and beverage groups are working with local partners to expand into new markets, the strategy is not without its problems for some manufacturers.
Danone in particular has been engaged in a number of legal disputes with various joint venture partners in China, India and South America over the last year, relating to how its brands are marketed and produced. Despite these recent difficulties for the company's joint venture strategy in emerging markets like Asia, the group spokesperson said that ongoing disputes with both current and former partners had not changed its future expansion plans.
The spokesperson added that Danone remains "pragmatic" with its plan to enter markets, either by pursuing joint ventures where opportunities arise, or through developing a business from scratch if it is required. However, Danone was unable to comment on whether it had further expansion plans for its global operations at the moment.
The company had originally ceased operational cooperation with Bright Dairy back in 2006, which allowed it to claim back the license for its BIO brands in the country, the spokesperson added. The resolution of the deal will come as some relief to the company, which has found expansion in some markets anything but plain sailing.
In June, the Indian government informed Danone that it needed permission from local partner the Wadia group before it could sell its brands separately within the country. The government referred to Press Note 1, a piece of legislation relating to foreign companies that work with an Indian group in a joint venture.
Foreign operators must get permission before operating independently, according to the Business Standard. The decision came on top of a number of disagreements between the two parties over Danone's investment in local nutraceuticals company, Avesthagen, and some royalty payments relating to other ventures.
The difficulties in India mirrored a bitter fall out between Danone and a Chinese joint venture partner Wahaha, with which it is currently locked into a court battle over alleged breaches of contract.
Earlier this year, Wahaha criticised its partnership with Danone for preventing the company from manufacturing goods that compete directly with products released through its joint ventures with the French business.