Why Danone and Nestle Stop Manufacturing in China?

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Involuntary leave

 

Dannone closed its factory in Shanghai because it lose money in yoghurt business. After cooperation failure with Mengniu and Guangming, Dannone began to develop its business by itself. However, its distribution and factory location limit its development. For example, if Dannone sells yoghurt in Guangzhou, it will take 1 week from factory to its retailor which leaves Dannone only 1 week or less for selling it. Needless to say the pressure from their local competitors.

What restricts its development

Most land surround their plant is sold out which leaves no possibility for them to expand
Operation cost keeps increasing in Shanghai
Preferential policy for foreign companies stops
It is now a trend that manufacturing center is now shifting from coastal cities like Shanghai to hinterland cities such as Chongqing.

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What Danone teach us?

Keep pace with the market

With more and more food safety crime exposed, especially in dairy industry, the cost and risk of PR crisis keeps increasing. What’s more, the increasing operation cost and limited development space caused profit margin shrinking. Dannone exit this market right before it gets tough for all the players inside.

Quick adaption to the market

Before they exit yoghurt and icecream fields, they have already entered other fields. For example, Nestle purchased 60% shares from Yinlu(China beverage leader) and Xufuji(China leading candy enterprise) respectively before they closed Shanghai factory. On the contrary, Shuanghui, one of the largest meat food processing in China, faces the problems of limited development of its existing base. However, Shuanghui has not taken any reaction to that. As a result, Shuanghui can do nothing but witness its competitors surpass it.

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