Danimal in South Africa
Management Innovation at the Bottom of the Pyramid
Managing Global Value Chains
GROUP BB, Group Assessment
Submitted by Group BB
Qianqian Jiang #530626231
Sizuo Liu #530651624
Marcelo Bussacarini #540867358
Erica Wijaya #540404739
Qingyun Liu #540041224
Xin Jin #540094390
Annie Huang #540306581
Zhirong Chen #540148349
MIBS6001
GLOBAL BUSINESS ENVIRONMENT
Professor Dr. Michael Murphree
2024_SIC_MIBS6001_NE - Monday
Class Commencement Time: 6:00 PM AEST
Date Assignment Due: 22-04-2024
For COEs in South Africa
Introduction
Given the context of Danone's Danimal product in South Africa, and considering its potential expansion to Brazil, let's delve into the business model, the role of institutions, and the advantages of the host market. We will also assess the status of relevant institutions in Brazil to determine the feasibility of market entry.
Define the business model that Danimal uses to generate revenue
Relies on Danimas to sell the product (local unemployed women door-to-door business, this cuts costs, provides work opportunity for locals and still get their product to the right target market)
- Danimal uses a hybrid business model that combines elements of social entrepreneurship with traditional consumer goods marketing:
- Product Sales: Revenue is primarily generated through the sale of nutritional dairy products targeted at lower-income segments.
- Product is nutrient-packed and could last longer than common yogurts (there would just be enough time for Danimas to transport and sell the products without a fridge before going bad)
- Small packaged and cheap product is almost not profitable, they would highly rely on the scale of the business to gain profit
- Micro-Entrepreneurship: The model supports local micro-entrepreneurs (Danimamas and Daniladies) who distribute the products directly within their communities. This not only helps in market penetration but also promotes local employment and income generation.
- Truck Distributors pricing strategy: Products are priced inexpensively to suit the target market's ability to pay.
Identify the relevant institutions for the business that are present in the home market
- Legal System - laws and regulations
- Distribution Channel - Retailers
- Government agencies
- Financial Institutions
- Trade associations
Why are these institutions necessary for the business?
- Regulatory Systems (Less stringent policies, may be difficult to retain quality as some danimamas may not adhere to regulations to retain product quality)
- Intellectual Property protection (weak IP protection for brand can be misused and create a negative domino-effect on their subsidiaries on a global scale)
- Contract enforcements (Since the business model would have Danone providing first few crates for Danimamas start for free, this may become room for larceny considering that contract are less enforced in these economies)
- May be protectionism (government may ban or make is difficult for foreign firms to operate within the country as may be considered a threat to local business)
- Endemic Corruption (Any dealing with government – e.g. product certification – would need bribes to get the certification produced)
- Market Volatility (Economic fluctuations and currency devaluation, which can impact consumer purchasing power and the cost of raw materials for Danimal. Flexibility in pricing and supply chain management is crucial to mitigate risks associated with market volatility.)
- Urbanization and Rural Disparities ( Emerging economies experience rapid urbanization, but rural areas may still lack access to basic amenities and products. Danimal faces the challenge of reaching consumers in both urban and rural areas with limited distribution infrastructure.)
Describe the advantages of the potential host/expansion market
- Multi-tiered socio economic structure (majority of the population is on the bottom of the pyramid, Danimals products had been made to small portion in cheap prices, thus can address this underserved market)
- Untapped market (recently industrialized so there is less competitors in the area, providing first-mover advantage)
- Megamarket + Sustainable market growth (Large number of population, this would provide bigger scale for Danimal to tap-on)
- Cost efficient platform (cheap resource, cheap labour = cheap production cost)
- Reverse innovation (existing product adaptation can be replicated in similar emerging markets)
Identify the status of the necessary institutions in the host Market
Large Consumer Base: Brazil has a vast population with a significant proportion of low to middle-income families, ideal for Danimal’s target market - With 80.7 million 46% people at poverty and extreme poverty.
Better Infrastructure: Compared to other emerging markets, Brazil has relatively better logistics and supply chain infrastructure, which can facilitate easier distribution.
Cultural Receptiveness: Brazilians have a strong community orientation, which can be advantageous for a community-based distribution model. Advantages of Similar distributions channel models like herbalife, amway with strong presence and awareness. Existing sellers in schools, public areas that could benefit from a cheaper product.
Government Support: Brazilian government programs aimed at improving nutrition and health can align well with Danimal’s mission.
Stronger currency than south africa: Brazilian Real is slightly stronger than South Africa Currency, what would help recoup some of the margins to the product.
Determine whether the opportunities outweigh the missing/weak institutions
Regulatory and Health Institutions: Well-established, but bureaucratic processes can be slow.
Financial Institutions: Robust, with considerable experience in supporting small businesses and micro-entrepreneurship, though sometimes concentrated in urban areas. Higher access to bank systems than most emerging markets, but heavily reliant on cash money.
Educational and Community Institutions: Widely available, potentially useful for promoting and distributing the product.
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