Danish Crown in China: An Exploration of the Strategy of Danish Crown in China

Abstract

In 2016, Danish Crown (DC) announced their plan on building a processing plant in Pinghu, China. The thesis has explored the shift in DC’s entry strategy and whether the shift is sustainable in the long run. This was done by studying 3 distinct levels: Industry level, firm level and institutional/consumer. On the industry level, it was found that DC faced a highly competitive environment where many competitors were fully integrated. However, DC has managed to overcome this by partnering with Alibaba. On the firm level, it was found that DC’s capabilities have allowed them to remain competitive in an ever-changing environment. Finally, on the institutional level some current issues were explored, e.g. the ongoing African swine fever crisis as well as the Food safety law and how the lack of guanxi can have on the daily operations. It was also found that there are significant changes happening in the consumer behavior which is becoming more westernized with a higher demand for foreign products. The paper then explored the three components of the entry strategy: Motives, timing and mode of operation. It was found that the motives were a mix of several objectives, but the most important were market development and learning objectives and the motives were highly influenced by the changing consumer behavior. Furthermore, DC entered in the window phase as a first mover which allowed them to reap benefits such as brand awareness and preemption of critical resources. They chose a greenfield investment for control reasons but also because there were no suitable factories in China. However, DC also entered China through a strategic alliance with Alibaba and the partnership provided DC with several benefits including distribution channels and an easier way through the regulatory environment and potentially, a more favorable treatment from local authorities. Afterwards, the sustainability of the strategic shift was explored on two levels, a theoretical level and a more practical level. From the theoretical point of view, it was found that there was a solid backing in the way DC have structured their strategy and operations but from a more practical view, there were some concerns to the future of the operations. Currently DC are experiencing a period with fewer fatten pigs that are sent for slaughtering in Denmark, this leads to a decrease in price per kilo of pork, which then again leads to fewer pigs fattened – a self-enforcing crisis. At the same time, DC are under pressure from Spanish competitors which have overtaken DC in the amount of pork exported globally. Finally, DC is reliant on good country relations between Denmark and China in order for the strategy to be a success – there are frightening examples from Canada and Norway what bad relations can mean for industries.