A joint venture is a unique form of strategic alliance where multiple firms come together to establish a new separate and legally distinct business entity. General Mills serves as an exemplary illustration of a joint venture in the international market. The article discusses General Mills’ circumstances which prompted them to seek a partner for the creation of a new joint venture, aiming to facilitate their entry into the European market. General Mills has always harbored aspirations of expanding into global markets, yet their previous endeavors have proven insufficient in transforming the company into a worldwide brand.
In 1961, General Mills attempted to enter the European market, particularly the United Kingdom, with its cereal products. However, this endeavor was unsuccessful. Eventually, in 1964, the company shifted its focus to global snack foods and acquired several companies to increase its market share. Sadly, due to antitrust reasons, the FTC prohibited General Mills from acquiring any more snack companies in the United States. Consequently, General Mills had to alter its strategic plan from acquisition to joint ventures in order to overcome the restrictions imposed by the FTC and expand its food operation.
Joint venture teams evaluated 13 different industry areas, including toys, fashion, restaurant, travel agencies, and furniture. Nevertheless, to ensure a sustainable and profitable operation, the company needed to prioritize its core business. General Mills observed that the food and restaurant industry was growing more rapidly than anticipated in the late 1960s when diversifying into nonfood products. As a result, food and restaurant became the primary focus while other areas like toys and fashion were considered less stable and predictable.
Specialty retailing would classify all other industries. General Mills has succeeded in developing restaurants and snacks in specific international markets. The company believed that cereals could also be a growth opportunity in the international market. General Mills possessed the products, cereal technology, and marketing expertise, but lacked the sales and distribution networks. Expanding internationally became a necessity for the company. While the board did not pressure management teams on their decision, they consistently emphasized that becoming an international player was crucial for the company’s future growth.
General Mills began searching for alternatives to enter the European cereal market, and they found a great potential partner in Nestle. General Mills recognized Nestlé as a potential partner due to its status as the world’s largest food-processing firm, its strong presence in Europe, well-established distribution system, and global manufacturing plants. However, Nestlé lacked a strong cereal line. The joint venture between General Mills and Nestlé was successfully negotiated in just 23 days.
General Mills and Nestlé collaborated to create Cereal Parents Worldwide, a new firm. General Mills brought its proprietary manufacturing systems to Nestlé’s factories and guided the production process, as well as provided assistance in advertising campaigns. In return, Nestlé lent its corporate name and took charge of sales and distribution. Currently, CPW has achieved success and has become a prominent presence in the European cereal markets. Both companies have mutually benefited from this partnership.
The brief negotiation period between Nestlé and General Mills may be attributed to the fact that both companies had already recognized each other as potential partners. The efficient fit between the two companies might have also played a role in the swift negotiation process. Nestlé experienced a deficiency in their cereal offerings, while General Mills, desiring to enter the European market, required a partner that could assist its entry in that region. Unbeknownst to them, General Mills and Nestle were aligned with Porter’s diamond concept – a fundamental element for a prosperous entrepreneurial venture in an increasingly globalized world.
