A joint venture is a special type of strategic alliance in which two or more firms join together to create a new business entity that is legally separated and distinct from its parents. General Mills is one of great examples of joint venture in the international market. The case was explaining the company situations that lead General Mills to look out for a partner in establishing a new joint venture with the purpose of gaining easy access in Europe. General Mills has always wanted to be in the international markets; however, their efforts seemed not good enough to make the company become worldwide products.
In 1961, General Mills tried to expand its cereal products into Europe, specifically United Kingdom without any success. Then in 1964, the company aimed for worldwide snacks foods, which many acquisitions had been made to gain the market share. Unfortunately, the FTC forbade General Mill, for antitrust reasons, from acquiring any more snack companies in the United States. FTC was the reason for GM to shift its strategic plan from acquisition to joint venture because FTC’s rules hinder the company’s ability to grow its food operation.
Nonfood products started coming into the mind of the joint venture teams including 13 discrete industry areas such as toys, fashion, restaurant, travel agencies, furniture… The company needed to narrow down its core business for a more sustainable and profitable operation. As the company kept adding more industry areas into the portfolio, General Mills started to see that foods and restaurant industry actually gave higher growth than projected in late 1960s, when the nonfood diversification began. Therefore, food and restaurant became the core business since others areas like toy and fashion were more volatile and less predictable.
All others industries would be classified in specialty retailing. General Mills has been successful in developing restaurants and snacks in certain international markets. The company believed that cereals would be another potential growth in the international market. It has the products, the cereal technology, marketing expertise, but not the sales and distributions networks. Going international was a need for company. Even though the board did not put pressure on management teams on what to do; they just kept mentioning the crucial key for company future growth was to be an international player.
And times by times, General Mills started to search for alternatives to enter the European cereal market. That was when Nestle came as a great potential partner. General Mills identified Nestlé as a potential partner because Nestlé is the world’s largest food-processing firm. It is a household name in Europe, has a well-established distribution system, and owns manufacturing plants worldwide, but it does not have a strong cereal line. The joint venture between General Mills and Nestlé was worked out in only 23 days.
A new firm called Cereal Parents Worldwide was formed by the two companies. Under their agreement, General Mills installed its proprietary manufacturing systems in existing Nestle factories, oversaw the production process, and assisted in the development of advertising campaigns. Nestlé agreed to lend its corporate name to the venture’s products and handle sales and distribution. At this point in time, CPW is successful and has established itself as a major player in the European cereal markets. Both companies have got what they need from each other.
The relatively short negotiation period between Nestlé and General Mills may be a result of the fact that both companies had already identified each other as potential partners. The strong fit between the two companies may have also been a factor in the short negotiation process. Nestlé lacked a strong line of cereal, while General Mills, interested in the European market, needed a partner that could facilitate its entry there. Without even realizing it, General Mills and Nestle were thinking in the direction of Porter’s diamond – the simple key to a successful entrepreneurial venture as the world is getting flat.