More Trouble in China for Danone?

The risks of doing business in China have been highlighted again with news that a division of Danone, the French multinational with global brands operating in bottled water and dairy products, has been accused of bribery.

The Chinese authorities have instigated a number of investigations into bribery recently. The accusation for Danone to handle is that its baby milk brand Dumex paid large bribes to doctors and nurses in Tianjin to incentivise them to feed newborns Dunex brand infant formula.

The supply of milk powder in China has proved particularly sensitive in recent years. Many Chinese parents spend a large proportion of their disposable income each month buying expensive foreign infant formula because they do not trust the quality of domestic formula.

In 2008, dangerously high levels of the industrial chemical melamine in powdered baby milk and other dairy products in China sparked worldwide safety concerns.

Demand for foreign brands surged in China from 2008 after the milk scandal, much to the benefit of multinationals like Danone and Nestle.

However, in July 2013. China's top economic planning body launched a probe into alleged price fixing by some foreign manufacturers of infant milk formula.

Almost immediately Danone and Nestle lowered their prices! Was it just a coincidence?

In any event, a few weeks later Danone along with five other firms, were heavily fined for price fixing in China, a record penalty there for violating anti-monopoly laws.

Investment into China has made the country an important part of Danone's business. China currently accounts for 6% of Danone's global sales. It employs a workforce of over 9,200 people in China at 18 production plants.