Industry M&A Of The Whole Industrial Chain Mode In Chinese Dairy

After the "melamine" event, the Chinese consumers retained a profound distrustof the quality of Chinese dairy products. The Chinese dairy industry has entered in anunprecedented "danger", which is in need of root and branch reform. In2009, theCOFCO acquired the chaotic Mengniu-Dairy. After that, the COFCO proposed amode called “whole-industry-Chain” and applied this new mode into Mengniu’sfuture strategic development. During the development of the “whole-industry-chain”mode, Mengniu used different mode to construct its own industrial chain. Thepervious mode used by Feihe-Dairy and Huishan-Dairy, is expanding the industrialchain through self-construction. But, Mengniu-Dairy is expanding its industrial chainby a mean of the industry mergers and acquisitions (M&A) through capital operation.Therefore, this article will focus on the case of Mengniu Dairy, research theimpact of industry M&A in the whole industry chain mode on the development of thedairy enterprises, study the role of the industry M&A in the whole industry chainmode in resolving the Chinese dairy crisis, and provide suggestions for the futuredevelopment of the industry M&A in the whole industry chain mode.Before analyzing the case study, this article provides a theoretical derivation as afoundation, firstly. The industry M&A in the whole industry chain mode involves theindustrial chain, sustainable development and industrial competition. Therefore, thisarticle will apply the articulation of four theories (the corporate growth theory, thevalue chain theory, the synergy theory and the competitive advantage theory) to derivethe mechanism of the industry M&A in the whole industry chain mode. Moreover,this article build a methodology based on "corporate behavior-market behavior-Industry Analysis-Performance Analysis" framework. Firstly, this article describesan overview situation of Mengniu-Dairy and its whole industry chain layout based onthe information provided by the Mengniu-Dairy’s official website and related books.Secondly, this article analyzes motivation of the industry M&A in the whole industrychain mode through three sectors based on the behavior of the dairy market such as,the demand environment (security requirements, supply and demand, consumerdemand), the competitive environment (internal competition and external competition)and the policy environment (security policy, industrial policy, restructuring policy).Thirdly, Michael Porter’s five forces model will be applied to analyze the MengniuDairy’s industry M&A in the whole industry chain mode, and find Mengniu Dairy hasits industrial competition advantage in terms of suppliers, buyers, substitutes, potential entrants, and existing enterprise competition. Finally, this article studies thefinancial performance of Mengniu Dairy from2009to2013. The financialperformance analysis mainly study on the market reaction after the merger by usingthe event study, and research the growth ability by analyzing the financial indicators.Through the theoretical analysis and derivation, the results shows that theindustry M&A in whole industry chain mode will bring some competitive advantagesin the growing process of the enterprises in terms of the resource advantage, the costadvantage and the differentiation advantage, which is mainly due to the contributionof synergistic effect in the value chain (value-added effect and saving effect). Throughthe case study, the outcome suggests that popularize the industry M&A in the wholeindustry chain mode is necessary, due to the influence of the behavior of the dairymarket. In addition, the industry M&A in the whole industry chain mode brings apositive market response and a favorable growing ability.