Sanyuan Group Case Study

Sanyuan Group
In response to the Sanlu scandal, the Chinese government advised the Sanyuan Group to consider a merger plan with Sanlu (Xinhua News 2009). At the end, Sanyuan Group bought the core assets of Sanlu Group for 616.5 million RMB (90 million USD) in 2009 (Fang & Yue 2009). Sanyuan Group is a state-owned enterprise based in Beijing that was not involved with the 2008 milk product scandal. Sanyuan Group was a much smaller enterprise that was known mostly by local Beijing consumers. With a history of nearly half a century, Sanyuan had a cautious expansion strategy. Its annual sales was approximately 10% of that of Sanlu. Yet, as a result of the scandal, Sanyuan’s net profits in 2008 rose 87% compared with that in 2007 (DeLaurentis 2009).

Conscience, love and sense of responsibility are the three core ideas of the brand towards consumers, distributors and employees. In contrast with Sanlu’s reliance on external raw milk supplies, Sanyuan relied on its own dairy farms as the supply for 80% of its milk products (Maynard 2009). It implemented strict mechanisms to assure its product quality. The company specified the importance of safe production, food quality and internal control in its annual report. It considers product quality as the core value to corporate conscience and responsibility. Ethical conduct was included in the corporate culture of Sanyuan. It aligned consumer safety and product quality with employee benefits, for example the workers test-drank the milk at the production process (DeLaurentis 2009). After the takeover of Sanlu, Sanyuan initiated an online debate amongst consumers on the future development and product quality of the company (DeLaurentis 2009). Visibility and accountability are the principles of focus to the company for quality assurance (Chen et al.

In 2009, the Beijing authorities acknowledged the high quality management of the Sanyuan Group. Sanyuan was also one of the most socially responsible Chinese food enterprises awarded by the International Institute of Multinational Corporations as well as the National People’s Congress and Outstanding Entrepreneur Submit Forum. Sanyuan was again recognized as an enterprise with high social responsibility in