INTRODUCTION

Mengniu
CASE STUDY 2
Mrs Zhang’s farmyard, cows, and watchdog.

Founded in 1999, Mengniu Group (Mengniu) has grown rapidly to become the leading dairy product manufacturer in China. Its principal products are liquid milk (UHT milk,1 milk beverages, and yogurt), ice cream, and other dairy products such as milk powder, milk tea powder, and tablets. Mengniu has overtaken its long-established state-owned rivals through dedication to quality and innovation in all aspects of its business, including marketing, governance, and aggressive adoption of international quality and best practice standards. CDH China Fund, an IFC investee private equity fund, invested in Mengniu in 2002. Mengniu went public in 2004 and trades on the Hong Kong exchange. This sustainable business case study focuses on Mengniu’s commitment to: ■ Its supply chain, consisting of independent small farmers ■ Adoption and implementation of internationally accepted management, systems for quality assurance, environmental management, and worker health and safety ■ Its employees and the creation of a safe and desirable workplace (recognized in 2005 as one of the 20 best places to work in China based on the “Happy Workplace” index) ■ Continuing improvement and innovation through joint ventures and use of state-of-the-art equipment.

1. Ultra-high-temperature (UHT) pasteurized milk does not require refrigeration, thereby providing extended nonrefrigerated shelf life of up to nine months and simplifying shipping and storage for the producer and consumer.

16 THE PROMISE OF PRIVATE EQUIT Y

BACKGROUND
Mengniu is a manufacturer of milk products based in Inner Mongolia, famous for its grasslands and one of the traditional dairy regions of China. Mengniu was privately founded in 1999 by a management team with long experience in one of Inner Mongolia’s state-owned milk product companies,