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A Tale of Two Companies: The Danone-Wahaha Fail

A research presentation covering the Danone-Wahaha joint venture case. What happened? Where did this international business deal go wrong? How can this be avoided by future busibess dealings in China?

Jacquetta Anderson

on 21 May 2014

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Transcript of A Tale of Two Companies: The Danone-Wahaha Fail

A Tale of Two Companies
•Joint venture (JV) structure
•Wahaha Group = 49%
•Danone + Baifu = 51%
•This structure led to misunderstandings
•Wahaha Group’s point of view: It is the majority shareholder in the JV
•From the legal standpoint: it was implied by the structure of the JV that the foreign companies will be in control of the JV

Wahaha Joint Venture Company
•Food and Beverage Joint Venture Company
•Largest beverage company in China
•When the Joint Venture was formed in 1996, there were three participants: Wahaha, Danone, and Baifu
•Investors considering new joint venture in China can learn from this dispute

The Power Struggle

May 9, 2007: Danone filed for arbitration in Stockholm, as required in the original JV agreement.

June 4, 2007: Danone filed suit in California state court.
The Power Struggle
Tips and Suggestions
•Be careful of public outbursts
–Wahaha denounced them as “rascals” committing “evil deeds.”
–A bad image can escalate quickly in China and can heavily damage the brand and reputation

•Corruption exists in China
–Don’t let the business run without supervision
–“Guanxi” is a key part of business operations

Tips and Suggestions

•Danone & Wahaha is an example of a failed joint venture in China
–Neglect, lack of understanding of business operations in China by Danone

•Still possible to do business in China
–Day-to-day management
–Research more into the cultural differences in managing companies

Where they went wrong

•Build trust
–Chinese managers see the companies as their own property
–Sensitive to personal attacks

•Understand the dynamic between the Chinese and the “foreigners “
–Tables can turn quickly if the Chinese feel as if they are being taken advantage of by foreigners
–This can be used against foreign companies to foster resentment among the Chinese

•Dispute over transfer of trademark license
•Trademark was not approved by the National Trademark Bureau
•Therefore, ownership was never transferred
•Management of the JV
•Wahaha created a series of companies that sold the same products as the JV with the Wahaha trademark
•Creation of the non-JVs violated the trademark license

Unclear Agendas
Lack of Trust
Reaction to "smaller" picture
Power Struggle (My way or the highway)
June 13, 2007: Wahaha Group applied for arbitration before the Hangzhou Arbitration Commission.

July 2, 2007: Wahaha Group threatened to bring a derivative action on behalf of the JV against the three Danone appointed directors of the JV.

Background on Case
Background on Case
Background on Case
The Danone-Wahaha Fail
Created By: Lucy Kim, Jackie Anderson, and Sara Tan
Full transcript