Joint Venture: Danone and Wahaha

March 26, 1996

Joint venture was founded.

Annual sales rose almost immediately and in 2006 the joint venture increased its revenue for only a few hundred million RMB to 14 billion RMB.

By 2005 Danone realized that Wahaha was making "mirror" companies and producing products that were nearly identical to popular Danone products. This was a blatant infringement on the JV contract agreement.

By December of 2006 an agreement to absorb the "mirror" companies into the joint venture was implemented. Shortly thereafter, Wahaha's founder Zong Qinghou refused to respect the agreement forcing the companies to seek judicial intervention.

December 2007.

After ineffective court arbitration both companies declare a truce. However, they were still unable to reach an agreement by April 10, 2007.

2009. After several years of gruesome conflict Danone sells its 51% share to Wahaha for 3.8 billion HKD.

Recommendation

Option1:

Wholly Owned

Option 2:

Exporting

Regarding disadvantages:

• keeping key employees to obtain local expertise.
• high accessibility to capital.

What Danone Could Have Done:

Option 2: Exporting

Advantages:

- Quality of product is maintained.

-Economies of scale.

-Less initial capital required.

Disadvantages:

-Import regulations (quotas, tariffs)

-Transport cost

- Consumer disdain of international products.

What Danone Could Have Done:

Option 1: Wholly owned subsidiary through acquistion

Disadvantages

-Lack of local expertise and responsiveness

-Capital required with large liability

Advantages:

- Full control of operation

-no conflicts of interests.

-No internal cultural clashes.

Entry Strategy for the Chinese Market

Danone (1919)

Reasons for JV:

• Benefit from local partners expertise and political network:

- Wahaha was state owned, limiting politcal risk.

• Established manufacturing and distribution network.
• Local consumer recognition of Wahaha trademark.

• French Company that produces a wide variety of products: bottled water, dairy products, cereals, and baby food.
• Operations in over 140 countries.
• # of employees: 100,000
• Profits at an estimated: 14.5 billion HKD
• Headquarters in Paris.

Hangzhou Wahaha Group (1987)

Internationalization Strategy of Danone

Joint Venture: Timeline

• Largest beverage producer in China. Produces similar products as Danone.
• 150 subsidiaries and 60 manufacturing bases in China.
• Profits: 5 billion HKD
• # of employees: 30,000
• Headquarters in Hangzhou, Zheijiang, China.
• "Wahaha" signifies "laughing child"

Hofstede's Model of Cultural Dimensions.

Reasons for Failure of JV

Transnational Strategy:

- cost pressure due to high competition (e.g. Pepsi)

- need for local adaptation (due to Chinese consumer demand)

Danone's failure:

• They did not properly trademark their products within the JV
• Underestimated the public backlash of filling against Wahaha.
• Different Perception of 51/49 ownership structure.
• Lack of active day-to-day supervision and engagement.
• Lack of acknowledgment of foreign government intervention.

Joint Venture: Danone and Wahaha