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How DANONE & Wahaha JV was Formed

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Raquel Luciani

on 30 October 2013

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Transcript of How DANONE & Wahaha JV was Formed

Danone's Wrangle with Wahaha
Danone in the Chinese Market:
How Joint Venture was Formed
Conclusion
How DANONE & Wahaha Joint Venture was Formed
In 1996: Danone forms a Joint Venture (JV) with:
1. Wahaha Group
49% of shares
2. Jinjia: Danone & Baifu Qin Ltd.
made up of 51% shares (25.5% each)

JV allowed Wahaha to retain the brand
& execute managerial & operating rights.




Danone
Became the major owner with 51% of shares.
Danone "takeover" in 1998
Controlled JV because of purchase of Baifu shares
Continued being in the JV.
40% of sales coming from Asia, Africa, Eastern Europe & Latin America.
Why?
Reduce uncertainty & inconveniences with the government.
Reduce risks in an emerging market
Difficulties in
the JV
Result: 2000 bought Robust
to enter chinese market directly
Danone Group experienced loses and difficulty due to its lack of knowledge in the market .
When?
In the Late 1980s
How?
Buying shares in Chinese companies:
Wahaha shares 51%
Robust 98%
Shanghai Maling Aquarius 50%
Shenzhen Yili Mineral Water Co. 54.2%
China Huiyuan Group 22.18%
Mengnui 50%
Bright dairy 20.01%
Building and buying factories:
yogurt, biscuits, and beverages.
Problems:
Competition with Robust
2nd largest beverage company in China
Bought most of Robust shares to eliminate conflicts.
Lack of knowledge in Chinese Market
dismissed the original management
Lost RMB150 million/$10.5 million USD
Demand for products decreased (e.g. tea & milk)
Was Danone successful in court?
Main Claim: JV partner breached contract
establishing non-joint ventures
ownership of the "Wahaha" trademark
Non-complete cause.
No:
unsuccessful in all courts
(USA, Italy, and France)
Lessons Learned:
Don't use technical legal techniques to assert/gain control in a JV.

Don't expect that a 51% ownership will provide effective control.

Don't proceed with a JV formed on weak/uncertain legal basis.

Foreign party must supervise or participate in management of JV
in 1996, including
Wahaha Group (49%)
Danone Group (25.5%)
Bai Fu Qin Ltd.(25.5%)
Wahaha had control of JV
retain the brand name Wahaha
Execute rights
Danone bought 25.5% shares of BaiFu Qin
gained legal control 51%

Asia, Africa, Eastern Europe, and Latin America
contributing 40% of total global sales
Why formed JV?
when entered chinese market in late 1980s
faced challenges and difficulties
Due to lack of market knowledge
Reduce risks:
complicated Chinese government
Quick Expansion:
Why Conflict between Companies
In 1998:
Danone becomes 100% owner of Jinjia
then 51% share holder of JV
Wahaha Group and Zong
realized given control of their trademark
Danone now in control
Danone created resentment when purchased Baifu shares.
Wahaha Group felt misled

Wahaha thought that non-joint ventures not a problem with Danone
Danone now in charge of JV, originally Wahaha in control of management and organization.
Wahaha expected to Danone to uphold bargain of "jointly exploring the markets in and out of China" (in the JV contract).


Culture Differences
Wahaha- Family Culture
Danone- Eiffel Tower
ethnocentric predisposition
parochialism and simplification causing
conflict
Misunderstandings
Danone's mistake in the JV was
gaining 100% ownership of Jinjia
in control of JV
Wahaha felt had being misled:
gave trademark because they were majority shareholders
Conflict over Wahaha trademark name

Displays difficulty of operating a partnership in China
Expectations of foreign & local parties can conflict.
International company strives for efficiencies & profits that match global goals.
Local partner strives to maximize employment or improve technology.
Key Lesson: is that you should build a brand business from the ground up.
Danone's Wrangle
Leaders in their industry
All own trademarks popular in China
Full transcript