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by Sacha Milchten & Antoine Ryckebusch

Lessons for Joint Ventures in China :A Happy Marriage but Painful Divorce

Company Presentation

Founded in 1987

Hangzhou Wahaha Group Co. Limited owned by the government of Hangzhou's Shangcheng District.

Zong Qinghou : Chairman and managing director

In 1995, Peregrine Investments Holdings introduced Zong to Danone, and discussions about joint ventures began.

Founded in 1973 from the merger of Boussois-Souchon-Neuvesel and Gervais Danone

1979 – 1985 : acquisition of Amora, Maille, La Pie Qui Chante, Carambar…

CEO : Franck Riboud

Who are the customers?

More than 1,500 first-level dealers

12,000 second-level dealers

35 provincial sales offices

2,500 sales team employees

2 million sales outlets across China

Suppliers

Important role of the water bottle

Kind of water

Exclusive deals with suppliers

Supplier relations

Who are the competitors?

Coca-Cola Co.

PepsiCo, Inc

Taiwan-founded companies Uni-President Enterprise Corp. and Tingyi (Cayman Islands) Holding Corp.

Success of Future Cola

Not worry too much about domestic competition

Imitations

What are the Key Success Factors of this business? 

Being good and tasty

Being a trustmark 

Product quality

Find the good chinese partner

Innovation

Culture differences and Relations

 To what extent are these KSF mastered by the company

✔ Being good and tasty

✔ Being a trustmark

✔ Find the good chinese partner

✔ Innovation✔ Product quality ✗ Culture differences and Relations

The Case : Danone versus Wahaha: Lessons for Joint Ventures in ChinaA Happy Marriage but Painful Divorce

Video

Background  : Formation of the joint venture

Established first JV in 1996

Danone owned 51%(invest $170 million) and Wahaha owned 49% of the shares.

Wahaha Group becomes a private company… But the trademark belongs to the state !

Management of the JV and the creation of competing non-JV companies

Management of the JV from one of the richest men in China : Zong

The conflict : Creation of a series of companies that sold the same products as the JV and used the Wahaha trademark

Arbitration and Lawsuits

One of the arguments of Zong’s :

The JV agreement of 1996 was unfair.

Danone had intention to control China’s beverage market.

Foreign mergers and acquisitions should go through the anti-monopoly check. ( China should promulgate Anti-Monopoly Law as soon as possible.)

Dispute on the Wahaha Brand

Lessons to be learned

Don’t use technical legal techniques to assert or gain control in a JV

Do not expect a 51% ownership interest in a JV will provide effective control

Do not proceed with a JV formed on a weak legal basis : the brand name.

The foreign party must actively supervise or participate in the day-to-day management of the JV

Danone today in China

Danone breaks up with Wahaha Group .

With the end of the JV, Danone focus on other markets.

Danone has continued to pursue this strategy, and has joint ventures with companies.

The Chinese beverage company's expansion is no laughing matter

« Thank you Danone ! »

From milk to Future Cola

A"patriotic" brand soon international ?

Sources

Wahaha : l'empire contre attaque ! www.aujourdhuilachine.com

Steven M. Dickinson on the lessons to be learned from the tensions within China’s largest beverage joint venture www.chinaeconomicreview.com/cer/2007_09/Danone_v_Wahaha.html

L'implantation de Danone sur le marché chinois http://danone-en-chine.wikeo.be/a.html

The Chinese beverage company's expansion by Paula M. Miller www.chinabusinessreview.com/public/0409/company_profile.html

Q&A…

Thank you !