Danone Vs Wahaha

versus

Lessons for Joint Ventures in China :

A Happy Marriage but Painful Divorce

by Sacha Milchten & Antoine Ryckebusch

Company Presentation  Founded in 1987  Hangzhou Wahaha Group

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

 Founded in 1973 from the

merger of Boussois-SouchonNeuvesel and Gervais Danone  1979 – 1985 : acquisition of

Amora, Maille, La Pie Qui Chante, Carambar…

 Zong Qinghou : Chairman and

managing director

 In 1995, Peregrine

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

 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

✔ Product quality ✗✔Culture differences Innovation ✔✔ Find the good chinese partner and Relations good and tasty ✔Being Being a trustmark

The Case : Danone versus Wahaha: Lessons for Joint Ventures in China

A 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 AntiMonopoly 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

Thank you !

Q&A…