Danones Wrangle with Wahaha Case Solution

1. When and how did Danone expand into the Chinese market? What problems did Danone Group encounter while operating in China?

By the late 1980s, the Danone expanded into China, and since that they heavily invested in expanding production and building factories. Danone Wahaha was enjoying the leading position in China and later on in the early 2000s, many of the leading company’s shares were bought by the Dannone as 51% share by the Wahaaha group, 50% of Shanghai Maling Aquarius Co. Ltd, 51% of Robust group, etc. 

During such expansion, Danone faced the Challenge in China as he had lack of Knowledge of China’s Market and as after the purchase of the 2nd largest beverage company Robust who sales go up to RMB 2billion in 1999 but after the purchase of their products Tea and Milk disappeared from the market because Danone operated the Robust Directly and dismissed their original management. As the new employees of Danone were not so familiar with the Chinese Beverage market and by end of 2006, there was the loss of RMB 150billion.

2. How was the Danone and Wahaha JV formed? What was its structure? Why did Danone decide to form a joint venture rather than establish a 100 percent-owned subsidiary?

The Joint venture began in 1996 between the Wahaha and the Danone Group and formed new five subsidiaries. With a large amount of foreign investment, there were advanced production lines brought by Wahaha from America, Italy, Germany, Canada, and Japan. The structure was like 49% Wahaha group and 51 Jin Jia Investment (50% Danone and 50% Bai Fu Qin Ltd). Before the JV was formed, the Wahaha group was owned by Hangzhou City Government, a state-owned enterprise but after its formation, the JV is owned by private Zong Corporation. The Joint Venture gives rights to use the Wahaha trademark and have access to all managerial and operating rights Danone decided to joint venture rather than 100% owned subsidiary because of several advantages of the joint venture which includes, investment funds attractiveness because that would lead to investing more in Research and development for innovation and the existing quality of the products would be improved further and this lead to the increase in sales and revenue day by day through JV. Another reason to go for a Joint venture rather than a 100% owned subsidiary is in a partnership, the cost is being divided between two partners as success and failures are not guaranteed so this would be the advantage of having a joint venture to share the risk of failure. Therefore, the joint venture was formed because Danone wanted to expand in China market and it needs Wahaha Group’s capital and its huge market knowledge that would help in understanding the culture of the Chinese and its market. 

3. What was the problem of the Danone-Wahaha joint venture that triggered the conflict between the companies? What were the differences in Danone’s and wahaha’s understanding of their own respective roles and responsibilities in this venture? What aspects of national and organizational culture affected this perspective?

Joint Venture Challenges

In 1998, when Danone purchased the Baifu interest in Jin Jia with 51% control over on Join Venture, there comes when the conflict triggered because the shares were not distributed properly and that led to some issues like rights and taking control. The issue was triggered when Wahaha felt that over their trademark on Joint Venture, they had complete control given and felt like an international company is now in the control of Joint Venture. Just after JV was formed, the Wahaha converted into a private corporation and they viewed their transferred trademark as their own personal property. In 1998, the Danone takeover created several resentments for the Wahaha group as Wahaha thought that Danone was misleading them since long and in this way, Wahaha started selling the same products of JV as a non-JV company under its trademark and that led to the conflict and Danone wanted to buy 51% of that shares but Wahaha denied and that led to Danone to file the case against Wahaha for breaking the contract and illegally using the trademark of the joint venture with the non-JV company. Just after that, Zong-the chairman of Wahaha was sued by Danone in Italy and California, he further created the number of small companies with product ranges as the joint venture. Apart from that due to different cultural backgrounds, these conflicts were further enhancing like companies were not taking into consideration the operating countries' culture. Like the dispute was on the ownership rights and unawareness of the cultural difference between China and France.