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Danone and Wahaha 'Failed' Joint Venture

In: Business and Management

Submitted By bomba
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A ‘failed’ Joint Venture between Danone and Wahaha

French’s Danone and China’s Wahaha had been a very successful joint venture in China. Danone’s capital, expertise & technology know-how, combined with Wahaha’s huge local presence in the market had seen the company soared in the food & beverage industry.
It was until then when Danone accused its partner, Zong, founder of Wahaha of illegally selling Wahaha brand products using a distributor not selected by the joint venture agreement. Danone also filed for arbitration (appoint an official body to settle the dispute) to resolve the trademark dispute.

Despite holding on to the majority stake of 51% in the Wahaha brand, Danone did not take any action until now because it needed the Wahaha brand as much as it needed Zong. Zong and his management were the driving force for Wahaha and Danone’s efforts in sending its own executives were futile.

The dispute highlighted a key issue which many foreign investors have long grappled in China due to the lack of respect and understanding of legal agreements in the country. In China where informal institutions play a larger role than formal institutions, Danone had used the wrong approach to resolve the dispute and had lost the support of the people in China.

Was joint venture appropriate for Danone to enter China?

Joint venture allows Danone which is a multi-national company based in France to tap into the lucrative market in China. At the time of the joint venture, China is pretty much a closed economy with little to no foreign direct investments. Danone saw joint venture with a local firm the way to overcome barriers to investment and do business in China.

Through tie-up with a local firm like Wahaha, it provides Danone with the access to the China market. Wahaha had the economies of experience in China being a local food & beverage brand but do not have the...

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