China's leading beverage company, Hangzhou Wahaha Group (Wahaha), and the French beverage giant, Groupe Danone (Danone), formed a strategic Joint Venture (JV) partnership in 1996. In the next decade, Wahaha became China's biggest and the 5th largest beverage producer worldwide, with annual sales of RMB 11.1 billion (US$ 1.4 billion). By 2006, 5%-6% of Danone's global profits came from the JV and "Wahaha" was among its top 4 brands.
Despite all this success, Danone and Wahaha became trapped in a complex and thorny relationship. A series of legal battles accompanied by high-profile media wars broke out in April 2007. The initial trademark transfer dispute escalated into fights about foreign monopoly, local protectionism and national economic security, which led to the presidents of both countries asking each party to find an amicable solution.
Danone's first half-year result for 2007 shows that its sales from the JV dropped by 6% compared to the same period in 2006, and its stocks plunged by 9% just over two months after its confrontation with Wahaha became public. How could a promising relationship turn bitter, and why? Given that for many multinationals China is an indispensable market, what lessons can they draw from the Danone-Wahaha dispute?
Author: Barbara Krug, Stephan Rothlin
Institution: Rotterdam School of Management, University of International Business Ethics
Industry: Beverage
Discipline: Economics, Politics, and Business Environment
Number of pages: 15
Language: English
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