Q1 What is the BATNA of Danone?

Explain

Groupe Danone's best course of action is to strategically navigate the dispute and safeguard
its interests while minimizing potential damage to its reputation and market presence in
China. To achieve this, Danone should consider the following strategies:

Danone can actively seek alternative Chinese partners in the food and beverage industry to
replace Hangzhou Wahaha Group in its joint ventures. This would involve identifying
potential partners who are willing to collaborate on equitable terms and share Danone's vision
for growth in the Chinese market. Danone would need to conduct thorough due diligence to
select partners with a strong track record and expertise in the beverage industry. Danone
should leverage its global network and industry connections to identify suitable partners. The
company can engage in negotiations with multiple potential partners simultaneously to
maximize its options. This approach would involve detailed discussions on equity ownership,
profit-sharing, management structure, and strategic objectives. Danone should prioritize
partners who align with its business values and growth strategy.

Q2 What is the BATNA of Whahah? Explain

Wahaha's best course of action is to make the dispute as widely known as possible, aiming to
secure both the Chinese government's and consumers' support. As the "Wahaha" trademark
had never been officially transferred to the joint ventures (JVs), Chinese legal authorities are
not bound to permit the acquisition. By publicizing the dispute, Wahaha will bolster their
argument and exert influence, increasing the likelihood of authorities resolving the issue in
Wahaha's favor. Gaining the support of the Chinese government and the public can
significantly strengthen Wahaha's position in this dispute. To do this Wahaha can take
multiple approaches.

First of all, the Group can invest in public relations to paint a positive picture of the company.
They will highlight their long-established presence as a Chinese enterprise and underline their
contributions to the local economy through job creation, tax payments, and technology
sharing. Stories about their involvement in local communities and corporate social
responsibility initiatives will be shared, showcasing their commitment to China.

Wahaha will also engage directly with Chinese consumers through social media, public
announcements, and community engagements. They can position themselves as champions of
Chinese nationalism and cultural significance, portraying their role as defenders of domestic
brands against foreign influence.

Finally, Wahaha possesses a compelling founding story that underscores its profound impact
on Chinese society and the welfare of its people. In 1989, as a result of China's one-child
policy, Zong Qinghou took a visionary step. He established Hangzhou Wahaha Nutrition
Food Factory and introduced the Wahaha Nutritional Tonic for Children. Zong's strategic
marketing campaign, centered on the product's nutritional merits, directly addressed the
pressing concern of enhancing childhood nutrition. This effort was epitomized by the
renowned slogan "Food Tastes Great with Wahaha." By emphasizing the pivotal role Wahaha
played in responding to societal needs, particularly during a period of demographic change,
Wahaha can further solidify its position and garner support in the ongoing dispute.

Q3 What would you bring to the bargaining table for your company
What we can give up for negotiation (representing Wahaha):
1. Minority rights of the current Danone-Wahaha JV:
○ If Danone can give up on the acquisition/ give up on the brand rights, we can
offer 5-10%of the Danone-Wahaha JV’s share as an exchange.
○ As we only reserve the 49% share of the JV, the decision making right
distribution status remains the same even if we give out another 5-10%, and
the responding financial loss is relatively acceptable.
2. More operational involvement from Danone
○ If Danone can give up on the acquisition and fully acknowledge the right of
the brand to belong to Wahaha, we can continue the collaboration with Danone
under the existing JV structure.
○ We can accept the nomination of management personnel from Danone side to
make operational decisions together at Danone-Wahaha JV’s level
3. We can offer to share experiences on channel management and operational
collaboration with Danone’s other brands in China
○ If Danone can give up on the acquisition/ give up on the brand rights, we can
still work collaboratively to boost both sides’ growth from knowledge sharing
and partnership not only in Wahaha brands, but also under other entities that
Danone acquired.
4. Equity shares of one subsidiary for new market entry: Wahaha can offer 51% shares
of one subsidiary, and Danone helps this JV expand business globally
○ Wahaha can offer 51% shares of one current subsidiary which does not have
important products or important pipeline
○ Donone helps this subsidiary expand in Europe: Donone can use its network,
distribution channel, ect. to help Wahaha expand in Europe
5. Equity shares of one subsidiary for R&D: Wahaha can offer 51% shares of one
subsidiary, and Danone helps this JV develop innovative products
○ Wahaha can offer 51% shares of one current subsidiary which does not have
important products or important pipeline
○ Donone helps this subsidiary in R&D: Donone can use its advanced R&D
equipment and process to help this subsidiary develop innovative products
6. Part of profit of non-JV for manufacturing: Wahaha can offer part of profit from
non-JV subsidiaries, and Danone equips this subsidiary with better manufacturing
facilities from Europe
○ Wahaha can offer part of profit of non-JVs
○ Donone helps this subsidiary equip better manufacturing facilities: Donone
can use its network to purchase better manufacturing facilities or construct
factories for the subsidiary
Some bargaining chips Wahaha could potentially give up:
Ownership stake:
● Wahaha currently owns 49% of the JVs. They could be open to Danone increasing its
51% stake, such as to 60%, given Danone's larger capital investments.
● The case mentions Danone contributed RMB 1.5 billion into the JVs versus Wahaha's
RMB 3.8 billion in dividends. This implies Wahaha benefited substantially already.
Board positions:
● No Danone executives sit on the JV boards currently. Wahaha could offer Danone
increased board seats or oversight positions.
● The case notes Zong had executive power over the JVs and drove out any executives
Danone appointed. Wahaha could compromise here.
Management control:
● Wahaha could agree to create a joint management committee with Danone for key
decisions.
● The case highlights that Zong had sole decision-making authority. Wahaha could
concede some control.
Product restrictions:
● Wahaha could limit new non-JV products in the same categories as existing JV
products.
● The case alleges Wahaha produced identical products outside the JVs, violating
non-compete clauses. It can agree to some constraints.
Distribution access:
● Currently Wahaha controls the JV distribution. They could provide Danone products
access at a fee.
● Danone accused Wahaha of using JV distribution for non-JV products. Wahaha can
offer Danone some distribution.
Licensing rights:
● Wahaha can provide licensing rights or use of its brand to Danone for certain
products/segments.
● Wahaha claims it allowed the JVs to use its brand. It can extend a similar license to
Danone.
Based on the background, Wahaha has clearly benefited from the JVs in areas like profits,
distribution and branding. It has some room to compromise on ownership, control, product
scope and distribution access while negotiating a beneficial deal.

Some other thoughts:

● New market entry - Wahaha could grant Danone exclusive JV rights for entering new
product categories or geographic markets first.
● R&D - Wahaha could offer to co-locate some R&D facilities with Danone and share
IP development.
● Tax incentives - Wahaha could transfer some profits/assets from non-JVs to JVs to
provide tax incentives to Danone.
● Manufacturing - Wahaha could allocate some exclusive manufacturing capacity for
joint venture products and needs.