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Assignment:DanoneandWahahacase

MatteoMoriciFTMBAFallExchange

1) Describethedifferentinculturalvaluesthatmighthaveledtothedemiseofthedanonewahahajoint venture TheDanoneWahahaJVclearlyputtogethertwopartiescomingfromverydifferentworld.Ononeside Danonesmanagement,andspecificallyMr.FrankRiboud,ledthecompanywithapuremanagerial approach,shapingacquisitionsanddivestmentsonlyonapureeconomicandlegalbase.Ontheotherside Mr.Zong,whoisaparadigmaticselfmademanintheChineseenvironment,athoughandambitious entrepreneurwhohasbeenpartoftheCommunistPartyandwhohasbeenrunninghisownbusinesses takingsovereigntyandnationalinterestinmaximumaccount. DanoneclearlyconsideredtheJVwithWahahaasasubtlewaytoacquirethecontrolofthecompanyand builduptheirpresenceinChina.In1998theyusedalegaltricktogetthecontroloftheJV,buyingout JinjiasPeregrinestake.Then,theycontinuedtoacquirecompetitorsevenaftersigningtheJVdeal(eg.,the acquisitionofRobust,evenmadeatloss)andchanginglocalmanagementtotakemoredirectcontrol.From alegalwesternlikestandpoint,suchmovesweresomehowtolerable,oratleastsolvableinfrontofa Court.IntheChineseapproach,the1998buyouthadbeenconsideredasahostiletakeover,madeatthe detrimentoftheChinesesovereigninterest,thuspavingthewayforthefutureharshconflicts. Chineseapproachtobusinessismadeofalongtermvisionandastrongandbindingpersonalrelationship system.Chinesemanagersconsideredthecompanytheyworkforasaproperty,thereforeitis problematictoacquirethecontrolofacompanythroughsubtleortrickyways.Chinesemanagementgoes farbeyondthepurelegaldisputeswhendealingwithbusiness(a51%stakeisnotawarrantyofeffective companycontrol).Tobeconsideredcredible,foreignpartnersmustinvolvethemselvescontinuouslyinthe daybydaybusiness,beingwillingtoinvestmoneyandshareapartofthecompanyrisk(eg.,notfiring employeesonlyafterpurelyeconomicconsideration,beingwillingtoserveunprofitableruralzones,ecc). 2) AssumingthatyouwereDanone'smanagementatthetime,howwouldyouhavestructuredand managedtheJVfromtheonsettomakeitwork DanonemadeseveralmistakeswhiledealingwithWahaha.WiththefollowingrecommendationtheJV couldhavehadadifferentevolution: DanonecreatedtheJVwithveryweaklegalbasis:theTrademarkOfficeneverapprovedtheWahaha transferofitstrademarkrightsintheJV.WhileprobablyDanoneintendedtocreatethebasisfor turningthisintoitsownadvantage,iteffectivelyledtomanylosinglegalproceedings.Aclearerscope andcontributionfortheJVwouldhavemadethepartnershipmuchmoredefendableinfrontofa judge. NotusinglegaltrickswouldhavegivenDanoneamuchstrongercredibility.Danoneshouldhavemade clearfromthebeginningthepurposeoftheJV,puttinganadequateamountofmoneyonthetablefor Mr.Zong,oralternativelybeingwillingtoaccepttheriskandrewardoftheJVandinvestingsufficient amountofmoneyininnovationandexpansion. Danoneshouldhaveinvolvedinthedaybydaymanagementofthecompany:thiswouldhavehelped increatingasenseoftrustwithdistributorsandemployees,thusmakingDanoneatrustable counterpartandmaybealegitimateownerforthecompany DanoneshouldhaveretaineditselffrominvestinginJVsdirectcompetitor(eg.,Robust,MengliuDairy Group):thiswouldhaveearnedthemmuchmorerespectfromthepublicopinion,strengtheningits ownposition. Afteraninitialunsuccessfulattempttosolvethesituationinternally,Danonejumpedquicklyintoa massivelegalefforttofileMr.ZongforseveraldifferentbreachesoftheJV.Thiscreatesthebasisfor aninvocationofpatriotismandledtoquestioningofanunfairrelationship.HadDanonetriedto calmthingsdownafterthesituationwenttopublicnoticeandkeptthedisputeinternal,eventsmight haveevolveddifferently.

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