Prof.  Dr.  Haiyan  Zhang    MGM-­‐1:  Asian  Business  24  January  2011  FRANCINE  CARRON    HISTORICAL  BACKGROUND  OF  IJV:    Danone  was  already  present  in  Asia  and  wanted  to  further  expand  its  businesses  in  the  Chinese  market.  Around  this  same  time,  Wahaha  was  looking  for  extra  capital  to  expand  its  business.  Danone  offered  a  cash  injection  of  $450  million  to  partner  with  Wahaha  through  establishing  an  IJV.  Wahaha  was  led  by  Mr.  Zong,  who  hoped  that  Danone  would  bring  great  technical  support,  and  fulfill  his  ambitions  for  severe  growth.    However,  after  almost  12  years  conflicts  of  interests  of  ownership  issues  arise,  and  the  cultural  impacts  of  the  managerial  styles  of  both  companies  is  causing  the  demise  of  the  IJV.  The  major  stake  holders  in  the  conflicts  are  the  Wahaha’s  top  management  group  including  Zong  Qinghou,  Danone’s  top  management  group,  Wahahha’s  IJV  senior  managers,  Danone’s  IJV  senior  managers,  the  Chinese  Government  -­‐  as  owner  of  a  State  Owned  Enterprise,  Chinese  Labor  Unions  and  Workers,  Stockholders  of  Danone,  Zong’s  wife  and  daughter  who  controlled  competing  IJV’s  and  other  Chines  partners  in  IJV’s  with  Danone.      CONFLICTS  &  ARGUMENTS:  Conflict  A:  Intellectual  property  protection    Both  partners  disagreed  on  the  right  to  use  the  brand  name.  The  transfer  of  the  brand  name  from  Wahaha  to  the  IJV  was  never  legally  settled  which  both  parties  interpreted  differently.    Arguments:  Danone  thought  it  was  unacceptable  for  Zong  to  use  the  brand  name  for  non-­‐joint  venture  products.  For  Zong  it  was  unacceptable  to  sell  its  premium  brand  for  only  a  few  products  produced  in  the  IJV.  Zong  also  did  not  agree  to  sell  its  non-­‐joint  venture  business  to  Danone.      Conflict  B:  Control  system  Danone  wanted  to  ensure  ownership  by  owning  51%  of  the  IJV.  Danone  thought  by  owning  the  largest  share  they  could  ensure  its  management  control.    Arguments:  Danone  made  a  severe  miscalculation  here  as  for  Zong  the  initial  objective  of  Wahaha  was  to  secure  funding  and  maintain  management  control  of  the  business  and  manage  its  day-­‐to-­‐day  operations.      Conflict  C:  Competition  Clause  Zong  had  set  up  competing  non-­‐JV  companies.  Arguments:  Danone  viewed  this  as  a  breach  of  contract  relating  to  the  IJV  and  therefore  believed  these  non-­‐JV  companies  should  belong  to  the  Wahaha-­‐  Danone  IJV.  Zong’s  arguments  were  that  that  the  companies  were  set  up  in  areas  where  Danone  did  not  want  to  invest  and  therefore  did  not  compete  directly.      RESULTS:    Both  companies  were  obviously  suffering  from  differences  at  organizational  and  cultural  differences  at  country  level.    These  incongruence’s  had  to  be  cleared  out.  Danone  attempted  to  work  through  the  conflicts  through  non-­‐legal  negotiations,  but  according  to  Zong  due  to  the  unfairness  of  the  negotiations,  the  entire  dispute  ended  in  local  courts  and  international  arbitration.  The  final  result  was  for  the  companies  to  agree  on  a  ceasefire.