Wahaha and Danone: How (Not) to Make Allies Enemies
Dr. Binsheng TengCheung Kong Graduate School of Business
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• Trust:– Goodwill Trust:
• From the very beginning, Mr. Zong was worried about losing control to Danone (hidden agenda).
• The continued acquisitions of Wahaha’s competitors deepened the concern.
– Competence Trust:• Initially Danone was highly respected as an experienced
industry leader.• The trust was lost due to disputes over bottled water,
Future Cola, and the fate of Robust.
Partner Selection
Wahaha and Danone: How (Not) to Make Allies Enemies
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1. All business-transactions need to have some elements of trust – alliances are particularly so.
2. Alliances that start with a high level of trust are much more likely to be successful.
3. When inter-partner trust starts to deteriorate, it is hard to regain confidence.
e.g. the Microsoft – Sendo alliance
Points
Wahaha and Danone: How (Not) to Make Allies Enemies
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• Complementary Fit– Providing different resources
• Supplementary Fit– Adding similar resources
Resource Fit
Wahaha and Danone: How (Not) to Make Allies Enemies
In the Wahaha-Danone alliance, a complementary fit between money and local knowledge provided a solid start.
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• Relationship: Potential Competitors– e.g.The US West – Time Warner alliance
• Alliances with competitors are the most powerful and yet risky type– Combining market power– Resource availability– Potential for conflict
Strategic Fit
Wahaha and Danone: How (Not) to Make Allies Enemies
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Alliance Formation• Negotiation Difficulties
– 51% controlled by Danone and Peregrine Investment
– Joint ventures instead of direct equity investment– Wahaha runs the company, instead of joint
management
Wahaha and Danone: How (Not) to Make Allies Enemies
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Alliance Formation• Structure:
– Too many small joint ventures create unnecessary complication for the partners.
• Structural Flexibility vs. Rigidity:– Too much flexibility
• Control:– Separation of ownership and management
i.e. a lack of control by Danone
• No clear exit clauses
Wahaha and Danone: How (Not) to Make Allies Enemies
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Changing Situation• For Danone:
– The Wahaha brand is being abused.– The joint ventures are being undermined by Mr.
Zong’s own businesses.
• For Mr. Zong:– The Wahaha brand became more valuable.– The need for capital became less urgent.– Family businesses are booming.
Wahaha and Danone: How (Not) to Make Allies Enemies
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Possible Outcomes• Lawsuit in Europe and the U.S.• Danone gives up the battle due to political and
legal pressures.• Mr. Zong sells the various businesses to Danone.• These businesses are folded into the joint
ventures.• Mr. Zong pays Danone a lump-sum and stops
using the Wahaha name in other businesses.
Wahaha and Danone: How (Not) to Make Allies Enemies
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How to Make Allies Enemies?• Start with someone whom you do not
highly trust.• Start with someone who may have a major
conflict of interest with yourself.• Negotiate an alliance that gives too much
power and control to one side.• Form an alliance that is structurally either
too rigid or too loose.
Wahaha and Danone: How (Not) to Make Allies Enemies
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How to Make Allies Enemies?• Operate an alliance with a hidden agenda.• Show little respect to your partner.• Seek private benefit at the expense of
public benefit.• Run a long term alliance with a short term
perspective.• Aim to control your partner.
Wahaha and Danone: How (Not) to Make Allies Enemies
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Thank You
Please visit www.CKGSB.com to find out more about the Cheung Kong Graduate School of Business
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