CKGSB Presents... Wahaha and Danone: How (Not) to Make Allies Enemies

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Cheung Kong Graduate School of Business' Dr. Binsheng Teng gave his views on the Wahaha-Danone relationship problems to date. To find out more about CKGSB, visit www.CKGSB.com . Or if you would like to give your thoughts on this topic, head on over to www.ChineseBusinessMagazine.com

Text of CKGSB Presents... Wahaha and Danone: How (Not) to Make Allies Enemies

  • 1. Wahaha and Danone: How (Not) to Make Allies Enemies
    • Dr. Binsheng Teng
    • Cheung Kong Graduate School of Business
    www.ChineseBusinessMagazine.com www.CKGSB.com
  • 2.
    • Trust:
      • Goodwill Trust:
        • From the very beginning, Mr. Zong was worried about losing control to Danone (hidden agenda).
        • The continued acquisitions of Wahahas 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 3.
    • All business-transactions need to have some elements of trust alliances are particularly so.
    • Alliances that start with a high level of trust are much more likely to be successful.
    • 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 4.
    • 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. www.ChineseBusinessMagazine.com www.CKGSB.com
  • 5.
    • 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 6. 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 7. 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 8. Changing Situation
    • For Danone:
      • The Wahaha brand is being abused.
      • The joint ventures are being undermined by Mr. Zongs 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 9. 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 10. 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 11. 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 www.ChineseBusinessMagazine.com www.CKGSB.com
  • 12. Thank You Please visit www.CKGSB.com to find out more about the Cheung Kong Graduate School of Business www.ChineseBusinessMagazine.com www.CKGSB.com