EMM – MODULE CROISSANCE

DANONE & WAHAHA

Préparation individuelle – Yvan DAELEMAN

2.1. HOW WAS THE JV PARTNERSHIP FORMED?
 Danone wanted to expand in China, but it was lacking local knowledge to successfully gain market share in dairy
products. For this reason, they decided to use alliances as they did in Italy and Spain, instead of establishing
greenfields from scratch. Their strategy was in fact through acquisitions and capitalization of local businesses, to which
they gave a high degree of autonomy.
 Wahaha is founded by Qinghou Zong, in 1987, with the scope of producing and selling nutritional drinks to students.
Thanks to the support of the government of its region, they were able to develop themselves through a series of
acquisitions in the province of Sichuan. Even though they were growing at a high rate, the rapid expansion of foreign
multinationals in the domestic market represented a threat, and for this reason, Wahaha wanted to expand its market
share and sales but it lacked the financial capital.
 Thus, in 1996, they started to cooperate with Danone and set up five Joint Ventures:
 Danone + Peregrine group = Jinja
 Jinja + Wahaha set up five joint ventures (49% Wahaha, 41% Danone, 10% Peregrine)
 Jinja was supposed to inject capital, while Wahaha to transfer assets (brand) from five of its subsidiaries. Also, Wahaha
detained full control of the operations.

What are the exceptional characters behind the JV partnership ?

The Father: Antoine Riboud, President of Danone -> 1996
The Son: Frank Riboud, President as from 1996
The Holy Spirit: Zong Qinghou, manager of Wahaha 2
2.1. DANONE AND WAHAHA INITIAL BENEFITS
• Easy access to fast-growing
emerging market
• Access to local distribution
network
• Access to local knowledge
• Access to managerial resources
• Gain local consumers’ trust
through local company image
(legitimacy)
• Access to capital to expand
product lines and grow market
share
• Access to new technologies and
managerial techniques
• Launch of new products : Wahaha
Purified Water,
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2.2. HOW THE JV PARTNERSHIP DEVELOPED?

 Jinja was supposed to inject capital, while Wahaha to transfer assets (brand) from five of its
subsidiaries. Also, Wahaha detained full control of the operations.
 In 1998 due to the Asian Crisis, Peregrine sold its shares to Jinja (Danone became majority
shareholder).
 Wahaha became China’s number one domestic non-alcoholic beverage producer.
 The contract has though set the seeds for future disputes:
• Wahaha agreed to a non-compete clause
• Only 5 out of 10 Wahaha subsidiaries became real JVs, with the non-integrated still using Wahaha
brands.
• Wahaha agreed to transfer brands to the JVs, but only vaguely specifying the modalities.

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2.2. WHAT WENT WRONG WITH THE JV
PARTNERSHIP?

THE DISPUTE
 On 3 April, Zong declares the intention of Danone to buy their 5.6 billion RMB assets for the
undervalued price of 4 billion RMB. Zong accused Danone to have designated a trap in the original
JV agreement to win control of both the Wahaha brands and the JVs.
 On 7 April, the JVs start to fire Danone’s appointed executives (as Wahaha detains full control).
Danone accused Wahaha of illegally using Wahaha brands and products in their non-JVs, but at the
same time, Danone wasn’t interested in expanding the market share as per Wahaha request.
 Emmanuel Faber on behalf of Danone, after the arbitration requests at the Stockholm Court, and the
complaints to the Court of Los Angeles found it hard to regain control of the JVs,

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2.3. PROBLEMS AND ISSUES WITH
PARTNERSHIP?

1. Breakdown in trust: Within a business partnership, there may be areas of the business that one partner is directly aware of while the other
is not. Partners need to know that the information they get from their partners is honest, and that when a partner says they are going to
accomplish a task, they will complete it when they said they would.
2. Company struggles: It's important for business partners to find outlets for any tension related to company struggles. This not only avoids
those problems being transferred into interactions with a partner, but it also allows for dispassionate decision making to address any
problems, which can be a helpful way to find solutions.
3. Different priorities: Partners who do not have the same priorities may find that they end up in conflict over plans when one partner wants to
devote time or resources to a project or department that another partner feels is a low priority. In these situations, it's important for partners to
find compromises that all parties are comfortable with.
4. Financial inequity: It's important for all partners in a business to feel that they are being treated fairly with respect to equity in the business.
If one partner feels they are receiving a disproportionate stake in the company or split of the profits when compared to the percentage of
funding they provided for the company, it can lead to a disagreement that the partners have to resolve for the long-term health of the
company.
5. Investment levels: If partners don't have the same financial investment in the company, it has the potential to lead to problems, even if
shares in the business compensate for the difference. Partners who invested more money into the company may become frustrated if they
feel that the company is not progressing as quickly as desired, and there may be disagreements if they feel the less-invested partner is not
as concerned.

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2.3. PROBLEMS AND ISSUES WITH
PARTNERSHIP?

6. Lack of boundaries: It's important to maintain a separation between work and personal feelings. When one or more partners in a business
relationship doesn't respect the boundaries between work and non-work, either by bringing outside problems to work or trying to overextend
into a partner's personal life, it can lead to problems for the partnership. Respecting each other's personal boundaries within a professional
relationship reduces the opportunities for problems.
7. Management style: As senior staff at a company, if you and your business partner have different approaches to employee management, it may
result in disagreements. This can also be used to your advantage, however, as different employees respond to different stimuli in the workplace
and even the same employee may respond better to one style in one circumstance and a different style in another.
8. Personal habits: It's important for all partners to be respectful of the other members of the company and to find solutions if one or more
partners' behavior is upsetting to others. Personal disagreements may be because one partner feels another's behavior is unprofessional, or
that they find the other's actions to be upsetting. Creating company behavior policies allows for the eradication of problematic personal habits.
9. Power imbalance: When two or more partners own a business together, it's important for each party to feel comfortable with the level of power
they have. This is particularly important if the partners are formally on an equal level in the company. If staff shows increased deference to one
partner, or one partner has more control in decision making, it may cause disagreements between business partners. When an imbalance
occurs, meeting with staff and ensuring that all partners are receiving their due respect may be required to resolve the problem.
10. Value differences: A professional's personal values influence the decisions they make professionally and can affect the values of their company.
If the partners at a company disagree over key matters of personal values, it can lead to problems for the partnership. Because individuals often
hold values strongly, one way to avoid value-driven problems is to discuss your core values with potential partners prior to forming a
partnership. When value differences create problems during a partnership, consider how strongly each party feels about the issue and work
toward an amicable agreement.

Source : https://www.indeed.com/career-advice/career-development/business-partnership-problems 7
2.3. BEST PRACTICES FOR MANAGING A
PARTNERSHIP?

 Etablish long-term business vision

 Align priorities

 Etablish trust with your partners, give them attention and care

 Develop talents

 Start on a proper legal basis

 Use proper legal techniques to gain control

 Use proper sharing percentage if you want to have control

 Know when to pivot and how to quit

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 MERCI
DREAM. LEARN. LEAD.