Case Study: Danone's Wrangle With Wehaha In China

Danone’s wrangle with Wahaha in China

1.Danone’s early stage market entry mode 1.1 How led to difficulties 1.2 Why this mode was chosen 1.3 Entry mode change over time

1.1

Danone entered the Chinese market in the late 1980s by founding Danone Yogurt Company. However, lack of market knowledge that most of the consumers had no refrigerators to store the products and price was too high for the local consumers led to fact that Danone relied heavily on joint venture as the early stage of market entry mode.

In 1996, Danone started to cooperate with Wahaha. The Wahaha joint venture was established, while Danone and Bai Fu Qin invest in the joint venture and Wahaha shared its local assets and resources. At the beginning, the Wahaha

While Danone share equity and resources to establish a joint venture in the host country, minority shares was owned by Danone which led to the fact that Danone had less control over operations. However, Danone bought the shares of Baifuqin in 1998 and became a 51% owner of Wahaha Joint Venture. Since that time, Danone had taken over the complete control over the JV. The conflict was risen among the cooperation, because the JV personnel saw themselves as employee working for Zong Qinghou, the founder of Wahaha and Danone side as foreigners. And Danone as a foreign party did not supervise or participate in the daily management which means that Danone had lack of power over human resource management especially from the middle manager

Danone and Wahaha shared the fix costs and associated risks of developing new products and processes. The industry standards of Wahaha group had been improved among the coperation

The cooperation between Danone and Wahaha strengthen both parents to gain comparative advantages against existing competitors.All the parties through the cooperation agreed to let the Wahaha group take control daily operations of the JV in 1996.

In 1998, Danone bought the shares from Bai fu qin and become a 51% owner of Wahaha JV.

Danone thought that it had the right to take over the JV from a legal basis. Zong accused that Danone had designed a trap in the JV agreement to win the control of both Wahaha Bbrand and the JV. Therefore, longterm of cooperation between these two parties did not build on more trust.

In China, the legal basis through the business operations was uncertain, most of the businesses relied on trust which could be differentiate with the western contract based structure.In 1999,Danone and Wahaha applied an exclusive license agreement for the