Sample Student-Written and Political Strategy (and Ethics) Case: Groupe Danone and Its
Partnership with Wahaha in China
by Zhiwei Wang
Groupe Danone SA, founded in 1972, is a French food company with multiple international
joint ventures. In 2008, its global standing included: world no. 1 in fresh dairy products, world
no. 2 in bottled waters, world no. 2 in baby nutrition, world no. 3 in medical nutrition. With 20%
of the global market (35% in some countries) and a presence in some 40 countries, Danone leads
the global fresh dairy product market.
In 1994, Groupe Danone entered the China market selling consumer drink products, including
drinks from fruit juice, dairy products and bottled water, all with Chinese joint venture (JV)
partners who were market leading brands in China.
One such joint venture was formed with a leading Chinese domestic beverage producer,
Wahaha. In 1996.Danone bought a 51% stake in a joint venture (JV) with the founder of
Wahaha, Mr. Zong Qinghou, the second largest shareholder. The JV has since turned Wahaha
mineral water into the market leader in China and one of the best –know consumer brands in the
country, a brand more familiar to many Chinese than Coca-cola. In 1999 the two companies
signed a further licensing agreement which gave the JV the right to use the Wahaha name.
In China, Danone’s JV partners are not only Wahaha. For instance, Danone is also the biggest
stockholder in the milk brand Mengniu and the juice brand Huiyuan.
In early 2007, Danone accused Wahaha and Mr. Zong of trademark infringement for
manufacturing and marketing beverage products under the same Wahaha brand outside of the JV.
According to the licensing agreement, the JV has exclusive right to the trademark. The
relationship immediately turned sour as Danone sued Wahaha to stop this practice.
Wahaha gave three reasons to reject the challenge made by Danone:
1. The initial JV partnership was a trap for Wahaha; the motive of Danone in the beginning is to
lead the market in China, Wahaha misunderstand a key item in the contract when it signed. At the
time, the economic circumstances in China were not good.
2. Danone had been aware of Wahaha’s substantial parallel businesses in the early years and both
Wahaha said Danone just ignored it.
3. The original agreement between the two beverage giants was never approved by China's
trademark office and so is not legally in force or effect. Danone either thought Wahaha was going
to record this licensing agreement with the government or never even realized such a recording
would be required. In China today, some IP licenses must not only be recorded for the licensing
transfer to take effect, they must first be approved by the government.
These three reasons become the foundation of Wahaha in its fight with Danone.
In defending himself and the Wahaha company, Mr. Zong also organized a national PR
campaign asking the Chinese government to protect this well known national Chinese brand from
foreign invasion, and has asked all the Wahaha employee and distributors to act together to
“protect this Chinese company.” Zong asserted that if Wahaha failed in the brand dispute, it
would have a significant impact on the employees and distributors of the company. At the same
time, Danone spokesman Michael Chu said he didn’t discount the possibility of further lawsuits
against Wahaha.
Danone’s suit was dismissed by a Chinese local court and the local arbitration body which
ruled in favour of Wahaha group, but Danone did not give up. Danone took the legal battles to
other venues. Court fights have taken place between the two in Los Angeles, Samoa, and the
British Virgin Islands, as well to other courts in China and the International Arbitration Count
Stockholm. The case has attracted world-wide attention in the business media and international
business community and an evaluation by the Stockholm arbitration body is expected.
Many other foreign brands have Chinese partners, not only Danone, So all these companies
are focused on this case. The end of this case is highly relative to them, especially the response
of the Chinese government. Though the government wants to remain neutral, the fight for
Wahaha brand and equity has become a marathon with the two companies’ home governments
also getting involved. Their attitude are important to this case, as the Danone and Wahaha are
famous brand in their home countries , Whether the Wahaha group agrees to or is forced to
transfer the trademark to the JV is of concern to the two governments. The result from this case is
certain to have an effect on China’s policies on investment from overseas and foreign companies’
response to their policies.
Sample Student Political Strategy Case Analysis Example: Danone & Wahaha Case
by Yifeng Liu
Based on both the economic and the legal environment in China now, what should
Danone do to protect position in the case? If you were Danone, would you look to expand in
China further (a) alone or (b) with joint venture partner?
There are five parts of actors in this dispute, Danone, Wahaha, courts and
arbitration institutes, Chinese government and French government, dealers, and
employees union.
Here is a power diagram about the actors above:
hi/med-hi
French Government
+
Danone
+
med/med
low/med
hi/med-hi
med/med
The Arbitration
Institute of Hangzhou
hi/low
0
medlow/med
California Supreme
Court
-
Dealers &
Employee
Union
BVI
Court
-
-
med/med
hi/low
hi/med-hi
med/med
hi/hi
med/med
Wahaha
hi/med-hi
Chinese Government
-
From this diagram, I can know the power of the actors in this dispute and show
why Danone was never able to defeat Wahaha in it efforts.
Dealers and Employee Union of Wahaha are one of the vital factors to affect this
issue. Because of the threaten boycott, Danone understood it could not get any support
form the dealer and internal company of Wahaha. Without the support of internal
company of Wahaha, Danone tried to reach the acquisition through the courts and
arbitration institutes.
But most of the courts and arbitration institutes are rejected Danone’s accusation. That
made Danone could not put the tremendous pressure to Wahaha, and on the contrary,
Danone faced great pressure after they failed in such many legal accusations, Although
Danone woe a partial victory in SCC, but this victory seems have any influence to this
issue. The first reason is SCC is an arbitration institute, and SCC didn’t have any power
to affect the issue. SCC just gave their judgments which have any force of law to Danone
and Wahaha. Secondly, Danone won the victory, but the accusation expenses and time
had been spent a lot. Danone had not enough patients to wait the second round accusation
med/med
SCC
0
med/med
hi/low
in SCC. In a summary, the courts and the arbitration institutes were gave Danone a great
pressure while they sued Wahaha all over the world.
French government and Chinese government have great power at hand to affect the
process of this issue. They discussed the dispute when French president visited China. At
the intervention of both governments, two companies negotiated the amicable settlement
but break down a few months later. The two governments didn’t do anything after the
negotiation break down.
At the effects of these five parts of actors, Danone failed to defeat Wahaha and quit the
joint ventures on September 30th.
NOTE: This case can also be seen as an ethics case. Here is the student’s analysis of the
case as an Ethics Case
Assess the ethical behavior of Mr Zong with regard to Danone’s charge of trademark
infringement for manufacturing and marketing beverage products under the same Wahaha
brand outside of the JV. Is his response that Danone behaved ethically in the initial
contract: (a) he was deceived by Danone in key terms of the initial contract and (b) Danone
took advantage of Wahaha because of “at the time (of the initial contract), the economic
circumstances in China were not good” and (c) Danone knew this practice had been going
on for years?
In this case, because Wahaha set parallel companies and had used the trademark
which belongs to the joint ventures to develop its business for nearly ten years, Danone
faced problem is whether Danone acquired the non joint ventures companies of Wahaha
to protect its right at the stress of the employee union, courts, and governments.
At this dispute, I think Wahaha didn’t act ethically. Although Wahaha won most of
the accusations in two years that just means Wahaha’s action was approved in the field of
laws, not in the field of ethics.
Firstly, Wahaha operated parallel companies secretly and competed directly with
the joint ventures and most of the parallel companies bore the Wahaha name. According
to the original joint venture contract in 1996, Wahaha had no right to establish other
companies which competed directly with joint ventures. Obviously, Wahaha’s action
violated the original contract. In 1999, both groups signed an additional contract
transferring the exclusive right of using the Wahaha trademark to the joint venture. But
Wahaha used the trademark at parallel companies’ product and siphoned off as much as
$100 million from the partnership. Wahaha didn’t respect the agreement signed in 1999
and let the partnership sustain losses.
Secondly, Wahaha utilized the dealers, employee union, and media in China to
affect Danone’s acquisition. Dealers and employee union set a threaten boycott to
Danone. The founder and chairman of Wahaha, Mr. Zong, claimed that Danone knew all
along about the parallel companies, grew jealous at their profitability and sought to
purchase. Chinese media described Wahaha as the aggrieved party in order to protect one
of the biggest Chinese beverage companies being acquired by foreign companies and put
tremendous pressure to Danone. In a word, Wahaha used all possible ways to protect
Wahaha being controlled by Danone, none of which were particularly ethical.