With the big 60th anniversary and Moon Festival festivities now past and people returning home and back to work, most of you likely missed a little news item about the settlement of a legal dispute between Groupe Danone and Hangzhou Wahaha Group. Danone (or “Dannon” as it’s known in the U.S.) is the huge French foods conglomerate known for its presence in the yogurt and bottled water (“Evian”) markets. Wahaha is the largest beverage producer in China.
Recapping the history of these two companies’ relationship in China isn’t possible here. We’ll leave that to some good researcher for a book about how to do (or more accurately, how not to do) business in China. Or you can read more details here. And even more details here. But a very quick background: These two large companies formed a joint venture company in 1996, there were several years of various reorganizations, and eventually Danone came out with a 51 percent ownership stake. There were transfers of intellectual property and licensing issues. Eventually disagreements between the partners spilled out into the open when Danone accused Wahaha of illegally setting up parallel ventures selling the same or similar products as the JV but for which Danone received no money. Legal battles ensued.
This is an interesting and instructive case for anyone doing business in China. Many of the usual legal and management issues which befuddle foreigners are present in this situation: dealing with intellectual property, figuring out optimal corporate ownership structures, navigating through shaky court and arbitration systems, thinking you have control when you don’t, and a "cool" situation (referral to the lawyers to be handled offline) blowing up into a "hot" situation with bitter statements being hurled about.
But even more interesting are the Human Resources and leadership issues, often ignored in legal situations but which can be discerned between the lines in this one:
First, Danone apparently failed to integrate itself into the day-to-day operations of the JV, i.e. there were no expatriates on the ground and physically present in the JV. Mobility professionals, take note: Mobility is a good thing! Companies that invest in having expats and being involved in their Chinese ventures might actually be able to prevent problems.
Second, employee loyalty is important. Because Danone was not physically present or involved, JV employees did not identify with the foreign partner and even issued a statement at one point in the dispute criticizing Danone. Given the occasional surges of Chinese nationalism and perceived past suffering at the hands of foreigners, having local employees turn on you in front of a local market is, um, likely not a helpful event. Leadership matters.
Third, know your partners, whether formal in the JV sense or informal in the sense of having local employees. Relationship, relationship, relationship!
This is a very interesting case study; although many companies face challenges here, disputes between JV partners – very common – rarely become public.