Danone And Wahaha Case Study

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Danone And Wahaha Case Study

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Danone And Wahaha Case Study

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Questions:
1.How did the relationship between Wahaha Group and Danone change during the 11 years of cooperation? How did the bargaining power of both parties change? 2.Did the long-term cooperation between both firms lead to more trust? Did you observe any problems of bounded reliability with two firm’s cooperation? Was there a vicious cycle of suspicion? Was there a vicious cycle of increasing dependency on a partner? 3.Was there a learning asymmetry in the joint ventures? 4.Has Danone been able to access the location-bound FSAs of the Wahaha Group? Should Danone have rejected the joint venture entry mode in the first place?
 
 
Answers:

1.Relationship between Wahaha Group and Danone change during the 11 years of cooperation. How the bargaining power of both parties change?
In the very beginning of the venture, both Wahaha and Danone had enormous expectations from collaboration. Wahaha required cash along with new technologies and administrative techniques to continue with their process of expansion, whereas, Danone lacked depth in their management in the Chinese market.  Therefore, a joint venture was recognized in the year 1996. Wahaha controlled 49 per cent of the shares, Danone 41 per cent and another association by the name of Peregrine Group took up 10 per cent shares. More importantly, Wahaha was in charge of the overall joint venture. The cooperation was functioning as expected, Danone was expanding in China at a rapid pace and Wahaha was soon becoming China’s top manufacturer of domestic non-alcoholic beverages in both revenue and production. However in the year 2007, the coalition collapsed. There was a claim form Danone that Wahaha Group was using their brands in illegal fashion in some of the other joint ventures. In response to that Wahaha argued that Danone indulged themselves in investing more in Wahaha’s rivals within China and that there was serious lack of obligation and collaboration aspects (neither managerial nor technology expertise was provided) from Danone’s perspective [1].
The power of bargaining altered significantly throughout the 11 years of their coalition. Firstly, at the time of settling of the agreement, leadership responsibilities were offered to Zong for running and controlling the regular operations of the joint venture. Moreover, Danone did not get much concerned as they did not bother to send even a single executive to China. Trust was soon disappearing over the course of time as disputes cropped up, leading to lawsuit battles. In the year 2009, Danone decided in selling off their 51 per cent share of the joint venture, receiving much smaller amount from the retailing of shares of its stake.
2.The long-term cooperation between both firms lead to more trust. Were there any problems of bounded reliability with two firms’ cooperation? Suspicion cycle and Vicious cycle of increasing dependency.
The long-term teamwork between both the companies led to precisely divergent of trust. Danone’s entry into the Chinese market was marked with lesser knowledge of the market itself, leading the company to team up with Wahaha, though only financially and resting the regular operation process in the capable hands of Wahaha Group. All was going well with both companies attaining their desired goals through joint venture, till their disputes became public in 2007. The dispute showcased the fact that both the firms were lacking trust. There were clear issues of restricted dependability as the firms were not being able to make an attempt on the open-ended pledges, especially when the conflicts began on the issue of Danone desiring to take over other non- joint ventures, leading to the suing of various parties[2]. This also depicts the extent of the suspicion cycle as both the companies indicted each other of not sticking by their conformities[3]. The anxiety took a turn for worse when Zong’s family was sued by Danone.
 
3.A learning unevenness in the joint ventures
The main reason for the joint venture was Danone’s lack in experience in the Chinese industry, leading to the decision of benefiting from a successful domestic business. Through cooperation with Wahaha, Danone’s access into the Chinese market became an easy affair with Wahaha being profited from the financial aid offered by Danone. Danone mainly provided financial support to Wahaha’s new technologies and marketing strategies like complex lines of production. This illustrates the learning asymmetry of this meticulous joint venture.
4.Has Danone’s accessibility in the location-bound FSAs of the Wahaha Group? Should Danone have discarded the joint venture entry manner in the first place?
Danone has not been able to have a way in for the location-based FSA of the Chinese group Wahaha for reasons like when Danone took the spot of key shareholder in the year 1998; they did not have any executive within this joint venture. Zong of Wahaha was the leader of the pack having a higher quantity of autonomy[4]. This signifies the fact that Danone never had much interest in learning the location bound FSA that Wahaha possessed, like their effective process of supply chain, knowledge about the Chinese market along with the government regulations. Moreover, in the year 2007, Danone bumped into a tricky situation related to legal disputes where they could have won in court and stayed the legal owner of Wahaha Group. However, Danone was finding it difficult in running the joint venture all by themselves. Danone never operated the joint venture and they did not have the management possessions for controlling of the same.
Despite the dispute continuing for two long years, Danone committed a mistake by rejecting the strategy of joint venture. Danone’s spokesperson, Laurent Sacchi stated that if they were able to gain 30 per cent of the market allocate from the emerging markets within ten years of their operations, it was mainly for the tactic they used[5]. They did have issues with Wahaha which they preferred having now than after another ten long years and not being part of the venture anymore. Danone should have been more involved with the regular operations of the venture which might have led them in having greater access of location-bound FSAs from added organizations.
 
References:
Feiqiong, Chen, and Yu Xudan. “Analysis on the generative mechanism of relational risk in the strategic alliances: A case study on Wahaha [J].” Science Research Management 6 (2010): 022.
Melewar, T. C., Edgar Badal, and Joseann Small. “Danone branding strategy in China.” Journal of Brand Management 13.6 (2006): 407-417.
Munro-Smith, Nigel. “Danone and Wahaha in China The Interaction of Strategy, Cultural Differences and Organization Design in International Joint Venture Conflict.” Proceedings of the Northeast Business & Economics Association (2008).
Tao, Jingzhou, and Edward Hillier. “A tale of two companies.” Chinabusinessreview. com (2008): 44-47.
Yao, Jane. “Why Danone’s ventures failed.” Int’l Fin. L. Rev. 27 (2008): 46
Tao, Jingzhou, and Edward Hillier. “A tale of two companies.” Chinabusinessreview. com (2008): 44-47
Melewar, T. C., Edgar Badal, and Joseann Small. “Danone branding strategy in China.” Journal of Brand Management 13.6 (2006): 407-417
Yao, Jane. “Why Danone’s ventures failed.” Int’l Fin. L. Rev. 27 (2008): 46
Munro-Smith, Nigel. “Danone and Wahaha in China The Interaction of Strategy, Cultural Differences and Organization Design in International Joint Venture Conflict.” Proceedings of the Northeast Business & Economics Association (2008)
[5] Feiqiong, Chen, and Yu Xudan. “Analysis on the generative mechanism of relational risk in the strategic alliances: A case study on Wahaha [J].” Science Research Management 6 (2010): 022

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