Danone Case

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Danone Case

What were the intentions of Wahaha Group and Danone when setting up joint ventures in China? The Wahaha Group did very well in the Chinese market around the mid 1990s, but because foreign multinationals were rapidly entering China, it was afraid that it might lose its competiveness. The company was eager to expand its scale and market share in China, but it lacked the necessary financial capital to do so. This is why they wanted to cooperate with Danone. Wahaha needed cash, and also hoped to adopt new technologies and managerial techniques from Danone. Danone saw Wahaha Group as a perfect opportunity for a joint venture with a local firm in China, a fast-growing emerging market, especially because its solo efforts had been disastrous. Furthermore, Danone ‘lacked the management depth and size to grow quickly’ within this foreign market, so it could certainly use the expertise of a local firm.

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?

The relationship started as an ambitious project which would lead to a significant increase in growth and profits for both sides. However, the win-win situation soon started to crumble. I think the main problem revolved around the control and the structure over the joint ventures (JV). Apparently, Wahaha considered its 49% of the JV as giving them full control, because the other 51% had been split up half-half between Danone and Peregrine through Jinja. Danone later took over this part from Peregrine, gaining a 51% share of the JV and therefore theoretically gaining effective control, thus full bargaining power, over the JV. This was not received well by Wahaha Group, and later by the Chinese public. They interpreted the move as a takeover, resulting in a JV based on distrust and hostility.

Both parties lacked communications expected of their JV partners. It seemed that both Wahaha Group and Danone...
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