C O M M E N TA RY

A Tale of Two Companies

The Danone-Wahaha partnership once seemed ideal, but the companies’ relationship has deteriorated. What lessons can be learned from the dispute?
Jingzhou Tao and Edward Hillier

T

he Danone-Wahaha dispute is a story of the relationship between two very different entities against a backdrop of incredible change. The dispute reveals many questions that China faces as it integrates into the world economy, such as what to do when rule of law leads to an unpopular result or harms a valued Chinese company.

The players
Group Danone SA, a Paris-based multinational corporation (MNC), is a giant in the global dairy product and bottled water markets. The MNC employs roughly 90,000 staff across five continents. Though it is a beverage giant in China, the Hangzhou Wahaha Group Co., Ltd. is much smaller than Danone. Since its founding in the late 1980s, the company has grown from three people selling drinks to school children to become the largest Chinese bottled-water company today. This growth is mainly the result of the drive and talent of founder Zong Qinghou, who expanded the company by satisfying Chinese consumer demand and aligning his business strategy with government policy. Danone and Wahaha formed their first joint venture (JV) in China in 1996. Over the years, the number of JVs grew from 5 to 39, and annual sales rose from a few hun44 May–June 2008 chinabusinessreview.com

dred million renminbi to more than ¥14 billion ($2 billion) in 2006. Danone held a 51 percent stake in the JVs and appointed Zong chair of the JVs’ board. In the 12 years since the first JV’s formation, China has taken a leading role on the world stage. Hong Kong and Macao returned to mainland China, China entered the World Trade Organization (WTO), and Beijing won its bid to host the 2008 Summer Olympics. Moreover, continuing reform and