Another MNC in Hot Water

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While the foreign fast-food giants have been taking a bashing over relations with staff, another big international brand – Danone – has been facing partnership (and PR) problems.

Danone has a 51 percent joint venture with one of China’s biggest brands, Wahaha…but it is now also reported (by Reuters) to be preparing litigation against Wahaha’s chairman and founder, Zong Qinghou, for breach of contract. In a story that may sound familiar to many joint venturers (most of whom now prefer full ownership):

    “[Danone Asia Pacific President Emmanuel Faber] says Wahaha violated a 1996 contract by using the well-known Wahaha brand name on products sold outside the joint venture….’We found out he had been developing businesses which are directly competing with our business … and we found out that he had significant interests, and sometimes management interests, in those companies’, Faber said, referring to Zong.”

Fighting words indeed. But while the argument is being fought in public, contracts may not be the firmest of ground on which to stand. Zong, who is said to have refused to sell the businesses in question to Danone, is defiant (and, being a local brand hero up against an imperialist foreign brand, can be expected to win much public support). Bloomberg reports that Zong said in an internet interview that he wanted to modify the “unfair” agreement with Danone. The FT adds:

    “In an interview given to Sina, one of China’s leading internet portals, Zong …said Danone did not understand China or Chinese culture.

    ‘I told them the Chinese have stood up and the era of invasions by eight-country armies is long-gone,’ he said, referring to a military campaign in Beijing by colonial powers in the 20th century.”

Given the abilities of nationalistic Chinese consumers to express themselves online , the combination of “unfair”, foreign “invasions”, and the internet, should strike fear into Danone’s heart! The Bloomberg report goes on to say that:

    “Zong has won support from Wahaha’s employees, who in a joint statement today called for the Chinese government to reject Danone’s planned purchase in favor of China’s national brand.

    ‘We have never seen any contribution from Danone,” Wahaha’s employees said in today’s statement. `Our requests for pay rises were always rejected.’ Danone is using ‘wicked’ ways to pick Wahaha’s ‘ripe fruit,’ it said.”

This talk echoes the arguments surrounding the protection of Xugong against Carlyle , and the wider re-evaluation of the role of foreign investment. Not to mention what was said last year by Li Deshui, the head of the National Bureau of Statistics (see full post here):

    “If we allow the free development of malicious acquisitions by multinational companies, the autonomous brands and innovative ability of China’s national industry will gradually disappear.”

As with the current fast-food / minimum wage case, the legal rights and wrongs may become background noise, and legalistic lecturing in the Chinese media could be counter-productive. Some things are best done behind closed doors…over a cup of best-selling, Wahaha tea.

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4 Responses to “Another MNC in Hot Water”

  1. Jeremy Gordon Says:

    This story is continuing to unravel. Links to more analysis, including in-depth analysis from the Chinese press (translated) can be found here:

  2. Archive » Wahaha(ha!)| China Business Blog Says:

    […] he trials and tribulations of Danone and their Chinese joint-venture “partner” Wahaha (see here). The latest news is that Zong Qing Hong, Wahaha’s chairman (accused by Danone of run […]

  3. Archive » Lessons from the Front Line: Danone vs. Wahaha| China Business Blog Says:

    […] ay by Stan Abrams. No doubt there will be more on this case (which I have covered before: “Another MNC in Hot Water” ; “Wahaha(ha!)” ) to come. In the meantime, […]

  4. China Rookie. Beware the China Joint Venture Says:

    […] Another MNC in Hot Water, at China Business Services […]

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