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*Legal disputes between Danone and Wahaha are to be settled out of court after the French and Chinese governments intervened. Danone has now dropped legal proceedings against Wahaha in China, but cases in other countries are still pending. *
The Wahaha Joint Venture Company was established in 1996 as a food and beverage joint venture company between the Hangzhou Wahaha Group, the largest beverage producer in China, and Danone, one of the world’s largest food conglomerates.
The dispute between French Groupe Danone and Chinese Wahaha became public in April 2007. The main accusations concern Wahaha setting up a parallel production and sales operation for the same products made by the joint venture (JV), however this is a simplification of the issues involved.
General Manager Zong Quinghou had been running the government-owned Hangzhou Wahaha Group Co Ltd since its foundation in 1987 and became an important minority shareholder when the company went from being a state-owned enterprise to a private venture.
Since then, the joint venture with Danone has grown, accounting for 8% of Danone sales, contributing €100 million to the top line and in excess of 5% of total net profit. In 2006, Zong agreed to a deal worth almost €400 million, allowing Danone to buy a majority stake in the non-joint venture operations. However, Zong has since had regrets, as Danone has contended that the Wahaha trademark belongs to the joint venture.
While Danone has been winning lawsuits outside China, Wahaha has won all cases settled by Chinese courts. The biggest blow to the French group has been the “patriotic” verdict handed down by the Hangzhou Arbitration Commission, stating the Wahaha trademark belonged to its Chinese partner. According to the panel ruling, the trademark had failed to be transferred to the venture in 1999 when the agreement signed by the two groups expired. Zong has had offshore assets of ten companies frozen, and faces at least 20 other lawsuits and arbitrators in five countries, including cases against his wife and daughter who run two of the main companies.
What could have been considered a losing battle by some and a never-ending saga by others, may have reached a turning point in November when French President Nicolas Sarkozy visited China. During a presidential dinner in Beijing, Sarkozy met with Chinese President Hu Jintao and Danone Chairman Franck Riboud. In an attempt to encourage resolution, the two governments put pressure on both companies to work towards a speedy and amicable solution. This prompted Wahaha and Danone to release a joint statement where they agreed to suspend all legal proceedings and begin a more constructive dialogue.
The consequences of the disagreements have so far cost Danone €19 million a month in sales. However, as soon as there was news of resolution, its shares went up 5%.
The joint venture has in the past been used as an example for companies wishing to gain a foothold in the Chinese market. The example has now broadened to include some of the risks involved and will hopefully be completed with solutions on how to solve problems like those facing Danone and Wahaha.