Danone/Wahaha: Divine Intervention (Part 6)

Danone LogoWahaha LogoFor some time now, I have been searching the news for an update on the dispute between Groupe Danone, the large French food and beverage group, and Wahaha. The latter is one of China’s most famous privately-owned companies, and Danone’s partner in 39 beverage joint ventures across the country.

After dominating the headlines for weeks earlier this year, all parties seem to have gone underground, and news of the well-publicized dispute has been scarce ever since.

However, suddenly the report that recently elected French President Nicolas Sarkozy, on his first official visit to China, brought up the dispute in his state dinner with President Hu Jintao told volumes.

What it told me is that the dispute must be at a stalemate, hopelessly mired in the legal system, with divine intervention by the nations’ highest leaders seen as one of the only remaining ways out.

Enlisting the help of senior government officials from your home country to intervene and help resolve a dispute in China, or to push a deal approval over the finish line, is a tactic that has been used ever since the country opened up to the outside world. I can admit to resorting to this tactic myself, and companies like Airbus and Boeing use it all the time to clinch deals for new aircraft orders. My contacts tell me that General Motors used a visit to Beijing by then Vice President Al Gore to maximum effect as a way to obtain approval for Shanghai GM’s highly successful assembly joint venture in China.

How effective is this tactic? It’s probably works better to solidify new deals than it is as a dispute resolution mechanism. Visits by top governmental officials from another country are big news anywhere, but they are especially big in China. Every visit by the head of a large foreign power underscores China’s arrival as a major global force, and a country to be reckoned with. President Sarkozy’s visit last week was particularly notable because it occurred so early in his administration. Past practice by French presidents has been not to visit China until after at least two years after taking office.

With all of the fanfare surrounding these high-level state visits, it’s in everyone’s best interest for all to go smoothly and this means giving everyone “face.” China wants to show its graciousness as a host and its good will to the country of the visiting dignitary, so it accelerates the approval of every deal in the pipeline.

The visiting dignitary wants to show his constituents back home that he is effectively working on their behalf, so his or her staff have added incentive in the weeks ahead of the visit to lobby the Chinese officials hard for approvals. The result: At the conclusion of the visit, the smiling leaders of both countries jointly announce to the television cameras billions of dollars (or Euros) of new deals, and a spirit of enhanced cooperation between the two countries.

Resolving disputes is another matter, however. Disputes in China tend to be complicated, with each side convinced of its own righteousness. While billions for new Airbus jets and Alcatel-Lucent telecom contracts were announced, there was no obvious progress on Danone. The fact that these disputes even exist and need to be discussed at the senior-most levels of government represents a loss of face for both leaders. No doubt, both President Hu and President Sarkozy had been briefed ahead of time by their respective staffs and received somewhat different versions of events that were biased one way or another.

Given these circumstances, the best one can hope for is that the visibility the dispute received at the top level of China’s leadership is enough to incentivize a lower level official to help resolve the matter. In some cases, this may be just enough to clear up outstanding issues. But in most, I am afraid, a great deal of tough negotiations remain ahead.

Previous posts on the Danone Wahaha dispute:

Danone/Wahaha: Just the Facts, We Think (Part 1)

Danone/Wahaha: A Breakdown in Mutual Trust (Part 2)

Danone/Wahaha: Failure to Create a Common Vision (Part 3)

Danone/Wahaha: Dispute Resolution in China (Part 4)

Danone/Wahaha: Everybody Loses (Part 5)

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  1. Chinese Government And The Courts: Always/Never/Sometimes The Twain Shall Meet | China Law Blog - December 9, 2016

    […] post on the Managing the Dragon blog, entitled, “Danone/Wahaha: Divine Intervention (Pt. 6).” Forget Danone/Wahaha and focus on the divine intervention part. The post is about the role […]