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

At the outset of a joint venture in China, three different agendas exist: the agenda of the foreign partner; that of the Chinese partner; and that of the newly created joint venture itself. The most successful of the joint ventures in which we have been involved are those in which both our interests and those of our Chinese partners have been aligned and largely subordinated to our common interests in those ventures.

While creating a shared vision in a joint venture is essential to long-term success, it is also one of the most difficult objectives to accomplish. In our case, it required that my company ASIMCO’s overall activities in China be organized to not only meet our own corporate and investment objectives, but also to create a win for our Chinese partners. Likewise, it required that our Chinese partners be single-minded in ensuring that nothing be done at the local level to undermine the fundamental integrity of the joint venture. In Danone/Wahaha, it appears that both parties have operated relatively independently throughout the life of the joint venture, and that little effort has been made to create a common, shared vision.

Think of the dynamics in a joint venture as three overlapping circles. The less overlap there is among the three circles, the more fragile the joint venture, and the easier it is to break apart, whatever its size; the greater the overlap, the better the chances for long-term success. No matter how compelling the business case for cooperation, the circles will only begin to overlap if the individuals involved from both parties are determined to achieve that result. A win/win on paper can only become a reality if both parties want to make it happen.

When the Danone/Wahaha joint venture was completed in 1996, Wahaha was already a successful company. Mr. Zong is a powerful and charismatic leader in the tradition of Chinese leaders who have built leading companies during this period. He is quoted as saying that he is the number one and that there is no number two in his company. Given that Zong built Wahaha over a nearly 20-year period, the natural allegiance of the Wahaha’s managers, employees, customers, distribution channels, and the local government is to him. Zong represents a very powerful circle of interests within China, so it should come as no surprise that those involved in the daily operations of the company have lined up behind him in the current dispute.

Danone in its own right is a very successful company that has ambitious plans for the China market. After entering into the joint venture with Wahaha, it subsequently created a series of beverage joint ventures in China, some of which Zong and Wahaha might have viewed as competing with Wahaha. Satisfied with the profits from the joint venture, Danone effectively “outsourced” the management to Zong and left him to run his own show. Danone admits to having no management representatives at Wahaha, and there appears to have been little effort to integrate Wahaha’s operations into Danone’s larger China strategy. Through the life of the joint venture, the Zong and the Danone circles have remained largely separate. 

If Danone did not have ambitions for China beyond Wahaha, and if it were willing to build its business exclusively through the joint venture, this model might have continued to work for some time. Since neither was the case, it was only a matter of time before a collision of the two competing interests occurred.

What could Danone have done differently? If the company’s objective was to use Wahaha as a basic building block in its strategy for China, then it should have communicated this to Zong and the management of Wahaha and obtained their buy-in. To the extent that other operations were acquired in China, a significant effort should have been made to explain to Zong and his management team the benefits this might bring to the joint venture. And definitely efforts should have been made to create a true joint venture management team, rather than one that was singularly loyal to Zong.

Until these recent troubles came to light, the Danone/Wahaha joint venture was hailed as one of the most successful in China. While it certainly has enjoyed financial success, achieving both growth and profitability, it is now apparent that neither party made a significant effort to establish a firm and lasting foundation for the cooperation.

No comments yet... Be the first to leave a reply!