How to Avoid Getting Burned in China and India

The recently concluded Danone (DANOY)-Wahaha feud holds important lessons for any company on how to structure and manage strategic partnerships in markets such as China and India.

In the late 1990s, France's Groupe Danone entered into several joint ventures with Hangzhou-based Wahaha Group to pursue opportunities in China's beverage market. Although Danone held a 51% ownership stake in the JVs, it assigned only a handful of managers to work in them. As a result, its control over and visibility into their operations and finances appear to have been extremely limited. Real control rested with Zong Qinghou, founder and chairman of the Wahaha Group and, by all accounts, a brilliant entrepreneur. The feud surfaced in 2007 when Danone alleged that Zong's independently owned companies had been manufacturing the same products with the same trademarks as the JVs, selling them through the latter's sales and distribution channels. The dispute ended in October 2009 when Danone agreed to sell its stake to Wahaha at a 21% discount to the book value.