Joint Venture Nightmares...

Filed in archive Entrepreneurship on September 20, 2007

Earlier this month the China Law Blog took a look at the ongoing dispute between the Chinese company Wahaha and the French firm Danone. The dispute has become bitter, and it is a classic example of some things not to do in a joint venture in China.



To hear Steve Dickinson from the China Law Blog talk, the joint venture was probably doomed by misunderstandings and cultural differences from the start. Among my favorite point in his article is the difference in how Chinese and most Westerners view a 51%-49% partnership. In the Chinese mind, that is so close to equal ownership that it seems ridiculous to view one partner as having more of a say in the operations of the joint venture than the other. But in the Western mind, 51% is a majority and the 51% owner is in complete control. If that sort of an arrangement is the intention, Chinese partners usually make the venture a 60/40 or 70/30 arrangement.

The Wahaha-Danone venture is even more complicated because it was originally a three way arrangement with Wahaha having 49% ownership and the other two partners Danone and (at the time) Baidu each had a 25.5% interest in the deal. That made Wahaha the largest owner, and the company saw itself as the venture leader. When Danone bought out Baidu's interest and became the controlling partner, Wahaha didn't seem to understand initially the legal implications.

A host of other issues get looked at in Dickenson's piece. Danone sought to circumvent Chinese trademark law, it appears, and that made its position more tenuous. Some management issues are examined. And Dickenson looks at the arbitration and lawsuits that have taken place over the joint venture in Stockholm, California, and China.

The piece is definitely worth reading.