What Options Are Available for Danone? and for Wahaha? What Do You Think Will Happen Next?

Corporate Strategy - Danone Case : Write Up Shireen Priyanka Lal

What options are available for Danone? And for Wahaha? What do you think will happen next? (write-up question):

As per the case, both parties agreed to work together to develop all entities operating under the Wahaha brands and contribute to develop the Sino-French friendship. I have developed a framework (refer appendix) for both companies with the options available for them and have elaborated on the ones that seem more plausible and prudent for each. The Chinese market is crucial for Danone, thus moving out of it should not be considered. The options available for Danone are as follows:

Re-negotiate contract with Wahaha: Maintaining good faith in the Chinese market would be beneficial. There are various ways this can go; Firstly, gaining a majority share and enhancing management in the JV. Secondly, Danone could be financially compensated for the contract breach and a new contract could be established. Thirdly, the company could work on giving an equal stake for both companies in the JV in terms of management.

Explore other mergers and acquisitions in the Chinese market: Through lessons learnt from the Wahaha case, Danone could better facilitate new mergers and acquisitions in China by ensuring more management control. Furthermore, they could also take advantage of the existing synergies of these local companies in terms of supply chain to be more profitable and reduce costs.

Re-establish the Danone brand as a separate entity: With their acquired market knowledge, Danone could now function independently and be more adaptive. This would enable them to cut an intermediary in their value chain thus reducing process and coordination costs.

For Wahaha the following options exist:

Cooperate with Danone: Having stronger market capabilities and position, Wahaha’s argument in terms of their stake in the JV and its control is stronger. On the other side Danone is crucial and Wahaha could only benefit by a maintaining peace with Danone. Managing expectations by proposing an equal stake in the JV would be ideal or they could re-negotiate the existing contract to include a few conflicting non JV companies.

New International partner: Due to their fairly weak presence and recognition in the international market and high dependence on Chinese market; Wahaha could explore other international markets and partners through acquisitions. They could develop their brand independently in these new markets by taking advantage of the acquired company’s existing technologies, knowledge and supply chain.

Product diversification: The company could capitalize on their strong brand equity and recognition in their local market by expanding their product line without hurting the JV. Wahaha could look into sports drinks for instance drinks similar to Gatorade & also into dairy as the industry is likely to grow.