Danone in China

Groupe Danone SA (Danone) founded in 1972, is a French food and beverages company. Its global standing included: world no. 1 in fresh dairy products, world no. 2 in bottled waters, world no. 2 in baby nutrition, world no. 3 in medical nutrition. With 20% of the global market (35% in some countries) and a presence in some 40 countries, Danone leads the global fresh dairy product market.

Danone is headquartered in Paris and is the fifth largest packaged food company in the world. In recent years, the company has refocused its operation into three core markets - water, fresh dairy products, baby food and medical nutrition. Danone is the world's largest fresh dairy company with a thousand cups of Danone offerings being consumed every second around the world. It is the world's leading company in yogurt with 24% value sales in the product Danone.

The company's business development strategy in foreign markets was built on capitalizing on successful local businesses rather than building its own businesses from scratch, resulting in a strong focus on joint ventures and acquisitions. Unlike most multinationals, Danone gave these acquired local businesses a great deal of autonomy. The joint ventures and acquired rms continued to sell their products under their own brands, than using the Danone brands.

In 1986, Danone signed an agreement with Hangzhou Wahaha Group ( Wahaha), a Chinese beverage group. It replicated in China, the alliance strategy used with great success to expand into Italy and Spain in the early 1980s. Danone functioned more like a capital investor, linking its joint ventures through capital investment rather than joint products. The partnership was established to market bottled water, tea and juices under"Wahaha" brand name. The two entities set up 39 Joint Ventures (JVs) in which Danone owned 51% while its Chinese partner had the remaining 49% stake.

This expansion strategy in China worked very well. In 2001, Danone had become one of the largest food concerns in China, with $1.2 billion in sales, more than 50 plants and around 25,000 employees. Forbes magazine then hailed the partnership as a "showcase" for MNC JVs with Chinese companies. The JV was hugely profitably as Wahaha brand became a household name in China and the country became Danone's third largest market worldwide.

In spite of all the success, the relationship turned sour in 2007. A dispute erupted when Danone accused Wahaha, of secretly operating a set of parallel companies that mirrored the joint venture's operations with virtually identical products and siphoned off as much as $100 million from the partnership. The company also accused Wahaha's chairman, Zong, a colorful and brash figure and one of China's richest entrepreneurs, of orchestrating the fraud with the help of relatives and offshore entities. Danone filed many cases in a local court seeking control of the Wahaha brand. Danone's case was dismissed by the Chinese local court and the local arbitration body ruled in favour of Wahaha group, but Danone did not give up. It took the legal battles to other global legal venues.

Zong claimed Danone knew all along what was happening and that it was simply trying to get hold of the companies cheap. He also claimed Danone was violating the spirit of their agreement by setting up JVs with other Chinese companies. Zong unleashed a media campaign accusing Danone of being a bullying foreign power. Local distributors and employees came out in strong support of Zong, calling for a national boycott of Danone products. The "nationalist" backlash in Chinese media was damaging Danone's reputation in China.

In 2009, Danone resolved its long-running dispute with Wahaha agreeing to exit the venture by selling its 51 percent stake in the Group. Danone had agreed to an amicable split, with Wahaha agreeing to pay cash to acquire Danone's 51 percent, giving the Chinese company control of the venture. Thus ending a prominent joint venture between the French food giant and a Chinese company that grew into a $2 billion beverage behemoth and one of China's best-known brands.

Question: Was entering into a Joint Venture the best strategy for Danone's entry into China? What are the other modes of entry Danone could have considered?