Situation Analysis
The case between Danone v. Wahaha was controversial, but sometimes expected in joint ventures. In essence, breach of contract is an insincere act by the so called dominant company due to vested interest and greed for control of stake in the joint business operation (Daniels, Radebaugh and Sullivan 32).
The giant company would like to keep its dominance in decision making and resource allocation, thus could practice double standards, while dealing with its partner in the merger. In such cases, the other party would not have any choice, but to seek legal means of addressing the stalemate. This is the exact situation in which Danone Food Company from France found itself in, as presented in this case, when it realized that its partner, Wahaha Beverage Company violated their contract.
Considering the case, the shared operation gave Danone a 51 percent shareholding in the joint company. Since the company had become the leader in manufacturing and distributing bottled water, it considered having a working partnership with Wahaha Company. However, Danone realized that the latter company was bottling and selling drinks as a separate entity without informing its partner, thus violating the previously signed agreement.
The businesses were almost related, thus the two companies agreed to work together in a non-competitive manner. In this regard, trading secretly in a similar business was against the spirit of the agreement because it could jeopardize the operations of the joint venture (Hill 59).
The secret bottling and selling of drinking water could compromise the quality of the product, a situation that might have caused the production of much litres of water, which were seized for safety concerns. This raised issues of water quality that the joint venture was producing and Danone Company thought this was a form of betrayal in its business endeavor. Here, the questionable water quality was linked to the operations of Wahaha Company, even though the reality about the bacteria that was found in the bottles.
The other situation that the joint venture found itself in was the struggles between the competing interests, in which Danone considered its opponent to have violated the contract they signed, while Wahaha took its partner to be interfering with its operations and profitability.
The situation was complex because Wahaha applied for arbitration in the case whereas the opponent acquired a court order to freeze the assets of ten companies associated with Wahaha. In this situation, once the contract was signed, it bound the two companies to comply with its provisions until they agree in writing to dissolve the contract (Daniels, Radebaugh and Sullivan 32). Therefore, whether the government approved it or not, each party accepted to work with one another in a non-competitive and mutual manner.
Strategic Issues
One of the strategic issues was to resolve the breach of contract that Wahaha Company secretly committed despite signing an agreement to work together without competition. In this case, a contract is binding and once agreed on must not be violated at all cost. The two entities agreed to work together and had to uphold the ethical issues regarding the contract (Hill 102).
The other strategic issue that raised concern was Zong’s claims that the exclusive and non-competition agreements were unfair. This was indeed hypocritical owing to the fact that he actually agreed to sign the contract to have a joint venture and not to compete with Danone Company products directly.
If he knew that the agreement was unfair, he could not have accepted the offer to work together and pursued his business interest alone. His media attack against the partner, purporting to be in the spirit of Chinese nationalism was unjustified since it promoted discriminatory and immoral business dealings” after binding himself in the contract (Angwin 18). In this case, the common venture was trading in water and beverages and thus, Zong neither had legal nor moral rights to trade in bottled water.
The other issue that stood out in the case study was the controversial resignation of Zong, who was the group’s chairperson. In fact, the act was not supported by facts, but based on unnecessary claim that the partner was ruining reputation. This was unjust because he was supposed to follow a better means of conflict resolution in case there was any (Wild and Wild 104).
Considering the agreement, Danone Company had 51 percent share in the joint venture, meaning that it had an upper hand on the management and decision making in the new company. The “bullying and slander” accusations he labeled against his partner and remaining adamant that “he would make sure that Danone does not win for sure and his company does not lose for sure” could be treated as double speak and was not supported by reliable evidence.
Another issue that significantly featured in the case was the competition that Wahaha Company experienced when Danone Company launched its business operations in the Chinese market. Wahaha claimed that by investing in major Chinese drinks companies, the foreign business entity had interfered with its performance in the local market, thus it needed compensation. This issue raises the question of fear for business contest because a company should devise measures to compete with the opponent fairly, without signing an unviable contract (Angwin 45).
In this case, the other strategic issue that featured prominently was lack of consultation among the Wahaha’s affiliate companies before it signed the contact. This means that the agreement was not inclusive and Zong committed to it without involving other stakeholders (Wild and Wild 106). This was evidenced when Mengnui Dairy Company made it official that it did not agree to the terms of the joint business
Recommendations
It is recommended that before signing a contract, the parties involved should read and understand the terms and conditions. When, the terms are clear, managing conflicts become very easy instead of resorting to an industrial action that might compromise the business operations and reputations of the wrangling companies (Ricky and Pustay 24).
In this case, it seemed that Wahaha Company entered an agreement that it did not understand, neither was it aware of the implications of the contract. This is a form of business insensitivity that is not acceptable in international trade between two corporations, which have formally agreed to work together. Similarly, the management of Wahaha group of companies should understand that going against the agreement is a crime and not an ethical business practice in International trade.
Other than opting for a direct legal option to resolve the issue, the other strategic recommendation would be to use arbitration as the aggrieved company resorted to have Stockholm to mediate the issue. The intermediary was to look at the information carefully and make impartial decision on the controversy that threatened the business relationship between the two companies. In attribution, the best way would be to compromise the interest of each interested party so that none loses its investment in the joint venture.
The success of a business depends on its ability to have the bargaining power in the local market, and where the decisions are arrived at in an inclusive way. In such cases, the business interests should override the individual interests of the entities working together.
Therefore, Danone Company should not aim at dominating the joint operations and subordinating the activities of the partners because this could create unnecessary tension during the implementation joint business activities. On the other hand, the Wahaha group of companies should not take home advantage to humiliate the business partner during the business transactions.
Since a contract is binding, no party should go against the provisions and should seek amicable way of handling the situation. In this regard, the other strategic recommendation would be that the joint venture should have a conflict resolution mechanism to determine the emerging issues of self interest without compromising the activities of the joint venture.
This means that the two companies opting to work together would have a way of channeling their grievances, thus solving the internal wrangles without waging war publicly against each other. Therefore, instead of finding ways to attack and counter attack the opponents, each party would strike a compromise by negotiating the best option. However, if all the internal attempts to resolve the matter fail, the best option would be to seek legal intervention properly without applying double standards.
Works Cited
Angwin, Duncan. Mergers and Acquisitions, New York, Wiley, 2007. Print.
Daniels, John., L. Radebaugh and D. Sullivan. International Business, Upper Saddle, NJ: Pearson-Prentice-Hall, 2010. Print.
Ricky and M. Pustay. International Business (Global Edition), 6th Edition, Upper Saddle, NJ: Pearson-Prentice-Hall, 2010. Print.
Hill, Charles. International Business, New York, NY: McGraw-Hill, 2010. Print.
Wild, John and K. Wild. International Business (6th Edition), Upper Saddle, NJ: Pearson-Prentice-Hall, 2010. Print.