One of my favorite programs is “Managing China” (schedule) on CNBC World. Managing China is a weekly CEO interview program co-produced by CNBC and China Business Network in Shanghai. The program is in Mandarin, with English subtitles.
This week’s interview is with Emmanuel Faber, head of Danone Asia’s operations, addressing the public freud with Wahaha’s longtime chairman, Zong Qinghou. This Article in the NYTimes summarizes some of the disputes. While watching the interview with Faber, it occurs to me that Danone will never win this fight, regardless of who is right and who is wrong. Danone is fighting a legal battle while Zong is fighting a practical one. What is Danone going to do without Zong? Apparently nothing much – Like they teach in business school, in any negotiations, you’d have to know what your BATNA (stands for Best Alternative To Negotiated Agreement) is. Danone does not have much of a BATNA and Zong is well aware of it.
Zong’s responses in public reflects a common sentiments of Chinese entreprenuers:
1. “Such an agreement is ‘not fair” because it restricts Wahaha’s growth while letting Danone acquire Wahaha’s rivals” – Here, history plays a part. China has historically entered into many unequal treaties as part of war settlements. In China negotiations, I’ve encountered the concept of fairness often. If you have these rights, we want it too.
2. “Danone invested 1.5 billion yuan (US$194 million) in the ventures with Wahaha without actively managing the companies and made a profit of 3.8 billion yuan out of them” – There is little value placed on capital risk, especially when it is from an institution.
The Danone-Wahaha mess also demonstrates the underlying flaw in the JV structure. Both sides entered into agreement with different agendas. Danone wants to build a China presence while Zong wishes to learn best practices from global player. There’s inherant misalignment of interests which makes the JV structure unsustainable.
