BIZCHINA / Opinion/Analysis
Family feud
By WANG ZHENGHUA (China Daily)
Updated: 2007-06-18 07:02
SHANGHAI: Amicable resolution is still within reach and could be the best
solution for the legal dispute pitting French food and beverage giant
Groupe Danone SA against its Chinese joint venture partner Wahaha.
Despite a series of recent twists and the likelihood of further
complications - some worry employees might take more radical measures
such as going on strike - a peaceful solution can still be foreseen as no
one in the battle can afford the prolonged lawsuits.
The wrangle with Wahaha's founder Zong Qinghou has cast a dark cloud on
Danone's performance on the stock market as its shares have dropped about
10 percent in the past two months.
At Wahaha, employees and distributors' morale and unity are undermined by
attempts to stir up emotions as the peak season for sales has arrived.
But analysts say Danone, instead of taking companies related to Zong to
court in the United States, could learn that an amicable solution is best
after its tough position encountered even stronger resistance from Zong,
who is known for his brash management style and strong personality.
Wahaha employees are also accustomed to the Chinese entrepreneur's
long-time leadership.
Shortly after the Paris-based company filed a lawsuit in the US over
companies run by Zong's wife and daughter for alleged unauthorized sale
of Wahaha products, Zong angrily resigned as chairman of the joint
ventures.
Two days later, an irritated Zong released a harshly worded letter
online, saying he could no longer deal with what he called Danone's
"harassment and smear campaign against him and his family".
"It was very hard to work with people who do not understand the Chinese
market and culture. They only want to take the benefits instead of taking
on risks and carrying out their responsibilities," Zong says in the
statement.
He also accused Danone of resorting to personal attacks when its buy-out
attempt failed.
The departure of the 61-year-old Zong has also ignited further discontent
from some of the Wahaha's employees. In a series of letters, employees
and distributors denounced Danone officials' "ignorance and bullying",
and vowed to stand by "Chairman Zong" and to punish Danone's "evil deeds".
Some enraged joint venture employees even took to the street last week to
protest the alleged hostile takeover and show their dissatisfaction about
Zong's departure.
Without Zong, the French company has nearly lost access to managing the
joint ventures.
"Can you imagine if I'm trying to push open the door of the factories
just to be told that I cannot be there?" says Emmanuel Faber, Danone's
managing director for Asia and interim head of the joint ventures.
The French executive also expressed concerns about the attitude of
management personnel.
"We simply urge people in this situation not to take irresponsible
actions and focus on the day-to-day service to our companies, making sure
our distributors are being served with our products and ensure we are
ready for the high season, which is starting now," he says.
But to his disappointment, many of the company's top executives have
threatened to bolt from the French food and beverage giant and to form a
separate company.
Despite these twists, a peaceful solution can still be foreseen.
Danone has made it quite clear that an amicable settlement is possible
under the right conditions, especially with adequate government support
and guidance.
Currently the Chinese government takes a neutral stance on the dispute,
but Yao Shenhong, a Ministry of Commerce spokesman, said that "we hope
the two sides will not let any chance to solve the dispute through
friendly discussions slip away".
Faber said that currently Danone has no intention of taking further legal
measures against "unauthorized" businesses started by Zong after it took
two of the 20-something companies to court in the US. A channel remains
open between Zong and Danone to address the dispute peacefully.
"In May, we suggested to the Hangzhou municipal government that a channel
of negotiation be opened between Zong and Danone, with a clear process of
discussions and designated persons to do this," Faber said.
"This process existed and may still exist although it has been on and off
during last few weeks. I believe this channel still exists," he said.
Spiking rumors that Citic Group has been involved in the discussions,
Faber stressed that "it doesn't mean it could be (a third party will be
involved) in the future. We are open to a number of variations around a
very simple principle that the status quo is not an option".
Analysts point out that the legal process is something that Zong would
not like to see as well.
In earlier interviews, the outspoken Chinese executive admitted that
non-compete contracts were signed in 1996 that banned the domestic
company from manufacturing identical products or using Wahaha's brand
without Danone's consent.
In a recent letter, Zong made an ambiguous statement about Danone's
application to an international body for arbitration.
"They are not necessarily to win and we are not necessarily to lose," he
said.
The dispute will further develop before a mutually acceptable solution
surfaces, analysts said.
"It might be not a proper time for Danone to withdraw the lawsuit," said
Qu Honglin, general manager of Local Strategy, a Shanghai-based
consultancy. "That will happen after more negotiations are organized by
governments."
(China Daily 06/16/2007 page2)
(For more biz stories, please visit Industry Updates)
Learn Chinese, Chinese Mandarin
