People who follow foreign companies in China are well aware of the challenges that Danone has had in that market over the last few years. We’ll never quite know why Danone’s joint venture relationship went sour (not good for a company dealing in dairy products…) but it may not be completely unfair to assume that it often takes two to make and two to break a relationship. The simplistic and official story is that Wahaha reneged on a deal to let Danone buy the majority stake in the joint venture, after which Danone filed for arbitration and then took legal action. It probably was right there when the real trouble started. In China, you don’t sue your partner before a court of law, you chit-chat it out. But there was definitely more to it, including the fact that the Chairman of Wahaha, Mr. Zong Qinghou didn’t exactly appreciate the tight shackles that Danone placed on him in all business decisions – not recognizing that China is a market that often calls for entrepreneurial approaches rather than the central control that French companies are known for.
But these are things past. More importantly, Danone seems to be in the middle of its next quagmire. Granted, it was unfounded allegations of contamination that caused their Dumex baby food division to recall baby formula on a large scale, but the allegations of price fixing in the same product market were very real and ended in a fine ordered by Chinese courts (a total of $ 110 mio including five other companies) and more negative press by the media which is just waiting for Danone to get more scrambled egg on its face.
Then, as the Wall Street Journal reported last week, Danone’s Nutrica unit, a division which specializes in medical nutrition, had to deal with allegations that it bribed more than 100 doctors at more than a dozen hospitals in Beijing. How much more does Danone want to work on the image of the ugly, imperialist company? If that’s their goal, they can stop, because they have succeeded! If not, they can stop, too, because it is time to embark on a focused campaign to restore their own image and that of Western companies in China in general. And if they don’t care about image (let alone about being a good corporate citizen), maybe Danone should simply look at their challenges in China from a bottom line perspective as sales are already declining.