Strategic Alliances: Danone and Hangzhou Wahaha Partnership

Case Study Questions: Strategic Alliances
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Case Study Questions: Strategic Alliances
Brief Introduction
The competitive business environment compels firms to embrace various strategies, including entry into new markets to improve their market share and ultimate profitability or revenue. Multinationals often embrace new entry strategies ranging from direct exportation and licensing to joint ventures, mergers and acquisitions. The 1996 business agreement between French food firm Danone with Chinese milk-based beverage firm Hangzhou Wahaha is an example of a joint venture, while the Nissan and Renault partnership was an alliance that was meant to facilitate entry into new territories, access a considerable client base, gain access to influential intellectual capital, reduce risks, and compete in their respective industries. This paper discusses the Danone and Hangzhou Wahaha partnership, including the types of alliances that would guarantee considerable success.
Background of the Case
The case study reveals that in an attempt to gain access to the Chinese market, French food firm Danone embraced a joint venture with Hangzhou Wahaha. The agreement included having the Chinese firm produce bottled water. Zong Qinghou, a local entrepreneur, controlled the Chinese beverage company. Importantly, Hangzhou Wahaha agreed to contribute its trademark and a handful of its subsidiaries in exchange for owning 49% of the partnership. Trademark is one of the intellectual properties that firms are exposed to in the case of multinational operations and can yield significant success, including increased sales based on the existing firms’ reputation and the ability to minimize risks, especially in a new market. However, the Asian Financial Crisis in 1998, two years after the agreement, invited unprecedented difficulties for shareholder company Peregrine (Hong Kong investment firm), resulting in Danone’s acquiring its shares. The same year, Danone assumed control of JV’s board. However, Zong Qinghou still ran JV operations. By 2007, JV’s collapse was inevitable following the fallout between Hangzhou Wahaha and Danone, despite the success of the bottled water brand that was pivotal in the partnership. Danone insisted that its partner was responsible for the collapse of JV, citing competition from its subsidiaries under the influence of Zing Qinghou. The French firm alluded that the subsidiaries exploited the same distribution network and trademark, thus affecting its success and market dominance. In retaliation, Hangzhou Wahaha claimed that its partner invested in local beverage firms, which affected its success because of imminent competition. Additionally, the Chinese firm claimed that Danone’s board representative lacked considerable understanding of the nature of business in China. Zong eventually left JV after the legal action against him failed to yield in favor of Danone. In turn, the workforce did not cooperate with the new appointee from Danone, which forced the French firm to sell its business and interests back to Hangzhou Wahaha, signaling an end to the joint venture partnership.
Analysis
Initially considered only as a means of securing market access, alliance today are an integral part of global strategies in all parts of the value chain. What alliances are needed to generate new knowledge that deems increasingly important?
Alliances are currently exploited for market access and other benefits, including access to a considerable value chain. The objective often includes facilitating access to intellectual property and other resources, such as top talents, that can help achieve intended organizational goals. In the case of Danone and Wahaha, the objective was to gain access to the market and, in the process, exploit the trademark to achieve considerable market success, often characterized by access to top talents and knowledge that can enhance market leadership. According to Drewniak and Karaszewski (2020, p. 389), “alliances that contribute to generating knowledge are identified as searching alliances (research and development agreements)….” This exposes the firm to market demands, including consumer demographics and how they influence success in a new market, which can be tied to the generation of new knowledge. Importantly, the alliance’s duration and the company’s size inform the success of the above process.
Alliances are mostly transitional entities; therefore, longevity is a poor measure of success. The aim is not to preserve at all costs but how to contribute to the organizations competitive position?
According to Brinster (2021), multinationals in a globalized world are more likely to embrace alliances because they are a cheaper alternative to other market entry strategies such as mergers and acquisitions, fasten access to a new client base and intellectual property, and minimize risks. Organizations that embrace alliances do not rely on longevity as a measure of success. In fact, the objective does not include preserving the partnership at all costs; instead, it ensures the alliance yields a competitive position. In the case of Danone and Wahaha, had Danone chosen to preserve the alliance at all costs, its financial position and organizational reputation, which depends on supportive employees that work collaboratively with the leadership to achieve organizational objectives, would have been affected negatively. The settlement of $2 billion would have been lost had Danone chosen to preserve the alliance and ultimately achieve longevity, even though it was evident the partnership had failed, resulting from conflicts and tensions. The above claim is reiterated by Franco (2011), who asserts that determining the success of a strategic alliance includes factors such as competitive positioning and successful market entry. As such, a shorter lifespan which is prevalent in the alliance because of the prevalence of competitors is entirely influential.
There are four types of alliances: complementary, learning, resource, and competitive. Alliances are dynamic, migrating from one strategic orientation to another. Very few alliances remain complementary for long. Alliances among competitors are increasingly frequent, but they are also the most complex and why?
Complementary, learning, resource, and competitive are the four main types of alliances. In fact, “strategic alliances are an important source of resources, learning, and thereby competitive advantage (Ireland et al., 2002, p. 414). One can argue that more often, alliances do not say complementary for a considerable duration because it involves a contribution of assets that are different and can easily invite conflict, including Danone and Wahaha’s that included competition for the market (Angwin & Sammut-Bonnici, 2015). Importantly, competitive alliances are considered the most complex. In this case, there is a risk of direct competition between the partnering firms, which impedes the ability to establish common grounds for cooperation. In fact, conflict is likely to arise in competitive alliances compared to others, such as resource-based or learning. In the case of the Danone and Wahaha alliance, one can conclude that eventually, the alliance transitioned to mistrust because both parties claimed there was direct competition for the market. As such, conflict and dispute are inevitable, which, unfortunately for Danone, the legal action did not yield because the trademark transfer was not authorized. Also, the conflict resulted in the resignation of Zon...