Joint Ventures

The business reasons for a joint venture include synergies without the expensive price tag of the integration aspect. There also could be the transfer of know how for a market share. But a very critical reason is to gain entry into a foreign market, where the host company might not necessarily have operations before. And, that is also the reason the cultural aspect of the equation is very important. Another reason is foreign ownership isn’t completely allowed by the government.

Wall Street Journal's announcement that Danone and Wahaha are breaking up the joint venture and going their separate ways raises an interesting set of questions.

If the joint venture was successful for 12 years, can we attribute the problems to cultural issues? Probably not. These kinds of issues typically do not take that long to surface.

Could it mean that now that Danone has made its entry into the Chinese market, it is more beneficial for Danone’s bottom line to operate as an independent brand? Will claiming brand independence result in more brand ubiquity?

If Wahaha has control of a number of factories outside the joint venture, is this part of the joint venture agreement? If yes, why the objection now? If not, why did this not come to light before?

What is the legal recourse for both the parties of this joint venture?

As the article suggests, there are questions surrounding the valuation of the venture itself. It will be interesting to see how this case unfolds. Joint ventures or alliances are sometimes the way to go when companies don’t go the way of a merger or an acquisition. As to the success of such ventures, I do not think the results will swing the pendulum enough to speak to the viability of such ventures. But, maybe it will provide us with valuable lessons going forward, especially in the case of cross border ventures, be it a JV, an acquisition or a merger.

The complete WSJ article can be read here.