Over the 30 years of reform and opening up, there was a long process of integration between globalized international rules and traditional Chinese business thinking. Among the highs and lows, the 'Wahaha-Danone dispute' between Hangzhou Wahaha and France's Danone stands out as the largest international commercial war of that era.

This article focuses on: Zong Qinghou and Emmanuel Faber. The 30 years of reform and opening up were an era of rapid economic development in China, and also an era when Chinese business circles went global. Over those long 30 years, the vast Chinese market gradually opened up. The integration of globalized international rules with traditional Chinese business thinking was a long process, with both joys and sorrows. But one event that cannot be missed is the 'Wahaha-Danone dispute' between Hangzhou Wahaha and France's Danone, hailed as the largest international commercial war of the 30 years of reform and opening up.

The French company struck first. In April 2007, Danone's Asia-Pacific President Emmanuel Faber demanded to acquire 51% of the shares of non-joint-venture companies under the Wahaha Group for 4 billion yuan. These non-joint-venture companies were established by Wahaha founder Zong Qinghou on the basis of state-owned enterprise and employee holdings. These non-joint-venture companies, which had been using the Wahaha trademark, brought Danone huge profits every year.

But the stubborn Faber believed that the existence of these non-joint-venture companies took away market share and profits that should have belonged to the joint venture, so Danone struck first. Zong Qinghou naturally would not agree.

In 1989, Zong Qinghou founded Hangzhou Wahaha Nutritional Food Factory. Two years later, Wahaha merged with Hangzhou Canned Food Factory and was reorganized into Wahaha Food Group Company. In 1994, responding to the national call to support the resettlement of migrants from the Three Gorges reservoir area, Wahaha invested in the development of the western region, merging three struggling enterprises in Fuling District, Chongqing, extending its reach into the southwest, and gradually expanding nationwide. In 1996, Wahaha formed a joint venture with Danone, the third-largest food group in Europe. Danone invested US$45 million and 50 million RMB in trademark transfer fees to obtain 51% of the joint venture's shares. Although the trademark transfer agreement was not approved by the State Trademark Office, the two parties signed a "Trademark License Contract" three years later. Under that contract, the joint venture obtained exclusive rights to use the "Wahaha" trademark.

In Zong Qinghou's view, at the time he was eager to resolve Wahaha's identity issues, and being an "outsider," he was "taken advantage of" and signed an "unequal contract." Ten years later, the other party not only failed to enjoy the benefits peacefully but also wanted to seize the brand he had created with his own hands. It was simply too much!

In fact, in the summer of 2005, Faber was sent to the Asia-Pacific region as president. At that time, Faber had already quietly begun investigating Wahaha's non-joint-venture companies for infringing on the Wahaha trademark, as well as conducting a personal investigation into Zong Qinghou. The findings shocked Faber: Zong Qinghou had been developing off-balance-sheet non-joint-venture companies since 1994, and by then there were more than 40, with total assets of 5.6 billion yuan and profits as high as 1.04 billion yuan, even higher than the joint venture's performance. In addition, Zong Qinghou himself owned several offshore companies.

The new president, who had served as Danone's CFO for three years and was known for his rigor and stubbornness, immediately concluded that these companies were in competition with the joint venture and used the Wahaha trademark without permission, making them illegal.

Zong Qinghou was caught off guard by this sudden attack. In a panic, he signed a preliminary agreement at the end of 2006, agreeing to sell 51% of the shares of the non-joint-venture companies under his control to Danone.

Ten years later, evaluating Faber's decision, it can be said to be justified. With the contract in black and white, Zong Qinghou was not in the right. But if we consider motives, Danone indeed had suspicions of "hostile acquisition" by exploiting information asymmetry. Of course, who was right and who was wrong cannot now be judged, so we will leave that aside. As the third-largest food company in Europe, Danone had extensive influence in the global FMCG industry.

Zong Qinghou turned the tide. Danone's aggressive moves angered Zong Qinghou. In April 2007, Zong Qinghou brazenly tore up the agreement and made the matter public, accusing Danone of deliberately setting a trap to force a merger of Wahaha.

After the conflict escalated, the two sides quickly fell into endless mudslinging. Danone accused Zong Qinghou of breaching the contract. Zong Qinghou, even more cleverly, accused Danone of using international capital to forcibly seize a "national brand."

At that time, in 2007, the whole country was fervently preparing for the Beijing Olympics, and it was also the 30th anniversary of reform and opening up, a period when Chinese national pride was at its strongest. Public sentiment surged, and well-known national brands like Jianlibao voiced support for Zong Qinghou. Some experts even declared: "Our national brands are at their most dangerous moment!"

Just like Mao Zedong, whom he admired most, Zong Qinghou used the method of "people's war" to drag Danone into unknown territory.

However, Zong Qinghou, once the mainland's richest person on the Hurun Rich List, was not just impulsive. Beyond the war of words, he had a trump card: channel resources. In other words, Wahaha's current position was entirely due to the channel resources built by Zong Qinghou.

As a representative of Chinese-style businessmen, Zong Qinghou naturally had a touch of the underworld. At every Wahaha distributor conference, Zong Qinghou often personally toasted each table of distributors. He maintained a brotherly relationship with them, which made distributors deeply grateful.

More importantly, following Zong Qinghou, distributors had "meat" to eat. A distributor once revealed the magical changes in his sales revenue after following Zong Qinghou: in 2003, it was only 360,000 yuan; in 2004, it jumped to 8.03 million yuan; in 2005, it reached 16 million yuan; and in 2006, it reached 24.96 million yuan.

In stark contrast, after Danone took over Lebaishi, it introduced a "harsh" market strategy: if distributors did not continue with Lebaishi the next year, they would not receive the previous year's rebates, and the rebates were calculated per product, with only 7% of the rebate deductible in the second year.

Following Zong Qinghou meant eating meat in big bites; following Faber meant picking at scraps. Distributors were not fools. After the incident, the channel side responded overwhelmingly in support of Zong Qinghou.

Moreover, after Danone entered Wahaha, it did not send any senior executives to participate in Wahaha's daily operations. It only gave the joint venture its identity, while daily operations remained with the old team. To put it metaphorically, to gain a legitimate status, Zong Qinghou gave Wahaha, like a poor child, to Danone for adoption. But Danone ignored Wahaha's growth. After Zong Qinghou raised Wahaha, Danone came to snatch the child away.

No one would be happy about that. The stubborn Zong Qinghou naturally refused to accept defeat. He pulled out his trump card.

Faber's full-scale attack. While Zong Qinghou was active on both the media and distributor fronts, Faber remained unusually calm. He firmly seized on Zong Qinghou's fatal weakness of breaching the contract and took a series of tough measures: issuing a 30-day ultimatum to Zong Qinghou, demanding action against the non-joint-venture companies; after Zong Qinghou resigned, he quickly took over the chairmanship of the joint venture without the consent of the Chinese directors; launching large-scale legal proceedings, suing Zong Qinghou personally as well as his wife and daughter; and preparing to implement a cleansing policy, demanding the replacement of 300 managers in the Wahaha joint venture.

The Frenchman even threatened to make the 63-year-old Chinese entrepreneur spend the rest of his life in litigation.

Danone launched lawsuits against Wahaha around the world. Danone even sued Zong Qinghou's wife Shi Youzhen, daughter Zong Fuli, and two unrelated companies in a California court in the United States on charges of "intentional interference with prospective economic advantage and negligent interference with prospective economic advantage." The California court dismissed the lawsuit on the grounds of forum non conveniens, requiring them to file suit in Chinese courts.

This relentless behavior completely enraged Zong Qinghou. In June 2007, Zong Qinghou issued a resignation letter of more than 5,400 characters, resigning as chairman of the joint venture, and declared: "At worst, I'll start a new business!" In addition, Zong Qinghou also filed a series of lawsuits against Danone in the Hangzhou Arbitration Tribunal, the Hangzhou Intermediate Court, and courts in Shenyang, Jilin, Yichang, Guilin, and other places.

This fierce battle hurt Wahaha the most. After the two sides clashed, Wahaha's brand was greatly damaged, and the company's performance plummeted. The Wahaha-Danone dispute hurt Wahaha the most.

High-level talks between the two countries led to peace. Danone's aggressiveness did not bring it much benefit; instead, it triggered widespread public dissatisfaction. In addition, several lawsuits at home and abroad ended in defeat, and Wahaha's performance suffered irreparable damage. Danone's senior management began to realize the situation was unfavorable and sought alternative solutions.

As the third-largest food group in Europe, Danone had deep political connections in France. Its current CFO, Antoine Giscard, had an uncle, Valery Giscard, who was a former French president. Through government lobbying, then-French President Nicolas Sarkozy intervened and discussed the matter with the Chinese government.

On November 26, 2007, Chinese President Hu Jintao and French President Nicolas Sarkozy held a close meeting in Beijing. According to relevant media reports, the Wahaha-Danone dispute was also on the agenda. Both leaders hoped the two sides would reduce friction and achieve greater success in economic and trade exchanges.

Because of the involvement of the two governments, it was inevitable that the Wahaha-Danone dispute would end in peace talks.

With the mediation of the Chinese Ministry of Commerce and the French Embassy in China, on December 21, 2007, Danone and Zong Qinghou finally reached a consensus. Two years later, both sides announced that Danone would transfer its 51% stake in the joint venture and withdraw from Wahaha. After the settlement agreement was executed, both parties would terminate all legal proceedings related to the dispute.

A commercial war in which Danone sought to acquire Wahaha's non-joint-venture companies for 4 billion yuan ultimately ended with Wahaha's counter-acquisition. After paying hundreds of millions of yuan in legal fees, Danone exited in defeat.

At the beginning of this commercial war, some worried that Faber might be transferred back to headquarters because of his overly tough tactics. At the time, Faber dismissed this, joking: "I will not leave China. If I am not in China, it must be that I am on vacation, traveling with my family for fun."

However, ten months later, Faber was promoted to Chief Operating Officer of the Danone Group and returned to Paris.

Zong Qinghou, who won the lawsuit, jumped to the top of the Hurun Global Rich List for the mainland. During those two chaotic years, the Chinese beverage industry was hit by the shocking "melamine" incident, and Wahaha failed to seize the opportunity to leap forward.

Also during those two years, JDB, which also lost a trademark lawsuit, rose to prominence and became a new star in the FMCG industry.

One cannot help but sigh:

The Yangtze River flows eastward, its waves washing away heroes.

Right and wrong, success and failure, turn empty in an instant.

The green mountains remain, and the sunset glows red several times.

Source: FMCG Distributor Internal Reference (ID: kxpjxsnc)

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