The escalating rancor between Wahaha, China's leading beverage company, and Danone, its transnational partner, seemingly marks a further step toward an outcome in which both sides will suffer.

No matter what the final result, it is already a case from which both Chinese and foreign enterprises can draw numerous lessons on how to cooperate and compete in the domestic market.

For starters, financial failure is not the only cause of international business marriages turning sour. Ownership conflicts can also lead to the collapse of one of the most commercially successful joint ventures.

However, as long as this bitter battle between business partners is fought in a way that respects legal contracts, it can boost the confidence of investors from home and abroad in the ongoing improvement in China's business environment.

Last week, French food and beverage giant Groupe Danone SA filed a lawsuit in the United States against two companies involved in the dispute with its Chinese joint venture partner Wahaha.

The French group has accused Zong Qinghou, Wahaha's founder, of setting up a parallel sales company to distribute drink brands controlled by the joint venture in violation of their joint venture contract. Wahaha accused Danone of coercing the Chinese company into accepting terms, which go against Wahaha's interest.

In response to the lawsuit, Zong resigned as the chairman of the joint venture. Earlier this year, Zong told the media that Danone had made a bid to acquire Wahaha's non-joint ventures for 4 billion yuan ($520 million), appealing to the public to protect the domestic brand.

The complexity of the joint venture operation makes it difficult to sort out the legalities of the dispute.

Without Zong, who had strong management control of the business, Danone may also have to do more damage control before making profits.

A win-win solution is always the best outcome. But when it is impossible, the dispute must be settled according to the agreements spelled out in the contracts. After all, widespread respect for legally binding contracts is of greater value to the business community than the success or failure of one enterprise.

(China Daily 06/11/2007 page4)

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