by: John Caddell

The benefits and risks of partnership are on display in the dispute between the French company Group Danone and its Chinese partner, Mr. Zong Qinghou, as outlined in a front-page article in today's Wall Street Journal.

The good news? According to the Journal, Danone was able to expand more quickly than it would have otherwise, and at lower capital expenditures, by using joint-venture partners rather than going it alone. For example, partnering with Mr. Zong in 1996 to grow the Wahaha brand in China allowed Danone to command 23% of the Chinese beverage market by 2006--a larger share than Coca-Cola.

The bad news? They weren't able to control their partner. Allowing Mr. Zong an unusual degree of autonomy and flexibility to enter into side agreements, he created twenty other beverage companies that produced and sold products under the Wahaha brand--without having to share the proceeds with Danone.

So, did Danone make a mistake entering into this type of arrangement in the first place? No, they say:

Laurent Sacchi, Danone spokesman, said it needed to use joint ventures because it lacked the management depth and size to grow quickly, particularly in fast-growing emerging markets. "If we now have 30% of our sales in emerging markets and we built this in only 10 years, it's thanks to this specific tactic," he says. "We have problems with Wahaha. But we prefer to have problems with Wahaha now to not having had Wahaha at all for the last 10 years."

Entering a new market alone = costly, slow, lots of control
Doing it with a partner = fast, cheaper, much less control

Pick your poison.

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