Wahaha and Danone Gaming on ‘Emotions, Reasoning and Laws’

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Wahaha and Danone Gaming on ‘Emotions, Reasoning and Laws’

After Danone’s request to merge Wahaha and its non-JV companies at a low price resulted in vain, it attempted to exert pressure on us to achieve its acquisition purpose through lodging complaints to State Development and Reform Commission, the Ministry of Commerce of the People’s Republic of China, Ministry for Foreign Affairs, and Zhejiang Provincial government. On April the 3rd, the Economic Information Daily unexpectedly reported the article ‘Mr. Zong Qinghou has regretted’, which revealed the acquisition and anti- acquisition between Wahaha and Danone abruptly to the public, as the prelude of the big medium battle. Since Mr. Emmanuel Faber seek coordination from the Hangzhou municipal government to stop saliva battling and announcing remarks to the medium, Wahaha kept a silent period and avoided medium interviews for the sake of keeping our promise. Furthermore, Economic Information Daily had imposed a ‘regret’ situation on me, on the other side, Mr. Emmanuel Faber organized some ‘educated man’, ‘scholars’, public relations companies to brazenly calumniate, lie, and cook up stories about me, which naturally aroused extremely large indignation among our employees and distributors . Meanwhile, the hundreds of millions of netizens also supported us, seemingly, we were talking argument, not talking regulations, not observing the agreement, but inciting the public. But here we have to remind people that no matter what we choose is arbitration or litigation judgment, the basic principle is based on the facts, you know the facts? You know the detailed contracts? You know what additional contracts and agreements we have signed during the 11 years’ cooperation? Mr. Emmanuel Faber has been in China for one year plus 11 months, but he failed to seriously learn what his predecessor had done. He even forgot what he signed in the No.1 Trademark License Agreement on October 12th, 2005, which allows 27 Wahaha non -JV companies to use the Wahaha trademark. Now he seemed suffering from amnesia to allege that he had no idea about all of these. I am puzzled why some people are kicking up a low with him. As to the accusing of inciting the public, I would like to ask if President Zong is a heinous person with no credibility and integrity, he can incite 20,000 employees, tens of thousands of distributors? I have the capability to buy off hundreds of millions of netizens? Please do not slander them and distort their true sense of justice and nationalism. If the Chinese nation is so without nationalism, how can we rejuvenate our country? Excuse me for my complaining because of the grievances. We get to the business now. We would show the world whether we are abide by the rules and abide by the contract during the 11 years’ cooperation with Danone. Besides, we would like to show Mr. Emmanuel Faber some of our views.

I. The cooperation with Danone is in fact no real effect
The cooperation between Wahaha and Danone has been widely lauded as a model for Sino-foreign cooperation within Danone, the industry and the theoretical world. In fact, it is not the case. Actually the Chinese party’s good wish for effective cooperation comes to no avail. It is actually a cooperation of 11 years of fierce tussle, and a cooperation that is barely maintained by Wahaha to abide by the contract to meet Danone’s investment return requirement. Only a nation like the Chinese nation with tolerance could maintain such cooperation for 11 years. In 1996, when we start our cooperation, we had only less than 2,000 employees, with the annual sales revenue of one billion, and annual profit of 200 million, which are considered as a relatively good business. While after we noticed the country's reform and opening up policy which attracted a large number of international giants, we felt we would be eliminated by the market if we do not improve our core competitiveness, and accelerate our pace of development. Therefore when Peregrine recommended Danone, the world's-top-500 company and the world's sixth company in the food and drink industry, we showed much interest. We hope we can grow up as quickly as possible through the cooperation and the capital, technology, management assistance. Since our business was running well, the cooperation was not begging for help. Besides, some of the Chinese joint ventures resulted in the trademark frozen, the depriving of their operating right, and the employees layoffs. Therefore, in our negotiation, we brought forward the requirement as follows: the JV companies should use Wahaha brand, the Chinese party took the operating control, no layoffs, bearing the retired workers. We started our 11 years of cooperation after they promised these requirements. However, this 11 years’ cooperation reached no technical and management assistance. We are cheap employees for the creation of their wealth. Besides, we are often subjected to their irresponsible remarks. So this 11 years cooperation for Wahaha is actually a no-avail-cooperation.

II．The hidden dangers brought by emphasizing relationship, reasoning and credibility
Chinese nation is a nation stresses relationship, reasoning and credibility, always taking the best things for others. We prefer to satisfy others rather than ourselves. And it is also the Chinese virtue fulfill its commitments. Wahaha people, like all of the Chinese people, inherited the Chinese traditional virtues. When Danone brought forward that since the JV companies were using the Wahaha brand, the brand should be transferred to the joint venture companies, which we considered was reasonable. They fund us with the money, specifically for your brand, we should not treat them wrongly. Later, the State Trademark Bureau had not agreed to trademark transfer. (Here, I should thank the State Trademark Bureau, who had a long vision to effectively protect the nation's well-known brands finally). We thought we had promised the original transfer, and they also funded the money. It is reasonable for them to sign a contract that named Trademark License Agreement but actually Trademark Transfer Agreement to protect their interests. We signed the Agreement finally to live up to his original promise. It is the same with the Joint Venture Contract. Danone proposed that we promise not to engage in any production and operating activities that is competitive with the Joint Ventures. We signed the contract too. Their commitment was only not to harm the interests of the joint venture companies. I thought that they only owned a small yogurt factory in China, no other investment; therefore I do not object the agreement. While we were talking about reasoning, and what they were talking about was all about the benefits. If we were able to satisfy their interests, no matter how we violated the so-called "law" and "rules", they would turn a blind eye to what we did. But if we can not meet their interests, they would treat you with the so-called "law" and "rules". This is a very profound lesson.
III. The three of Wahaha’s.
Wahaha’s cooperation with Danone can be basically divided into three phases. The first phase was the struggle of operations control. On one hand, they allotted us responsibilities and obligations and ambitious goals, on the other hand, they imposed you the harsh restricts, and ignore your existence. Therefore, some projects like the bottled water production scale expansion project, Future Cola project, and other new products development projects were all denied by Danone. Make you feel in a dilemma of to do or not to do. Then we simply did it by ourselves regardless of their opinions whenever we felt confident. We succeeded with a high return, and they recognized our projects. Although they authorized Wahaha’s operation, and they received the high return with joy, they felt Wahaha and its president are always uncontrollable. Therefore, in 2000, Danone acquired our biggest competitor Robust, which symbolized the beginning of the second phase. Danone attempted to limit the development of Wahaha through speeding up, and increasing its direct operational control on Robust’s development, thus, eventually included Wahaha into Robust’s platform. Since then Danone began to losing interests on Wahaha’s investment. Whenever Wahaha waned to develop and invest, it’s like begging Danone for help. At Danone’s acquiescence, Wahaha developed a set of non-JV companies since 2001. Coming into the third phase, Danone’s own business was not running so well, especially when Robust was in a loss, Danone began to plan the low-priced acquisition of Wahaha’s well developed non-JV companies. After being rejected, Danone sparked the dispute.

IV. Whether Wahaha is breaking the law or breaching the contract
1. The issue of industrial competition
A. the main basis for Danone to think we arouse competition within the industry is we signed the contract which promised not to engaged in any production and operational activities that is in competition with the joint venture companies' business. The bodies who signed the contract of guarantees and the Respondent are Hangzhou Wahaha Group Co. Ltd., Zhejiang Wahaha Industrial Holdings Ltd., Guangsheng Investment Co. Ltd., Hangzhou Xiaoshan Shun Fa Food Packaging Co. Ltd. They are in fact investment companies, no production line staff or businessmen not even the production business. So it is out of the default of breaching the contract or industrial competition.

B. To say the least, even the above four companies’ affiliated companies (unfortunately, Danone’s lawyers fail to list the affiliated companies in the terms of the commitment) were charged with industry competition issue, there is in fact no industry competition issue. Because all the non-JV companies produced Wahaha products under the joint venture's permission, and all non-joint venture company's products were sold through the JV's sales company before April 2007. Danone commissioned the accounting firm Pricewaterhouse Coopers to do the annual audit report. In the annual audit report, it revealed clearly the non-JV companies’ names, the products and the revenue, and also revealed clearly the affiliated companies are controlled by a single manager that is President. Zong. If the non-JV companies’ operation were not permitted and illegal, why you not brought forward timely? Some of the non-JV companies even ran the business for seven years. Even if Danone do not admit the authorization, you are in acquiescence of such acts legally.

C. On one hand, Danone prosecuted us for selling the non-JV companies’ products through the JV companies’ sales company, because they thought we availed ourselves of Danone’s resources, enjoyed Danone’s services, damaged Danone’s interests. In such circumstances, we established our sales company in April 2007, starting selling our non-JV companies’ products. On the other hand, Danone required us sell the non-JV companies’ products through the JV companies’ sales company immediately, as a basis for negotiation. Danone also appealed to the government to require us to implement accordingly. Which side should we listen to in such contradictory instructions and allegations? In a word, Mr. Emmanuel Faber always has the reason. Whatever he said is justified. What should we do to be reasonable and not breaching the contract? I would like Mr. Emmanuel Faber to request explicitly.

D. Since our joint venture cooperation, almost all the new products we developed, Danone do not participate first. After we did a good job, Danone joined in forcibly, without any risk, gaining profit. I would like to ask Mr. Emmanuel Faber: this is the joint venture companies violated the interests of the non-joint venture companies? Or the non-joint venture companies violated the interests of the joint venture companies?

E. Danone is the party which actually breached the contract.
Since 2000, Danone acquired Wahaha’s biggest competitor-Robust, aggravated the vicious low price competition between Wahaha and Robust. The next year, Wahaha lose 80 million profits. Afterwards, Danone acquired Shenzhen Health Food, Shanghai Aquarius Drinking Water, Bright Dairy & Food, China Huiyuan Juice Group, Mengniu Dairy which are all competitive enterprises to Wahaha. It is Danone which breached the contract first by violating the interests of the joint venture companies. In the negotiation process, Danone had acknowledged the linked transaction with Robust Group, Shenzhen Health Food, and Shanghai Aquarius Drinking Water. They suggested the above mentioned two companies be merged into Wahaha. If we do not want the two, they could sell them within two year, which proved their acknowledgement of the first breach of the contract.

VII. We have ended with the reasoning and started getting justice
Wahaha and President Zong had a hard cooperation with Danone for 11 years. It is a meaningless 11 years. This cooperation could survive until today is purely sustained by ‘relationship and reasons’, ’reputation’ and ’credibility’. This cooperation is sustained by adopting the strategy of ‘Danone get out of the way, we earn money, and you wait for your shared part, without one penny less.’ We really couldn’t figure out why you do not satisfy with the good deal, but choose to stir the mass. Honestly, Danone was really lack of management capacity in China. If you have the ability, we really would like to change position with you. What is bad about reaping without sowing? Now because of the failure on low-price acquisition, Mr. Emmanuel Faber broke up the relationship with us so fast, from highly praising to heinous, from Stockholm arbitration on 800 million Euros compensation to the United States Prosecution on 100 million dollars compensation. From the date of the prosecution to the date of the verdict, there is a monthly increase of 25 million dollars, which is 300 million dollars a year. The lawsuit in the United States in 3-5 years would be at least more than 1 billion dollars. Seeming Mr. Emmanuel Faber really did not need to pay much attention to the beverage industrial on a few cents beverage sales. The prosecution and the arbitration would bring you the money more easily by submitting a few papers. But we have to remind Mr. Emmanuel Faber that in a contemporary civilized society, you can not make the final say. Now we have ended with the reasoning. Though the ‘First Jekyll, then Hyde’ policy was a huge mistake, mending it is not yet too late. You have been ignoring the Chinese laws and regulations, and leaving many legal flaws in the previous contracts and documents for us to gain back the rights and interests according to the law. We will therefore utilize the legal weapon to get justice. Firstly, we negotiate everything according to the law henceforth; you never wish we would accept your convenience and flexible requirement anymore. Secondly, we would prepare a positive response to the lawsuit in Stockholm and the United States. Meanwhile, we would submit a counterclaim with the compensation request of 2 billion, 3 billion, or 5 billion Euros. Currently, you have no exact evidence to the lawsuit, purely fictitious in bravado, while we held your conclusive evidence. Thirdly, the agreed arbitration location for the Trademark License Contract is at the Arbitration Committee of China Council for the Promotion of International Trade in Beijing. We would submit a arbitration request at an appropriate time. Fourthly, your high level managers have taken the position as the Chairman and Directors of different competitive enterprises in China, some of which are the listed companies. We would prosecute you in various parts of China too, regardless of the size of the matters, all in time, so that you can taste the flavor of the prosecution too. Of course, we would not let you spare the rest of your life in the prosecution. Not as ruthless as you, we would let you spare the rest of your life at home leisurely. Fifthly, you should stop using the non-Wahaha trademark Nutrition Express and Shuangwaiwai gratis. The JV-companies are required to stop producing the above mentioned products; otherwise, we would sue you and require your compensation. Finally, we would like to advice Mr. Emmanuel Faber, when the Chinese people are falling out, we would be able to do whatever you are able to do. Our IQ might be slightly higher than yours; therefore, we might do better than you do. ‘Just as the weary traveler despairs of finding a road, a village appears and the shade of willows and riotous flowers beckon.’ We could also tell you that the situation in Wahaha is now ‘Forests blaze red beneath the frosty sky. The wrath of Heaven's armies soars to the clouds.’‘ Already our defense is iron-clad, Now our will unite like a fortress.’ We would also like to tell you that: Shake Mr. Emmanuel Faber is easy, shake Wahaha is hard. Please give up your evil heart as soon as possible. I would also like to told you that Wahaha do not oppose to the opening up policy, do not oppose to cooperation with others, do not oppose to cooperation with foreign investors, however, we hope the cooperation would be based on equality, mutual benefit, mutual complementarity, mutual respect. I would also like to tell you that China is an open country with good investment environment. The Chinese government is a liberal, civilized government, and in a certain sense, it is influenced by the nation’s moral and cultural impact: respecting foreigners, protecting the interests of the foreigners. But we would like to remind you it is based on your respect to the Chinese laws when doing business in China, respecting the Chinese culture and emotions. The era when you can force us to concede through exerting pressure on us was ended forever. ‘Idle boast the strong pass is a wall of iron, With firm strides we are crossing its summit’ Wahaha would surely have a brighter future. The days will be more prosperous. Meanwhile we wish Danone and Mr. Emmanuel Faber would be happier and more successful.