Further joint venture upheaval for Danone

The company announced yesterday that both parties had agreed to terminate the current joint venture immediately, on the grounds that the business agreements had not advanced sufficiently and funding for further investment was unavailable.

Such a decision caps off a difficult year, and indeed week, within the country for the France-based dairy group, which has also been involved an ongoing battle with Wahaha, another joint venture partner.

Though an increasing number of food and beverage groups are working with local partners to expand into new markets like China, the strategy is not without its problems for some manufacturers.

However, Danone said that brining an end to the current cooperation agreement with Mengiu would not prevent future cooperation between the two groups in the country.

"As leaders in China and the global yoghurt market respectively, Mengniu Dairy Group and Danone will actively explore future cooperation opportunities in the yoghurt industry," the company stated.

The cessation of the venture will also not affect the existing agreement between Danone and Mengniu concerning the packaging and distribution of yogurt under the BIO brand, according to the company.

While Danone continues to push its presence in China amidst strong dairy demand, it has found some difficulties in dealing with partners in the country.

On Monday, Chinese press sources suggested that a workers union of Wahaha were joining the company in opening legal proceedings against Danone.

The Hangzhou Wahaha Group is allegedly seeking damages from Danone on the grounds that it holds shares in companies that directly compete with the Wahaha joint venture.

The claims also allege that the group has also been damaging Wahaha's reputation in the global media.

In response to the reports, Danone said that although it was yet to receive legal documents from the Chinese courts, initial feedback from the group's lawyers was that the claims from the Hangzhou Wahaha Group's workers were "totally groundless".

"We would like to point out that for a long period of time, Danone has been a company well known for its efforts in placing the company's social mission as equally important as its economic mission," the group stated.

Just last week, Danone lost the right to the trademarks of Wahaha after losing an arbitration battle in a Chinese court.

A spokesperson for Danone said that the company was "shocked " by the Hangzhou Arbitration Commission's (HZAC) decision, which it says ignored fundamental facts of a previous ruling.

Danone and Wahaha had worked under an agreement since 1996 regarding a number of locally-based joint ventures, of which Danone holds a 51 per cent stake.

Wahaha has previously criticised this partnership for preventing it from manufacturing goods that compete directly with products released through the joint venture.