The biggest damage of the Danone-Wahaha farce to the globalization of Chinese companies is precisely the loss of the credibility of Chinese companies. To tell the truth, this is much more serious than the loss of state-owned assets. Zong Qinghou is competing with Danone, and the world is watching. Not long ago, at the forum of "2008 Management Culture and the Coming-of-Age Ceremony of Chinese Enterprises", the organizer arranged for Liu Ge, the chief director of CCTV's Dialogue program, to serve as the host, Li Su and Sun Honggang as the advocates of Zong Qinghou, Zhao Xiao and I as the non-supporting party for a PK. When the debaters on the same stage were making generous speeches, I thought of the word "calm as still water." Just like the roaring river reflects the unmoving world, being calm as still water allows one to see the root of things clearly. When we suppress the little rabbits of interest and transcend the various ideologies, we see value. Nietzsche once said, "The world revolves around value." Behind every tangled matter lies the confusion of values. The transforming China is like being placed in a huge bellows, alternating between loss and awakening, fraud and integrity mixed, virtue and strategy unified, faith and cruelty side by side. It is just like what Laozi sighed 2500 years ago, "Between heaven and earth, it is like a bellows?" In 2007, the contractual dispute between Danone and Zong Qinghou evolved into one of the most intense confrontations in modern Chinese commercial history. Both sides have been fighting fiercely for almost a year with no signs of easing. On the surface, it seems to be a contractual dispute, a debate over trademark ownership, and a question of where the massive benefits lie. In reality, it is the clash of different commercial values in China. The tangled interests expose the confusion of values. When individual meticulous calculations do not work, the banner of macro significance will naturally be raised by both parties. Since early April, Zong Qinghou has held high the banner of protecting national brands, while Danone has held up the banner of international trade principles, launching an offensive battle. This is, of course, the best possible media headline material. For a time, dealers, Wahaha employees, local governments in related areas, scholars, and even companies like Jianlibao were all dragged into the fray. Some European politicians even jumped into the situation, using this matter to expand differences or conflicts between China and Europe.
On October 24, the global CEO of Danone, Rib, claimed that "we want to resolve the partnership issue with Wahaha once and for all," but Zong Qinghou ignored it and continued to busy himself dividing the large cake of the Wahaha system, transferring more benefits to the non-partnership enterprises. Although Zong personally resigned as chairman and legal representative of the Danone-Wahaha partnership company in June, and Danone's Fan Yimou announced his succession, the latter could not get involved at all, and everything was still under Zong Qinghou's control.
On the same day, a commentary in the UK's Financial Times was very symbolic: "Zong Qinghou may gain more thorough control of the enterprise, but he will lose two things. One is his own integrity as a businessman, and the second is the supervision and restraint of other shareholders on his power. Such a victory would bring even more terrifying implications - China's regulations lack the ability to sanction similar breaches of contract. This is bad news for both domestic and foreign enterprises. In this sense, the biggest loser is the institutional environment that has been significantly lacking after introducing foreign investment for 30 years."
I remembered the tragic story of Dutch sailors during the rise of great nations. In 1596, a Dutch shipowner brought 17 sailors who were trapped by the ice-covered sea in the Arctic Circle. After an 8-month long winter, 8 people died. But the Dutch merchants did something unimaginable; they did not touch the goods entrusted to them for transportation, which included clothing and medicine that could have saved their lives. When the icy season ended, the surviving merchants finally returned the goods almost intact to the Netherlands and delivered them to the consignors. The Dutch had ample reason to change tactics; they could have opened the consignment boxes, eaten the eatable goods, and upon reaching the destination, compensated the consignors double. Anyone would agree with such a humane approach. However, the Dutch did not do so. They valued commercial integrity more than their own lives. They paid the price with their lives to uphold credit and created a business law passed down to future generations. At that time, the Netherlands was originally just a small country with a population of over a million, but due to its outstanding reputation, it became a maritime trading powerhouse, benefiting generation after generation of Dutch people.
In contrast to the Dutch fleet, I wonder what Zong Qinghou personally feels. Credit, for commerce, is like air and water for humans. Too natural, people may overlook its importance. And once lost, it is the end of a person's life. Zong Qinghou is a person with strong operational abilities, and he is not afraid of lawsuits! China currently lacks a unified legal system. Nowadays, everything depends on the operational abilities of the parties involved. Any matter can find a reasonable explanation from different angles. Zong Qinghou might win the lawsuit. In a world that has already become flat, we have no reason to invest too much national sentiment here, adding difficulty for Chinese companies in the European and American markets. The small bit of benefit that Zong Qinghou is obsessed with now is destined to be repaid with countless shares of the Chinese market!
The biggest damage of the Danone-Wahaha farce to the globalization of Chinese companies is precisely the loss of the credibility of Chinese companies. To tell the truth, this is much more serious than the loss of state-owned assets. The growth of any enterprise, no matter how big, cannot leave a basic condition: you can't reach 1 billion yuan without starting from 1 yuan. Defining the rights and responsibilities of the first yuan is the most fundamental principle for distributing the final 1 billion yuan in benefits. This is discipline, this is credit, this is the foundation of a merchant's character. Taking responsibility for one's own agreements and keeping promises is the least confidence and conscience of Chinese merchants. Some Chinese are inherently kind and trustworthy, even repaying grievances with kindness, and do not abandon their promises because the other party harms them, naturally good deeds worth praising. However, some people, for their immediate personal interests, fly into a rage, feel humiliated and angry, and even do things that seem incomprehensible to those around them.
At the forum, I briefly presented my two comments, "Danone's Business Reputation Flower Lost in Fear" and "Fear Dominated the Heroic Enterprise of Zong Qinghou." Host Liu Ge concluded, "It seems both sides have ulterior motives." Now, both Zong Qinghou and Danone need calmness. They need to calmly think about whether the benefits they adhere to have lasting value.
Once Danone's business reputation flower was lost in fear. As the destiny of the Wahaha brand was damaged, Danone's reputation is no longer a symbol of sunshine, health, and goodness. Once the business reputation is destroyed, what does Danone have left?
Recently, attending the forum "Made in China Meets Global Management Essence," Caterpillar's Vice President and President of the Asia-Pacific Region, Ray Levenson, gave a keynote speech, and the organizer invited me to make comments. Caterpillar is one of the top 500 manufacturing companies. The rapid increase in China's business has driven Caterpillar's annual sales revenue from $20 billion in 2001 to $40 billion by the end of 2006. So much so that Caterpillar decided to move its Asia-Pacific headquarters from Japan to China. Levenson focused on the cooperation case between Caterpillar and Shan Gong Machinery, showcasing the co-prosperity relationship between Caterpillar and Chinese companies. I affirmed Caterpillar's success in six aspects. Finally, I raised two questions:
Firstly, Caterpillar's manufacturing center in China repeatedly emphasizes the "global procurement" advantage. So-called "global procurement" is actually a form of profit transfer for multinational companies. Does Caterpillar plan to form a wide supplier cluster and alliance strategy in China?
Secondly, in August this year, Caterpillar plans to exercise its right to acquire all shares of Shan Gong Machinery? Why can't local companies share in Caterpillar's growth profits in China for 50 years, 100 years, or even longer?
These two questions may exceed the level that Levenson can declare. This is a very key issue in the localization process of multinational companies in China. Recently, paying attention to the disputes between Danone and Wahaha, Danone's overall strategy is exactly the same as Caterpillar's.
A huge sense of fear makes Danone fall into a cycle of mergers and acquisitions that it cannot extricate itself from. Since entering China, Danone has been busy acquiring stakes in outstanding companies in the same industry. Danone has successively acquired shares in companies such as Wahaha, Mengniu, Zhengguanghe, Bright Dairy, Huiyuan, and Lebishi. Danone occupies board seats in these major brands that directly compete with each other, allowing bloody battles among them. Meanwhile, Danone's own brands take center stage.
Danone shows no interest in establishing true strategic alliances. It uses acquiring other companies and taking over their assets as a means of growth. Its capital investment route in China is generally four steps: participation, control, full control or cashing out. Danone's extensive acquisition of Chinese local brands does not mean that it sees its own Danone brand less favorably and prefers these unremarkable local brands. Not entirely. Danone once held 92% of Lebishi, a multinational company with technology, team, management, and philosophy, yet it failed. Now although Lebishi has failed, Danone has become famous in China. This battle between Danone and Wahaha has had a profound impact, mobilizing various political forces internationally, making Danone known to everyone.
It seems that Danone has entered a battle destined not to lose: if it ultimately holds Wahaha, it will obtain a well-known brand free of charge; even if the Wahaha brand disappears, it may also remove a strong competitor. Either outcome may have positive implications for Danone.
The entire Danone-Wahaha debate has been following the rhythm designed by Danone. However, the narrow-minded benefits of the war situation have blinded the designers of Danone's strategy, ignoring the depreciation of Danone's most important asset: Danone's business reputation.
As more details are revealed by both sides, Danone's previously proclaimed corporate social responsibility has vanished. In 1996, knowing that the joint venture company could not legally hold the Wahaha trademark, Danone still signed a "yin-yang contract" with Zong Qinghou. Since the establishment of the joint venture company, Danone has accepted a series of harsh conditions from Zong Qinghou, such as the chairman and general manager being one person, not interfering in operational affairs, only setting Zong Qinghou as the sole general manager, not setting a vice president, ensuring Zong Qinghou's absolute authority. The technical staff and sales planners sent by Danone were also expelled from the joint venture company. Danone even recognized the abnormal method of "multiple operating entities with one team," acknowledging that the corporate governance structure was virtually non-existent. These actions, contrary to the norm of multinational companies, clearly harbored ill intentions.
Even Han Xin, who endured humiliation under someone else's legs in the past, would feel ashamed. Only King Goujian of Yue's determination to strengthen his country could compare with Danone. Danone's calculated heart in the Chinese market targeting Chinese consumers will inevitably cause great resentment among Chinese consumers. Just as the Wahaha brand suffered damage, Danone's reputation is no longer a symbol of sunshine, health, and goodness. Once the business reputation is destroyed, what does Danone have left? The decline in performance of the Wahaha project will certainly affect the overall company's performance, possibly causing shareholder dissatisfaction and pressure to replace the CEO.
This is a tragedy purely triggered by a fearful mentality. Truly powerful multinational companies act more out of love.
Fear dominates the heroic enterprise of Zong Qinghou. Credit is a fragile thing; it takes a lot of effort to build, but it can be destroyed effortlessly. If a contract forced by external force is still stubbornly adhered to, that is a sign of weakness; however, when an illegal contract is part of one's premeditated arrangement, and loudly proclaiming that the other party signed an illegal contract, it can only be a sense of helplessness out of fear. Chinese entrepreneurs don't know when they became a disadvantaged group. They often find themselves trapped in fear. As summarized by Liu Chuanzhi, the business world in China is like a swamp, unsure when stepping in will lead to sinking. Many times, entrepreneurs know it's wrong but still force themselves to do it, knowing there are traps but still jump into them, otherwise they will accomplish nothing. It is this risky leap that plants the seed of fear. Liu Chuanzhi's unease when giving gifts for permits still lingers today.
Zong Qinghou also made a risky leap. Introducing Danone successfully completed MBO (Management Buyout). He creatively restructured existing capital, gaining societal acceptance, and bringing in substantial profits, thus becoming an enterprise hero and a National People's Congress representative. However, as the Danone-Wahaha incident unfolded, more and more details were revealed by both sides, greatly damaging Zong Qinghou's image. Credit is a fragile thing; it takes a lot of effort to build, but it can be destroyed effortlessly.
Just as Danone has remained deeply fearful despite being in China for over a decade, constantly thinking of swallowing up competitors, fear and insecurity similarly dominate Zong Qinghou.
After the success of the school-run factory Wahaha, fear soon followed: all the property created by his hard work was unrelated to him! In order to put the rewards for his entrepreneurship into his pocket and to transition from a state-owned enterprise manager to complete MBO, he didn’t hesitate to invite wolves into his home, achieving MBO through indirect foreign investment routes. This is an issue surrounding an era. Regardless of how it is resolved, observers do not need to criticize too harshly.
Personal shares landing in place did not alleviate Zong Qinghou’s sense of insecurity and fear in the slightest. Thus, he converted his entire family to another nationality, registering a series of offshore companies under his wife and daughter’s names. This issue cannot be judged morally. Looking at the Forbes list of the top 100 richest individuals, how many have changed their nationality? How many still maintain unwavering loyalty to their Chinese citizenship? Accumulating wealth and changing nationality is a phenomenon worthy of reflection by the Chinese public. The outflow of backbone entrepreneurs poses a real threat to the country's long-term strength. We should reflect on what adjustments the environment and system need.
Changing nationality and property did not reduce Zong’s sense of insecurity in the slightest. Even with the team he personally trained, he still dared not fully trust them. During the restructuring, regarding the division of employee shares, none of the executives registered their shares under their own names, and control remained tightly in Zong Qinghou's hands. How much profit each person received annually still depended on his decision. This might be a way to strengthen cohesion. Zong Qinghou is an old hand in business, perceptive of human nature. Having seen betrayal and deceit, in the future's immense twists and turns, he could only trust himself.
This sense of insecurity permeates the company's operations as well. Several operating entities within the Wahaha system (such as Wahaha Group, Wahaha-Danone joint venture company, non-joint venture Chinese companies using the Wahaha brand, and Zong's offshore companies, etc.), one team, the chairman and general manager positions held by one person, and no vice presidents set. This makes income, costs, and profits completely an internal controlled number game. This is also why Danone is deeply concerned about the "abnormal growth" of Wahaha's non-joint venture enterprises. For such a large company, even the purchase of an electric vehicle requires Zong Qinghou's signature.
This layer of fear-induced behavior also signifies the sorrow of a generation of Chinese entrepreneurs. They spare no effort, working tirelessly, wishing they could be 100 or 1000 people, yet dare not delegate authority to their teams. A company rises, but not a team, only an omnipotent genius rises! If Chinese companies all operate this way, then China will never enter the ranks of strong countries. Fortunately, we see more Chinese companies like Huawei, ZTE, Lenovo, Haier, and other benchmark enterprises building powerful teams as their scale grows.
Contemporary great Confucian scholar Liang Shuming pointed out: "Human beings are not insignificant, but pitiful; pitiful because they are constrained by themselves. Deeply understanding oneself and having methods for oneself enables one to avoid and surpass ignorance and inferiority. This is the deepest knowledge, the highest and greatest ability or skill."
Zong Qinghou obviously did not have the opportunity to listen to the master's teachings.
When deep-seated fear dominates an entrepreneur, all his actions and thoughts distort, guarding everywhere, severely guarded, not conforming to groups and even growing to oppose his team and society. His thoughts and actions, unless originating from inner love, will never rise to a certain level. This is one of the main reasons why China lacks world-class entrepreneurs.