A report released by Danone said, "Danone has never given up the hope of solving the issue through peaceful negotiations, and Danone will try its best." Danone's public relations official also said that they have put negotiation at the forefront all along.

Currently, the annual sales volume of the joint ventures between Wahaha and Danone is about 1.2 billion euros, accounting for 7 percent of Wahaha Group's total. The joint ventures are undoubtedly an important investment for Danone in China. For many this is considered the most important reason why Danone hopes to solve the problems via negotiation.

Normally, Danone should have the decision-making rights as it holds 51 percent of the joint ventures. Yet according to the agreements, deciding rights on operations and production of the joint ventures are controlled by Zong. In the early days of the joint ventures, Zong and Danone agreed that the Wahaha brand wouldn't be changed, that the board chairman would remain, the payment of retirees would continue, and employees older than 45 wouldn't be laid off. During the past decade, Zong has controlled the joint ventures.

"The focus of their dispute is the use of the brand 'Wahaha,'" said Zhang Yuqing, former Panel Member of the WTO Dispute Settlement Body. "However, it has already been stated in the contract of the joint ventures. Since they have signed the contract, they may have to eventually seek legal ways."

Li Guoguang, an advisor to the China International Economic and Trade Arbitration Commission, said that during the past decade Danone has acquired many well-known Chinese beverage companies, including Wahaha, Bright Dairy, Robust, Huiyuan Juice and Mengniu. Danone is actually monopolizing China's beverage industry, Li said. Its planned acquisition of Wahaha's non-joint venture companies goes against the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises. According to the provisions, if the merging or acquiring company's turnover in China exceeds 1.5 billion yuan, with domestic assets surpassing 3 billion yuan and the number of domestic enterprises exceeds 15, merger or acquisition plans must be submitted to the Ministry of Commerce and the State Administration for Industry and Commerce for examination. Li thought that launching anti-monopoly investigations against Danone and seeking legal measures to break its monopolized status according to international practice could eventually occur.

Wahaha as a mirror

Many Chinese enterprises have set up joint ventures with foreign partners just like Wahaha and Danone. Whether similar or new problems will occur among these joint ventures has caught public attention.

When foreign companies enter the Chinese market, they often choose from leading private companies to cooperate with, as foreign investment is encouraged in industrial sectors where privately owned companies develop well.

Lu Jinyong, professor with the FDI Research Center of the University of International Business and Economics, said that absorbing foreign investment is undoubtedly a direct way for privately owned enterprises to make up for their lack of capital. The government also has preferential policies for joint ventures, which can be another reason why private entrepreneurs prefer setting up joint ventures. However, restricted by their knowledge level, as well as the market and policy environment, some private entrepreneurs don't know enough about foreign investors, which can bring many misunderstandings.

"When foreign companies come to China, they have already taken China as a part of their global strategy, and they have made a complete set of gradual expansion strategies," said Lu. "They grasp their market shares through setting up joint ventures, then rein the whole sector and profit as much as possible through this. Meanwhile, they have their own think tanks, which do deep research and analysis for them. Danone knew that Wahaha's non-joint venture companies had breached the contract, but it didn't stop them. Danone's actions may be premeditated."

Admittedly, foreign investors may have their own intentions when cooperating with domestic privately owned enterprises. Absorbing foreign investment should still be the long-term goal and is essential to economic development. "From the dispute between Wahaha and Danone, we can know more about foreign companies' desires for protecting intellectual property rights and their worldwide vision," said Lu. "It can also give us an alarm."

Facing the market-developing strategy of multinationals in China, Lu continued, Chinese companies should take some preventive measures. Multinationals develop the Chinese market via cooperating with Chinese enterprises, which is a natural business strategy. At first, Chinese enterprises may lack experience, but they should draw on lessons learned in this process. Domestic enterprises should learn from multinationals' strategies.

Meanwhile, they should strengthen study of their legal knowledge related to mergers, acquisition and investment.

In addition, fostering a brand, like research and development, needs 10 years or even 50 years of continuous efforts. Entrepreneurs can't be too hasty, but should be far-sighted.