Though stepping down usually means defeat, Zong Qinghou, founder of the Wahaha Group, China's leading indigenous drink producer, may have used it as a tactic to win over a mammoth rival, when he declared on June 7 to cease cooperation with Groupe Danone SA, France's largest food and beverage maker.

Zong, 53, defiantly sent a stinging letter to Danone's headquarters, in which he clarified the reason for his resignation from the post of chairman of the 39 joint ventures between the two giants, in which Danone holds 51 percent of the total stake. Zong complained that his reputation was ruined by slander and abuse by two directors from Danone. He also accused Danone of only wanting to obtain profit and benefit from the partnership, instead of taking on risks and carrying out its responsibilities.

Danone accepted Zong's resignation and appointed Emmanuel Faber, who oversees its Asia-Pacific business and also serves as vice chairman of the joint ventures, to replace Zong temporarily.

The cooperation between Danone and Wahaha, launched in 1996, went sour when disputes erupted in late 2006. Zong was accused of illegally running companies selling Wahaha-branded products for individual profits. Zong countered the attack alleging that Danone defamed him failing in an attempt to acquire the profitable non-joint ventures of his group through a hostile takeover. The French company had offered 4 billion yuan to purchase a 51 percent stake in an asset estimated at 5.6 billion yuan. (For more, see Wahaha vs. Danone, www.bjreview.com/business/

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Danone finally turned to arbitration in Stockholm, Sweden, this May, claiming that Wahaha's use of the brand violated the 1996 partnership agreement signed between the two parties.

Disputes escalated when Danone filed a lawsuit against the Hangzhou Hongsheng Beverage Co. Ltd. and Ever Maple Trading Ltd., controlling stakeholder of the former, and two individuals related to these companies, on June 4 in Los Angeles. Danone said that these companies are selling Wahaha-branded products identical to those sold by their joint-venture company, using the same suppliers and distribution network. Initial investigations found that the owners of these two companies are Zong's daughter and wife.

This case has brought Danone's partnership with Wahaha to a virtual collapse. Despite Zong's elimination from the joint venture, Danone is still challenged by pressure from his loyal employees, who publicly said they would never accept the new company chief.