When Politics Meets Business – The Diplomat

When Xi Jinping took center stage in early 2022 for the opening ceremony of the Beijing Winter Olympics, he wore a navy blue parka, specifically one made by Canadian equipment maker Arc’teryx. Although the brand might look foreign at first glance, it was actually acquired by Chinese sporting goods manufacturer ANTA Sports in 2019. The jacket immediately sold out in China. ANTA, official sportswear partner of the Olympic Games, enjoyed the benefits of this status throughout the 17-day event: Chinese athletes, including star skier Eileen Gu, were all kitted out in ANTA gear, making the brand ubiquitous and skyrocketing sales to levels never seen before, an increase of up to 15 times.

But the very reasons why domestic business has exploded for Chinese sports equipment makers complicate their international efforts.

How ANTA and Li-Ning gained a foothold at home

Before this spotlight, ANTA was relatively unknown internationally, and that was doubly so for its Chinese rival, Li-Ning. For decades, the American company Nike and the German company Adidas have dominated the international sports goods and clothing markets. With their global market presence, world-renowned athletes under sponsorship, and products that transcend the boundaries between sports and street fashion, the two have built well-known global brands over the past 50 years.

Until recently, these two foreign brands also held a duopoly in the Chinese market, but now the tide is turning. After the Better Cotton Initiative (BCI) revoked its certification of cotton from China’s Xinjiang Autonomous Region over allegations of forced labor, a cascade of events followed. Western companies that have renewed their support for the BCI and suspended the use of cotton sourced in the region, including Adidas and Nike, have felt the fury of Chinese consumers. ANTA, on the other hand, originally the first Chinese company to join BCIsaid he will “continue to buy and use Chinese cotton” and thereafter leave the organizationwhile Li-Ning did public statements saying it wasn’t even part of the initiative.

Like this article ? Click here to register for full access. Just $5 per month.

In the Chinese market, the results of this adherence to the party line on Xinjiang were quickly evident. While sales of the two Western brands fell 15% to 20% year-on-year in the last quarter of 2021, ANTA and Li-Ning capitalized on this nationalist shift, dethroning Adidas and Nike from the top places in e-commerce. Sales.

A politicized business environment complicates international expansion

Contrary to the favorable evolution of their domestic market, the international repercussions for ANTA and Li-Ning are far from rosy. Both have already made efforts to expand overseas, but with mixed results.

ANTA has acquired long-standing foreign brands, including Japanese ski equipment maker DESCENTE, the Chinese business of Italy’s FILA and Finnish sports company Amer, which in turn owns Arc’teryx of Canada, favored by Xi Jinping. Unlike the rapid departure from BCI by its parent company, ANTA, the Finnish Amer remained in BCI. This zigzag of ethical alignment has so far paid off – not only because a grassroots boycott against Amer and its sub-brands has yet to take place, but also because Amer has increased its revenue over the last fiscal year at a record high, surpassing pre-pandemic levels. levels. Nevertheless, the revenues of the parent company ANTA are still almost exclusively generated in China.

Chinese rival Li-Ning has so far focused on exports, especially to the United States. As recently as October 2021, the company was seeking funding for its new attempt to venture overseas. But those plans hit a wall within months. First, the Norwegian sovereign wealth fund excluded Li-Ning from its portfolio for “serious human rights violations.” Just a week later, U.S. Customs and Border Protection announcement a complete import ban on Li-Ning products after an investigation identified North Korean forced labor in its supply chain. Li-Ning responded by dismissing these claims as “overseas speculation.”

As Western liberal values ​​collide with authoritarianism, businesses will have to adapt

The combination of these headwinds has made it impossible for the two Chinese competitors to gain a significant foothold in most liberal market economies – less due to faulty business decisions and more due to an increasingly politicized business environment. . As such, ANTA and Li-Ning are case studies of a new paradigm: whereas in the past, value conflicts between liberal market economies and authoritarian regimes were mostly confined to culture and culture. ideology, in today’s increasingly polarized world, the range of relevant products is always expanding. Today, even something as mundane as sports gear and clothing is caught up in the whirlwind of politicization.

For Western companies, this development is nothing new, especially for consumer-facing brands that have had to carefully navigate the Chinese market and move away from the many red lines of Chinese politics: Taiwan, Hong Kong and the Tibet, to name a few. . For the companies involved, the mistakes have been costly, as party-state media often respond by fueling grassroots boycotts. For China’s ruling party, however, the pressure exerted has been a useful tool of economic coercion.

As Chinese companies venture abroad in an increasingly politicized global trade landscape, they themselves must now maneuver carefully to avoid rubbing each other the wrong way. ANTA and its Finnish subsidiary Amer demonstrate that a one-size-fits-all approach to ethical governance is impossible as the East-West divide continues to widen. But other attempts to locate political alignment have failed in the past. German retailer Hugo Boss, for example, publicly told NBC News in the United States that it does not source from Xinjiang, only to slyly tell Chinese customers that exact opposite shortly after. Once such an about-face is noticed by observers, the fallout will be even worse. And while localizing policy alignment on a subsidiary basis may work for a brief period, Li-Ning’s import ban has shown that problems can transcend end products and move up the supply chain.

Xi Jinping’s presentation of ANTA-owned fashion at the Olympics was perhaps unsurprising – after all, the company was a main sponsor. But it symbolizes a growing trend: as long as Chinese companies respect the interpretation of values, including human and labor rights, prescribed by the party, they can enjoy state support. As inherently Chinese companies, ANTA and Li-Ning will therefore likely stick to the CCP’s understanding of human rights, especially since their domestic revenues dwarf anything they earn overseas. Furthermore, they are in ideal positions to leverage Beijing’s efforts to boost the Chinese sports sector to 5 trillion RMB by 2025.

Like this article ? Click here to register for full access. Just $5 per month.

Contrary to the favorable circumstances in the country, however, the expansion of international businesses in liberal market economies will only become more difficult and will require painful decisions. The European Parliament recently adopted a resolution which aims to suppress the import of Chinese products exploiting forced labor and particularly targeting the Xinjiang region. Furthermore, this issue has already attracted the attention of policy makers in the UK. Such regulatory changes are likely to create serious challenges for the two Chinese sports equipment manufacturers.

Other emerging economies may offer an alternative path to expand their business, but only time will tell whether or not ANTA and Li-Ning can replicate their success to challenge the dominance of Nike and Adidas in other countries.

Comments are closed.