When politics meets business – Diplomat

When Xi Jinping took center stage at the opening ceremony of the Beijing Winter Olympics in early 2022, he wore a sea-green parka made by Canadian outfitter Arc’teryx, among others. While this brand may seem foreign at first glance, it was actually acquired by Chinese sporting goods manufacturer ANTA Sports in 2019. The jacket was immediately sold out in China. ANTA, official sportswear partner Olympics continued to reap the benefits of this status throughout the 17-day event: Chinese athletes, including star skier Eileen Gu, wore ANTA gear, making the brand ubiquitous and skyrocketing sales to a previously unseen level, increasing up to 15 times.

But the very reasons why Chinese sports equipment manufacturers have flourished complicate their international efforts.

How ANTA and Li-Ning got a foothold at home

Prior to this, ANTA was relatively unknown internationally, and this was doubly known for its Chinese rival Li-Ning. For decades, American Nike and German Adidas have dominated the international sportswear and apparel markets. Through their global presence, sponsorships of the world’s top athletes and products that go beyond sports and urban fashion, both companies have built renowned global brands over the past 50 years.

Until recently, these two foreign brands also held a duopoly in the Chinese market, but now the situation is changing. A series of events followed after the Better Cotton Initiative (BCI) withdrew its certification for cotton from China’s Xinjiang Autonomous Region due to allegations of forced labor. Western companies that have renewed their support for BCI and suspended cotton from the region, including Adidas and Nike, have felt the ire of Chinese consumers. ANTA, on the other hand, originally the first Chinese company to join BCIstated that it would “continue to buy and use Chinese cotton”, and subsequently leave the organizationwhile Li-ning did public statements saying it wasn’t even part of the initiative.

Do you like this article? Click here to sign up for full access. Only $5 per month.

In the Chinese market, the results of this adoption of the party line towards Xinjiang soon became apparent. As sales of 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 positions in e-commerce. sales.

Politicized business environment complicates international expansion

Despite favorable developments in their home market, the international implications for ANTA and Li-Ning are far from rosy. Both have already made efforts to expand overseas, albeit with mixed results.

ANTA has acquired long-standing foreign brands, including Japanese ski equipment manufacturer DESCENTE, the Chinese business of Italy’s FILA, and the Finnish sports company Amer, which in turn owns the aforementioned Canadian Arc’teryx, which is favored by Xi Jinping. Despite the rapid departure from the BCI of its parent, ANTA, the Finnish Amer remained in the BCI. This zigzag of ethical alignment has paid off so far — not only because a massive boycott against Amer and its sub-brands has yet to occur, but also because Amer increased its revenues last fiscal year to an all-time high, surpassing pre-pandemic levels. levels. However, parent company ANTA’s revenue is still almost entirely generated in China.

Chinese rival Li-Ning has so far focused on exports, especially to the United States. Back in October 2021, the company was seeking funding for its new attempt to expand overseas. But those plans fell apart within a few months. First, Norway’s sovereign wealth fund removed Li-Ning from its portfolio due to “serious violations of human rights. ” In just one week, US Customs and Border Protection announced a total ban on imports of Li-Ning products after an investigation revealed forced labor by North Korea in its supply chain. Li-Ning responded by dismissing the allegations as “overseas speculation. ”

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

The combination of these constraints has made it impossible for both Chinese contenders to gain a firm foothold in most liberal market economies, not so much because of misguided business decisions as because of an increasingly politicized business environment. In this way, ANTA and Li-Ning are case studies of a new paradigm: while in the past, value clashes between liberal market economies and authoritarian regimes were limited mainly to culture and ideology, in today’s increasingly polarized world, the array of affected products is ever-expanding. Now even mundane items like sporting goods and clothing are being drawn into the maelstrom of politicization.

This is nothing new for Western companies, especially consumer-facing brands that have had to carefully navigate the Chinese market and avoid the many red lines of Chinese politics: Taiwan, Hong Kong and Tibet, to name but a few. . Mistakes have been costly for the companies involved, as party-state media often react to massive boycotts. For China’s ruling party, however, pressure has become a useful tool for economic coercion.

As Chinese firms move overseas into an increasingly politicized global business landscape, they themselves must now maneuver carefully to avoid running into both sides. ANTA and its Finnish subsidiary Amer demonstrate that a one-size-fits-all approach to ethical governance is not possible when the East-West divide is constantly widening. But other attempts to localize political unity in the past have backfired. German retailer Hugo Boss, for example, has publicly told NBC News that its suppliers are not from Xinjiang, only to slyly tell Chinese shoppers that just the opposite soon after. Once such a trigger is noticed by observers, the consequences will be even worse. And even if the localization of a political union on a child basis can work within a short period of time, Li-Ning’s import ban has shown that problems can extend beyond final products and back up the supply chain.

Xi Jinping’s display of ANTA-owned clothing at the Olympics is perhaps not surprising – after all, the company was the main sponsor. But it symbolizes a growing trend: as long as Chinese firms conform to the party’s interpretation of values, including human and labor rights, they can enjoy government support. As Chinese companies at their core, both ANTA and Li-Ning are likely to remain true to the CCP’s understanding of human rights, especially since their domestic income exceeds anything they earn abroad. In addition, they are in an ideal position to capitalize on Beijing’s ambition to bring China’s sports sector up to par. 5 trillion yuan by 2025.

Do you like this article? Click here to sign up for full access. Only $5 per month.

However, in contrast to favorable domestic conditions, the international expansion of business into countries with liberal market economies will only become more difficult and require painful decisions. The European Parliament recently adopted resolution which aims to restrict the import of Chinese goods using forced labor and specifically targets the Xinjiang region. In addition, this issue has already attracted the attention of politicians in United Kingdom. Such regulatory moves are likely to create serious problems for both Chinese sports equipment manufacturers.

Other emerging economies may offer an alternative business path, but only time will tell if ANTA and Li-Ning can replicate their success to challenge the dominance of Nike and Adidas elsewhere.