When politics meets work – diplomacy

When Xi Jinping took center stage in early 2022 at the opening ceremony of the Winter Olympics in Beijing, he wore a navy blue jacket—specifically, one made by Canadian clothing company Arc’teryx. While the brand may be a foreign brand at first glance, it was actually purchased by Chinese sporting goods manufacturer ANTA Sports in 2019. The jacket sold out in China immediately. ANTA, the official sportswear partner of the Olympic Games, continued to reap the benefits of this status throughout the 17-day event: All Chinese athletes including superstar figure skater Eileen Gu were outfitted with ANTA gear, making the brand ubiquitous and sales soaring to levels never seen before. never seen before. , an increase of up to 15 times.

But the reasons for the home business boom for China’s sports equipment makers complicate their international endeavours.

How did Anta and Li Ning gain a foothold in the house

Prior to these limelights, ANTA was relatively unknown internationally, and that was double that of its Chinese competitor, Li-Ning. For decades, the American company Nike and the German company Adidas have dominated the international markets for sports goods and apparel. With their global market presence, world-leading athletes sponsored, and products that transcend the lines between sports and urban fashion, both have built well-known global brands over the past 50 years.

Until recently, these two foreign brands occupied a duopoly in the Chinese market as well, but the tides are now turning. After the Better Cotton Initiative (BCI) revoked its certification of cotton from China’s Xinjiang Autonomous Region due to allegations of forced labor, a series of events ensued. Western companies that renewed their support for BCI and suspended the use of cotton imported from the region, including Adidas and Nike, angered Chinese consumers. On the other hand, ANTA, originally the first Chinese company to join BCI, stated that it would “continue to buy and use Chinese cotton” and then left the organization, while Li-Ning made public statements saying he was not part of the initiative.

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In the Chinese market, the results of embracing the partisan line in Xinjiang were soon evident. With sales of the two Western brands dropping 15%-20% year-over-year in the last quarter of 2021, ANTA and Li-Ning have benefited from this national shift, displacing Adidas and Nike from the top spots in e-commerce. sales.

A politicized business environment complicates international expansion

In contrast to positive developments in the domestic market, the international fallout for ANTA and Li-Ning is far from rosy. Both have already made efforts to expand abroad, albeit with mixed results.

ANTA has acquired long-standing foreign brands, including Japanese ski maker DESCENTE, Chinese business of Italian FILA, and Finnish sports company Amer, which in turn owns the aforementioned Canadian Arc’teryx favored by Xi Jinping. In contrast to the quick exit from BCI by her father, ANTA, Finn Aamer remained at BCI. This zigzagging moral alignment has paid off so far — not only because the popular boycott against Aamir and the sub-brands has yet to happen, but also because Aamir boosted his revenue in the last fiscal year to a record, well past the pre-pandemic period. levels. However, parent company ANTA’s revenue is still generated almost exclusively in China.

Its Chinese rival Li-Ning has so far focused on exports, especially to the United States. In late October 2021, the company was seeking funding for its latest attempt at venturing abroad. But those plans hit a wall within months. First, it excluded Norway’s sovereign wealth fund Li-Ning from its portfolio due to “gross violations of human rights”. Just a week later, US Customs and Border Protection announced a blanket ban on the import of Li-Ning products after it identified an investigation of North Korean forced labor in its supply chain. Li Ning dismissed the allegations as “external speculation.”

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

The combination of these headwinds has made it impossible for Chinese competitors to gain a significant foothold in most liberal market economies — less because of bad business decisions and more because of the increasingly politicized business environment. As such, ANTA and Li-Ning are case studies of a new paradigm: Whereas in the past, clashes over values ​​between liberal market economies and authoritarian regimes were mostly confined to culture and ideology, in today’s increasingly polarized world, the range of affected products is an ever-expanding . Now, even something as mundane as sports goods and apparel is drawn into the vortex of politicization.

For Western companies, this development is nothing new, especially for consumer-facing brands that have had to cautiously navigate the Chinese market and move away from the many red lines of Chinese politics: Taiwan, Hong Kong, and Tibet, to name a few. . For the companies involved, the mistakes have been costly, with state media often responding by fanning popular boycotts. But for China’s ruling party, applied pressure was a useful tool of economic coercion.

As Chinese companies venture abroad in an increasingly politicized global business landscape, they must now carefully maneuver to avoid rubbing either side the wrong way. Anta and its Finnish affiliate Amer prove that a one-size-fits-all approach to ethical governance is impossible when the rift between East and West deepens. But other attempts to localize the political alignment have backfired in the past. For example, German retailer Hugo Boss publicly announced to US network NBC News that he does not come from Xinjiang, only to tell Chinese customers the exact opposite soon after. Once observers notice such a flip, the repercussions will be worse. And even if localizing political alignment on a subsidiary basis may work for a while, the Li-Ning import ban has shown that problems can extend beyond the end products and back into the supply chain.

Xi Jinping’s show of ANTA-owned fashion at the Olympics was perhaps not surprising – after all, the company was the main sponsor. But it symbolizes a growing trend: as long as Chinese companies conform to the interpretation of values, including human and labor rights, set by the party, they can enjoy state support. As inherently Chinese companies, ANTA and Li-Ning are likely to remain loyal to CCP’s understanding of human rights, especially as their domestic revenues dwarf anything they earn abroad. Moreover, they are ideally placed to benefit from Beijing’s push to boost China’s sports sector to CNY 5 trillion by 2025.

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Contrary to favorable conditions at home, the expansion of international business in free market economies will become more challenging and will require painful decisions. The European Parliament recently passed a resolution seeking to clamp down on the import of Chinese products that exploit forced labour, targeting in particular the Xinjiang region. Moreover, this issue has already attracted the attention of UK policy makers. Such regulatory moves are likely to create serious challenges for both Chinese sports equipment makers.

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

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