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China’s Up-and-Coming Sports Gear Makers: When Politics Meets Business

When Xi Jinping took center stage in early 2022 for the Beijing Winter Olympics’ opening ceremony, he was sporting a marine blue parka – specifically, one made by Canadian outfitter Arc’teryx. While the brand may be a foreign one at first glance, it was actually acquired by Chinese sporting goods manufacturer ANTA Sports in 2019. The jacket sold out in China immediately. ANTA, official sportswear partner of the Olympic games, went on to reap the benefits of that status throughout the 17 day event: Chinese athletes including star skier Eileen Gu were all outfitted in ANTA gear, making the brand omnipresent and rocketing sales to previously unseen levels, an increase of up to 15-fold.

But the very reasons that business at home has boomed for China’s sports gear makers is complicating their international endeavors.

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, American company Nike and Germany’s Adidas dominated international markets for sporting goods and apparel. With their global market presence, world-leading athletes under sponsorship, and products that transcend the lines between sports and urban fashion, both have built well-known, global brands over the last 50 years.

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Until recently these two foreign brands held a duopoly in the Chinese market as well, but now the tides are turning. After the Better Cotton Initiative (BCI) revoked their certification of cotton from China’s autonomous region Xinjiang over allegations of forced labor, a cascade of events followed. Western companies that renewed their support to the BCI and suspended the use of cotton sourced from the region, including Adidas and Nike, felt the fury of Chinese consumers. ANTA, on the other hand, originally the first Chinese company to join the BCI, stated that it “will keep buying and using China cotton” and subsequently quit the organization, while Li-Ning made public statements saying it wasn’t even part of the initiative.

In the Chinese market, the results of this embrace of the party line on Xinjiang were soon obvious. As the two Western brands’ sales slumped by between 15 percent and 20 percent 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 spots in e-commerce sales.

A Politicized Business Environment Complicates International Expansion

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

ANTA has been acquiring foreign, longstanding brands, including Japanese ski gear maker DESCENTE, the China business of Italian FILA, and Finnish sports company Amer, which in turn owns the aforementioned Arc’teryx of Canada favored by Xi Jinping. Contrary to the rapid departure from the BCI by its parent, ANTA, Finnish Amer has remained in the BCI. This zigzag of ethical alignment has so far paid off – not only because a popular boycott against Amer and its sub-brands has yet to happen, but also because Amer increased its revenues in the last fiscal year to a record high, exceeding pre-pandemic levels. Nevertheless, revenue for parent company ANTA is still almost exclusively generated in China.

Chinese rival Li-Ning has so far been focusing on exports, especially to the United States. As late as October 2021, the company was seeking funding for its newest attempt to venture overseas. But these plans hit a wall within months. First, Norway’s sovereign wealth fund excluded Li-Ning from its portfolio over “serious human rights violations.” A mere week later, U.S. Customs and Border Protection announced an all-out import ban on Li-Ning products after an investigation identified North Korean forced labor in its supply chain. Li-Ning responded by discounting these allegations as “overseas speculations.”

As Western Liberal Values Clash With Authoritarianism, Businesses Will Need to Adapt

The combination of these headwinds has made it impossible for both Chinese contenders to gain a significant foothold in most liberal market economies – less because of mistaken business decisions and more due to an increasingly politicized business environment. As such, ANTA and Li-Ning are case studies of a new paradigm: While in the past, clashes over values between liberal market economies and authoritarian regimes were confined mostly to culture and ideology, in today’s increasingly polarized world the array of affected products is ever expanding. Now, even something as mundane as sporting 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 China market and steer away from the many red lines of Chinese politics: Taiwan, Hong Kong, and Tibet, to name just a few. For the involved companies, mistakes were costly, as party-state media often responds by fueling popular boycotts. For China’s ruling party, however, the applied pressure has been a useful tool of economic coercion.

As Chinese firms venture abroad into an increasingly politicized global business landscape, they themselves must now maneuver carefully to avoid rubbing either side the wrong way. ANTA and its Finnish subsidiary Amer demonstrate that a one-size-fits-all approach to ethical governance is impossible when the East-West rift is ever deepening. But other attempts to localize political alignment have backfired in the past. German retailer Hugo Boss, for example, publicly proclaimed to the United States’ NBC News that it does not source from Xinjiang, only to slyly tell Chinese customers the exact opposite shortly later. Once such a flip-flop is noticed by observers, the fallout will be even worse. And even if localizing the political alignment on a subsidiary basis may work for a brief period, Li-Ning’s import ban has shown that issues can transcend final products and run back up the supply chain.

Xi Jinping’s display of ANTA-owned fashion at the Olympics may have been unsurprising –  after all, the company was a main sponsor. But it symbolizes a growing trend: As long as Chinese firms match the interpretation of values, including human and labor rights, prescribed by the party, they can enjoy state support. As inherently Chinese companies, both ANTA and Li-Ning will thus likely remain loyal to the CCP’s understanding of human rights, especially as their domestic revenues dwarf anything they earn abroad. Furthermore, they are in ideal positions to leverage Beijing’s push to boost China’s sports sector to 5 trillion RMB by 2025.

In contrast to the favorable circumstances at home, however, international business expansion into liberal market economies will only become more challenging and require painful decisions. The European Parliament recently passed a resolution that seeks to clamp down on the import of Chinese products exploiting forced labor and particularly targeted the Xinjiang region. Furthermore, this issue has already attracted the attention of policymakers in the United Kingdom. Such regulatory moves are likely to create severe challenges for both Chinese sports gear makers.

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

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