The NBA China row reveals a marketing inflection point

This article first appeared in WARC, 6 November 2019, https://www.warc.com/newsandopinion/opinion/the_nba_china_row_reveals_a_marketing_inflection_point/3288

The backlash hitting the NBA in China will illustrate just how strongly major corporations that tout purpose for growth in western markets will fare in new, large, important markets, argues Joseph Baladi.

British author Hari Kunzru recently made this observation: "More than ever we need public intellectuals who are able to make a robust defence of human rights in the face of the indifference and cynicism of our political leaders.”[1] In the wake of the China NBA uproar, one might wonder whether this is also essential of companies and corporations.

Corporate conduct and brand meaning has never been more relevant and more important than at the present time. With societal and environmental challenges rising at the very time that government influence and involvement is declining, global consumers have repeatedly reminded companies that brand values matter more than ever. Companies, have, for the most part responded accordingly. For the past two decades or more, companies have been building reputation off the back of policies that have addressed climate change, animal testing, sexual orientation, gender inequality and other similarly important issues. In doing so they have, effectively, taken a stand. Encouragingly the list of companies around the world, large and small, stepping up and committing to support a cause or mitigate a concern is long and only getting longer.

Then the NBA row in China erupted.

It was triggered by a tweet sent by Houston Rockets general manager Daryl Morey. In it he expressed support for the Hong Kong demonstrators with the words "stand with Hong Kong”.

The reaction by Chinese sponsors, broadcasters and social influencers has been total and unforgiving, immediately placing some $4Billion of business value in jeopardy. The velocity of sanctions, boycotts and cancellations have only been matched by an equally rancorous and unsparing rhetoric leaving little, if any, room for discussion and calm resolution.

In contrast to a recent CNN headline characterising the conflict as being about pride for both sides,[2] the signs so far indicate that the issue is more profound. Sponsors’ reactions - inspired, if not instructed, by the Beijing central government - need to be considered in context of Chinese policy. China sees any challenge to its authority as simply intolerable and unacceptable. We have seen this before, particularly around the sensitive topics of Taiwan, Hong Kong and, more recently, the vast swaths of the South China Sea it is increasingly declaring as its own. On the surface, one might label this a scorched earth policy designed to reinforce a consistent doctrine: no-interference and no criticism. And to a very large degree this is likely to be accurate. But it would be a mistake to believe that China’s willingness to absorb short-term – even heavy – penalties is only to underscore an important principle. China is willing to risk a lot - perhaps everything – because it plays the long game. Whilst pride plays a significant and genuinely important role in the Chinese calculus, it should be seen as bait rather than the catch. Ultimately this is about power and control. And it’s not about now, but rather the future. The Chinese are as convinced as the Americans are, over their right to some preordained global leadership role. And whilst they arguably have every right to pursue this ambition, it is the ground rules they are dictating that gives rise to significant concern to those who need or hope to interact with them. In the eye of this storm are companies and brands.

The extensive NBA China coverage so far has detailed – for the most part - the actions and reactions of, both, the protagonists and antagonists. What has been avoided is the elephant in the room. And that elephant is more than metaphorically big. It is profoundly consequential. That elephant talks to not only corporate (and brand) conduct, but as importantly, consistency.

The NBA China row is not about China per se, but all markets that reflect different and competing norms practised in the West. The quarrel has served to peel another layer that reveals the complex values/conduct construct relationship. Most of the time that construct is hard to deliver on. It is only by placing the incident in the context of the hugely valuable China market that it is possible to say that “relatively speaking” it has been “easy” to date for companies and brands to live their core values, address social and environmental issues and even reveal political leanings: the risk assessment is often visible, measurable and, for the most part, affordable.

Companies like Apple, Unilever and the NBA have all, at one time or another been alternatingly described as “ground-breaking”, “future-thinking” and “courageous”. They have led the way with exceptional resoluteness in areas they have considered important to “take a stand” on and emerged as veritable models for other companies and brands to emulate. In standing against sexual discrimination Apple’s CEO Tim Cook urged that “(we must) protect workers against discrimination based on sexual orientation and gender identity… (and that) inclusion inspires innovation”[3]. In underscoring the tangibility of taking a stand, Unilever’s former CEO Paul Polman argued for the “need to embrace the power of purpose-driven businesses, where values become as important as value”[4]. And arguing for a new reality, NBA’s Commissioner Adam Silver explained that "All CEOs, (of) all big corporations these days really have no choice… It's an expectation from their customers that they're going to take a position...  (and) I think in this day and age, you really do have to stand for something"[5].

The evidence so far has supported the principles-based leadership styles of these three and countless other leaders. A study by Haas School of Business at Berkeley, California shows that “more than 90% of millennials would switch brands to one associated with a cause. And 46% of consumers would be more likely to buy from a company led by a CEO who speaks out on an issue they agree with. Only 10 % would be less likely to buy. This rate has risen significantly since 2017.” Another study by Edelman has reported that “57% of 14,000 customers in 14 countries state that they are more likely to buy from, or boycott, a brand because of its stance on a social or political issue.”[6] One of the more important implications of this is the co-creative process consumers and companies are beginning to increasingly engage in in shaping the normative values and behavioural standards deemed universally acceptable – especially at a time, as Kunzru suggests, when political leadership and oversight cannot be counted on.

Companies like Apple, Unilever and the NBA have been rewarded with support and commercial growth. They have delivered credibility to the notion that responsible companies have a right and a role in shaping society now and in the future.

That was then. Last week China revealed the “now”.

In markets like China, companies now need to reconsider and weigh the enforcement of their values against possible withdrawal, exclusion or even expulsion. In China - as the NBA experience demonstrates - the value, risk and potential loss – can amount to billions of dollars. The NBA China row has revealed a profoundly consequential inflection point for business, marketing and brand management theory: the tension that exists (and won’t go away) between company and brand values and company and brand conduct.

At some point the former will be tested by the latter in markets where the risk factors are exponentially higher than “at home” or home-like markets. And those companies that are unprepared will respond in ways that are inconsistent with their declared core values. Following the recent China controversy and Hong Kong unrest, all three companies - Apple, Unilever and the NBA - have all fallen into this trap. In the wake of the Hong Kong demonstrations this is how a journalist described Apple’s predicament in China following its decision to controversially pull two aps from its China app store: “Apple may be forced to weigh up whether operating in China — its third largest market — is worth the degradation of its global reputation.”[7] Reflexively reacting to mounting pressure, Clear, a hair-care brand owned by Unilever, announced it would suspend all ties with the NBA in China.[8] And responding to the fierce and immediate criticism by virtually all of its Chinese sponsors, the NBA Chief Communications Officer reacted by labelling Morey’s tweet as “regrettable” and not representative of the Rockets and the NBA, while Rocket’s owner Tilman Fertita stated Morey “does not speak for the Houston Rockets”[9].

The trap is even more damaging – and likely to be more unforgiving - to brands that have not only consciously sought to defend a moral perspective or support a political view, but have gone out of their way to do so. Unlike most brands that seek out a specific purpose to focalize around, Nike is a brand that has built its entire reputation – and brand value – around a willingness to speak out or stand for, a multiplicity of issues that, most of the time, generate polarizing opinions. This is largely what contributes to its archetypal “hero” status. But it is that very willingness to take a side so aggressively – like its support of Colin Kapernick - that has defined the brand and has provided it with invaluable legitimacy, authenticity and, ultimately, sustainable consumer appeal. It is not an exaggeration to say that it is that brand reputation that makes the brand what it is, and that, everything else being equal, it is brand reputation that will dictate its future. So when US Vice-President Mike Pence criticized the shoe company for removing Houston Rockets merchandise from stores in China[10], he didn’t just take an opportunistic swipe at a ‘left leaning, liberal” company, he reminded them of what amounts to an existential catch-22.

Moving forward these brands and others conceivably need to make an almost unimaginable choice: continue to grow by virtue of their beliefs and values or compromise these in markets that might force them to publicly disavow them.

It is, by any measure, an impossible choice, but it is nevertheless, a very real choice.

As clear as the issue and its corresponding risk is to some companies, many observers either miss the point or, worse, normalize it. Commenting on the importance of personal values IPG, CEO Michael Roth stated he would only work for companies that “took a stand” on important social issues. Yet referencing his concern over the evidence of growing nationalism and protectionism in China, he contradicted himself somewhat by explaining that “it’s such an important market that we have to be there and we have to service our clients.”[11]

China has grown big and powerful enough to absorb the financial blows it might suffer if global multi-national giants choose to retreat from its massive markets. As mentioned earlier, its longer-term line of sight makes this acceptable to its leaders. But its ability to ultimately benefit in the longer term – and “win” - is entirely dependent, if not reliant, on the unwillingness of most Western companies to “stand up” for their declared values. In the end it’s a long game not just for the Chinese, but also for Western companies and the global landscape they inevitably must help shape in the future.

References:

[1] Retrieved from https://www.bbc.com/news/world-europe-50008701

[2] Pride at stake for both China and NBA over $4 billion fallout: https://edition.cnn.com/2019/10/09/sport/nba-china-houston-rockets-basketball-spt-intl/index.html

[3] Apple celebrates LGBT rights in new ‘Pride’ video: Retrieved from https://www.cultofmac.com/286512/apple-celebrates-lgbt-rights-new-pride-video/

[4] Restoring trust with purpose. Retrieved from https://bteam.org/announcements/restoring-trust-with-purpose/

[5] The NBA is not afraid to lead on social justice. Retrieved from https://money.cnn.com/2018/02/16/news/companies/nba-adam-silver-player-activism/index.html

[6] Why Brand Activism wins over Brand Neutrality. Retrieved from https://www.ubermetrics-technologies.com/why-brand-activism-wins-over-brand-neutrality/

[7] Backed into a corner, Apple must now decide where its long-term allegiance lies. Retrieved from https://www.campaignasia.com/article/backed-into-a-corner-apple-must-now-decide-where-its-long-term-allegiance-lies/454941?eid=21&edate=20191018&utm_source=20191018&utm_medium=newsletter&utm_campaign=daily_newsletter

[8] Slew of NBA’s Chinese sponsors suspend ties. Retrieved from https://www.sportbusiness.com/news/all-nbas-chinese-sponsors-suspend-ties-shanghai-and-shenzhen-games-in-doubt/

[9] NBA row heightens foreign companies’ fears. Retrieved from https://www.scmp.com/news/china/diplomacy/article/3032418/nba-row-heightens-foreign-companies-fears-they-could-cross

[10] US Vice President Mike Pence takes swipe at NBA, Nike in critical speech on China. Retrieved from https://www.abc.net.au/news/2019-10-25/pence-takes-swipe-at-nba,-nike-in-critical-speech-on-china/11638876

[11] IPG CEO Roth 'concerned' about China, hints at repositioning. Retrieved from https://www.campaignasia.com/article/ipg-ceo-roth-concerned-about-china-hints-at-repositioning/454772?eid=21&edate=20191010&utm_source=20191010&utm_medium=newsletter&utm_campaign=daily_newsletter

The writer is a PhD candidate at UQ Business School, The University of Queensland. He is completing the first empirical research study ever undertaken on the Brand Purpose construct. Prior to this he was Adjunct Professor of Strategic Brand Management at Singapore Management University. His book – The Brutal Truth About Asian Branding (WILEY) – was released worldwide in January 2012.