A small incident can have big consequences for foreign brands on the Chinese market. The South China Morning Post reports that Chinese Mini Cooper owner Lily Yu was “very worried” last month, and wondered whether she should stop driving the car for a couple of weeks. Her concerns, expressed in a WeChat post that featured a photograph of the car, had nothing to do with its drivability, but instead centered on the risk of embarrassment for driving a car made by a company at the center of discrimination allegations in China. The British marque, owned by German carmaker BMW, became the latest global brand to come under fire in China after two staff members working at the Mini booth at last month’s Shanghai Auto Show were caught on camera refusing to give free ice cream to Chinese visitors before offering some to a Western man.
A video clip of the incident triggered fierce criticism on Chinese social media about the apparent preferential treatment for foreigners, with many calling for a boycott of the brand. In response, the company issued two apologies within 24 hours on April 20 and 21. From Italian luxury brand Dolce & Gabbana, which landed itself in hot water for racist advertisements in 2018, to Swedish fast fashion retailer H&M, which was criticized for shunning cotton from Xinjiang, many international brands have encountered consumer boycotts in recent years. Multinationals operating in China were now facing even more pressure as online nationalism rose, tensions between China and the West worsened, and competition from local brands increased, said Hillevi Parup, Analyst at the Swedish National China Center. “At the same time, negative attitudes to China appear to have increased or remained high in places such as North America, Europe, Japan, South Korea and Australia,” she said. “The current geopolitical environment suggests that foreign companies are under substantial strain, but this pressure comes from two sides: nationalist Chinese consumers swayed by state propaganda, as well as other consumer bases and governments, primarily Western, who have become increasingly wary of China. As a result, foreign companies face a challenging balancing act in the Chinese market.”
While the overall impact of online backlashes on the business performance of targeted companies remains unclear, some saw their market presence in China shrink following their involvement in controversies. H&M’s 2020 financial year report said it had 445 stores in mainland China, but according to the company’s website there are now only 316. A study of Chinese consumer boycotts of Japanese cars following anti-Japan protests in 2012 over disputed islands in the East China Sea showed that sales of Japanese cars in China were severely affected, said Wu Fang, Professor at the Shanghai University of Finance and Economics’ business college.
“In the longer term, a serious online backlash damages brand image, which could take dozens or even hundreds of years to build,” she said. That was why many luxury brands responded to crises swiftly, by, for example, immediately terminating partnerships with brand ambassadors involved in scandals. Besides increasing nationalist sentiment, the rise of local brands and changing consumer preferences lay behind the frequent conflicts faced by foreign companies in China, Wu said. “Buying big global brands may be a self-expression of ‘being international and having a high social status’, but the younger generation today wants more than that,” she said. “As China grows stronger and a sense of national pride spreads, many young people also want to express things such as ‘I’m Chinese’, and ‘I’m me, different from anybody else’.”
About 46% of Chinese consumers’ mobile-phone purchases among the top 20 brands were domestic brands in 2013, but that share rose to 64% in 2021, a research paper by consulting firm McKinsey said. “Chinese consumers are choosing local brands for their quality and level of innovation, not just because of low prices or from a sense of national pride,” it said. It found that multinationals’ share of all revenues earned in China declined from 16% to 10% from 2006 to 2020, although in absolute terms, their revenues grew strongly. At the same time, their share of all profits made in China declined from 16% to 14%. “In short, multinational corporations have grown quickly, but considerably less quickly than local competitors,” it said.
Joe Ngai, Chairman of McKinsey Greater China, said competition from local businesses had been one of the major things to watch for the many multinational company CEOs who had visited China recently. “We can say that geopolitics has changed a lot of things in China, but I think what’s more important to multinationals in China is the competition from domestic companies,” he said in Shanghai last month. “The pressure from their local competitors – their innovative capabilities and products – in my opinion, is much bigger than that from geopolitics.”
Joerg Wuttke, President of the European Union Chamber of Commerce in China said the country’s great size meant it still offered many opportunities. “Even if China has a very, very low growth projection, it turns into a massive growth of economic output,” he said in Shanghai last month. “Even 2% GDP growth means they are growing at the size of the Austrian economy. “Do we want to be outside of China to look at this or do we want to be inside to at least try hard to be part of that? That’s the thing.”
To seek business success in an ever more complex environment, most companies have chosen to apologize once they encounter a public outcry. According to a study of Chinese consumer boycotts of foreign companies between 2008 and 2021 co-authored by Parup, more than half of the boycotted companies issued public apologies as a form of damage control. However, a better solution might be to “avoid the public eye completely”, it said. “Apologies and explanations simply tend to garner more attention, which is frequently utilized against the companies,” Parup said, as reported by the South China Morning Post.
