AUGUST 2008: COVER STORY, SPORTS
NIKE'S GREAT LEAP
Oregon’s largest company bets big on the Beijing Olympics
and the new China.
By Ben Jacklet
The story of Nike’s multi-billion-dollar bet on China and
the 2008 Beijing Olympic Games begins, appropriately enough,
with Phil Knight.
The wily sports guru who has single-handedly kept
Oregon’s state budget in the black by selling off $1.3
billion in Nike stock over the past year was a hungry
entrepreneur when he first visited China in 1980. His business
had grown to $150 million in sales and was revving up for an
initial public offering. He recognized China as a business
frontier worth exploring, Communist in name but bustling by
nature, where wages were low and factories were in need of
upgrading. Within a year Knight and Nike had entered into
formal negotiations with the Chinese Communist Party, the first
advance in a relationship that would intensify and deepen over
28 years of staggering growth for both Nike and China.
NIke-sponsored hurdler Liu Xiang became a Chinese
national hero after winning gold in 2004. His
biggest race will be in Beijing.
PHOTO COURTESY OF NIKE
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This was long before China had emerged from the backwaters of
the global economy to establish itself as factory to the world
and its fastest-growing market, a land where skyscrapers now
sprout like grass and hundreds of millions of people have left
behind poverty to join the middle class. Then the Chinese
government was in the early stages of an earth-moving shift
from isolation to economic liberalization. Mao Zedong was dead,
and his successor, Deng Xiaoping, had set a lofty goal of
doubling China’s gross domestic product in the 1980s and
then again by 2000. Deng’s proclamation reminded skeptics
of Mao’s Great Leap Forward, a colossal failure. But
rather than over-stating his nation’s potential, Deng
underestimated it. China achieved Deng’s goal five years
ahead of schedule. Today it is the fourth-wealthiest nation in
the world, with a 2007 gross domestic product of $3.3
trillion.
Nike also has grown exponentially since that point, increasing
sales a hundredfold to more than $18.6 billion in fiscal
2008. Expanding from its first investment in a
behind-the-times state-owned factory, Nike has built a network
of 180 private contract manufacturers employing 210,000 Chinese
workers. Those factories laid the groundwork for a whole new
marketplace. Nike established its brand early, sponsoring the
Chinese national basketball team in 1981 and a string of top
athletes since then, from the gentle giant Yao Ming to the
charismatic gold-medal-winning hurdler Liu Xiang. Nike China
opened a small marketing office in 1991 with six employees,
launching a high-energy campaign to hype sports in China,
backing everything from neighborhood parks to professional
leagues. In 1994 Nike China was an $8 million enterprise; by
2002 sales had reached $100 million.
Today the annual revenues of Nike China surpass $1 billion,
and no company is better positioned to harvest gold from the
big business bonanza that will be the Beijing 2008 Olympic
Games. Nike has never been an “official sponsor” of
the games, but it has perfected the art of branding Olympic
heroes. Nike’s influence helped China land the Games, and
as all eyes turn toward Beijing, it will be impossible to
ignore the swoosh. Athletes from more than 100 countries are
supported by Nike, but none will be more closely watched in the
host country than the 22 of 28 Chinese Olympic teams that will
be donning Nike. These local heroes have been lionized in
over-the-top advertisements plastering billboards, televisions,
computer screens and even Beijing skyscrapers, symbols of the
energy and pride of the New China and the transcendent power of
victory.
“Our goal is to help [Nike-sponsored athletes] finish at
the top of the podium,” says Willem Haitink, vice
president and general manager for Nike in China and Hong Kong.
“They are the center of our product innovation and we
will celebrate their greatest Beijing moments, inspiring
consumers and fans all over the world.”
In a recent company report about Nike’s investment in
China, CEO Mark Parker promised, “Nike and China will
succeed together,” and to a certain extent he is already
right. But as Parker has been quick to point out, Beijing is
just the beginning. Most analysts consider China the single
biggest driver of future global consumption. A recent report
from Credit Suisse applauded Nike for its strong position in
China and forecasted that Nike’s sales in China will grow
from $1 billion to $6.5 billion over the next seven years.
Before that can happen, Nike and China must clear a daunting
hurdle together. The Games must go well. They must not descend
into chaos, crackdown and condemnation. There can be no
international incidents or devastating doping scandals. Hosting
the Olympics always carries risk, and the risks associated with
Beijing Games are as enormous and complicated as the host
nation and the Oregon business that helped bring the Olympics
to China.
Nike CEO Mark Parker projects huge growth for Nike
in China.
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Nike and its stable of Chinese athletes unveiled
their Olympic uniforms at Beijing’s Ancestral
Temple in May.
PHOTOS COURTESY OF NIKE
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Nike’s advertising presence in China is
stronger than ever with campaigns aimed at Chinese
youths.
PHOTO BY GETTY IMAGES
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Terry Rhoads was a sophomore at the University of Oregon when
he heard a Nike executive speak at the Hilton in Eugene about
the future of global business. The message was clear: Learn
Mandarin and go to China. Amazing things will happen there.
Pioneers will be rewarded.
Kicking back recently at a Portland Pioneer Place Starbucks in
between endorsement calls regarding the 10-year-old Chinese
tennis prodigy he is representing, Rhoads looks back at how
dead-on that advice was. Learning Mandarin and traveling to
China earned him the opportunities of a lifetime for a sports
nut fascinated by Chinese culture. As head of sports marketing
for Nike China from 1994 to 2002, Rhoads helped launch
professional sports leagues, built an American-style
“streetball” basketball culture from scratch, and
forged relationships with everyone from top government
officials to basketball player Yao Ming. He owns several
business interests in China today, including his Shanghai-based
sports company, Zou Marketing.
“Our goal was to weave Nike into the fabric of Chinese
sports,” says Rhoads.
That is precisely what the company has achieved. It helped
that Nike had already established its brand by flooding Chinese
markets with sneakers that weren’t good enough for export
but were still better than the canvas sneakers most Chinese
athletes wore. The other keys to Nike’s success, in
Rhoads’ view, were key investments in retail and
distribution, a solid employee mix of Chinese nationals and
expatriates fluent in Mandarin, and the disciplined leadership
of executives such as Dan Loeb, who was all of 25 years old
when he became general manager of Nike China.
Loeb, Rhoads and the other pioneers of Nike China struggled
with corrupt insiders and counterfeited competition, but
revenues kept growing. Rhoads recalls a company retreat in 2000
where eight senior managers formed a strategy leading up to the
2008 Olympics and beyond. “I was sitting there looking at
the numbers they were putting up, $600 million in sales by
2008, and I remember thinking, ‘Whoa, that’s 10
times where we are now. How is that going to
happen?’”
The first thing that needed to happen was for the
International Olympic Committee (IOC) to award the 2008 games
to Beijing. China’s first major effort to host the
Olympics failed when the IOC awarded the 2000 games to Sydney,
Australia. The Chinese government was determined to succeed
this time, and Nike offered to help.
While the IOC was deliberating in 2000, Nike created the FUON
Sports Marketing Center, a partnership between Fudan
University, the University of Oregon and Nike, modeled after
the James H. Warsaw Sports Marketing Center in Eugene. The
center was funded by Nike and supported by the Chinese Olympic
Committee. One of the first participants was He Hui Xiang, the
vice president of the Chinese Olympic Committee and the
government’s top spokesperson for athletics. While He and
her colleagues were wooing the IOC with backing from Nike, the
FUON Center organized a series of conferences timed to build
maximum hype in the summer of 2001. The featured speaker for
these conferences was Carl Lewis, the Nike-backed track star
with 10 gold medals to his name. Lewis was a legend in
Olympics-crazy China, and fans flocked to his appearances.
Lynn Kahle, a professor of marketing at the Warsaw Sports
Marketing Center who traveled from Eugene to China to speak at
the conferences, recalls, “The purpose of the conferences
was educational but the timing made it clear that Nike China
was trying to help the Beijing Olympic Bid Committee succeed.
The people on the bid committee reached out to Nike China
because they knew that Nike understands how the world works and
Nike can influence things.”
Millions of people celebrated in the streets of Beijing on
July 13, 2001, when the IOC granted the 2008 games to Beijing.
It was a day of triumph for China — and for Nike.
“People have criticized Nike for missing opportunities
in other areas,” says Kahle. “But I don’t
think Nike has ever been confused about China and its
potential.”
Nike’s early efforts in the Olympics did not produce
stellar results. The company was a nonentity at Munich in 1972
and at the boycotted 1980 games in Moscow, and it was
humiliated at Montreal in 1976 when marathoner Frank Shorter
dumped his Nikes for poor performance prior to winning the
gold.
That changed in Los Angeles in 1984, the same year Nike signed
Michael Jordan. Nike-backed superstar Carl Lewis soared to
victory in four events, and Nike pumped up the volume with its
first big-time foray into television advertising.
Today Nike-sponsored athletes are renowned for raking in the
gold every four years while Nike itself has studiously avoided
humdrum official sponsorships in favor of ambush marketing
blitzes that set new standards for advertising. JPMorgan
analyst Robert Samuels notes that Nike’s stock has
outperformed the Standard & Poor’s 500 index in each
of the past four Olympic years, shooting up 34% in 2004, 14% in
2000, 74% in 1996 and 16% in 1992.
None of those previous games has been bigger than Beijing in
2008, where Nike is using every ounce of its creativity and
influence to build demand and compensate for past missteps
involving Yao Ming and LeBron James. In 2003, Nike lost Yao, a
larger-than-life icon in the company’s fastest-growing
market, to Reebok. This was a major blunder, the first time
Nike had ever lost a head-to-head battle to sponsor a celebrity
athlete.
Then Nike invested $90 million to sign LeBron James, who
starred in an ad that infuriated Chinese viewers and was
eventually banned by the Chinese government for insulting
national dignity. In the ad, produced by Portland-based
Wieden+Kennedy, James out-duels kung fu masters and Chinese
dragons to power his way to victory, leaving defeated Chinese
symbols in his wake.
Since the LeBron James ad was banned, Nike has walked a fine
line to win over Chinese youths without offending Chinese
elders. The company released its “Look of China”
outfits for Chinese athletes at an event at Beijing’s
Ancestral Temple that featured martial artists and traditional
drummers. The show took place 88 days before the 2008 Games,
paying clear respect to the widely held Chinese superstition
that the number 8 represents good fortune (the games will begin
promptly at 8:08 p.m. on 8/08/08).
In its advertising pitches, Nike China has replaced the
irreverent tone that has worked so well in the West with a more
direct message stressing heroism and pride. “It’s
more inspirational,” says Rhoads. “It’s like:
‘What’s your dream? What’s stopping you? Go
get it.’”
The centerpiece of the campaign has been Liu Xiang, the first
Asian to win a gold medal in a sprinting event. The minute Liu
took gold in Athens in 2004 Nike pounced with a campaign about
overcoming stereotypes in the race to victory. The message was
not subtle, but it was extremely effective. The once-obscure
hurdler became an icon in China. He was the first runner to
carry the Olympic torch this year, before the torch relay
descended into chaos.
The reason China failed to host the Olympics sooner can be
summed up with one powerful image: Tank Man. This anonymous man
who stood up to the Chinese army and its tanks at Tiananmen
Square in 1989 has been erased from history as far as the
Chinese government is concerned. It is as if he never existed,
and neither did the freedom movement he symbolized.
In the 19 years since Tank Man vanished, an arrangement has
developed between the Chinese people and their one-party state;
they are allowed to prosper and build empires with the full
blessing of the Communist Party as long as they do not
challenge its authority. The same rules apply to companies
doing business in China, making for touchy relationships as
pressure builds to use the power of the Olympics to force
political reforms.
TIMELINE
1980
Phil Knight takes his first trip to China; Nike goes
public.
1981
Nike opens its first factory in China and sponsors
the Chinese national basketball team.
1982
Nike products are first sold in China, in the
state-owned Beijing Friendship Store.
1984
China wins 15 gold medals in the Los Angeles
Olympics.
1988
Nike brands the slogan “Just Do It.”
JUNE 3: Tiananmen Square massacre turns world opinion
against China.
1990-1993: China fails to win the bid for the
2000
Olympics, losing out to Sydney, Australia.
1994
Nike helps establish China’s first professional
sports league, for soccer.
1995
Nike China creates a pro basketball league.
1998
Nike brings 17-year-old Yao Ming to Beaverton.
2000
Nike funds the first sports marketing program in
China.
China drops 27 athletes prior to the Sydney Olympics
amid a doping scandal.
2001
China is granted entry into the World Trade
Organization.
JULY 13: Beijing is awarded the 2008 Olympics.
2002
Nike China revenues hit $100 million. Nike signs
hurdler Liu Xiang.
2003
For the first time, Nike sells more outside the U.S.
than within.
2004
China makes ownership of private property a
constitutional right, but keeps control of the media
and the sports industry.
AUGUST: Chinese hurdler Liu Xiang wins a gold medal
in Athens and becomes an instant celebrity amid a
Nike ad campaign fanning Chinese pride.
2007
Nike opens a 12,000-squarefoot flagship in Beijing,
the first in China that Nike directly owns and
operates.
2008
MARCH: China cracks down on protests in Tibet.
APRIL: Olympic torch relay is dominated by anti-China
demonstrations in San Francisco and Paris; Chinese
nationalists boycott Western companies.
MAY: Nike China revenues top $1 billion. May 12:
Chinese athletes unveil new Nike apparel at the
Imperial Ancestral Temple inside the Forbidden
City.
JUNE: Olympic organizers release rules for foreign
visitors that outlaw protests, ban travel to Tibet
and bar anyone with “mental
diseases.”
AUGUST 8-24: Beijing Olympic Games. Nike is not an
“official sponsor,” but the swoosh is
everywhere.
SOURCES: Hoover’s company records; Wall Street
Journal; China’s Great Leap (Seven Stories
Press, 2007); SEC filings; Nike China corporate
responsibility report; Operation Yao Ming (Gotham
Books, 2005); nikebiz.com.
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Not long ago, a public relations disaster seemed imminent.
Actress Mia Farrow branded Beijing 2008 the “Genocide
Olympics” and convinced director Stephen Spielberg to
resign as artistic director of opening ceremonies.
Václav Havel, the former president of the Czech
Republic, led intellectuals and world leaders in questioning
whether the IOC should allow the games to take place in China.
The Olympic Torch Relay devolved into a string of
demonstrations in Paris and San Francisco. The Chinese
government responded with characteristic defiance, banning
foreign reporters and detaining dissidents. Chinese
nationalists staged counter-protests and threatened to boycott
Western companies. A poll by Zogby International found that 70%
of likely American voters believe the IOC was wrong to award
the Games to China because of its poor human-rights record. It
took a tragic earthquake in Western China to push the
controversy off the front page.
“The situation was definitely getting ugly,” says
R. Scott Greathead, CEO of World Monitors, a New York-based
risk prevention consultant to multinational corporations.
“There was a real risk that the whole thing would descend
into utter chaos, and utter chaos is a result that nobody
wants.”
Nike is no neophyte when it comes to global politics. The
company was founded on free trade and was international from
day one. But it hasn’t been an easy ride. Images of
low-wage workers sweating in foreign factories while Air
Jordans sold for $100 a pair did not go over well with
idealists, who painted Nike as a corporate villain profiting
from child labor and exploitation. The tension peaked in 1998
when Knight famously ranted to the National Press Club:
“The Nike product has become synonymous with slave wages,
forced overtime and arbitrary abuse.”
After an unsuccessful period of denial, Nike shifted to a new
policy of increased scrutiny and transparency that has won over
many former critics. In 2005 Nike became the first in its
industry to disclose its supply chain. Nike has intervened on
behalf of workers detained by Chinese authorities and initiated
a code of conduct and a monitoring system for its contract
factories.
“In the past, when workers raised concerns Nike tended
to ignore them,” says Li Qiang, executive director of
China Labor Watch, a New York nonprofit that receives worker
complaints through underground offices in Chinese industrial
zones. “That is no longer the case. Instead of denying
problems exist, Nike is trying to fix them.”
Nike’s position on the pre-Olympic political tensions
has been consistent. “Nike’s focus is on sport and
serving athletes,” says Haitink. “Boycotts only
hurt athletes who train for their entire lives for that special
Olympic moment.”
There is no guarantee that the Games will proceed orderly and
to the liking of the Chinese government. For that matter, there
is no guarantee that China’s amazing rise will continue.
China has invested an estimated $40 billion renovating Beijing
for the Olympics, but its economy is not immune to global
uncertainties. The Chinese stock market dropped 50% between
October 2007 and June 2008, and inflation is on the rise.
China’s position as factory to the world was built on
cheap oil for transport and low wages for factory work. Cheap
oil is a thing of the past, and wages are rising in China.
But any global company that hopes to succeed had better have a
strong strategy for China, and Nike certainly does. “Nike
has been a part of China for almost 30 years and we are the
leading sport brand in China, and around the world,” says
Haitink.
“Nike is the first in our industry to hit $1 billion in
revenue in China, and China is our No. 2 market in the world
— and growing fast. We have done this by connecting with
China’s youth and investing in sport at every
level.”
Rhoads points out that Nike’s position in China
could grow even stronger if the Chinese government were to bow
out of the sports industry. While other industries such as
technology and finance have blossomed in China following their
release from government control, the Chinese government has
clung tightly to the two sectors it has deemed vital to
propaganda efforts: the media and sports. Were the state to let
go of sports, the market in China could explode.
Nike’s strategy for building that market has focused on
the consumers of the future: young, tech-savvy, open-minded and
eager to establish their place in the New China. The company
has targeted that demographic with snappy marketing campaigns
and hundreds of new retail outlets such as the Beijing flagship
store, one of Nike’s most successful stores in the world,
opened during the great buildup to the Olympics.
Two recent campaigns created by Wieden+Kennedy for Nike
foreshadow the Nike China of the future. One is a reality
television series aired in China in May and June, starring Kobe
Bryant and his “mentu” or disciples.
Over the course of the show’s run, a squad of young
Chinese basketball standouts was culled from 400 to 24,
American Idol-style, earning the opportunity to get schooled by
Bryant on TV.
Another notable campaign was Nike’s Beijing City Young
Basketball Masters, a hoops tournament in May 2007 that was
hyped with ads in glossy magazines, on billboards and in retail
shops that sell Nikes, as well as through a website created for
the event and in the online basketball game Freestyle Street
Basketball. A rap anthem by Chinese hip hop star MC Webber set
the tempo for a promotional video featuring hoop warriors
dressed in Chinese-themed outfits. The multimedia blitz drew
1.25 million online viewers.
Even Phil Knight would have been hard-pressed 28 years ago to
visualize such a future — for Nike or for China.
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