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Hello again from Seoul. Spring has sprung and the cherry blossoms are out, a much-needed reprieve after several days of hideous smog.
Our main piece today focuses on one of the most thorny non-tariff trade barriers foreign companies and their governments are dealing with in Asia: getting caught in a culture war. Fast fashion behemoth H&M might be in the crosshairs of Chinese netizens and wolf warrior diplomats over its sourcing of cotton from Xinjiang, but this is not a new problem. Nor is it exclusive to China. Importantly, people who work in the trenches believe there are ways to mitigate the risks.
Charted Waters counts the cost of the Suez blockage, while Policy Watch examines the impact of the pandemic on England’s pig farmers.
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Local presence is key to soothing tensions
The longest-held grievances between my native New Zealand and our dear neighbour Australia involve the genesis of a meringue dessert named after a Russian ballerina, an unconventional cricket bowling technique deployed in 1981, and competing claims to a popular rock band.
Comprehending the deep historical, cultural and political ructions between countries and peoples in Asia, meanwhile, is rather more complex. It takes humility and a lifetime of learning to even come close. Millennia of wars, invasion, cultural appropriations and atrocities are only the beginning. The rise and rise of China, with its totally different political system, has undoubtedly complicated the situation further for those trying to tap the world’s growth engine.
Still, even a novice would not necessarily be surprised that H&M and Nike now face the wrath of Chinese consumers over earlier statements of concern about alleged forced labour in Xinjiang. China has denied widespread allegations about its treatment of the Uyghurs. But the US last month accused China of “crimes against humanity” against the Muslim population, and western resolve on the issue is firming.
Foreign brands offending local consumers in Asian markets — and facing a subsequent backlash — is not a new problem. Nor is it one exclusive to China.
In 2019, for instance, a South Korean man smashed his own Lexus with a steel pipe, venting his fury over bilateral tensions with Japan, which date to Tokyo’s colonial-era rule of the Korean peninsula. India has a record of harassing foreign groups over conforming to its official demarcations for disputed borders.
So, what can people do to navigate these issues?
First, many foreign companies, governments — even media — misunderstand how these culture wars play out, according to Shaun Rein, managing director of China Market Research who advises companies on the Chinese market.
While some have seen the H&M fracas as a clear sign of escalation in Beijing’s approach to nationally sensitive issues, Rein told Trade Secrets he had a different view.
“A lot of people say it’s the Chinese government that’s intentionally creating this. It very often isn’t. It is very often true, organic anger from Chinese [people]. The government comes in and aids and abets later,” he says. “I don’t think the standards have changed necessarily, but it’s much harder to navigate, because of social media, the government can’t control everything like it used to.”
William Foreman, a Taipei-based communications strategist and former president of the American Chamber of Commerce in Taiwan, has long found it shocking how companies have such “little understanding” of the cultures and countries where they do business.
“Companies can reduce the risk of getting burned by taking the time to understand the geopolitical risks and sensitivities. This will require people who have a highly refined global sensibility — a cultural and historical awareness.”
Rein says companies need to go as far as appointing something akin to a “secretary of state” — someone in a senior position who understands the cross-cultural nuances.
“It is shocking how many Fortune 500 boards don’t have anyone based in China . . . or if they do, it is clearly a token one,” he says.
A key reason for greater engagement and an expanded local presence is that if unavoidable problems do strike — for instance, sparked by a bilateral dispute between Beijing and a foreign government — businesses are far better placed to handle the fallout.
“Crisis management . . . has to be done months or years in advance of a potential crisis,” Rein says.
He points to groups such as Yum China and Starbucks as examples of US companies that navigated bouts of fierce criticism thanks to years of public commitment to their local Chinese operations and staff.
Yum, which owns KFC, was hit in 2016 by negative sentiment towards western companies triggered by the South China Sea dispute. Starbucks was accused of an affront to Chinese culture in 2007 over a coffee shop inside the fabled Forbidden City.
“When Starbucks got criticised, or when KFC got criticised, the anger wasn’t really there. Because people said, ‘oh, normally 95, 99 per cent of the time, they’re good to China’,” Rein says.
Foreman says companies need to analyse the worst-case scenarios and decide whether they have “the stomach” for a potential brand crisis.
“They need to do an extensive audit of websites, ads, news releases and other promotional materials — really put these things under an electron microscope and identify any content that might ignite controversy in the countries they operate in.”
If crisis does erupt, there are fewer options.
Rein generally recommends his clients “to be quiet, try to stay out of politics as much as possible”.
“But if you do get caught up, I think it’s important to say you love China, you’re sorry and you respect China as equals. I think that’s the big thing,” he says.
Foreman says the best option for most companies is to simply “wait it out, weather the storm”.
“Quite often, in places like China, the controversy blows over as the public anger dissipates and new targets are found,” he says.
Ultimately, both experts agree, corporates need to decide what their values are and stick to them.
According to Rein, H&M’s response to criticism over its sourcing of cotton from Xinjiang should have been: “We love the Chinese people, we love the China market, we respect them. But we want to make sure that there’s no forced labour in China or in the US . . . or anywhere in the world because we have certain corporate values . . . Nobody could get mad at a statement like that.”
Project44, a logistics data firm, has crunched the numbers on the cost of the Suez Canal blockage. Here’s how much got stuck there after the Ever Given made its unplanned berth.
With the canal unblocked, this might seem like a bit of a non-issue. But we think the numbers highlight the scale of the task facing the global maritime infrastructure as it looks to get back on track. Even before the blockage occurred major ports were operating beyond full capacity. As the affected vessels now begin to reach their next destinations, we wonder how time-consuming processing all those cargoes will prove.
The pandemic has upended every aspect of world trade, from the obvious shipping logjams and PPE sourcing, to the more obscure. For a particularly grizzly example of the latter, we’d point you to Judith Evans’ piece on the market for pigs’ trotters and heads.
English pork processors, already hard hit by Brexit, are asking for £15m in government support after China halted imports of this meat. The UK, like other countries, has suffered from Covid-19 outbreaks in food processing plants, leading China to ban pork imports. London agreed with China’s stance that meat factories undergoing outbreaks would voluntarily suspend their export licences. But the article notes that sources close to the discussions are concerned about the slowness of the process of reinstating licences after outbreaks have been eradicated.
The problem is that while Chinese consumers, who together make up the world’s biggest pork market, relish the trotters and head, people in the UK are less keen on these particular cuts. Scotland and Northern Ireland have already offered support to their farmers. But if London is not keen on following their lead, then it might consider following Taipei’s lead. In the face of Beijing’s ban on a certain oddly-shaped juice fruit, Taiwan relabelled them freedom pineapples and encouraged local chefs to create meals using them. With the UK set to ease restrictions on restaurants in the coming weeks, it’s an option. Though not one Trade Secrets would be that keen to take them up on. Claire Jones
Brompton, the foldable-bicycle maker, is facing a pile-up of problems from material shortages to rising production costs.
The government of Boris Johnson is resisting requests for a UK bailout of struggling train operator Eurostar, with ministers insisting that the company should look to its shareholders to ease its plight.
Post-Greensill, Owen Walker has written this great explainer on supply-chain finance.
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Ahead of Yoshihide Suga’s meeting with Joe Biden, Japan and the US are preparing an agreement to co-operate on foreign infrastructure, 5G networks and hydrogen power as a counterweight to China.
Vietnam has proposed regulations to compel global tech companies to hand over more taxes and data to government oversight by requiring local banks to withhold taxes from clients’ accounts.