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  1. Wealth
November 21, 2019

The NBA and the new trend in ‘corporate foreign policy’

By Spear's

The NBA’s recent travails are part of troubling trend that could see globalisation rebound on the West, writes Robert Amsterdam

This fall, the NBA, one of the world’s grandest sports brands, found itself in a crisis of its own making. It began with a simple tweet, but escalated into a geopolitical standoff when the general manager of one team expressed support for the protest movement in Hong Kong.

The social media post wound its way through China’s pro-government rage machine on Weibo (as Twitter is banned in China), amplifying to the point that the team faced boycotts from its Chinese broadcasters, financial partners, and sponsors.

Given that the NBA’s expansion into China is part of a 20+ year strategic plan with more than $4 billion hanging in the balance, its leadership leapt into crisis response mode and, unfortunately, fell at on their face.

Writing the Atlantic, Jemele Hill observed: ‘For the NBA, smoothing things over with Chinese o cials means capitulating in a way that compromises the values it regularly espouses—values that have endeared the league to many of its fans in America.’

It’s not the case that the NBA was naïve or inexperienced playing on the courts of politics, but they discovered that they couldn’t ‘both-sides’ the matter. Instead, the incident highlighted an identity crisis that illustrates a much broader trend. Companies and investors with large exposures internationally are finding themselves performing more and more overtly political roles on behalf of their host governments to ensure the success of their operation and to maintain their market access and position.

These roles and expectations will continue to evolve, and the NBA won’t be the last example we see. Of course, it wasn’t always like this. When I first began practicing law in 1980, clients doing business in emerging markets had to do without safety nets, tolerate high levels of risk, and sometimes, during disputes, take the fight to the streets.

Then things got a bit easier. The maturation of global capitalism and the movement toward open markets following the Cold War fostered safer conditions for foreign investment, while the private sector was strengthened by the supportive role played by Western governments. The prevailing thinking at the time was that the global expansion of Western companies, goods, products, and culture would be strategically beneficial, as more nations imported democratic values along with Hollywood films and fast food.

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One may recall the tremendous amount of political effort invested by McDonald’s before being allowed to open its first location in Russia in 1990. PepsiCo, on the other hand, had been much more successful. In 1959 it engineered a historic publicity stunt by having President Nixon offer a can of cola to Khrushchev. But now these anecdotes feel like distant memories.

Long before Brexit, President Trump, and the spread of populist nationalism, the notion that globalisation could help spread positive values was already in doubt. Even with the growth of anti-corruption legislation, many operators have been undeterred in their practices to obtain market share. Deutsche Bank, for example, spent tens of thousands of dollars on luxury gifts for Chinese leadership, while hiring more than 100 unqualified people to the bank because their relatives were senior members of the Communist Party.

It’s common knowledge that in Germany, Siemens would often win contracts abroad using the ‘nützliche aufwendungen’ (‘useful expenditures’) tax deduction, which was understood internally to be bribery. So, for some time, the notion of the West as an exporter of positive values to far-off lands has been under threat.

Now, as the NBA has shown us, foreign interests are, instead, being imported from abroad. In many forms, this is not very problematic. But it is something else altogether when we see major Western brands being demanded to take on larger roles by governments, for example to alleviate sanctions or help silence criticism. This is an entirely new level of risk.

We should all be watching this space carefully, as it represents an interesting evolution of corporate foreign policy. Whereas in the past, companies were just beginning to grapple with the idea that they need to craft their own foreign policies in order to anticipate and respond to risk, now, on the other wise, we see governments realising just how far they can press their leverage against foreign investors.

By and large, this trend is not going to be positive for the brands, the executive leadership, nor their core consumers.There is not an easy way out of this new world. NBA Commissioner Adam Silver found this out the hard way when he tried to argue that ‘it is not the role of the NBA to adjudicate’ peoples’ differences. With apologies, in today’s climate, the apolitical option is unfortunately unavailable.

Robert Amsterdam is founding partner of Amsterdam & Partners

This piece first appeared in issue 71 of Spear’s magazine. Click here to buy and subscribe.

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