China: The 2008 Olympics as a Major Activist Inroad May 21st, 2007

Utah Economic Snapshot

Economic Notes:

This Weeks Leads:

REITS Race to Russia

Next Week: Anatomy of a healthy corporation



China: The 2008 Olympics as a Major Activist Inroad

Fidelity Investments has sold off more than 90 percent of its holdings in Chinese state-owned oil giant PetroChina, Fidelity announced May 16. Although the company declined to explain the sale, it almost certainly is related to pressure from human rights and religious activists.

Activists argue that, as the primary oil field operator in Sudan, PetroChina is propping up the Khartoum regime responsible for the genocide in Darfur, so putting pressure on PetroChina is viewed as a way to pressure the Sudanese government indirectly. Fidelity's move marks an important strategic turning point in the battle between human rights groups and China over the Darfur region, and sets the stage for a far more powerful strategic thrust that will emerge during the summer -- one in which Darfur activists move from a financial divestment campaign to one focused on the 2008 Olympic Games.

Activists have long sought effective pressure points on China, and the Olympics look to be the answer. More specifically, activists are eyeing the list of Western corporate sponsors that are investing tens of millions of dollars in the Olympics and in companion marketing campaigns designed to run before and during the Olympics.

Olympic sponsorship in 2008 means more than in most past years. For Beijing, giants such as Kodak, Coca-Cola, McDonald's and General Electric are not simply the means to put on a good show; they are integral to its efforts to radically change international perceptions of China and establish its new place in the world. Beijing can control most of the variables that come its way -- the protesters, media investigations into corruption and other potential public relations problems that usually come with hosting the Olympics. And, with the sites chosen and no backup available, it can largely ignore the International Olympic Committee. What Beijing cannot control, however, are the decisions of the games' sponsors and the pressures placed upon these companies in the West.

Through the Olympic sponsors, activists have determined that the year leading up to the Olympics offers a unique opportunity to use market mechanisms to change Beijing's policies. The first Western movement to begin to capitalize on this vulnerability is the Save Darfur Coalition, which turned Sudan into a pariah state with which no Western company will do business only to have its efforts undermined by Chinese state-owned enterprises. Many other issues could have taken this mantle, but it appears that Darfur-focused activists have taken the lead on exploiting Olympics-related vulnerabilities -- and will manage the most effective Western campaign to change China's policies.

The coming year will determine whether activists can actually make Beijing blink. Moreover, it will determine how groups active on issues other than Darfur deal with the likelihood that the more focused Darfur coalition will overshadow their use of this golden opportunity.

Olympic Sponsorship

The decision to become an Olympic sponsor is a strategic one for companies. The price of sponsorship is steep -- estimated at roughly $55 million -- but that pales in comparison to the broader investment these companies make. The largest and most familiar sponsors have attached their most valuable asset, their brands, to the games, and have built long-term marketing plans in which the Olympics play an integral part.

With so much invested, Olympic sponsorship has always brought tension. The 2004 Athens games, which were twice threatened with a move to an alternate city due to poor organization, created stress among investors. Sponsors now have established offices in future Olympic cities, where they work as closely as possible with municipal authorities to ensure that the logistics and setup are on track.

In the years since 2001, when the 2008 games were awarded to Beijing, the games have carried an added political dimension for sponsors. Beijing recruited sponsors not just as sources of money, but as partners, and for large multinational corporations trying to learn how to operate in China the opportunity to work with Beijing was tempting. Those who signed on as sponsors see the success of these games not only as an opportunity to build their market share in the West, but also as a way to increase their presence in China. Beijing also subtly offered improved market access and other preferential treatment to companies that threw in behind the 2008 games.

Beijing, in order to assert itself on the international stage, has spent billions of dollars preparing for the games. It brought in the best stadium architects to build venues and hired Stephen Spielberg to choreograph the opening and closing ceremonies. In addition, the Chinese have razed entire neighborhoods to ease transportation and shuttered industries to clean Beijing's air. If it can be bought, Beijing is buying.

The support and presence of high-profile Western companies provided one thing that Beijing could not buy: legitimacy. The thinking is that the participation of major corporate icons will give a degree of continuity with previous Olympics, and that by extension China will be seen as a modern country rather than a developing one or, more negatively, as the killer of Tiananmen Square, the violator of human rights and the repressor of basic freedoms.

Activists who succeed in portraying corporate sponsors of Beijing's Olympics as supporters of China's behavior would undermine not only the companies' marketing efforts, but also Beijing's plan to use the games as a coming-out party


The human rights controversy surrounding the civil war in Darfur has been growing since 1998. Khartoum's operations in Darfur mostly target Christians, and the issue surfaced from the concerns of evangelical Christian organizations active in Africa. By 1999, Darfur had emerged as a mainstream human rights concern, and organizations such as Amnesty International and Human Rights Watch joined religious groups in calling for the United States and other Western governments to impose sanctions on the regime in Sudan.

Sudan essentially was a pariah state by the late 1990s, so it was obvious even at the beginning of the movement that diplomatic pressure on Sudan would be of limited value. Instead, recognizing the country's dependence on its southern oil production -- and on the companies that turn the resource into revenues for the regime -- activists focused on the corporations. With the flight of most Western companies in the first half of this decade, Khartoum, rather than lose its oil revenue, turned to China. Thus, through PetroChina the Asian giant has managed Sudan's oil operations and kept the money flowing into Khartoum.

Beyond the funding aspect, however, PetroChina's entry into Sudan has stood as a major symbol for Western human rights activists, who have come to view state-owned oil and resources companies as the most significant barrier to their ability to use market campaign pressure to change policies in developing countries.

In response to the globalization of corporations' operations and the rise of the World Trade Organization, human rights groups have come to rely increasingly on codes of conduct and other marketplace initiatives, such as the Extractive Industry Transparency Initiative, to hold corporations accountable for their activities in developing countries. Western companies in particular are sensitive to allegations that they are complicit in human rights violations. State-owned enterprises abroad, on the other hand, are insulated from these pressures, and have begun to thrive in those places that Western companies dare not operate.

In human rights discussions, this is termed the "parastatal problem." It is the chief unsolvable barrier to successful efforts by nongovernmental organizations (NGOs) to use corporations as instruments of change in developing countries.

'Genocide Olympics'

Bumping up against the parastatal problem, the Save Darfur Coalition has begun to build toward using Olympic sponsors as leverage against Beijing. In a Wall Street Journal op-ed article published in late March, actor and activist Mia Farrow and her husband called for a boycott of the Beijing Olympics. The threat will fall on deaf ears, as the vogue of boycotting Olympics -- started by U.S. President Jimmy Carter in 1980 and re-tried in 1984 by the Soviets -- had no diplomatic effect and only made the boycotters' citizens angry.

The Farrow op-ed, however, contained a more serious threat: As long as China's state-owned enterprises remain in Sudan, the coalition aims to attack Olympic sponsors directly and rebrand the 2008 games as the "Genocide Olympics" (a term first used by Amnesty International to describe China's internal human rights record and the human rights implications of its foreign policy). More sensationally, the coalition threatened to name Stephen Spielberg the "Leni Riefenstahl of the Beijing games," a reference to the German filmmaker whose documentary of the 1936 Berlin games glorified the Nazi regime in the broader context of the Olympics. Spielberg now publicly calls for China to change its policy toward Sudan.

The threat to boycott is idle talk, but the threat to change the perception of the games is not. The Save Darfur Coalition includes many of the most talented corporate campaign groups in the world, and the realistic opportunity to change the situation in Darfur is attractive to Western activists of almost all stripes. In addition, the public has a high level of awareness of Darfur as a controversial issue, and most U.S. consumers recognize that China has a controversial human rights record. Sponsors are likely to be sensitive to allegations that they are supporting a "Genocide Olympics" and will take their complaints to Beijing. Given these factors, then, the campaign has an excellent chance of attaining at least some degree of success.

That said, defining "success" is a difficult task. China cannot simply stop the genocide in Darfur with a wave, and it must make a move that simultaneously satisfies its critics, has a chance of changing what is happening on the ground in Darfur and results in China's continued presence in Sudan. (Sudan supplies more than 5 percent of China's oil.) One problem is that China remains one of the last countries with any leverage against Sudan, so it is valuable to activists and governments alike as a point of communication with Khartoum. If pushed too hard, Khartoum could simply open to another state-owned company immune to Western public condemnation, kicking China out. Ultimately, China has few options. It could agree to try to convince Sudan to allow more U.N. and Africa Union peacekeepers into Darfur, but that would end the campaign only if the Save Darfur Coalition agreed that such a deal was sufficient.

In focusing the "Genocide Olympics" campaign squarely on Darfur, however, human rights groups are using a one-time opportunity to achieve a relatively modest goal -- and are passing up a unique moment to effect major change in China.

Falun Gong is another group that appears to recognize the unique opportunity the Olympics offer. This summer, Falun Gong is planning a wave of protests and actions that will bring world attention directly to China's human rights record. Other organizations -- labor, environmental, religious -- also could try to swoop in and use the Olympic moment.

China might be able to manage activist campaigns effectively and relatively peacefully. However, should pressure on internal fronts -- from Falun Gong or other human rights, democracy or free- expression activists -- get too high for Beijing to handle temperately, it could consider using Darfur as a public relations safety valve. Giving in and basically agreeing to work with NGOs on Darfur would satisfy critics by addressing what is for Beijing a third-tier issue.

Source: Bart Mongoven Strategic Analysis


Note: The following analysis is much different than anything I have posted in this column before, but I thought it well done, timely and of interest.


Bob Springmeyer

Bonneville Research

  • Utah Economic Snapshot
  • Economic Snapshot - First Ten Months FY2007

    • Sales and Use Taxes (Gen Gov't) +2.6%
    • Individual Income Taxes (Education) +8.6%
    • Corporate Franchise Taxes (Gen Gov't) +7.3%
    • Motor Fuel Taxes (Transportation) -1.5%
    • Severance Taxes (Gen Gov't) -5.3%

    Source: Utah State Tax Commission, 5/15/07

  • Economic Notes:
    • Jobless Claims
    • U.S. initial jobless claims fell by 5,000 down to 293,000, continuing to defy expectations.
    • Risk of Recession
    • The Moody's Economy.com probability of recession eased in April to 19%, from March's 21%. The decline in unemployment insurance claims in April signals that there is little slack developing in the labor market. The improvement in equity markets thus far this month is also an encouraging sign. Still, the sharp moderation in consumer confidence and an inverted yield curve are the clearest signs that the risk of recession still looms.
    • Weekly Natural Gas Storage Report
    • Underground storage of natural gas increased by 95 billion cubic feet during the week ending May 11. This was in line with expectations for an injection of about 97 Bcf. Inventories are now 20.6% above the five-year average. This report will have a neutral effect on prices.
    • Business Employment Dynamics
    • Gross job creation declined to 7.36 million during the third quarter of 2006, the weakest pace since 1993. Meanwhile, gross job cuts increased to 7.34 million. Thus, the third quarter could mark a turning in the labor market, consistent with the weakening in the broader economy.
    • Oil and Gas Inventories
    • Crude oil inventories rose by one million barrels for the week ending May 11, according to the Energy Information Administration. Gasoline stocks rose by 1.7 million barrels. Refinery activity improved modestly to 89.5%. Soaring gasoline imports are helping bolster gasoline stocks. Distillate inventories rose one million barrels. This release will likely help put some bearish pressure on oil and gasoline prices.
    • MBA Mortgage Applications Survey
    • Mortgage demand decreased 0.8% in the week ending May 11. Purchase applications decreased 1.4% and refinance applications remained at last week's level. Even the ten basis point decline in adjustable rate mortgages was not enough to significantly impact the number of homeowners refinancing out of adjustable rate mortgages. The demand for purchase applications appears very sensitive to changes in 30-year fixed mortgage rates.
    • ABC News/Washington Post Consumer Comfort Index
    • Record high gasoline prices seem to have caught up with consumer confidence. The ABC News/Washington Post consumer comfort index fell four points to -7 in the week ending May 13. The index now matches its low for 2007 and future improvements will be difficult to muster. The details were weak with a six-point decline in the economic component leading the overall charge lower.
    • Consumer Price Index
    • The seasonally adjusted consumer price index was up 0.4% in April, following a 0.6% increase in March. Slower growth in energy prices led to the weaker topline inflation over the previous month. The core index, excluding food and energy prices, increased 0.2% in April, following a 0.1% increase in March. Over the past year, core CPI inflation has run at a 2.4% pace. The overall number was below consensus; the core number was at consensus. Today's report is consistent with moderating inflation, the result of below-potential economic growth.
    • Chain Store Sales Snapshot
    • Chain store sales rose 0.8% in the week ending May 12 as more favorable weather trumped record gasoline prices. Year-over-year growth jumped to 2.6%, the strongest in five weeks.

    Source: Economy.com

  • This Weeks Leads:
    • Maurices
    • Maurices, Inc. trades as Maurices at 600 locations nationwide.
    • The women's apparel stores occupy spaces of 5,000 sq.ft. in power and strip centers.
    • Plans call for 50 openings nationwide during the coming 18 months.
    • Typical leases run seven years.
    • A vanilla shell is required.
    • Preferred cotenants include Kohl's and Target.
    • Preferred demographics include a population of 50,000 within five miles earning $50,000 as the average household income.
    • For more information, contact
      • Tom Karis, Maurices, Inc.,
      • 105 West Superior Street,
      • Duluth, MN 55802;
      • 218-727-8431 Ext. 2071,
      • Fax 218-720-2138;
      • Email: tkaris@maurices.com;
      • Web site: www.maurices.com.
    • Orscheln Farm & Home Supply
    • Orscheln Farm & Home Supply operates 143 locations throughout AR, IA, IN, KS, KY, MO, NE and OK.
    • The stores, selling auto parts, lawn and garden supplies, and outdoor clothing, occupy spaces of 25,000 sq.ft. to 40,000 sq.ft. in freestanding locations.
    • Plans call for 15 to 20 openings in existing markets and throughout IL and OH during the coming 18 months.
    • A land area of 3.5 acres, vanilla shell and specific improvements are required.
    • Preferred demographics call for a population of 10,000 in a 15-mile radius earning an average household income above $30,000.
    • Preferred cotenants include discount stores and supermarkets. Major competitors cited as Tractor Supply and Rural King.
    • For more information, contact
      • Bill White,
      • Orscheln Farm & Home Supply,
      • 101 West Coates Street,
      • Moberly, MO 65270;
      • 660- 269-3580,
      • Fax 660-269-2590;
      • Email: bwhite@orscheln.com;
      • Web site: www.orschelnfarmhome.com.
    • Zumiez
    • Zumiez, Inc. trades as Zumiez at 253 locations throughout AK, AZ, CA, CO, DE, FL, ID, IL, MN, MT, NJ, NM, NV, NY, OK, OR, PA, TX, UT, WA, WI and WY.
    • The stores, offering young men's and women's apparel, accessories and items related to skateboarding, snowboarding, wakeboarding, motocross, etc., occupy spaces 2,500 sq.ft. to 4,000 sq.ft. in malls and outlet centers.
    • Plans call for 15 openings throughout the existing markets during the coming 18 months.
    • Typical leases run 10 years.
    • Preferred cotenants include teen retailers and food court retailers.
    • For more information, contact
      • Nancy Johnson,
      • Zumiez, Inc.,
      • 6300 Merrill Creek Parkway, Suite B,
      • Everett, WA 98203;
      • 425-551- 1578,
      • Fax 425-551-1595;
      • Email: nancyjohnson@zumiez.com;
      • Web site: www.zumiez.com.
    • For more information regarding expansion throughout the eastern region, contact
      • Adam Ellis, 425-551-1550.
    • Tiger Schulman's Karate Centers
    • Tiger Schulman's Karate Centers operates 45 locations throughout CT, FL, NJ, NY and PA.
    • The karate centers occupy spaces of 3,000 sq.ft. to 15,000 sq.ft. in freestanding locations, entertainment and power centers and urban/downtown areas.
    • Growth opportunities are sought throughout CT, NJ, NY and PA during the coming 18 months, with representation by JW Burke & Co.
    • Typical leases run 15 to 20 years.
    • Specific improvements are required.
    • Preferred cotenants include movie theaters and supermarkets.
    • Preferred demographics include a population of 60,000 to 75,000 within three miles earning $100,000 as the average household income.
    • For more information, contact
      • Jonathan Burke,
      • JW Burke & Co.,
      • 350 Lexington Avenue Penthouse,
      • New York, NY 10016;
      • 212-682- 4300,
      • Fax 212-557-1631;
      • Email: jb@jwburkeandco.com;
      • Web site: www.tsk.com.

  • REITS Race to Russia
  • The race is on for American retail REITs to enter Eastern Europe.

    Cleveland, Ohio-based Developers Diversified Realty Corp. became the first U.S. REIT to announce a major development initiative targeting the Russian Federation and Ukraine this week.

    It might have some company soon, though, as Indianapolis-based Simon Property Group disclosed during its first quarter earnings call in late April that it is in the early stages of working out a deal to enter Europe's largest country.

    Russia, along with other former Soviet bloc nations, appears to be ripe for more foreign investment.

    In Developers Diversified's case, the REIT is forming a $300 million joint venture with Hamburg- based ECE Projektmanagement G.m.b.H. & Co.KG, a German real estate development and management firm.

    The joint venture plans to leverage the fund by up to 75 percent, giving the partnership investment potential of up to $1.2 billion that it will invest over the next five years developing shopping centers in urban markets west of the Ural Mountains in Russia and in Kiev and other major cities of Ukraine.

    Source: Retail Traffic Online

  • Next Week: Anatomy of a healthy corporation
  • How can business leaders embed "healthy" thinking in the organization?

    • Executives generally appreciate the importance of monitoring the underlying health of their companies and of taking action to improve it. Impeded by a variety of cognitive and other traps, however, they seldom practice what they preach.
    • The challenge is to embed healthy thinking at all levels of the organization. The first step is to understand the attributes of a healthy company-in our experience, one that shows resilience to shocks, executes well, aligns employees around a common purpose, focuses on renewal, and ensures that its practices complement one another.
    • Businesses can work toward this elusive goal by regularly analyzing the way they allocate resources, striking a balance among different types of initiatives, developing appropriate metrics to test their health, adapting their core processes, and reinforcing healthy attitudes through performance contracts.

    Major Features

    • Mental minefields
    • Attributes of health
    • Resilience
    • Execution
    • Alignment
    • Renewal
    • Complementarity
    • Healthy actions
    • Monitor the way you allocate resources
    • Integrate into core processes
    • Have the metrics to match
    • Reinforce through performance

    Source: McKinsey & company

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