Frontiers in Business, Economics and Management ISSN: 2766-824X | Vol. 16, No. 1, 2024 222 On the Economic Impacts of the Xinjiang Cotton Incident upon Indigenous Local Chinese Brands -- A Case Study of Li Ning Linhao Lan College of Social Sciences, Yangzhou University, China Abstract: Guided by the SWOT model, this thesis explores the economic impacts of the Xinjiang Cotton Incident upon indigenous local Chinese brands with a case study of Li Ning. Coupled with a comparative analysis method, this thesis analyses the changes on revenue and market development in 2020 and 2021 and finds that the Xinjiang Cotton Incident has great influences on Li Ning in economic income, market development, regional development and the development of relevant industries. From the perspective of domestic and international markets, the income of domestic market increases greatly, while the proportion of international market decreases. In a word, the revenue has been rising sharply in all aspects. In terms of the cotton industry and the sporting goods industry, it not only affects the production and sales of cotton in Xinjiang, but also seriously affects the safety of China's cotton industry and its downstream textile industry. But the revenue of domestic spor ts brands will continue to rise in the coming period. Domestic sports brands will usher in a new era of development. For the future development, Li Ning Company is supposed to position products and target consumer groups accurately, improve the quality of advertising, and to create a more distinctive brand culture. Keywords: Li Ning, Xinjiang Cotton Incident, Indigenous Chinese brands. 1. Introduction With the development of economic globalization, the global economy is becoming more and more closely connected, which also increases the competitive pressure among enterprises. The entry of internzational brands squeezes the market space of domestic brands, while it also gives domestic brands the opportunity to enter the international market. The occurrence of the Xinjiang Cotton Incident greatly shook the unshakable status of international sports brands, thus domestic brands have benefited enormously. Despite the impact of the Xinjiang Cotton Incident on some international brands, the international competitiveness of Chinese domestic brands is relatively weak. Exploring the impact of Xinjiang Cotton Incident on Li Ning Company has important reference significance for the development of other domestic brands. With the fermentation of the Xinjiang cotton incident, Chinese local sports industry ushered in a golden period of development. Since the reform and opening up, Chinese sporting goods industry has been developing greatly. And since the 2008 Beijing Olympic Games, physical exercise has gradually become a healthy lifestyle of modern people. All kinds of domestic sports brands also strive to develop, and are now in the fierce international and domestic competition environment. Due to the problems of market positioning, marketing strategy and innovation of local sports brands in China, many brands experienced temporary prosperity. But Li Ning is an exception. This thesis, based on the SWOT model, explores the impacts of Xinjiang cotton incident upon the Li Ning company, in economic income, market development, and regional development. 2. Literature Review 2.1. Research Status of Li Ning 2.1.1. Domestic research status At present, the researches of Chinese scholars on sports goods brands mainly focus on problems and strategies, most of which are discussed from the aspects of international macro situations, political and legal factors, problems and challenges, coping strategies and so on. Luo Yangjian (2018) made a comparative analysis on the brand building mode of Li Ning Company and Anta company through the brand positioning, promotion and brand spokesperson selection. He concluded that Li Ning Company brand positioning was not clear, and changed the brand advertising word frequently. The main reason lies in the lack of core science and technology. Chen Zhengqi (2014) analyzed the brand strategy of Li Ning from the brand positioning adjustment, marketing channel internationalization, brand publicity and brand advertising internationalization. He analyzed the development process of Li Ning from the micro perspective, but his research lacked the measurement and analysis of the internationalization degree of Li Ning. Yu Cuiyun used PEST analysis to analyze the impact of the external environment on the formulation and implementation of brand strategy, and analyzed the path of Li Ning's international market. She pointed out the proportion of its international market and gave corresponding strategy suggestions. Sun Bing (2021) wrote in China Economic Weekly that there was still a huge gap between domestic brands and the successful international brand. It’s like standing at a crossroads now for Li Ning. If Li Ning can choose the right direction to continue, it can ride the wave of rising tide and the revival of Chinese goods to become a future winner. But failing to serve the current influx of consumers could backfire and undermine consumer confidence. Hou Juan (2021) thought domestic brands seized the opportunities 223 and channels of the future domestic brands, Chinese cultural confidence and a series of landmark events. The competitiveness of the brand will continue to return to the brand creativity, technology and research and development of wrangling. In Marketing, Yu Jian (2020) believed that the market is the core of the development of enterprise globalization. Only by constantly improving the strength of enterprises and improving the competitive advantages of products according to the needs of the market can enterprises remain invincible in the process of globalization. 2.1.2. Overseas research status At present, foreign scholars have no direct relevant research. However, foreign scholars have conducted a lot of research and discussion on brand and marketing strategy. These studies from different angles and directions still have strong reference value. In 2015, based on an in-depth analysis of the sales methods of many Sports good companies, Elena concluded that the advantage of the optimization and upgrading of such brand companies is the value of their brands. But the value of a company's brand itself is closely related to the buyer's preference for the brand, gender, age and many other factors. In 2016, Kalliopi's research showed that companies can increase the value of their brands by building a good corporate brand image, brand meaning and brand relationship. In 2016, Jessie took Nike brand as the object of analysis and research. After analyzing the sales conditions and situation of the enterprise, she found that there were many problems. According to these problems, the price plan and other countermeasures are put forward, which is conducive to the optimization and upgrading of the Nike brand plan. 3. An Overview of Li Ning 3.1. General Situation Li Ning Company was founded in 1990 by Mr. Li Ning, a famous Chinese gymnast. As one of the leading sports brand companies in China, it has a complete brand marketing, research and development, design, manufacturing, distribution and retail system. Li Ning mainly sells professional leisure sports shoes, clothing, equipment and accessories under the Li Ning brand. At present, Li Ning has established a huge retail distribution network and supply chain management system in China. As of June 30, 2020, Li Ning had 5,973 sales points in China, with operations in Southeast Asia, India, Central Asia, Japan, South Korea and Europe. Li Ning went public in Hong Kong in June 2004. Li Ning established China's first apparel and footwear product design and development center in Foshan, Guangdong province, in 1998. It subsequently established design and research centers in Hong Kong, Portland in the US and South Korea. 3.2. Development History At the beginning of its foundation, as a start-up company, Li Ning did not directly target the international market, but based on the domestic market for original capital accumulation. With the influence of the founder Mr. Li Ning in the domestic sports industry, Li Ning brand has formed a good reputation in China since its inception. In 2000, Li Ning began to gradually establish a franchising marketing system in many European countries, including Spain, France, Greece, Czech Republic, Bulgaria, Belgium, Italy and so on, to sell its products in China to the international market. By 2004, Li Ning brand products have been sold in 23 countries and regions. In 2008, with the success of the Olympic Games in Beijing, China, Li Ning came into the spotlight as a sponsor of this major sporting event. At the same time, Mr. Li Ning was as the last torchbearer lit the cauldron, which is also a moment that can go down in history for Li Ning. Along with Li Ning Company in the following three years, with the establishment of a good brand image, began to be more and more attention. In the following three years, Li Ning began to attract more and more attention for its good brand image. According to the financial report, the company suffered losses for three consecutive years from 2012 to 2014, with a total loss of 3 billion yuan. After three years of losses, Li Ning returned to profit in 2015 and began a new phase of recovery and development. After three years of downturn, it began to recover gradually in 2014. Since 2015, the growth rate has gradually accelerated, and the growth rate from 2018 to 2019 has reached an unprecedented speed. 3.3. Current Situation of Market In recent years, the market demand for sportswear has become increasingly obvious, and more and more brands have begun to dabble in sportswear. This has increased competition in the market and increased the size of the sportswear market itself. Li Ning's overseas markets are mainly concentrated in Southeast Asian countries, followed by European countries. European countries are the first target market for Li Ning's internationalization, so the proportion is relatively high, but Southeast Asia, Africa, the Middle East and other less developed countries have an absolute advantage. This shows that Li Ning products are more favored by low and middle income countries, so there is a huge gap between Li Ning and Nike and other first-tier international sports brands. Local brands pay more attention to product research and development and innovation, and the long-term growth potential is worth looking forward to. 3.4. Brand Marketing Strategy In recent years, more and more Chinese sporting goods brands have appeared in the big events in the competition, and it is getting attention through sponsorship. In 2013, Li Ning signed an exclusive distribution agreement with Singapore SL Company, which is responsible for the badminton business in 12 Southeast Asian countries and regions. Southeast Asian countries have been ranked in the forefront of the world in the field of badminton. Li Ning took the opportunity to sign nearly 10 of the world's top 50 badminton players in the Southeast Asian market, and thus established its influence in the field of badminton. At the same time, Li Ning has sponsored many events and teams around the world, including not only the Olympic Games, world Championships and other large-scale events, but also the Chinese national team and some foreign groups and teams, which have helped Li Ning enhance its international popularity. Online channel is through the Internet to complete the whole process of commodity sales, which is called e- commerce. In recent years, e-commerce has developed rapidly both in China and other countries in the world, with the emergence of comprehensive e-commerce platforms such as Taobao and Amazon, which have made products break through the boundaries of time and space and strengthened the fluidity and sharing of commodity information. Li Ning was one of the first Chinese sportswear brands to enter Taobao and has been well developed in recent years. 224 3.5. Main Problems First, Li Ning's social topic participation is not sufficient. From 2016 to 2018, for example, the product-oriented topics accounted for 85%, while the social interaction content was too little accounted for only 15% (Zhang, 2019). In first quarter of 2021, the average feedback on original Weibo was just over 100.Support for Xinjiang Cotton's hot search and response to the high price of shoes even caused controversy due to inappropriate public relation skills (Ma, 2021). Most Chinese companies will face a bottleneck period after about five years of development, and their sales cannot be greatly improved. With the business development of the company, the scale of the company continues to expand, sales are also increasing. Unchangeable extensive management mode inhibits the further development of the company. Li Ning has always adhered to this production-oriented model at a time when consumers were less able to buy due to the low economic level. With the transformation of Li-Ning's business strategy to product-oriented, the enterprise gradually changed to product development-oriented, and brand competition is obvious. At the same time, consumers' purchasing power has been significantly improved, leading to a relatively broad positioning of sports brands, which cannot meet the current market demand. Therefore, in the current market, it has developed into a data-oriented and market- research-oriented development market model, which is the only way to reasonably plan its own production line. Li Ning's core competitiveness is inadequate. In the case of sports goods market saturation, a single product cannot meet the needs of consumers. In the field of professional competition, the gap between Li Ning and Nike, Adidas is huge. Li Ning does not have a clear and definite brand personality, which is not conducive to the formation of brand differentiation cognition. Last but not the least, the customer management system of Li Ning was chaotic. The target consumer group is inconsistent with the actual consumer group, and it cannot effectively communicate with customers, resulting in customer loss. Recently, it has not achieved good results in establishing customer loyalty. 4. SWOT Analysis of Li Ning 4.1. Strength In an ever more competitive market, brands must offer memorable experiences to their customers if they want to differentiate themselves and build a solid competitive position (Shu-Ning Zhang et al., 2021). Relying on Chinese domestic manufacturing advantages, Chinese sporting goods brands own relatively mature production technology, low raw material costs and labor costs. From the perspective of low- cost advantage, Li Ning's low-cost advantage is not only reflected in the cheap labor force, but also reflected in the low price of raw materials. The biggest benefit of the relatively low cost is that it is easy for Chinese shoe and apparel manufacturers to scale up production at home. Li Ning brand in domestic production and OEM can ensure the quantity and scale of product shipment. Therefore, in the international market, Li Ning has formed a certain price advantage with its relatively low production cost. Li Ning has an army of skilled and semi-skilled garment workers in China. After more than ten years of development, Chinese garment enterprises have created a large number of workers and talents in related fields. With years of OEM products, they have mastered the use of relevant technology and equipment, creating a labor basis for the development of the garment industry. 4.2. Weakness Firstly, the core competitive products have not been determined for a long time. Throughout the product line of Li Ning, it is not difficult to find that the products range from middle-end sports products to high-end products, and the age range is from children to over 40 years old. A wide range of people and diversified product lines will lead to a series of other problems, such as the lack of core competitive products and relatively difficult brand management, which to a large extent led to the low efficiency of Li Ning's international operation (Wu, 2017). Secondly, unclear brand positioning leads to unclear user impression. Li Ning has a vague positioning, and its product styles are different, including sports series, national series and so on. Thirdly, it pays too much attention to customer demand and seeks to maximize sales profit by constantly adjusting product positioning. Too much pursuit of benefit results in a certain loss of brand personality and core value. Finally, the breakthrough innovation of enterprises is limited by the growth cycle of enterprises. Most Chinese companies will face a bottleneck period after about five years of development, and their sales cannot be greatly improved. The reasons are as follows. Firstly, due to the influence of market capacity, the market capacity will not change significantly under the premise that the total demand for use value and the total amount of disposable money are basically constant in a period of time. Secondly, it is limited by the company's internal management strategies and methods. With the transformation of Li Ning's business strategy to product-oriented, the enterprise gradually changed to product development oriented, homogenization competition intensified, and the brand competition is obvious. At the same time, consumers' purchasing power has been significantly improved, leading to a relatively broad positioning of sports brands, which cannot meet the current market demand. Therefore, in the current market, it has developed into a data-oriented and market-research-oriented development market model, which is the only way to reasonably plan its own production line. 4.3. Opportunity As the sports industry enters the period of rapid development, the sports industry is also affected by positive factors. As a subdivision of the sports industry, the demand for sports goods is also rising. Li Ning adapted to current trends by opting for a dual expansion of offline stores and online stores, creating greater dividends. The international development opportunities for Chinese sporting goods brands are huge. First of all, since the reform and opening up, Chinese economy has maintained rapid growth for more than 30 years, and it has become the world's second largest economy. The strengthening of its economic strength has made China more and more attracted the attention of the world. On the basis of strong economic strength, Chinese talent output has gradually increased and strengthened, and Chinese clothing bearing the traditional aesthetic characteristics of Chinese culture has gradually been recognized by the world. Last but not the least, after the Xinjiang cotton incident, people all over China were very supportive of local sports brands. Chinese people's desire to buy local brands has greatly increased. Li Ning, which has long used Xinjiang cotton, reiterated its support for Xinjiang cotton. It has ushered in unprecedented development 225 opportunities. On March 24, 2021, H&M group issued a statement on its official website blatantly refusing to use cotton from Xinjiang as raw material, and put forward the slogan of "boycott Cotton and textile factories in Xinjiang" under the excuse of "forced labor". The move caused a backlash among the Chinese. Faced with the discriminatory policies of multinational enterprises, the Ministry of Foreign Affairs, the Ministry of Commerce and the Chinese Consumers' Association have also made clear statements and strongly condemned the act. Such a political environment is also conducive to the development of domestic sports brands. 4.4. Threat In 2011, Li Ning's net profit fell 65% to 386 million yuan from 1.108 billion yuan. After three consecutive years of performance losses, until 2015, Li Ning began to profit again. But in Chinese five major brands, it has been ranked at the bottom. Moreover, weak domestic protection of intellectual property rights increases the cost of safeguarding rights. Domestic legal construction lags behind economic development, especially in the protection of property rights. The legal system to protect intellectual property rights is not perfect, resulting in the prevalence of copycats and rampant piracy in China, which increases the difficulty for garment enterprises to protect their rights. In addition, the rapid development of e-commerce platforms has greatly reduced fixed costs such as storage, so a large number of people are driven by interests to join the army of shanzhai. Businesses must honestly evaluate whether or not they are able to generate social media content which will prove attractive to their target audiences (Farzin Mila et al., 2022). The characteristics of large number, large scale and dispersion of Shanzhai groups make it very difficult for original brands to pursue infringement issues. The price of the most domestic sports brands is not high, and their products have outstanding cost-performance advantages. They seek differentiated positioning development in the segmented market. Anta and Xtep built a brand matrix, forming a horizontal expansion across the entire consumer class and squeezing Li Ning's clothing brand in the middle market. 5. Economic Impacts on Li Ning 5.1. Economic Income Figure 1. The Annual Revenue of Li Ning Company in 2020 and 2021 In March, Nike and Adidas, two of the biggest international sportswear manufacturers, made biased comments in the Xinjiang Cotton incident. As a domestic sports giant, Li Ning not only saw its sales keep rising, but also its share price rose from 45 yuan per share on March 24 to a record high of 72.95 yuan per share in just two weeks, an increase of more than 60%. From the full-year performance announced by Li Ning Company in 2021, Li Ning Company's annual revenue was about 22.5 billion yuan. Compared with 2020 revenue of 14.4 billion yuan, it has increased 56.1%. Gross profit is about 11.9 billion yuan, which is 7 billion yuan compared with 2020, up 68.7% year on year. The primary earnings per share increased by 131.3 yuan and the profit attributable to equity holders increased by over 2.4 billion yuan. The operating profit increased by over 3 billion yuan, which was an enormous change. In a word, the revenue was rising sharply in all aspects. In fact, in recent years, the rise of national tide and the revival of domestic goods has become one of the most important consumer trends, the Xinjiang cotton incident is just a tipping point. The younger generation of consumers is becoming an important driving force behind the rise of domestic goods. Figure 2. The Proportion of Domestic and International Market From this figure we can see that the annual domestic revenue of 2021 was over 22.5 billion Yuan, accounting for almost 98.7% of the total revenue. It has increased 34% compared with the revenue of 2020. Li Ning, which printed the words "Use Xinjiang Cotton" on product labels, quickly made headlines after the Xinjiang Cotton incident. Due to the Xinjiang Cotton Incident, the stores of Nike and Adidas, which had a large customer flow, became deserted. But Li Ning, anta, Huili and other domestic brands were queuing and sold out. Consumers’ enthusiasm for domestic goods was also unprecedented. Of course, in addition to the favorable environment, domestic brands' own efforts are also one of the reasons for the popularity of products. Since 2015, each manufacturer has changed the way of thinking. Previously, 226 manufacturers paid attention to product comfort and performance, product appearance. In contrast, the annual overseas revenue of 2021 was only 296 million Yuan, accounting for 1.3% of the total income. It has increased 34.9% compared with 2020. However, the proportion of 2021 was less than 2020. After the Xinjiang Cotton Incident, many international brands began to join BCI and boycott Xinjiang cotton. But at the same time, these international brands are reluctant to give up the domestic market easily, which causes great dissatisfaction among the Chinese people. Net profit cash content reflects the sustainability of enterprise profitability. As a result of the Xinjiang Cotton Incident, the impact on Li Ning Company earnings brought a great increase. This increase can reflect that Li Ning's business activities, product sales capacity and daily profitability have been gradually enhanced. 5.2. Regional Development 5.2.1. Domestic Market Development Figure 3. The Revenue of Domestic and International Market As a domestically focused sportswear brand, Li Ning's international business has always accounted for a tiny percentage of the company's revenue which was 1.3 % in 2021. It mainly relies on the domestic market. The company divides its domestic business into northern market and southern market. According to the figure above, we can conclude that both northern market and southern market have increased greatly in 2021 than in 2020. But it is interesting that in 2020, the annual revenue of northern market was more than southern market. When in 2021, it was the southern market that owned more. In 2021, Li Ning had a total of 7137 sales points, of which 3790 were distributed in north China and 3347 in south China. But in 2021, the southern share of sales exceeded that of the north. Sales in the south increased from 46 percent in 2020 to 50.2 percent in 2021. From a domestic market perspective, the GDP and per capita income of the entire southern market is higher than that of the northern market. In 2020, there were 23 cities with GDP of one trillion yuan, and only 6 cities belonged to the northern market geographically, while the remaining 17 cities belonged to the southern market. Li Ning is more popular in the north and less so in the south, where the economy and spending power are stronger. And the reasons for this weird phenomenon are in connection with the Xinjiang cotton incident and the Covid-19 pandemic. 5.2.2. Overseas Market Development Li Ning Company has long deployed and utilized resources around the world. However, there is still a lot of room for improvement in the utilization and selection of resources. The proportion of product sales in markets other than the home country of the brand is considered to be an important indicator to measure the degree of brand internationalization. It is generally believed that more than 20% is relatively high degree of internationalization, and the degree of internationalization is positively correlated with the proportion. On the contrary, it is considered that the degree of internationalization is low. As is shown in the figure above, the proportion is only 1.5% in 2020 and 1.3% in 2021. After the incident, the internationalization is even lower. From the perspective of income, the overall income of international market decreases with the passage of time. Li Ning's overseas markets are mainly concentrated in Southeast Asian countries, followed by European countries. 6. Conclusion To begin with, the Xinjiang cotton incident has greatly increased Li Ning's revenue in its domestic market. In contrast, Li Ning's proportion of the international market has declined. In addition, the Xinjiang cotton incident also boosted the development of relevant industries such as the cotton industry and sporting goods industry. This incident not only promoted the development of cotton in Xinjiang, but also promoted the development of Chinese cotton industry. Chinese sports goods industry also ushered in a golden period of development like Anta and 361°. With the rapid development of the Internet, brand marketing has become a variety of ways. In today's environment, marketing methods such as TV and paper media in the past have little help to enhance the popularity of domestic sports brands. The change of consumption concept of the new generation of young consumers and the gradual upsurge of patriotic sentiment of consumers provide opportunities for the development of domestic sports brands. In addition, it is necessary to attract the attention of domestic sports brand developers that, compared with foreign sports brands, domestic sports brands lack the iconic products of their own brands. In terms of showing their own characteristics and creating their own image, domestic sportswear brands still need to make continuous efforts. Local sports brand companies should pay attention to brand construction, innovate e-commerce sales model, establish brand awareness and improve brand image. From the perspective of new brands, the transformation of firm innovation activities into brand effect can be a significant area for future research (Hashim Zamee et al., 2019). Li Ning and other domestic brands need to use the Xinjiang cotton incident as an opportunity to improve themselves. They should design appropriate stores according to consumer aesthetics and increase buyers' acceptance of Chinese brands. Finally, they are supposed to spare no effort to higher brand competitiveness. As there are still many deficiencies in my theoretical knowledge, the analysis may not be all the impacts of Xinjiang Cotton incident on Li Ning brand. Xinjiang Cotton incident has a profound impact on Li Ning. At present, it can only study the impact of 2021-2022. The data are updated every year, and the economic impact of Xinjiang Cotton Incident on Li Ning in five or even ten years can be 227 studied in the future. Affected by the epidemic, many places have imposed lockdown. 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