Facing the Ire of 1.4 Billion Chinese Consumers: Cottoning on to Supply Chain Risks
Chinese consumers’ boycott of Western fashion brands for their position on cotton sourced from Xinjiang is a sequel to a long-running series of actions against foreign companies. Southeast Asian firms should take note, and act accordingly.
Over the last couple of weeks, Chinese consumers have been calling for the boycott of Western fashion brands over their statements regarding alleged forced labour used in cotton sourced from the Xinjiang Uyghur Autonomous Region (XUAR). Screenshots of H&M’s statement from September 2020, citing “deep concerns” for its decision to stop using cotton from growers in the region emerged over the weekend and quickly trended up on Chinese social media. E-commerce giant Alibaba responded by removing H&M products from its platforms (including their regional e-shops in Malaysia and Singapore), while state media outlets and the Communist Youth League denounced the Swedish fast-fashion brand. Before long, other international clothing brands like Burberry, Nike and Zara were lambasted for the same reason.
What has transpired so far seems to have followed a familiar path of recent nationalist consumer boycotts in China. The brands caught in the latest kerfuffle are merely new entrants to a growing list of international businesses that have encountered the ire of 1.4 billion Chinese consumers. A closer look, however, can reveal some interesting differences in the current episode.
Previous consumer boycotts have mostly targeted products from one country or one company because of something that country or company did or said. Examples include Norway’s award of the Nobel Peace Prize to Chinese dissident Liu Xiaobo in 2010, Japan’s nationalisation of the Diaoyu/ Senkaku islands in 2012, and Dolce & Gabbana’s culturally insensitive chopsticks commercial in 2018.
Companies that face potential boycott this time come from Japan, Spain, Sweden, the United Kingdom, and the United States. Furthermore, unlike Norwegian salmon, Japanese cars, and Italian handbags in the examples above, the focal point is no longer about the products of these countries or the companies per se, but the raw material that goes into making those products.
These differences highlight the expansion of global supply chains as multinational firms source raw materials and intermediate goods around the world to exploit global efficiencies in the delivery of goods and services. As the XUAR accounts for more than one-fifth of the world’s cotton production, it is not surprising that the supply chains of many Western clothing brands are more or less dependent on cotton and related products from the region.
The time may have come for international businesses in China to confront the difficult dilemma of choosing a side.
Extensive supply chains also come with increased vulnerability. This was fully exposed by the Covid-19 pandemic as countries faced shortages of critical medical and personal protective equipment. Some of these supply chain vulnerabilities can be identified and managed; others may blow up rather unexpectedly. The current crisis was set in motion a year ago by Better Cotton Initiative (BCI), a third-party supply chain certifier.
In the past couple of decades, consumers became increasingly concerned not only with product quality and safety but also with externalities such as animal welfare, environmental pollution, and fair labour practices. To manage this, third-party certification and supply chain standards for farms and agricultural products have emerged as a new form of governance. One prime example is Fairtrade International, whose Fairtrade Marks are used in over 50 countries for dozens of agri-food products.
As a “non-profit governance group that promotes better standards in cotton farming and practices”, the BCI announced on 30 March 2020 that it would suspend its licensing of cotton in the XUAR “based on the recognition that the operating environment prevents credible assurance and licensing from being executed”. In the following months, international clothing brands concerned with their image in the global market issued similar statements of concern, with some even cutting ties with the region completely. Yet few could have predicted the firestorm that has engulfed these brands nearly a year later.
The moral of the story? Supply chain risk management is challenging, and all the more so for multinational firms that serve multiple markets with distinct values and in the context of the current geopolitical rivalry between China and the United States. The old playbook of “apologise and wait it out” that had worked so well during past boycotts in China may no longer work this time with enraged Chinese consumers demanding these firms to take a stand. But giving in to Chinese consumers could also anger foreign consumers.
Still, brands that chalk up large sales from China have already made the move. Japanese brand Muji has sought to resolve the dilemma by prominent displays of “made with Xinjiang cotton” on their online stores. Anta, the homegrown brand that also controls Italian brand Fila’s operation in China, has announced its withdrawal from the BCI.
Responses from other brands have been more ambivalent. H&M, which bore the brunt of the consumer outrage, reportedly removed its original statement on forced labour in Xinjiang from its website briefly before reposting it. Its latest statement to “regain trust” in China has been snubbed by Chinese consumers as insincere and duplicitous. German brand Hugo Boss similarly faced criticisms for being “two-faced”, posting conflicting statements on its website and its Chinese social media handle. These mixed messages suggest that some brands may still attempt to cater to two different audiences, a strategy that could backfire when consumers expect nothing less than a firm position. The time may have come for international businesses in China to confront the difficult dilemma of choosing a side.
What are the lessons for Southeast Asia? While few clothing brands from Southeast Asia have cracked into the Chinese market, the general advice for any firm that operates across borders is to increase its supply chain resilience to hedge against potential geopolitical risks. This likely will involve mapping out the entire supply chain to look for hidden vulnerabilities and diversifying the supply base to reduce over-reliance on one source. Currently, there are 95 members of the BCI from Indonesia, Malaysia, Singapore, Thailand, and Vietnam, almost all of which are intermediary suppliers of major international brands. Their commercial fates are not solely theirs to map out; it will probably be determined by the next move of their clients. At the least, it is high time for Southeast Asian firms to cotton on to supply chain risks.
Xiaojun Li is an associate professor of political science at the University of British Columbia.