U.S. companies carry a torch for Olympics

When world-class athletes vie for medals at the Beijing Olympics next August, the Otis Elevator Co. already will have scored some big wins in China.

The world's top elevator maker - which has elevators in the Eiffel Tower and the Empire State Building - has landed 25 Olympics-related deals worth $100 million, including the installation of escalators and elevators in Beijing's gleaming subway stations.

Otis is among the scores of U.S. companies racing for Olympics business glory, hoping to lay the groundwork for future deals in fast-growing China.

It's been a long march for Otis since the company first sold elevators to China one century ago. Working closely with Chinese manufacturers, government officials and universities, Otis now oversees 16 factories and joint ventures and 10,000 employees in China.

Otis, based in Farmington, Conn., and owned by United Technologies, hauled in $1 billion, or 10 percent of its global revenue last year, from its China operations, says CEO Ari Bousbib. He expects the demand for elevators to soar, as millions of Chinese migrate from the countryside to cities each year.

"The Olympics will mark the beginning of prolonged growth for China and our business for the next 25 years," Bousbib says. "China shows no signs of slowing down."

Dozens of U.S. and foreign companies are official Olympics "partners" and "sponsors," paying hundreds of millions of dollars for the privilege. Others, like Otis, are riding the pre-Olympics boom.

All want a slice of the $200 billion that China is projected to spend through next year on sports venues, office and residential buildings, transportation, tourism, legal and financial services and other Olympics-related business in its cities..

"It's going to be a frenzy of commercialism here, a party like no other," says James McGregor, chairman of the JL McGregor & Co. business advisory firm in Beijing and author of "One Billion Customers." "You've got an emerging economy of 1.3 billion people that's like America in the 1950s. Companies are looking to stamp their brand name on this market through the Olympics."

Not surprisingly, most of the Olympics contracts have gone to China's private and state-run businesses, such as the Chinese construction firms that proudly hung giant banners last year inside the Olympics stadium, called the "Bird's Nest" because of its nest-like steel-and-concrete design.

But U.S. companies are making a strong showing. Hyatt and JW Marriott are opening hotels in Beijing. Caterpillar's heavy digging and paving machines were used to build the stadium, the swimming venue and the marathon course. And so far, Visa, Coca-Cola, McDonald's, GE and other multinationals have forked out $1.9 billion to Beijing organizers and the International Olympic Committee to be partners, sponsors and licensees.

China has great potential

Much is at stake in China, which has grown rapidly from a Third World country to an economic power that many predict will rival the United States and Japan in coming years. A survey by the U.S.-China Business Council found that 83 of the 100 U.S. firms that responded were profitable last year in China.

And the Olympics will be China's grandest premiere yet on the world stage. Clearly, say U.S. executives and business consultants in Asia, there's fervent national pride among the Chinese that their country has arrived in the global sports and business arenas. Marketing pros have dubbed it "Brand China" and "China Inc."

"China wants to deliver the best and biggest Games ever, and companies want to be associated with that spirit," says Scott Kronick, president of Ogilvy Public Relations Worldwide in China. "It's the perfect platform for a global brand-building effort."

Advertisers are launching multimedia campaigns now and next year to reach the estimated 250 million consumers in China's emerging middle class.

U.S. advertisers at earlier Olympics relied mostly on TV commercials to reach audiences in host nations. In China, companies are unveiling marketing in all media venues, from mobile devices to subway posters. Total ad spending there is expected to rise 29 percent to $31 billion next year, according to media-investment firm Group M.

"The new trends have drastically shaken up marketing for the Olympics," says Gilbert Van Kerckhove, founder of Beijing Global Strategy Consulting and a senior consultant for the Beijing government.

Some 176 million Chinese use the Internet now, says Shaun Rein, founder of the China Market Research Group in Shanghai. Most are consumers from 18 to 28, known as China's "little emperors" - the ripest targets for advertisers such as Nike and Motorola.

Johnson & Johnson, Adidas and other U.S. and foreign companies are using the Internet, TV, radio, outdoor advertising, community and sporting events - what Kronick calls "360-degree brand engagement at every touchpoint."

They're recruiting world-class athletes for their marketing. United Parcel Service is showcasing China's women's volleyball team, while Coca-Cola has signed on Yao Ming, the NBA star and Chinese basketball icon.

Still other companies are touting their environmentally-safe products, as Beijing officials vow to host a "green" Olympics in a country plagued by some of the worst pollution in the world.

At Olympic venues, GE is providing clear-burning turbines, solar lighting, water-filtration technology and other products, while Coca-Cola is using 6,400 coolers and vending machines free of hydrofluorocarbons, a greenhouse gas.

Among the U.S. firms gearing up for the Games:

- Johnson & Johnson. With seven affiliates in China and $53 billion in global sales, Johnson & Johnson is going all-out in Beijing. Among other projects, it's sponsoring a medical training center for 2,000 Chinese medical personnel to treat athletes and spectators during the Games.

In February, Johnson & Johnson launched an Olympics-related ad campaign on the Internet, TV and outdoor posters. Created by Ogilvy & Mather, the campaign features real doctors, nurses, mothers, grandparents and other unsung "everyday heroes" who embody the Olympic spirit.

The ad's tag line is "Yin Ai Er Sheng," or "Because We Care, We Act."

"It's a magical line that has really resonated with consumers here," says Brian Perkins, corporate vice president at Johnson & Johnson.

- United Parcel Service. Richard Loi, UPS senior vice president in Asia, jokes that one big Chinese customer a decade ago thought that little-known UPS stood for "Uninterruptable Power Supply." Today, Loi says, 90 percent of Chinese consumers know the UPS brand.

The UPS fleet of 600 trucks, vans and planes reaches the far corners of China. Loi won't disclose revenue in China for Atlanta-based UPS, which posted $48 billion in worldwide revenue last year. But he says UPS saw 25 percent growth in the first two quarters of this year from 2006.

The Games will be another big test for corporate sponsor UPS, which is running the vast Olympics logistics center - its largest in China - from warehouses near the Beijing Capital International Airport. UPS trucks are hauling goods to 50 Olympics sites.

"The pressure is on us," Loi says. "What better way to showcase our capabilities?"

- General Electric. A team of 100 GE employees in China is working on the Olympics, and GE will record $600 million in revenue from Olympics-related deals, says chief marketing officer Dan Henson.

GE is providing ultrasound equipment to treat injured athletes, as well as power, lighting, water, fire-safety and security systems at sports venues and the Beijing airport and subway.

GE, which has operated in China for 100 years, says its Olympics sponsorships in all host cities go hand in hand with its global business. Henson says that GE's $5 billion revenue in China should double by 2010.

- Morrison & Foerster. This San Francisco law firm beat 120 others five years ago to become legal counsel for the Beijing Organizing Committee for the Games.

Kelly Crabb, co-chair of the firm's Beijing Olympics team, says Morrison & Foerster has global legal expertise in entertainment, intellectual property and venue-construction issues, plus experience with the Winter Olympics in Salt Lake City.

Forging a contract with filmmaker Steven Spielberg to be an artistic adviser to the Games was fairly easy, Crabb says. The tougher task? Nailing down agreements with 22 cities on five continents for the Olympic torch run.

"There's a tremendous amount of contractual negotiations to make the Olympics happen," says Crabb, who has represented Michael Jordan and Paul McCartney. "The scope of it is amazing."

- ITT. This engineering firm in White Plains, N.Y., has sold $10 million worth of water pumps and water-treatment systems for the stadium, the kayaking course and Beijing high-rises and sewage plants. A sponsor of China's kayaking team, ITT also is running ads showing kayakers racing through rapids.

ITT, which installed one of the first telephone systems in China in the early 1900s, will use the Olympics to continue forging long-term ties with government and business officials.

William Taylor, president of ITT China, says that ITT's nearly $500 million in revenue from China is growing at a nearly 20 percent annual pace. "The increase in the urbanization of China will drive demand," he says.

China's business challenges

On the downside, many U.S. companies hoping to do Olympics-related business with China have gotten discouraged and flown home, warns consultant Van Kerckhove, who advised Beijing authorities on the contract bidding.

Some companies were ill-prepared for the complex bidding, which entailed thousands of businesses competing for everything from major construction projects to party decorations.

One delegation of U.S. companies - rather than show respect to Beijing Olympics officials - arrogantly lectured them as if China was a backward country, according to Van Kerckhove, who was at the meeting. The Chinese officials never called the U.S. firms back.

Most of the companies are unlikely to profit from the Games, with the Chinese paying some contractors, subcontractors and suppliers prices well under market levels.

"This market is not for the fainthearted," Van Kerckhove says.

Corporations also risk getting tarred by negative publicity - political controversies, trade disputes, fears of unsafe China-made products - that could touch the Games.

Human-rights activists accuse U.S. firms of siding with a Chinese dictatorship that backs military regimes in Burma and Sudan. Politicians accuse Yahoo executives and others of abandoning their ethics in China. Another possible flashpoint: If the U.S. economy swoons and companies lay off workers during the 2008 presidential race, protectionist-minded candidates may blame China and U.S. companies.

Robert Broadfoot, founder of Political and Economic Risk Consultancy in Hong Kong, says that companies ignore the potential fallout - until problems erupt beyond the control of Olympics officials.

"These guys look at the Olympics through rose-colored glasses," says Broadfoot, who advises multinationals on geopolitical risks. "Could things go wrong and force companies to manage a public-relations disaster? The answer is yes."

Businesses also could face worldwide embarrassment, as Gehua Ticketmaster - a joint venture of Ticketmaster and two Chinese companies - found out when its system crashed from the flood of requests for Olympics tickets. Olympics officials announced an online lottery to sell tickets.

Beyond the hoopla, the Beijing Games and the dealmaking by U.S. companies are engaging long-isolated China even more in the world economy - a vast shift that will take many years to play out.

"The Olympics will help bring China more into the international system," says John Frisbie, president of the U.S.-China Business Council, "and that's by and large a good thing."