On international soft power ambitions, the geopolitics of media, entertainment and sport, stakeholder capitalism and hypersonic missiles with the Co-President of Teneo‘s Political Risk Advisory practice

By SANTIAGO

SM: While broaching the concerns around sportswashing, SportsPro and others have unpacked the Public Investment Fund (PIF)-Newcastle United takeover in terms of the broader Saudi economic agenda. From where you sit, how do acquisitions like Newcastle fit the big picture?

KK: What is happening with regards to Saudi Arabia and international sport is not unlike what we have seen out of other countries prior to this. There are a number of reasons, on any given acquisition; one of those could be more important than another, to be sure. But it’s always this mix of countries attempting to raise their profile and diversify that profile away from what they are always associated with.

In Saudi Arabia’s case, it could be association with oil, with Islam, with the Crown Prince and Khashoggi. In other words, it’s just another way of diversifying the country’s global image. In addition, we know that a lot of these countries are highly dependent on single sources of income—in this case, hydrocarbon sales. They are looking to diversify their portfolios.

When you look at a vehicle like PIF and others in Saudi Arabia, something like a Premier League sports club is definitely going to capture headlines. Not only in the business pages but in the sports pages of the newspapers. But the reality of it is that they are investing in many different industries, high-growth and otherwise, in a lot of places around the world.

The other thing I would say is that many emerging markets, countries that are looking to again improve or diversify their profile and their portfolio, oftentimes—especially if they’ve got a lot of money—target trophy assets in stable countries, whether that be real estate, sports teams, or actual companies. And that goes for the United States, as well as in Europe, clearly.

Finally, I would also just say that when it comes to sports assets at this level, I mean, there is a finite number of Premier League teams and whatnot. I’m not so much an expert on British soccer, but the teams become available when they become available. If it’s something that you want in your portfolio mix, then you take the one that comes your way. There are other opportunities that might be included in that, whether it’s what the stadium situation is, what the local economy around that is like, what the current team roster looks like, and what its payroll is. It all goes into the decision-making, of course.

How does such an investment play at home, within Saudi’s own borders? And given all this, where do things stand with social reform?

The Crown Prince of Saudi Arabia has made a commitment that is enshrined in their Vision 2030 plan to attempt to further diversify their economy. That involves a lot of different angles, a lot of different industrial angles.

This includes attracting more tourism into the country. Greater openness to the outside world. Traditionally, Saudi Arabia was not the easiest country in the world to get into without essentially what amounted to an official invitation, generally speaking, set around business.

The one key exception, of course, being the Hajj, which is an obligation of any able-bodied Muslim over their lifetime. But that was also a pretty specific trip devoted to a particular ritual, as opposed to what we would generally think of as tourism, right?

So I think that when you look at a number of the projects that are going on in Saudi Arabia—Neom, for example— the stated objective of the government is to demonstrate the resources of the country, to demonstrate the diversity of what they can do to make it attractive to foreign business, as they try to leapfrog into mid- to late-21st Century technologies, and how they’re going to impact urban living.

Of course, all of this raises many questions about whether this is the optimal deployment of investment capital in the country. Many advances have been made concurrent to these projects, of which we’ve seen some elements like, probably the most talked about, the allowing of women to drive, things like that.

The question is, what will all of that lead to? It takes more than just building something somewhere to attract capital and investment, attract tourism and visitors, and make the place a destination where people might want to live.

The question is whether it will be successful or not, whether they’ll see it through or not. But somewhere in their thinking, also, is a realization and recognition, whether they want to talk about it that much or not, that the world is starting to go down a path away from the burning of hydrocarbons as primary fuel sources for electricity, transportation and other uses.

That’s not to say that they won’t continue on that path to some degree. I mean, the extraction costs of oil in Saudi Arabia are so cheap that the old adage is that the last drop of the oil ever drilled will be a Saudi drop of oil. That may very well be true. There are other opportunities on, say, the hydrogen front and the like where they might essentially be at the forefront, and there’s a lot of potential for them with renewables.

It’s all part of an effort. Whether you think Mohammed bin Salman, the Crown Prince, is a good guy or a bad guy, nonetheless, it is quite clear that something is going on in Saudi Arabia that is different from what we have seen over the past decades.

Where you stand on social reform depends in a lot of ways on how you view the world, right? I mean, if you measure it by the standards of Western liberalism, it’s never going to be enough.

If you look at the trends from the starting point, then the signs might be considered encouraging. It’s a show-me story, to be sure; there’s a long way to go before you get to gender parity, before you get to the equal treatment of minorities and immigrants into the country, religious freedom, freedom of speech. All of the things that you tend to sort of take for granted in the Western world, there’s a long way to go. It’s unclear exactly how far they even intend to go. But, there is a direction of travel which is somewhat notable. It requires a somewhat sophisticated analysis. It requires people to hold two kinds of ideas in their minds at the same time. While liberalizing certain sectors, they’re holding pretty tight in others. We’ve seen that in greater digital surveillance, as an example. They would hardly be the only country in the world that is doing that. Hardly the only government in the world that wants to have more understanding of what’s going on in this country than private enterprises do. But I think there’s movement.

Several years ago, we did a side-by-side of Saudi and China soft power ambitions—namely in sport, media and entertainment—with an eye to geopolitical implications. Fast-forward to now: How do you compare the two systems and approaches?

The vision and doctrine of China stands sort of alone out there in the world today because we’re seeing two things.

One is the long-standing plans and ambitions of the Chinese Communist Party continuing to move, but now, its leadership is embodied in a particularly charismatic and controlling leader in Xi Jinping, who has created the platform by basically eliminating a lot of rivals within the system so that he can really move the agenda.

China’s global vision for its position in the world is predicated on a historical reading of its position in the world and an embrace of this idea of destiny. It is a fully thought through, coherent idea, how it’s going to achieve it and what it has to do to hold on to that position—through its own actions, on a bilateral and regional basis, and through multilateral organizations and the like.

My point is that with a very institutionalized system, China moves in the direction that it essentially wants to move.

Having said that, there’s a lot of brittleness potentially in that system. There’s an extraordinary amount of risk when you concentrate that much power with the kind of open-ended element of Xi Jinping’s position. One of the things about authoritarian government that is always a giant risk is the succession of planning, the peaceful transfer power which very rarely occurs. For a long time, it looked like China, with its regular cycling of the leadership on the 10-year cycle, had basically solved that problem. But as the People’s Congress in November of next year, Xi Jinping is going to secure a basically unprecedented third term for himself, and possibly, even longer than that.

So that now opens up the succession problem in China, which ultimately presents enormous risk to the Chinese Communist Party. But having said all that, they’ve got a plan, and a system with which to pursue it.

Saudi Arabia, on the other hand, is not as institutionalized in a bureaucratic way as that. The royal court in Saudi Arabia has effectively been shaken up since the ascendancy of Mohammed bin Salman. Such that, some of the direction has really quite dramatically changed at the behest of a controversial but charismatic leader. You don’t necessarily have the same confidence that there is consensus on that in Saudi Arabia the way that you do of the general direction of travel in China.

To say that China and Hollywood have had a mercurial relationship is an understatement, Xi’s curbs on aggressive Chinese investment in US and international media and entertainment properties, as was also the case with football clubs, echoing his ‘common prosperity’ intonations. With all the variables and complexities, how should the industry see China as a market and investing partner?

So, first of all, we should step back for a second and think about one of the strange paradoxes that is playing out right now, right?

The critical relationship of the 21st century, which has ramifications for everything in terms of global peace, is the US-China relationship and where it will be on the cooperation-versus-confrontation spectrum. Where they are on that spectrum is not a fixed point. It’s going to move toward one extreme or the other constantly over the course of this century.

That’s one of the reasons why President Biden has still not laid out a full vision of the China relationship for the United States. People casually throw around the term ‘Cold War,’ and there are, of course, elements of a Cold War. The recent testing of a hypersonic missile weapon, for example. But they don’t want to use a term like cold war because when you define a relationship like that, your inclination then is to look at everything that the other side does through that lens. That everything they do is some sort of zero-sum attempt to thwart what you’re trying to do and vice versa. As opposed to saying, ‘wait a minute,’ obviously, the US-China relationship is a far more complex one, not just bilaterally, but with all of the touch points globally around the world. It’s far more complex than the US-Soviet Union relationship was. So, we need to leave open the idea that there are areas where we can and should work together on everything, again, from climate change to the global economy to arms control.

Having said that, we are definitely in an environment where the relationship between the two is becoming more contentious at a state-to-state level. At the same time, commercially, we get ever more intertwined. US investment dollars are welcomed into China. Goldman Sachs just took 100% ownership of its joint venture there. All things considered, most institutional investors are underweight China, and the large investment companies are encouraging more money to go in. So, things are deteriorating on one hand, and yet, they are becoming more intertwined on the other.

The entertainment business gets caught in that Venn diagram, in a way. The entertainment business is obviously a very big business here, and it employs a lot of people. But by its very essence, it is one of the most important elements of American soft power around the world. Everything from projecting an image of America to creating the concept of global celebrities, down to things like people around the world who say they learned English by watching American television as they were growing up.

So, it’s easy to understand that China and other countries would be suspicious of that, and of what they might perceive to be the more jingoistic elements of American entertainment. Unclear whether, say, the new Top Gun will play in China.

There’s a competitive element to it as well. China has a very big entertainment complex itself, and so there’s a desire to protect market share, right? It the same reason why Facebook and Google and companies like that have no presence in China. Well, on the one hand, China certainly does not want American technology companies to have more data and more information about their population than the Chinese government does. But another part of that was to protect their own national champions, who, if they had to freely compete, might not do as well as they have done in China.

There’s always more than one driving element, and there are definitely going to be attempts to thread the needle, but the reality of it is that the entertainment business is going to have a challenging time.

There’s another element here which goes beyond the corporate interests of entertainment companies. It also comes down to celebrities, who are individual brands unto themselves, as opposed to the product of studios and the like. We can name the celebrities who are big on human rights and on environmental issues, et cetera, as we have seen with various sports leagues, and with musicians. They will engage directly with their fan base; they will engage directly with the public over social media and be quite explicit on issues in ways that will go in one ear and out the other in Washington, DC, but will not be read that way in Beijing. It will be seen as a direct attack, and there will be a response. Their product may not be welcome in China. Their endorsement deals may be at risk and what have you. Even if their audience in the United States would agree completely with their position.

Two major, global sporting events next year: the Winter Olympics in Beijing, and World Cup Qatar. What do you see as the main geopolitical implications?

China is an interesting case here. Beijing will be the first city to have hosted both the summer games and the winter games. I think we all remember back in 2008, when we all stared in wide-eyed awe at that opening ceremony in Beijing at the Bird’s Nest stadium. And it was exactly what China wanted, right? It was a major coming-out party, a major signal of China’s arrival.

The opening ceremony, in a way, was their most important event at that Olympics because it was truly used as a geopolitical tool. Such that it actually overwhelmed another geopolitical moment that happened on the exact same day, which was the Russian incursion into Georgia, in Europe.

This also goes to a broader point that in this world of ever more diffuse entertainment, there are very few events that can get a global audience in real-time to watch something. The Super Bowl is obviously one of them, World Cup another, and the Olympics another. I suspect China will use it to that effect as well. One of the messages will be how much more effective Chinese control of COVID-19 has been behind the scenes.

There’s going to be an enormous amount of control. It’s going to make what happened in Tokyo last summer look like junior varsity by comparison. But the image that’s going to be put forward to the world is one of, ‘we’ve controlled this thing, and with 1.3 billion people, we’ve had a fraction of the deaths of, say, the United States or Western Europe.’

China even takes the position that their model is not one that can be, or should be, replicated, in that there’s a sense of Chinese exceptionalism. What they are saying is they have certainly punctured the notion of liberal Western democracies having achieved the end of history, essentially. They can use an event like this in a way that an American or European government can’t use the Olympic Games or the World Cup to the same effect.

Considering the ability to amplify for activists of all types—individuals or organizations—there’s no question that there might be increased calls for boycotts, increased calls for voluntarily not participating, increased naming and shaming, if you will. But that is a subset of the world, right? At some juncture, everybody’s going to be, like, ‘you know what? I’m going to kick back and watch them play, and I’m going to root for my national team,’ and they’ll get on with it. Then a month later, everybody can return to their concerns about all that, but of course, the world will have moved on, and we’ll be thinking about the next major event.

All of this plays out against the backdrop of a heyday for the ‘stakeholder capitalism’ and ‘purpose’ movements among corporates. How do such business ideologies square with geopolitical realities?

It’s becoming increasingly important for companies to be very clear about what their social purpose is, and their values, and how they’re going to pursue their activities in a way that is consistent with those things. Their customer base in some cases demands it, their employee bases are certainly involved in demanding it, and their shareholders are as well.

As those things gain in importance, it shouldn’t be lost on us also that these are commercial entities who have a responsibility, to all of those same stakeholders actually, to continue to be successful. To continue to produce, to continue to sell, to employ people, and to be able to do their business at a cost which allows them to share the benefits with those stakeholders that matter.

Most major corporations, most Fortune 100 level corporations, certainly the ones that are global sponsors of these types of events, are very global companies, in the sense that they have brands that are recognized around the world. Which is why they sign on to be global partners of the major sports events.

Advertising, the image of a company that it wants to put forward, can’t necessarily always be divorced from the fact that thousands and thousands of companies work with and in China. Business in China by American companies is increasing, not decreasing, in general. A small handful of those are going to be advertisers at the Olympics, and yet, that handful are the ones that are going to be in the global spotlight. They’re going to be the ones called out for essentially enabling a country that people have problems with on a whole host of fronts.

What’s next for your Insights pod? And what, in the spirit of Teneo’s end-of-year Vision book, do you have your eye on for 2022?

The purpose of that podcast is really to help our audience think through issues that are related to them in some way, shape, or form, and to hear how their peers are working through these issues. The nature of the changing role of the United States in the world, the ascendancy of a very different system [China’s], all of the issues that require a multilateral approach. COP26 is underway in Glasgow this week. The risks and opportunities for that matter.

The velocity of change is very fast in a lot of places around the world. In war, plans never survive first contact with the enemy. But the planning is really important, and the planning comes after you’ve thought through and identified what the parameters of the issue are.

Of course, for many leaders, whether they are corporate leaders, political leaders, leaders of NGOs, they’re living in a world where the ramifications of their actions and their words are going to be felt almost immediately. Because you are speaking into a world that allows for an immediate feedback mechanism via the internet, and via social media, via 24-hour markets that are always open somewhere. The scorecard is immediate. How your actions and how your communications are read, even if they’re targeted at a very narrow audience, they’re going to be seen and heard by a much larger audience, and they’ll be interpreted in ways that you had not intended.

We’re doing our small part to take issues that are of importance—everything from a geopolitical level to what your employee base looks like, and everything in between—to try to help people think through these things.

It’s inevitable that we think of things in terms of chunks of time; the next month, the next quarter, the next year, the next five years. So the year-end, as artificial as a calendar may be, is always a good time to think about what’s going to happen next year. When you think about big things happening next year, we’ve highlighted a few of them. The Olympic Games and the World Cup are two. But you’ve got a midterm election in the United States; you’ve got a party congress in China; you’ve got an election in France; I mean, all of these things we know are happening, that’s not even to mention what might come out of left field.

So I think it’s a cliché to say that everybody’s kind of drinking from the fire hose. But it is really the job for organizations like mine and people like me to try to do our part to help these decision-makers find the signal amidst all the noise.

Kajiwara is Co-President of the Political Risk Advisory group at Teneo, a strategy and communications consultancy. He is a member of the Council on Foreign Relations, and moderator of Teneo Insights, biweekly podcast series featuring conversations with business leaders and policymakers on the marketplace and political issues of the day.