Lessons From Li Ning's China Stumble

The ongoing turmoil at Li Ning, China’s leading sporting-goods company, holds important lessons for Chinese as well as foreign companies about how to win in the country’s rapidly growing and constantly changing market. Founded in 1989 by the famous gymnast of the same name, Li Ning has established itself as a solid No. 2 in China’s sports footwear and apparel market—behind Nike but just ahead of Adidas. With an unbroken record of rapid growth in both sales and profits, the company delivered 2010 revenue of more than $1.5 billion and aftertax profits of more than $170 million.

Over the last 12 months, however, Li Ning has stumbled badly, largely as a result of a major brand repositioning in mid-2010 that has gone awry. In the first half of 2011, the company’s revenues declined, in stark contrast to an average annual growth of more than 30 percent during the previous 10 years. In the 18 months to June 30, 2011, Li Ning’s stock price dropped by 55 percent, compared with a 20 percent gain for its downscale Chinese rival Anta (2020:HK) and 36 percent and 45 percent gains, respectively, for the global giants Nike and Adidas.