Off the Map: The impact of territory disputes

As most people (particularly readers of this column) are aware, there are many disputed areas and issues around the world. Some are remnants of past colonialism, when boundaries weren’t demarcated very accurately, especially in areas of difficult terrain — high mountains, deep jungles and so on. Some are the result of long-standing historical and cultural differences between two or more nationalities, where each is claiming a historical right to a piece of territory, a name or an island. And of course some occur due to the increasing tension over the scarcity of natural resources and the need to secure territory that might contain energy reserves or arable land or fisheries.

Regardless of the reason for the disputes, one often overlooked aspect of their existence is the tangible impact they have on the business world in the affected countries and beyond. The negative human cost is often all too clear, as is the military spending and political wrangling that continues to either perpetuate or resolve the disagreements. But beyond the geopolitical aspects of disputes, they have a real impact on people who may not even be directly aware of their existence, beyond being a persistent news item.

While I’ve referenced it before in another context, the example of the video game Age of Empires II: The Age of Kings is very applicable here. When this title was released in 1999, the standard cover of the game’s packaging contained a depiction of three warriors from history: a Viking, an Anglo-Saxon and a Japanese Samurai. The intention was to use this same packaging artwork worldwide, but when the game was shipped to South Korea, the publisher quickly learned that some Korean retailers were reluctant to place the game on their shelves. Why might that be? Well, back in 1999, around the time of the game’s release, Japan and Korea were experiencing a major falling out due to a flare up in tensions of the disputed islands of Dokdo/Takeshima in the middle of the Sea of Japan (or East Sea, from the Korean perspective). Dokdo is the Korean name, Takeshima is Japanese; the islands are historically known as the Liancourt Rocks.

Because of that periodic rise in geopolitical animosity, Korean consumers were avoiding all things Japanese, and out of respect for their customers, the retailers likewise wanted to avoid inflaming sensitivities in their stores. The game still sold in South Korea, but when the Age of Empires II expansion pack was released, the Korean packaging art prominently replaced the Aztec warrior seen in all other locales with a Korean general in front of two other historical soldiers, definitely making the packaging more appealing to Korean consumers.

Over the years, we’ve seen this form of retail retaliation take place in various markets, and it’s understandable. Ordinary citizens in a specific locale who disagree with another country’s actions really don’t have a lot of leverage to make a difference, except when it comes to their spending habits. On more local levels we see this kind of business boycotting taking place on a regular basis, as it’s a common part of citizen uprising to disagree with the actions of a specific business and then try to choke the flow of income to that business. What makes the phenomenon to which I’m referring more unique is that this happens on a national level. It’s not just a few citizens boycotting over one company or one issue; it’s an entire nation wanting to economically damage another nation in lieu of overt military action.

On the broader geopolitical scale, this isn’t necessarily new. We’ve seen this tactic employed when the community of nations wants to send a strong message to a specific country, usually after traditional diplomacy has failed. These agreed-upon sanctions can take various forms, usually economic but sometimes also diplomatic (such as cutting off ties to a country), military (arms embargoes or limited military strikes) or even sports-related (such as not allowing participation in the Olympics or other global events). The economic sanctions are often most commonly employed, as it’s meant to cause the target country some tangible pain in order to get it to succumb to a desired action, such as withdrawing from a territory or agreeing to a cease-fire. So this particular means of showing displeasure for another country is well known and typically used in the direst of circumstances to get the attention of the target locale.

Yet we have to remember that we live in a new world of instant community activism, empowered in part by growing social networks and rampant mobile technologies. So in the “old days” it could take weeks or months for such a response to gain momentum, but today we’re talking about literally hours or just days. The impact is no less severe, and because of the swift reactions in response to things like geopolitical disputes, the impacts can in fact become even more swiftly pronounced.

Most recently we’ve been watching the intense unfolding of the island dispute between China and Japan. In the East China Sea, located to the southwest of Japan’s island of Okinawa and to the northwest of Taiwan, lie a small group of islands known to Japan as the Senkaku Islands and known to China (and Taiwan) as the Diaoyu Islands. The sovereignty dispute over these uninhabited islands dates back a few centuries and both China and Japan have asserted historical evidence to try and bolster their claims. The current situation was framed in the post-World War II era when the United States withdrew from the islands and its occupation of Japan, and ceded the islands to Japan. Both China and Taiwan maintain claims to these islands but they’ve been under Japanese administration since 1972.

As is common with most island-based disputes, the issue was relatively benign until it was believed that the seabed around the islands contains a substantial petroleum and natural gas reserve. Given the United Nations Law of the Sea, any country that maintains sovereignty over even a tiny rock that remains above “mean sea level” is entitled to a 200 nautical mile “exclusive economic zone” around that feature, which means a potential bounty of not only energy resources but fisheries as well. That very tangible economic benefit is what drives the furor over the islands today. Taiwan has been all but diplomatically sidelined in the discussions, yet the tension between China and Japan has mounted steadily, and has reached concerning levels in 2012.

The negative relations between the two countries experienced a crescendo in September and October 2012 with widespread public protests in China and Japan (Figure 1). This wave of negative sentiment was evident not only from the expected diplomatic saber-rattling, but much more visibly in the business sector. Toyota reported that its September sales in China dropped a staggering 40% and Mazda’s dropped 33% as the dispute became more heated. Nissan and Honda also indicated a drop in expected sales revenue from China, and all four Japanese manufacturers had to cut back on auto production. Were Chinese consumers simply not buying automobiles? Hardly, because sales of BMW jumped 55%, Volkswagen grew 20% and Korea’s Hyundai increased by 15% in the same month. And the economic effects weren’t limited only to cars; Japan-based All Nippon Airways saw massive cancellations of tickets on the Japan-China routes and Rohm Semiconductors had to reduce production because they supply parts to many Japanese auto manufacturers. Obviously this effect ripples onward from the affected companies to the affected workers and merchants relying on the workers’ wages and spending habits.

Economic backlash is indeed one of the new forms of retribution in today’s globalized business community. Some speculate that in the Senkaku/Diaoyu case, the Chinese response was carefully orchestrated from the central government in Beijing, and that may have been the case, but regardless of the driving factor, the end result remains the same.

Most typically, the responses to both geopolitical and cultural disputes are not so overt and extreme. For companies developing products and content for markets embroiled in such disputed issues, the challenge to remain as neutral as possible is clear. If one represents a company based in a country that is party to the dispute (such as a Japanese company), there’s little you can do to avoid potential retribution because the crowd’s activism won’t discriminate against a “good” or “bad” company — it’s purely about nationalism.

What needs to be most emphasized in this dynamic is the overarching need for businesses and content developers to be keenly aware of the state of sociopolitical events in their target markets. The ebb and tide of geopolitical reactions, nationalism and cultural dissonance are out of anyone’s control; the only thing you can do is be knowledgeable and informed of the current situation. This also needs to be done in conjunction with an honest assessment of the culturalized condition of the company’s content — is there anything in the content or even about the company itself that may serve as a trigger for local reactions, given the events at the time? In some cases, it can be wise to postpone a launch or concentrate on other target markets until the flare up over the dispute subsides (or hopefully, is resolved).