Hongxing ERKE Industrial Co., Ltd. (ERKE) was the first large Chinese sportswear company to list overseas. After a flood caused by heavy rainfall in Henan Province in July 2021, the company, which had faded out of public view sometime earlier and faced rumors of bankruptcy, announced a donation of 50 million 2 (US$7.723 million) in funds and materials for disaster relief. The donation became an unprecedentedly hot topic online and ignited the enthusiasm of social media users, or netizens, for buying ERKE products. Millions of netizens expressed their gratitude and support for the company through "wild consumption"3 in ERKE's online live-streaming studios and physical stores.4 Its strong value-for-money positioning allowed most consumers to easily afford its products, and its donation aroused consumers' empathy.5 Thanks to ERKE, wearing Chinese-branded products quickly became a fashionable way for consumers to express patriotism.6 ERKE had become representative in consumers' minds of excellent domestic products that manifested Chinese fashion trends.7 What were the possible motivations behind ERKE's donation? Why had ERKE's donation become such a hot topic and triggered a consumption binge in China? On the heels of this situation, how should ERKE use the opportunity to achieve a long-term competitive advantage in the future?

BACKGROUND

In June 2000, Wu Rongguang took over his father's shoe factory, which had produced goods for foreign brands since the 1980s, and registered a sportswear company named Hongxing ERKE in Quanzhou, Fujian Province, China. This company then launched its own brands, Hongxing ERKE and ERKE, and gradually grew into one of the leading sports product manufacturers in China with comprehensive capabilities in research and development, manufacturing, channel development, and marketing. With nearly 30,000 employees, it provided the global mass market with professional sporting products including footwear, apparel, and accessories.8 ERKE had over 7,000 single-brand stores spread across the world, and its products were available in Europe, Southeast Asia, the Middle East, North America, South America, and Africa.9

ERKE thrived for some time. In 2005, ERKE was listed on the mainboard of the Singapore Exchange, making it the first Chinese sportswear company to list overseas. Since then, ERKE had expanded into the field of tennis and gradually accumulated popularity there, becoming "the top brand of tennis apparel in China" through sponsoring various well-known tennis events including the Shanghai ATP Masters 1000, China Open, Shenzhen Open, and WTA (Women's Tennis Association) Istanbul year-end championships.10

Its brand slogan, "To be number one," was well known to the Chinese public. In 2008, ERKE's revenue soared to 2.89 billion,11 and it entered the list of top 500 Asian brands for the first time, becoming the top enterprise focusing on tennis sports products in China. However, after the fanaticism for sports that had been fueled by the 2008 Beijing Olympic Games dissipated in the country, ERKE eventually began to lag behind its competitors. Due to blind expansion, improper store location, and other problems, ERKE had excess stock and lacked capital. Its internal product design and management suffered, and business performance and share prices continued to languish.12 In 2010, the company's shares were suspended from trading on the Singapore Exchange and eventually were delisted. In 2015, a fire broke out at one of ERKE's main factories in Quanzhou, destroying nearly half of its production facilities. Wu Rongzhao, ERKE's current chairman and the founder's younger brother, once said that at its most difficult time, the company did not have enough money to last a week.13

From 2011 to 2018, China's domestic sports brands experienced an industry reshuffle under the impact of an influx of foreign brands, a decline in foreign trade orders, industrial upgrading, and other factors.14 During this period, Li-Ning, Anta, and Xtep became the top domestic sports brands by virtue of their high-quality products and excellent marketing. After experiencing difficulty adjusting its brand positioning from professional sports to lifestyle sports, ERKE tried to enter this market segment by launching new products such as micro-collar polo shirts, down jackets, and sneakers with self-designed cushioning materials. However, as a domestic sports brand that had once been as famous as Anta and Li-Ning, ERKE was moving to open more stores in third- and fourth-tier cities when old rivals were fighting Nike, Inc. (Nike) and Adidas AG (Adidas) in first- and second-tier cities. As part of its 2020 brand strategy, ERKE launched a 500 million subsidy plan to motivate retailers, targeting customers pursuing cost-effective products in third- and fourth-tier cities and counties.15

In 2020, ERKE's revenue was 2.84 billion, far from Anta Sports Products Ltd.'s 35.51 billion, Li-Ning Co. Ltd.'s 14.46 billion, and Xtep International Holdings Ltd.'s 8.17 billion.16

DONATION

Between July 17 and July 18, 2021, there was rare continuous heavy rainfall throughout Henan Province in China. On July 20, the daily rainfall data from ten national meteorological observation stations in the province broke historical records.17 As of July 28, the rainstorm had affected 13.7 million people in the province. It had destroyed infrastructure, flooded farmland, collapsed houses, and caused severe urban waterlogging, resulting in direct economic losses of 88.5 billion.18 The rain had left Henan Province in urgent need of a large number of rescue personnel and relief materials.

The rainstorm disaster aroused great concern all over the country. Many enterprises, institutions, and citizens enthusiastically donated money and materials to help Henan Province19 (see Exhibit 1). At 5:45 p.m. on July 21, ERKE announced news of its donation through its Weibo account:20 "ERKE is concerned about the disaster area. Through the Zhengzhou Charity Federation and One Foundation, we donated 50 million of materials to help the disaster area in Henan. Henan, come on!"21

At first, the donation announcement on ERKE's microblog did not draw much attention amidst the news of many other donations by corporations and celebrities, attracting just over 100 comments within the first few hours.22 However, perhaps because the donation amount was disproportionately large considering the small number of comments, netizens could not help but speak up. Starting at around 11:00 p.m. on July 21, more and more comments on the microblog triggered a large conversation among netizens, so that the Internet buzz around ERKE climbed sharply. Comments included the following: "My goodness, how could you donate so much when you were going bankrupt?" "How can I help publicize it? I am so worried about

you." and "I learned from other popular microblogs that ERKE donated 50 million. You're so inconspicuous that I am worried for you!"23 Netizens expressed their thoughts through an increasing number of replies and likes: the old Chinese brand ERKE, which had seemed poised to go out of business, had gritted its teeth and donated up to 50 million of materials without any publicity, which consumers found touching and poignant. More and more netizens enthusiastically spread ERKE's post and publicized it on other popular microblogs and in Internet threads about donations. On the evening of July 22, the topic "ERKE's microblog comments are so sad" climbed to the top of Weibo's hot search list.24 Many netizens supported ERKE and posted about ERKE products they had purchased in the past, praising the high quality and cost-effectiveness of these products and pledging to continue their support of the brand. Some sharp- eyed netizens discovered that ERKE's Weibo account was just an ordinary one rather than a corporate account,25 with one commenting, "You [ERKE] were really so great that you were not willing to pay for the membership of an official microblog, but to donate 50 million." Following this discovery, ERKE's corporate account membership was extended to the year 2140 by netizens. ERKE responded through its official microblog: "ERKE is determined to become a century-old brand, or we will be sorry for the membership given by netizens."26

Within forty-eight hours, topics related to ERKE appeared in the top searches on various social media platforms, including Weibo, Douyin, Baidu, and Toutiao. Baidu Index showed that the overall daily average of searches for "ERKE" that past week was 382,405, up 42,301 percent year-on-year. According to iFind of Royal Flush Information Network Co. Ltd., ERKE's overall news index was 266,622, up 1,666,288 percent month-on-month and 26,662,100 percent year-on-year.27 As of July 28, the topic "ERKE's microblog comments are so sad" had generated 1.03 billion views and 172,000 discussion threads.28 For a while, ERKE, a company that had been on the verge of collapse in the public consciousness, became "the shining example of a domestic product."29

CONSUMPTION BINGE IN THE LIVE-STREAMING STUDIO

Livestreaming was becoming a priority for all kinds of Chinese consumers seeking new products and promotions, not just a distinctive mode of entertainment and gaming as before.30 Although as early as 2016, Taobao Livethe live streaming platform of the Taobao shopping appacted as a prelude to livestream e-commerce in China, the original intention of live streaming at that time was only to improve users' Time on Page.31 After a period of rapid development, the ecological chain of the livestream e-commerce industry, composed of fans, live streaming platforms, and supply platforms became a new marketing tool for merchants in the digital economy era and a strong growth factor for the e-commerce sales mode.32 In 2020, the COVID-19 pandemic catalyzed the further development of livestream e-commerce in China, as tens of millions of Chinese were confined indoors and moved to online shopping due to restrictions on large gatherings and travel. According to a report from market consultancy iiMEDIA Research Group, revenue from China's livestream e-commerce market stood at 433.8 billion in 2019, and rapidly increased to 961 billion in 2020.33 By the end of 2020, users of livestreaming services in China had reached 617 million,34 accounting for 62 percent of the country's total Internet users (totaling 1.011 billion by the end of 2020).35

China had formed a multipolar livestream e-commerce market with three giants: Alibaba Group's Taobao Live, Beijing Kuaishou Technology Co. Ltd.'s Kwai, and ByteDance Ltd.'s Douyin (known as TikTok outside China).36 In a typical session of livestreaming e-commerce, the host interacted with the online audiences in real-time through devices such as smart phones, promoting goods and answering questions.37 Compared with traditional marketing tools, livestreaming had advantages in building relationships with consumers and reducing marketing costs, and thus live streaming was quickly becoming a necessary operational strategy for many retailers.38 According to a report released by the live streaming branch of the China Association of Performing Arts, the number of live-streamer accounts exceeded 130 million by the end of 2020.39

The Chinese had an old adage, "Don't let anyone who brought firewood for every one die of wind and snow." ERKE had acted very charitably, and warm-hearted consumers would not watch it fall. On the evening of July 22, the official live streaming studios of ERKE on Taobao Live, Douyin, Kuaishou, JD.com, and other platforms were flooded with messages and virtual gifts in the comments section.40 More than two million people bought the clothes, sports shoes, and other goods in the live streaming studios, ignored the live-streamers' repeated calls for "rational consumption" and "necessary purchases only," and chanted, "Give us the most expensive!" "Don't give discounts, don't send coupons." Any product was grabbed up in an instant. That night, almost all of the products were sold as soon as they were put up for sale.41

At 1:00 a.m. on July 23, ERKE's chairman, Rongzhao, rushed to the Taobao Live livestreaming studio to thank netizens. He did not talk much and seemed even a little overwhelmed.42 He just said that ERKE would continue to provide high-quality products and service and to establish a good reputation for domestic goods. He kept urging everyone to spend rationally in the livestreaming studios, but received replies such as, "You made wild donations, why should we practice rational consumption?" and "We are wild consumers."43

In ERKE's livestreaming studios, many jokes and buzzwords came into being through the "pretend adversarial" interaction between the live-streamers and netizens: "When I prepared to order a pair of shoes, I found that most were out of stock. The live-streamer told me that the sewing machine had been broken." "The boss of ERKE rode a shared bike to the studio to meet netizens late at night, but the shared bike was swept away by others." The live-streamer told the netizens that they could return goods without reason within seven days even if there were loose threads. But netizens answered: "Never mind the thread ends. We will not return any goods, even if the soles fall off." "If the shoes don't fit, we will go to the hospital to mend our feet rather than return them."44 Thanks to popular hashtags, ERKE was trending on many social media platforms, including Douyin, Zhihu, Toutiao, Bilibili.com, and Baidu.45 On Xiaohongshu, an influential social media and e- commerce platform recommending products and lifestyles, many fashion bloggersespecially some key opinion leaders and influencers with a large number of followersspontaneously promoted ERKE in their blogs and livestreams, and even bought ERKE products at their own expense to share their shopping experience and show off ERKE products, which also helped boost consumption.46 Lei Jun, the chairman of Xiaomi Corporation, posted his ERKE running shoes purchase on Weibo; a manager of Fuyao Glass Industry Group Co., Ltd., a well-known automotive glass manufacturing giant in China, said that he would contact ERKE and purchase summer uniforms for the employees; some leading livestreams did free broadcasts for ERKE. Many scenic spots and hot destinationssuch as Daming Mountain in Hangzhou, Wuyuan in Jiangxi, Yueyang in Hunan, and Huanggang in Hubeimade promises of free admission for tourists wearing ERKE clothing or shoes. Many consumers posted their orders on social media platforms such as WeChat Moments. Growing support for ERKE further stimulated the enthusiasm of consumers.47

From July 23 to July 24, sales from the livestreaming studio of ERKE on Taobao Live exceeded 107 million, with total sales of 645,000 pieces and nearly thirty million views. From July 22 to noon on July 25, ERKE's five livestreaming studios on Douyin performed a total of 235.44 hours of livestreaming, exceeding 210 million in sales and adding 21.09 million followers48 (see Exhibit 2). The single-day sales on July 24 exceeded 100 million, with total sales of more than 600,000 pieces, 148 million views, and 428 million likes. This was in sharp contrast to the number of views in the ERKE studio prior to July 21, which was less than 10,000 in total from July 15 to 21, and even less than 1,000 for some shows.49

The now-popular Internet phrase "wild consumption," which was born in ERKE's livestreaming studio, was also reflected in ERKE's physical retail sales. Since July 22, news had been on the rise of hot sales found in ERKE's retail stores in many major cities in China (including Zhengzhou, Chengdu, Wuhan, and Hangzhou).50 On July 24, the topic "The man who bought 500-yuan of ERKE products paid 1,000 and ran away" ranked at the top in Weibo's trends.51 Topics such as "ERKE's stores were almost out of stock" and

"ERKE's stores were crowded with customers at midnight" were also popular.52 Despite the popularity, however, ERKE's physical retail stores did not raise prices, and many netizens photographed discount posters such as "Buy two get one free" or "71% off sales."53

SURGING SUPPORT FOR CHINESE FASHION

In the early morning of July 25, Rongzhao posted the following message on his microblog:

Starting with meager funds, ERKE was founded in Fujian Province in 2000. In 2003, half of our equipment and a large number of raw materials were destroyed by flooding, leaving the factory struggling. Then came the financial crisis in 2008, followed by a massive fire in 2015 that burned down half of our production facilities. Despite these ups and downs, we have always had a craftsman spirit. In recent years, through active adjustment of the team, certain benefits have been achieved. Faced with the transformation process, the situation at ERKE is still very difficult, but it is not as many netizens joke "on the verge of bankruptcy." I firmly believe that as long as we stick to our original aspiration, stick to the industry, and make high-quality products for users, we will get recognition from our customers one day. Recently, the flood in Henan made me feel empathetic. I felt flattered and a little bit giddy getting a strong, unexpected wave of support for what I did. I am so grateful! I am deeply touched by the unity and kindness of our nation. I believe in the rise of Chinese enterprises, and China can make it!54

One comment on the post, which received more than 1,000 replies and 26,040 likes from netizens, said, "I really want to know what the meaning of the name Hongxing ERKE is. I have always thought it was a foreign brand since childhood." Rongzhao personally replied: "It means to be no. 1. 'Hongxing' means 'red star', and 'Hong' has the meaning of 'swan fly high, thousands of miles away!' ERKE means that you have to overcome, and constantly transcend." Many netizens offered suggestions for ERKE's products and brand development, and left messages, including the following: "Hongxing ERKE, the red star of China. Glitter and shine. It's getting better. It's getting further and further away. Come on!" "Domestic goods, rise up!"55

Xinjiang Cotton Incident

Another comment on Rongzhao's post on July 25 resonated with a large number of netizens: "I am a manufacturer of a foreign brand. After the Xinjiang Cotton incident, foreign brands asked us not to use Xinjiang cotton. Between the nation and the survival of the enterprise, we resolutely chose the country! Firmly support Xinjiang cotton! This made us lose the order. We want to produce for Chinese brands. Please give us a chance [to do business with ERKE], Manager Wu!"56 The cause of the "Xinjiang cotton" issue was that on March 24, 2021, a statement announcing a boycott of the use of Xinjiang cotton released the previous year by H&M Group (H&M)the world's second-largest clothing retailerwas found and posted on the Internet. The company said that it would not work with any Xinjiang garment manufacturing factories, nor would it source products or raw materials from that region, because the company was concerned about reports of accusations of forced labour in the region.57 With support from government media outlets and China's Communist Youth League, the post quickly went viral and sparked the outrage of Chinese netizens.58

As of that evening, H&M products were removed from major Chinese e-commerce platforms, including Taobao, JD, and Pinduoduo.59 Furthermore, Chinese netizens took note that some international companies including Nike, Adidas, Uniqlo Co. Ltd., and New Balance had all issued similar statements about Xinjiang, and they were all members of the Better Cotton Initiative, a Switzerland-based organization.60 On March 25, many Chinese celebrities announced that they would cut ties and stop doing commercials with the

brands due to the companies' decisions to boycott Xinjiang cotton. A related topic called "I support Xinjiang cotton" received over 4.73 billion views on Weibo within two days.61 Netizens expressed their attitudes about supporting domestic goods and reducing purchases of foreign brands participating in the boycott. On the same day, China's Ministry of Commerce spokesman, Gao Feng, said at a news conference in Beijing, "The so-called forced labour in Xinjiang was nonexistent and entirely imaginary. The spotless white Xinjiang cotton brooks no slander. With regard to the so-called business decisions made by certain foreign companies based on erroneous information, Chinese consumers have responded with concrete actions."62

The Xinjiang cotton incident resulted in a concentrated venting of patriotic enthusiasm among Chinese people. Thanks to more than seventy years of hard work, China had achieved robust social and economic development and greatly improved its people's living standards.63 In 2020, the strong performance of the Chinese government in the fight against COVID-19 and the unified spirit of Chinese society further enhanced the patriotic enthusiasm of the Chinese people and the unprecedented rise of national cultural confidence,64 which provided an opportunity for the rise of domestic brands.65 The boycott of those foreign brands involved in the Xinjiang cotton incident resulted in a sharp drop in their sales and brand reputations in the country, and created a big opportunity for Chinese domestic brands. H&M's sales in China were down 23 per cent in the local currency for the second quarter of 2021, compared to the same time the previous year.66 Data from the Tmall platform showed that Nike's sales plunged 59 per cent in April 2021, while Adidas's fell 78 per cent. By contrast, sales of the domestic brand Li-Ning jumped by more than 800 per cent.67 According to a report jointly released by the search engine Baidu and the Research Institute of People in 2021, the frequency of keyword searches for Chinese brands had surged to more than two-thirds among all searches on Baidu, up from about one-third ten years earlier.68

ERKE was among the first Chinese sportswear brands to speak out about the Xinjiang cotton incident. On March 24, ERKE's official microblog and Rongzhao's personal microblog posted the statement: "Support Xinjiang cotton." On March 25, ERKE invited Wang Yiboone of China's top celebrities and a spokesman for Nike who had been released from his contract with the companyto co-operate and said, "Support the good Chinese youth, be proud of our country, and let Chinese brands go global."69 Although Wang eventually formed a partnership with Anta Sports Products Ltd., ERKE attracted a wave of social attention at that time. On March 26, Rongzhao made various statements on his microblog: "Support Made in China, support China's cotton."70 "Let domestic products speak out, let China go to the world!"71 "Cotton is soft, while China is hard."72

The public opinion generated by the ERKE donation had, of course, further driven the rising tide of sentiment in favour of supporting domestic products. According to a report from JD.com, on July 22 and July 23, Chinese sportswear companies' overall sales increased 280 per cent year-on-year.73

ALLEGATIONS OVER ERKE'S DONATIONS

On July 24, an online post written under a pseudonym said, "ERKE donated only 200,000 bottles of Ice Dew bottled water, which is far from the 50 million."74 This article called ERKE's donation into question and ignited public discussion on it. Negative accusatory comments about ERKE began to appear, such as that it had engaged in a "fraudulent donation" or "marketing scam" and had "aggrandized itself by belittling others."75 Netizens, worried that ERKE had taken advantage of their sympathy, went to their official microblog accounts to get answers. One netizen posted on his microblog: "Boss [Rongzhao], please pay attention to the material details of the 50 million [donation], or you will get caught." Rongzhao responded, "Don't worry, dear netizens, this was not the first time we have made donations."76

In response to the doubts, at 3:25 a.m. on July 25, ERKE shared the details of its donation through its official microblog, posting: "30 million of items donated by ERKE through Zhengzhou Charity Federation and 20 million of items donated through the One Foundation are being transported and distributed urgently!"77 The donated materials, including mineral water and instant noodles, had been delivered to the Fenghuangtai Tax Bureau and Wenhua Road sub-district office in Jinshui District, Zhengzhou, according to a photo posted on the microblog. In addition, ERKE also revealed that it had received 918,584.03 in tips from netizens during its livestreaming on Douyin until the early morning of July 25, and said that it would donate all the "good will" of netizens to more needy places in the future, so as to pass on the love.78

At 11:43 am on July 25, the official microblog of One Foundation released a post called "Explanation of ERKE's Donation of 20 Million," which explained that on July 21, One Foundation signed a donation agreement of 20 million with ERKE, of which 2 million in cash had been allocated; the 18 million of materials would be received and distributed by One Foundation in batches according to their arrival and the needs of the affected areas; the first batch of more than 200,000 bottles of water had been delivered to areas in Henan affected by the flooding by 10:00 p.m. on July 24.79

At 3:32 p.m. on July 25, Zhengzhou Charity Federation issued a statement on its microblog saying that on July 21, ERKE signed a donation agreement of 30 million with Zhengzhou Charity Federation through its subsidiary company. At that time, 1 million had been received, and 29 million of materials had to be delivered in batches. Zhengzhou Charity Federation would publicize the specific quantity of donated materials and the donation timeline. The two official donation agreements reassured netizens and confirmed ERKE's promise.80

On the same day, Rongzhao took to his personal Douyin account, saying: "We have already sent some of the supplies, and we will continue to fulfill our donation commitment according to the needs of the two charities." He said, "Please do not deify ERKE, I hope we can pay more attention to the first line of disaster relief personnel." At the same time, Rongzhao once again called on customers to consume rationally and not to attack other corporations by comparing donation amounts. He said that all domestic brands needed everyone's support and love.81

Some enthusiastic netizens compiled statistics on ERKE's donations information disclosed on the Internet in recent years. Since 2008, ERKE had participated in many donation activities, such as assisting the disabled, helping students, giving to Wenchuan earthquake relief, and fighting COVID-19 with donations totalling more than 251 million (see Exhibit 3).82 The People's Daily newspaper commented: "The flood of goodwill towards ERKE should not be turned into a torrent of destruction, nor should it be turned into destruction by overpraise, nor should it bring 'bombardment.' Love is like the tide, a kind of wisdom that flows deep in still waters."83

IN A DILEMMA

Though questions about ERKE's donation to Henan flood relief subsided in the weeks that followed, reactions to the donation continued. The donation of 50 million had brought ERKE, once a struggling enterprise, a sudden burst of attention and triggered "wild consumption" of its products among consumers. The flood of orders had led ERKE's Tmall official flagship store to issue an emergency release, titled "Stock emergency announcement," four days after the donation, saying that the system had crashed, which had "caused delayed orders and data mistakes," and that "the current delivery capacity could not keep up with the demand, but we will process orders and ship as soon as possible." ERKE again emphasized rational consumption, telling consumers: "Please place an order only if you urgently need the goods." On July 26, ERKE announced on its Douyin account that due to the order system abnormality a few days prior, many orders still needed to be processed urgently, and the livestreaming would be suspended until July 29.84

Of course, the commotion from the donation would pass. ERKE was more concerned that consumers would regret their purchases due to impulse buying.85 After all, the current upsurge in public opinion had created excessive expectations for ERKE.86 What would happen if consumers discovered that the products they had bought out of patriotism were unsuitable? What would ERKE do if it got a large number of returns? This was the reason why ERKE and Rongzhao repeatedly advocated "rational consumption" and "prudent ordering."87 In addition to the promise of refunds for customers' returns, Rongzhao proposed to give "freight insurance nationally," and promised that customers could return the goods they bought at any time.88

However, even if consumers accepted the products, the unsustainability of large orders posed a dilemma for ERKE. In the past year, ERKE's sales were just 2.8 billion. The current production capacity of ERKE would not be able to handle the sudden high volume of orders. For example, at ERKE's factory in Quanzhou, for a few days following ERKE's donation, online shoe orders exceeded two million pairs, while the quarterly production capacity of the factory was only 100,000-200,000 pairs.89 Even if all employees worked overtime, the result would still be massive late shipments, which could lead to consumer dissatisfaction or platform fines.90 Thus, under the circumstances of unlimited purchases, should ERKE expand production, or maintain the status quo? What should it do if sales immediately fell back to their usual level? And how could it meet consumer demand without expanding production?