Rio and Brazil stand to benefit even more from holding the 2016 Olympics than China and Beijing did in 2008, experts say.
For Brazil, winning the opportunity in late September to host the 2016 Summer Olympics in Rio de Janeiro probably represents many of the same things that the 2008 games did for China: a chance for the world to see that it is now an influential, modern country and a way to showcase -- domestically and internationally -- its remarkable economic growth. But do cities benefit as much from hosting the games as local residents and businesses alike are led to believe? Is the return on investment high enough to warrant the months, if not years, of preparation? And what lessons, if any, can Beijing offer Rio and other future Olympic hosts?
There are no easy answers. One year after Beijing was host to sports stars from around the world, some analysts question whether China's capital city and all the stakeholders involved benefitted greatly from the games. Yet the feel-good factors are hard to ignore. For one thing, the Olympics seem to have been useful for China from a marketing perspective, in terms of rallying people within the country and raising global awareness about “Brand China.” Simon Anholt, a government-reputation adviser who produces the 50-country Anholt-GfK Roper Nation Brands Index, a global public opinion poll on country reputations, says early results from his latest research suggests that after several years of decline, China’s index ranking has begun to improve following its Olympics experience.
Observers also note that the timing of the 2008 event augured well for the organizers, saying the combination of public and private spending for the games may have acted as an early stimulus program before the global economic downturn began making a deeper impact later that year. “The global financial crisis overshadowed the Olympics, but from a Chinese perspective, the crisis was an external threat and the nationalistic orgy of the Olympics gave [Chinese] leadership an extra boost in fending it off,” says Edith Terry, managing director of Cotton Tree Productions, a Hong Kong-based consultancy for East Asian business and public affairs.
The government also used the games as a catalyst to clean up many environmentally unfriendly industries all over the country and to increase spending on public infrastructure, including transportation. “The Chinese government very cannily used the Olympics as a way to push environmental change in China,” says Shaun Rein, managing director of the China Market Research Group, a Shanghai-based market research consultancy. Even Greenpeace, the activist environmental non-profit, gives Beijing high marks for its clean-up efforts, including new standards for vehicle emissions, five new subway lines and a fleet of nearly 4,000 buses running on clean-burning compressed natural gas.
GETTING THE JOB DONE
But is this simply blurring the lines between what was the result of the Olympics and what should have been on the government’s to-do list anyway? “It is true that Beijing is cleaner and more so because of [the Olympics]. But the government did not need an excuse to do all these [things],” says Lin Bo Qiang, a professor at the Center of China Energy Economics Research at Xiamen University.
Jonathan Anderson, head of Asia-Pacific economics for UBS, says that Beijing is such a small city relative to the rest of the country -- representing 2.5% of national GDP and 1% of the population -- that the economic impact of the event was limited. “It was just too small of an event to really matter.”
And not all public relations was good. “The China brand got a lift as a result of the games mainly because of the flawless execution. So the positive perception is definitely one about Chinese capabilities in getting things done,” says Minxin Pei, a professor of political science at Claremont McKenna College in Claremont, California. “The facilities were finished on time and the games went on without a hitch. That's good news. The bad perception is about credibility -- the use of the ‘fake’ girl during the opening ceremonies [who lip-synched a song] and the controversy over the underage women gymnasts. People wonder whether there is something funny going on with the China brand.”
Other incidents put the PR acumen of various global sponsors to the test. Threatening to scupper their well-choreographed sponsorships, pre-game protests outside China over human rights issues in Tibet and Darfur, Sudan, with disruptions to the global torch procession in Paris and elsewhere. In what became a politically sticky double threat, some sponsors found themselves caught between the risk of an international boycott of their products for supporting the Beijing games and the risk of a domestic backlash by the Chinese if they withdrew.
Opinions regarding the return on investment for corporate sponsors are also divided. “Consumers didn’t really care and they didn’t really know who the official Olympics sponsors were,” says Rein, who says many sponsors weren’t happy with their return on the Olympics. Yet Scott Kronick, president of the Ogilvy Beijing Group of Ogilvy Public Relations Worldwide, notes that sales for two of the firm’s clients who sponsored the Olympics – Adidas and UPS – grew dramatically during the games, and UPS has already signed on for the 2012 Summer Olympics held in London. “Post Olympics, I did not hear any sponsors regretting the sponsorship,” he says.
For Sam Taylor, president of Reputation Dynamics, a New York-based corporate social responsibility (CSR) consultancy, part of the difficulty for sponsors was the result of an ad hoc approach to CSR. “At the last Olympics, some companies had fragmented approaches toward developing social responsibility programs and aligning them around causes,” she says. One of her key lessons: Clear, consistent communications about the aim of their CSR programs at such events is critical. “While the Darfur situation clouded the Olympics, sponsors should not have been pressured by the activists and [should have] continued to communicate and vouch for their commitments to the CSR agenda,” she says.
Domestic and regional sponsors may have received a greater return on their investment. “For companies in emerging markets, Olympics sponsorship has become a badge of honor and ‘graduation party’ -- much the way it has long served for national governments," says Terry of Cotton Tree Productions. "At least one of my clients, Chaoda, which supplied vegetables to the Olympic village and other venues, has made its ‘Olympic mission’ central to its marketing before and after. I suspect others are doing the same.”
THE GAMES PEOPLE PLAY
For host cities generally, sponsorship seems to be a mixed blessing. A number of studies by academics and consultants suggest that Olympics-related economic growth is often a case of wishful thinking, and that positively-spun scenarios often don't differentiate short-term consumer spending from long-term growth. Notably, cities are often left with costly yet unusable Olympics infrastructure once the party is over -- dormitories, specialized facilities, an oversupply of hotel rooms, to name a few. Although cities have learned from past mistakes and there is more effort to convert facilities to new uses -- Atlanta, host of the 1996 Olympics, for example, ended up with $500 million of new, privately funded public buildings and a 21-acre park -- the ability to cut losses is different from a genuine economic gain.
For Beijing, the financial and human costs of the 2008 Olympics were enormous:
More than 600,000 residents were displaced as old neighborhoods were razed to make way for the Olympic venues. And while the legacy includes new subway lines, a new state-of-the-art stadium and a swimming and diving center, so far, only one event has been held in the 91,000-seat stadium -- a massive opera production -- and there is some talk that it could eventually be converted into a shopping center.
Other host cities have much less to show for their efforts. The games in Athens -- costing approximately $14 billion -- went so far in the red that the bills are still being paid, amounting to the equivalent of $70,000 per household, according to an estimate by U.K. newspaper The Independent. It took Montreal's residents until 2006 to pay off the $1 billion their 1976 Olympics cost.
For the hosts’ countries, the value may be more positive, given that PR is managed well. Anholt says tourism in Australia jumped after the 2000 summer games in Sydney, in part because of a post-event publicity campaign touting the games' success. But for every Australia, there's a Greece, he notes. Greece failed to capitalize on the twin successes of the Athens 2004 games and its hosting of -- and victory in -- the European football championship that same year, “its greatest PR opportunity since the sack of Troy,” he says. "The only messages Athens gave me when I watched the games were: We can afford a lot of fireworks; we are very proud of our heritage; we are better organized than you think" -- in other words, nothing that raised its profile among other countries.
But despite the risks -- such as PR campaigns coming unstuck -- the upsides of hosting the Olympics outnumber the downsides, particularly as the world climbs out of the economic downturn. A recent study by two economists -- Andrew Rose of the University of California, Berkeley, and Mark Spiegel of the Federal Reserve Bank of San Francisco -- found that after an Olympics, host countries’ export trade generally increases. In an examination of 196 countries’ economic performance between 1950 and 2006, they found that former Olympic host countries tend to have 30% more exports than the average, non-hosting country, a correlation they found to be “statistically robust, permanent and large.” Not only that, “the games do not seem to act as simple export promotion, but are instead associated with an increase in two-way trade between the host and the rest of the world,” they write in their April 2009 paper, “The Olympic Effect.” Rose and Spiegel speculate that the games constitute a positive -- albeit expensive -- global signal that the country is serious about attracting foreigners and foreign business.
Another big event, soccer's World Cup, has similarly attractive results. Non-sporting spectaculars, such as a World’s Fair -- which Shanghai is hosting in 2010 -- are also positively associated with national economic growth. Timing is important, however. The Olympic findings seem to hold true only for games held in the summer rather than winter. The economists suggest that the effect is partly because the spending and TV viewership of the winter games tend to be smaller, and the events are hosted by relatively small towns, such as Lake Placid in New York or Albertville in France.
BRAZIL'S RISKS -- AND OPPORTUNITIES
If Rose and Spiegel are right, Brazil has already won. However, as the apparently differing fortunes of Athens and Beijing suggest, there is still a lot of room for an Olympics to be more or less successful, particularly at the city level.
Economically, the risks for Rio seem higher. In terms of GDP, Rio is more important to Brazil than Beijing is to China. Rio is Brazil’s second-largest city and is home to about 3 percent of the country’s population -- about six million people out of a total of 174 million. Beijing has a population of 17 million, but China’s total population tips the scales at 1.3 billion. Indeed, UBS’s Anderson agrees that the Rio games are likely to have a “relatively” greater impact on the country.
In public relations terms, Brazil’s prospects seem good. The country will have already hosted the World Cup in 2014, giving it a chance to build on its successful experience with the 2007 Pan American games. A growing number of first-rate Brazilian multinational companies will be able to use the Olympics as a showcase for investors. Finally, the games will also be an important opportunity to introduce Brazil to more tourists, both within and outside of Latin America.
Unfortunately, the tourist potential may also be the Rio games’ key risk. As in the rest of Brazil, Rio has extremes of wealth and poverty. Despite a growing middle class, it still has vast numbers of poor people, and crime against tourists -- particularly during high-profile, public events like the annual Carnaval celebration -- has increased steadily. (According to a report on the U.S. Department of State’s web site, in the weeks leading up to this year’s Carnaval, “robbers ransacked two tourist hostels.”) Guaranteeing the safety of visitors without oppressive security will be difficult, observers predict. “I think this is potentially something that is going to tarnish the games,” says Mauro Guillén, a Wharton management professor.
Eduardo Musa, president of Caloi, a Brazilian sporting goods retailer, says he thinks hosting the games will be useful politically because it’s a project that comes with a deadline, giving the government a push to complete the necessary infrastructure on time. Unlike China, which has undertaken vast improvements in its infrastructure over the past decade, such improvements are still a pressing need for Brazil, experts say. Infrastructure upgrades are needed not only within Rio, but around the country. For instance, most international flights are routed to Sao Paolo, 350 km (220 miles) to the south, not Rio, partly because of the size of the airport. In general, it’s not easy for middle class tourists from other South American countries to visit Brazil because of the country’s poor infrastructure.
Making those improvements won’t be easy. While civic pride may take hold in Rio as it did in China, the governments are quite different. China is an authoritarian state, but Brazil is a federal democracy, subject to the kind of political and economic power struggles familiar to Americans. Building the infrastructure for the games -- particularly infrastructure that will disproportionately benefit one state -- may not be easy, warns Gerald McDermott, a former Wharton professor who is now a professor of international business at the University of South Carolina.
On the ground in Rio, the games are viewed by some as a ‘coming-of-age’ party for both the country and the city. For the past 50 years, since losing its status as Brazil’s capital to the new city of Brasilia, Rio has foundered somewhat as it tried to find a new identity for itself, according to Arminio Fraga, CEO of Rio-based Gávea Investimentos. With the Olympics, he hopes that’s going to change. “It’s very hard for a lost city … to find a new way,” Fraga notes.
McDermott says he hopes Brazil will also be savvy in using the games as a way to tighten relations with its key trading partners -- the MERCOSUR group, which includes Argentina, Paraguay and Uruguay. Most of South America’s other major countries are also associated with Mercosur: Venezuela is applying for full-member status, and Bolivia, Chile, Colombia, Ecuador and Peru are associate members. Musa, however, believes that hosting the games is not likely to bring Brazil closer to other countries in Latin America -- and he argues that this is a good thing. “Brazil is on such a different level from the rest of Latin America; a project like this will [magnify] even more the difference between Brazil’s potential and the other countries’,” he says. In his view, seeing a successful Olympics may encourage places such as Hugo Chavez’s Venezuela to rethink their present path.
Ultimately, observers say, how successful the Olympic games are depends on how well Brazil can execute the program. “One knows from the other countries that these things are what you make of them, and it is no different here,” says Fraga. “There are risks and challenges, but my impression, being here, is that enough people are engaged for this to be a significant positive in the end.”
Republished with permission from http://www.knowledge.wharton.upenn.edu -- the online research and business analysis journal of the Wharton School of the University of Pennsylvania.