FRANKFURT (Reuters) - The Olympic Games are never just about sport.
So German firms Adidas and Volkswagen, which have both signed up for the right to use the Olympic logo in China, are now busy with a balancing act that sponsors must carry off as the Games approach.
On the one hand, their involvement in the 2008 Beijing Olympics lets them burnish their brands in a fast-growing market: on the other, it is raising objections at home which they need to manage to preserve their image.
"It is not an easy situation for the sponsors," said Wigan Salazar, managing partner for public relations group Publicis Consulting in Germany. "They have to think about certain sections of the market but also the whole market."
In sponsoring the Beijing event despite protests over Tibet, both companies have their sights set on a global market prize for Germany. China, with about 1.3 billion potential consumers, is a battleground where Adidas fights with Nike, and Volkswagen is grappling with General Motors.
"For the first time we will sell more cars as a group this year in China than in Germany," Volkswagen CEO Martin Winterkorn told German daily Handelsblatt this week. China already accounts for nearly 15 percent of its auto sales.
But the companies face pressure at home to defend their involvement, and Tibet has been contentious at a political level. Chancellor Angela Merkel rankled Beijing last year by meeting with Tibet's spiritual leader, the Dalai Lama, who visited Germany again at the weekend.
Adidas, which says its founder supplied kit to Jesse Owens during the 1936 Berlin Olympics -- when he disgusted Hitler by winning four gold medals -- is ready for controversy.
"No one in our company is surprised when there are demonstrations surrounding the Games," CEO Herbert Hainer told magazine Der Spiegel earlier this month. "They will not be the last."
Critics used Adidas' annual meeting earlier this month to voice their concerns. Groups including Reporters Without Borders say companies sponsoring the Games are linking their brand with human rights violations in China, and some members of the German Olympic team are planning to wear protest armbands with the slogan "Sport for Human Rights" at the Games.
Hainer sought to absolve the company from responsibility: "We will not let ourselves be held morally responsible for a situation which we did not create and for which we are not accountable," he told the meeting, criticizing some protestors as "moralists who just spout rhetoric."
Adidas, Volkswagen and Puma, which is not an official partner but does supply kit to participants, say they have so far seen no damage to their brands from the protests.
But Adidas, which depends on Asia for about one-quarter of its 10.3 billion euro annual sales, says it cannot rule out a negative effect in the future. To limit any damage in mature markets, all are now navigating a delicate course.
Puma has noted that it was the official sponsor of both the Iranian and Israeli national teams for many years despite the conflict in the Middle East.
"They cannot stand by without commenting on the situation, as a sponsor they must clarify why they are doing it and explain why there are good reasons to sponsor the Olympics," said Salazar.
"They can say it will encourage dialogue, that changes can only come when economic cooperation takes place, and so on. But keeping quiet is the worst thing to do right now."
Adidas' Hainer has said the criticism of sponsors has been particularly loud in the German and French media, but other countries have focused on the positive aspects of the Games.
"I...believe that Western consumers -- unlike some in politics and the media -- understand our role correctly. We are involved in the Olympics because we make equipment for athletes," he told Der Spiegel.
Volkswagen, one of Germany's most recognized brands and the first foreign auto-maker to enter the Chinese market, took the opportunity of its annual meeting last month to urge the host to open up its society. The group has rejected boycott calls, underlining the Games as an opportunity for China.
"The solution to the problems in Tibet is a political one," Volkswagen spokesman Andreas Meurer said, adding the criticism of sponsor companies was "a purely German theme.
"In countries such as Italy and Spain, we are not seeing any public commentary whatsoever. And certainly we are not seeing any commentary from any of our consumers," he said.
The German firms -- which unlike the main sponsors including McDonald's, Coca Cola and Visa have marketing rights for the logo in China alone -- are not the only targets of controversy about China's Tibet policies.
French retailer Carrefour, not an official sponsor to the Games, said its trading in China had suffered when it became a target of Chinese demonstrations, sparked by pro-Tibet protests in Paris.
Three corporate sponsors of the Olympic torch relay in Japan -- Lenovo, Coca-Cola and Samsung -- decided against sending vehicles to take part in the flame motorcade through Nagano, two of them citing security concerns.
But the stakes for the German companies are high: China is Germany's most important Asian trading partner and 90 percent of German companies have expansion plans there, according to the German chambers of industry and commerce (DIHK).
Adidas is targeting 1 billion euros in sales in China by 2010: Volkswagen expects to sell at least 1 million vehicles in China this year.
"Populist calls for confronting China, coupled with public 'China Bashing', are counterproductive and could block off China as a result," the DIHK said in a statement.
It fears boycott calls could damage economic ties, saying 200,000 jobs in Germany depend on exports to China.
"The global market is perhaps taking a very critical point of view at the moment," said Publicis' Salazar. But he said the focus on Tibet was likely to be short-lived, noting the long-running debate over its autonomy had captured the interest of relatively few people before Olympic preparations started.
And with public attention now focused on the effects of the Sichuan earthquake, Volkswagen and Carrefour have donated millions of yuan to help relief efforts, a move likely to boost support globally on humanitarian grounds.
(Editing by Sara Ledwith)
Additional reporting by Christiaan Hetzner and Kathrin Schich in Munich