CAMPAIGN INTERNATIONAL: ISSUE - CHINA: Agencies adjust to China’s downturn. It’s still the biggest ad market in east Asia but shops must adapt their offerings, Alfred Hille writes

By ALFRED HILLE, campaignlive.co.uk, Friday, 19 November 1999 12:00AM

Euphoria about the Chinese market has cooled recently with the result that multinational agencies have been doubling their efforts to win over local business in a scramble to beat China’s slowing adspend growth.

Euphoria about the Chinese market has cooled recently with the

result that multinational agencies have been doubling their efforts to

win over local business in a scramble to beat China’s slowing adspend

growth.



According to AC Nielsen Media International, China maintained its

position as the top adspend market in Asia-Pacific, excluding Japan, in

the first half of 1999.



However, growth in gross expenditures rose 3 per cent to dollars 2.7

billion year on year, a meagre figure given that the annual rates of

expansion have been well over 20 per cent for most of the 90s.



This substantially slower growth is due to Asia’s economic meltdown

which resulted in some multinational advertisers cutting back on adspend

amid a general softening of consumption.



In order to beat the downturn, multinational agencies have adopted the

tactic of trying to maintain their existing client base by emphasising

all-round professionalism and going after large, local corporations.

Ogilvy & Mather, Leo Burnett and Saatchi & Saatchi were among the

agencies who have picked up a slew of local accounts over the past few

months.



O&M’s regional chairman, Miles Young, has made no secret of the fact

that his agency - which recently picked up Guangdong Telecom, Wanji

Pharmaceutical and the diversified conglomerate, Lan Xing - was actively

targeting Chinese corporations, especially privatised state enterprises.

He explains: ’Agencies have been far too reliant on international

business. But all that is now changing because we see that the growth

areas will be from local clients because local spend is more

buoyant.’



While competition from local agencies has been increasing, Young is

dismissive of them because ’they have not reached international creative

and strategic standards’. As a result, the multinational agencies

believe there is no need to cut back on the prices they charge because

most of their international clients are still investing heavily.



Stephen Gatfield, Leo Burnett’s Asia Pacific head, explains: ’There are

people looking around for cheaper agencies and it has become challenging

economically. But fortunately our multinational clients and a growing

number of local ones do see us as offering a more serious business

partnership and superior capabilities.



The big clients in China see international agencies as giving

consistency and this is in line with their long-term brand-building

efforts.’



John Dooner, the chairman and chief executive of McCann-Erickson

Worldgroup, agrees: ’They (the clients) want these agencies to help

build brands that can have sustainable results over the long term,

through good times and bad.’ Young stresses that the challenge is to

find effective ways to persuade local clients that multinationals are

worth the money they are asking.



’This is best done by demonstrating sales results - it’s not a question

of cost, but of value,’ he states.



Dooner echoes this sentiment when he declares that his agency’s greatest

difficulty has been to build a sustainable local client base.

Multinationals already understand the value of building brand businesses

through advertising.



’But local companies have not yet come to that recognition. They haven’t

had enough experience to see the long-term value of consistent,

effective advertising, but this will evolve as they develop more

marketplace experience,’ he adds.



Among Leo Burnett’s big-gest wins recently was the joint venture,

Dawncom Compaq, while Saatchis has picked up China Telecom projects,

Meidi Air-conditioners, Xian Jansen Pharmaceutical and Kang Shi Fu

beverages.



Global agency heads feel that although China is not making a substantial

contribution to worldwide revenue streams at the moment, they are

confident that it will do within the next three to five years.



O&M, Leo Burnett and J. Walter Thompson all claim to be making a profit

in China. Other agencies, citing confidentiality reasons, are less

willing to reveal whether or not they were still in the red.



According to the JWT International group president, Miles Colebrook:

’China broke even some time ago and is now a major contributor to Asia

Pacific profits.’ He adds that JWT was picking up more local business

and attracting interest from local clients.



Dooner describes China as his agency’s second-largest market in Asia and

emphasises its strong potential. However, this doesn’t necessarily make

for easy profits, and he cautions that the ’return on investment

expectations need to be realistic’.



The media independent, CIA Asia-Pacific, expects China to generate a

significant revenue stream after three years. However, Chris Ingram,

chairman of Tempus Group, CIA’s holding company, warns: ’That’s only if

the current conditions prevail in that time period. If the authorities

suddenly introduce a new type of business tax or the yuan is suddenly

devalued, then the whole picture will change.’



With a population of around 1.3 billion, China has often been touted as

the market that agencies and advertisers cannot ignore. But the country

is not likely to be at a similar consumer spending level as the West in

the near future. The big markets are definitely along the coastline,

such as Guangzhou, Shanghai and Beijing. To that end, the actual

potential is a lot smaller than the total population figure

suggests.



But it would also be wrong to ignore the fact that China represents one

of the fastest growing markets in the world. Dennis Wong, managing

director of Leo Burnett Greater China, says that in 1993 there were no

agencies who had billings from China of more than dollars 25 million. By

last year, however, there were several agencies whose billings topped

dollars 100 million.



This article was first published on campaignlive.co.uk

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