ASIA: HONG KONG AGENCIES MEET CHINESE CHALLENGE - Hong Kong ad chiefs must decide whether to attack the Chinese mainland or stay put Report by Helen Deal.

In Beijing’s Tiananmen Square, a big clock is counting down to 1 July 1997 - the date of China’s reunification with Hong Kong. But marketers and their agencies aren’t waiting for that particular midnight hour.

In Beijing’s Tiananmen Square, a big clock is counting down to 1

July 1997 - the date of China’s reunification with Hong Kong. But

marketers and their agencies aren’t waiting for that particular midnight

hour.



Many clients with an eye to the Greater China opportunity have already

crossed the border and are urging agencies to follow. While there’s a

feeling that networks which have so far done little to build a presence

in China are by now too late, there’s also a danger of going in too hard

and fast, warns Eddie Gonzalez, group managing director of Dentsu Young

and Rubicam.



The agency established the market’s first agency joint venture in 1986,

and got its fingers burnt, Gonzalez admits. Developing markets such as

China can bleed available resources. New-business opportunities might

look good when the client presents them, but if the agency invests at

once there may be little return for two years - especially if they work

a commission system.



Dentsu Y&R now sticks with core corporate clients, rather than reacting

to every business opportunity. Nonetheless its headcount on the mainland

equals that of its Hong Kong regional head quarters - some 150 - an

increase of 50 per cent on last year.



Preferred client bases are Shanghai - for fmcg companies such as

Unilever, Kraft Foods and Kodak - or Beijing for clients involved with

infrastructure and regulatory issues, like IBM.



Relocation gained momentum after a spate of joint venture partnerships

gained approval in late 1995. Sustained consumer spending also helped

tot up overall 1996 billings for mainland China of USdollars 1,198.7

million, up 47 per cent on 1995, compared with a 12 per cent rise in

Hong Kong to a total USdollars 2,194.6 million (AC Nielsen Survey

Research Group).



Performances in China were pretty much in line with expectations, the

group managing director of Ogilvy and Mather, Mike Murphy, believes. By

the end of 1998, O&M plans to expand its mainland China operations to

six offices. It now has three in the key cities - Beijing, the

commercial centre, Shanghai, and the South’s richest provincial city,

Guangzhou (the former Canton).



Ultimately a regional approach to client servicing, as in the US, will

be most effective, Murphy says. For now he advocates carving greater

China into six. Beijing, Shanghai, plus a Northern China office -

primarily to service Kimberly Clark - and a central China presence.

Servicing the Cantonese south can be shared between Hong Kong and

Guangzhou. An office in a sixth business zone will exploit business

between Taiwan-based companies, and their entry point via China’s Fujian

province.



Although more multinationals bring together Hong Kong and the People’s

Republic of China, Taiwan is the possible third point in the greater

China triangle. Both O&M and Saatchi and Saatchi have transplanted

Mandarin-proficient Greater China chiefs from Taipei to a more

strategically useful mainland location.



What is required is people on the ground who are in touch with the

clearance bodies, explains Saatchis’ general manager of greater China,

King Lai, an American-raised Chinese, now based in Beijing. ’The 1997

issue needs to be very clearly examined when you talk about agency

management - is Hong Kong still going to be a centre of influence, or

just another Southern Chinese city?’ he adds.



With its key client, Procter and Gamble, thrusting hard into the PRC,

and Chinese billings accounting for 68 per cent of its 1996 total,

Saatchis’ greater China operation has an incentive to shuffle resources.

But overall, agencies are still split on the question of lead markets

and suitable structuring.



McCann-Erickson claims to have answered this by fully integrating Hong

Kong and China operations in 1996, creating separate profit centre

offices with individual decision-making heads.



But the reporting line still ends in Hong Kong for others, including

Grey, Euro RSCG Ball, and Bates - despite it having the fastest growing

China billings of any agency last year, USdollars 14.5 million, up 49

percent on 1995. Bates’s managing director, Jeffrey Yu, believes the

more mature territory will keep its edge for Southern China, with

Shanghai emerging as the centre for the North. Even local Chinese

clients have indicated they’d prefer to come to Hong Kong with

assignments than go through Guangzhou.



At Batey Ads, Asia’s biggest independent network, the sentiment is

similar.



Only account servicing is done through a local partnership in Beijing,

with creative and planning roles rooted in Hong Kong. That’s proved a

cost-effective strategy, says the agency’s chief executive officer and

creative director, Mike Fromowitz, considering the expense involved in

full-scale expansion.



Fully-fledged joint venture set-ups may allow direct purchase of media,

but local partnership arrangements staffed mainly by locals keep costs

down.



Although the group has lost pitches to networks with greater mainland

ammunition, there’s a flip side: Fromowitz is hopeful of picking up a

big mainland client, attracted by its creative track record. Hong Kong,

he says, has the opportunity to maintain its pre-eminence as long as it

maintains its level of expertise.



That’s a worry. Agencies concentrating hardest on mainland China - O&M,

Grey and Saatchis among them - are thinly spread. And Singapore is

starting to challenge Hong Kong as an alternative regional ad hub.



There remains a shortage of seasoned ad people with managerial

know-how.



Those planted in China must also be able to add local context - a

challenge for Westerners. Nonetheless, the chairman of Grey, Vivica

Chan, hopes the learning curve in China will be ten years - compared

with the 20 years it’s taken to develop Hong Kong’s talent pool.



Hong Kong is still the lead market for talent, people and technology but

China is the main business base now. ’But I don’t agree with those who

feel the Hong Kong end is suffering,’ Chan says.



Top executives pulling the strings from Hong Kong find they spend half

as much time supervising activity over the border as they did a year

ago, as more experienced staff are lured to senior positions there. As

the Tiananmen clock ticks towards reunification, that’s surely a sign

that the power base is shifting.



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