ASIA: RIDING THE TIGER - Global advertising players are moving in despite the turmoil, Alexandra Harney writes

Asia is not the easiest place to do business these days. With Thailand and Indonesia still nursing their wounds, Korea hobbling towards a recovery, China perched on the brink of a currency devaluation and Japan mired in its deepest post-war recession, it hardly seems the time to think about making new investments in the region.

Asia is not the easiest place to do business these days. With

Thailand and Indonesia still nursing their wounds, Korea hobbling

towards a recovery, China perched on the brink of a currency devaluation

and Japan mired in its deepest post-war recession, it hardly seems the

time to think about making new investments in the region.



But in recent months, some of the world’s largest marketing services

groups have been piling into Japan, China and the rest of the region in

defiance of the economic odds. Industry executives and analysts say

there is less desire on the part of multinationals to flee in times of

crisis than expected. Much of the focus has been on Japan, the world’s

second-largest advertising market after the US, but groups such as WPP

and Dentsu have been upping their stakes in Asian markets.



Last autumn, WPP purchased a 20 per cent stake in Asatsu, Japan’s

third-largest marketing group, expanding its network in Japan beyond J.

Walter Thompson and Ogilvy & Mather. Omnicom came into Japan through

TBWA Worldwide, which purchased a majority stake in Nippo Agency, the

agency affiliated with Nissan Motor. And BBDO bought 20 per cent of I&S,

a Japanese marketing group, to beef up its presence there earlier in the

year. Dentsu has just established a joint venture in China, and opened a

office in Bangalore, India, last May.



But the question all this activity raises is whether now is the time to

invest in Asia, and how much short-term pain the advertising industry in

the region will have to endure before a fundamental recovery begins.

Industry observers say the leading multinational companies, such as

Coca-Cola and Procter & Gamble, have trimmed their advertising revenues

in the region by as much as 50 per cent in some cases. This could lead

one to expect ominous consequences for the world’s largest marketing

groups, as well as the mid-sized and smaller agencies that get caught in

the crunch.



So far, however, the big advertising conglomerates seem to be immune to

Asian flu. Dentsu, the largest advertising group in the region, posted

record billings of pounds 7 billion and gross profits of pounds 987

million in the year that ended last March. WPP, the world’s

second-largest advertising group, lifted revenues 9.8 per cent to pounds

1.95 billion and gross profits 11.2 per cent to pounds 1.66 billion.

Interpublic, which includes McCann-Erickson and the Lowe group, reported

gross incomes up 14 per cent to pounds 2.45 billion.



In Asia, McCanns had billings of just under pounds 1.23 billion in 1997,

slightly higher than the year before. In 1998, the group expects to post

another year of modest growth in the region. Part of the reason the

world’s leading agencies have been able to offset the downturn is that

billings from Asia still represent just under 10 per cent of global

advertising revenues.



Even if revenues from the region collapse by half, the downturn would

only reduce revenues by 4 per cent.



But industry executives say another critical issue is the agency’s

client list. In economies like Japan, Taiwan and Korea, marketing groups

have a chance to develop a broad and balanced client base, whereas in

smaller markets it may be harder to survive during a downturn.



Mark Gault, chairman of McCanns’ operations in Japan, insists the

multinationals know better than to ’slash and burn’ by cutting

promotional spending when times get tough. ’Grinding out growth here is

tough, and we are genuinely fortunate that the vast majority of clients

have learned from the experience in North America and Europe. They are

recognising the foolishness of walking away,’ he argues.



For the marketing groups, leaving an industry means the loss of brand

recognition, which takes time and money to rebuild once the crisis has

passed. ’To earn your way back is a very expensive thing to do,’ he

says.



’Clients are still spending because within a five-hour plane ride of

Hong Kong is half the world’s population. The long-range opportunities

are phenomenal. Clients recognise that getting in early matters.’



In fact, the recent slump may help open doors once closed to foreign

companies. Multinationals like Coca-Cola saw the downturn as an

opportunity to expand in the region, and thus raised promotional

spending. In the same way, WPP and Omnicom have moved into the Japanese

market in part by picking up the pieces left by Japan’s recession.

TBWA’s purchase of a majority holding in Nippo is a perfect example: the

company was once affiliated with Nissan Motor, which has been desperate

to unload businesses from its highly leveraged balance sheets since last

year.



For the marketing groups arriving in the Asia Pacific, establishing a

strong brand presence and tuning into the varied and dynamic consumer

tastes in the area will be among the greatest challenges. Dentsu,

through its alliance with Young & Rubicam, has cultivated a strong image

in the Asia Pacific, and it is likely to continue to lead there.



The presence of old hands like Dentsu, JWT and McCanns in markets such

as Japan, and the challenge of the economic crisis, have raised the

stakes for the advertising industry in the future. Gault says: ’You come

back to China in the year 2050 and the people who act now will still be

leaders in 50 years.’



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