Feature

Asian agencies: expansion against all odds

Despite ongoing recession and the outbreak of Sars, the Asian advertising market is still growing and the agencies in the region remain quietly confident, as Sebastian Tong reports.

Killer colds, terrorism and sputtering economies. Even for a region that has weathered its fair share of difficulties, including a recent financial crisis, the past few months have been unusually challenging for Asia.

But peer beneath the horror headlines and sift through the varying rates of revenue growth in the region and you'll find that agencies remain quietly confident. Despite recent hiccups, players point to modest overall revenue growth and say Asia's medium- to long-term prospects remain solid.

The region's resilience is found in its diversity: the Persian Gulf conflict did little to slow advertising expenditure in China while Australia, South Korea and Malaysia are largely unscathed by the Severe Acute Respiratory Syndrome outbreak that hit markets such as Hong Kong, Taiwan and Singapore.

Even so, the impact of Sars on marketing and advertising expenditure in these markets is receding, even as some economies in the region continue to hobble on. Asia's travel industry may be devastated but airlines and governments will have to embark on marketing campaigns to lure back visitors.

The Ogilvy & Mather Asia-Pacific chairman, Miles Young, whose clients include The Economist and Kodak, says: "Sars eroded our targets but spending is going to come back. Businesses were just holding off for a while. It's a matter of timing. The region can withstand the shock so there's no reason to be gloomy about Asian advertising." Indeed, ad budgets in some markets may have been curbed recently but the overall spend is still growing. In particular, China's increasing importance has nudged the region as a whole towards greater prominence in the global scheme of things.

In recent years, the country has changed the way international networks view the region. While once outsiders saw advertising in Asia only in terms of Hong Kong and Singapore, the focus is increasingly shifting to north Asia.

China is already pulling its weight. Although still in its infancy, its advertising economy has grown at a blistering pace, with adspend nearly doubling in the past three years and with its accession to the World Trade Organisation, greater gains appear to be on the horizon.

But profiting from the market isn't as easy as it looks. Costs are high, the tax structures are not conducive and the local currency is not fully convertible. Nonetheless, the market appears to be reaching a critical mass, with domestic companies beginning to demand the level of marketing and branding expertise that global agencies can bring.

Young, whose agency's client base consists of a 50:50 mix of domestic and foreign brands, says the Chinese business model has to be as "local as possible" to succeed. A wider coverage is also important, he adds: "China is often seen as just Shanghai and Beijing but there is more. That's why we have coverage of second- and third-tier cities."

The agency has deployed unorthodox methods to reach out to consumers in non-urban areas and, in a twist that could only happen in modern China, recently signed an agreement with the China Youth League, better known as the Communist Youth League, for the latter to be its "distributive field force" in remote parts of the country. Its members will disseminate marketing samples and leaflets in regions difficult to reach with traditional marketing communications.

It may have been a "long march" to greater brand awareness, but these days, "every chief executive in China wants to have a brand name," Young says. This desire is apparent in the fact that 18 of the country's top 20 advertising spenders are local names.

Agencies say understanding local norms is crucial to reach out effectively to Chinese consumers. For instance, focus groups are of limited application in a culture where voicing one's opinion is not necessarily encouraged, Saatchi & Saatchi Asia's chairman, Patrick Pitcher, whose clients include Procter & Gamble and Hewlett-Packard, says.

Several industry players also see China as "the new Japan" in the way domestic brands such as the electronics maker Haier and the sportswear manufacturer Li-Ning are eyeing global recognition.

After all, its integration into the world economy doesn't only mean China is open to international companies: it also means international markets are open to companies from the Middle Kingdom.

Besides helping market themselves better within China, foreign agencies are also poised to help domestic companies bring their brands abroad and shake off any previous brand associations. "If you look back 20 to 30 years, Honda was a lawnmower maker to most Americans. For the past decade, Honda has been the biggest-selling imported car in the US," Leo Burnett's regional managing director, Richard Pinder, says.

With recent mergers and acquisitions activity, international networks' reach in the region has simultaneously expanded geographically and deepened with each affiliated agency now boasting of greater integrated services.

Notably, last year saw the global integration of D'Arcy into Publicis Groupe's Saatchi & Saatchi, Leo Burnett and Publicis Worldwide networks.

Pinder reckons the absorption of D'Arcy brought in an additional 7 percentage points in Leo Burnett's 2002 Asia ex-Japan revenue and a 9 percentage-point gain in new business last year.

Taking in D'Arcy's Australia, South Korea and Singapore operations, Burnett also landed the agency's General Motors and Philips accounts, as well as taking on more of its P&G business. Meanwhile, D'Arcy's Indonesia business has been assimilated into Saatchis, which has also picked up its P&G oral healthcare account in China. Concessions to local conditions have also been made. Publicis has not merged D'Arcy's India operations, Ambience D'Arcy, with its Publicis shop there, recognising that the agency, now Publicis Ambience, retains a strong client roster dominated by local names.

With prices in the region dampened by deflation, global networks in recent years have snapped up assets in the region. Non-advertising purchases were favoured as networks strove to achieve the goal of integrated services. Burnett, for instance, has acquired stakes in assets ranging from the event management company Cartwright Williams in Australia to the Philippines direct marketing company First Direct. Pinder says such moves are already paying dividends. About 50 per cent of the agency's Australian revenues are from its non-advertising business.

However, the availability of decent candidates to merge with or buy could be rapidly running out in Asia, Keith Smith, TBWA\Worldwide's Asia-Pacific chairman, whose recent creative output in New Zealand includes the launch of a healthier brand of milk, A2, says. "Most of the large agencies have rounded up representation and smaller agencies are tied up with larger players."

Euro RSCG's Asia-Pacific chief, Vincent Digonnet, agrees, pointing out that the state of global stock markets also means agencies have less excess cash. Although selected transactions will continue to surface in the region, agencies will find that they will have enough on their plates integrating recent acquisitions. "The word 'integrated' is so abused it has become meaningless. Groups talk about being integrated because they own companies in different disciplines but it's only integrated if the different disciplines are all working towards the same bottom line," he says.

China has seen several significant team-ups in recent years. Euro RSCG bolstered its presence on mainland China with its 1999 acquisition of the marketing services group Field Force. And last year saw O&M buying the Chinese public relations company H-Line, as well the independent direct marketing company BrandOne.

Tie-ups between local Chinese and international agencies are inevitable. In the past five to six years, a new generation of Chinese agencies has grown up, headed by local entrepreneurs and free from the sclerosis of old state-owned enterprises. These are "attractive and interesting" as acquisitions, Pitcher says.

In more established markets such as Japan and South Korea, strategic acquisitions function both as a way for the networks to extend their non-advertising capabilities and over local barriers to entry. Case in point is WPP Group's move in December to take a 35.2 per cent stake in South Korea's LG Ad. The move represents a "breach in the dam" for a market dominated by local players.

For players keen on Korean acquisitions, the timing is good as north Asian conglomerates are shedding non-core investments and turning to external agencies. At any rate, international networks could fare better there than in Japan, where the combination of recession, declining advertising expenditure and local agency dominance continues to challenge players.

Despite co-hosting the FIFA World Cup, Japan's gross advertising expenditure shrank 5.9 per cent last year, the second consecutive decline.

"Japan has lived with recession for ten years but there are opportunities for Western agencies to grab market share," Smith insists. Holding the global accounts of Japanese household names such as Sony's PlayStation and Nissan Motors, TBWA has stressed local integration as the path to success in the world's second-largest marketing communications market.

A slightly different proposition is one of Japan's top agencies, Beacon Communications. Formed in 2000 from a merger between the Tokyo offices of Leo Burnett and D'Arcy, the company boasts the dominant Japanese agency Dentsu as a major backer. The formidable partnership has an impressive stable of domestic, as well as foreign, names. Besides holding the local accounts of international brands such as Coca-Cola and P&G, it also has Japanese names such as AIFUL Corp and LIFE Co Ltd. "Japan is a very competitive market, as consumers are very demanding and discerning. The recessionary conditions mean that there is now more pressure than before to come up with the big ideas," Beacon's president, Michelle Kristula-Green, says.

Creativity, however, is not consistently appreciated in Asia - the managing director of Fallon, Charles Edwards, admits his company is "not the type of agency for everyone". "Sadly, I have sat in meetings with Asian clients who said they want to advertise but don't want to draw attention to themselves.

They don't want to stand out, which typifies some aspects of Asian culture," he recalls. Many companies in the region also see marketing communications as "a necessary evil". This attitude means there is no long-term consistent message.

Industry players say Asian companies still require a fair bit of hand-holding to see the benefits of advertising and brand building. Rather than the short-term execution of promotions, Asian companies have to be approached in a strategic manner. "You will always find Asian clients - but the question is can you keep them for more than a year and can you make any money," Pinder says.

Though the region is under-represented in global creative awards, several industry leaders identified Thailand and India as creatively ahead of the pack. "Thailand's approach is so fresh and they produce ads you can enjoy without understanding Thai," Pitcher says.

Thai ads have drawn international attention because the country's sense of humour is close to that of the English, Digonnet says. He also sees the emergence of regional awards such as AdFest and Asia Awards as vital to fostering an Asian creative sensibility. "One of the reasons that Asia is under-represented is because these awards are geared to Western thinking. It's biased to judge Asian creativity through Cannes and Clio," he says.

ASIA'S TOP NETWORKS

Rank* COMPANY Established Total staff Key clients

in Asia in all Asian

offices

1 Ogilvy & Mather (WPP) 1948 n/s IBM,

Motorola,

Nestle,

Coca-Cola,

Kodak

2= Euro RSCG Partnership 1992 1,351 Reckitt Benckiser,

(Havas) Citibank,

Volvo, Dell

2= J. Walter Thompson 1929 2,500 Shell, Unilever,

(WPP) Kraft, Diageo,

Ford

2= Leo Burnett Worldwide 1969 1,618 Heineken,

(Publicis) Kellogg, P&G,

Malaysian Airlines

2= TBWA\Worldwide 1996 1,337 Nissan, Apple,

(Omnicom) Adidas, Nivea,

Samsonite

6= Dentsu 1901 8,008 Coca-Cola,

Mitsubishi,

Panasonic,

Toyota

6= Grey Global Group 1963 1,715 Nokia, Mars,

Asia-Pacific (Grey) Unisys, Wrigley

6= McCann-Erickson 1959 2,428 Bacardi,

(Interpublic Group) Boots Healthcare,

Microsoft,

UPS, L'Oreal

9= Bates (WPP) 1946 1,100 Nokia, Heineken,

HSBC, BAT,

Time Asia

9= BBDO Worldwide, 1978 2,500 Pepsi, Mars,

Asia-Pacific Region Allianz,

(Omnicom) DaimlerChrysler

9= Saatchi & Saatchi 1981 1,746 Danone,

(Publicis) Procter & Gamble,

Toyota/Lexus,

Hewlett-Packard

RANK* COMPANY/COMMENT

1 OGILVY & MATHER (WPP)

A best estimate was given to O&M because WPP ordered it not to

release billing figures but the agency maintained pole position

because its substantial list of quality wins in the past 12

months underlined its "investment in all areas of marketing

communications". The agency also won a perfect score of ten in

the creative ranking, with a consistently strong performance at

all awards shows, from Cannes to national creative

competitions.

2= EURO RSCG PARTNERSHIP (Havas)

Despite being one of the smallest networks in the region, Euro

RSCG has reeled in an impressive US$132 million in new

business since last August. The agency said its strategy is

"organic" to develop existing local accounts into regional

business.

2= J. WALTER THOMPSON (WPP)

Though one of the more prolific winners, J. Walter Thompson lags

behind other networks in the size of its integrated services.

However, the agency has been gaining recognition, winning a large

number of creative awards in individual markets in the region.

2= LEO BURNETT WORLDWIDE (Publicis)

Leo Burnett has scored impressive wins in the region including

Heineken Taiwan and Benetton India. The agency is also taking

steps to bolster its integrated offering, with the launch of iLeo

and interactive acquisitions in Singapore.

2= TBWA\WORLDWIDE (Omnicom)

TBWA is "rapidly shedding its image as the new kid on the block",

according to Media. The network has won new business worth more

than US$41 million since August. Its Tequila brand has

also been growing rapidly since its launch in Asia three years

ago.

6= DENTSU

Though Dentsu is the biggest revenue earner among all the major

networks in Asia, about a third of this is generated in its home

base Japan, a market that has contracted by about 6 per cent last

year. The agency's challenge is to extend its dominance beyond

Japan and Taiwan and this is beginning to happen, with Dentsu's

investments in the region.

6= GREY GLOBAL GROUP ASIA-PACIFIC (Grey)

Grey's Nokia N-Gage win this April propelled it up the rankings.

The agency also has an extensive CRM operation in China.

6= MCCANN-ERICKSON (Interpublic Group)

One of the regional heavyweights with new account wins of an

estimated US$125 million, McCann-Erickson is especially

strong in Japan and Korea and has strong integrated capabilities

provided by off-shoots such as MRM.

9= BATES (WPP)

The agency nabbed major assignments such as the KFC account in

Hong Kong but its loss of accounts such as Heineken and Kia Korea

affected its overall ranking, Nonetheless, its interactive

offerings in Singapore and Australia are among the region's best.

9= BBDO WORLDWIDE, ASIA-PACIFIC REGION (Omnicom)

BBDO made strong progress with wins including Standard Chartered

Bank but the agency needs to grow its China base to remain

competitive.

9= SAATCHI & SAATCHI (Publicis)

The agency continues to score highly at awards ceremonies - in

particular, Adfest and local shows.

Notes: * the ranking was based on four factors - new-business wins,

network strength, awards won and integrated capabilities in the creative

category.

Source: Media and R3, May 2003; agency questionnaires.

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