Even a life-threatening disease was unable to derail the juggernaut that the Chinese ad market has grown into in the past few years. While other territories that bore the full brunt of Sars - including Hong Kong, Taiwan and Singapore - saw sharp downturns in advertising spend in the second quarter of the year, mainland China motored ahead almost regardless. It's no wonder China gets Sir Martin Sorrell so excited.
According to Nielsen Media Research, adspend in China increased by 42 per cent to $17 billion in the first nine months of 2003, although the figures are based on ratecard and represent about double the actual amount.
Spend between January and July was up by only 30 per cent - reflecting a slowdown during the Sars period - but the market rebounded quickly once the virus had gone.
"Clients started to panic in May but the crisis was over in the first half of June," Chris Walton, the chief executive of MindShare China, says.
Ironically, in contrast to more mature markets such as Singapore and Hong Kong, the mainland ad market was well positioned to withstand the panic surrounding Sars. "You have to consider the unique composition of the China ad market, where more than 40 per cent of spend is generated from categories such as tonics and vitamins, Chinese over-the-counter drugs and pharmaceuticals," Alex Abplanalp, the managing director of ZenithOptimedia China, says.
"Most of these categories saw a significant increase in sales and advertising budgets. Many other categories also saw increased usage including cleaning products, foodstuffs and even cars. Consumers didn't cut back on daily-use products, they just bought them in bulk."
The surge in car sales during Sars was no doubt driven by nervous commuters who were no longer willing to rub shoulders with the masses on public transport. China's car market is now the fastest-growing in the world, car adspend growing by 119 per cent in January to August this year. Agencies lucky enough to hold car accounts, such as Saatchi & Saatchi (Volkswagen) and Leo Burnett (Fiat), are reaping the rewards of a booming market. However, changes in consumer behaviour had a negative effect on other categories.
Among the worst hit were retail and services, which account for about 11 per cent of the total market, food and drink, and travel.
Breaking down adspend by media reveals that TV remained relatively unscathed - particularly in Beijing where the local broadcaster, Beijing TV, made it hard for clients to cancel campaigns. Print appears to have taken the worst hit with May revenues plummeting by 48 per cent in Beijing and 22 per cent in Shanghai, according to figures from CVSC-TNS Research. Outdoor also experienced a downturn, mainly in Beijing, which was worst affected by the outbreak.
Agencies point out that a less obvious impact of Sars is that new-business pitches ground to a halt in the first half of the year. In China, clients tend to change agencies on a regular basis - but reviews were put on hold until the crisis was over. "Client spending went down marginally but agencies were more concerned about their ability to continue winning new business," Robert Fitzgerald, the managing director of OMD China, says.
But now that life is back to normal in China, there seem to be few impediments to future growth. Nielsen forecasts that spend will increase by double digits for the next decade and China will overtake Japan to become the world's second-largest ad market by 2010. The Chinese government is intent on keeping the booming economy from over-heating and consumer spending power has started to increase in cities other than the first-tier markets of Beijing, Shanghai and Guangzhou.
China will also host several major international events over the next decade. Apart from the 2008 Beijing Olympics, Shanghai will make its debut on the Formula 1 calendar next year and has also been selected to host the World Expo in 2010. There's also talk of China bidding to host the World Cup in 2014.
It's not just the multinational advertisers that are driving growth. Only four foreign brands made it into the chart of top spenders during the first nine months of 2003 - all of which belonged to China's leading foreign advertiser, Procter & Gamble.
ZenithOptimedia estimates that domestic companies already represent at least 65 per cent of total adspend in China, which means international agencies need to expand their portfolio of local clients in order to grow. This has already been happening to some extent - particularly as there's a rising number of brands with ambitions to follow the Chinese white goods company Haier and the computer manufacturer Legend into overseas markets. The mobile phone brand China Mobile, which spends $218 million on advertising, is one. "Local advertisers are turning to us because they're becoming increasingly interested in brand building from an international perspective," Donald Chan, the managing director of Leo Burnett's Shanghai office, says. "We're only a few years away from seeing global Chinese brands."
But there's at least one factor that could depress the market, at least before the Olympics propels further growth. China's State Administration of Radio, Film and Television is on the verge of introducing regulations that will restrict commercial airtime to 20 per cent during regular hours and 15 per cent during the primetime hours of 7pm-9pm. Although the state-owned national broadcaster CCTV has relatively short breaks, provincial satellite broadcasters could lose up to 20 per cent of inventory. This could force them to increase rates by up to 25 per cent to maintain revenue.
"TV in the major markets is already expensive on a cost-per-thousand basis - Beijing is about as expensive as Tokyo," Walton says. "We've seen fast development in those centres in other media such as outdoor and print. That's likely to continue, while TV's share of the market will decrease."
AGENCY PLAYERS IN CHINA
Adspend may be going through the roof in China but that doesn't necessarily translate into a bonanza for ad and media agencies. The market is huge and operating costs are high. Plus, marketing directors in China are starting to expect US and European levels of strategic thinking, so agencies have to bring in expensive professionals from Taiwan and Hong Kong.
This all puts even more emphasis on size and buying power than in more mature markets, particularly for the media shops. ZenithOptimedia and MindShare dominate the market, although the latter has steamed ahead with a series of big wins including the $74 million Motorola account, Wyeth, GlaxoSmithKline and Frito-Lay.
ZenithOptimedia was one of the first media networks to enter China - Zenith Media opened in 1996, while Optimedia launched in 2000 - and quickly became the market leader, building on a long-term relationship with China's largest foreign advertiser, Procter & Gamble. Although Zenith lost P&G's media buying account in 1999, it had built a strong enough portfolio to maintain its leadership and won back some P&G planning business a few years later. However, the agency recently lost some P&G negotiation business and, at the time of writing, Coca-Cola was hearing pitches for its $30 million China media account that Zenith has held for five years.
As for the creative shops, Saatchi & Saatchi, McCann-Erickson, Leo Burnett, Dentsu, J. Walter Thompson and Ogilvy & Mather are the biggest in terms of billings. O&M and JWT both entered the market early and grew with Unilever.
Saatchis did the same with P&G. Dentsu is investing aggressively in China in a bid to become a dominant player. As well as its strong portfolio of Japanese brands such as Toyota and Sony, the agency has also won significant local business including the white goods company Haier.
Among the big groups, WPP is widely regarded as the largest. During a recent trip to the region, Sir Martin Sorrell, the group chief executive of WPP, claimed the group is 50 per cent bigger than its nearest competitor in China.
Meanwhile, because of MindShare's dominant position, WPP's other media shop, Mediaedge:cia, focuses on planning in China, working closely with the pooled buying unit, Group M. "Our opportunity in China is to capitalise on the massive volume, resource and infrastructure of Group M and to build on our market-leading position in channel planning and implementation," Mark Austin, the Asia-Pacific chief executive of Mediaedge:cia, says.
Of the other groups, Publicis and Interpublic Group are neck and neck behind WPP. IPG has two of the market's biggest agencies in McCann and Lowe and, from the end of last year, has benefited from the negotiation capability of Magna China. McCann has recently relocated its national hub from Hong Kong to Shanghai in a bid to "centralise the agency's operations", according to TH Peng, the chief executive of McCann China.
In addition to Saatchi & Saatchi, Publicis owns a second strong creative agency in Leo Burnett, which handles McDonald's, Fiat, the local sports brand Li Ning and bits of P&G. Publicis' second media agency, Starcom, became a player overnight in China in 2000 when it won P&G's planning business, from its future stablemate, Zenith.
Omnicom was a late entrant to China and although all the agencies in its stable - BBDO, DDB, TBWA and the media shop OMD - have a presence, they don't rank among the biggest.
Among the smaller groups, Carat has emerged as a shop to watch, aggressively winning business from a tiny base and perhaps disproving the rule that you need critical mass to survive in China.
CHINA'S BIGGEST AGENCIES
RANK ADVERTISING AGENCIES* Billings
1 Saatchi & Saatchi Great Wall 265
2 McCann-Erickson Guangming 219
3 Leo Burnett 205
4 Beijing Dentsu 187
5 J. Walter Thompson 147
6 Beijing Weilai 132
7 Guangdong Province Advertising 100
8 Shanghai Advertising 93
9 Ogilvy 78
10 Beijing Guo An 50
1= MindShare 450
1= ZenithOptimedia 450
3= Starcom 200
3= Universal McCann 200
5= Carat 100
5= OMD 100
7 Mediaedge:cia 92
8 MediaCom 60
9 Initiative 40
*Source: China Advertising Association 2002
Source: Recma 2002.