SUPPLEMENT: WORLDWIDE ADVERTISING; Hitching up to the Tiger boom

Agencies are desperate to succeed in the Asia-Pacific region. Report by Nicole Dickenson

Agencies are desperate to succeed in the Asia-Pacific region. Report by

Nicole Dickenson



The Asia-Pacific region has the distinction of being both an

advertiser’s sweetest dream and their worst nightmare. The region is a

tantalisingly huge consumer market in which multinationals can reap big

returns. But advertisers also face bizarre restrictions - for example,

the Vietnamese Government recently had all billboard advertising for

foreign products removed because it objected to the intrusion of foreign

values.



But this sort of hitch, however inconvenient, has not put off Western

multinationals, seduced by Asia-Pacific’s rapid pace of development and

enormous size. South-east Asia is home to around half of the world’s

population and had a combined gross domestic product of dollars 1.8

trillion in 1994. The world’s four fastest growing countries in the

decade to 1994 were all Asian: Thailand with an average annual growth

rate of 8.2 per cent, South Korea (7.8 per cent), China and Singapore

(6.9 per cent each), according to figures from the World Bank.



Asian countries were also among the fastest growing ad markets last year

with the less developed markets leading the way. Indonesia experienced a

45 per cent growth spurt and an increase in adspend, and the

Philippines, China, Malaysia, Thailand, Myanmar (formerly Burma) and

Vietnam all enjoyed double-digit increases.



Despite the phenomenal growth rates and huge numbers of consumers,

Western advertisers entering Asia have found that the region by no means

offers a licence to print money. Such large populations and geographical

markets require equally large investments. Inflation is a major problem

and the costs of real estate and salaries are exorbitant.



‘The logistics are horrible. Building distribution networks in countries

the size of China and India are a major challenge. Then there’s the

bureaucracy, the problem of finding the right local partner and putting

together an effective sales force,’ Gary Brown, the regional media

director of Leo Burnett, based in Hong Kong, says.



There are other challenges. Asia is not one market but a mix of

cultures, media and advertising sectors. ‘Asia is a very complex

collection of different cultures, and different countries are at

different stages of development,’ Max Gosling, the Asia-Pacific zone

chairman of Ammirati Puris Lintas, says.



Some multinational advertisers and agencies are looking for similarities

between countries, but at the moment, common regional strategies and

pan-Asian advertising campaigns are few and far between. Most clients

are still organised on a local basis and their brands may have different

names, positioning and packaging in different Asian markets.



‘Many clients don’t actually have a regional headquarters. They are a

collection of local operations which each deliver the local bottom line

and it’s hard to mandate that they each provide a proportion of their

budget to pan-Asian media. It’s the usual ‘not invented here’ syndrome.

The problems that beset advertisers in Europe are alive and well in

Asia-Pacific,’ Brown says. ‘There are a limited number of far-sighted

clients who are working to homogenise their brand packaging and

positioning, but they need to make sure they are going to be able to

penetrate local markets.’



Greater China, which groups Hong Kong, Taiwan and China, is a sub-region

where advertisers can use a common ad message, but China is a far less

sophisticated ad market than the other two, having, in some areas, more

in common with Indonesia and India. These three countries are the

largest markets in terms of population, with an expanding middle class,

but still mostly at a developing stage in advertising terms.



The countries of Indochina - Vietnam, Laos and Cambodia - are developing

fast, but have restrictions on foreign investment in the ad industry.

Thailand, Malaysia and Singapore share similarities, but have important

cultural differences.



One of the contradictions of Asia is that great wealth - more than 50

million millionaires live in the AsiaSatellite TV footprint - contrasts

with the huge numbers of people living in extreme poverty. Although

India has an aspiring middle class of some 250 million people, its per

capital gross domestic product is just dollars 220 - tiny by Western

standards.



Some Asian economies are highly protected and have made it difficult for

foreign companies to enter. For example, 100 per cent foreign ownership

isn’t allowed in countries such as Vietnam, Malaysia and Indonesia,

making local partnerships the only way in.



Unions with local partners have often ended in messy divorces, but can

be vital, given the differences in culture and ways of doing business.

‘Having local partners helps Westerners understand the business culture.

Relationships are more important in Asia than in the West. A lot of

business arrangements are not formal contracts but handshake

agreements,’ Gosling says.



One consequence of this emphasis on relationships and good contacts is

that actual contracts are not worth the paper they’re written on in

some countries.



South Korea, the location for this week’s International Advertising

Agency’s 35th world congress, has traditionally been one of the harder

Asian markets for multinational advertisers to penetrate. Korean

industry is dominated by huge conglomerates, called chaebols, such as

Samsung, Hyundai, Lucky Goldstar and Daewoo, that owe their dominant

position to the government’s protectionist policies. Like Japan, South

Korea had, until recently, a highly protected economy which was

essentially closed to outsiders so domestic companies could build up

virtual monopolies.



Alan Fairnington, J. Walter Thompson’s Asia-Pacific regional chairman,

believes that the government suddenly decided to open the country to

foreign competition out of alarm over events it witnessed in Japan.

Japan had remained closed to foreign companies for so long that when it

dropped trade barriers, domestic industry was horribly ill-equipped to

cope with the competition. Japanese manufacturers had to slash prices in

order to compete with quality foreign brands.



The South Korean government was determined not to go the same way. Last

year, it removed the invisible barriers that had caused foreign

companies in the country such difficulties. Foreign products were no

longer held up at the docks by bureaucratic delays until they had passed

their sell-by date. The government also dropped its warning to consumers

that buying foreign products was evil and unpatriotic and, instead,

urged them to buy foreign products because it helped Korean companies to

compete.



‘There is more of a level playing field now which is very good for the

advertising business. Foreign companies are suddenly optimistic and

spending more on advertising, and local companies have realised that

foreign competition means they have to spend more on advertising. The

whole ad market is very buoyant,’ Fairnington says.



In terms of the level of development of the advertising market, South

Korea should be grouped with countries like Taiwan and Japan. Zenith

Media estimates adspend in Korea will total dollars 6.1bn this year,

making it the second largest ad market after Japan. Other estimates are

higher and, considering Korea’s relatively small (by regional

standards), population size - 44.5 million - its adspend is

disproportionately high.



South Korea has been a tough market for Western ad agencies, but this is

changing. Because foreign companies were often forced to team up with

the chaebols and use their distribution networks, they would also often

ignore global alignments and use the chaebols’ own in-house ad agency.

But last year, wholly owned foreign distributors were allowed to operate

in Korea for the first time, and Samsung used an outside agency to

handle its refrigerator account. Nowadays, chaebols increasingly use

outside ad agencies.



As a result of these changes, Western ad agencies are enjoying a

business boom. Figures for 1995 adspend vary, but by some estimates it

leapt by over 20 per cent last year. After years of losses, JWT made a

profit for the first time in 1995 and its Korean operation was the most

profitable in the region in the first quarter of 1996.



A sign of the booming ad business is the spate of deals signed by

Western agencies and local partners this year. Bates Worldwide has

teamed up with the country’s third-largest ad agency, Diamond Ad, to

launch a total communications joint venture; Ammirati Puris Lintas has

joined forces with Oricom; and Ogilvy and Mather is launching another

agency with a local partner, Korad.



South Korea provides a good example of some of the idiosyncrasies of the

Asian media scene. Like a number of Asian markets, TV airtime supply has

not grown fast enough to keep up with demand. In an effort to give all

advertisers an equal bite of the cherry, the Korean government has

restricted the length of commercials to 30 seconds and made it hard to

buy longer spots - much to the frustration of ad agencies.



TV airtime is strictly regulated and allocated by the Korean

Broadcasting Corp (Kobaco), but Fairnington sees advantages in the

system: ‘On the one hand, it is not a free and open market and you

virtually have to buy airtime on a daily basis, but on the other, if

Kobaco did not regulate it, the chaebols would choke out any competition

and buy up all the primetime airtime. Also, Kobaco keeps TV ad rates

low,’ he says.



Korean media are well developed, but media owners are not very

advertiser friendly. Ad agencies have to buy space in all eight of the

leading newspapers otherwise a newspaper omitted from the media schedule

may very well run damaging editorial about the advertiser.



Except for these practices, the Korean advertising and media sectors are

fairly free and unrestricted, especially when compared with some other

countries.



In countries such as Malaysia and Indonesia, where society is

predominantly Moslem, agency creatives have to tread carefully so as not

to cause offence, particularly in the portrayal of women in advertising.

In these countries, bare arms are banned, posing a challenge for

advertisers of soaps and personal care products.



In many ways, Malaysia and Singapore are the most restricted ad markets.

In Malaysia, there are strict limits to the number of expats that

agencies can employ, and in addition, all TV commercials have to be shot

in the country. Singapore used to limit the sale of satellite dishes to

banks and financial institutions, but last year allowed more general

access to foreign TV channels through a new cable network.



Strict censorship of both broadcast and print media is common throughout

Asia. ‘We’re talking about markets where freedom of speech is not a

given by any means. We’re moving from a period where we dealt with one

or two government stations whose raison d’etre was propaganda, to a

situation where a lot of private stations are trying to take off. But a

lot of them have had rough rides in Asia,’ Guy Forestier Walker,

MediaCom’s regional media director, says.



Governments in Asia have been prepared to make substantial investments

in developing cable networks so that they can maintain control over what

is beamed in from outside the country.



Singapore is currently vying to take over from Hong Kong as the media

capital of Asia post-1997. Hong Kong is the regional HQ for a lot of ad

agencies, publishers and broadcasters, but many are nervous and unsure

about what Chinese rule will mean. It is not yet certain if it will

trigger a mass exodus of media and advertising companies.



Deryk Tang, the media director of McCann-Erickson Hong Kong, is

optimistic that Hong Kong can retain its role as a regional centre for

Asian media and advertising. ‘Singapore is growing as a competitor, but

a lot of important media owners are headquartered in Hong Kong and they

won’t move. It’s a freer market than Singapore, there are fewer

government restrictions and it has a good tax system and

infrastructure,’ he says.



But Fairnington is not so sure: ‘A lot of advertisers have moved their

regional headquarters to Singapore. The media capital of Asia will be

where the money is going, and that’s not Hong Kong anymore.’



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