Euphoria about the Chinese market has cooled recently with the
result that multinational agencies have been doubling their efforts to
win over local business in a scramble to beat China’s slowing adspend
growth.
According to AC Nielsen Media International, China maintained its
position as the top adspend market in Asia-Pacific, excluding Japan, in
the first half of 1999.
However, growth in gross expenditures rose 3 per cent to dollars 2.7
billion year on year, a meagre figure given that the annual rates of
expansion have been well over 20 per cent for most of the 90s.
This substantially slower growth is due to Asia’s economic meltdown
which resulted in some multinational advertisers cutting back on adspend
amid a general softening of consumption.
In order to beat the downturn, multinational agencies have adopted the
tactic of trying to maintain their existing client base by emphasising
all-round professionalism and going after large, local corporations.
Ogilvy & Mather, Leo Burnett and Saatchi & Saatchi were among the
agencies who have picked up a slew of local accounts over the past few
months.
O&M’s regional chairman, Miles Young, has made no secret of the fact
that his agency - which recently picked up Guangdong Telecom, Wanji
Pharmaceutical and the diversified conglomerate, Lan Xing - was actively
targeting Chinese corporations, especially privatised state enterprises.
He explains: ’Agencies have been far too reliant on international
business. But all that is now changing because we see that the growth
areas will be from local clients because local spend is more
buoyant.’
While competition from local agencies has been increasing, Young is
dismissive of them because ’they have not reached international creative
and strategic standards’. As a result, the multinational agencies
believe there is no need to cut back on the prices they charge because
most of their international clients are still investing heavily.
Stephen Gatfield, Leo Burnett’s Asia Pacific head, explains: ’There are
people looking around for cheaper agencies and it has become challenging
economically. But fortunately our multinational clients and a growing
number of local ones do see us as offering a more serious business
partnership and superior capabilities.
The big clients in China see international agencies as giving
consistency and this is in line with their long-term brand-building
efforts.’
John Dooner, the chairman and chief executive of McCann-Erickson
Worldgroup, agrees: ’They (the clients) want these agencies to help
build brands that can have sustainable results over the long term,
through good times and bad.’ Young stresses that the challenge is to
find effective ways to persuade local clients that multinationals are
worth the money they are asking.
’This is best done by demonstrating sales results - it’s not a question
of cost, but of value,’ he states.
Dooner echoes this sentiment when he declares that his agency’s greatest
difficulty has been to build a sustainable local client base.
Multinationals already understand the value of building brand businesses
through advertising.
’But local companies have not yet come to that recognition. They haven’t
had enough experience to see the long-term value of consistent,
effective advertising, but this will evolve as they develop more
marketplace experience,’ he adds.
Among Leo Burnett’s big-gest wins recently was the joint venture,
Dawncom Compaq, while Saatchis has picked up China Telecom projects,
Meidi Air-conditioners, Xian Jansen Pharmaceutical and Kang Shi Fu
beverages.
Global agency heads feel that although China is not making a substantial
contribution to worldwide revenue streams at the moment, they are
confident that it will do within the next three to five years.
O&M, Leo Burnett and J. Walter Thompson all claim to be making a profit
in China. Other agencies, citing confidentiality reasons, are less
willing to reveal whether or not they were still in the red.
According to the JWT International group president, Miles Colebrook:
’China broke even some time ago and is now a major contributor to Asia
Pacific profits.’ He adds that JWT was picking up more local business
and attracting interest from local clients.
Dooner describes China as his agency’s second-largest market in Asia and
emphasises its strong potential. However, this doesn’t necessarily make
for easy profits, and he cautions that the ’return on investment
expectations need to be realistic’.
The media independent, CIA Asia-Pacific, expects China to generate a
significant revenue stream after three years. However, Chris Ingram,
chairman of Tempus Group, CIA’s holding company, warns: ’That’s only if
the current conditions prevail in that time period. If the authorities
suddenly introduce a new type of business tax or the yuan is suddenly
devalued, then the whole picture will change.’
With a population of around 1.3 billion, China has often been touted as
the market that agencies and advertisers cannot ignore. But the country
is not likely to be at a similar consumer spending level as the West in
the near future. The big markets are definitely along the coastline,
such as Guangzhou, Shanghai and Beijing. To that end, the actual
potential is a lot smaller than the total population figure
suggests.
But it would also be wrong to ignore the fact that China represents one
of the fastest growing markets in the world. Dennis Wong, managing
director of Leo Burnett Greater China, says that in 1993 there were no
agencies who had billings from China of more than dollars 25 million. By
last year, however, there were several agencies whose billings topped
dollars 100 million.
