With estimates of average growth at around 15 per cent between 1999 and 2003, the Chinese advertising market is expected to have leapfrogged the UK and Germany to become the world's third-largest by the end of 2005.
In another five years, the Chinese pay-TV market is expected to boast 128 million subscribers. But a number of myths have emerged that hide a more complex reality for foreign advertising and media industry executives.
The following myths have been identified by ad executives who have been operating in China for a number of years in an effort to paint a clearer picture of market realities.
One of the most pervasive myths about the Chinese ad market is that every media company and ad agency is growing. But Neil Hardwick, the Publicis China chief executive, says: "The figures that are available are media spend figures and media costs have gone up between 25 and 30 per cent a year. As a result, if a client's budget isn't growing by 30 per cent, then he's standing still. Even if your clients are expanding budgets further than inflation, headcounts are definitely not growing at 30 per cent."
Although Sarbanes-Oxley has made it almost impossible to quantify growth among many international agencies in China, Hardwick estimates most international agencies have seen predominantly flat growth. And foreign companies are restricted by the structure of the market, JWT's North-East Asia director and chief executive of China, Tom Doctoroff, says.
He explains: "China has two ad markets. The 'international standard market', which can be penetrated by international agencies and by local companies trying to become more internationalised in the standard of their brand development. And the 'local, local market', which is commodotised, cut-throat and competes on swift turnaround, low prices and relationships. We can't compete there because of our cost structures.
"Our access is capped at around 20 per cent," he adds. "If China is a short-term pillar of growth for an international network, the network's managers are dreaming."
BIG, EASY PROFITS
China is often mistakenly seen as a cash cow for ad agencies and media owners alike. Reports of huge opportunities in a market of such scale lead to the assumption that profits are simply there for the taking. But the experiences both of foreign ad agencies and the media indicates that operating in China is far from a guarantee of short-term profitability.
News Corporation, which has achieved more than any other foreign broadcaster in gaining access to China's 400 million television sets, admitted in November that its loss-making Star Group will be unlikely to make any "significant" money in China for up to two years.
In an outburst in September, the News Corp chairman and chief executive, Rupert Murdoch, launched an attack on recent policies on foreign media ownership. He accused Beijing of being "paranoid" about the foreign media, saying his Chinese business had "hit a brick wall", when policies promoting greater market access for foreign media owners were effectively reversed (Campaign, 26 August 2005).
Daryl Arnold, the chief executive of the digital agency Profero, says ad executives in China face the same challenges as their overseas counterparts.
"Costs can get quite high, especially when you are providing access to global talent, which is often expected of global agencies. Agency heads chatting about how easy things are is not something you hear regularly in the bars and restaurants of Shanghai and Beijing. Conversations normally focus on impossible timescales, inefficient labour and awful margins."
The TBWA\Greater China chairman, Andrew Lee, agrees, but adds that some media owners are doing well: "Media owners are making lots of money - but not international agencies, which are still searching for a profitable formula. Media owners can afford to extend credit for long periods, especially to state-owned enterprises, whereas international agencies have very tight credit control. This is a major limit on access to local clients."
THE BOTTOMLESS TALENT POOL
China has vast human resources. But, at present, sourcing talent at management and junior levels is a tall order as advertising builds its profile as an attractive career, and as competition in the recruitment market turns fierce.
Lee, born and raised in Hong Kong, says the lack of senior talent has been caused by obvious historical factors. "Because China has only really practised advertising for about ten years, the talent pool is limited.
This has been made worse by the fact that many have moved to become marketing professionals owing to the fast-expanding consumer goods industries."
So the challenge at a senior level is obvious, and there are perhaps too many examples of expatriates filling the top roles. One accusation levelled at the expat community is that an unofficial apartheid system has prevented local high-flyers from reaching senior positions. But Doctoroff says: "Ninety-nine per cent of expat executives would love to localise the China management structure. The lack of local talent is actually the biggest hurdle international agencies face in China and this is capping our growth."
But even at more junior levels, staffing is an issue. Hardwick says recruiting graduates is problematic. "There are 160,000 graduates in Shanghai alone every year," he says. "Once you train them, they become worth their weight in gold. Advertising is seen in China as a service industry and advertising people are treated more like servants than they are in developed markets. So talented young recruits think they would rather be an order-giver than an order-taker, and they move on."
THE CHINESE LOVE 'WESTERN-STYLE' ADVERTISING
This is one of the more complex myths. Some ad executives disagree over what constitutes "Western-style" advertising and Hardwick disputes the myth entirely. "Ads that are engaging and relevant to the target audience work just as well in China as in other markets," he says.
Doctoroff points out that it is not Western-style advertising that is the rage in China, but Western brands. "Chinese people like Western brands because they are seen as being of international or global standard and therefore reliable," he says, adding that one of the most common mistakes is to assume that this represents a willingness to abandon a Chinese identity.
"Chinese people want to be modern and international but they don't want to be 'Westernised'," he says.
Hardwick explains that the key to understanding what might work and what might fall flat or even cause offence is no more difficult to detect in China than in any other market with a non-Anglo-Saxon culture.
"There are Eastern values," he says, "but you simply include elements that are more Confucian or 'Eastern'; but this is no different from Poland, which is more Catholic than England; or the cultural difference between Northern and Southern Europe.
"You could, for example, walk around with a swastika on a T-shirt in China and no-one would bat an eyelid, whereas in Israel you'd be dead.
You can wear a T-shirt printed with Andy Warhol's portrait of Mao in London and no-one notices, but in China you'd be imprisoned."
CHINA'S 'WILD WEST-STYLE' REVOLUTION
China is a country in which entire categories are being created. This has sparked the myth that advertisers have virtually no limits on what can be achieved or on how they achieve it.
Lee says that it is hard to envisage how this myth could have originated in China's highly regulated market. "There are official rules set by the central government, rules set by provincial, unseen protection practices (such as provincial tax rebates to companies that buy products manufactured in their own province), roller-coaster changes to profitability owing to logistics, unstable raw-material and energy supplies and the human relationship management aspect that one must deal with every day," he says.
But that is not to say that in advertising terms, the potential for achievement is not tantalising. "One of the biggest thrills about China is the fact that you can shape with epic grandeur," Doctoroff says. "Schick, for example, could become the market leader because Gillette is not established yet. In many cases, the market structure has not come into shape so you can grab all the category benefits."
But Doctoroff also highlights why China is less than a frontier-style playground for advertisers. The most dominant pressure on creativity is not censorship but the conservatism of the Chinese consumer. "Any challenge to their world-view is not going to be appreciated - not even by the trendiest kid," he says.
And he points out that in a market with hardly any brand architecture in place, advertisers must keep messages simple. He says: "The market has been through its own 'big bang'. There is no sports car here, nor mouthwash, so consumers need to be told what they are. They have gone from having no telephones in the home to a choice of 300 mobile phone companies in ten years. They are, therefore, unwilling to digest complex messages."
China has almost 4,000 years of recorded history and more than its fair share of myths. No wonder, then, that in such a short time, the ad market has accumulated a few of its own.