World: Analysis - Wieden & Kennedy dips a toe into China's mainland market

Will its creative reputation win it sufficient business? Atifa Hargreave-Silk reports.

Creative agencies in China are watching Wieden & Kennedy with a degree of trepidation as it prepares to enter the lucrative mainland market, where adspend is growing at nearly 32 per cent a year (according to China's leading research company, CTR). The US creative heavyweight is expected to make a play for the likes of Nike, Starbucks and Heineken, brands it manages in other markets.

Richard Hsu, the executive vice-president of W&K China, is charged with setting up the agency's first office in Shanghai. He says the growing importance of mainland China to the agency's clients was a key factor in its entry into the market. He also points to an increased need for creative advertising solutions in the region.

One obstacle, however, might be that these brands have existing agency relationships in China, with some dating back more than a decade.

Hsu is well aware of this: "We appreciate that there are local relationships and we don't want to pressure clients who already have long-term commitments in the market. We are talking to everyone, but don't have anything to announce yet."

But there is a widespread belief that W&K may just break J. Walter Thompson's eight-year hold on the Nike account or loosen Bates Asia's grip on the Heineken business, provided local clients are persuaded by its creative reputation. "I doubt they would have gone into the market otherwise," as one source puts it.

Bates has been with Heineken since the brand first came to market in China and the agency is able to offer strong below-the-line services to the brand. Whether W&K can offer the same remains to be seen. It also doesn't have the reach of these agencies, unless it expands aggressively and quickly. Convincing Starbucks (which handles its marketing and advertising in-house) may prove easier.

Indeed, Hsu is looking to expand on the agency's retail and below-the-line offering in China. He's hopeful that W&K's "non-traditional" approach to creativity and its proven case studies from the US will set it apart from rival networks, allowing it to differentiate itself.

Industry observers believe this will be crucial to its success in the highly competitive China market, where more than 60,000 registered ad agencies (mostly small local shops) battle for new business.

"Foreign independents such as W&K will never have as wide coverage as multinational networks that have been expanding over the past ten years," Viveca Chan, the Grey Global Group group chairman and chief executive for Greater China, argues. "There are immense opportunities in China, but there are also thousands of agencies. W&K will need its key international clients and specific core competencies to survive."

While the number of ad agencies in the market has grown by nearly 20 per cent a year since 1992, the market remains in dire need of strong creative services and advertising professionals to service its growing number of local brands eyeing a bigger stage.

Shanghai-born Hsu, who has a strong retail background and has worked with start-ups in the past, has had contact with Wieden & Kennedy in various markets for more than two decades.

He says his immediate goal is to understand the evolving Chinese consumer, the market's fragmented media scene and expand the agency's four-man operation.

Hsu expects to name a managing director and two creative directors soon - talent that may be relocated from other W&K offices.

China has an acute skills shortage, particularly in creative and strategic planning. As a result, these positions continue to be filled by expat talent, who can communicate easily with international clients in English.

But Anthony Chow, the executive vice-president and managing director at Euro RSCG, warns that this can be costly in the long run. "The key for W&K will be keeping its overheads low. This won't be easy because to impress local clients it will need to invest in heavyweight talent to the standard of other (international) agencies in China."

Differences in business culture are likely to be another sticking point.

Chinese companies tend to dole out small projects to different agencies and many are happy to switch agencies at the drop of a hat. It's also not uncommon for a brand to listen to a pitch from an international ad agency, then take the business to a local company or handle it in-house.

Chan says: "Clients may take your ideas and then execute them themselves to save money. Also, we recently had a client who came to us with no product and no distribution. We had to come up with the brand, the idea, the product and then the strategy. It was unusual but at least they saw us as a business partner."

Relationships, or "guanxi", play a crucial role in the advertising business.

Local agencies leverage good relationships with company executives to ensure payment and use connections with local media to save dollars.

Chan warns that W&K will need to tread carefully around China's cultural sensibilities, something Saatchi & Saatchi found out the hard way when Toyota sacked it as its creative agency in China earlier this year. The brand was forced to make a public apology for a campaign that offended Chinese consumers, who are still sensitive about Japan's role in World War II. The offending ad featured a Land Cruiser towing what looked like a Chinese military vehicle, while another showed a pair of stone lions - revered as icons of authority - saluting and bowing to a passing Prado.

Chan adds: "International agencies entering China will, to some degree, need to relearn everything they know. It's a different culture and one wrong step can be crucial."