Ask people to describe Shanghai's agency scene and the word "dynamic" comes up a lot. A megacity where charming ramshackle streets meet futuristic skyscrapers, Shanghai is China's hub for multi-national companies and ad agencies. It's the place where the industry figures out where the country's 1.4 billion consumers are heading next. "You learn on the go with advertising here in Shanghai," says Alvina Seah, Shanghai-based general manager of Energy BBDO.
That's because China's digital-savvy consumers embrace change with gusto. When Starbucks started accepting digital payment service WeChat Pay this year, it represented nearly a third of transactions that same quarter. E-commerce is a way of life in China, with its 751 million internet users, 96 percent of whom go online with a mobile phone. (China has more than twice as many mobile internet users as the U.S. has people.) About 57 percent of China's ad spending is expected to go to the internet this year, compared to less than 20 percent five years ago, according to WPP's GroupM. Agencies have had to quickly ramp up their e-commerce and digital capabilities through hiring and acquisitions.
"In China you can book a manicure or a masseuse in your home—you can get anything brought to your home with a click of a button," says Seah. "E-commerce and m-commerce are part of everything we do now; you can't go in with a campaign or plan that doesn't contain them. It's because of the way consumers live their lives."
Things getting tougher
Most of the major international agencies have a presence in Shanghai, which has a population of about 24 million, equivalent to all of Australia. WPP has long been the powerhouse among them, with sleek offices spread across 20 floors of a skyscraper. WPP's Ogilvy & Mather was an early entrant to the market—it has 26 years of history in mainland China, which didn't adopt market-opening reforms until about four decades ago. Interpublic Group of Companies' R/GA and MDC Partners' KBS are relative Shanghai newcomers. Another MDC Partners shop, CP&B, opened last year in Beijing, which is China's capital but a smaller agency town.
China is the world's second-biggest ad market after the U.S. Foreign agencies don't face the heavy restrictions some other industries face in China, where Silicon Valley internet giants Google, Facebook and Twitter are censored for the masses, and where foreign automakers are required to have joint ventures with local partners.
Still, things have become a lot tougher. First, the economy has slowed. After almost three decades of 10 percent average annual economic growth, GDP growth has been slowing since 2010, sliding to 6.7 percent in 2016, according to official government statistics.
There's this too: Multinational brands, mainstay clients for foreign agencies, are having a harder time in China as local brands make more interesting products and try edgier marketing. Local brands gained market share over foreign ones last year in 18 out of 26 fast-moving consumer goods categories, from candy to diapers to makeup, according to a study by Bain & Co. and Kantar Worldpanel; foreign brands made gains in just four categories. Overall, local brand sales grew 8.4 percent, while for foreign players that figure was just 1.5 percent, the study said. Procter & Gamble, long the top ad spender in China, is among the multinational players that has struggled to find its footing.
Most big foreign agencies are no longer expanding the way they did when China was still experiencing double-digit growth in the '80s, '90s and the first decade of the 2000s.
Ellen Hou, CEO of Dentsu's Carat China, says well-established multinational shops have hit a "bottleneck" stage.
"Agencies need to look into themselves to think about how to disrupt the past and explore some new ways of doing business," says Hou, a Shanghai native whose first ad job was at TBWA in 1998. She says multinational agencies can no longer take the stance that "'we have the advantage, and everyone needs to copy us.' Megagroups need to be more humble, and learn from local partners and local culture."
Multinational agencies once had an edge partly because China had less experience with the art of branding. Product advertising all but disappeared in the Mao Zedong era and re-emerged in the late '70s and '80s. Now strong local agencies have developed, many catering to China's unique digital landscape, where the big players are Baidu, Alibaba and Tencent, not Google and Facebook.
One local powerhouse, the Leo Digital Network (no relation to Leo Burnett), was formed when a Chinese pump manufacturer purchased some of China's best local digital agencies. Today, the network's clients include Coca-Cola, Sony, Siemens and Johnson & Johnson. China's BlueFocus Communication Group had more global revenue last year than MDC Partners or Edelman's parent company, DJE Holdings, according to Ad Age's DataCenter. Chinese digital agency Hylink opened an office in Los Angeles and just had an initial public offering on the Shanghai Stock Exchange.
Small Shanghai creative shops are getting attention too. An agency called Civilization has made successive hit viral videos for Pepsi, and another shop called W helped make Timberland cool in China.
Not easy finding talent
Starting salaries in the ad scene in Shanghai are low, around $675 to $900 a month. But at the top, salaries are on par with those in the U.S. Finding talent is the big challenge—agencies need people with digital and e-commerce skills, and they're competing with China's three internet giants. Alibaba Group, for example, hired WPP's VML China CEO Chris Tung to be its chief marketing officer.
There are foreigners in Shanghai's ad scene, but agencies increasingly need people with deep China insight. That's because shops see increasing opportunity in Chinese brands that are going international, like smartphone powerhouses Huawei, Oppo and Vivo—especially now that some mainstay multinational clients are having a harder time in China. "It's very, very hard now to come into Shanghai without at least Chinese-language capabilities," says Jean-Michel Wu, the Asia Pacific CEO of executive search agency Grace Blue Worldwide, who previously spent 10 years in Shanghai at Ogilvy and WPP.
Local Chinese employees, Wu says, see the most attractive employers as the Chinese internet giants, followed by consultancies, brands and then agencies. Since there's such stiff competition, he says, "the future of advertising in China will be pretty bleak for international agencies if they don't come up with better projects and initiatives to attract local talent, and I'm unsure whether that's a priority for them."
Shanghai is surprisingly livable. Air pollution is an issue, but it's better than it is in Beijing. Some agency staffers cycle to work using one of the bike services that have become ubiquitous as China's sharing economy went into overdrive. Or they commute on the Metro, which will have 17 lines by year's end. Twenty years ago, there was only one line.
Shanghai is cosmopolitan, an easy place to find a niche, and many of its residents aren't natives of the city. "It's easy to get connected to other people—there's a friendliness, an openness," says Carat China's Hou. The adventurous might spend the weekend snacking on Mexican fish tacos or Turkish cacik yogurt dip, taking a Zumba class or attending an English-language performance of the immersive play "Sleep No More."
Shanghai consumers crave novelty, and brands test new concepts here, which makes it a fun place to work in advertising. There's a KFC staffed by robots, and supermarket chain Aldi live-streamed a fashion show where the clothing was made of food. But there's also tradition and history in Shanghai. Shops including BBH, Anomaly, Wieden and McCann Worldgroup are headquartered in the former French Concession, with art deco architecture, charming cafes, shady plane trees and street food from every corner of China. Advertising staffers love to hang out there, because in a fast-paced megacity, it still feels like a neighborhood, and it's a lovely place to wind down from the stresses of agency life.