Most foreign agencies entered China a decade ago through global alignments with major multinationals such as Procter & Gamble Co., Unilever and Coca-Cola. Yet there has been stunning growth of local businesses, raising the country's spending to $8.54 billion, making China the world's sixth-largest ad market.
P&G is China's largest advertiser, spending about $400 million. Local companies, however, dominate ad spending, particularly in key categories such as cellphones, telecoms, pharmaceuticals and instant noodles.
Tapping into the country's advertising growth means winning business from local marketers. But to the chagrin of multinational agency executives, those relationships often fizzle out because of incompatible expectations, frustrations about brand strategy and China's unusual complexities.
"Chinese companies talk about `brands' but what they really mean is their name, and getting their name out. They also expect strategic thinking with very fast work, but it's incompatible to respond so quickly while also providing value. That makes it easier to win local business than to keep it," said Gavin Heron, managing director, Omnicom Group's TBWA Worldwide, Shanghai.
Agency executives complain that Chinese firms put speed before consumer research, creativity and innovation, and have a shaky understanding of branding. Worst of all, they often don't even have a marketing department, since Chinese companies are usually structured internally to favor sales functions above marketing.
Local marketers are "slow to adopt brand-building principles, but they can continue to rely on tactical advertising," said Tom Doctoroff, Shanghai-based area director, Northeast Asia & CEO, China at WPP Group's J. Walter Thompson Co. They are strong on "distribution, pricing and fast market response, but they don't have a development structure," said Kitty Lun, general manager and executive creative director of Havas' Arnold Worldwide, also in Shanghai.
Most local marketers don't understand the concept of "strategic partners" bandied about in the U.S. between agencies and clients, or even agency of record. And with 80,000 agencies in China to choose from, they can easily sign on small shops to work inexpensively on tactical promotions. Western agencies are reluctant to invest expensive resources and talent in short-term projects.
The enormous challenge for local would-be marketers, usually state-owned enterprises or their offspring, is simply surviving China's almost overnight transformation from an isolated sleeping giant to global player.
Even agency executives who are frustrated by bad experiences with Chinese clients are quick to point out how far domestic companies have evolved in a short period. China is turning out a handful of home-grown, brand-savvy companies such as Vanke, Lenovo and Li Ning.
Vanke, a Shenzhen-based real estate developer active throughout China, has employed Grey since 2001 to develop its corporate image. Advertising stresses Vanke's residential properties and management skills with the slogan, "Building an unlimited life for you" and closeups of sleek interiors and Zen-inspired rock gardens.
Lenovo, a competitor to international technology marketers such as IBM Corp. and Dell, "is in the midst of a transformation from a traditional Chinese structure to a more market-driven structure," said JWT's Mr. Doctoroff. "They are also trying to facilitate long-term brand building." The company has already signed up to be one of China's first domestic sponsors of the 2008 Olympic Games in Beijing. Lenovo works with a mix of Chinese and international ad agencies.
Li Ning, a sportswear company founded by a former Olympic gymnast of the same name, is a private company that grew organically with a solid marketing structure. Advertising by Publicis Groupe's Leo Burnett Worldwide has promoted the brand, and sports in general, for the past two years using the slogan, "Anything is possible." (Coincidentally, Adidas recently adopted "Impossible is nothing" as its global slogan. See P. 79.)
Finding ways to work with local businesses is not the only challenge for agency executives. They also worry about losing the multinational marketers they have relied on for the last decade for the bulk of their revenue. The biggest networks with the most international clients, like WPP Group's Ogilvy & Mather, the largest Western agency in China, make money but many others are still struggling to break even. Multinationals increasingly break global alignments in China to appease local joint-venture partners or to take advantage of aggressive local agencies such as DMG and MegaCom.
For example, Volkswagen appointed Shanghai-based DMG to develop its first brand campaign in China over roster shops such as Grey, Ogilvy and Omnicom Group's BBDO Worldwide and DDB Worldwide. Three-year-old DMG was founded by four partners, including Dan Mintz, a New Yorker who is a longtime China resident but had never worked at an ad agency. Peugeot Citroen and Dongfeng Motor, its Chinese partner, handed advertising for their Elysee and Fukong models to MegaCom.
"Global car agencies are always invited to the pitch list, but Chinese partners always have a say too and can pick their own agency," observed Hong Kong-based Viveca Chan, Grey Global Group's chairman-CEO, Hong Kong and China.