AS HONG KONG SHIFTS TO CHINA, SINGAPORE RISES: ISLAND NATION SEEN AS NEW MADISON AVE. FOR ASIA

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With the momentous handover of Hong Kong to mainland China only two weeks away, Hong Kong-based advertisers and ad agencies are bracing for a weakening of the city's power base.

And with Hong Kong's shift to Chinese control, the new Madison Avenue in Asia appears to be Singapore.

Leading executives in Asia see a probable increase in bureaucracy, regulation and corruption in Hong Kong, even though the Communist Chinese government has promised to rule Hong Kong under a "one-party, two-system" set-up for 50 years after the historic change on June 30.

CORRUPTION IS BIG ISSUE

"The single biggest issue we are dealing with in China is corruption, and it could seep and creep into the whole economy in Hong Kong," said Alan Fairnington, president/Asia Pacific, J. Walter Thompson Co., Hong Kong.

Mr. Fairnington said that, for example, the Chinese government could exert its influence over Hong Kong by approving licenses for only mainland Chinese-owned TV stations.

At Leo Burnett Ltd., Managing Director Allen Chichester in Hong Kong already sees indications of a crackdown on TV commercial approvals.

Recently, he said, a Hong Kong TV station asked Burnett to revise an award-winning commercial for McDonald's Corp. featuring a baby in a swing alternately crying and smiling whenever the chain's Golden Arches appear through an open window. The station asked Burnett to show a parent in the commercial.

"They wanted to make sure that it looked as though the child was being looked after," Mr. Chichester said.

ALTERNATIVES TO HONG KONG

Marketers and their agencies view Shanghai, Shenzhen and Singapore as good alternates to Hong Kong as regional marketing spheres, with Singapore emerging as the advertising agency hub.

Bates Worldwide and Euro RSCG moved from Hong Kong to Singapore during the past year, joining such earlier converts as Dentsu, Young & Rubicam. DY&R made the move three years ago. They left behind Hong Kong's notoriously high living costs, excessive personnel turnover of 30% annually and exorbitant salaries-concerns that ad agency managers said will only intensify after the governmental switch.

"It may become even more difficult to recruit top talent for Hong Kong because people will gravitate elsewhere in Asia for greater opportunities," said Sandford Kornberg, regional director of Ammirati Puris Lintas in Hong Kong.

"I think it's going to become more expensive to recruit top-level talent to Hong Kong after the turnover," agreed Jonathan Fox, CEO of Grey Asia-Pacific. "The biggest limit in this region is the lack of a talent pool."

For marketers, Shanghai is the new base for Greater China-consisting of mainland China, Taiwan and Hong Kong-as the city's infrastructure and living standards improve rapidly.

Both Unilever and Philips Electronics have shifted their China businesses to Shanghai. The companies also have shifted Asian operations outside of China, to Singapore.

MOVING TO SHANGHAI

"We're moving all the mainland China management to Shanghai" from Hong Kong, said Andre R. Van Heemstra, president of the Southeast Asia & Australasia Group for Unilever. "We have 12 joint ventures in China, and the main center is Shanghai."

"We felt that by being in Hong Kong, which will become China very soon, we'd become too engrossed in Chinese issues and problems and disrupt other parts of Asia that are important," said Philips Singapore-based Senior VP Goran Seifert.

Kraft Foods Asia-Pacific and Volkswagen Asia-Pacific, however, are retaining their Hong Kong headquarters. But they're also shifting more resources to numerous joint ventures in mainland China.

"Our future is tied to a Greater China strategy," said Kin Carmody, category marketing director at Kraft Foods Asia-Pacific. "We now have a much bigger business in China than in Hong Kong, and I don't see any change in our commitment to China."

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