“China used to be seen only as a place to set up factories with inexpensive labor costs,” said Yasuyuki Katagi, a regional business director at Ogilvy & Mather who recently relocated to Shanghai from Tokyo to work with the WPP Group agency’s Japanese clients in China. Now it’s “a very attractive market” with over 1.3 billion consumers, he said.
The mainland is an important and fast-growing market for Mazda Motor Corp., which sold more than 70,000 cars in China during the first six months of this year, a 54% increase over the same period last year, said Craig von Essen, head of the auto company’s corporate communications and liaison division in Tokyo. “Mazda has increased its investment over the past 12 to 18 months. China is a country experiencing significant growth and Mazda considers it a good strategic business decision to invest there."
Mazda isn’t the only Japanese car company pinning its hopes on China. Tokyo resident Chris Beaumont, president-CEO, Japan for Grey Global Group, believes Toyota Motor Corp.’s real reason for launching Lexus in Japan last summer was a desire “to beef up its portfolio in the luxury category here because they want to own a global luxury brand--and you can’t be global in the auto industry unless you’re in Japan--so Lexus will perform better in China.”
China overtook the U.S. as Japan's largest trading partner in 2004, and trade volume between the two countries will top $200 billion this year, according to the Japanese Council for the Promotion of International Trade. The nature of the relationship has changed as well, with Japanese eyeing China less as a cheap manufacturing base and more as a consumer market with awesome potential that can help lift Japan’s economy out of a lengthy recession.
“Don’t kid yourself about the importance of China for Japan. There is no question about whether a lot of the positive economic activity in Japan is due to China," said Hong Kong-based Craig Briggs, managing director, Asia for French brand consultancy Desgrippes-Gobe Group, who lived in Tokyo until earlier this year.
A growing middle class in mainland China can afford Japanese brands, perceived as more innovative and high-quality than local products, “plus there is a real hunger by Chinese to catch on to the glamor of Tokyo,” said Alejandro Lopez, president of Beacon, a joint venture between Dentsu and Leo Burnett in Japan.
Beacon, for example, has helped soft drink marketers in China with strategic marketing input based on its knowledge of Japan’s innovative drinks industry, and Wieden+Kennedy helps Sharp market its high-end Aquos plasma TV range in China.
Ad agencies “increasingly are asked by clients to help them with marketing strategies for China,” said Mark Blair, Ogilvy‘s Tokyo-based president, Japan, “to help them understand local conditions and make new products that are right for China.”
As in Japan, Dentsu is the biggest competitor for Japanese clients the multinational agencies face in China.. Much to its dismay, Japan’s advertising agency giant Dentsu has not succeeded in building a strong global network, but is determined to dominate the Chinese market the way it does in Japan.
While Dentsu cannot own Chinese TV stations outright, the way it owns much of Japan’s airwaves, it has aggressively forged alliances with production companies like Shanghai Media Group to create branded content opportunities. Dentsu’s deep pockets also mean it can operate indefinitely with lower margins than Western agencies owned by holding companies with strict revenue targets like WPP Group. Dentsu now operates one of the largest agencies in Beijing.
While Japanese companies largely see the mainland as an opportunity, they are aware that China, likely to overtake Japan as the world’s second largest ad market within the next ten years, is also a potential threat.
Just as Korean brands like Samsung and LG now rival Japanese brands in the eyes of global consumers, Chinese manufacturers like TCL and Lenovo are putting into action ambitious global expansion plans that could further dent venerable Japanese brands like Sony.
Japanese companies are also thinking more about Asia’s other one billion plus population, India, to “spread their bet,” said Dave McCaughan, SVP & director of strategic planning for McCann Erickson Worldwide in Tokyo. “They want to take advantage of China and be part of the marketplace, but they don’t want to be dependent on it.”
Even when China overtakes Japan as an ad market, added Mr. McCaughan, “it will still be the No. 3 player in the world for a long time, because no one else will get near Japan in the next 20 years. Japan’s economy is still very big.”