The 10 biggest stories of 2006

A look at the top news stories, trends and issues over the past year

By Published on .

From the battle of the retailers to the war on piracy, here's a look at the top news stories in AdAgeChina over the past year.

1. Marketers kick off 2008 Olympic campaigns
Beijing won the bid to host the Olympic Games in 2008 five years ago, but marketers started their efforts to use the power of the games this year, after the Winter Olympics in Turin, Italy ended in February. Chinese marketers are getting into the act for the first time, but with varying degrees of success. Among the official sponsors, PC-maker Lenovo leads the pack, starting with the launch of its brand on the global stage in Turin. At the other end of the spectrum, white goods manufactur Haier has failed to come up an Olympic marketing strategy to raise the profile of its brand around the world.

2. Too much Liu Xiang?
Among Chinese athletes, the clear winner among marketers is Liu Xiang. The track star broke his own world record at the Athletissima Grand Prix in Lausanne, Switzerland in July. His score, 12:88 seconds for the 110-meter hurtle, was seen as a blessing back home, because “eight” is the luckiest number in Chinese culture. Within hours of Mr. Liu’s triumph, one of his sponsors, Nike, launched ads in TV, print, outdoor and online media across China to trumpet his win. More than 33 million Chinese saw the campaign, created by Wieden + Kennedy and MindShare, Shanghai, during the first three days, according to Alistair Lennie, a MindShare planning director in Shanghai.

While that campaign was a Nike victory, Mr. Liu is also backed by Olympic sponsors like Visa International, Coca-Cola Co., China Mobile and Inner Mongolia Yili Co., a major Chinese dairy. These companies insist the athlete isn’t over exposed, but “there is massive confusion among sports personalities” in China, said Beijing-based Greg Paull, founder and principal of R3, an independent marketing consultancy which tracks brand and star performance connected to the 2008 Olympics.

3. Controversy hits P&G’s SK-II skin care brand
Although Procter & Gamble successfully introduced Chinese women to Illume, an upscale skin care brand created in Japan, in 2006, the company was hit by a PR disaster over an earlier import from Japan, SK-II.

In September, a Chinese government agency detected traces of a banned ingredient in nine SK-II products. The announcement was widely covered in local media, and angry consumers went after the U.S. consumer goods giant online through user-generated web sites and blogs and even protested outside P&G’s offices in Shanghai.

The negative attention prompted P&G to withdraw the premium skin care line from all 97 sales outlets in China and offer refunds to customers. Weeks later, the government determined all SK-II products were safe and by mid-December, the brand was slowly reappearing on store shelves. But sales have been slow and industry experts question whether the brand can recover in China.

4. Rolling Stone faces rocky debut
The Chinese authorities also showed their teeth in the launch of a Chinese edition of Rolling Stone. Although the debut issue was a hit with readers, selling out just days after it appeared on local newsstands in April, the magazine was not as popular with the press and publishing authorities. They claimed that proper legal steps had not been taken to establish the title and local news reports claimed Rolling Stone had been banned.

While that turned out not to be true, the second issue was not released until late May and there were noticeable differences. For example, the Chinese name was printed in a larger font than the English name, unlike in the first issue.

The problems faced by One Media Group, the Hong Kong-based publisher producing the Chinese Rolling Stone in cooperation with Wenner Media in the U.S. have been interpreted as a clear warning to foreign publishers that the country’s Communist Party plans to retain tight control over media in China. The music title isn't the only foreign media player feeling the pressure. Financial news agencies like Bloomberg and Reuters now have to distribute information in the mainland through Xinhua, China's official news agency, which can filter out content it deems unsuitable.

5. Pepsi contest is a hit with internet-crazy Chinese
Pepsi-Cola broke new ground in China this year by letting consumers come up with the idea for its latest TV spot starring Jay Chou. In a contest called the Pepsi Creative Challenge, almost 27,000 scripts were submitted to a micro site ( created with Netease, one of China's leading portals, from mid-May through late June. The winning idea was made into a commercial that aired in October.

The contest underscored the importance of the internet as a marketing device in China, as well as the growth of user-generated content in the mainland, through blogs and other online mechanisms. The mainland had 123 million Internet users by the end of June, according to the China Internet Network Information Center, up 19.4% from the same period in 2005.

Acccording to that data source, 77 million Chinese have broadband and the country has 788,400 websites, 90,000 of which started in the first half of 2006. Twenty-eight million internet users use blogs frequently and 30 million often shop online. Even so, marketers in China have been slow to tap the power of the internet, a scenario likely to change with the success of campaigns like Pepsi’s latest online contest.

6. SAIC challenges its own partners GM and VW with Roewe
Shanghai Automotive Industrial Corp. (SAIC), China’s second-largest carmaker and a joint venture partner of both General Motors Corp. and Volkswagen Group, unveiled the first sedan aimed at wealthy consumers but built by a Chinese company using western technology and design expertise. The Roewe, or Rongwei in Chinese, is based on the Rover car, using technology and intellectual property rights acquired from the British carmaker MG Rover in 2004.

Although Chinese automakers like Wuhu-based Chery Automobile and Geely Automobile in Hangzhou have made local vehicles for years that compete against foreign brands, either imports or cars produced by joint ventures, they usually focus sales on small cheap cars.

But luxury cars are a fast-growing segment in China and the Roewe is going after many of the same deep-pocketed consumers coveted by GM, VW and other foreign automakers. SAIC is also suggesting publicly that it would like to buy out its joint venture partners.

Experts ominously view the new car and SAIC’s aggressive expansion plans as a sign that Chinese companies are eager, and now able, to compete with foreign companies at home as well as overseas. If GM and VW executives “aren’t worried about SAIC’s expansion plans, they should be,” warned Jack Perkowski, Beijing-based chairman-CEO of Asimco Technologies, which manufacturers auto parts in China.

7. WTO liberalizes ad industry for international networks
New regulations in China's agreement with the World Trade Organization went into effect this year that allow foreign firms to open wholly-owned subsidiaries in China for the first time. Until now, they had to do joint ventures with local partners.

The change is good news for creative boutiques and specialists in areas such as direct marketing and real estate advertising, who have found it easier to set up shop in mainland China.

Bartle Bogle Hegarty, 49% owned by Publicis Groupe, became the first major network to operate independently in China. It officially opened in Shanghai Nov. 20, following a ten-month legal process.

"They didn't make it difficult for us," said China CEO Arto Hampartsoumian. "The government wants outside creative influences to help China's ad industry move forward. This is still a young market, so education in marketing is still underdeveloped."

Other networks are going through the process now, including WPP Group’s Grey Global Group. For 14 years Grey partnered with one of China's largest state-owned companies, Citic Group. In June, Citic's advertising subsidiary, Citic Guoan, unexpectedly announced it dropping Grey to form DDB Guoan Communications Beijing Co., with Omnicom Group's DDB Worldwide taking a majority stake in the new company.

Although Grey was surprised by Citic's exit, it was also "relieved," said Mike Amour, Grey's chairman-CEO, Asia/Pacific in Singapore. Now Grey will apply for a license like BBH’s to operate as a wholly owned enterprise, he said.

8. China’s retail market turns into a battleground
Foreign retailers are aggressively expanding in China, where a growing middle class has created millions of new shoppers. In the past month, Toys R Us opened the first of a series of stores in China in Shanghai’s Super Brand Mall. IKEA opened its fourth store in the mainland in Chengdu. Tesco took control of its Chinese partner Ting Hsin, through which it operates 44 hypermarkets in China. Best Buy Co., America's largest consumer-electronics chain, announced it will open its first store in China.

And Home Depot, which already operates a large outsourcing business in China, acquired a major stake in the Chinese chain HomeWay for $100 million. The deal will give Home Depot 12 stores in six Chinese cities, putting it into direct competition with Kingfisher’s B&Q chain, which has over 50 stores in China.

But the real battle is between Wal-Mart and Carrefour, which opened its first store in China in 1995. Carrefour now operates 73 hypermarkets in 29 cities, as well as the Champion supermarkets and Dia convenience stores.

In October, Wal-Mart acquired the Taiwanese retailer Trust-Mart for an estimated $1 billion. Trust-Mart has more than 70 hypermarket retail outlets in nearly 30 Chinese cities. The world's largest retailer hopes that deal will help it overtake Carrefour, whose 2005 sales in China were about $2.2 billion, nearly twice Wal-Mart's.

9. Microsoft scores victory in war against piracy
Microsoft Corp. scored a major victory over rampant piracy in China this year, by convincing the country’s three largest computer manufacturers--Lenovo, Founder Technology Group Corp. and Tsinghua Tongfang Co.--to pre-install Windows software on most of their products.

Before the new deals were announced in April, these companies usually shipped computers with no operating system to keep prices competitive. As a result, more than 90% of computers in China had illegal software. If that figure drops to just 50%, say computer industry experts, Microsoft’s revenue will grow by billions. To prove China’s commitment to ending piracy, the country’s president, Hu Jintao, toured Microsoft Corp.’s campus in Redmond, WA and even dined at the home of Chairman Bill Gates during an official U.S. visit.

Computer software is only one part of China’s battle against piracy, which cost the global film industry $2.7 billion of potential revenue in 2005, according to the Motion Picture Association. The MPA said the local Chinese film industry bore 55% of the loss, compared to just 21% by the MPA's members, major Hollywood studios, because regulations in China only allow 20 foreign films to be viewed legally in China each year.

But the film industry is also fighting back, by lowering the price of movies to make them more affordable to Chinese. Starting with “The Aviator,” Warner Home Video started selling DVDs this year in China for just $1.50, compared to more than $20 in Europe and the U.S. Even so, the price is still double the average price of pirated DVDs in China.

10. Net stars take center stage in advertising
Marketers in China have traditionally relied on celebrities. While that practice continues, particularly with major stars like Jay Chou, Liu Xiang and basketball giant Yao Ming, a new trend emerged this year in China through the popularity of the internet. Advertisers like PepsiCo, Sony Ericsson, Motorola Corp. turned the country's most popular bloggers and podcasters, or "net stars," into brand champions for a fraction of the price of mainstream celebrities.

The most popular net stars in China are Huang Yixin and Wei Wei. The sculpture students at the Guangzhou College of Fine Arts became a sensation in China after they uploaded scratchy home movies of themselves lip-synching songs from the Backstreet Boys like "As Long As You Love Me," while a third roommate, whose face is seldom seen, plays the popular game "Counter Strike" on his computer. The satirical videos of the young men called the "Back Dorm Boys" are both hilarious and impressive, and created a huge following in China that has led to sponsorship deals with brands like Motorola and Pepsi.

About 35% of online Chinese are aged 18-24, and 19% are between 25 and 30. They tend to be urban, college-educated and relatively affluent, but the exposure of net stars in China far exceeds the web community. The popularity of net stars has even influenced mainstream media. The "Garfield 2" film, for example, was panned by mainland critics but became a cult hit through savvy dubbing. Instead of using two actors to voice Garfield and his British sidekick, it used one actor who differentiated the two cats by making one talk in "netspeak" that resonated with young Chinese.
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