Ad Age Roundtable: Part 2

Industry leaders talk about challenges in China

By Published on .

In late November, Advertising Age Editor Scott Donaton, International Editor Laurel Wentz and Normandy Madden, editor of AdAgeChina, invited five senior marketing and media executives to take part in a roundtable in Shanghai, to discuss the challenges they face in China's fast-changing marketplace. Below is the second half of a two-part edited transcript from that event. (The first half was published in the Dec. 2 issue of AdAgeChina.) The participants included:

--Alfonso (Pon) De Dios, Procter & Gamble's media director, Greater China, based in Guangzhou
--Mark Fischer, VP-managing director of the NBA in China, based in Beijing
--Hung Huang, CEO of China Interactive Media Group (CIMG), publisher of Chinese editions of Seventeen and Time Out as well as iLook, a high-end fashion title, based in Beijing
--Kitty Lun, general manager and executive creative director of Havas-owned Arnold Worldwide, based in Shanghai
--Dale Sullivan, Shanghai GM's Chevrolet brand director and VP-China of General Motors, based in Shanghai

AdAgeChina: How are marketers tapping the popularity of sports in China, particularly basketball?

Sullivan: Branding with a sports or music event right now is one of the ways to get through the clutter and be more targeted. The person who watches basketball may not be the same as the people watching tennis or soccer. That's why we're looking at the NBA, both on the media and the promotional side.

De Dios: We're also looking at opportunities for Gillette to create new properties and new ideas. There are big expectations for P&G, not just to grow Gillette in terms of revenue but in terms of the brand itself in China.

Fischer: I think we can help companies like Gillette build their market share in three areas here. One is targeting 22-30 year-old males, who buy a lot of entry-level blades but now want to upgrade to higher-end products like Mach 3. Second, we can help take them into third, fourth and fifth tier cities. We're neck-and-neck for all the major cities with soccer, but for 25-and-unders, we've already taken a fairly substantial lead on soccer and their top property, World Cup, in the big three cities. When you get into rural areas, basketball is considerably ahead of soccer, because it's a sport that's easier to play. Every school and factory has a court and a team, so it lends itself for going deeper into China. (See related news story in AdAgeChina, "NBA uses grass roots events to raise its profile among kids")

Sullivan: Basketball fits our demographic perfectly. The age group, the NBA's international perspective, getting out to second and third tier cities--that's what we're looking at.

AdAgeChina: How do basketball, hip hop, street dancing fit into an overall youth lifestyle that you market to?

Fischer: One thing we hear from marketers in all industries is a need to cut through the clutter by making their message unique, and second, they have to speak to youth in a more subtle way, become part of their life, not just blare messages to them. When you use sports, you become part of their life that they want to be exposed to on a daily basis. That trend has caught up to China like in more developed economies.

Sullivan: Look at Chevrolet, that's our brand going after the youthful market, which is not real different from other countries. They like baggy pants, iPods, computer games, dyeing their hair. Youth here want to be a little bit different from their parents.China's first skateboard park just opened up in Shanghai. Extreme games are starting to hit. The launch for our last product tied into all that. We had skate boarders, roller bladers, basketball players. Trends here aren't any different, it's just very different from what was here before.

Lun: Affiliation with sports is going to be more and more crazy in the next few years with the Beijing Olympics coming up.

De Dios: I agree sports marketing will be big if you're talking about brands like Gillette, but we're predominantly women-focused with our brands. We have a consumer insight that labels what you're describing [as] responsible rebellion. Youth want to be rebellious, but with responsibility.

Hung: They still want to be investment bankers.

De Dios: Right, they have to confirm to a certain mold. That's why the winner of [the reality show] Super Girl was so popular. She was androgynous and broke certain rules, but she still conformed. All of the top three winners had their own individual style like that, which really stood out in a mass-oriented show.

In line with that, we're looking more at music marketing, which is still untapped. Think about it, how many good pop singers do we have here. The next big thing is digital media, online media, blogs, there are thousands of Internet cafes with at least 150 stations in a warehouse-type location with dancing, singing, network gaming. I'm blown away by this trend.

Our consumer is mobile, very into music and sports, but that's a challenge for us. We're finding in China's top cities, TV viewership is down for this segment. We need to invest 10 to 25% more to hit her using traditional TV schedules. So is it going on the street now, taking our brands to her, because she's out playing street ball or listening to music on her phone or instant messaging with her friends online, not watching TV? It's a whole new arena for youth now, they're sucking it in and moving faster than some marketers and media proprietors.

Sullivan: We use the word freedom a lot in the office. They want to be free, go off on their own.

Fischer: Basketball fits into that too, it's a game with a lot of spontaneity, individual expression and freedom in the way that you play, but it's got borders and structure. You're not going too far outside the traditional Chinese Confucian rules that society has set up for you.

AdAgeChina: What are the challenges of marketing local vs. Western brands?

Lun: There aren't any Chinese brands that have achieved the international status of Western brands or even Japanese and Korean brands like Sony and Samsung, but it's only a matter of time. The products and infrastructure are here, but Chinese organizations need to come of age. In China, there are a lot of good corporations, but many depend on one leader. A lot of the decisions come down to a single "hero," so the company's strategy is controlled by one hero everyone worships. That works well for morale, but if anything happens to him, what's the future of the company? The brand dies because it's not the corporation nurturing the brand, it's one person. This scenario is very common at many Chinese corporations.

Hung: One of the key things prohibiting many Chinese names from becoming a real brand is discipline. To get a brand out there, you need a lot of consistency, coordination and discipline, but Chinese are the most undisciplined people I've ever seen, it's not our strong suit. Chinese cannot establish a consistent, long term brand and don't have people to execute it according to a very definite set of rules to follow like soldiers. Everybody wants to improvise a little bit.

AdAgeChina: In ten years, which Chinese brands have the potential to become established global brands?

Lun: Based on their products and scale, they all do: Lenovo, Li Ning, TCL, Haier....

De Dios: Haier tops my list. They do a good job understanding consumers, not just locally but globally. They came up with smaller refrigerators for people with small flats or dorm rooms and they've developed products with different colors and looks. They also know the globe will be their ultimate destination but to succeed there, they have to do well in China first and create functional and aesthetically pleasing designs.

AdAgeChina: But does Haier understand branding?

De Dios: That's inherently a challenge for all Chinese companies.

Lun: They'll get branding, but it takes time to grow. Look at human resources in China. There are a lot of savvy local marketers in China, but where are they? Working for international companies. Wait till the day big Chinese companies are ready to hire Western-trained marketing staff. You've got a 1.3 billion population with tons of MBAs, and universities overseas are filled with Chinese students.

Hung: China is still the factory of the world. A brand is an idea, but they are used to competing by developing distribution channels and cutting prices. When you look at Chinese companies, including joint ventures, in distribution they always beat the Western companies. Go to the smallest town, and you'll find a Chinese company has found some way to distribute their goods there and you wonder, "How did they do that?" It's one reason L'Oreal bought [mass-market Chinese skin care brand] Mininurse in 2003.

Sullivan: They don't look at the long term, but if you look at the automobile industry, manufacturing was nothing here before, now you look at the joint-venture factories and it's all Chinese run the manufacturing and that experience will gain them advantages over Western societies in certain ways that they'll be able to move outwards.

Hung: We are close to the right time for a fashion designer to come out of China. Major international companies are looking at financing a local designer. Alongside that is the whole area of herbal, yoga, health, cosmetics and body care. A new global brand will come out of China in the very high-end health and lifestyle area, funded not by the Chinese but by international money and control. The global lifestyle sector is ready to accept that. Compare Vivienne Tam, who is well received, and Shanghai Tang, which gets a dubious reception. It is seen as a Chinese look for foreigners, whereas Vivienne Tam represents modern Chinese style.

AdAgeChina: What is the biggest challenge each of you faces?

All: Finding qualified human resources.

Sullivan: You can get ten people to do something, the problem is finding one who's qualified, and I don't know of any industry in China that isn't short good people. If something were to cause China to fall in the next two to three years, that could be it, they do not have enough qualified and trained people, especially with marketing, advertising and creative skills strength.

De Dios: I agree 100%. China's realizing that now. That's why they're opening so many schools for marketing, finance, the service sector like hotels, where you have to think out of the box and innovate. They're trying to build that talent pool, but it's a very shallow bench, even at ad agencies, where I have to say, most of ours are still headed by ex-pats, but where's the succession planning? After the ex-pat goes, the continuity isn't there, accountability for your business over the long term disappears. The role of an ex-pat like myself is to [make myself obsolete] to build the next generation, but the skill set is not there yet.

Hung: The boom did more damage to the talent pool. It hiked up prices, so they have a super ego that's way larger than what they're actually qualified for.

De Dios: Coupled with that, they'll also throw in ten managers to help me when all I need is one who can do a quality job. With the other nine, I think, "What are you guys doing?" They don't really add value. When an agency says, "I need an increase in my fee," I respond, "Why?" "We staffed up, added 20 or 30 more people to provide better service for your brands." "I don't need 20 or 30 more people, I need heavy hard hitters, I don't care if it's one or two. I need fewer but quality people."

Sullivan: We're also moving people so fast. Someone who's purchasing manager today, two years from now, he can be president of the company. People are developing staff members under them who don't even know how to do their own job.

AdAgeChina: What are some changes you anticipate in the next year?

Sullivan: We'll see consolidation in every industry. In the automobile industry, we have 121 manufacturers and 15 do 80% of the business. The other 106 aren't going to last. Also, income will grow, which will change spending habits and demographics and that will affect how we spend our ad budgets.

Hung: In the luxury industry, an income disparity is increasingly evident: 0.5% of China, the creme de la creme, is probably worth as much as the entire Japanese market in terms of consumption. On the other hand, if you're reaching to the urban middle class, that's a very loosely defined market with real growing pains.

Lun: I hope to see a major change in the way ad agencies do business and how we charge, going more towards a fee system. Commission is no longer working with the emergence of media independents. With successes like the Super Girl reality show and the rising importance of events and sports marketing, we have no choice but to change.

De Dios: The scary challenge is whether multinationals are nimble enough to ride these changes in the media landscape. When Chinese companies--those 2,000 local haircare brands--really get it, they will take a quantum leap, using different models like Internet cafes, digital media, sports marketing. They are less deliberate and more agile, have fewer barriers, they just go on and do it versus us, who rely on measurements and protocols. They will overtake us. Our fear is, are our agencies equipped to help us not get left behind?

AdAgeChina: Are your agencies up to the task?

Sullivan: Our creative isn't always to the next step. We'll go overseas sometimes if we have to, to get the creative we need. The question is, will they be able to meet our standards in the future? We're worried about people; all the agencies have a lot of turnover. We've had four different account directors on one of our accounts, they just rotate in, so you don't get consistency. We've had the same creative director on two of our accounts for the past two and a half years, but it's a little scary if that's all you can say on a consistency basis.

De Dios: The name of the game in the years to come is value creation. Our agencies turn out creative and media plans, but what will differentiate agencies in the next couple of years is their ability to create value, which ties into the inherent nature of Chinese not being able to embrace innovation as part of what they should be doing day in and day out. Let's change the model, instead of calling in 20 guys to see how we can add more layers to complicate a model to get to the same result. It goes back to a lack of talent and continuity at the leadership position from our agencies.

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