Getting the message across

Multinational agencies are winning the battle for the biggest advertisers

Tony Fan, 35, the owner of a Beijing-based advertising agency, had been talking the whole day with his business partners about the company's latest failed bid, which was won by a multinational advertising company.

"Instead of feeling depressed, I'm honored to have the chance to compete with large international companies," he says.

A worker preparing an outdoor advertising board in Nanjing, Jiangsu province. [An Xin / for China Daily]

His company, IBrand Solution (Beijing) Ltd, founded in 2006, is a small one with fewer than 10 employees and an annual profit of several million yuan. Its clients range from international non-governmental organizations to regional consumer goods companies.

Some multinational advertising corporations are in de facto control of China's advertising market due to their advanced management, rich experience, adequate funding and high-end professionals.

Since the opening-up of the Chinese market at the end of 1970s, the rapid development and potential of the nation's advertising market attracted the attention of members of the American Association of Advertising Agencies, known as 4A enterprises, which were eager to enter China in the 1990s.

Statistics show domestic advertising agencies generated revenue of 94.04 billion yuan ($14.94 billion, 11.32 billion euros) in 2010, which accounts for only 40.18 percent of China's total advertising turnover, up 10.7 percent year-on-year, lower than the average growth of the industry.

At the same time, there were only three domestic advertising companies among the top 10 advertising agencies by annual revenue in 2010 - Charm Communications Inc, Guangdong Advertising Co Ltd and AVIC Culture Co Ltd.

Data from the China Advertising Association shows that the top 10 advertising agencies realized revenue of 36.4 billion yuan in 2010, accounting for 39 percent of advertising agencies' total turnover, rising 4 percentage points from the year before. More clients and high quality resources have been attracted to large advertising companies, especially multinationals.

"Multinational advertising agencies have more finance, more advanced technology and management and more talents, posing a threat to domestic agencies," says Professor Huang Shengmin, dean of the Advertising School at Communication University of China.

With a globally unified working system and specific analytical tools, Ogilvy & Mather Advertising, one of the largest marketing communication companies in the world, possesses not only a global service network but has also accumulated large amounts of professional knowledge, says Shenan Chuang, CEO of Ogilvy & Mather in China.

"Compared with young Chinese advertising agencies, foreign advertising conglomerates understand the market economy and marketing management more deeply and comprehensively," says Dang He, chairman and chief executive of Charm Communications Inc.

The State Council released the plan on culture industry revitalization on Sept 26, 2009, the first time that China announced clearly and definitely that it would boost the development of the culture industry, such as advertising, comics and animation. As a result, advertising became a strategically important industry that the nation was going to foster.

The following year, four Chinese advertising companies were listed.

This "was a sign that late-starting Chinese advertising companies were beginning to compete in the capital market and continue to strengthen in the coming years", says Qiao Jun, a professor at the School of Journalism and Communication at Nanjing University.

Statistics show that the number of advertising agencies in China reached 243,000 in 2010, with total revenue of 234.05 billion yuan in the year and 1.48 million employees.

China is already the world's second-largest advertising market, Chairman of International Advertising Association Alan Rutherford said at the International Advertising Festival held in Changsha in May 2011.

Top enterprises

Multinational advertising companies already had rich experience before they entered China. On the other hand, advertising was new to most Chinese, who had not experienced or realized its value, Professor Huang says.

At the beginning of reform and opening-up, Chinese people preferred foreign products and ideas, and most advertisements for foreign brands were successful, he adds.

As a result, 4A enterprises quickly set the standard in China's advertising industry.

The year 1979 was seen as "the first year of Chinese advertising", says Dang, who was also co-founder of Charm Communication.

With global unified working systems, multinationals' branches share the systematic and well-established professional knowledge accumulated by their parent companies, says Chuang, who has worked for Ogilvy & Mather for 27 years.

Ogilvy & Mather Advertising arrived in the mainland in 1991 and is the largest advertising agency in China. It employs more than 2,400 people across 29 offices in 18 markets. It provides its customers with data with the help of professional analysis tools, which draw comparatively correct and effective solutions, says Chuang, stressing that its analysis tools always "keep up with the times".

Rise of domestic firms

Only one 4A enterprise was included in the CCTV 2010 Top 10 Best Advertising Agencies, which was announced on March 9, 2011, and there were only three among the top 20.

Professor Huang says that "multinationals actually in a way promote the development of China's advertising industry by shortening its growth process. Local agencies learn a lot from their opponents, for example, in the aspects of company management and creativity".

"Local companies, which are familiar with Chinese social circumstances, consumption characteristics and the local media, integrate closely with Chinese culture and satisfy the needs of local customers," Dang says.

By April 2011, 14 Chinese local advertising agencies had been listed.

In 2010, four corporations went public in succession - Spearhead, Bluefocus, Charm Communications and Guangdong Advertising.

Other Chinese advertising companies such as D&S Communication Group, Who's Who Advertising, Linksus and Shunya Communication Group are planning IPOs.

"Focus Media's listing on the Nasdaq set an example for other domestic advertising agencies. A growing number of Chinese advertising companies will be listed in the near future," says Zhang Xiang, vice-dean at the School of Communication and Art at Beijing Technology and Business University.

The rapid capital reconstruction of domestic agencies promotes their own development. For instance, Guangdong Advertising has enlarged its operating scale through asset restructuring.

In 2010, Charm Communications, one of the biggest domestic advertising companies, went public and cooperated with Aegis Media, which helped the company become an internationalized and specialized advertising group, Dang says.

"At the same time, Charm Communications has accelerated the upgrading of its operating standards, working tools, business distribution and company management," he adds.

Qiao of Nanjing University says that during the 12th Five-Year Plan (2011-2015), domestic advertising agencies will increasingly expand and multinationals' domination of China's advertising industry will probably change.

There may be tougher competition between locals and multinationals and the two parties may share the market equally, Qiao predicts. High-end talent would also flow back to domestic advertising companies.

With the growth of local clients and the development of Chinese advertising agencies, local companies have opportunities to grow bigger and stronger due to the large number and different level of clients, Dang says.

Chuang predicts "advertising multinationals will maintain their leading position in China's advertising market for at least the next five years".

Challenges ahead

Although Tony Fan, the advertising agency owner, says small agencies like his are more flexible than the larger ones, because of to low expenditure and flexible strategies, the advertiser, who graduated from Guanghua School of Management at Peking University, also expressed a pessimistic view of the possibility that local advertising agencies can overtake their international rivals.

He says 4A enterprises' development was closely related to their multinational clients' progress in China, but there is little chance that Chinese companies can create internationally recognized brands.

As newcomers to China, foreign advertising companies' fortunes are inextricably linked with their clients, multinational corporations such as Procter & Gamble and Unilever.

High-end talents are essential to the development of local agencies because advertising is a knowledge-intensive, technology-intensive and talent-intensive industry, Huang explains.

Chuang, who is also the founding chairman and the incumbent chairman of the Association of Accredited Advertising Agencies of China, also known as China 4A, which has 23 multinational members and 24 local members, says that Chinese advertising agencies should attach more importance to personnel training.

Few domestic agencies attended the personnel training sessions organized by China 4A a few years ago because Chinese companies are reluctant to pay for this kind of training.

Chinese advertising companies should improve their management abilities, build better operating systems and upgrade analytical tools to enlarge their business quickly in different cities in China, Chuang says.

In order to become global players, they should cooperate with each other through an industry association, she says.

mengfanbin@chinadaily.com.cn