Navigating the maze in China

Foreign advertising agencies must have closer understanding of local business culture to stay in the game

When a regulation that foreign advertising companies must form joint ventures with local companies to operate in China was abolished on nearly seven years ago, it set off a flurry of activity in the sector.

China's strong economic growth in the last few years has been a major draw for foreign companies. While some sole proprietorship foreign advertising companies did have sprung up, there have been more instances of foreign ad agencies quitting China.

To understand this phenomenon, it is important to study the various problems foreign advertising agencies in China face. There are five main types of foreign advertising companies operating in China. They are:

Companies involved in planning and designing of ads.

Companies that do ad research and marketing communication.

Media agencies and companies that are involved in ad sales.

Companies doing media planning and ad purchases.

Companies providing ad monitoring and evaluation services.

Foreign advertising agencies often cite the relative immaturity of the Chinese market as a major concern. But what many of these agencies do not realize is that advertising could not make much headway in the past due to the deep-rooted money-saving habits of Chinese people.

To some extent, this also explains why it is difficult for many Chinese companies, especially the small and medium-sized enterprises, to understand the finer nuances of advertising. Most of them do not understand the importance of branding or the need for having suitable mechanisms to boost their image. Nor do they have regular assessments or monitoring.

Small and medium-sized enterprises hardly pay any attention to market research or strategy and instead look for easy, fast returns. This has forced most of the foreign advertising companies to confine their services largely to the top 500 global companies and China's State-owned enterprises and listed companies.

Differing business cultures are another gray area for foreign advertising agencies. In many cases, Chinese clients often collect information provided by the international advertising agencies and then award the business to a local advertising company.

Guanxi (connections) also plays an important role in China's advertising industry. Local governments and institutions usually have a good relationship with the general manager of the local advertising company, who in turn benefits from it due to his or her strong links with the local media.

Foreign and local advertising companies have their own strengths and weaknesses. Foreign companies usually excel at branding, and their core competitiveness equips them with a strong capital chain, good management process, international awareness, global vision and international market operation experience.

But they lack detailed knowledge about the culture and people, especially in the use of interpersonal relationships. For example, they take the contract too literally, and they often outsource the order. Local advertising companies, on the other hand, are familiar with local market and culture. Foreign companies also rely heavily on professional order bidding, while Chinese companies focus on guanxi.

Take the case of sales-oriented Chinese companies. It is important for the sales team in these companies to have high degrees of localization, something that is also essential for its advertising company.

What this has led to is a dual track system of advertising, wherein companies use foreign agencies for growing the brand and local ad agencies for enhancing sales.

I believe that the localization of multinational companies cover six areas:

Customers: Foreign advertising agencies were largely focused on international customer service and bagging advertising orders from local enterprises. Big multinational companies were their main clients. But with the development of Chinese economy, domestic enterprises have also realized the need for advertising as they look to spread wings in foreign markets.

Regional markets: It is important for companies to think of first-tier cities as hubs for the neighboring regions. Most foreign advertising companies have mainly focused their activities on Beijing, Guangzhou, Shanghai and Shenzhen. But the market has saturated in most of these regions. But the silver lining has been the rapid growth of second-tier and third-tier cities. Foreign agencies should seek out more partnerships in these cities for sustained growth.

Ad content: Chinese companies' speedy development in a short span of past 20 years has naturally left them with a lot of deficiencies. Hence, they expect ad companies to provide them with the full range of services. Survival and development of Chinese enterprises is often not confined to just advertising, but includes overall marketing, terminal sales, event marketing and public relations. Foreign ad companies must take advantage of this by capitalizing on their global advantages.

Operations: Local ad companies often have a huge customer base of domestic enterprises. If the foreign advertising agencies can acquire some valuable local companies, it will have a multiplier effect.

Talent: Foreign advertising companies must recruit more local talent because it brings dynamism to the industry.

To better adapt to China's culture, these companies must gradually hire Chinese staff as senior directors to take charge of the business in the mainland, as they have better resources to tap into the domestic human resources.

Their understanding of Chinese culture can help reduce unnecessary external pressure, while their success will attract more talent, which in turn will speed up localization.

Market operations: Flexibility in the use of Chinese cultural creativity has enabled foreign advertising companies to compete in the Chinese market for nearly 30 years, but there have been some problems.

For example, many companies are still unsure of how to adapt to the rules of the local advertising market. With mergers and acquisitions of local advertising companies, they are unclear on how to maintain a sustainable relationship with old clients and how to deal with new ones.

The author is president of Media Marketing Education Group in Chengdu. The views expressed here are not necessarily those of China Daily.

(China Daily 09/07/2012 page7)