Introduction to Foreign Investment in the Advertising Industry

Although the scale of foreign investment in the advertising industry is relatively small, it has helped introduce advanced technologies, management experience and talented personnel to the industry, and has improved the overall level of China's advertising industry.

In November 1994, the State Administration for Industry and Commerce and the Ministry of Foreign Trade and Economic Cooperation made a joint issuance of the Regulations on the Establishment of Foreign-invested Advertising Enterprises," in which the second item says that the so-called foreign-invested advertising enterprises stipulated in the regulations indicate Sino-foreign joint ventures (JV) or Sino-foreign co-operative JVs in the operation advertising business. In other words, wholly foreign-owned advertising companies could not be established before China entered the World Trade Organization (WTO).

By the end of 2001, there were 329 foreign-invested and managed units in China's advertising industry with 8,600 employees; the advertising turnover of foreign-invested enterprises in 2001 reached 7.44 billion yuan.

As seen from the categories of the advertising turnover for foreign-invested and managed enterprises, medicine covered 66.62 million yuan; foods, 1,367 million yuan; cosmetics, 1,457.11 million yuan; medical appliances, 78.86 million yuan; medical services, 53.14 million yuan; household appliances, 375.22 million yuan; clothing, 117.75 million yuan; real estate, 188.63 million yuan; alcohol, 504.56 million yuan; tobacco, 19.06 million yuan; touring, 56.71 million yuan; vehicle manufacturing, 290.64 million yuan; and others, 1,782.63 million yuan.

With their turnover, foreign-invested enterprises in the advertising industry that top the list are: Saatchi & Sattchi Advertising, McCanne-Erickson Guangming Ltd, J(Walter Thompson Zhongqiao Co Ltd, Ogilvy & Mather (Shanghai) Pte Ltd, Grey World Wide, Publicis (Ad-link Communications Limited and Dentsu Inc Beijing Branch.

The number one enterprise in terms of turnover is Saatchi & Saatchi and Great Wall Advertising, which was jointly established by the Chinese Great Wall Industry Corporation, China Tianma Touring Co Ltd and the United Kingdom's Saatchi & Saatchi Advertising. It is a Sino-foreign joint advertising venture that concentrates on operating various domestic kinds of advertising designs, issuance and a complete vicegerent, with an annual business volume surpassing 2 billion yuan. Brand advertisements produced by the company include Head & Shoulders, Rejoice, Johnson & Johnson, Xian-Janssen and TCL, which have been very successful.

Metropolises like Beijing, Shanghai and Guangzhou are regions where foreign-funded advertising companies are developing comparatively quickly. By the end of 2001, there were already 60 foreign-funded advertising enterprises in Shanghai that covered 2.3 percent of the 2,656 advertising operational units in the whole city. In 2001, the advertisement volume of foreign-invested advertising enterprises in Shanghai hit 2.34 billion yuan, occupying 18 percent of the advertising volume of Shanghai's advertisements over the same period, and 31.5 percent (nearly one-third) of national advertisements.

In 2001 there were 20 advertising units with an advertising volume of over 100 million yuan in Shanghai, of which 14 were foreign-invested advertising enterprises covering 70 percent; it is obvious the foreign-invested advertising enterprises are comparatively large in scale. For example, the large-scale joint advertising venture in Shanghai, Ogilvy & Mather (Shanghai) Pte Ltd, was jointly established by the International Ogilvy Group and the Shanghai Advertising Corporation in October 1991; however, the International Ogilvy Group is subjected to the London headquarters world-famous and extremely powerful WPP Group. For years, Ogilvy & Mather (Shanghai) Pte Ltd acted as an advertising agent for many large-scale enterprises, like Shanghai Volkswagen, Unilever, Kentucky Fried Chicken, Kodak, Siemens, IBM, Motorola, China Mobil, etc.

China began to put its related WTO entry commitments into effect after it became a new, formal member of the WTO on December 11, 2001. It is necessary to shift these commitments to related domestic rules to practically carry out the relevant commitments of China's WTO accession so that we can rely on the domestic laws.

In March 2002, the central government enacted the Guidance Catalogue on Foreign-invested Industries, which definitely prescribed that advertising services only limit those advertising agents registering in China and entitles them to offer foreign advertising services. It allows foreign-service providers to erect advertising enterprises in China in the form of JVs with foreign funds of no more than 49 percent. The foreign party can control the company no later than December 11, 2003 and can exclusively invest no later than December 11, 2005. These rules have been formally put into effect on April 1, 2002.

(For more biz stories, please visit Industry Updates)