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Cut ad spending in China at your peril, multinationals warned

By Lu Haoting (China Daily)
Updated: 2009-02-16 07:56

Multinational companies should think twice before cutting advertising spending in China this year, leading ad agencies warned.

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"The China market is still doing much better than the rest of the world. They need to be careful about ad spending cuts in China because if they don't advertise somebody else will take a piece of their cake," said Moritz Wuttke, Publicitas Asia Holdings Ltd's CEO for Asia and China. Switzerland-based Publicitas is one of the largest media sales companies in the world.

Although China's GDP growth for 2008 dropped to 9 percent as the global financial crisis deepened, domestic consumption was one of the few bright spots of the economy as retail sales grew 21.6 percent last year compared with 16.8 percent in 2007. Many believe that China could still be able to achieve 8 percent growth this year as long as the central government's policies to boost domestic investment are properly implemented.

"Multinational companies might cut some ad budgets in China, but not as much as they cut in other markets," said Komiya Gentaro, president and director of board, Beijing Dentsu Advertising Co Ltd.

In fact companies that can still invest in advertising during a recession are often the ones who have the last laugh, Komiya said.

Dentsu Inc (Tokyo) has conducted a survey with 874 Japanese companies, which experienced the yen appreciation that pulled the Japanese economy into a recession in the early 1990s. The survey found that companies that increased their advertising budget by 10 percent or more actually gained 6.7 percent in market share during the recession period and a 3.8 percent rise in market share on average after the recession. Those who cut their ad spending lost 2.4 percent in market share during the recession and lost 4.1 percent after the recession.

Wuttke suggested that companies should be "more targeted" when planning advertising strategies, rather than "simply spending less money".

"You need a better market analysis of where your potential customers and clients are. The more targeted you are, the less strain you have," said Wuttke, adding that companies should also do more to measure returns on their ad spending.

Analysts said the current economic woes would accelerate the transfer of marketing budgets from traditional media to new media such as the Internet. Online advertising has been growing fast in recent years due to its advantages such as target marketing, creativity, exposure and speed.

China's online advertising market surged 42.1 percent year-on-year to reach 13.2 billion yuan in 2008, according to statistics from CR-Nielsen. The country's overall advertising market grew 15 percent in 2008 and just 9 percent in 2007.

China boasts the world's largest number of Internet users, 298 million by the end of 2008, according to the China Internet Network Information Center.