It was another great year for advertising in China, with advertising spending hitting US$39.1 billion in 2005, an increase of 20% year-on-year. Advertising expands as incomes rise, and in 2006 the focus is on the expanding markets of the second- and third-tier cities of China's interior. Even the poorer countryside, while still lagging, is becoming attractive to foreign majors like Ogilvy & Mather and J Walter Thompson. This is likely to make famous international brands known to millions who have only had a glimpse of the vast cornucopia yet to come. But it's a two-way street. Just as important, perhaps even more so, foreign agencies also serve China outbound clients keen to make a name for their products in overseas markets. Joseph Wang, Ogilvy & Mather's China chairman, talked to CHINA ECONOMIC REVIEW about the open road ahead for the advertising industry, touching on a few tricks of the trade along the way.
Q: What does a foreign advertising agency offer clients that a Chinese agency doesn't?
A: Foreign agencies work with multinational clients and know global markets. That means we know the client and the product very well. Usually we have been with them for a long time so we are used to their working style and they are used to ours. When Chinese [client] companies begin to investigate foreign markets to make overseas moves, an agency with global networks can help them get into those markets while a local agency wouldn't have that capacity. Agencies such as ours have global market databases. If we want to find out about automobiles in Lima, Peru for instance, we can find out what went right and what went wrong, the sort of people you have to reach and how to reach them. That is something that a local agency wouldn't have.
Q: Do Chinese agencies have the edge in selling domestic brands?
A: That is a common perception, but the key to selling any brand is understanding the marketplace. We have been in China for 15 years and we have actually grown and changed along with the marketplace. Our staff are predominantly Chinese, which means they have grown up in this market with these brands and are equipped to create campaigns around them that appeal to local consumers. International agencies spend a lot more understanding the marketplace. We have done studies on youth, on women, on Chinese eating habits, beauty habits and even "little emperors" [only sons of one-child families]. This is not the sort of investment local agencies make. Local agencies are about servicing the client. And that's their strength. They understand the client and build a relationship at a very senior level. When a client says "jump!" they say, "how high?" whereas we say, "how high and why?" We pride ourselves on being "brand stewards" because the brand is at the center of everything we do. The local agency servicing model is quite different.
Q: What is the quality of advertising talent in China? Do you have problems recruiting qualified personnel?
A: First of all Chinese learn very, very quickly and in the last 15-20 years, China has been nothing if not about learning. If there is one strength the Chinese have, it is learning. The war for talent is incredibly competitive. And as the quality of local talent increases, and the demand for people increases at agencies and in-house at client companies – obviously companies face problems of employees being poached. We spend a lot of time developing and training people.
Q: What are the differences between consumer appreciation of advertising in China versus elsewhere?
A: Chinese consumers are eager for information. You can go into a Chinese supermarket and see housewives, students and others shopping. They look at a can of something, and they will read the fine print, to find out the active ingredients and name of this and that drug. They are very curious about this.
Q: Are there differences in regional approaches to treatment of the same product or service?
A: There are differences between the primary cities where most of the multinationals are, and the tier three cities, which are increasingly important. When you go into tier two cities or tier three cities or the rural areas, you may want to spend less time on the technical detail as opposed to the more aspirational value that enhances a lifestyle. The knowledgeable city person feels more knowledgeable, and therefore wants more knowledge. There are also product differences. If you are in Sichuan, you would want to market spicy noodles; if you go into Guangzhou, you will be selling more natural foods, while in Shanghai it's got to be sweet with lots of soy sauce.
Q: Are regulations on what you can say and do in China more onerous than elsewhere?
A: You cannot use superlatives, such as "best" or "number one," for example. But in quite a few other markets around the world you can't say that either, comparative advertising is not allowed. Every market around the world has its own regulations and players must adapt. In China you have to be aware of what is nationally appropriate. There is huge sense of nationalism in China. Last year there was a Toyota Prado campaign, which showed the car going across a bridge lined with stylized Chinese lions. And as it went across the bridge, all the lions kowtowed. That had a hugely negative reaction and there had to be a public apology because it reminded the Chinese that the Japanese had invaded – and invaded over a bridge. Another aspect is that you want to be forward-looking and not backward-looking. You don't want to go into a lot of heritage and history because in China history is not very good.
Q: It is reckoned that advertising spending in China reached US$39.1 billion in 2005. How do you see that growing over the next five to 10 years?
A: At the moment we are still seeing about 20% media growth year-on-year and there are a number of factors that impact on this going forward. First, there is the demand for companies to launch new products and extend their existing product support to new markets, let's say to tier three cities. And they must also sustain what is already there. If you look at one measurement of media called cost per thousand [views of an advertisement], or CPM, China still has very low rating relative to other countries. And as the population becomes wealthier and has the ability to buy more products with potentially higher margins then CPM really has room to grow. So ad spending will grow. The CPM index for China is around 10 versus the US, which is around 100, and the UK is about 194. There is also growth from technological factors, such a mobile phones and interactive television and IPTV. It is only starting in China, but if it starts, it will start in China before it starts in other places because China is so technologically adaptive. Unlike the West, Focus Media lift lobby television is everywhere here. There is a greater demand for privacy in the US and Europe whereas in China people expect to be surrounded by people, noise and everything else.
Q: What is Ogilvy & Mather's market share and how do you see that growing in coming years?
A: Ogilvy, if not the largest, is one of the two largest, alongside other multinationals such as J Walter Thompson. We have offices in Beijing, Shanghai and Guangzhou. We just opened up in Fuzhou and we also opened up a Xiamen office. We are looking to expand our presence in Nanjing, probably as an acquisition. We are looking at Chengdu and Shenzhen. We are looking at this because our clients are looking at second-tier cities. We follow our clients. We have a representative office in Qingdao because we handle some business for Haier and we also handle Tsingtao beer.
Q: What has your company gained from its Shanghai joint venture partner?
A: We came to China in partnership with Shanghai Advertising Company, the largest domestic advertising group, and for us it has been a mutually beneficial relationship. By working with the local partners, we have had the opportunity to work with the government on events such as the 2010 World Expo. We started as a China division out of Hong Kong in the 1980s and we sent in people with research backgrounds to the primary cities, Beijing, Shanghai and Guangzhou just to learn more. And as our clients went in, so did we. One of the advantages of Ogilvy is that we have so many international clients. They say, "You have our business in 20 countries around the world and we're now going into invest in China and we think you should do the same." That's a very compelling argument. So we have learned a lot and continue to find out about the marketplace and the lifestyle. Our association with Shanghai Advertising Company, which is a Shanghai municipal government enterprise, helps us and we are able to help them with our international connections. It is a partnership, which we have been very happy with and we have no intention of ending it.