If Tom Bernardin, chairman and chief executive of advertising agency Leo Burnett Worldwide, had his way, he would have traded his nine-year stint in Europe for China. “I’ve said to my wife often that if we were at a different stage of our careers, I would want to live here,” he said. Bernardin still visits four times a year, however, and usually leaves feeling envious about people who spend more time here (“It’s just a thrilling market to be part of”). He spoke to CHINA ECONOMIC REVIEW at Leo Burnett’s new China office in Shanghai during his visit in May.
Q: How important is China to your global business?
A: Well, our operations in China are the largest piece – the largest geography in terms of revenue base and client size in Asia Pacific. It’s a major component of our global company. When I think of the major pieces of our global company, I think of the United States, United Kingdom, China and Russia as the major, top markets. Of course, we have others: Brazil, India, our European markets, our Eastern and Central European markets, the Middle East and so on, but China is a significant part of the company.
Q: Do you see any patterns across the emerging markets you’re in?
A: I think some of the similarities go back to the [issue of] population. If you think of China and India particularly – the sheer size of the population in those two markets – and then how does a marketer have a dialogue with those customers. That takes you to mobile communication and putting mobile devices in people’s hands as the fastest way to get people access to the internet. More and more, that’s going to leapfrog just simple broadband access in people’s homes. I would say this is a similarity in the markets. There’s a similarity in the BRIC [Brazil, India, China, Russia] markets when you look at what’s often referred to as “the bottom of the pyramid,” those consumers coming up as a very powerful group of customers to deal with and tap into.
Q: What parts of your China business are growing?
A: We have solid growth from our multinational business, particularly out of P&G; we are getting good growth from some of the local clients. We won China Mobile, we have Vanke [a property developer] here in China; I’m particularly excited about Li Ning [a sports footwear and apparel firm] as a great Chinese brand that I absolutely believe has the potential and intent to go global. I certainly want to be the creative agency that works with Li Ning, so that’s a very exciting prospect. Also Meters-Bonwe is a client. Of course, with the acquisition we made earlier in the year of Yong Ying, we gained a great base of retail businesses, and we’ve seen some of the growth coming out of there as well.
Q: One possible concern for Li Ning would be that it’s considered an imitation of Nike. How would you address that concern?
A: It’s hard for me to say exactly how I would address that concern, because I’m not sure it is a concern. What I would say is they need to understand their own role in people’s lives. There are always going to be competitors that are similar in nature, but the important thing is to understand the human purpose of a brand in a client’s words. If you start a dialogue with a client, what is your purpose? What is your human purpose in your brand and the products you sell? When we have that with our clients it opens up all kinds of possibilities for discussion and understanding. Once you understand that human purpose, it’s all about understanding how people relate to that purpose and how they behave.
Q: McDonald’s is a key client of yours here, but KFC is very strong in that sector. How are you advising them?
A: I think McDonald’s has a very clear brand image in this market. What they’re asking of us is just to help them maintain and grow this image. Yum Brands and KFC are very aggressive in the market, but I’m proud to say McDonald’s is holding its own. McDonald’s continues to grow and is doing very well versus KFC.
Q: You’ve mentioned mobile technologies several times during the interview. Is technology central to your thinking about emerging markets?
A: Yes, it’s central to emerging markets, and it’s central to everything we do. It’s the great enabler to understanding human behavior. Eight to 10 years ago, when the internet was just beginning to come on, and people were wondering what it would be, the thing I remember very distinctly is that there were some in our business who felt that it would result in people being sequestered. People being in their homes, in their rooms, never communicating, losing human contact. I find it absolutely fascinating that exactly the opposite occurred. Because we’re more connected as human beings all over the world, there are bigger opportunities than there have ever been for brands to be part of people’s lives.
Q: Economic indicators suggest that the US is headed for recession. Has this affected your business globally?
A: Yes, you’re right, the indicators say that the US is heading for recession. On the other hand, I’m not seeing – for us, anyway – a big pullback in spending by our clients. So I remain optimistic about 2008 for us and for the industry. I think it will slow down, to an extent yet to be determined, but I think many of our clients understand that it’s important in a time of recession to maintain expenditure, to maintain brand presence, because recessions tend to last a year to 18 months maximum. After that the economy tends to return fairly strongly, so the place you want to be is still present in people’s lives, still having a dialogue with people. This means that when the economy does improve you’re in a good spot, not starting over and trying to build a dialogue on nothing.
Q: What about this idea that there will be a comedown, a period of deflation, after the Olympics in China? How will this affect your business?
A: It should not affect us in China. I think when people talk about a period of deflation, it’s just the simple fact – as in the US, where we have both Olympic expenditure and the presidential elections this year – that there’s a big influx of money in the marketplace where there normally would not be. Next year, when these events are not there, the market tends to pull back a little bit. It’s something that everybody plans on – you know it’s coming, you know there’s an end to it, and I think we’re all pretty good at planning our business cycles around things like that.
Q: So what provisions did you make for this in China?
A: We haven’t made provisions because we don’t see it greatly altering our course. We’ve known for years the Olympics were coming, we’ve worked very closely with some of our clients on this. Coke is a great example through the work we do with Red Lounge [a Coca-Cola agency]. It’s fantastic work in outdoor, online and electronic media – and we knew it was coming, so it’s planned, and we also know when it is going to come to an end. The same thing happens with other clients who are part of the Olympics, whether it’s McDonald’s, Visa or Samsung. Everything is well planned. We have a very detailed plan that’s done months and even years in advance.
Q: So no staff fluctuations after the games?
A: No, no.