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A personal view of China
Of all the major countries in the world, China attracts perhaps the most attention but is the least easy to do business with. It’s really impossible to “read” from the outside. So although we already had two or three good agency partners there, I thought it was really valuable to spend a week in Beijing, Shanghai and Hong Kong, looking, and learning anew. In a few words, this is what I found.
First: China itself.
While the West struggles out of recession, China is still booming. Export sales have slowed, but the Chinese government has re-focussed economic growth internally. A billion or so people still want cars, washing machines, shampoo, cheap flights…there is no shortage of consumer demand.
Two factors are noticeable, though:
1) Margins are thin, both for marketing companies and for agencies. Chinese customers drive hard bargains and business is not always as transparent as it should be.
2) The predicted development of Chinese brands (as opposed to manufactured products) outside China has not happened. It seems to me, that the will is not there right now: for a Chinese brand owner, why invest in marketing in the west when there is so much unfulfilled demand at home? This will change, as the western economy recovers. The plans are in place, they are just on hold. Western brand owners should not relax.
And now: what about agencies? And independent agencies, in particular?
My sense is that the agency scene is stabilising (strange, in a market notorious for short term contracts…but true).
Most of the multinationals have got their act together now. Ogilvy and JWT have been strong for a while. Others are catching up: DDB China for example, ably run by a Dick van Motman, a good friend of mine, has grown from 30 to 300 people which is probably where a large agency should be in China. Most of the large, old-school local agencies have been acquired (although rumours abound that the big holding companies don’t always end up owning quite what they thought they would). Two notable exceptions, DMG and Meikao, have been heavily courted but have chosen not to sell. So the independent option is still there…it always is, somehow!
If you are looking for an agency – what should you do?
The first key question is what kind of agency you want. Agencies in China tend to come in five major types.
1) Large, traditional advertising agencies. Ogilvy, McCann and the like, pretty much as they were 20 years ago in the west. Meikao is similar. Known in China as “4A’s agencies”.
2) Smart young digital agencies, who supply the digital savvy that the large agencies in China simply don’t have. Often only a few people, rarely more than 40 or so – and only the owner is aged over 30. They are mostly sub-contracted by the big ad agencies, although it’s possible to buy their skills direct for a fraction of the price, if you’ve already done the strategic thinking yourself.
3) Event-oriented PR agencies. These have been the driving engine of most brands’ expansion into China. Chinese consumers (and business customers) need to see, touch and feel…advertising alone does not win customers here, for unfamiliar products. Most PR agency presentations consist primarily of photo-records of events and launches they have managed.
4) PR agencies in the traditional sense, divided into those who admit to buying coverage and those who don’t.
5) The next generation of entrepreneurs. The most interesting to us, of course…
The next generation of entrepreneurs is really just beginning to take shape. But there are good agencies to be found, if you know where to look. Again they come in different types.
There are still one or two outstanding, western-owned companies who provide expert help for western brands finding their way into China. Agencies like Eight Partnership, for example: owned and run by Brits and Scandinavians. If you are a brand owner venturing into China for the first time, there is no better place to start.
But the next generation has to be Chinese.
This is clearly happening in marketing companies, as they migrate their management teams from expatriates to Chinese. It’s happened, or happening, in every other country - and China will be no exception. And where clients go, agencies follow.
This does not mean necessarily, that the next generation of Chinese agencies will be run by Chinese from mainland China, who are still relatively new at building brands in a western sense.
It probably means that the next generation will be owned and led by Chinese people from outside mainland China – who “get” the needs of western companies, but speak the language and think in a Chinese way. The Chinese anyway see themselves more as a people, than as a country, which the US and Britain find hard to understand.
Agencies with a bright future would be, for example, WE Marketing (owned by a Hong Kong Chinese entrepreneur who broke away from Grey) and Ortus Group, run by a Singaporean Chinese who also learned his business in western agencies.
Of course the multinational holding companies will continue to try to buy them. But there’s less attraction in being WPP’s seventh acquisition this year, than there was in being the first. So they’re not rushing to sell.
So if you’re a client – where should you look?
If you’re a global client of a multinational network agency, there is really no reason not to stay with them in China. They have the resource, they can buy in the skills they don’t have, and they will have to look after you for the sake of your business in the rest of the world, even if they don’t make much money out of you in low-margin China.
If you’re not, though: think very carefully before you go that route in China. The 4A’s agencies are global pressure to keep margins high (WPP’s global average is around 12 to 15%), and in China that is very difficult. And guess who’s going to get under-serviced, to prop up the agency’s margin? Well, it might be you.
A smaller, younger, hungrier agency run by smart, western-trained people whose first language is Mandarin…could be a lot more attractive, especially for a brand without huge marketing budgets.
But do be careful who you do business with. There are no reliable agency rankings published in China and the internationally recognised award shows are little more mutual back-slapping among multinational network agencies.
We’ve done our homework and are willing to share individually what we’ve learned. Give us a call on +44 207 240 7117 if you’d like to talk. And please, feel free to share your opinions and observations here in this space.
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