Employing an advertising agency could greatly benefit advertisers

Advertising is everywhere. It is on the television, the radio and the Internet, and you can see it in magazines and on the street. It is an industry worth billions worldwide. And while you are looking at the advertisements, international advertising agencies are looking at the Chinese market and buying local ad agencies.

In China, advertising has a very long history. It is simultaneously an old and a new phenomenon. Chinese merchants have offered their products for sale using displays, street hawking, banners and lanterns for more than 3,000 years. However, for the past 30 years there has been a new boom in business and the advertising industry, more recently assisted by the growth of the Internet, much to the interest of US, European and Japanese advertisers.

But it is not just the advertisers that are interested in the growing Chinese market; so are advertising agencies. These are the companies that provide services such as developing the ideas, creating the advertisements, producing the final ads and organizing their placement in the various media. Advertising is not an exact science, but when it works to achieve set objectives it can be very successful and profitable for those involved with the campaign. 

One international organization particularly interested in being in China is the French-based advertising holding company Publicis Groupe, which is the second-largest advertising company in the world. In the past 12 months Publicis has bought at least four Chinese advertising companies. These include the digital agency Wangfan, which will join with Publicis Modem Shanghai; Beijing-based digital-marketing company Longtuo; and U-Link Business Solutions Co Ltd (UBS), an agency that specializes in healthcare communications. These acquisitions are in line with Publicis’ plans to double the size of its Chinese operations between 2010 and 2012.

Employing an advertising agency has benefits for advertisers as the agencies have highly skilled specialists in the area of market communication, including writers, photographers, media analysts/planners and consumer researchers, as well as specialists in certain industries such as fast-moving consumer goods, industrial products and healthcare.

In an ever-changing global market the opportunity to have a global advertising agency, with branches and affiliate agencies around the world, can greatly assist advertisers in streamlining their campaigns. By effectively dealing with the one ad agency there can be lower advertising and production costs, a consistent global brand image, and better control of international operations. Therefore, big multinational firms often prefer to deal with big global ad agencies.

But an important aspect of the global agencies is that their international offices are often staffed by locals from the particular country in which they are based, and buying into local agencies can help the multinationals obtain an active part of the local market. These agencies may have some prominent local and international clients and employ local talent with a good understanding of the local consumers, language, attitudes, competitors, media, and business environment. This provides a huge advantage over trying to start a new agency from scratch.

The interest in China is not surprising. China is perceived as a huge market by many international companies who will seek out alliances, joint ventures or acquisitions as a way to enter the market. By keeping the local staff the agency will benefit from local talent, knowledge, and networks. However, China is not only a big market, it is a growing market. It is estimated that advertising expenditure grew by 25 percent last year and will continue to expand. This compares well to other countries where ad expenditure has decreased, particularly in the traditional media such as television, radio and press.

The changing media landscape over the past decade has also seen a massive growth in online advertising. It is notable that two of the companies that Publicis has bought into are online and digital specialists — Wangfan and Longtuo. The growth of Internet advertising in China is also outpacing the rest of the world, and so the local agencies will help the parent deal with local language, culture, marketplace practices, and regulations. On the other hand the parent can provide past experience, creative ideas/designs, resources and global connections.

Therefore, this should not be seen as a one-way activity. Chinese firms can also take advantage of the global connections established by international agencies to help them get established and promote their product in different markets around the world. This can be an important way to expand business and build a global brand name.

Care should also be taken when dealing with a big ad agency. Importantly, what works in one country may not work in another country. People, markets and cultures vary, so what is acceptable in one country could be highly offensive in others. This can result in an expensive campaign failure.

Further, each country has its own laws and regulations that companies must follow. Strangely, my country — Australia — had some of the strictest advertising restrictions until the 1990s. So it is vital for ad agencies to keep within the law of the land and what consumers find acceptable in advertising images. The ad agencies should also have knowledge of what is legal and what is not.

So as Publicis heads toward its goal of doubling its size in China, there is no need for major concern as long as there is a win-win result for everyone involved, and that there is still a degree of control so that there are no problems with laws, regulations, the business environment and/or consumers. In fact, with the growth of the Internet and the global community, there should be big opportunities for Chinese companies to expand using the networks of global advertising agencies.

The author is with the Business School of the University of Technology, Sydney.