China marketing agency landscape changes

Chinese poster

The Xi-era of China has seen the end of the go-go years in economic growth which was one of the factors picked up on Arun Sudhaman’s analysis of the market for PR services.

Arun also noted that the fortune of domestic and multi-national firms diverged.

Here are some of my thoughts:

Multi-national PR agencies often led with corporate communications and public affairs expertise. This meant that their businesses were led by leaders who paid lip-service to digital at best. My experience trying to sell digital internally was one of the most painful processes that I have ever done. It was one of almost insurmountable cultural differences: not Irish-Chinese, but analogue-digital.

To be fair many corporate and public affairs specialists in London are still trying to get to grip with what digital means. They know it’s important, but they don’t have a clue how it all comes together.

That mean’t that they didn’t really get social media beyond being a publishing platform. Chinese KOL (key opinion leader) work whilst effective, is paid media. PR agencies generally don’t have the depth of tools and analytics to provide comprehensive planning and execution for KOL projects. It is hard to get management teams to invest adequately in tools and talent.

Premier Xi has changed the landscape for public affairs practitioners. The government is less flexible, it feels that it no longer needs to be. China is on the ascendence in the face of western existential crises and America in rapid retreat from the world stage. Hence, new laws that discriminate against foreign technology companies as part of its wider approach to cyber sovereignty.  Public affairs still has a place in terms of research to provide understanding, but their foreign multinationals won’t like what the results will likely tell them.

Digital has hit the industry hard. It moved at an accelerated pace compared to other industries. Unlike the west were television isn’t in decline but has stopped growing, Chinese TV isn’t undergoing the golden age that we are seeing in the west. The government has made it less entertaining – which has only helped the acceleration of digital marketing channels in China. Government control of television content has meant less reality shows or remakes of Korean drama stories and more content extolling Chinese Communist Party values.

May online marketing

In China, the major digital platform companies try and go direct to clients for social media advertising cutting out the media buying agencies. This gives media and digital agencies extra incentive to go and grab the paid engagements of key opinion leaders. These are often performance-related deals with directly attributable online sales or online-to-offline voucher redemption. Digital and media agencies are better equipped to handle influencer relations than their public relations peers. It is less about influence and more about performance.

Multinational PR agencies also have problems with their established client base of international brands. Under Premier Xi we have seen a more confident China. This confidence is manifested in Chinese board rooms. The way strategy and goal-setting works in Chinese companies illuminates this difference:

  • Big board meeting where outrageous unrealistic targets are set by the Chairman
  • Planning department turns the ridiculous goals into plans
  • Management goes to arrange funding

The business then goes to staff up and do whatever is needed. They will build massive conglomerates – what is known as building the eco-system – something that is frowned up in the West as being bad for shareholder value

They care about market share more than profitability. And sometimes they fail spectacularly like LeEco.

A lot of it reads like bubble-era corporate Japan. While it seems insane to outsiders, corporate China is much more closely knitted into the government than the keiretsus ever were. Corporate China may go pop in the future, but it won’t happen at the moment.

By comparison, multinationals are worried about activist shareholders and meeting their quarterly numbers can’t be as aggressive in comparison to their Chinese peers. This type of aggressive pursuit of growth would also be an anathema to the likes of WPP and IPG who suffer from similar shareholder shenanigans as their multinational clients.

Which is why Chinese brands have been blowing up across sectors. 91 percent of smartphones sold in China are from domestic brands. Apple has somewhere around 7 per cent. Foreign FMCG brands are being slaughtered, even Amazon has only a few percentage points of market share.

Quite simply, multinational PR firms have generally bet on the wrong horse. China is the one market were American scale and capital actually diminishes in impact over time as the domestic market picks up. Multinationals in strategic business areas were always going to lose over time.

Where Chinese brands have wanted to expand globally, they have taken on foreign PR agencies. Part of this process was knowledge transfer. If one looked at an organisation like Huawei, you can see how they have learned and built internal capability with Chinese characteristics in their corporate communications function over time. It would be a similar process in other companies.

Even foreign luxury brands have struggled to be as agile as their Chinese customers. Between the crackdown on corruption and the rapid development of experienced luxury consumption – the only constant in the luxury market has been change. It is only a matter of time before China has its own answer to Michael Kors or Christian Dior. Western luxury brand problems will affect the agencies that work with them with massive fluctuation in marketing budgets.

A second transfer of capability from foreign to domestic is the move of multinational agency talent into local agencies. You combine that Chinese entrepreneurship and foreign agencies look vulnerable. Clauses that have kept western agency staff in check from plundering clients and talent don’t hold up as well in China.

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ICMYI | 万一你错过了| 당신이 그것을 놓친 경우

The State of European Tech 2017 – interesting primer on tech in Europe, obviously read it in a critical manner

Amazon Alexa for Business Platform planned | CNBC – big implications for verticals like healthcare

$20 Jeans, $800 Tees: In Fashion, Prices Are Out of Control — The Fashion Law – interesting that so much marketing is price based from ‘fashion’ high street brands

Sonos Agency Review Aims To Expand Global PR Roster | Holmes Report – they need to get this in place in advance of the Alexa powered onslaught and HomePod

Inside Speedfactory: Adidas’ Robot-Powered, Shoe Production Facility | WIRED – interesting explorations in automation and customisation

Amazon (AMZN) just released an AI-powered camera. But it’s not for you — Quartz – interesting implication about pushing data processing towards the edge and away from the cloud

Twitter reportedly testing ‘Save for Later’ feature | The Drum  – social bookmarking moves beyond niche usage?

German Economy Seeks a Tech Upgrade – WSJ – or is prudent compared to the headlong dash made in other countries? (Paywall)

Apple MacOS High Sierra Security Flaw Lets Anyone Get Root Access, No Password Required | WIRED – holy cow Batman! There is a security update

E-commerce – Look East. | Radio Free Mobile – China far ahead of the US on m-commerce

SoftBank Is Said to Offer to Buy Uber Shares at a Steep Discount | NY Times – not terribly surprising (paywall)

3 Must Know Trends of Affluent Millennials In Shanghai | Jing DailyThe post-90s generation is also eager to engage in experience-based shopping, and many are adventurous FIT travelers. According to the report, 56 percent of their travel expenditure is on overseas trips, and their overseas spending has increased more than 40 percent in the past two years – at the expense of e-commerce

Opinion: How Chinese innovation is going global | Techinasia – China becoming more global a la the way Silicon Valley’s hardware companies have

Facebook explains ad policies to users, but industry wants more | Advertising | Campaign Asiathe post is focused on empowering users to take action, leaving them with the onus. The post, she continues, acknowledges that Facebook does not have the ability to police and manage the content that is produced and shared in its different environments, and requires a concerted effort from end users to brands to their agencies and beyond. “Does that address the demands asked of Facebook to take greater responsibility for the content on their platform? Unlikely,” she said.

China, US, Korea to lead global FMCG e-commerce growth – Kantar

Five for Friday | 五日(星期五)

Things that made my day this week:

Burger King’s contribution to Movember is epic

Tony Hawke does tech support for virgin and veteran skaters

The Future of Life Institute put together a compelling video about the danger of machine learning and autonomous weapons (including weaponised autonomous vehicles). Its a great piece of storytelling to make a powerful case and an interesting direction, rather than talking heads and expert opinions. Look at how they used judicious found footage to make it look much more expensive.

Weiden & Kennedy’s take on the roaring fire screensaver as an hour-long YouTube video for Old Spice

This is my new wake-up alarm music, so far its got me out of bed each morning on time and I am not a morning person

ICMYI | 万一你错过了| 당신이 그것을 놓친 경우

How Adform discovered HyphBot – one of the largest botnets to ever hit digital advertising (PDF)

Apple wins one of their First Augmented Reality Patents related to Compositing an AR Scene – reminded of the locative art from William Gibson’s Spook Country

Sweating bullets: notes about the creation of PowerPoint by Robert Gaskins – (PDF)

Social Media Is a Denial-of-Service Attack on Your Mind | Nautilus – (paywall)

Facebook launches collaborative Stories for Groups and Events | TechCrunch – Storify / Moments for Facebook?

When fake news will be made by pros – Monday Note – opportunity for PR industry? ;-)

Google – The colour purple. | Radio Free Mobile – interesting support for Swift in the Fuchsia build

Have we reached peak smartphone? – Kantar‘Younger mobile users aren’t simply listening to less music or reading fewer books; instead, the way in which they are engaging with entertainment and the devices they are choosing is evolving. For example, we have seen a decline in younger mobile users listening to music on their mobiles, but the purchasing of vinyl and streaming music through home virtual assistants is on the rise. Social networking has held steady, with 87.8% of 16-24-year-olds using their phones for this purpose (87% in 2016), so as new (or retro) technologies come onto the market the role of the mobile device for younger users will continue to change.’ – a certain amount of this is BS

To predict crime, China’s tracking medical histories, cafe visits, supermarket membership, Human Rights Watch warns — Quartz – Minority Report in action

Interviews Come Back — With Cringely’s Answers – Slashdot – Slashdot’s proto-AMA with Robert X Cringely from 2000

Indra Nooyi, PepsiCo & Doug McMillon, Walmart talk about the intersection between brand and product

This is from last year and there is a lot of filler but interesting discussion about the intersection between brand and product.