Chapter 1 Introduction
1.1 Motivation and Purpose…
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C hapter 1 Introduction
1.1 Motivation and Purpose
Ever since starting work for the public media, the Police Radio Station, I have been strongly attracted to the tremendous activity and creativity of Taiwan’s advertising industry. Almost everyone in the prosperous and developed Taiwanese society is fascinated by commercials packed with brilliant ideas, and those outstanding offerings have led me to recognize that the spirit of competition in the advertising market is the crucial element to inspire the production of the better advertising of a public radio station.
China has two sides, separated by the Taiwan Strait, which became known as the “iron curtain” after 1949. On the Taiwanese side, there is a well known “Taiwan experience” of a hard-working society, while on the other side of the Taiwan Strait, China is writing its experience of a new economy, and many new lessons are being created and need to be learned. China implemented an “open door” policy in the late 1980s, which gradually narrowed the distance between the two sides, and fostered a sustainable and steady economic growth with an annual 10% GDP growth rate. On the contrary, because Taiwan had ignored the strengthening economic power of China for a decade, China’s reform less benefited Taiwan, and had the opposite effect on Taiwan’s economic development. Moreover, the two sides’ governmental
“decentralization” and governmental “streamline” policies were implemented at almost the same time, in the late 1990s, which prospered China but ensured the loss of government elites and competence in Taiwan. The opposing consequences of the reform of both sides demonstrated that the Taiwanese governmental system needed
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more flexibility and vitality for better progress. Since the cross-strait governmental elements were closely related to their similarity of social and economic developments, it is essential to make a step-by-step analysis and study the development of China’s experience. This could begin with one of the creative industries, i.e. the advertising market, and it is the intention of this study to endeavor to reach a reasonable conclusion of the development of China’s advertising market to illustrate the merits and de-merits of China’s policy.
1.2 Research Methodology and Expected Results
The study will research and compare different sources of information from academic data, the advertising business and official websites, in order to analyze and examine how modern Chinese advertising has developed, and has actively participated in the economic arena, media and advertising enterprises, as a force which has permeated different levels of people’s lives, and become an integral part of modern family life and social activities. These sources are gathered and analyzed to form academic research literature. A large amount of the data based on advertising market research is taken from literature, mainly from websites, and focuses on describing the development and status of the Chinese advertising market and the topics stated above.
The data contained in this study is taken from the work of academics, Chinese officials and advertising industry statistics from enterprises, as well as some news reports for updated information.
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C hapter 2 Development of China’s Advertising Industry
China’s trade began as early as the Shang Dynasty (商朝, 1600-1046 B.C.),1 when commercial activities, including the exchange of goods (seashell) and currency prospered during the Warring States Period (453B.C. to 221A.D.). In ancient China, merchants mainly promoted their goods by “bowls (叫賣),” “ veils (幌子),” “ flags (旗幟),” and “sign boards (招牌)” Then, after paper-making was invented in 106 AD, paper was very soon used by merchants to promote their businesses. In the late Chin ( 清 ) Dynasty, especially after the Opium War (1839-1842), the Great Powers imported numerous goods and capital into China, which intensified the competition between domestic and foreign enterprises, and initiated advertising in the mass media and the birth of the advertising industry (Gu, 2007).
After the founding of the People’s Republic of China in 1949, highly centralized and planned economic systems prevented the development of the advertising industry for a prolonged period of time. Prior to 1979, there was almost no advertising market in China. Advertising was only undertaken by a dozen operating units, in which only a handful of employees delivered a few advertisements. Basically, television and radio did not broadcast advertising. Furthermore, in the era of the “Cultural Revolution,”
Chinese society totally rejected advertising operations, and advertising commercials were forced to be suspended until the Third Plenary Session of the Eleventh Party in 1978. By taking economic construction as the central task, adhering to the Four Cardinal Principles, persevering in reform guided by the basic line, and the gradual liberation of people’s thinking, many of the economic field’s “forbidden zones” were
1 In accordance with Chinese characters, “Shan” has the same meaning as “commerce.”
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demolished, and merchandise advertisements eventually appeared in China.
2.1 Thirty-Year Lag in the Advertising Industry
The Chinese government had been heavily involved in the media for three decades since 1949, since the large media organizations were agencies of the government.
After Mao’s death, the Chinese media expanded significantly and became more autonomous and more diverse. Having become increasingly self-supportive by means of advertising revenue and circulation, the Chinese media had gained an advantage in the advertising market. According to reports, advertising in all Chinese media formats increased 35 times between 1981 and 1992. Print advertising revenues jumped ten times between 1990 and 1995, from RMB 1.5 billion to RMB 15 billion. Television revenues also increased dramatically, totaling US$2 million in 1995, rising above US$6 billion in 2005 (CIA, 2009). By 2007, there were over 10,000 newspapers, magazines and TV news media in China. The on-line newspaper, Mondo Code LLC, lists eleven media which have been identified as being “popular media” in China.2 These include one news agency (CNS), one TV channel (CCTV-1), one radio station (RTHK Radio Hong Kong,) one web site (Asia Times Online Hong Kong,) and seven newspapers. Nine of the eleven media provide an English version, and three are English only media, and another three are Chinese only. Four of these media are located in Beijing and Hong Kong, two in Guangzhou and one in Shanghai (Table 2-1).
2 Based in Boulder, Colorado USA, Mondo Code LLC is an online production company providing information about, and access to, news media－newspapers, magazines, radio and television stations/networks.
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Table 2-1: Popular Media in China
Media Medium Languages Media Medium Languages Beijing
China Daily Newspaper English zh Asia Times Web Site (News)
Morning Post Newspaper
(News) English RTHK Radio
According to official Chinese statistics, in 1983, the media shared 50.5 % of national advertising revenue, while advertising agencies took only 20.8%. The media were exceptionally gifted between 1983 and 1995, but in 2002, the share of advertising agencies rose to 43.8%, and the share of the media comparatively declined to 47.6%.3 This trend of relative increases and decreases reflects the status of the weakening advantage of the media in the advertising market. The distribution of part-time advertising units fell by 70% during the same period, and this demonstrated the inevitable professionalism of the advertising market in China in the early 2000s, proving that Chinese advertising companies had been equal to the media for two decades since the early 1980s. (Table 2-2)
3 The National Bureau of Statistics is an institution under the direct jurisdiction of the State Council.
The major duty of the NBS is to undertake organizational leadership and coordination of national statistical work to ensure that statistical data is true, accurate, responsible and timely.
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Table 2-2: Distribution of Advertising Turnover: 1983-2005 (Unit:%)
Year Advertising
Source: Modern Advertising (2006)
2.2 World’s 3rd Largest Advertising Market and Ranking
China’s tremendous economic boom and its rise in consumption have sustained it for decades, and the country is currently regarded as the dominator of the Asia-Pacific region’s advertising market. Nevertheless, as a key driver of the Asia-Pacific region’s economic growth, accompanied by its significant growth in the advertising market, China has become one of the world’s leading advertising markets.4 In terms of expenditure on major media in own countries, China took the lead, accounting for more than half, i.e. 56% of the total spending of the Asia-Pacific region in the year
4 According to a survey by Zenith Optimedia, China’s advertising market will reach US$25 billion in 2011, after the United States, Japan, Great Britain, and Germany.
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2005. China was followed by Australia and South Korea, both with an 8% share, Hong Kong took third place with a 7% share, India and Indonesia followed with 4%, the Philippines and Thailand had a 3% share, Taiwan, Malaysia and New Zealand shared 2%, and Singapore only had 1% (Figure 2-1).
Figure 2-1: Share of Major Media Spending in the Asia-Pacific Region
Source: Nielsen Media Research (2008)
Two years later, a report focusing on “Asia-Pacific region advertising broadcast monitoring services,” released by Nielsen Media Research in 2007, indicated that, within the Asia-Pacific region’s 12 major markets, advertisers were sustaining unprecedented investment in major media, amounting to US$885 billion, and that China had attracted 62% of the advertising budget to its major media from the Asia-Pacific region. India performed the highest growth rate of 31% in the same year, dramatically recovering from the previous year, in which it had only increased by 0.78%. In Taiwan and Singapore, the two nations were facing a long-term recession
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which caused a downturn of advertising in the major media, with both reporting a -1%
growth rate, while Taiwan’s share of the Asia-Pacific region’s total expenditure on major media had descended to less than 1% as early as 2006 (Table 2-3). In terms of the global advertising market, China’s total advertising spend, with an annual 15%
growth rate, reached US$54 billion in 2007, which was only 10% (US$ 6 billion) less than Japan (Table 2-4). China was expected to rank the 2nd largest advertising market in the world in 2009 (Times, 2005).
Table 2-3: Advertising spend of TV, Newspapers and Magazines in the 12 Asia Pacific Market: 2006-2007
Source: Nielsen Media Research (2008)
The “fastest-growing” forecast for the development of major media in the Asia Pacific region is expected to remain from 2007 to 2011, and investment of major media in Asia Pacific is forecast to grow by 9.6% annually, which is faster than any other region. This is expected to increase from US$297 billion in 2006 to US$ 470 billion
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in 2011. China will continue to record double-digit annual growth with an average 16.8%, next to India’s 18.5% compound annual growth rate (PRNewswire, 2007).
Table 2-4: Globe’s Top 4 Total Advertising Expenditure across all Media:
2005-2007
US$ Millions Country
2005 2006 2007
2007 Growth Rate (%)
United States 130,031 134,467 135,266 0.6
Japan 59,105 60,113 60,796 1.1
China 39,001 47,764 54,781 15.0
United Kingdom 22,211 21,082 21,212 0.6
Source: Nielsen Media Research (2008)
In spite of the global financial crisis which occurred in the second half of 2008 and triggered a negative global impact on financial and economic situations, there is still optimism in emerging countries including China. A survey by Nielsen shows that 53%
of consumers from the world’s 53 major markets consider that their country is trapped in a prolonged recession which will last for more than 12 months. Yet, 18% of consumers, concentrated in a handful of emerging markets like India, Vietnam, China, and Russia, expect their country to break out of recession within the next 12 months.
On the contrary, consumers in Japan, Germany, Argentina, Mexico, Turkey, Italy, Taiwan, the USA, and Spain were the least optimistic about the prospects of a quick economic recovery (Nielsen Wire, 2008). This still promises a ranking up of China in
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the global advertising market.5
2.3 Two Stages of Advertising Market Growth
When China reopened its advertising market, Shanghai city media instantly responded.
In January 1979, Shanghai Television initiated the nation’s first television commercial and the Shanghai “Liberation Daily” published the first commercial advertisement.
Today, the prosperous development of China’s advertising market has made it one of the world’s largest, driven by China’s continued economic growth. Between 1981 and 2004, the advertising market’s annual turnover was exceeded 1,000 times, and its ratio of growth rate against GDP rose from 0.024% to 0.93% (China Daily, 2004).
Although China’s advertising market has rapidly developed into one of the world’s greatest markets, it still has some way to go to reach a mature stage. In accordance with the “Rostovian Take-off Model,”6 the development of China’s Advertising Industry has traveled through the Traditional Society to the “Preconditions to Take-off” and “Take-off” stages, but is still a few steps away from the stage of “Drive to Maturity”.
The Center for Studies of Media Development at Wuhan University considers that the
“Initial stage” of the development of China’s advertising market was accomplished in 1995. The ratio of advertising turnover against GDP surpassed 0.5% in 1996 and drove a new stage of development, i.e. the “Take-off” stage, which has lasted until the present year, and has almost evolved (Chang, 2006). In 2006, China’s ratio against GDP was driven to 0.92%, only 0.02% away from the “Maturity stage”, but it
5 Overall global advertising spend is expected to decline by at least 4-6% in 2009. On the contrary, according to Carat Media, the forecast of the Chinese ad market will grow by at least 6.9% in 2009.
6 The Rostovian take-off model (also called "Rostow's Stages of Growth") is one of the major historical models of economic growth. It was developed by W. W. Rostow. The model postulates that economic modernization occurs in five basic stages, of varying lengths. 1. Traditional society. 2.
Preconditions for take-off. 3. Take-off. 4. Drive to maturity. 5. Age of High mass consumption.
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eventually failed because of the ratio declines in the ensuing years (Table 2-5).
Table 2-5: Index of Chinese Advertising Industry: 1981-2006
Year Business 2006** 143,129 1,040,099 157,300 11.06 0.75
Note: * represents take-off stage, ** represents take-off Stage Source: Chang (2007)
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2.4 Internationalization of the Advertising Business and Its Influences
Foreign advertisers have understandably been attracted by the huge business potential of China’s fast-growing market, and advertising groups began to trigger their cross-border global expansion strategy as early as the 1960s. The top five advertisers measured by business turnover in the early 1990s were all domestic companies, but by 1996, foreign advertising firms occupied the market’s top five positions, with only 2 domestic Chinese advertisers ranking among the top 10 (Pan, 2006). Since 1996, the top 6 largest multinational advertising groups all seized a place in China. Similarly, only two local advertising companies squeezed into the list of the national top 10 annual turnover in 2005.
2.4.1 Multinational Advertising Giants in China
In 1979, the French Publicis Group was the first foreign advertising group to open a branch in China. When the government issued tough limitations on certain types of foreign investment in the 1980s and early 1990s, there were virtually no new foreign entrants to China’s advertising market. In accordance with China’s timetable of accession to the World Trade Organization, foreign investment holding joint venture advertising companies was allowed to be established after December 10, 2003. On December 10, 2005, wholly owned foreign advertising companies would be allowed to become established in China. Prior to this period, big multinational advertising firms with large stores of capital anxiously strengthened and expanded their market positions through mergers and acquisitions with big local advertising companies.
Initially, Shanghai Eastbest International signed a joint venture with the WPP Group of Britain and Hakuhodo of Japan at the end of 2002, and converted its Shanghai branch into the first Sino-foreign joint venture advertising company in China (Xinhwa News, 2002). In mid 2006, the world’s top multinational advertising group joint
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ventured 38 advertising companies with a local Chinese corporation. About half of these companies were co-established by the British advertising giant, the WPP Group, and Chinese Advertising companies, followed by the world’s largest advertising agencies, the Omnicom Group(宏盟集團), the IPG Group (USA) and Publicis Group(陽獅集團) (Muzi, 2006). The most famous of the 5 major groups in the global advertising market, namely Omnicom, WPP, IPG, Publicis, Dentsu, as well as Havas, have numerous subsidiaries which provide customers with advertising, marketing, public relations, Internet marketing, customer relationship management and advisory services. In 2003, the share of the global advertising market of these 6 business groups reached 66% in total, and the WPP is currently China’s largest advertising group (Hong Kong Trade Development Council, 2005).
2.4.2 “Scattered and Weak” Domestic Companies
The Chinese domestic advertising market allows companies to enter the advertising business at a low threshold, which has caused domestic advertising companies to become “scattered and weak,” making it difficult for them to confront highly capitalized foreign advertising companies, and severely limiting the innovation of domestic advertising services. Additionally, in 2006, local advertising companies had an annual turnover of RMB 140 billion, whereas foreign advertising companies reached an average of RMB 26.64 billion. The average productivity of each local advertising employee is RMB 145,000 per year, and the gap between employees of foreign and domestic advertising companies has a 5 times efficiency.
A study by Wuhan University concludes that these local advertising companies are in deep crisis, and that “a high degree of dispersion and a high degree of being scattered and weak,” accurately sums up the critical situation of local advertising companies in
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China. Nevertheless, in 2006, the number of Chinese advertising companies sharply increased from the previous year, with a growth rate of 7.3%. At the same time, the number of employees of domestic advertising companies increased by 10.2%. In contrast, the advertising revenue dropped by 6.3 % compared with the year 2005. The domestic advertising industry is described as being “the more scoped, the more scattered,” which makes it more difficult for it to gain advantage from the advertising market. (Tables 2-6 and 2-7)
Table 2-6: Numbers & Revenue of Local and Foreign Advertising Companies:
2006
Category Number of Companies
Companies 125,703 898,675
(7.15) 130
Although local advertising companies took the lead in terms of quantities and total revenue in the market, the statistics in Table 2-7 indicate that foreign advertising companies are, on average, 5.73 times more capable of attracting revenue than local companies. Nevertheless, there is a surplus capacity of, on average, 25.86 times of foreign companies’ employees than domestic companies’ employees.
2.5 Well-off Families are accelerating the Advertising Market
On account of the explosive increase in wealth, consumption habits are undergoing a
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rapid change in China. Studies show that China is expected to process more than 400 million well-off families by 2015, following only the United States, Japan and the United Kingdom. Prior to this date, the number of families of urban households with an annual income of more than RMB 250,000, which were defined as being “well-off families”, reached 1.6 million in China by 2008. Whereas most Chinese consumers were buying luxury goods in foreign countries a few years ago, 60% of luxury goods are now purchased within China (McKinsey, 2009).
Table 2-7: Average Revenue Comparison between Local and Foreign Advertising Companies: 2006
In the scope of advertising development, China entered a slow growing period in terms of advertising spending in 2005, except for the acceleration of advertising expenditure on luxury products by China’s middle class, especially high-end women living in urban areas, influenced, to some degree, by western culture and who tend to want to pursue a western lifestyle. This facilitated the burgeoning of credit card advertising spend, which grew by 80% to RMB 900 million, and foreign alcoholic beverages, which surged by 156% to reach RMB 1.1 billion in 2005 (People’s Daily, 2006). Consumer spending on cosmetics and perfumes in China simultaneously grew
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about 50 percent between 1998 and 2003 (Table 2-8), in line with expenditure on their advertising.
Table 2-8: Spending on Cosmetics and Perfumes in China:1998-2003
1998 2003 1998-2003
Source: Deloitte Research Study (2009)
In 2008, cosmetics and toilet supplies maintained a steady growth and their share of
In 2008, cosmetics and toilet supplies maintained a steady growth and their share of