The ups and downs of Chinese advertising companies over the past 40 years

*Commercial advertising was once accused of being the evil of capitalism and was rejected for quite a long time. But if winter comes, can spring be far behind? The advertising industry also recovered overnight...

Perhaps, it is the realization that China's reform and opening-up is unstoppable, or perhaps it is due to the professional sensitivity of advertisers. Ding Yunpeng, then section chief of Shanghai Advertising Co., Ltd., decided to make a desperate attempt.

On January 14, 1979, Ding Yunpeng published an article titled "Rehabilitating the Name of Advertising" in Wenhui Daily. He believes that "advertising is not a capitalist business practice of gimmicks and bragging." This short article of just a thousand words sounded the clarion call for the media to resume advertising.

▲In 1979, Ding Yunpeng published the article "The Correct Name of Advertising"

In the same year, People's Daily published four articles, namely "Shanghai Resumes Commodity Advertising Business", "Talk on Foreign Advertising", "The Inspiration of an Advertisement" and "An Advertisement Saved a Factory", expressing the openness of the advertising industry in multiple dimensions. The People's Daily's follow-up report was considered by the industry to be a statement from the central leadership.

At the end of 1979, the Central Propaganda Department’s approval that “it’s okay to give it a try” completely opened the door to the advertising industry that had been closed for many years.

A series of state-owned advertising companies were born one after another, including China Guangdong Advertising Co., Ltd. (1979), Beijing Advertising Co., Ltd. (1980), China International Advertising Corporation (1984), and Beijing Guoan Advertising Corporation (1988). Then, from advertising to media, companies such as Beijing Public Transport Advertising Co., Ltd. and Hangzhou Public Transport Advertising appeared.

▲Shanghai Advertising Co., Ltd.

From then on, the national logic and the market logic evolved in an orderly manner, and the development of the advertising industry flourished along with the reform of the market economic system.

In fact, before the opening of China's advertising industry, some foreign advertising companies, led by Ogilvy, had set up offices in Hong Kong, China (1972). It was not until around the 1990s, after China officially opened up its advertising industry, that these foreign advertising companies were able to enter the mainland Chinese market through joint ventures.

Marked by the establishment of the first joint venture, China Dentsu, in May 1986 (China International Advertising Corporation, Young & Rubicam of the United States and Dentsu of Japan were jointly established in Shanghai), international 4A advertising companies have entered the Chinese market for more than 30 years.

Due to the unique environment of the Chinese market at that time, China's advertising industry was destined to not only serve as a barometer of the economy of the times, but also to be a win-win market cooperation with the international 4A. Chinese advertising is not only a microcosm of China's economic transformation and progress, but also a history of competition between local and foreign companies, where cooperation and struggle, friction and integration never stop.

PART 11990-1999

Strong winds

The birth and development of China's advertising industry

After the Third Plenary Session of the Eleventh Central Committee in December 1978, China implemented the policy of reform and opening up, allowing personal funds to participate in the allocation of social resources for the first time. At the same time, it also encouraged foreign investment in China and allowed foreign businessmen to set up companies in China through joint ventures.

In 1993, after the country fully opened up advertising business rights, the advertising industry entered a stage of explosive development.

In Beijing, the first company to obtain a private license was Beijing Dacheng Advertising (1993), which was founded by Jiang Hong, then vice president and secretary general of the China Foreign Economic and Trade Advertising Association. In the same year, Zhang Xiaoping in Guangdong made Guangzhou Dark Horse Advertising, which had been affiliated with a state-owned enterprise for 8 years, independent; Gao Jun, the founder of Mega Advertising, chose to move the company from Guangxi to Shanghai (1992). They are the three most representative local private advertising companies before and after the country opened up the advertising industry in 1993.

▲Mei Gao Advertising

▲Dark Horse Advertising

At the same time, the world's six largest advertising groups entered the Chinese market one after another.

Judging from the market competition situation at the time, foreign-funded advertising companies mainly served foreign-funded enterprises, such as Coca-Cola, Procter & Gamble, Unilever, etc.; local advertising served local enterprises, and the boundaries between the two sides were clear and they almost did not interfere with each other. In terms of market size, since most multinational companies have chosen to form "limited" joint ventures with state-owned advertising companies (the advertising industry is a restricted industry and foreign capital can enter but is not allowed to buy shares), they have occupied the vast majority of the market share.

Between 1990 and 1999, the three pillars of the advertising industry, namely advertising, public relations and media, had begun to take shape, and the China business of both local and international advertising companies entered a stage of rapid development. In particular, the establishment of the Guangzhou 4A Association, led by Zhang Xiaoping in 1996, meant that the local advertising industry had a complete organizational structure for the first time.

Under the impact of multinational joint venture advertising companies and private advertising companies, a number of small and weak state-owned companies' businesses gradually shrank and withered, and they bid farewell to the times, and they did not have the opportunity to leave their names in history.

PART 2, 2000-2010

The Millennium Change

The battle between local and foreign advertising

The amendment to the "Foreign Investment Enterprises Law of the People's Republic of China" on October 31, 2000 made an open commitment to the foreign-invested advertising industry; on December 11, 2001, my country formally joined the World Trade Organization, Chinese companies entered the international competitive environment, and the advertising industry ushered in a super blue ocean market.

As the government retreats and the private sector advances, the development of China's advertising industry is looking up, but there is a huge crisis behind it.

At the end of 2001, foreign companies led by Dentsu of Japan began to launch "0 agency fees". Previously, the advertising industry adopted the "agency system", that is, according to the "Detailed Rules for the Implementation of the Advertising Management Regulations", advertising companies bear 15% of the agency fees for foreign advertising and 10% for domestic advertising (unified to 15% after 2002).

The report shows that after launching the "0 agency fee" policy, Beijing Dentsu developed rapidly and became the advertising company with the highest revenue in 2003. The market share of joint ventures such as Saatchi & Saatchi, McCann-Erickson and Shanghai Ogilvy also increased significantly. The balance was broken and conflict broke out.

The emergence of "zero agency" is an extreme form of price war launched by foreign advertising companies, hoping to quickly expand into the Chinese market. However, this move obviously infringed upon the interests of local advertising companies and caused strong resistance from them. The Guangzhou 4A Association even launched a joint lawsuit to accuse it of unfair competition.

Then the two sides launched a fierce competition in the fields of media and public relations, and capital became the most powerful weapon of international advertising companies...

1. The first battlefield broke out in the media agency field.

The earliest professional media agency in China was Zenith Optoelectronics, which was established in 1996 through the merger of the media departments of Saatchi & Saatchi and Bates. After entering the millennium, the six major advertising groups strengthened their layout in the media field, separated their media departments and established specialized media companies.

As China's reform and opening-up deepened, these media companies developed from companies to groups under the operation of capital. For example, WPP Group has GroupM China, Omnicom has OMD, Publicis has Starcom, IPG has Monero... Foreign groups try to increase their bargaining power and voice through large-scale media purchasing.

Although local media companies started slowly, they are not completely powerless. For example, Beijing Future Advertising Company (1992), which is affiliated with CCTV, and Sanrenxing Advertising (1997), an advertising company that only provides integrated communication services for CCTV's entire channel. They are all typical advertising companies that monopolize media resources. Thanks to the strong position of CCTV media, these companies had strong competitiveness at the time.

Other companies that have consistently ranked in the top ten in advertising company revenue include outdoor advertising companies represented by TOM Outdoor, Hainan Baima, and Focus Media. With the help of capital, these outdoor advertising companies quickly achieved scale and groupization and competed with foreign advertising groups. At the same time, they also provided a development template for local advertising, allowing the listing trend to gradually expand to the fields of public relations and advertising.

2. Local comprehensive public relations and advertising companies are growing rapidly.

In 2002, two books with different titles were published in the United States. One is "The Decline of Advertising and the Rise of Public Relations" and the other is "PR First, Advertising Second". The advertising industry experienced its first "death", and the public relations industry rose for the first time. This year, more than 60% of the top 20 international public relations companies have entered the Chinese market.

Countless excellent local public relations companies were also born around the millennium, such as Jiali Public Relations (1996), Jiheng Public Relations (1997), Youtuo Public Relations (2000), and Blue Label Public Relations Consultants (1996). These companies are still active in the public relations and marketing market.

Public relations media is the most core position in the public relations industry, and local public relations companies are growing rapidly by leveraging their media advantages. Data shows that since 1997, the annual revenue of leading domestic public relations companies represented by West Coast Public Relations, BlueFocus, and Haitian Networks has exceeded that of international companies.

However, since 2004, some foreign advertising groups have refused to disclose their annual turnover, such as Shanghai Ogilvy & Mather and JWT China Advertising. It can be speculated that these foreign-funded enterprises have more or less suffered from symptoms of acclimatization in China, as can be seen from the fact that Zenith Optoelectronics later transformed from a professional media agency to a comprehensive service provider.

3. Multinational corporations fight back with localization strategies.

In 2003, China lifted restrictions on foreign investment in controlling advertising companies. Foreign companies began to implement a series of localization policies and strengthened brand promotion in China. In October 2005, the advertising industry was fully opened to foreign investment, and the restriction on setting up advertising companies solely owned by foreign investors was lifted.

Like a flood, the counterattack from international 4A companies has begun...

The world's six largest advertising groups, including WPP Group (UK), Omnicom (US), Interpublic (US), Publicis Groupe (France), Dentsu (Japan), and Havas (France), have successively staked out their presence in the Chinese market through mergers, acquisitions and other capital means. Among them, WPP Group's localization process was the most in-depth. It was not only the foreign-funded enterprise with the most subsidiaries at the time, but also had the most representative acquisition strategy. Its series of capital operations involved integrated communications, regional markets, media purchasing, market research, etc.

Around 2007, the mergers and acquisitions of the five major advertising groups reached their peak, concentrating most of the top resources with good development in the advertising market. This also gave birth to the first batch of wholly foreign-owned advertising companies. At this time, with the entry of new foreign shareholders, the local advertising companies and public relations companies that had long been among the top ten were no longer purely local companies.

In fact, in addition to the public relations industry and the media sector, China's local advertising industry has also realized the trend of market concentration. In 2005, led by Zhang Xiaoping of Dark Horse Design, the first Chinese 4A Alliance was formed in the Chinese advertising industry, introducing and emulating the international 4A system. The best among them began to pool large amounts of capital, introduce high-level talent and advanced technology, trying to create higher levels of service at lower costs.

Despite this, it is difficult to shake the position of foreign advertising groups in China. Through cooperation, foreign capital has turned the local medium-sized advertising companies it has chosen into design and execution agencies that are dependent on them, while small companies can only survive in the gaps between the industry giants. The balance of power has tilted towards foreign advertising groups.

PART 3, 2010-2020

The new era of Internet

Advertising to the left, technology to the right

Around 2000, Internet advertising ignited a spark, and around 2010 it became a raging fire.

Statistics show that Internet advertising has grown at an average annual rate of more than 40% since 2011, increasing exponentially and achieving leapfrog development. After surpassing the combined advertising revenue of the four major traditional media – television, radio, newspapers and periodicals – in 2016, it achieved a revenue of approximately 300 billion yuan in 2017, which is close to half of the total advertising revenue of my country’s advertising industry in 2017.

The booming development of Internet advertising corresponds to the decline of traditional media. As the New Year of 2018 was approaching, a large number of print media including the Beijing Suburbs Daily and Heilongjiang Morning Post announced that they would cease publication. In 2019, a large number of well-known print media such as the New Business Daily and Beijing Digest also announced the cessation of publication.

Surrounded by electro-optical media, everything is being subverted and reconstructed...

1. Transformation of traditional public relations advertising to digital marketing.

Digital technology and business models have driven the transformation of advertising to digital marketing communications.

After 2010, the six major advertising groups' external acquisitions became more frequent. For example, in 2012, McCann Group acquired the British digital marketing agency Lakestar, in 2014 Publicis acquired the American digital advertising company Sapient, and in 2012 Dentsu Aegis Network acquired Cosmos. Unlike previous capital wars, this round of acquisitions is aimed at digital transformation and the scope of acquisitions is global.

With the reference template of the outdoor advertising company, the local public relations and advertising group followed closely. Around 2010, this group of comprehensive public relations and advertising companies went public with the help of capital. Blue Label Group became the first local public relations company to be listed, followed by Utop Public Relations, Guangdong Advertising Co., Ltd., and Changrong Communications. These local companies are building local advertising advantages from single-handedly fighting to economies of scale and scope.

It is worth mentioning that advertising groups represented by Blue Label were the first to start digital transformation. In 2013, Blue Label officially launched a new 10-year strategy, determined the direction of digitalization and globalization, and stepped up the acquisition of digital advertising companies. It has successively reached capital-level cooperation with Domob Limited, Domob Zhisheng and many other companies to implement a global digital transformation strategy.

In 2018, BlueFocus Public Relations Agency under BlueFocus Communication Group was officially renamed BlueFocus Digital Marketing Agency, which may mean that the transformation has entered the final stage.

2. Advertising newcomers dance with interactive creativity.

Different from the strategy of local advertising groups that use capital to integrate resource systems, service systems, customer systems and technology platforms to achieve digitalization, some newly established small and medium-sized advertising companies have chosen another direction: to find advertising creativity and planning that are more suitable for the digital age.

In 2010, many interactive marketing companies were established at this stage. For example, Du Lei’s former agency on Weibo, Huanshi Interactive, whose full name is Huanshi Interactive Technology Co., Ltd., was established in 2012, Shiqu Interactive was established in 2011, and Youmen Interactive was established in April 2013. These interactive companies use interactive creativity that is more suitable for digital platforms as their design direction, focusing on integrated marketing communications on social platforms.

The craze for interactive companies did not last long, and was soon overshadowed by creative hot shops. In 2017, the China Independent Creative Alliance was established in Shanghai, including 16 companies such as Sky and Sky (2013), Waiwai Advertising (2014), Yilei (2014), Youmen Interactive (2013), karma (2012), and topic (2017). Different from digital marketing companies and interactive companies, these new generation creative hot shops are more inclined towards creative art, have a more independent style, and their corporate organizational structure is also different from that of traditional advertising companies.

Of course, there are also some traditional advertising companies in the ranks of creative hot shops. For example, MATCH Mamaye (2017), which is affiliated to Leo Digital Group (2014), was founded by Mo Kangsun, who was the general manager of Beijing McCann Guangming Advertising Company; Shengjia, founded in 2003, was still a full-case agency advertising company in 2012. Traditional advertising companies have a strong passion for exploring new creative hot store models.

3. In 2019, many people are fleeing the advertising industry.

In February 2017, Ogilvy proposed the reform slogan "One Ogilvy", with the aim of integrating the various sub-brands of Ogilvy Group into a "single, strongly branded, integrated agency." The most noteworthy move was that in November 2018, WPP Group announced that it would merge its Wunderman and J.Walter Thompson into a new company, Wunderman Thompson, and permanently withdraw from the Chinese market.

JWT is the world's first advertising company, and some see this merger as a symbol of the decline of the advertising industry. Because immediately afterwards, on December 29, 2018, Beijing Dentsu Advertising Co., Ltd. became wholly independent from the Japanese side; in 2019, Ogilvy announced its independence, becoming the last of the six major advertising groups to announce its independence. Foreign advertising groups' shift from decentralized expansion to independent integration may be a result of their awareness of the increasingly urgent market environment.

1. Those doing marketing are becoming less and less like advertising companies. More players are optimistic about the diversified digital marketing environment. Data shows that in 2016, most acquisitions and mergers of digital marketing companies were initiated by consulting firms such as IBM, Accenture and Deloitte, while the six traditional advertising groups only participated in 22% of the acquisitions and mergers transactions. In 2018, the scale of my country’s Internet advertising market reached 384.5 billion yuan, and the three BAT companies accounted for 72.46% of the Internet advertising revenue. None of them are advertising companies.

2. Commercial productions are becoming more and more like art studios. Compared to the first creative hot shop Tianyukong, which still calls itself an upgraded version of 4A, the emerging creative hot shop the nine firmly refuses to admit that it belongs to an advertising company. In June 2018, 21 independent creative companies issued a joint initiative on "paid pitches", seemingly expressing their determination to completely break with advertising agencies.

3. The world’s largest advertisers are abandoning advertising. In 2016, Unilever announced the establishment of its internal creative team, U-Studio. Procter & Gamble, which has been busy reforming its advertising model, also announced the establishment of a new independent advertising company in 2018. The team's internal staff are all talents from advertising companies that have cooperated with Procter & Gamble. In addition, Apple, McDonald's, Anheuser-Busch InBev and Nestlé are all forming their own in-house teams.

Competitors in China's advertising industry come not only from the same industry, but also from both upstream and downstream companies in the industry chain.

In March 2019, a senior executive of Unilever caused an uproar when he said at an industry summit that “in the future, we should adapt to days without advertising.” But we have to admit that in 2019, many practitioners are fleeing the advertising industry...

Author: Advertising

Source: Advertising