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Across Asia, a new generation of educated, well-to-do consumers are joining the ranks of the middle class. By the year 2000, the number of non-Japanese Asian households earning $18,000 annually is expected to increase fourfold to 75 million. Though average Asian incomes still lag those in the West, lower prices increase their local purchasing power. For example, while China's per capita income is only $400, it approaches $2,500 in a purchasing-power, according to the Futures Group Inc., a Connecticut consulting firm. Although fewer than three million Chinese are middle class in the sense of earning $10,000 to $40,000 a year, their ranks soar to some 80 million when purchasing power is used as the yardstick. Even today, some 10% of China's 1.2 billion population can afford own their own homes and TVs.
A walk down Shanghai's Nanjing Road confirms that China's rising middle class have a yen for international brands. Shiseido, Kao, Procter & Gamble, Unilever compete for shelf space. Foreign brands may sell for 50% to 300% more than the domestic, but in the eyes of many shoppers there's a quality and a lure about international products. Camera shops sell Fuji and Kodak film and the latest models from Nikon, Canon, Olympus, and Pentax.. But Shanghai-made Seagulls, once China's most popular camera, are hard to find. Television sets from Matsushita, Hitachi, and Toshiba are trucked out of stores as fast as patient queues of consumers file through. Rolex watches and Motorola cellular telephones help define status for the upwardly mobile. In a new luxury boutique, Burberry raincoats and accessories are snapped up by ladies as elegant as those who stroll through Tokyo's Aoyama or Hong Kong's Pacific Place. But whether rich or poor, Shanghai's new consumers still pedal home on one of the aged bicycles that rule the city's roads, perhaps hoping that one day they'll be allowed to buy their first car.
Joining the modern middle class brings a dramatic change in life-styles everywhere. A generation ago, a South Korean housewife would sit outdoors and pound the family's clothes with a bar of soap against a scrubbing board. Today, her daughter uses a fuzzy electronic washing machine plus a high performance detergent in her air-conditioned apartment. It's a scenario replayed in many countries.
So far, nearly half of the people in South Korea, Taiwan, Hong Kong, and Singapore have landed in the middle class. In Thailand, Indonesia, and Malaysia, up to 20% of the population is heading the same way.
The middle class boom means more consumers who want automobiles, television sets, refrigerators, air conditioners, hi-fi equipment. And more who buy diapers, shampoos, detergents, cosmetics, and designer clothes. As markets for these products have matured in advanced countries, the growth prospects of Asia have attracted increasing attention from their makers.
"Japanese companies once viewed Asia as a low cost manufacturing base for products they would ultimately sell in the USA or Europe, " says Kouchi Segawa, director of Dentsu's overseas management division in Tokyo. " But perceptions have changed. Now more and more Japanese companies see Asia as a marketplace. Rising incomes and changing life-styles have created new opportunities for them," They are not alone. Western giants such as Procter & Gamble, Unilever, Colgate, and America's big three automakers have also set their sights on Asia. In China, Toyota and Nissan plan to follow Daihatsu and Suzuki while Ford and General Motors are planning investments: the newcomers will face tough competition from Volkswagen, Citroen and Peugeot who have been making cars in the PRC for up to a decade.
The fight for middle class remnibi, won, dollars, baht is played out daily in TV commercials, newspaper and magazine advertisements, and on hoardings and neon signs.
Turn on a TV set in Taiwan.. There commercials from Japan's Kao Corp. compete with Western rivals Procter & Gamble, Unilever and local companies. Toyota and Honda vie with each other and with Ford. In Hong Kong, Sharp and Kao are the biggest advertisers, while Matsushita follows McDonalds in fourth place. Across the border, in the PRC, six of the top ten advertisers are Japanese - Matsushita, Sharp, Hitachi, Toshiba, Sanyo, and Casio. In the program breaks on SBS, a terrestrial broadcaster in Seoul, viewers see a procession of commercials from familiar Korean companies - Hyundai, Daewoo, Samsung, Kia, Haitai. But apart from Coca Cola, Nestle there are few for foreign products. Yet Koreans who tune to Hong Kong's STAR TV. can see spots from NEC, JVC, Hitachi, Sony, Toshiba, Matsushita, Konica, Mitsubishi, and Nomura in either English or Mandarin..
Table 1
Top Ten advertisers in Asia
Table 2
Japanese Agencies in Asia
Across Asia, outside Japan, the leading agencies in billings and income are the western multinationals - McCann Erickson, J.Walter Thompson, Ogilvy & Mather, Leo Burnett, and Saatchi & Saatchi..
Big growth but small markets
The growth is rapid, but Asia's advertising markets are still small compared with Japan. In 1993, about 53% of all ad spending in Asia was in Japan. Even Korea, Asia's second largest advertising market is less than a quarter Japan's size. While China, the fastest growing market of all is only one seventh as big.
Table 3
Advertising Expenditure in Asia
Tapping Asia's growing markets is a priority for Japanese marketeers, and likewise with their advertising agencies.
"For the time being, we are focussing on Asia - the ASEAN countries and China. Asia as a whole is a growing market. Our clients have many needs for our services there. The growth potential of the markets, and the demands for our services from our clients make the region a priority," says Yutaka Narita, president of Dentsu Inc.
Narita's assessment of Asia's opportunity is shared by other agencies. Roughly half the overseas outposts of Japanese agencies are to be found in Asia, compared with around one quarter each in Europe and the USA.
Geographical proximity, trade, and cultural links are among the reasons that initially helped Japanese agencies expand into Asia. But growth now is spurred by increasing investment in the region by a wider range of Japanese businesses than are active in Europe and the USA. In addition to automobiles and electronics makers, Japanese food, cosmetic, personal care, cosmetic, department store, and apparel companies are all building their businesses throughout Asia.
The growth prospects are impressive. " We've looked at the growth potential for advertising expenditure in Asia and we see it growing an average of 10% pa over the ten years 1992-2001, excluding China and Japan. So the advertising business has a very big growth potential compared with the USA and Europe," says Segawa.
Of all Japan's agencies, Dentsu and Hakuhodo are the busiest in Asia. As well as its own wholly owned and joint venture agencies in most countries Dentsu also partners Young & Rubicam 50:50 in Dentsu Y&R Partners, a predominantly Asian network. Overall, about one third of DYR's clients are Japanese, while one third are western multinationals and one third local companies in each country.
In January last year, Dentsu took majority stakes in two agencies in Taiwan - Taiwan Advertising Co Ltd, and Kuohua Inc. This May, it set up new agencies in Singapore, Malaysia, and China.
Thailand, where Dentsu opened one of its first Asian units in 1963 will spearhead Dentsu's developing plans for Vietnam, Cambodia, Laos, and Myanmar. The agency plans to start providing a services for Japanese clients in these new markets, starting with Vietnam, within the next year. Agencies in the Indonesia and the Philippines are also on Dentsu's agenda.
Asatsu Inc has boosted its presence in China, and Southeast Asia via joint ventures and tie-ups with local enterprises. The firm recently set up a joint ventures in Guangzhou, and Shanghai,
Dai-Ichi Kikaku, part of the Mitsubishi group of the companies is also planning on more growth in Asia. Other players, though on a smaller scale are Dai Ichi Kikaku, Tokyu Agency International, Standard, Chuo Senko, Daiko, and I&S Corp.
"Asia is the fastest growing area for us worldwide," said Mr. Hideaki Otaka, General Manager of Toyota's Overseas Planning Division in Tokyo, " our sales are currently growing at over 11% pa across the region." Advertising is both product oriented and aims to explain aspects of Toyota's technology to develop and understanding of why their cars are good. " In countries where many consumers are already enjoying the fruits of an affluent society, such as Singapore, Taiwan, Hong Kong, advertising is more image oriented than other countries where advertising is much more product oriented," says Otaka. "We must retain the local flavor, the cultural; background of each country in our advertising. We try to maximize the benefits from sharing ideas that are relevant throughout Asia, without losing sensitivity to local culture. Since the vehicles our distributors are selling in each country are becoming a more global product, so they need more of our input in terms of global marketing philosophy. So our advertising reflects the dealers' own initiatives and contribution from us. Our role in Japan is increasing, both because this is where the vehicles are developed and also because we develop some of the materials used in local campaigns. But it isn't our intention to try and take control of local marketing and advertising. We have no unified Asian campaign - though we aim to project a consistent image," Otaka explained.
Kao Corp., Japan's leading maker of detergents and personal care products is pushing for market share all the way from Australia to China, from Thailand to Taiwan, in fierce competition with P&G, Unilever, and Colgate.
Not only are most Southeast Asians as obsessed with cleanliness as the Japanese, in Asia there are no local manufacturers with the technology to make competitive soaps, cosmetics, shampoos, lotions and detergents. Kao may be only a quarter the size of P&G and Unilever, but in Asia it is a major player with 30 years experience.
Last year, Kao used Dentsu to create and co-ordinate campaigns for "Attack" detergent, "Laurier" sanitary napkins, "Merries" disposable diapers, "Biore" skin care products, "Sofina" cosmetics, and "Cleardent" toothpaste across several countries - Thailand, Taiwan, Hong Kong, Indonesia, Singapore, and Australia. The work involved DY&R agencies in Hong Kong and Singapore in addition to Dentsu's own shops in Thailand, Taiwan, and Australia. In Indonesia, where foreign ownership of advertising agencies is not permitted, Inter Admark, a Dentsu affiliate was used. And earlier this year, Dentsu opened a new agency in China, Beijing Dentsu Advertising Co., Ltd. with branches in both the capital and Shanghai, and with Kao as its first client.
While Japanese advertisers do not have formal agency alignment policies like their major western competitors, a pattern of preferences is emerging. Large Japanese advertisers in Asia tend to work with Dentsu or Hakuhodo, and with other agencies sharing to varying but lesser extents. These preferences will undoubtedly help Japan's two largest agencies grow.
Already over 60 Dentsu and Hakuhodo clients are already marketing their products to Chinese consumers. The list includes Kao Corp., Toyota Motor Corp., Yamaha Corp, Honda Motor Co Ltd., Japan Tobacco Inc., Toshiba Corp., NEC Corp, Hitachi Ltd., Sony Corp., Casio Ltd., Matsushita Electrical Industrial Co Ltd., Shiseido Ltd., and Wacoal Corp. Not all of these clients control their China marketing inside the PRC. Some, such as Matsushita and Hitachi currently place ads in China directly from Japan; others, such as Japan Tobacco do so from Hong Kong, while at least one handles its PRC affairs from Taipei. About xx% of all advertising in China by Japanese companies already goes through Dentsu, directly or indirectly. As more Japanese agencies pitch into China, Dentsu's share may decline, but its total China billings are likely to increase. Dentsu's strong position suggests that Japanese advertisers have developed a preference for working for Japanese agencies. This will be key to their Asian growth.
But time have changed since the 1950's when Dentsu gave the infant Tokyo Broadcasting System a helping hand to start packaging programs with sponsors and sell advertising time. While network television broadcasters still the single most important advertising medium across Asia, the proliferating media choices available to consumers are increasingly complex.
Change in Asia's media scene is explosive.
Take television. In Hong Kong, the number of TV channels has soared from four in 1990 to 31 today. In Taiwan, it has grown from three in 1987 to 45 this year. Malaysian viewers can tune to channels broadcasts from Singapore and vice versa. Indonesians can view both Singapore and Malaysia. Hong Kong's channels spill over into Guangdong, Guangzhou. and Shenzen. An increasing number of satellite broadcasting channels cover the whole of Asia. Take two of the best known: Hong Kong's STAR TV and CNN. STAR reaches about 42 million homes ranging from China through India to the Middle East. CNN International reaches approaching four million.
Newspapers and magazines have not been eclipsed by the growth of television. Nor will they be. Almost 30,000 consumer magazines and over 2,000 newspapers are published in Asia. More titles are launched each year.
Table 4
Media Choices
The growth gives consumers a broader choice of media to consume and advertisers an ever widening array of options to reach their markets. In China there are some 500 TV stations, and at least 1,500 daily newspapers and over 5,000 magazines.
For agencies, media. is a strategic battle ground. As ever, decisions about which media to use, when, and where are crucial factors to the success of an advertising campaign. But now the choices are getting more difficult, more complex.. The close alliances with media that are stock in trade for Japan's big agencies are simply not possible in Asia on a scale that makes any difference to their fortunes overall.
Even so, there are novel media opportunities for Japanese agencies that capitalize on their strengths back home and create advertising opportunities for their clients. The growth in TV broadcasting is matched by soaring demand for TV programs throughout Asia.
Dentsu is planning to build additional business in Asia through supplying Japanese TV programs and program ideas to Asian TV stations. Last year, Dentsu sold 21 programs overseas, to Thailand, China, Malaysia, Vietnam, and Hong Kong, including TV dramas, variety shows, documentaries, quizzes, cartoons, and music, for a total of ¥300 million. The agency hopes to double the number of programs sold this year and may set up TV syndication companies in Thailand and other markets to develop the business.
This year the agency has published a 26 page catalogue listing some of the programs available. These include 46 hours of a 30 minute science program, 'Ask Galileo' about interesting science facts and experiments, 300 54 minute episodes of 'How much ?' one of Japan's most popular quiz shows in which a panel are asked to guess the monetary value of unusual items from other countries; 420 30 minutes Fashion shows; and 400 hours of the feline fury of women pro-wrestling, plus a variety of sports, travel, culture, music, and nature programs.
"The USA has a US$10 billion after-market for TV programs, and until recently there's not really been any equivalent opportunity for Japanese TV programs," said John Nakajima, the manager in charge of the project, who sees Vietnam, China, and Thailand as markets with high potential for program sales. As business develops, Dentsu expects it grow beyond the simple sale of program re- broadcast rights. Part of the new service includes re-processing programs to include new or different film material, and the production of videos, laser disc, and multimedia software based on the programs. And of course programs can also be packaged with advertising and sponsorship from major Dentsu clients.
Dentsu's program service doesn't stop at TV
programming. The agency is also a movie producer. Dentsu's 1988 movie about
the Silk Road, a flop in most countries, was a success in China where it
was packaged with Matsushita commercials and seen by almost one third of
the population.
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