beyondbrics

By Tim Bradshaw

Whereas the rest of adland is still basking in the reflected glory of the World Cup, Jean-Francois Decaux, co-chief executive of JCDecaux, the world’s largest outdoor advertising group by sales, has been more excited by the Shanghai World Expo. He has focused on selling advertising space around transport hubs in China.

And as advertising companies crowd at the country’s gate, desperate to break into a market in one of the few regions to offer both scale and rapid growth, JCDecaux’s long-term exclusive contract to sell ads on the Shanghai subway looks particularly lucrative. But there is more to the Chinese markets than securing ads in the country’s top cities and those who are serious might consider looking further afield.

Large numbers, big prospects

Sir Martin Sorrell said earlier this month that China could be WPP’s third-largest market, overtaking France and Germany, within the next few years. He’s set his company a $1bn revenue target for the region.

China is now the second largest source of sales, from a standing start five years ago, contributing about 10 per cent of revenues. It also helped to propel JCDecaux’s half-year results on Friday ahead of market expectations.

Four years ago, 1.5m people used the Shanghai underground for commuting, most of them lower-paid workers. Now, after track extensions stretching more than 300 miles, there are 6m daily tube travellers in Shanghai, with a growing numbers of business people.

“When you have this kind of mix you can target new advertisers who wouldn’t have spent their media budget in the subway before,” says Decaux. “That is what is sustaining the growth [in China]. Those guys are investing massively in this infrastructure, it is amazing what they are building – new airports, there are terminals like [Heathrow's] T5 coming out two or three times each year. We have to keep up with that.”

Most of JCDecaux’s investment at the moment is in the biggest cities, a pattern Decaux says is common to fast-growing ad markets. In all the emerging markets, the capital city takes the lion’s share [of advertising spending] to start with, out of proportion to the population.” London takes twice the share of advertising versus its share of the UK population, he says, but in places like Russia and China the capital receives 60 to 70 per cent of the ad spending, in spite of having just 10 per cent of the country’s residents.

“As countries are maturing, the share of the capital cities decreases, and you have growth in second- and third-tier cities. You just have to get the timing right.”

For real growth, look to second and third tier cities

According to Maurice Levy, chief executive of Publicis Groupe, a French media agency group, there are two Chinese advertising markets: “The one of the large international and large national accounts; and the one of the many, many SMEs of China which are certainly much larger than SMEs in Europe, in tier two, three and four cities,” he says. “The market which is fast-growing is the second one. The market which is less
fast-growing is the first one.”

None of the big four agencies are catering to the small and medium-sized enterprises at the moment, Levy says: “First because they are not ready to use our services or to pay the fees for these services. Second we are not equipped to manage these kind of accounts in tier three and four cities.” Perhaps a local helping hand is in order.

Partner up

As in many areas of Chinese business, media partnerships and joint ventures seem to be critical to foreign investors’ success.

Publicis will soon unveil a partnership with major Chinese web portals including Baidu and Sohu. Levy said that he hoped working with local partners, who also include CCTV, will “make China a sophisticated market, as sophisticated as what we see in the United States”.

With both its Shangai subway and the various airport contracts, JCDecaux operates through a joint venture with the transport operators, rather than just being granted a contract as is more common elsewhere in the
world.

In January, Aegis Group, a UK-headquartered media-buying group, formed a joint venture with Charm Communications, a Chinese TV agency.

Foreign-Chinese partnerships signal a growing trend of foreign advertising companies taking the plunge. The sheer size of the Chinese consumer market means golden opportunities abound.

Related reading:
How smart are foreign brands in China, Little Red Book blog on advertising in China