Arun Sudhaman 11 Dec 2017 // 12:40AM GMT
In normal circumstances, a PR market growing in the mid single-digits would not elicit much surprise among seasoned industry observers. Even accounting for the discipline’s obvious promise, there have been few countries where sustained double-digit PR growth has been the norm.
But these — as we are reminded by the steady drumbeat of dispiriting results announcements — are not normal circumstances and China is no normal PR market. The slowdown in China’s PR growth, from the heady days when 20% annual expansion was considered a baseline rather than an aspiration, has come at the worst possible time for global agencies, grappling with a tougher than expected economic climate in the US and other Western markets.
For MNC agency heads suddenly paying closer attention to their China numbers, the reasons for this deceleration might prove difficult to fathom. Yes, the country’s overall economic growth has slowed, but still stands at a respectable 7% — well ahead of any other PR market of comparable size. There is a vast hinterland of consumers that represent virgin territory for acquisitive brands. And corporate PR practitioners hardly need reminding that the country remains an as issues-rich as it ever was.
Regardless, there is no question that most of China PR’s firms — particularly towards the larger end of the spectrum — have found the past two years to be something of a hangover after the tremendous growth that characterised the first 15 years of this millennium. And figuring out why appears to depend on who you ask, thanks to a lack of consensus that is more than a little vexing.
At BlueFocus, the homegrown heavyweight that has come to define China’s booming golden era, economic concerns are paramount. "It is more difficult, although BlueFocus still keeps high growth,” admits BlueFocus VP and chief strategy officer Yorf Guo. “The overall market is down, especially this year, and our clients purchasing departments are more active. The key driver is the macroeconomic slowdown — agencies' business are deeply influenced by that, especially this year."
At almost $2bn, making it China’s largest agency group by some distance, BlueFocus probably feels the economic headwinds more than most. But Guo believes that the agency’s understanding of local consumers has insulated it from the travails afflicting international firms in the country. "The China market is complicated,” says Guo. "Why are international agencies decreasing? Because of their mindset on this market, not their capabilities. When you don’t know how to respect China market, China brands and China customers, you will lose your market.”
The well-publicised slowdown in MNC spending in China has hit international firms particularly hard. "China is no longer the only growth game in town – MNCs are definitely looking to hedge bets,” says Weber Shandwick China CEO Darren Burns.
"Our growth is similar to recent years, however, growth amongst some multinationals has slowed while they figure out their balance of spend in the China market vs the rest of Asia,” confirms China veteran and Ogilvy PR Asia-Pacific CEO Scott Kronick.
This, in turn, is forcing those agencies to finally shift their focus towards local players. "International agencies have been reluctant to work with local companies,” admits MSL Beijing VP Allen Liao. "But now they have no choice. It requires a mindset shift.”
More than that, it often requires the ability to adapt to a very different type of client. "The issue for international agencies is that they rely on MNCs,” says Robert Magyar, senior executive director at independent corporate consultancy North Head. “Chinese companies still don’t have a good understanding of how corporate communications can help their businesses. Even then they don’t have the functions and structures to help their agencies."
Focusing their attention towards local clients also puts international agencies into direct competition with the proliferation of local firms that are not just able to move more quickly and offer better prices. R3 consultant Clement Ma believes that MNC PR agencies “are losing their competitive edge to local digital firms,” at a time when companies appear happier to spend eight-figure sums on digital marketing, than even seven-figures on public relations.
"The slowdown I believe is coming from a rebalancing of global MNCs priorities both geographically and looking into how they are spending their communications dollars,” adds Kronick. "This is not being seen from our local clients, however, and what I would call ‘new economy’ clients. Those have grown.
"But the big MNCs who have dominated the market in China are re-looking at how they are spending money,” continues Kronick. "In many cases this is shifting to digital and our digital business is benefiting as a result."
Not everyone is as bullish on the situation as Kronick, though.
“[MNC PR agencies] haven’t been able to keep pace with the local competitors,” says Ma. "If you have great talent leaving to start their own business — excellent social media agencies — it shouldn’t be a surprise.”
Yet maybe it should. It is hard to believe that international agency heads in the country did not see these trends coming, fuelled by the rise of social platforms like WeChat and Weibo. "They probably weren’t able to realise the changes in China would have such a great impact in a short space of time,” explains Ma. It’s difficult to grasp the concept that the social media scene has changed so quickly. By the time they realised they need to keep investing in digital talent, it sort of was too late. But it’s better late than never.”
Thus many international agencies are eyeing digital acquisitions in the country, helping to explain why Weber Shandwick recently bought Bomodo. "The golden age of traditional PR in China is over,” says Burns. “The new age has data and creative leading to conversion at the core. That’s been our focus for the last two to three years.”
One agency head believes that international firms, often led by an older generation of executives, were simply to slow to wake up to the realities of the country’s new digital economy.
Ma points to three types of local agencies that have capitalised on these trends — digital creative shops, digital platform firms and digital tech players — all three of which, not coincidentally, are areas where BlueFocus has been investing considerable time and money.
“Advertisers tend to decrease their input in traditional digital marketing, such as official websites, campaign mini-sites and banner ads design,” says Guo. "Most growth is in digital and CRM”.
BlueFocus has responded by launching a CRM firm called O-Type which has already won major assignments from L’Oreal and Costa Coffee, and employs more than 200 staffers. It is a strategy that puts the efforts of international players into perspective, even if Burns is adamant that “agencies have only scratched the tip of the iceberg.”
“Those that have evolved are doing well as they drive engagement and conversion/commerce for clients into the marketing suite whether that’s B2C or B2B,” he points out. "We do see growth in social commerce and mobile related activations. We see client growth when we bring our new capabilities to life in an integrated manner — especially creative and analytics. Those clients are growing faster and delivering more effective work.”
"For those international firms who have superficial depth in the market, China will continue to be a challenge,” adds Kronick. "For those with strong local insights driven by talent who understands the China market and the role influence and reputation services play, they will succeed."