Asian Advertisers Are Worried Problems in U.S. Could Spread
By MICHAEL FLAGG
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Advertisers spent a lot more in Asia last year, and so far the layoffs plaguing U.S. ad agencies have yet to hit the region.
But, ad agencies in Asia worry a U.S. recession would spread to Asia and require an even longer recovery than the last recession here, which started in 1997. In that case a healthy U.S. market helped pull Asia out of its downturn.
In some Asian nations, advertising spending started to slow in January, presaging slower growth this year, says Caroline Foster, managing director of the Hong Kong office of CIA Medianetwork, of the U.K., which buys television time and newspaper space for advertisers.
"We may see layoffs at advertising agencies this year," she says, "although probably less than in 1997 and 1998, since a lot of agencies didn't necessarily replace all the people they cut then."
In the U.S., clients began trimming advertising budgets late last year, forcing agencies large and small to start firing people. Just as in Asia, ad spending rose in the U.S. last year -- by more than 12%, says Competitive Media Reporting -- but started tailing off before the end of the year.
In Japan, Asia's largest advertising market and the second-largest in the world after the U.S., advertising grew by 7% last year, to more than $52 billion at recent exchange rates, says Japanese advertising agency Dentsu Inc. It was the first rise in three years.
Spending rose an estimated 60% last year in China, the second-largest market in the region, to $10 billion. It rose 24% in the third-largest market, South Korea, to $4.6 billion, says U.S. market researcher ACNielsen. That is good news for the huge U.S. and European multinational agencies that dominate most of Asia, since in many cases they are the same agencies that are laying off people in New York and Chicago.
The only place in Asia advertisers actually cut back last year was in the medium-sized Taiwan market, down 4%. A slowing economy, languishing stock market and political wrangling all tripped up Taiwan, ACNielsen said. Prosperous Taiwan had been one of the region's fastest-growing ad markets the year before.
The ACNielsen figures are only estimates, and inflated, since they merely count the number of ads and multiply them by published advertising rates. But these rates often are discounted discreetly for big advertisers.
"I was really gung-ho just a few months ago," says Jeffrey Yu, regional president for the U.S. agency Bates Advertising, whose biggest clients in Asia are Finnish cellphone-maker Nokia Corp. and U.K. bank HSBC Holdings PLC. "Now I'm not. I turned out to be a very bad fortuneteller."
Neither client is talking about advertising cuts, says Mr. Yu, but Bates has lots of clients in Asia, not all of whom are so solid.
The Asian crash put such a dent in advertising spending that only last year did advertisers begin spending as much as they had in the mid-1990s. Back then Asia accounted for almost a quarter of the world's ad spending; now it is a fifth, and unlikely to account for much more soon, says the U.K.'s Zenith Media, another media buyer.
As in the West, large ad agencies in Asia have been trying to diversify into related businesses such as public relations, the Internet and direct marketing, to smooth out bumps like this in the traditional advertising business. But some of these businesses, such as public relations, may also be going into a rough patch.
"Clients are cutting budgets, and the agencies are nervous," says Melissa Donnelly, who adds that Australian companies such as the one she works for, Sydney's Howorth Communications, haven't yet felt a pinch. "People say it feels a bit like 1997 out there, although it doesn't feel like it's going downhill a million miles an hour like it did then."
So executives still are hoping for the best -- not unusual in a business that operates on optimism. And no more so than in Asia, where some of the biggest markets, like China, aren't even very profitable yet.
U.S. ad agency Ogilvy & Mather says it still is planning for more growth in Asia this year, although less than last year in Southeast Asia. Ogilvy, whose biggest clients in the region include Anglo-Dutch food and soap manufacturer Unilever PLC and U.S. computer-maker International Business Machines Corp., has bet heavily on the region. It now employs 3,500 people here, almost a third more than before the crash. So it had better be right. So far, it says, the signs look OK.
A multinational client, for instance, just doubled its ad budget with Ogilvy when regional Vice Chairman Tim Isaac was recently in Jakarta. According to ACNielsen, advertisers spent almost 45% more in Indonesia last year.
"Indonesia remains surprisingly buoyant," says Mr. Isaac, "considering the kind of news that comes out of there."
Write to Michael Flagg at michael.flagg@awsj.com
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