±±¾©Èü³µpk10

They say that there are more statistics to prove Chinese economic growth than there are bricks in the Great Wall. We shall content ourselves with just three. This year China overtook the UK as the fourth-largest economy in the world. The Chinese economy is doubling in size every seven years and if that rate of growth continues it will be the largest economy in the world by 2030. At the same time, advertising revenue is also soaring.

In 2005 advertisers spent a total of $15.27bn, an increase of 17.2 per cent on the previous year.

Put simply, no business with global aspirations can afford to ignore China. Western multinationals are investing heavily to acquire a foothold in this dynamic new market and marketing agencies are following them. In recent years direct marketing has started to take off and the agencies out there are picking up highly lucrative contracts.

But make no mistake, China is a difficult place to do business. The rules of direct marketing in the UK, US or EU do not always apply in China and to succeed agencies must adapt and overcome significant challenges. The potential rewards, however, are persuading a growing number of DM agencies to give it a shot.

Getting started

The charge into China has been led, not surprisingly, by global groups such as WPP, Omnicom and Publicis Groupe. When WPP client IBM wanted to do more direct marketing in China, its DM agency OgilvyOne set up a China office in 2001, claiming to be the first of the Western direct marketing agencies to do so. Chris Reitermann, managing director of OgilvyOne China, says that business initially came almost exclusively from Western companies, but in the past two years he has seen many more Chinese companies become interested in direct marketing. OgilvyOne China now has three offices, 300 staff and a roster of clients that includes Western brands such as Cisco Systems, Michelin and Audi, as well as Chinese companies such as China Mobile and Pingan, the country's largest insurer.

Arc Worldwide, a subsidiary of Publicis Groupe, set up in China about 18 months ago. It has five hubs, each of which began with a foundation client. The growth of Arc's offices shows the Chinese potential for DM agencies. In Shanghai the agency has grown from zero to 35 people in six months and in Hong Kong it has grown from a standing start to 21 people in 12 months.

In 2006, direct marketing's push into China has picked up pace. In March, Omnicom acquired a majority ownership interest in Unisono Fieldmarketing International, a company which covers more than 25 Chinese cities.

The same month, Carlson Marketing opened its first office in mainland China. Its Shanghai-based hub has seven staff, most of whom have been brought in from elsewhere in Asia. The agency had been working to win clients in China for some time before the launch, so that only one month after its opening Carlson Market-ing was able to announce a six-month contract to revamp China Southern Airlines' frequent flyer programme, The Sky Pearl Club.

Carlson Marketing's China MD, Gabi Kool, says that the agency will be targeting airlines, automotive and retail clients. Like most other agencies it will be focusing on Western companies, but expects indigenous companies to become more important in the not too distant future. He is not tempted to imitate Omnicom and purchase a local direct marketing agency, explaining that, because so many Western companies want to buy one, most local agencies are now over-priced.

Quality control

The most obvious incentive for direct marketing agencies to set up offices in China is the remarkable rate of economic growth and pent-up consumer demand. Kitty Yang, coordinator of the China Direct Marketing Association (CDMA), an organisation set up in 2002 as a forum for networking and training, argues that a new generation of Chinese consumers is sophisticated and particularly receptive to direct marketing messages.

"Consumers are gaining confidence in the use of new technologies and media amid intense market competition," says Yang.

"They respond well to direct marketing initiatives, which often achieve response rates two to three times higher than anywhere else in the world."

So there are clearly many good reasons to invest in China. However, Simon Holt, managing director at Arc Worldwide China, advises fellow direct marketers to think carefully before they take the plunge. He says: "Everyone used to have an internet strategy. Now everyone has a China strategy.

It's essential that when you set up your office you already have a client.

You need this to get off the ground if you are to overcome the many hurdles that lie in your path."

For OgilvyOne's Chris Reitermann, the greatest of these hurdles is the quality of consumer data available. He points out that the problem is not, as many believe, that there is no data. In fact a large amount of data exists, but it is perceived to be generally low quality. He cites Acxiom China - Acxiom acquired local data services company ChinaLOOP in 2004 - as a good list vendor and that OgilvyOne works frequently with five or six other suppliers, but beyond that the quality is poor.

This is one of the reasons why online marketing and telemarketing tends to be more successful than direct mail in China.

Holt says that because lists are of such poor quality, the best way to gather data is to do it yourself. He explains that the Chinese are more private than Westerners and tend to trust people only once they have met them. For this reason celebrity endorsements are important, as are face-to-face meetings. One way to build lists is to meet a community figure such as a restaurateur, who then introduces you to his customers, who in turn introduces you to their friends and so on.

Ineffective postal service

Another obstacle to successful direct mail is the quality of the postal service. Many direct marketers in China describe the state-owned operator, China Post as expensive and ineffective. John Minnec, managing director of Draft London, who over the past 18 months has been running a series of educational DM seminars in China, says: "Most Chinese do not believe in the idea that they can post money and receive a product in return.

The average Chinese gets only eight pieces of mail a year.

Most have no mailbox. Although China Post is working hard to address these issues, it will take time, not least because each city has its own postal system, often using a different language."

Another problem with the post is that different regulations apply in different regions. For example certain envelope sizes are allowed in Beijing, but not in Shanghai and vice versa. Many direct marketers are starting to conclude that mail is not the best medium to use in China and are turning to new technologies such as SMS and podcasting. Chinese consumers are relatively advanced in the use of these technologies.

To give some indication of take-up rates, the final show of the Chinese version of Pop Idol, SuperGirl, received a staggering 800 million votes by text message.

A third challenge is finding suitably skilled staff.

Direct marketing is a new concept in China, so there are few locals with the necessary skills or experience. While the universities do teach marketing, direct marketing is not covered, so agencies are faced with two choices. They must either fill their Chinese offices with foreign staff or invest in educating Chinese employees about direct marketing.

Finally, there are the legal obstacles. Every campaign requires approval from regulators the SIAC and AIC, the equivalent of the Advertising Standards Authority in the UK. Practitioners on the ground stress that this is not censorship, but admit that it does reduce campaign flexibility. There are also limits on the value of prizes, keyword censorship is an issue for online direct marketing, and foreign companies need a Chinese joint venture partner if they are to set up in China.

However, Reitermann argues that there are not as many legal obstacles to doing direct marketing in China as people think. He points to the laws introduced in 1998, which prohibit direct selling. Many people believe these severely restrict direct marketing activities, but according to Reitermann, they are only applicable to pyramid selling schemes and door-to-door sales programmes such as those run by Avon and Amway.

Despite these difficulties, the phenomenal economic growth and the receptiveness of its consumers-to-direct marketing means there are a huge number of opportunities in China. In fact, given the problems with local postal services and with data quality, we may even see China outstripping the West in the pace with which it adopts new channels such as SMS and podcasting.

As Reitermann concludes, we are at the beginning of the DM development curve in China. He says: "The heaviest users of direct marketing in the West, the sectors such as financial services, travel and telecommunications, simply do not exist in China yet. They will emerge in the next few years and when they do, direct marketing in China will really start to take off."

POWER POINTS

- Consumer demand and a rapid rate of economic growth is propelling DM agencies to set up in China

- The charge into China has been led by WPP, Omnicom and Publicis Groupe

- Start-ups are the best route as local agencies are now overpriced

WHEN IN CHINA...

The Little Red Book of DM business tips

1. Have a foundation client. Setting up a new office is expensive wherever you do it, but in China it is especially so as you will need to train locals in direct marketing and get to grips with local laws and practices.

Without a foundation client, your China operation will lose a lot of money very quickly.

2. Know the good data providers. There is a lot of data on Chinese consumers, but most of it is poor quality. Find out which, if any brokers, can provide you with good data on your area and build a good relationship with them.

Be prepared to source much of the data yourself.

3. Don't rely on direct mail. The quality of the postal service in China, combined with the enthusiasm Chinese consumers have for new technologies, means that many direct marketers are eschewing large-scale postal marketing in favour of mobile marketing and podcasting.

4.Educate local staff on the basics of direct marketing.

The discipline is new in China and you will struggle to hire skilled and experienced local direct marketers. You will need to invest in developing those skills, initially at least.

5. Be prepared for growth. If you succeed in China, then it will all happen quickly and on a remarkable scale. This will bring its own challenges and you should prepare for them.

NEED TO KNOW - STATS ON CHINA

A meaningful calculation of the size of the DM industry in China requires data from the postal, telecom and internet sectors. But, Kitty Yang, co-ordinator at the China Direct Marketing Association, says it is nigh-on impossible to get valid figures.

However, economic figures give some indication of the potential. Some sectors in China are doubling in size every three or four years and the economy is doing this every seven years. According to a study in 2005 by Credit Suisse, China will become the world's second-largest consumer market by 2014.

The Chinese government expects to have 140 million cars on its roads by 2020, while Visa estimates that there are 30-60 million potential card users in China.

According to a report by the State Information Centre, the country's retail sales will grow by 12.8 per cent in 2006, having grown by 12.9 per cent in 2005.

Advertising revenue is also soaring. In 2005 advertisers spent $15.27bn (Source: Sina.com), a rise of 17.2 per cent on the previous year. Most of this is coming from the property, pharmaceutical and food sectors.

However, it is in new technology and media that the greatest opportunities exist. China is already the largest market in the world for mobile phones, with 300 million people owning one. There are 150 million people online (Source: Sohu.com) in China, making it the second-largest online market in the world.

E-commerce activity grew by 32.6 per cent in 2005 (Source: Analysis International) and experts expect it to continue that growth rate for at least the next three years. Not only are Chinese consumers spending more on new technologies, but they are increasingly used to receiving direct marketing messages online or by SMS.

txt2email

You can send a copy of this article to a friends email account by texting, 'MxD 1088 recipients email address', to 86222. Text messages are charged at standard network rates.