The past decade of economic growth has given Taiwan an international reputation for having some of the biggest spenders in the world. The per capita GNP hit US$10,000 last year, and decades of saving has given people the capability to shop, travel, and consume at will. By the mid 1980s, liberalized regulations on travel and imports, coupled with a big-spend mentality fueled by the soaring stock market, launched an islandwide buying spree.
The spree has become habit. A look at the boom in popularity of credit cards is one indication. Foreign cards were introduced only in 1988. To date, about two million local and foreign charge cards have been issued. Those who have them use them well. Charge-card receipts show that, per sale, Taiwan shoppers spend an average of twelve times the amount of their U.S. counterparts. Last year, total charge-card sales nearly doubled—from NT$27 billion (US$1.08 billion) in 1991 to NT$49.5 billion (US$1.98 billion) in 1992.
But what to buy? Now that the market is swamped with imports, comparative shopping is on the rise. But quality is only one consideration. What about trends? What's hot in New York, Paris, or Milan? Growing consumer power is being matched with more sophisticated buying patterns. The result? A transformation of the local advertising industry—from a field characterized by small-scale, owner-operated agencies to one dominated by two dozen large, multinational firms. Overall, advertising revenues reached NT$70 billion (US$2.8 billion) last year. This figure represents a major change from revenues of only NT$14 billion (US$560 million) a decade ago, in 1982.
Much of this growth stemmed from the influx of international advertising agencies that came to Taiwan in the mid 1980s. The real shakeup began in 1984, the year the Ministry of Economic Affairs approved joint ventures between foreign advertising agencies and local firms. The following year, U.S.-based Ogilvy & Mather (O&M) arrived, becoming the first in a stream of international ad firms landing on the island, most of them U.S. companies, plus a handful of Japanese firms. Taiwan became even more attractive in 1988, after the ministry ruled that wholly owned foreign firms could set up local branches.
Today, twenty-four of the thirty top-earning ad agencies on the island are either foreign branches, joint ventures, or local companies with technical cooperation agreements with foreign agencies. These firms introduced a wealth of valuable experience. "Many of them have more than a fifty-year history," says Johnny Daunn (段鐘沂), publisher of the Chinese edition of Advertising Age magazine. And while most local firms averaged less than thirty employees, joint ventures or branch offices of inter national firms often have more than one hundred.
Clients soon discovered that these new firms had vast knowledge of products, procedures, and markets, as well as international networks. "They were efficient and they had strict quality control in their work," says the marketing chief of one major food-products company based in southern Taiwan. In contrast, traditionally oriented firms were often unable to meet clients' needs, he says. "An ad agency might get a wild idea that was not related to product strategy." Today, that kind of mistake is the kiss of death. Expect the account to go elsewhere.
The operations formerly considered optimal no longer work. A decade ago, it was typical for ad firms to be run by an owner who was both managing director and senior account executive. He or she would handle all business details, from client development to creative planning and market research. Everyone else in the agency served as assistants, and most of them considered their job a short-term steppingstone to a better position in an other field. Few regarded advertising a potential career. "Anyone could be an account executive in an ad agency," says Warren Chen (陳俊良), media director of Ogilvy & Mather (Taiwan).
Part of the problem was that owners rarely invested any time or money in staff training because of the high turnover rate. Instead, they kept tight reigns on all aspects of the business, including finding and keeping clients. Customarily, an ad firm's business depended largely on the owner's connections—how often clients were taken to dinner, and what kind of special prices were offered to friends. The quality of the work was frequently a secondary consideration.
The name of the game is training—international advertising firms brought a commitment to building employee skills. Here, JWT Taiwan hosts a regional workshop for its managers.
It showed. Ads on television or in magazines and newspapers in the early 1980s were reminiscent of U.S. advertisements in the 1950s. They tended to use a direct sales pitch that was high on hype, low on creativity. Little effort was spent developing a unique product image or invoking a mood. Smiling housewives in stylized kitchens plugged soy sauce, svelte models embraced the latest washing machine. Hard sell, but hardly impressive. In fact, it was a more innocent time for both the advertising industry and consumers.
In the mid 1980s, when imports started to flow in earnest, one of the most popular marketing methods was simply to stress that a product was foreign. A series of reductions on import tariffs made formerly inaccessible goods available, sparking a buying craze. At the time, advertisers had it easy. Anything marked "imported" was virtually guaranteed to sell. Many ad agencies simply used foreign commercials dubbed over in Chinese. Copying the style, look, and content of foreign ads was also popular. "In the past, most ad agencies read magazines, watched TV commercials, then copied the style of Japanese or U.S. ads," says Ho Yin-chao (何英超), group account director for O&M. Little was done to target the local market.
Theme songs. Product image. Name recognition. Company loyalty. These are some of the new concepts international firms brought to the marketplace by the end of the 1980s. Clients soon realized that much more could be done to sell their products. Ho Yin-chao describes the transformation of advertising for Giant Sales Company, Taiwan's largest manufacturer of bikes. When the company began working with O&M in 1986, Ho says, "Giant's ads were like catalogue entries. They simply stated the product's functions."
To build excitement, the ad agency suggested promoting a mood and an image instead. Eventually, the firm produced a series of print and television ads portraying the pleasure of riding Giant bikes. Rather than focusing on durability or reasonable price, the commercials sought to make audiences associate the bikes with images of leisure time, friends, health, and fun.
Mr. Brown's Coffee, a canned, sweetened coffee drink produced by King Car Food Industrial Co. in Taipei, also went through a drastic change in its advertising strategy. From 1981 to 1984, the company's TV commercials followed a style and content very similar to those of Coca-Cola; the ads showed a group of happy young people drinking Mr. Brown's. But the beverage producer changed tactics in 1985 and embarked on a campaign designed to encourage consumers to differentiate between similar drinks. One important element of the commercials was a catchy theme song. Today, the tune is familiar to nearly any one who watches TV. According to Su En-min (蘇恩民), director of King Car's business planning department, Mr. Brown's market share increased 39 percent in 1985, and 48 percent the next year.
Many of the biggest changes in the industry during the past six or seven years have taken place behind the scenes. Perhaps most important has been the introduction of staff training. Virtually unheard of a decade ago, most foreign ad agencies arrived with training programs in place.
O&M Taiwan, for example, spends NT$4 million (US$160,000) last year on training. Employees in every department must attend weekly or biweekly courses, and the company regularly sends employees overseas to attend courses at branch offices. The courses stress skills that were lacking in many local firms, including organization, teamwork, and time management. Employee training is so important to success, according to Shenan Chuang (莊淑芬), the firm's managing director, the benefits far outweigh the inevitable risk that employees will leave for another company. "People often ask us whether it's worthwhile to spend so much money on training since the turnover rate is extraordinarily high in this field," she says. "We think job-hopping is something you can't avoid. We aren't going to stop our training program just because of it."
The foreign firms also introduced the concepts of specialization and division of labor. "In the past, the account executives were usually responsible for everything from account services to creative thinking and media buying," says Raymond So (蘇雄) of J. Walter Thompson (JWT). For example, to make operations more efficient, most international agencies divide the duties traditionally handled by local agency owners among a managing director, general manager, account director, and creative director, or a similar configuration.
Teamwork was another underdeveloped concept in Taiwan. "A decade ago, Taiwan's copywriters and art directors worked with virtually no communication," says Shenan Chuang. One department wrote the text, another designed the layout, and the two parts were put together at the final stage. The process was inefficient and often led to misunderstandings. At O&M, the artists and copy-writers work together "like a couple," Chuang says. "Through discussion and brainstorming, they produce great work."
Rapidly changing consumer trends have forced another major change in advertising: A decade ago, few advertisers were willing to spend money on market research. They relied instead on sales staff and clients for all their consumer information. Multinational firms brought the concept that market research is an integral part of analyzing past ads and planning future ones. O&M, for example, regularly uses telephone surveys to assess the impact of television commercials.
Not surprisingly, given their experience and expertise, the international advertising agencies quickly won clients and began to dominate the industry. Many now draw sales revenues far greater than those of local agencies. In 1992, O&M collected the largest revenues among ad agencies, with sales on NT$1.4 billion (US$56 million). In fact, five of the top six companies are currently either foreign owned or joint ventures, and all earned more than NT$1 billion (US$400 million) last year. In comparison, many local agencies have lost business in recent years, causing some animosity within the industry.
"It's unfair competition," says Robert K. M. Liang (梁開明), CEO and executive creative director of Target Advertising Agency in Taipei. "We lost clients not because our service was bad, but be cause our clients' multinational advertising agencies set up offices in Taiwan." Liang points to Target's Max Factor cosmetics account as an example. Parent company Proctor & Gamble recently switched the beauty-products line to U.S.-based Leo Burnett Co. Ltd. "We lost NT$30 million annually," he says.
Local firms are also losing their top employees to multinationals. "Foreign companies lure employees by offering two to three times higher pay," Liang says. "This is also unfair competition. Foreign companies do not have to make money during their first five years in Taiwan. They can make money in other countries to cover their losses here."
Billboard wars—baseball teams, antiques, and beauty salons vie for space on a single building. Competition is fierce for consumer attention.
How can local firms survive? While many have formed partnerships or joint ventures, a few agencies are bucking the trend and succeeding on their own. Target is one company that has decided to tackle the challenges independently. To establish international contacts, the firm pays US$1,500 a year to be a member of 3AI, a U.S.-based network of independent advertising agencies located in more than one hundred major markets worldwide. The association serves as an information network, helping members to source facts and figures on international markets by offering a library, newsletter, legal resources, and client and talent databases, and by holding regular international meetings and conferences for members.
United Advertising Co. in Taipei also decided against forming a joint venture. Instead, the company has adopted some of the strategies used by its foreign competitors. The first task, explains David Liu (劉篤行), deputy managing director, was to improve internal management. "We have to admit that, in the past, United had a lot of problems, including bad management, low efficiency, and low profits," he says. When he joined United in 1990, his first priorities were to control expenses, reduce operating costs, and establish an efficient flow system for projects.
Addressing the problem of employee drain, Liu has learned to use the foreign firms to his advantage. "Our solution is to attract well-trained, experienced people from foreign advertising agencies by offering decent pay," Liu says. "At the same time, we increased the pay of employees already in our company by 30 percent." Half of United's senior managers previously worked for international ad companies. Other local firms have also adopted this strategy. Through what Liu calls "reverse brain drain," the gap in professional knowledge between local and foreign firms has narrowed substantially.
In fact, during the eight years since the first foreign ad agencies arrived, a wealth of "technology transfer" has stimulated the qualitative development of the industry. As a result, the difference in the level of professionalism between local and foreign firms has been greatly reduced. "The gap has narrowed," says the marketing chief for a southern Taiwan food-products company. "People working for foreign ad agencies yesterday may have switched to a local one today, and they bring new ways of doing things with them."
At the same time that the advertising industry has been going through these changes, consumers have undergone a metamorphosis as well. They have greater access to international media, entertainment industries are booming, and travel for business, school, or pleasure has be come commonplace. The result? Consumers are more worldly and more sophisticated.
For example, the infatuation with things foreign has waned considerably since the mid 1980s. "Consumers don't blindly believe in imported goods anymore," says Mike Chou (鄭光華), managing director of Viewpoint Research and Consulting Co. in Taipei. Designer labels and foreign brand names are no longer the main attraction. Quality and truth in advertising are more important.
In addition, the various channels used by advertisers to reach the public are changing fast, making it even more challenging for advertisers to track-and influence—consumer desires. Television is the most influential medium for reaching the public, and is also the most expensive. Thirty seconds on the air during prime time (7:00 PM to 9:00 PM) runs NT$90,000 (US$3,600). Advertisers explain that TV has enjoyed an increasingly powerful position as an advertising channel over the past decade.
"Eighty-five percent of Taiwan's audiences can be easily reached by the three TV stations—a record difficult to match through any other media," says O&M's Ho Yin-chao, referring to statistics gathered recently by Survey Research Taiwan. The telephone survey showed that 85 percent of the those questioned had watched television the previous day. In addition, about 96 percent of local households own a TV (30 percent of families have more than two sets), and tuning in is the number one pastime on the island.
But TV is going through a major shift caused by satellite programming. Advertisers can now choose between several forms of television, depending on which market sector they want to reach. Al though illegal until 1988, satellite dishes began popping up on rooftops around Taiwan in the early 1980s, bringing programming from Hong Kong, Japan, Europe, and the U.S. into millions of households. Hong Kong's five-channel StarTV network estimates that its programming reaches 20 to 25 percent of local house holds. Advertisers are focusing on satellite TV because it offers a far larger market than local channels. Says Warren Chen of O&M, "Many multinational firms tend to buy time on Star TV because it can reach markets in Taiwan and other Asian nations."
Because of the high costs of TV ads, newspapers account for the largest percentage of advertising expenditures through the media. They are also the most stable medium. Almost 40 percent of the total amount spent on media advertising in Taiwan goes into the island's 216 daily and weekly papers, compared with 30 percent into TV ads and 7 percent into magazine ads. After the government lifted the ban on the formation of new newspapers and loosened restrictions on the number of pages in 1988, advertising expenditures spent on newspapers rose slightly, to NT$20.8 billion (US$880 million) per year. But the figure has dropped back a bit since.
Mega-shopping—the awesome spending power of Taiwan's consumers has built advertising into a US$2.8 billion business.
Magazines have changed faster as an ad medium. Following the rise in personal incomes, the industry has prospered. A number of new specialized periodicals focus on economic and financial news, politics, or issues concerning working women. The growing sophistication of the local markets has also attracted many foreign magazines to develop Chinese editions for the Taiwan market, including People, Cosmopolitan, and PC World. These new magazines have given advertisers new avenues for targeting specific markets. Ad agencies say that working women, retirees, and teenagers are especially sought after as marketing groups.
Perhaps the most important measure of progress in the advertising industry is its improved public image. In just a few years, the ad game has changed from a small-scale, unprofessional field suitable only for entry-level employees to a respected, internationalized, creative, and even glamorous career. "Now the industry is attracting more talented people to join," says Johnny Daunn, publisher of the Chinese edition of Advertising Age. "Working in an ad agency is now regarded as a respected job."