Letter from Korea: Winds of Change

By David KilburnA new generation of Korean ad agencies is challenging the status quo South Korea's advertising industry, the second largest in Asia, is in a state of flux. In-house shops, which dominate Korea's advertising landscape, are in transition, Western agencies are actively competing for business and independent Korean agencies are devising new creative strategies to challenge existing conventions.Change is in the air. Indeed, the feudal dominance of house agencies, which are owned by major advertisers, is under fire in ad circles. Nine out of Korea's top 10 agencies are subsidiaries of one of the country's diversified conglomerates, or chaebol, and handle virtually all of the parent company's ad business. Predictably, this has put a on competition.For example, Cheil Communications, the largest agency, derived 65 percent of its business in 1996 from parent Samsung, the country's leading advertiser. That same year, 74 percent of second-ranked LG Ad's business came from the LG Group. All told, the five leading chaebol advertisers--Samsung, LG Group, Hyundai, Daewoo and Pacific Chemical--buy about 50 percent of TV airtime and over 60 percent of advertising space in the leading national daily newspapers.'The traditional Korean approach to advertising is an extension of chaebol culture. (It's) bureaucratic and functional rather than proactive and creative,' says Neil Drewitt, media director of Ogilvy & Mather Seoul. 'Ultimately, house agencies are the path to mediocrity,' says In Sup Shin, an advisor to the Advertising Institute of Korea and a founder director of LG Ad.But beneath the shadow of the chaebol, a new generation of agencies, both Korean and international, is emerging. These agencies are independent of Korea's big business conglomerates, pioneering innovative and creative ad strategies.For instance, next month, Kodak will launch a new film in 11 Asian countries using humorous commercials created by J. Walter Thompson Korea. 'We could never have achieved this level of creativity had we been a joint venture,' says Richard Genardini, president and the only non-Korean in the shop.By common consent, one Korean agency, Welcom, garners laurels as the country's most creative agency. 'An independent agency must give advertisers a powerful reason to choose it,' says Young-Han Min, a Welcom director. It does. Last year, Welcom's billings soared 56 percent.The success stemmed from Welcom's high- impact creative, which won them, on average, one new client a month in 1996. One acclaimed spot was for Prospecs, a Korean athletic shoe. It showed a Korean lady in traditional dress, set against a modern street scene. The sash she wears says 'comfort woman,' an evocation of Japanese colonial rule, which ended in 1945. The comfort women were forcibly conscripted by the Japanese as military prostitutes, a horror that still strains relations between the two nations. The spot cuts to an empty screen where two lines of copy read: 'To conquer or be conquered--History could repeat itself.'The ad linked the brand to emotional memories, as well as Korea's powerful competitive spirit. A year after it first ran, independent research commissioned by the Hankook Economic Daily showed Prospecs was regarded as the most successful Korean brand.Of course, creativity is only part of any agency's success story. A second factor is possessing a clear focus. This characteristic has helped Seoul DMB&B become Korea's largest independent shop.'In a chaebol-dominated market, an independent agency needs a point of difference,' says president Wooshik Hong. 'Ours is marketing.' Hong uses the link with DMB&B to leverage international know-how. This strategy paid off for Procter & Gamble when the agency successfully lobbied for the removal of ad restrictions on sanitary products such as Whisper, now the market leader in Korea.In fact, independent shops rather than chaebol agencies have become the preferred partners for global agencies entering Korea. After working with affiliated agencies for some time, the French agency Euro RSCG Worldwide formed the Euro RSCG NEXT Partnership last month, which is 60 percent owned by the parent company. NEXT Communications, a 2-year-old independent, is the brainchild of Sung-Wook Hong and specializes in integrated marketing and promotional activity.This partnership signals another trend--multinational agencies taking the reins of their operations in Seoul, Korea, once a client's business begins to grow. 'We had little control over the standard of advertising and service that was going to our clients,' says Peter Stening, Euro RSCG director for North Asia.What about house agencies? 'They're dinosaurs,' says JWT Korea director Dong-Wook Kim. But Hong adds, 'They'll be around for a long time. Their owners have become keenly interested in the role advertising can play.'Perhaps. But the rapid economic growth that powered ad billings from $938 million in 1985 to nearly $7 billion last year has slowed. TV stations have inventories of unsold airtime. Some agencies are even cutting staff, while others must survive client bankruptcies that left $15 million of unpaid media bills in the first quarter of this year.'There is a need for structural reform,' admits Hyo-Shin Park, director of the Korea Advertisers' Association. 'When the industry got under way in the early 1980s, we did not lay a good foundation for the future,' she says.Chief among the reform issues is government regulation. Since 1981, the Korea Broadcasting Advertising Corp. (KOBACO), a powerful government agency, has by law set TV and radio rates and agency commissions, as well as exclusively handled sales of broadcast airtime.Under the auspices of the Ministry of Information, KOBACO receives 20 percent of ad revenue, then doles out an 11 percent commission to agencies. Even Western agencies, which mostly handle Western-aligned clients, negotiate deals within the commission's framework. The remaining 9 percent fee covers KOBACO's costs and goes to the Public Service Fund. Newspapers set their own rates.But pressure is growing among broadcasters and agencies to end KOBACO's rights to sell ad time. With 20 percent to 30 percent of time now left unsold each month, some broadcasters think they might do a better sales job, particularly if they could set their own prices. Opinion among advertisers, however, is divided, notes Park. 'Some older executives worry that rates would go up quickly without KOBACO's control,' she says.KOBACO says it is reorganizing. Managing director Chun-Jung Cho says the agency will be providing a dedicated sales force to work with broadcasters, while pricing and packaging airtime more flexibly. 'Our future is that of a media representative,' he says. He believes KOBACO will accommodate the new market forces.Ad agencies would also like to see the commission rate raised, which a spokesman for the Korea Association of Advertising Agencies claims 'isn't enough.' The free market forces that set TV rates and commissions in Western markets are blocked in Korea's highly regulated economy.In addition, shops would prefer to air television advertising during natural program breaks, which would greatly reduce clutter. At present, spots are shown only between programs.Typically, 25 15-second spots may run consecutively in breaks, though the number can rises to more than 50. Though these concerns have been broached before, the Ministry of Information has yet to deliver a verdict. 'Change to KOBACO involves government policy. We can't expect this quickly, especially in an election year,' says Park.Ironically, the current economic slump may be a blessing for Korean advertising. 'With the old ways of doing business proving ineffective, the horizon for fresh ideas gets brighter,' says David Carlson, a former Leo Burnett creative director who opened David Carlson Creative, a creative agency in Seoul. Carlson hopes to capitalize on the growing need among Korean and international clients for creative and strategic advertising.Says Shin, 'It's too soon to say what will come, but there'll be new opportunities for those who are quick to respond.' Copyright ASM Communications, Inc. (1997) ALL RIGHTS RESERVEDSCROLL National

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Letter from Korea: Winds of Change

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