Letter From Asia: Coping With Crisis

The new year in korea begins with touches of ceremony. company presidents, for instance, usually make Agincourt-style speeches about future challenges. These stirring words gird troops accustomed to 20 years of breakneck growth and achievement. This year, the charge is more circumspect. The Organization for Economic Cooperation and Development's newest member is being bailed out by the IMF, a rescue operation made necessary by profligate corporate spending funded by mountains of short-term debt. And since the free-spending conglomerates that generate 80 percent of South Korea's GDP own most major agencies, advertising is hard hit. Consider the fate of Korad Ogilvy & Mather, South Korea's highly profitable and fourth-largest shop. On Jan. 6, dejected agency president Myung-Ha Kim explained that the company faced serious problems caused by a financial crunch at Haitai Corp., the agency's majority owner. Cutbacks were inevitable. For Kim, the visionary who spent over 18 years building the agency, these were searing words. More bad news came a week later, when Ik-Pyo Kwon, a Korad senior director, suggested board members take a 50 percent salary cut and staff a 30 percent cut. As many as half the 288 staffers would be asked to take a "voluntary unpaid leave of absence" for one year. It may seem like an odd formula, but Korea's tough labor laws make it difficult to restructure a company without employee consent. Then on Jan. 21, the staff learned that Korad was unable to pay salaries on time. Ogilvy quickly wired funds directly to its own people. In truth, the crisis had been brewing for months. Expatriate staff from Ogilvy, who have a 30 percent stake in the agency, had quietly canceled their Christmas holidays to put the finishing touches on contingency plans in case their partner failed. These plans included a short-term transfer of media buying to J. Walter Thompson Korea, which is a wholly owned JWT subsidiary, and incorporating a new, wholly owned Ogilvy subsidiary in Korea. Buying a controlling interest in Korad was an interesting but largely theoretical option. Lack of financial transparency in South Korea makes it difficult to value corporations fairly; in addition, Korad's main client is Daewoo, which presents a major conflict with Ogilvy's Ford. Until Jan. 14, Daewoo was touted as a potential savior. But when Korea Economic Daily posted a Web story quoting Daewoo denying such intent, that hope faded. Haitai receivables add to the problems suitors face. When hopes for a last ditch meeting between Kim and Daewoo's chairman fell through, the agency quietly released more than 80 people. Management is still trying to raise money for January's salaries. Much like Korad, many shops are reducing head counts. Korean ad expenditures are set to plunge drastically this year. The big advertisers are the same financially strapped companies that own the large agencies. "We currently estimate it will drop 30 percent, but some think it might fall 50 percent," says Wan Keun Yoo, planning manager of Kobaco, the government agency that controls airtime sales. "There could be bankruptcies among media and agencies. These are Western market forces; there's no escape," says Yoo. To help preserve the industry, Kobaco has relaxed strict rules for up-front payment or bank guarantees to allow Korad and other shops to continue trading. Now, shock, austerity and economic chauvinism are part of the Korean consumer's new mood, aptly captured by a Welcomm Advertising spot for Prospecs athletic shoes: "Are you wearing dollars?" Still, problems can bring opportunities. David Carlson, an American creative director from Seoul, Korea's Leo Burnett Sonyon, launched his own agency, David Carlson Creative, in January 1997. Inaugural clients include LG Electronics, the Korean government and the U.S. Army. "Times are tough," says Carlson. "Our mantra is: do, not die." Similarly, Miles Young, Ogilvy's Asia/Pacific president, has opened "ad factories" in Thailand and Malaysia. "These are studio-based, low- overhead agencies geared to recession-hit clients with communication needs," he says. Called Design Direct, the new shops use shift labor and freelancers. In Bangkok, Design Direct has attracted more than 40 clients new to the Ogilvy stable. It does nonstrategic work for such clients as Bristol-Myers Squibb and Kentucky Fried Chicken and has collected assignments from Jim Thompson Silk and the American International Assurance Co. All have been attracted by Design Direct's low-cost, no-frills service. Ogilvy has also published Communication: Tough Times in Asia, a book about advertising and marketing in a recession, complete with Thai, Indonesian and Malaysian editions. In Malaysia's recovering economy, advertisers are responding rationally, says Azizul Kallahan, chairman of Spencer Azizul in Kuala Lumpur. "But total billings could nonetheless be down 10 percent this year." In Thailand, creative has responded quickly to the changes caused by the economic collapse last summer. A devalued currency creates bargains for visitors. Leo Burnett Thailand's "Amazing Thailand" campaign hopes to woo tourists from Europe and Asia. Within Thailand, a parallel campaign has helped Thais focus on how they can help their country. Puns and jokes abound. An Ogilvy Bank of Asia campaign plays with the words baht (the currency) and its homophone bahd, meaning 'cut,' to introduce a new savings account to heal devaluation wounds. Faced with a 50 percent budget cut, Ogilvy also persuaded TV stations to run 7.5-second ads likening the crisis to drinking Singha beer. As a result, most people think the worst is over and are optimistic about the future, according to a poll by J. Walter Thompson. Although total spending fell 30 percent last year, forecasters predict a modest 5 percent recovery this year, measured in local currency. Elsewhere, China, India and Taiwan continue to be growth markets. Japan, where more than half of Asia's ad spending is found, is a depressed giant. Despite economic problems, Indonesia's ad industry remained largely unscathed until Jan. 8, when the rupiah plunged. "The next day we saw across-the-board cuts. First-quarter spending now could be down 40-60 percent for the industry," says Yusca Ismail, managing director of Perwanal DMB&B in Jakarta. His sentiments are echoed by Alan Fairnington, president of J. Walter Thompson Asia/Pacific. "Multinational advertisers are prioritizing their brands and markets--a rational response," he says. "It's not a meltdown," agrees Harry Reid, president of FCB International. "There are growth opportunities," adds Young. How individual agencies fare will depend on their clients. Though there's less preaching about the supremacy of Asian values these days, a high degree of social cohesion will help the troubled Asian tigers regain their stride. In South Korea, people lined up at banks after a government appeal for their gold jewelry. Within a week, the country was able to export $110 million gold bullion. When the Ministry of Transport asked people to forgo travel abroad to conserve foreign exchange, outbound tourism died. In a recent issue of Foreign Affairs, Harvard economists Steven Radelet and Jeffrey Sachs noted that the Asian currency crisis of 1997 doesn't signal the end of Asian growth; instead, it's a pattern of instability that often accompanies rapid economic growth. Ride the tiger. --David Kilburn can be reached at kilburn pobox.com

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Letter From Asia: Coping With Crisis

David Kilburn

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David Kilburn