Looking East for Recovery

Packaged-goods, drug ads boost Russia, China

Multinational marketers, looking outside the lagging U.S. economy for recovery, are not seeing it yet in much of Europe. But it is a different story in the developing economies of Russia and China, which are fueling global growth estimates this year.

Russia will lead industry expansion, with ad spending leaping a dramatic 24.2 percent this year to $2.05 billion, according to Initiative Media. One in 10 Russians now qualifies as “middle class,” and about 85 percent of the average Russian salary is disposable income. Russia enjoyed 4 percent economic growth last year, and consumer confidence is increasing.

Those facts suggest a friendly ad climate, especially in TV, where 90 percent of the top advertisers’ rubles are spent. According to Jonathan Barnard, knowledge management manager at ZenithOptimedia, packaged-goods companies are driving marketing efforts in Russia. “Sixteen of the top 20 advertisers are multinationals like Procter & Gamble, Nestlé and Mars,” he said. “But the domestic advertisers are growing faster; the biggest, OAO Wimm-Bill-Dann—a dairy and juice company—ranked fourth toward the end of 2002, up from ninth in 2001.”

But it is China that is now the engine of global growth. The country is expected to post a 20 percent rise in ad spending this year to $27 billion, almost double that of three years ago, according to Initiative. If China were removed from Initiative’s global growth estimates, the increase would drop from 4.5 percent to 2.9 percent.

Pharmaceuticals, which account for about a quarter of China’s ad spending, get a lot of credit for the country’s increase. “Chinese medicine is all about prevention, not symptom alleviation,” said Tom Doctoroff, CEO of J. Walter Thompson, Greater China. “Therefore, these products are part of a healthy lifestyle and move larger volumes than their Western equivalents.”

China’s 2001 entry into the World Trade Organization makes it an increasingly friendly and tariff-free market for foreign brands. So far, automakers have benefitted most, but Doctoroff sees advantages for the services sector coming soon and said local companies are turning to ad agencies to build up brand equity before competition from multinationals heats up.

Still, the SARS situation has raised some questions about China’s ability to maintain that momentum. “Regarding the completely unforeseen SARS situation, this of course was never part of our projections [for China],” said Tonia Perretta, international research manager for Initiative in London. “It would not be prudent or useful to adjust our estimates until more is known about how SARS will spread or diminish.” —Don Willmott