“Ten years from now, you’ll be writing the rules”. —Tom Carroll, president and CEO of TBWA Worldwide, on the emerging markets of Asia, and China in particular, June 2011).
Campaign Asia’s recent article “Industry in Asia is still a follower, not a leader” by Group M president Dominic Proctor” was an insightful evaluation of the state of advertising in Asia. Mr Proctor says that our creativity in Asia is being crippled by conservatism, “crushing procurement” and a culture of not challenging the norm. He believes that this cycle must be broken if Asia is to meet the expectations for the region globally.
I couldn’t agree more with Mr Proctor’s assessment. And though he was indeed brave enough to note that Asia faces challenges of deep-rooted cultural issues, with conservative, risk-averse clients, I find one major omission that I believe is critical to the equation.
The world's best creative work
What must be recognized, is that some of the best creative work in the world comes from marketers that are open to brave creative ideas and especially to companies that lead with new and innovative products and services. Companies like Apple, Amazon, Google, P&G, Starbucks, and Salesforce.
Most of these companies have been from the West—Europe and the USA. And not until we get more Asian companies innovating, creating their own breakthrough products, will we see a big change in the marketing and advertising that Mr. Proctor speaks of.
Whilst Asia does have huge corporations most of them are not innovators in the true sense of the word, with the exception of some leading brands from Japan and Taiwan. So I do not see laying the blame for advertising’s lack of creativity in Asia solely at the feet of our advertising agencies.
What’s really happening to Asia’s growth miracle
Technology continues to change the global economy and its impact on Asian market dynamics is cause for concern. To this day, even with its economic problems, the US continues to lead the world in technological advancements, top-end manufacturing, smartphones and tablets, and its capacity to create smart companies. Many of these products are lifestyle changing, and will no doubt accelerate US growth in world markets.
As some Asian companies charge ahead to grow their business fortunes, many business analysts say that overall, businesses in China, South Korea, and India aren't all that innovative. Reasons? First, their domestic economies are growing. Secondly, there’s so many new opportunities that the traditional, tried-and-true business models can leverage. so most Asian companies believe they don't need to come up with the Next Big Thing. Sticking with the Same Old Thing suits many companies and investors just fine.
For some time, it looked like Asia was in the driver’s seat, but Asia’s attraction as a cheaper and faster manufacturing source is slowly eroding being undermined by rising labour costs, concerns about intellectual property rights, and complaints about corporate discrimination.
Is this the tip of the iceberg?
While the West's attraction to manufacture goods in Asian countries hasn’t worn off totally, it’s beginning to look like these companies are finding it more advantageous to be closer to their own market, resources, and centres of technological excellence, and diminish the significance of long global manufacturing supply chains and large-scale process manufacturing, both of which characterise Asia’s and China’s functions in the global economy. This is a trend that will only accelerate as labour costs in places like China and India rise.
For example, for some US companies, it’s probably 30 percent cheaper to manufacture in China, but when you factor in shipping and all the other manufacturing problems and logistics that one has to endure, it’s more a question of, ‘How do I value my time at three in the morning when I have to talk to China?’
As costs in China rise and Western companies look closely at the hassles of using factories 12,000 miles and 12 time zones away, many small companies have decided manufacturing overseas isn’t worth the trouble. American production is becoming increasingly more competitive, and the result has been a dramatic increase in the amount of work returning to North America.
Manufacturing in Europe and in the USA starts to look pretty good on a comparative basis (cheap land, cheap electricity, best freight rail system globally, good network of ports), and governments that actually want businesses to open up and prosper. There is a reason why Boeing and the world's car companies are all building factories in the US Southeast— it is very competitive and business friendly.
The coming global manufacturing revolution
The US and other EU countries have been at the frontiers of new manufacturing technologies, and they may yet again be on the cutting edge of a new and coming global manufacturing revolution given innovations like nanotechnology and 3D printing. The next revolution is expected to tilt economic advantage back towards the US, and to other innovative companies.
This could very well be the tip of an iceberg. There would be little reason for foreign companies to assemble products in Asia, and ship raw materials and components in, and products out over long distances.
As to whether China can compete and innovate on this front, only time will tell. Chinese R&D spending has been growing rapidly, and is now the second biggest spender in the world. But its R&D spending is really only half that of the EU’s combined $330 billion, and a little more than a third of US spending.
China is good at incremental process innovation, patent registrations and so on, but it lags behind key advanced economies when it comes to the ‘know-how’ embedded in product innovation. It also lags behind in management organisation.
According to Thomson Reuters, China leads the world in patent application volume. This could pay off for China mid to long-term. While some hail this as proof of China’s growing prowess in technological innovation, this may be misleading. In reality, China lags a long way behind the US and many EU countries when it comes to the filing of patents globally with less than 6% being protected by global patents. Chinese engineers and technology experts may be given lucrative incentives to innovate, but this has resulted in an abundance of quantity over quality, and alleged widespread plagiarism.
Then there is the question of Asian genius for reverse engineering, as some countries take the quick route to manufacturing without having to spend a huge amount of time, money or energy developing and innovating new products themselves. The Chinese government's support in growing companies could make a difference, but the struggle Chinese companies face now is that they need to figure out how to get over being run-of-the-mill small companies and become bigger players with global recognition. This proves to be difficult given that most firms are either indirectly or directly controlled by the Chinese government.
Asian companies need an innovation culture
A USA technology entrepreneur visiting Singapore recently told me that in his opinion, “China is very good at copying and replicating inexpensive devices, but can anyone name one China exclusive device that had not already been designed and developed elsewhere? Creating a climate of innovation, like that of Apple, Amazon, Google, or Texas Instruments, requires a management thought process willing to take losses for unsuccessful new devices. The Chinese punish failure. Until they change, they will never reach the levels of innovation and product process of an Apple”.
My partner at Mantra Partners is a high-tech hardware and software entrepreneur, who believes that “if you did not fail at all you were just not pushing the design envelope enough.” He uses the example of Texas Instruments (which provides microprocessors for Amazon’s Kindle),to make his point. “It took the company 12 years of internal R&D funding before they sold their very first chip. No other company, Chinese or not, could afford a long term project like this one. For any company to really succeed, the management must have long term goals in mind. By long term I mean many years, not just a few months”.
In fact, things move so quickly in the technology / innovations market that you can’t afford to stand still or you become a moving target. Texas Instruments just this week announced that it planned to stop developing future chips for smartphones and tablets as their chances to sell large volumes of chips were actually pretty limited given that the market is dominated by Apple and Samsung. Texas Instruments is targeting a much broader market for what the industry calls “embedded” applications. One obvious candidate is cars, which keep getting more sophisticated with the addition of processors.
Don't blame the ad agencies. Blame the lack of innovative companies.
An innovation culture needs time to mature, and an environment that is open to creativity and innovation. China and many other Asian countries need more time to mature and to catch up to the west when it comes to innovation.
Asia’s education system is also fundamentally different and has not created the kind of entrepreneurs with the same kind of vision and entrepreneurial spirit as those in the west. Asia’s executives, for the most part, have never treasured innovation or science for several generations. Asians are now, more than ever, exposed to western and global business entrepreneurship, lifestyles and education, but it will still take some time for a culture of innovation to take the lead.
I'm also inclined to believe that South Korean and Japanese researchers have more contact with the international science community than their (state-funded) China counterparts. A less censored web and more inviting environment for international researchers might turn this around for China.
One more thing that should not be ignored is the fact that a lot of new businesses and startups in the emerging markets of China and India have been started by Asian-Americans who can tap into or capitalize on their formal experiences and grounding in the US business culture and landscape and apply their knowledge and experiences in the less US-centric environment.
So, as I see it, we should not be laying the blame for lack of creativity at the feet of ad agencies. Asia needs companies and leaders that produce innovation products, so that advertisers have something new to say rather than create advertising for companies adept at manufacturing commodity products.