Monday, April 6, 2009

Crisis What Crisis? A review of the last one...

This year begins not unlike the spring of 1998 - a looming financial crisis across all Asian markets in 97 had mushroomed into a full blown meltdown by the fall of that year and by spring of 98 any of us who were around to lick our wounds were just happy to be able to do that. My quote from the story below sums things up pretty well: "Times are tough," says Carlson. "Our mantra is: do, not die." In March of the year before I had founded CarlsonCreative, Korea's first 100% foreign invested advertising agency and little could I have known what the next year would be like. That's me and our entire staff in the photo. Our business plan had prepared for us to survive 18 months without a billing, but what we didn't expect is that our currency, the Korean won, would devalue itself by 50%. On the bright side, whatever we had left in dollars by that point was worth twice as much as the year before and since I had paid our office rent in one chunk, one year in advance, had nowhere to go. David Kilburn, the AdWeek correspondent in the region wrote the story below in the spring of 98. It's interesting to see some of the parallels to today, but maybe even more interesting to see that we're not in so near as much shit today as we were in those days. I have used excerpts here. You can read the whole thing by clicking on the title.

Coping with Crisis
by David Kilburn for AdWeek magazine USA, 1998

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, however, the charge is more circumspect. The OECD'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 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
agency. 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.

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 of the 288 staffers would be asked to take a "voluntary unpaid leave of absence" for one year. Then on Jan. 21, the staff learned that Korad was unable to pay salaries on time. Ogilvy & Mather quickly wired funds directly to its own people.

In truth, the crisis had been brewing for months. Expatriate staff from Ogilvy & Mather, 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 JWT Korea (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. Daewoo was touted as a potential saviour, but when the Korea Economic Daily posted a Web story quoting Daewoo denying such intent, that hope faded. And as the Oriental Year of the Tiger began in February, management was still trying to raise money for January's salaries.

Much like Korad, many agencies are reducing head counts. Korean ad expenditures are set to plunge drastically this year. The big advertisers are the same financially strapped companies who 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, both among media and agencies. These are Western market forces; there's no escape," says Yoo.

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, a homegrown Korean product: "Are you wearing dollars'"

Still, problems bring opportunities. David Carlson, an American creative director from Seoul's Leo Burnett Sonyon, launched his own agency, David Carlson Creative Inc. 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 over 40 clients new to the Ogilvy stable. 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 10 percent down 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. An Ogilvy & Mather 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.

Elsewhere, China, India and Taiwan continue to be growth markets. Japan, where over 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 cross-the-board cuts. First-quarter spending now could be 40-60 percent down for the industry," says Yusca Ismail, managing director of Perwanal DMB&B in Jakarta.

His sentiments are echoed by Alan Fairnington, Asia/Pacific president of J. Walter Thompson. "Multinational advertisers are prioritizing their brands and markets'a rational response," he says. "It's not a meltdown," agrees Harry Reid, FCB president international. "There are growth opportunities," adds Young.

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. In a recent issue of Foreign Affairs, Harvard economists Steven Radelet and Jeffrey Sachs noted that the Asian currency crises of 1997 don't signal the end of Asian growth, instead, it's a pattern of instability that often accompanies rapid economic growth. Ride the tiger.

Our agency powered through that year winning first, The Korean Ministry of Finance business to direct the government's efforts to communicate how they were effectively dealing with the crisis to foreign journalists and business partners, and second, British American Tobacco's largest brand in the country. Everyday the newspapers would blast headlines proclaiming which of the next "too big to fail" companies had gone bust and everyday I would charge into the office saying "We're not one of them! Man the phones!"

Recently I saw Nouriel Rubini, Professor of Economics at New York University being interviewed on Bloomberg regarding the financial crisis. His view of Asia's place in the mix was quite different than what it might have been ten or eleven years ago. Ten years ago the world looked at Asia and said, "You'd better get your shit together". Today, Asia looks back at the West and says the same thing.

From the story above, three companies are no longer in business. Daewoo was allowed to go under by the Korean government and now exists as a number of independent brands in automotive, electronics and other industries. DMB&B was part of Leo Burnett's unsuccessful Bcom3 holding company and dismantled after Publicis' purchase of the entity. And CarlsonCreative was sold, at a profit, in 2003.

If there's anything I learned from my last crisis is that creativity, and not only money, will power you through. During tough times inefficiencies are exposed in old "too big to fail" companies and opportunities are opened for competitors. I'll finish with another excerpt from the first story David Kilburn wrote featuring our company - before we knew we had a crisis:

"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 CarlsonCreative, a creative agency in Seoul. Carlson hopes to capitalize on the growing need among Korean and international clients for creative and strategic advertising.

I have generally found this to be true and suspect it will be true this time again. Now, about that next big idea?
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