Vice-chairman predicts strong growth in China as middle class expands

Three decades ago, French businessman Serge Dumont was among the first foreigners to start a career in China at a time when many outsiders considered it to be a land of mystery, having been largely closed to the world for many years.

The vice-chairman of Omnicom Group Inc, a multinational advertising and marketing communications company, Dumont demonstrated his knowledge of China's transformation from a mostly rural country into a commercial giant through a great grasp of figures.

Omnicom and Publicis Groupe SA announced a merger plan on July 28, which would create the world's largest advertising conglomerate.

"When I first came to China in 1979, there were about 200 million people living in cities. Since then, we've added 500 million people, which is equivalent to the combined population of the United States, the United Kingdom, Italy and France," he says.

"By 2027, there will be 1 billion people living in Chinese cities - one in every eight persons worldwide."

Supported by the ongoing urbanization process, Dumont says China is becoming the second-largest advertising market, overtaking Japan, as the country unleashes the purchasing power of its expanding middle class.

"People's living standards will rise, along with disposable incomes. As incomes grow, so will China's advertising market," he says.

It's something Omnicom's business development in the nation has witnessed firsthand. As a strategic holding company, Omnicom managed three global advertising agency networks - BBDO, DDB and TBWA - numerous leading national advertising agencies, a global network of more than 175 marketing services companies and a media group, Omnicom Media Group. It was serving more than 5,000 clients in more than 100 nations and regions globally.

In China, it follows the global expansion model of organic growth supplemented by mergers and acquisitions. The acquisition of NIM Digital Co Ltd, a Chinese agency specializing in media planning and buying, search, and digital production, was one of Omnicom's most important investments in 2012 among its 14 acquisitions globally.

Omnicom is the second-largest advertising group worldwide. Its sales revenue amounted to $14.2 billion in 2012, up 2.5 percent from the year before. About 48 percent of the US-based company's 2012 revenues came from overseas markets, including China.

"The Chinese market is booming for all international advertising companies, including Omnicom's archrival Britain's WPP Plc, and its current partner French Publicis Groupe," says Ji Taichuan, an analyst with domestic brokerage China Investment Consulting Co Ltd.

He says these ad giants have maintained double-digit growth in terms of sales revenue in China over the past decade.

"The biggest growth potential (in China's advertising market) is with mobile," Dumont says.

In terms of numbers, China is already the leading mobile advertising market in the world, considering its 420 million mobile Internet users, 238 million smartphone users and 8 million tablet users. "Every day, 140 million people watch content on a mobile device," he says.

A total of 880 million people, or two-thirds of the population, own at least one mobile phone. That number will rise to 1 billion in 2014, or one-third of the total users in the world who will be accessing the Internet via their mobile devices.

Taking a historical perspective, Dumont attributes the incredible development partly to the fact that Chinese people are able to adapt to new technology very quickly.

"When I first started business in China in 1985, there were very few fixed lines. Then people leapfrogged from no telephones straight to mobile phones."

He recalls that he used to have the very first generation mobile phone, which was "big like a weapon". "Even foreigners didn't know what it was because it was not yet in use in many other countries."

But now as the country with the world's largest online population, China is at the front of development in areas such as e-commerce, which Dumont says will be another key driver for the future growth of Omnicom.

"For advertising agencies, that means we need to constantly keep up to speed in terms of the evolution of the digital landscape," he says, adding that staff from Omnicom agencies have been actively undertaking training programs to make sure they are digitally savvy.

China's middle-class population is rising by 1 percentage point per year, which means that in 10 years one-third of the Chinese population will be middle class, according to Dumont.

"By 2020, you'll have 280 million affluent consumers, with a disposable household income between $20,000 and $1 million. Advertisers must adapt to the change to make advertising resonate with the higher taste of Chinese customers," he said.

Chinese companies have begun to pay more attention to building a better brand image to attract sophisticated local customers, which provides opportunities for Omnicom.

Interbrand, an agency under Omnicom, releases the best Chinese brands ranking every year. The one for 2013 is due shortly. "When you look at the results, some companies have already made a transition from being big to being great," Dumont says.

On the 2012 table, in terms of brand value, some consumer brands with active brand promotion have consolidated their position, such as Haier at 30, Lenovo at 15, Baidu at 13 and Tencent at 8. State-owned enterprises, IT companies and consumer brands were still among the top names by Interbrand ranking.

"I've never had any doubt that a strong brand will emerge from Chinese companies," says Dumont. "In order to build a brand effectively, you have to have a mixture of disciplines, which is what Omnicom offers to clients."

For a company entering a foreign market, there are added difficulties, especially when it comes to Chinese companies. "Because their brands are not well known among global customers - and neither are their CEOs - the level of awareness needs to be raised," says Dumont. "These issues can be overcome, but you have to have good resources to address them. A global network could help you locally in the markets in which you operate."

One of Omnicom's agencies, Fleishman Hillard, launched in 2011 what it called a Global China Practice program specializing in helping Chinese companies to build brands and maintain reputations in new overseas markets.

Using its strong economic power, China is also trying to extend its global influence on the cultural side, but Dumont points out Rome wasn't built in a day.

"If you want to project soft power, you have to have an overarching strategy," he says.

"You cannot change a country's image in 30 seconds. You need to have a combination of activities and public relations."

China does it quite well through Confucius Institutes, demonstrating the government now realizes the need to do some work in dealing with the issues, which is beneficial for both the country and its businesses, he adds.

Although China's mass advertising has long been criticized as lacking in creativity, Dumont says Chinese creativity is gradually becoming more and more recognized.

"If you take a historical perspective, China was the leading innovator for centuries. We're coming back to that situation."

Omnicom is making a contribution to the cause. One of its agencies, DDB, cooperated with the Ministry of Commerce in a TV commercial in November 2009. "Made in China, Made with the World" was one of the first successful examples of the Chinese government trying to deal with Western audiences.

Omnicom also demonstrated its long-time support for China by hosting a panel discussion at the first "China Day" event held at the Cannes Film Festival.

"The support of the group and its agencies at this year's festival reflects our long-term commitment to China," Dumont says.