When I first came to China, I was quickly made aware of the “guanxi” business model whereby business people in China like to cooperate with friends and family in order to gain some “personal benefit” from the transaction. Typically, this would be about 10% of the value of the deal, which would be paid in cash or kind (luxury item, holiday, car, etc).
Whilst this habit is culturally ingrained in Chinese society, 8 years ago it was not a major barrier to business in advertising and marketing. Back then, the Marketing Directors of the International companies trading in China were still ex-pats who played the game with a straight bat, awarding work fairly to the most deserving agencies.
However, times have changed. Now, the marketing directors of most International companies are Chinese, who have climbed the internal ranks. Wielding the power of the marketing budgets that they now control, some have become “Fat Rats”.
No longer satisfied with the occasional 10% they may have been able to skim off the budget of a local field marketing program or some other small scale project still under their control when they were Brand Managers, these purse holders have changed the rules of the game. The new rules play out as follows:
- Client briefs agency
- Agency presents proposal and budget
- Client doubles budget
- Agency implements the work to the original budget
- Client receives the balance in cash or kind
Only the local agencies are prepared (and able) to play by these rules. With the restrictions of Sarbanes-Oxley, the Foreign Corrupt Practices Act and various other legal governance that the global advertising networks must abide by, an increasing amount of business will become untouchable in China.
There is only one solution, and that is the hands on involvement of the C-Suite in major marketing procurement decisions. I realise that many of these guys feel that they have no need to get their hands so dirty anymore. But the reality is that the financial laws that restrict us agencies from playing these games also apply to these big multi-national corporations.
It is time for some heads to be pulled out of the sand in China. Addressing this issue at the highest level will remove both mediocrity and financial waste from these firms’ Chinese marketing initiatives at a stroke.
