Hong Kong Baptist University

COMM 7290 Application Project

Supervisor: Dr. David KO

Second Marker: Mr. Toby YIP

Topic: Marketing Analysis on the Outdoor Media Industry in Hong Kong

Submission Date: 5th May 2015

Student Name:

Armando FLORES CHIU (14452278)

CHEN Yi (14430533)

CHONG Yee Hannah (14402858)

LEE Suet Ting (14419211)

ZHANG Yingyao (14419602)

Tables of Content

1) Executive Summary…………………………………………………………...…p1

2) Outdoor Media Advertising Worldwide………………………..…………….….p3

2.1Different Types of Outdoor Advertise World wide……………………….….p3

2.2 Top Outdoor Media Advertising Companies Worldwide……………………p5

2.3 Clients………………………………………………………………………..p7

2.4 The world’s successful outdoor ads………………………………………….p9

3) Outdoor Advertising in Hong Kong……………………………………………p11

3.1 Outdoor Media industry in Hong Kong…………………………………….p12

3.2 Major Players in the Outdoor Media Industry in Hong Kong………………p15

4) Literature Review……………………………………………………………….p22

5) Globalization Trend

5.1 Globalization Structure……………………………………………………..p27

5.2 Five Forces Model ………………………………………………………….p29

5.3 SWOT Analysis……………………………………………………………..p32

5.4 Foreign Direct Investment…………………………………………………..p35

5.5 Cross-cultural Management………………………………………………...p37

6) Research

6.1 Methodology……………………………………………………………..p39

6.2 Research Result…………………………………………………………..p39

7) Discussion and Recommendations ……………………………………………...p43

8) Limitations……………………………………………………………………….p49

References

Appendix

1. Executive Summary

Today, in the digital era, outdoor advertising still remains an indispensable role as

part of the marketing mix, out-of-home (OOH) media characterized for its high

effectiveness and large coverage to attain awareness at the highly mobile population

area. JCDecaux, CODY, POAD, Convey and Aisaray are five outdoor media that

popular among Hong Kong advertisers. The outdoor media industry in Hong Kong

has been maturely developed and Hong Kong people are exposed to those

advertisements everyday in any time. Even though today there are many other online

methods to advertise, big and luxury brands still use OOH to promote. Therefore, this

project will try to analyze the advantage of outdoor media advertising in Hong Kong.

Moreover, the five major players including JCDecaux, CODY, POAD, Convey and

Aisaray in outdoor media industry in Hong Kong have different responsibilities,

advantages and company culture. This project will also examine the roles that these

five companies play in the industry, and investigate their business model and

marketing strategy in this specific area. More importantly, as students from Media

Management in Communication School of Hong Kong Baptist University, we are

interested in the organic system of Hong Kong advertising industry, after taking all

the relevant courses in this field.

Hong Kong outdoor media industry is mainly dominated by five agencies that occupy

most of the market. Their presence extends to all places in Hong Kong, including

transportation, highways, airports, billboards, and others. Nevertheless, there are not

many researches covering the entire outdoor advertising industry.

At the same time, it is important to highlight the marketing strategies utilized by the

different agencies either to increase their market share or simply to improve their

customer-relationship. Beyond a summary of the nature of the industry, it is necessary

to understand the roles played by the different outdoor advertising agencies and how

they share the market in Hong Kong. An overview summary will provide a better

understanding of the industry and the relationships between these agencies and the

brands that are interested to promote their business worldwide.

2. Outdoor Media Advertising Worldwide

2.1 Different Types of Outdoor Advertise World wide

The origin of outdoor advertising or out-of-home advertising can be traced to ancient

Egypt, when Egyptian used stones to publicize laws and treaties, but in the modern

times, technologies of lithography and measures to maintain the exposure of posters,

truly made the beginning of outdoor advertising possible. Therefore, the original type

of outdoor advertising is billboard with poster, which is also the most common type

nowadays. There are many different types of outdoor advertising that try to attract

people’s attention in a more innovative and eye-catching manner in order to increase

the awareness of a brand or a product or even make advertisements hard to ignore.

However, according to Outdoor Advertising Association of America (OAAA), the

four main types of outdoor advertisements are: billboards, street furniture, transit, and

alternative. Each of them has their own designated locations and special usages,

targeting different customers. Figure 2.1 shows the distribution of the above

categories in the industry:

Figure 2.1

Using billboards to advertise has always been a popular way in outdoor advertising.

After years of development, billboards now have more formats such as junior posters,

spectaculars posters, bulletins, wrapped posters, digital billboards, wall murals and

more. Particularly, the use of LCD monitor, neon tubing, fiber optics, strobes, etc. on

billboards allows them to have more dazzling effects at nights to catch passersby’s

attentions, and they also become one of the most important elements of a city’s

typical night view.

The creator of JCDecaux, Jean-Claude Decaux had invented the concept of street

furniture market in 1964. The idea is to provide well-maintained street furniture free

for charge for the city, in exchange for the right to advertise. This idea was adopted

by many outdoor advertising companies and welcomed by brands afterwards. The

structures include for-rent bicycles and bicycle racks, bus shelters, in store advertising,

kiosks, and newsstands. Street furniture advertising not only provides more places in

cites for brands to promote, but also creating a more intimate relationship between the

brand and its potential customers because most of the street furniture advertisements

are at the eye-level view. In the present day, the best street furniture advertisements

are not limited only in immobile style anymore. An increasing amount of interactive

devices are installed in the structures such as bus-shelters and newsstands to create

proximity and communication with passersby and shoppers. With 3D specials that are

also introduced in street furniture advertisements, they can develop more

attention-grabbing advertising campaign.

Transit advertising is displayed on moving vehicles or common transit stations such

as airport, bus terminals. There are many forms of transit advertising; some of the

typical examples are fully wrapped buses, taxicabs, mobile billboards, in-flight

advertising and advertisements in any possible places in airport, rail systems and

subways. The wide spread of these advertisements can allow the key message

advertisers want to go across cities or even worldwide, reaching a larger amount of

audiences in different corners of the world. Brands can even choose the bus route that

goes through certain places that its target customers appear the most. Particularly,

similar as the reasons why many high-end brands favor advertising on highway from

airport to cities because travelers’ expectation and curiosity in a new environment can

maximize the effect of an advertisement.

As the development of modern science and technology is expanding and growing

rapidly, in order to cater the different taste of different customers, advertising

agencies came up with more and more creative ways for outdoor advertising. These

alternatives include airborne, arena and stadium advertising, cinema, placed-base

advertising, place-based advertising, projection, shopping mall etc. They enable

brands to present their advertisements to target consumers in a more accurate way at

the same time increasing cost performance of the advertisement. Moreover, it is worth

mentioning that when there are important games or matches, price of outdoor

advertisements in arena or stadium can reach to a sky-high level. This is due to reason

that these advertisements will also be shown in television through live broadcast for

game lovers to watch at home. As a result, they also become part of “indoor”

advertisements when people watch the match at home. It is true that there will be a

increasing number of new and interesting methods for outdoor advertising in the

future.

2.2 Top Outdoor Media Advertising Companies Worldwide

Due to the low Cost per Impression (CPM) and high Return on Investment (ROI), the

outdoor advertising industry is expanding worldwide and some of the companies did

stand out from the crowd.

JCDecaux

One of them is JCDecaux, the France based company, which is the only one that

exclusively focuses on outdoor advertising. JCDecaux is the market leader in Europe

and Asia Pacific and has been ranked No.1 in the whole industry for its street

furniture and transit advertising worldwide. By 2012, JCDecaux attained more than

1,013,510 advertising panels in over 50 countries. By 2013, it generated revenue of

$3,552 million from all its branches in the world.

Clear Channel Media

One of the world’s largest advertising companies, the United States based company

Clear Channel Media is extending its business in over 40 countries, but its focuses

mainly in the US market, covering 48 of the 50 largest markets. Clear Channel Media

is a more comprehensive media company, compared with JCDecaux. It covers area

such as media support in big events, TV shows, and live radio iHeartMedia. But still,

its Clear Channel Outdoor branch is one of its most profitable businesses in the

organization, generating revenue of $2,946 million by 2013.

CBS Outdoor

CBS Outdoor was a division of CBS Corporation, but it split from CBS and became

Outfront Media in March of 2014. The US based outdoor media advertising company,

Outfront Media, holds contracts primarily in the America continent. It was ranked on

the third largest outdoor media advertising company in terms of revenue of $1,304

million in 2013, following by JCDecaux and Clear Channel Outdoor.

Companies that are performing excellently in outdoor media industry also include

Larma, Focous Media, Stroer, Exterion Media, APGISGA, Russ Outdoor, Air Media.

The two Chinese based companies, Focus Media and Air Media, although only

operate their business in the Chinese market, still achieved a decent performance in

terms of revenue.

Figure 2.2

2.3 Clients

The outdoor advertising company also refers to OOH media agency, which is

specialized at placing OOH media campaigns for a wide range of clients.

According to their position in the industry, many outdoor companies are working with

advertising agencies and play the important role as media buyers as well as deliver the

strategic message to media owners and most importantly, come up with cost-effective

media solutions. Typically, these kinds of companies will take the multiple roles in

the industry chain. They can work on the OOH’s execution on behalf of the creative

end or a direct brand company. The media services companies, such as Omnicom

Media Group, will collaborate with outdoor advertising companies.

Figure 2.3

Source : JCDecaux OneWorld Key Figures

From figure 2.3, we can see that companies from retail, entertainment/leisure/film and

personal care/luxury goods fields that are more tend to choose OOH advertising

followed up by the finance, food& beverage, automobile and telecom/technology

firms.

Usually, the FMCG advertisers are one of the most regular users when launching their

new products, especially the beer suppliers which are one of the most loyal clients

based on the data. It is worth mentioning that the telecommunication and technology

area is one of the fast growing categories because of the rapid economic growth in

this sector.

Among the clients, the luxury brands like LVMH or the beauty cares such as ESTEE

LAUDER and L’OREAL are on the top three places. Telecom corporates, Apple and

Samsung are on the fourth and eighth respectively. These brands which customers are

already familiar with, normally integrate outdoor advertising into their whole

campaign, therefore reinforcing the brand image and improving the measurable

outcome of other forms.

In actual fact, though it indicated that the major market players in outdoor advertising

industry are all large corporates, there are many small local companies account for

most advertisers.

2.4 The world’s Successful Outdoor Advertisements

Attractiveness and creativity are important criteria that mark the most effective

outdoor advertisement. According to a report from OAAA, “there were 158,868

billboards in the U.S., 49,082 bus shelter displays, and 205,426 displays on buses” in

the year 2013. The growing figures therefore enforce companies to partner with

advertising agencies and provide them with more innovative creative works every

year.

There are many advertising awards in the world that announce the best OOH

executions of the year, including CLIO Awards, OBIE Awards, Outdoor Advertising

Awards (OMA) and outdoor category from Cannes Lions.

Here are some examples that have been considered the world’s successful outdoor

advertisements in the past few years. All of the following ideas demonstrated how

incredible outdoor advertisements can leverage the brand power of a company.

IBM: People For Smarter Cities (2013)

Advertising Agency: Ogilvy & Mather, France

Figure 2.4

Panasonic nose trimmer: Fatty (2009)

Advertising Agency: Saatchi & Saatchi Indonesia

Figure 2.5

Pepsi Max: Unbelievable Bus Shelter (2014)

Advertising Agency: AMV BBDO, London, UK

Figure 2.5

Outdoor advertising is more than just a poster or a billboard. For example, Pepsi

Max’s campaign launched last year on the bus shelter attracted enormous passengers

to interact with it. This campaign was planned and booked with JCDecaux Innovate

by OMD and Talon. To achieve these unbelievable scenarios not only required the

creative ideas behind, but also advanced technology provided by outdoor agency.

3. Outdoor Advertising in Hong Kong

Hong Kong is the most vertical city in the world, even more than New York. The

skyline in the Victoria Harbor projects an image of development and also modernity

blending with the nature of the mountains and sea surrounding Hong Kong. A mix of

tall buildings, mountains, and big signs in both English and Chinese has become the

trademark landscape that characterizes Hong Kong.

It is now hard to imagine a view from Tsim Sha Tsui of the Hong Kong Island

without brands names at the top of the buildings. Those billboards are now part of the

buildings’ “outfit” and they vary in size, form, location and content. Just by talking a

walk in Central or Causeway Bay, one can notice countless varieties of brands

displayed in various buildings, buses, street furniture, and even in the traditional

so-called “ding ding” tram.

Figure 3.1 & Figure 3.2

Licensed to rh_photo and dachalan on Flickr.

It is not a secret that the tax-free policy is an attractive scenario for many companies,

especially Western luxury brands. However, the limited territory challenges brands to

compete for space to advertise. This fierce contest results in a great opportunity for

agencies that own or rent these places.

3.1 Outdoor Media Industry in Hong Kong

Hong Kong is a dynamic city that portrays both Chinese and Western culture which

allows it to be a touristic spot as well as a place for leisure and shopping. Just in 2013,

Hong Kong received over 54 million visitors (Hong Kong Tourism Board, 2014) and

75% of these visitors came from Mainland China. Tourism plays a big role for the

local government since the income for activities related to tourism reached

HK$332.05 billion, an increase of 14.08% compared to 2012.

Figure 3.3 Source: Hong Kong Tourism Board

Brands have also taken these statistics in consideration to take advantage of the

situation and promote their products, services, and image to the local people but also

to the vast quantity of visitors every year. Touristic spots in Hong Kong have been

invaded long time ago from different brand names, models, watches, and different

commercial purposes that now form part of the local architecture.

The effectiveness of OOH advertisements in Hong Kong has been studied by Kara

Chan, professor at Hong Kong Baptist University from the School of Business, in

different situations. Chan (2012), after elaborated a survey to pedestrians, concluded

that OOH ads possess high awareness and it can even be compared to those one in

highways or even subway stations. The relationship between the location and the

density of pedestrians is higher than the size of the ad.

In a crowded city like Hong Kong where everyone tries to outstand from the mass

either by constructing taller buildings to have a better view or placing bigger ads to

overshadow the rest, Chan and Cheng (2014) mentioned the importance of creativity

beyond the size. Only those ads with “vivid colors, pictures, and a clean layout will

help billboard posters stand out from the advertising clutter.” (p.16)

In order to remain competitive in this industry, OOH media agencies have been

forced to innovate in different ways. Their products need to adapt to the new

technology trends to provide better services rather than just high printing quality. The

city is changing rapidly and clients demand new solutions for the new needs of

consumers. From LED screens inclusions to 3D outdoor projections, OOH media

agencies have adopted new technological developments to offer better products that

match the current trends.

Digital billboards as well as digital street furniture are been highly utilized in Hong

Kong to optimize the current advertising tools and to provide a better interaction

between the brands and their targets. MTR stations, tram stops, and shopping malls

already display not only LED screens but also other new digital media landmarks.

This digital movement was first begun Hong Kong by Lightscape Technologies Inc.

(2008), they initiated the installation of the first mass set of LED advertising screens

in different parts of Hong Kong. Through a press release, they announced that they

will first focus on the Hong Kong Convention and Exhibition Centre but they would

cover other zones too.

This investment allows agencies to attract new clients, which at the end will be paying

the rental fee, maintenance, insurance, and additional services to the agency. POAD

(2014) was the first agency to utilize 3D projection in Hong Kong in 2011for a

Samsung’s campaign. This innovation in their products not only attracts new clients

but more budgets to continue implementing new tools and to expand their catalogue.

The awareness to OOH ads is also related to their attitude toward the advertising

industry but those external factors are not totally relevant for this study but it is

necessary to take them in consideration. At the same time, the OOK advertising

industry will vary from different types to products. Billboards on highways will have

different impact to drivers than to passengers in the MTR or people walking and

shopping in Mong Kok. The way to perceive an ad will be directly influenced by not

only the print ad, but also by external elements.

3.2 Major Players in the Outdoor Media Industry in Hong Kong

Every year, the investment in advertising in Hong Kong increases continuously. Bien

Pérez (2014) reported that the advertising spending reached HK$43.1 billion in 2013,

which represented an increase of 9%. Procter & Gamble was the leader in investment

at that year and Samsung cut its advertising expenses, according to data from

admanGo.

If there is a new brand in Hong Kong, who shall they contact to have the chance to

promote themselves in the best locations in this city? It would be very subjective to

make a “Top 10” list to rate the best agencies and define their reach, effectiveness, or

best service. It all depends on the objectives for the client and also the criteria utilized

to define the best agencies.

The magazine Marketing Interactive (2010) elaborates a list of the best 10 OOH

media agencies in Hong Kong based on a survey to “ask Hong Kong’s top marketers

which outdoor media companies they would put their dollars with” (p. 34). It is

important to take in consideration that the list provided by this magazine do not

actually represents an in-depth analysis on the industry performance rather a choice

by local marketers specialist based on personal views. Nevertheless, it presents an

overview on the industry based on local surveys until 2013.

Current position Agency Position in 2010

1 JCDecaux Transport 1st

2 POAD 2nd

3 RoadShow 3rd

4 CODY Outdoor N/A

5 Buspak 4th

6 Asiaray 6th

7 JCDecaux Cityscape N/A

8 Focus Media 9th

9 Bus Power N/A

10 Convey 5th

Figure 3.4 Source: Marketing Interactive magazine (2013).

This list, compared to the first version in 2010, presents the consistence of the top 3

agencies in their preference from the local seniors marketers who continue giving

them their confidence. Their experience and clients portfolio are their main

credentials to keep their loyalty and to remain at the top of the industry. However, the

competition is fierce and the environment is changing rapidly and it requires hard

work and innovation to maintain

JCDecaux

JCDecaux (2013) is the number one outdoor media agency worldwide with business

in over 60 countries and global revenues that gross €2,676.2 million in 2013. The

Asia-Pacific region represented 22.9% of their global revenues in the same year. They

have a French origin which allows them to have a closer contact with French

companies, especially for those in the fashion industry and luxury products.

Internally, they have categorized their products in three different sectors: billboards,

transportation, and street furniture. However, in Hong Kong the company has two

subsidiaries that cover two sectors. The first one is named JCDecaux Transport which

is mainly focused on the MTR stations, Ngong Ping 360 cable car that goes to the Big

Buddha in Lantau Island, and the Airport Express. The concession between the MTR

system and JCDecaux Pearl & Dean (JCDP&D, 2015), the subsidiary in charge of this

section, has been there for over 30 years. The other subsidiary in Hong Kong is

named JCDecaux Cityscape which has two main products: bus shelters and trams, the

iconic transportation in Hong Kong island that comes from the British colony.

As mentioned before, innovation is a key role for this industry and JCDecaux has

implemented new digital technologies to their products, especially in bus shelters and

MTR stations. This products variety along with their history, MTR concession, and

French backgrounds and networking could partly explain why JCDecaux has been

chosen for five years in a row in the Marketing Interactive magazine as the top OOH

media agency.

POAD

POAD was established in 1988 as an outdoor advertising in Hong Kong and since

their origin they have contributed to reshape the city’s landscape with their vast

products catalogue. POAD offers a list of eight different products category to their

clients within Hong Kong namely, Billboards, Tunnels, Tram Shelter, Harbour Signs,

Taxi, Outdoor TV’s, Coffee Chain and Special Creativity.

Figure 3.5 Source: POAD eCatalogue

POAD (2014) can presume to be the one to utilize 3D projection images in Hong

Kong as well a strong presence of rooftop signs at the Victoria Harbour with 60% of

them being designed and constructed by POAD. At the same time, this agency has

constructed the longest LED outdoor advertisement in the city.

In 2013, a report on the Marketing Interactive magazine (2013) noted that their major

clients included Apple, Samsung, Citibank, Bank of China, Ageas, AXA, Dior,

Tiffany and Cartier; all of them rivals in their respective industries. POAD products

and favorable locations remain attractive for those brands and the agency keeps on

expanding and including more sites to their directory. POAD’s (2014) latest

inclusions are two billboards in Central, one heading to the touristic bar area LKF and

the other at the Soho-bound.

RoadShow

RoadShow Media (2015) is a company dedicated to provide OOH advertising

services, especially “on road” services in public transportation. However, their

business also includes bus shelters, interior and exterior transit vehicles, billboards

and on-the-go mobile devices apps.

Figure 3.6

Source: RoadShow Official Website.

The RoadShow Group has maintained a very stable financial road for the last years

which positioned them as the third most desired media agency in Hong Kong

according to the survey implemented by the Marketing Interactive magazine (2013).

The RoadShow Annual Report (2014) presents HK$488.2 million on operating

revenue which represents an increase of 10.2% compared to the previous year.

Their business mainly focuses on buses (body, TV and interiors) in Hong Kong

through their BUS-TV, BUS-BODY and IN-BUS subsidiaries. Among these three

divisions, RoadShow’s (2015) clients have the possibility to connect with 2.6 million

passengers daily according to reports from the Transport Department.

Asiaray

As Asiaray (2015) mentions in their Vision statement, they strive for excellence in

OOH to be an Asia world-class outdoor company. Their business extends to greater

China covering 33 different cities and with a large presence in airports and subway

transportation. In Hong Kong, they are one of the two main media agencies with

presence in the MTR along with JCDecaux.

Their products in Hong Kong include MTR stations, billboards, building solutions,

LED walls, shopping malls, the Star Ferry and bus shelters. This vast variety of

options allows clients to choose among different products with specific reach

purposes and target audience. It is necessary to highlight that Asiaray (2015) was in

charge to execute the 2014 New Year’s Countdown. Also, one of their major current

clients is H&M and they have placed their ads in different platforms such as MTR

stations, billboards and buildings.

Figure 3.7

Source: Asiaray. Outdoor Signage online.

CODY Outdoor

CODY Outdoor is a subsidiary brand from the Australian APN News & Media

Limited which also operates in New Zealand. CODY (2006) provides over 160

billboards that cover both tunnels and other main transit areas in Hong Kong

downtown. At the same time, CODY works closely with Buspak Advertising that

mainly focuses on bus media advertising.

The New Zealand Herald (2014) reported the wholly acquisition of both CODY and

Buspak by APN. In a newsletter, the chief executive, Michael Miller, stated that

"together, Buspak and Cody are one of the largest operators of outdoor advertising in

the growing Hong Kong market and we know the businesses well." (Online article).

4. Literature Review

4.1 Central proposition

This application project focuses on an analysis on the outdoor media industry

addressing different marketing issues which will be further discussed ahead. However,

it is important to emphasize on the relationship management that agencies must

consider in order to keep their business, especially in markets like Hong Kong and

China. An strategic alliance relationship with the central government can allow these

agencies to execute their operations without many constraints and barriers. This

strategic relationship management with local governments in different markets will

also provide a better environment for a firm to go global.

4.2 Transaction Cost Theory

When companies search for advertising agencies to create an advertisement, it is

transacting part of the business to the market. The concept of transaction cost theory

was discussed earliest by Ronald Coase in his early work The Nature of the Firm.

However, he didn’t coin the term “transaction cost” in his work. In his essay, Ronald

Coase discussed that in the traditional economic theory, the “market” that a firm turns

to contract out some task is more efficient, and it should always be cheaper to do so.

On one hand, normally firms have natural limits to produce some task internally.

Besides, internal production would increase the overhead cost, enhance the pressure

on management, and produce more risks on resource allocation. These costs would

“decrease the return to the entrepreneur function”, but generally, larger firms tend to

absorb them better. However, on the other hand, using the market could create some

potentially extra cost such as searching costs, bargaining costs, keeping trade secrets

costs, policing and enforcement costs. Therefore, Ronald concludes that it is much

more dependent on the size of the firm when finding the balance between the above

two options.

Later on, student of Ronald Coase, Oliver E. Williamson, who is specialized in

transaction cost economics studied further on the application on the Transaction Cost

theory. In his work, The Economics of Organization: The Transaction Cost Approach,

Williamson explains that decision of whether applying the transaction cost approach

should be determined discriminatively base on the efficient boundaries between the

firm and the market, and the organization of internal transaction, including the

employment relations. Following is some theories that further explain the Transaction

Cost Theory in detail.

4.3 Outsourcing Theory

Outsource is a term to describe companies contracting out a business process to a

another party as a strategic use of outside resource to perform activities rather than

completing them internally. Nowadays, outsourcing is common in business for it

provides convenience and benefits to companies. Generally, the reasons for

outsourcing are: (1) to reduce and control operating cost, (2) improve company focus,

(3) gain access to world-class capabilities, (4) retain internal resource for other

purposes, (5) share risk with a partner company, (6) constraint of internal resource

limitation, and (7) lower pressure on management. Moreover, in today’s integrated

world, using outsourcing strategy makes a company more competitive. Depending on

conditions of certainty and uncertainty, a firm can choose to use partial outsourcing or

full outsourcing. In any part of the producing process, if a firm has a cost

disadvantages, it uses full outsourcing of that process under certainty. However, if

there is any uncertainty in outsourcing cost, full outsourcing would be discouraged in

risk-adverse company.

In the real world, advertising agencies and outdoor advertising agencies are the

“market” for firms to contract out for. Bigger organizations with more complex

department structure and more mature management team would have the in house

team to produce advertise for the brand, for new products, etc. However, many

smaller size firms would outsource this part of the operation to agencies. While the

case in outdoor advertising industry is more special, because of its nature of operation.

Outdoor advertising agencies own most of the spaces for advertising in a city by

renting them from building owners, companies, and government. When a firm decides

to launch an outdoor advertisement, it does not mean using a specific space for a

period of time that is longer than its campaign. Therefore, it is generally more rational

and economical for a company to use an outdoor advertising agency.

4.4. Expert Theory

When making a decision to outsource, one of the factors that would influence the

decision is that the company itself can focus on what they are expert in and they trust

that the other party they collaborated with is more professional in the area they

outsource.

In the outdoor advertising industry, sometimes companies also outsource some part of

the operation to other companies in order to achieve better results of reducing the

costs of internal operation and avoiding the expenses of hiring experts. CODY, the

company that this paper will use as example later, outsources part of bus

advertisement business to another local advertising company called Buspak, which is

specialized in operating and installing advertisement on buses. While larger firms

such as JCDecaux does not have outsource relation with any other parties.

4.5. Division of Labor

Labor division refers to dividing the whole process into separate tasks to individuals

or organizations therefore optimizing the entire time and costs. In addition, having

people specialized in different tasks are more efficient and furthermore, this method

lead to an increase in quality and productivity (Adam, 1776). The term “division of

labor” was first introduced by Émile Durkheim, and further developed into global

division of labor. Advertising agencies outsourcing part of works to other countries or

particular firms can achieve the lowest cost.

4.6. OLI theory

OLI model or OLI framework are also known as the Eclectic paradigm theory, which

was proposed by John Dunning in the 1980s. This theory explained the reasons for

multinational enterprises (MNEs) to choose overseas market. It also clarified the

decision making between foreign direct investment (FDI) and other strategies.

According to Dunning, there are three significant factors contribute to the theory:

Ownership advantages, Location advantages and Internalization advantages (OLI).

The difference between MNEs and domestic companies lies in many aspects,

especially the costs generated from transportation and adaptation. Therefore, the

compelling advantages to reduce the transaction fee are highlighted. More

specifically, the ownership advantages (O) enlarge the firms’ competitive advantages,

which increases the possibilities of FDI involvement. As for the locational appeal (L),

the alternative places should value more on the regional labor price, natural resource

or privileged policies from local government that for MNEs value adding activities

taking place (Dunning, 2000).

Last but not least, Internalization advantages (I) specify why multinational companies

decided the wholly owned subsidiary production instead of licensing or outsourcing.

One crucial criterion that enables FDI occurs is based on the transaction costs theory:

once the external market costs higher than the internal.

Applying this theory to Hong Kong outdoor advertising industry in order to get a

concrete idea, JCDecaux’s internal assets, both tangible and intangible including

trademark, innovative technology, human resource intelligence and management

skills are fully controlled. As a French leading outdoor advertising company, it has

expertise providing tailor-made solutions over 56 countries. Local partnership

provides favorable conditions that improve their advantages worldwide, which

implement the possession of airport and other major transportations in their way of

globalization.

On the other hand, local companies such as Cody described as “think local, act local”.

Due to their limited resources, they can only lower the cost by outsourcing or joint

venture and allocate critical assets on locational or ownership acquisition, which

result in reducing the internalization attractions.

4.7. Ohmae Theory

Another Japanese strategist Ohmae came up with globalization theory in his work:

The Next Global Stage: Challenges and Opportunities in Our Borderless World in

2005. In this book, he claimed different types of organizations develop to various

stages accordingly in order to cope with global competitions. Global economy’s

invisible, borderless, cyber connected and high multiple features encourage

companies to transfer distinctive competences to foreign market (Ohmae, 2005).

Given though to Ohmae’s five stages globalization, JCDecaux has completed their

transnational strategy and become a global company. JCDecaux OneWorld is the

international quarter of JCDecaux Group that provides professional research and

marketing services to clients via international sales and partnership. Because of

standardized products, advertisers can easily exploit through one entry point and

reach multinational market under the group. Knowledge and technology as well as

functions are inner shared and cost few of the transfer. Thus, company benefits from

the economies of scale and experience curve effects.

5. Globalization Trend

5.1 Globalization structure

Firms can be categorized into three stages as local, international and global according

to their involvement levels to different market.

When firms are at a local stage, they only have direct connection between the

company and their client. Examples of local advertising agencies are Convey and

Asiaway. (Figure 5.1)

Figure 5.1

When firms are in an international stage, they will have a home corporate office that

sends out different messages and products to the different countries separately. For

example, Cody can help Coca-Cola advertise their product in Spain and China

independently by using different approaches and spokesperson. These countries do

not have any connections in between. Examples of international advertising agencies

are Cody and POAD. (Figure 5.2)

Figure 5.2

When firms are at the global stage, similarly, they will have a home corporate office

giving out products to their clients worldwide. However, their products are the same

across the globe by using the same spokesperson, slogan, designs etc. The major

difference will only be the language they use. For example, the poster design used to

advertise Gucci in Spain and China will be the same only with the language they use

is different. Example of a globalized advertising agency is JCDecaux. (Figure 5.3)

Figure 5.3

Nowadays, the emergence of globalization presents different opportunities and

challenges and this practice gained importance across different industries. The main

reason for corporates to achieve global market is to react to the needs of global

consumers, a trend termed by Lee (2005) describing the converging preferences,

needs and wants. JCDecaux group also entered the global market in align with

different global clients. These global clients are usually well-known global luxurious

brands such as Gucci, LVMH and Christian Dior etc. JCDecaux need to satisfy their

needs across the world by providing similar products and services in different

countries in which small local agencies are unable to do so due to the restraint of

insufficient resources.

Besides, JCDecaux have the competitive advantage to leverage economies of scale

and scope in bargaining with their client base on diversified products JCDecaux can

provide in different designated countries. In addition, JCDecaux decide to go global

because they can attain higher level of sales performance and maximize their profit

margin by expanding the business globally.

5.2 Porter’s Five Forces Analysis for Media Industry

Bargaining Power of Buyers

In media industry, buyers range from small local businesses to large multinational

organizations. Advertising content can be delivered in diversified formats and

channels and hence it is complex and costly task in reaching mass audiences. In order

to lower cost, companies will seek advice from external advertising agencies and it is

believed that the ability of agencies to provide business solutions that suits buyers’

needs constitute great differentiation among other market players. They can attract

new clients based on their unique and niche expertise, reputation for innovative

creative and so on. Therefore, the bargaining power of buyer in media industry is

considered to be high.

Bargaining Power of Suppliers

Producers and owners of media channels such as buildings, transportation,

broadcasting etc. are all considered as suppliers to advertising agencies. Prominent

advertising agencies have a habit of locating their office in commercial area which is

prime office space costing high rental fee. In fact, agencies would shift the expense to

their clients, charging commission on their clients' media purchases. Overall, supplier

power is considered to be high.

The Threats of New Entrants

In general, advertising agencies highly relies on expertise and creativity in

maintaining business. It is possible for small enterprise to enter the market with

relatively low business budget. However, there is a need to build up knowledge of

consumers’ behaviors, the potentials of different media and incurs costs for both time

and money that elevated the level of entry barriers. Therefore, major players typically

conveyed many marketing functions under their renowned brands, and are recognized

as formidable competitors. The threat of new entrants is evaluated as weak.

The Threats of Substitutes

Buyers can adopt backwards integration in achieving lower costs implied by using

external agencies as an alternative of employing agency services. This strategy does

not require vast capital outlay and it directly pose a threat to advertising agencies.

However, establish a capable team can be problematic for corporates so that the threat

of substitutes is considered to be weak.

Degree of Rivalry

In Hong Kong, advertising industry is dominated by the famous brand agencies who

gained significant market share, also their large structure intensifies competition. The

dominance of leading players represents a small number of competitors in the market,

basic services provided by these companies are similar or even the same. Overall, the

advertising industry exhibits low rivalry as they would differentiate themselves with

different factors like their exclusive prominent client list, wide range of services

offered and previous campaign record, all these may decreases rivalry as their clients

are not willing to switch to another agency.

5.3 SWOT Analysis

In order to achieve a systematic and organized understanding of a strategic

management situation and examine competitive conditions of JCDecaux Group, the

SWOT analysis evaluates various sources to identify a speculative list of possible

areas of JCDecaux Group’s internal strengths and weaknesses, and potential

opportunities and threats in the market.

Strengths

Leading market position

JCDecaux is the largest outdoor advertising company in the world and plays a leading

role in Europe and Asia Pacific regions. For now, JCDecaux is the only company that

has a presence in three primary segments of outdoor media market (i.e. street furniture,

transport advertising and billboard).

According to the company report, they are the top provider of street furniture

advertising in terms of revenue and exposure. Moreover, in terms of sales, JCDecaux

is also the prominent billboard advertising company in Europe. The company's edgy

market position in various markets provides them a competitive advantage over their

peers and enhances their brand image. (JCDecaux)

Diversified global markets and wide geographic exposure

Over the last few decades, JCDecaux has strategically expanded the number of

markets in order to increase revenue, business stability and expand their opportunities

for growth. They currently have a presence in over 60 countries worldwide.

Diversified markets and geographic reach of JCDecaux can avoid dependence on any

single market for revenues. Furthermore, they offer access to a broader customer base

and enable sustainable inflows leading to a strong revenue position.

Vigorous financial performance

JCDecaux has perceived a strong financial performance in the last few years. Their

revenue increased from €2463 million in FY2011 to €2676.2 million in FY2013,

representing a growth rate of 8.7% during that period. This increase was principally

because of the strong performance from its street furniture and transport business

segments. Strong financial performance strengthens the financial position of

JCDecaux and provides a platform for future growth and expansion.

Opportunities

New contract wins improves brand image

The company won several new contracts and renewed older ones in recent years. For

instance, in 2012, JCDecaux Pearl & Dean renewed its exclusive contracts with MTR

Corporation for the operation and management of outdoor advertising across the

Airport Express and six MTR lines in Hong Kong. Their ability to get new contracts

and renew older ones enhances its brand image and provides incremental revenues.

Expansion through acquisitions

JCDecaux focused on expanding its presence mainly through acquisitions. The

company made few significant acquisitions in recent times. For instance, in 2011 and

2012, JCDecaux acquired a 25% stake of Russ Outdoor, 24.9% stake of Graz based

outdoor advertising company Ankunder, 95% equity interest in MediaKiosk. The

acquisition will further expand their business markets, client base and most

importantly, strengthen the company’s position in Russian, Austrian and French

markets.

Threats

Intense competition

JCDecaux faces intense competition from various similar market players and from

different types of parties in different markets. They compete with other media

including both traditional and new media such as newspapers, magazines, television

and the internet. They also compete with increasing variety of Out-Of-Home

advertising media. Intense competition may impact JCDecaux's advertising revenues,

margins and market penetration.

Risks related to changes in applicable regulations

The outdoor advertising industry is subject to governmental regulation at both the

national and local level, particularly in Europe, the US, Asia, the Middle East, and

Latin America. The regulations relate to the population density, mobility, position of

billboards and street furniture in urban or other areas, and regulation of the content of

outdoor advertising. Changes in laws and regulations affect outdoor advertising may

have financial impact on the company as it restricts its operations and expenditure.

Foreign exchange risk

JCDecaux presence in worldwide and is surely exposed to foreign exchange risk

when its business transactions are in currencies other than its functional currency. The

main currencies to which they are showing are the Pound Sterling, the Chinese Yuan,

the US dollar and the Hong Kong dollar.

Additionally, they have investments in foreign operations and the net assets are

exposed to foreign currency translation risk. The value of their equity investment in

foreign countries may fluctuate based on changes in foreign currency exchange rates.

Fluctuations may result in losses if a foreign subsidiary is sold. Any unfavorable float

in foreign currencies would have an adverse impact on the profitability of JCDecaux.

5.4 Foreign Direct Investment

Kumar (2002) suggested that the size of a country, the extent of urbanization, level of

income or development would positively affect the ability to appeal globalized

production from Multinational Enterprises (MNEs). There are four measures of the

quality of FDI inflow capturing the positive externalities to a host country. (1) the

extent of localization of associate output replicating the depth of involvement of a

MNE in host country; (2) participation in technology-intensive or modern industries

that are likely to create a larger amount of knowledge spillovers and therefore

improve the technological up-gradation of the host economy; (3) extent of

export-orientation, particularly the proportion of output going to developing countries

involving informational externalities on the export potential for local firms; and (4)

Research and Development (R&D) intensity that may have substantial knowledge

spillovers for local firms.

Hong Kong is strategically located at the heart of Asia, and it attracts major

multinational firms that treat Hong Kong as a base to further expand their business.

Hong Kong is regarded as one of the freest economies in the world and enjoys the

most liberal media environment in Asia, with many open investment opportunities

and unrestricted foreign ownership rules. These are the major factors in appealing the

leading companies cluster.

Furthermore, Hong Kong’s per capita income is one of the highest in the world. It has

been regarded as a paradise for entrepreneurs where it just takes about an hour to

register for a new business. Hence, Hong Kong is a popular base for start-ups.

The World Investment Report indicated that the figure place Hong Kong fourth

behind the United States with $227 billion, China with $124 billion, and Belgium

with $89 billion of investment.

Universally, the amount of foreign investment attained $1.5 trillion in 2011, increased

by 16.5%. Foreign investment in Hong Kong rose to $83 billion last year, up 17%

from 2010. The city also topped United Nations Conference on Trade and

Development's (UNCTAD) Global Foreign Direct Investment Attraction Index 2011,

an annual measure of an economy's success in attracting foreign direct investment. In

2012, investment is likely to level off at $1.6 trillion worldwide as the European debt

crisis leads firms to save instead.

With reference to the company website, sustainable development has been at the core

of JCDecaux’s business model at the very beginning. The company design and

invent street furniture products that combine public service for users with a decent

design, advertising effectiveness for advertisers and functionality. As the business has

grown in recent decades, the Group's commitment has taken a more organized form,

through pro-active policies on quality control, the environment and a current

comprehensive approach to corporate social responsibility that covers the bottom

lines referring environmental, social and stakeholder issues.

JCDecaux now present in more than 60 countries worldwide and allows advertisers to

reach up to 340 million people daily. Throughout the world, their success is mainly

because of the ability of JCDecaux that can meet the needs of local authorities and

advertisers by a continuous focus on innovation.

In France, the headquarter based, JCDecaux Sustainable Development and Quality

Department has a direct contribution at each key level in the company value chain and

at the core of the company’s daily operations. The Sustainable Development

correspondents in each subsidiary support their implementations of sustainable

development actions.

Additionally, JCDecaux’s strategic goal is to be interconnected with targeted

audiences that are increasing predominantly, by maintaining a presence in all

environments that are relevant for the company.

5.5 Cross-Cultural Management

The globalization processes of business forces managers to communicate, negotiate,

and collaborate across cultures (Boyacigiller & Adler, 1991). Intercultural

collaboration is essential for global firms and cultural perspective taking can improve

the effectiveness in working with staff from different ethics and cultures which are

critical to the organizational success (Mor, Morris & Joh, 2013).

As a global firm, JCDecaux group has established a well-organized, dynamic and

tailor-made training policy to benefit all employees. By creating the JCDecaux

Management Academy, the management reaffirm that management and training are

indispensable factors in creating value. More importantly, along with individual and

communal success is to constitute employees’ loyalty. According to JCDecaux

company profile, a total of 85,715 hours of training were provided to more than 8,100

trainees across all the JCDecaux Group’s subsidiaries in 2013.

Many training opportunities are offered each year to help employees in all areas

related to their activities such as, management, operations, technical, safety,

languages, communication, sales and marketing etc. Employee training and

continuing education have always been one of the Group’s top key focus areas. One

of JCDecaux’s major objectives is to promote dynamism, pursuing diversity in the

workplace through hiring and career management. Professional integration of people

of diverse ethnic, social and cultural backgrounds is always an opportunity to enrich

the Group’s values.

Figure 5.4

6. Research

6.1 Methodology

As part of the research process for the project, a member from one of the major

players in the outdoor advertising industry in Switzerland with business in Hong

Kong and China was interviewed to share ideas about the industry. For confidentiality

issues and the interviewee’s request, his name will not be mentioned but for

practicality he will be given the fictional name “Mr. Daniel”.

Armando Flores conducted the interview and the objective of it was to get insights on

the business strategy as well as an overview on how they interact with their clients

and their competitors in each market, with special attention in Hong Kong. Those

findings would be useful to complement the industry analysis and can also lead to

further discussion.

6.2 Research Results

Big companies need to outsource different jobs such as advertising and marketing in

order to reach different markets. That is the case of the Swatch Group, Rolex one of

their brands, which utilizes Force Promotion to promote in the four markets

mentioned by Mr. Daniel. However, their advertising services and connections are not

sufficient in Asia and they need another middleman to place their ads where big

outdoor advertising companies such as JCDecaux, POAD, Cody to name a few, take

actions.

Force Promotion works to make Rolex the leader in the watches industry and in order

to achieve that goal they always try to find a consensus between what is the best for

the company and also to their desires. Communication and persuasive skills play a

major role in this negotiations and business, which can also be called as business

relationship management.

In the watches industry, there is always constant job due to product innovation.

Brands like Rolex need to launch new products constantly in order to remain

competitive therefore they also need promotion services for these new items. This is

one of the main reasons to continue working with the same client for some time.

The main reason for Rolex to choose to work with Force Promotion is due to their

business strategy. Force Promotion adopts a Focus Strategy, which allows them to

employ all their resources with only one client and provide a more personalized

service to them. This strategy is a differentiator factor that not all agencies can

provide due to their size and clients portfolio. At the same time, their experience in

the industry also gives Force Promotion another advantage.

In order to successfully promote the watches, a niche market oriented strategy is

required to reach the most appropriate potential customers. Advertisements placement

and distribution will be selected according to the market needs. According to Mr.

Daniel, Force Promotion will choose locations such as Tsim Sha Tsui in Hong Kong.

Asian economy has been raising and the Chinese market, as well as Japan and other

Asian countries, has become a must-go for most companies, especially for high-end

products like jewelry. Now Asia represents roughly 45% of Rolex sales. Here it relies

one of the major reasons for Rolex to employ promotion activities in those markets.

“If we don’t come to Asia, Rolex loses a lot of money”, stated Mr. Daniel to highlight

the importance of the market in the current global situation.

However, not all the markets are always profit centers. For Force Promotion, Japan

represents a cost center because it surpasses their incomes. Nevertheless, Mr. Daniel

explained the reason to keep the business there even though it represents costs for

them. “If you don’t have connections, you need to add a middleman. (...) So the cost

will be very high, out of our control. (...) Without Tokyo, we cannot have the whole

project”, explicated Mr. Daniel.

The cost center situation goes hand in hand with relationship management. As

mentioned by Mr. Daniel, sometimes a company needs to keep a cost center in order

to keep an entire project but if these costs can be well overcame and compensated

with other markets, the decision becomes easier.

Summary

Outsourcing activities such as advertising is required when you enter an

unknown market.

Relationship management plays a major role to gain partners and projects.

Product innovation in the watches industry turns on constant promotion

needs which is good for Force Promotion.

Force Promotion utilizes a focus strategy that differentiates them from

other agencies and it’s one of the reasons for Rolex to choose them.

Niche market orientated strategy is required for high-end products like

Rolex.

Markets like China are now a must-go in the current global situation. Over

45% of Rolex sales come from Asia.

Japan is a cost center for Force Promotion but they have to continue their

business there. Without Japan, they cannot have the entire project.

Cost center and relationship management have allowed Force Promotion

to establish a strong bong with Rolex.

7. Discussion and Recommendations

7.1 Business Model of Outdoor Advertising Agencies

Cluster 1 – Think Global, Act Local

This cluster represents how global advertising agencies function and how they interact

with clients and local governments. JCDecaux was chosen to be an example to

illustrate this relationship. The headquarter of JCDecaux is France and they have a lot

of subsidiaries in other countries. The major roles of agencies in this cluster are 1)

Exclusive Advertising Agent, 2) Marketing Agent and 3) Design and 4) Follow-up

payment. Clients, usually in big groups and brands, will approach these global

agencies for professional skills and creative works for advertising campaign. These

include designing and planning the whole advertising campaign and need to reach to

an amiable agreement between the clients and the agencies itself.

One of the major reasons that clients usually outsource advertising campaign to

globalized advertising agencies is that these agencies have build up a strategic

alliance with the local governments. This is not a joint venture relationship; instead, it

is more like a partnership between the agency and local governments. Since majority

of the billboard owners are government owned, it is more effective for clients to

directly approach these global agencies if they want to rent these billboards to draw

traffic.

The designing and creative of these agencies in different countries will be the same,

only language used is different in specific cities. Yet, the theme, models, design…etc

are all the same in order to achieve “think global and act local” concept.

Figure 7.1 The relationship between three parties (Cluster 1)

Cluster 2 – Think Local, Act Global

The second type of cluster refers to small agencies like CODY and Convey in Hong

Kong. For this kind of agencies, due to smaller scale of business, they suffer from

insufficient resources in attaining institutional market. Usually, the outputs of Cluster

2 agencies are not standardized since they tend to create more local content on

advertisements, where the ideas and execution of advertisements are tailored for

targeted group in specific region.

The major roles of agencies in Cluster 2 also are as 1) Exclusive Advertising Agent, 2)

Marketing Agent and 3) Design and Follow-up payment, however, they do not need

to establish a strategic alliance with billboard suppliers. As the building owners have

the absolute rights to lend out their spaces, they will partner with those who can offer

the highest bidding price, hence the bargaining power of billboard supplier in this

cluster is accessed as high. As a result, they can only achieve short-term partnership

with their suppliers - building owners. The following chart shows the relationship

between the three parties: 1) Clients (i.e. Brands); 2) Local advertising agencies and 3)

building suppliers.

Figure 7.2 The relationship between three parties (Cluster 2)

According to the findings of our interview with Mr. Daniel, Brands, especially

prestige and well-known ones, often choose to use outdoor advertising as one of the

advertising strategies. This is because outdoor media can catch majority of their target

audiences’ attention by setting up a billboard in a touristic spot in a contain location.

The reason these brands advertise is because they want to gain the greatest amount of

brand exposure and show their target customers that they can purchase this brand

nearby. As prestige brands like Rolex has already gained a certain degree of positive

brand image, their focus of using outdoor advertising is mainly to show customers

about their newly launched series or products instead of to promote the brand itself.

Therefore, they would like to partner with some agencies that they have worked

together before since these agencies will have a more solid understanding on their

focuses of the advertisement on the billboards and where to advertise their products.

Moreover, there are plenty of small and large advertising agencies in Hong Kong,

Brands will choose these agencies based on their preferences, performance and the

strategies these agencies are adopting. For instance, Rolex chose Force Promotion as

the only advertising agency to provide services to them because their cooperate

strategies fits Rolex’s demand. Force Promotion adopts a focus strategy which they

will allocate all of their resources to one client only and will provide personalized

consultation and services to them. This can surely enhance the experience of the client

because they will feel special and privileged to have one agency serving them and

will encourage them to partner with the agency again in the future. It can also allow

the agency to be client-focused and gain more detailed experience to build up their

business network.

Another concern brands have is whether agencies can follow their business direction

and plans when creating and implementing advertisements for them. Based on the

interview findings, there are cost centers and profit centers and not all the markets are

always profit centers. Agencies have to strike a balance between these centers in order

to make profit as a whole. If the brand would like to enter several markets, the chosen

agency will have to give full support even though some of the markets might be cost

centers where they will loose money there. Otherwise, the brand will not choose to

offer the agency the business because they did not follow the business plan of the

brand.

For these agencies, they will execute the project globally where they will use single

strategy for the different specific markets. Having this niche market oriented strategy

can also allow the agency to reach the most appropriate potential customers. In each

of the markets, there will be local adjustments about the size, language and other

constraints with the government; however, the poster design and the theme will be the

same worldwide.

Agencies will have to find the most suitable place to advertise and to negotiate the

rental fees, insurance fees, electricity costs…etc for the specific locations they chose

or their clients favors. If the agency does not have any connections with the local

building owners, they will have to find a middleman to help negotiate the above

details. In return, they will offer the middleman some money for helping them out and

this money will also count into the budget of the whole project.

After dealing with the entire information search, the agency will need to pass all the

information they have gathered to their client for final approval. Once their client

agreed with the plan the agency offered, they can go ahead and sign the contract with

the billboard providers. If not, they will have to work on the proposals until their

client approved every detail.

Once the contract is signed, the client will have to bear all the risks and

responsibilities of the billboard they chose, for example, electricity costs, rental fees

and insurance fees. If there is a natural disaster that damaged the billboard, the client

will have to pay for the cost instead of the billboard provider and the agency. The

agency only act as a consultant and advice provider to the client while the client itself

will pay all other costs.

Brands normally will outsource their advertising activities to agencies because they

would like to reduce the risk of entering a new market. When entering an unknown

market, brands do not have the connections and network to help gather all required

information about the laws and regulations and cultural issues, as a result, they will

outsource this job to local advertising agencies because they will have a better

understanding on the local market. This helps brands to lower their costs when

entering into a different market. As the Asian market is booming in recent years,

majority of the prestige brands will start entering Asian countries like China, Korea

and India…etc to expand their business and maximize their profit margin because

most of the people from these booming countries are their target audiences. These

high-ended brands are usually European or American brands where their headquarters

are in either Europe or America. There is a strong need for them to hire advertising

agencies to assist them on the information search about the environment and other

special restrains these countries are having as they do not know the environment.

Having a good connection with the local government is also an important factor when

choosing agencies. JCDecaux has a solid connection with the local government in

Hong Kong and the government owns most of the billboards and advertising

buildings. Hence, when they negotiate the place and price with them, JCDecaux will

have a huge competitive advantage over the other small agencies, as they are the only

source to aid brands bargain some popular spots for the advertisement.

All in all, outdoor media advertising industry is widely in practice in Hong Kong and

other parts of the world. It has been the most commonly used method for brands,

especially high-end and prestige brands, to advertise and promote their products.

Although the costs of renting billboards and other miscellaneous costs are very high,

the result of using OOH advertising is still one of the best ways to expand their

business to new markets and to increase their sales.

8. Limitations

The project examines the entire outdoor advertising industry in Hong Kong by in

depth business analysis. One of the first steps involves the identification of the main

players in the industry and their roles in the market by a comparison model. However,

the first limitation comes to a lack of information disclosure from some of the major

outdoor companies. Some of them, such as CODY, do not provide enough

information about their business and this makes their profile less substantial compared

to the other four big outdoor media agencies in Hong Kong.

The restraints from this comparison methodology are related to the information it

displays. This may not be as detailed as a case study for every outdoor media

company however; the objective of this research does not require specificity for every

agency. This study can set the frame for further researches on this area. But by now it

is necessary to understand the macro aspects and differences between the five

agencies mentioned on the project.

Interviews with staff or managers from every company mentioned in the company

would have given some additional insights and specific private data. However, due to

time frame limits it was decided not to do so. Instead, the research was oriented

towards an industry analysis with a focus on a case study. Rather than having direct

contact with the outdoor agencies, a face-to-face interview was conducted with Mr.

Daniel, from Force Promotion, who has sometimes interaction with these companies

to promote their clients’ advertisements, Rolex.

This resource offers a view from the outside about the industry. An interview with a

player who can decide whether or not to use one or another of the outdoor agencies in

Hong Kong strives for flexibility and an extensive outlook of the outdoor media field.

However, it only focuses on the business Force Promotion exercises, specifically in

the high-end watches industry. Nevertheless, brands such as Rolex have a high and

constant presence in the Hong Kong outdoor landscape which implies a nonstop

investment in advertising.

Additionally, even though the research illustrates the process of advertisements

placements and the different elements to consider in the industry for both parties,

media and clients, it does not provide a financial analysis based on costs. It only

comprises a marketing study combined with an industry environment analysis.

However, since there still were not many researches about the entire field, it was

appropriate to focus on this aspect.

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Appendix

Interview Transcript

Thank you for your time. Could you briefly introduce Force Promotion?

Force Promotion is a very established company. The headquarters are in Switzerland

mainly doing outdoor advertising for some companies, for example in Switzerland the

majority of the brands are watches. Basically we signed an exclusive contract with

Rolex all over the world.

What is the relationship of Force Promotion in Hong Kong with the other outdoor

media companies?

We have a very important working-partner relationship. Force Promotion is an

advertising agency that helps brand names like Rolex to promote. We are just in

charge of outdoor advertising. We try to approach the owner of the building in Hong

Kong. We have a big project in four countries: Switzerland, that’s where our

headquarters are. There we can manage and you can see us on the tallest buildings in

Switzerland. We have instructions from Rolex to do business in Shanghai, one in

Hong Kong, and the other one they pushed us to have it in Tokyo, so four countries.

They would like to invest a very large amount of money on a yearly basis. I Hong

Kong we don’t have any connections with the owners of the buildings so we have to

work with some Hong Kong advertising companies, for example like CODY or

POAD, P-O-A-D. They are international level. We don’t want to work with

JCDecaux because JCDecaux is our European competitor. So we have to find the guy

that is not our competitor.

So do you have global competitors that are in Switzerland and here?

Yes, yes.

Why Hong Kong?

I discussed that issue with them. They just said, Hong Kong is part of China and, you

know, there are so many tourists. Over 90% are from Mainland (China) and they go to

buy couple of things. Milk powder, of course, but this is a very cheap product; they

may buy property or they may buy watches, gold, diamonds, jewelry. This is the

reason why we need to go to Hong Kong. 30 million Hong Kong within one year and

Hong Kong is a very international and diverse city, and that is the reason why we

need to find an area to make sure that our customer can see our advertisement.

Do you have more brands besides Rolex?

Swatch is the biggest group of watches. Swatch is very similar as LVMH (Group) in

watches. They have more than 30 brands.

Do you use global campaigns or do you adapt them to the market?

Basically, we agree how to make the design for the outdoor ad and it is approved by

Rolex. We would like to launch the Rolex advertising in the four countries:

Switzerland, Hong Kong, Shanghai and Tokyo. At the same time, the design is the

same. Global Marketing. Local adaptations we have because due to the size of the

global advertisement, the Japanese government requires a bigger size. In order not to

have problems, we don’t use any language. We put a clean design of the watch and

the Rolex logo. I think the Rolex brand is globalized. We don’t need to explain

anything; we just want to introduce a new model of the product.

Earlier you mentioned that Rolex pushed you to go to Tokyo. What do you mean by

that?

We don’t want to go to Tokyo because we don’t have any connections. In Tokyo,

there are two very big advertising agencies. One occupies a lot of railway stations and

also very important buildings. We went there as a request from our client because the

Japanese is one of the biggest markets. People there buy a lot of Rolex but we cannot

control our cost, we need to accept a reasonable cost but we don’t want to keep our

Rolex (price) low.

Basically we cannot make money, we lose money. We lose two million dollars. We

earn that money back from Switzerland, Hong Kong and Shanghai. So you see, in the

outdoor advertising that you cannot control if you don’t own building you have to

negotiate with them. By the way, if you don’t have connections you need to add one

more middle man, like now in Japan. So the cost will be very high, out of our control.

We think that because we do global marketing we use a single strategy for four

markets. Tokyo is the cost center, not the profit center. We cannot make money. We

make money from the other three so we can compensate. Without Tokyo, we cannot

have the whole project.

How can Force Promotion compete with the other big agencies?

Force Promotion is very small, very localized. In Switzerland, it’s very famous.

JCDecaux is much globalized and they have much bigger revenues than Force

Promotion. We are not as big as they are. In terms of outdoor advertising, I think

JCDecaux is the major shareholder over the world. But we have our own connections.

We have our niche market focusing on watches.

How do you select the location?

We select in high trafficked area, touristic area. Our client would like our

advertisements to reach the mainland people so that’s the reason to have in Tsim Sha

Tsui in Hong Kong. In China we found in Shanghai and in very important cities. In

Japan we find Tokyo. So to make sure we have a large exposure, high trafficked

where more people can see them. In Switzerland we put in the tallest building so

people can see the ads.

How is the performance of Asia compared to Europe?

This is a very good question. The majority of the brand names come from Europe,

either Europe or the USA. Who is going to buy this? The new economy people: India,

Russia, China, of course Brazil; the BRIC however, Brazil is not the issue that we

discuss here. Asia is a very important market because it is booming. The US and

Europe market share, as I know, for Rolex is decreasing. Last year, Asia already had

over 45% (market share). So you see, if we do not come to Asia, Rolex loses a lot of

money.

How did you first enter to Asia if you didn’t have any connections?

When doing advertising, the major concern is not only to choose which country you

are going to go. The most important is to get the project first. When you get the

project, you have the budget. For example, in this case we got 18 million dollars but

we have to think about how we are going to divide it in four countries. If you don’t

find selectively (strategies) within your budget, you cannot make money. For example,

in the case of Japan we cannot make money. And if we didn’t have good negotiation

power, we could not make good either in Hong Kong. Then, there would only be

Switzerland where you can control your cost and the other in Shanghai. Then, the

total income for outdoor advertising would not be bigger than what you can imagine.

Do you understand?

So that’s why we have to try to find more locations; that is what we call negotiation of

prices to press down the prices. Otherwise you don’t have chances.

Is there anything else you would like to add about Force Promotion?

Force Promotion is a family business. They are very strong and with good networking

in Switzerland. You may say that Swatch could do their advertising for themselves.

But they just want to do a model design focusing on products innovation and then

they outsource the advertising to external agents like us. I think because of the

globalization of markets there are so many big companies that won’t complete their

jobs with their own hands; they would like to outsource certain parts to the rest of the

world. For example, Apple outsources the assembling of the iPhone to a Chinese

company.

The logistic fee is going to be very high.

Why Swatch chose you and no another agency?

We are just working for them. We are exclusively dedicating our time and effort to

them. We use a focus strategy, working only for one or two clients. Unlike JCDecaux

that has over 300 clients. They are not very focused or put priority.