MARKETING FOCUS: Hit by the fallout as tigers topple - The effects of the East Asian currency crisis left many UK marketers reeling. But keeping your head could pay off in the long run, writes Nigel Cassidy

When the price of oil rose four-fold in 1973, hardly anyone imagined that a simple hike in energy prices could herald a global business recession, rampant inflation and a near collapse in property prices.

When the price of oil rose four-fold in 1973, hardly anyone

imagined that a simple hike in energy prices could herald a global

business recession, rampant inflation and a near collapse in property


Twenty-five years later, producers of fast-moving consumer goods and the

companies serving them are trying to gauge the aftershocks of another

potent financial event: the series of currency collapses beginning in

Thailand last summer that saw countries such as Indonesia, South Korea,

Malaysia and the Phillipines lose almost 80% of their foreign spending


The initial impact was swift, with some high-profile setbacks for inward

investment in the UK, notably Hyundai’s retrenchment from making

computer chips in Scotland and Samsung closing its European power base

in west London.

But these countries had also been some of the hottest growth areas for

providers of marketing services. Just about any company active in the

region soon had a list of customers who either couldn’t pay or had lost

their ability to fund projects with UK partners.

One of the main priorities for afflicted Asian companies will be to

shore up their finances at home by repatriating as much cash as

possible. For example, Korean and Malaysian car producers Daewoo and

Hyundai may be tempted to use the devaluation of the won and the ringgit

to make savage price cuts and increase their share of the European car

market from its present

2%. However, this could undermine their brands and wreck their strategy

of presenting their models as equal in quality to their western


But according to Garel Rhys, professor of motor industry economics at

Cardiff University Business School: ’They won’t think twice about

cutting prices more savagely in places such as Taiwan, Thailand and

India. There, European and US manufacturers will really feel the


Consumer electronics and computer companies in particular have been

bracing themselves for an expected flood of cheap imports. But, given

the rapidly falling prices of computer hardware in general, the causes

go beyond East Asia’s financial woes. And, unlike in the US, there have

been few calls for protection. Bordan Tkachuk, chief executive of the

UK’s sixth largest PC maker, Viglen, said it was ’inconceivable’ that

the industry would ask for protection from dumping.

Producers of luxury brands with considerable market penetration in the

region also suffered in the currency crash. When an imported luxury

product suddenly costs five or six times as much as a local one,

consumers inevitably question whether it can possibly be worth that


Evidence may so far be only anecdotal, but undoubtedly consumers in some

of the tiger economies are starting to shun the Western brands they had

been so keen to get their hands on. Many companies have been affected,

and probably none more so than Diageo - the merged Guinness and Grand

Met drinks company which sells Smirnoff, Gordon’s and J&B whisky.

Two weeks ago, the full impact of the crisis was disclosed: a pounds 35m

decline in interim profits in the region for its spirits division,

United Distillers and Vintners. Sales in Thailand fell by almost a

third, with earnings dented everywhere in Asia by exchange


Diageo insists that, since it is now much larger, it is better placed to

ride out jolts like these, which account for a proportionately smaller

number of overall sales. The strategy is straight out of the marketing

textbooks: Diageo subsidiaries are pushing cheaper products while

protecting expensive ones by putting their prices up.

Road to recovery

As Tony Greener, joint chairman of Diageo, puts it: ’We are managing our

businesses in Asia to ensure that our brands maintain their premium

market positions and will therefore be best placed to take advantage of

any recovery. As part of this strategy, price increases are being

progressively implemented.’

Another big player to publicly spell out the nature of its Asian

exposure is Unilever, owner of a string of international brands, such as

Omo and Lipton’s, and a clutch of local products, ranging from Viso

detergent in Cambodia to Asian Delight ice-cream in Singapore.

On the face of it, Unilever looks particularly vulnerable, given its

relatively recent decision to concentrate on developing markets. But

chairman Niall FitzGerald is confident the company can ride out the

storm. ’Although we will see some slowdown in 1998, our priority in the

short term is to safeguard margins, market shares and cash. Asia has a

young and well-educated population which will represent a significant

source of profitable growth,’ he says.

Former Unilever marketing director Peter Dart spent four years in the

Far East and has detected a cooling of interest in a raft of Western

brands, including Clinique, Calvin Klein and Nike. ’The crisis seems to

have given consumers permission not to feel the need to pay a premium

for a status symbol. People are becoming a little wary and


David Muir, head of new business at Ogilvy & Mather, which has offices

in Asia, says valuable lessons can be learned from the way Phillip

Morris bit the bullet and sent shock waves across world tobacco markets

by slashing its prices, reversing a policy of jacking them up as much as

the market would stand. As a strategy, this is the reverse of


’The younger generation, in particular, seems to have been traumatised

by the crisis. Super-premium brands can no longer command the sales

drinks companies like Diageo had come to expect,’ says Muir.

The younger generation in many Asian countries is proving surprisingly

patriotic, and has responded with vigour to government campaigns

explaining how consumption of foreign goods threatens people’s


This syndrome is most marked in South Korea, where a ’Buy Korean’

campaign aimed at conserving scarce foreign exchange has struck a chord.

Korean TV entertainers have traded in their Mercedes and BMWs for

Daewoos and Hyundais. Chrysler’s Korean sales in December fell from 200

cars to just 34. Inchcape, once the top importer, has shut down its


’Are you wearing dollars?’ ask ads for Pro-Specs sports shoes, while a

leathergoods company wore its heart on its sleeve with the hand-wringing

legend ’Dinno Galluci is fighting its way out of these humiliating IMF

times through exports’.

Advertising agencies have been particularly affected. The Interpublic

Group was among the first to lay off almost one in ten of its Thai


Agencies are, however, reluctant to say which campaigns have been

curtailed or cancelled.

Neil Blackley studies the major quoted agency networks for investment

bank Merrill Lynch and has just downgraded his profit estimates. He

believes Cordiant has the most exposure, with 28% of revenue coming from

the region.

For WPP and Saatchi & Saatchi the figure is 14%, while US group Omnicom

generates around 5%.

But Blackley says an agency would be foolish to make judgements simply

on the basis of currency factors. ’You have to be in it for the long


And it’s not all bad. Every agency loses money when it starts in a new

territory, and if the local currency weakens that means your losses are

reduced in dollar terms,’ he says.

Currency crisis

Dart says that many customers in Indonesia, Thailand and the Phillipines

can no longer afford western design expertise and research. ’If a

currency has fallen fivefold, knocking even 30% off a bill isn’t going

to help. All you can say is that merchandise from these countries is

getting far cheaper in hard currency terms.’

That is one reason why producers of branded goods will have to steel

themselves for a wave of counterfeiting. Rupert Ross-Macdonald, an

intellectual property lawyer with Rouse and Co International, based in

Jakarta, Indonesia, says the expense of imported goods will mean it is

more tempting than ever to make cheap copies.

Saatchis’ chief executive officer, Kevin Roberts, is convinced that too

many players have panicked and abandoned Asian markets too hastily,

having spent years building up trust and contacts.

US multinationals have been particularly prone to this, recalling many

ex-pats. Roberts says they are reacting not so much to a sober

assessment of the prospects on the ground but to the reporting of the

crisis in their home countries, where initial analysis has focused on

how corporate profits have been shot to pieces.

Yet its not just boardrooms in the US or Europe which are pulling the

plug on their marketing spending. Roberts says that it is often the case

that regional managers in, say, Hong Kong or Singapore are not much

better informed than those at home.

Saatchis has noted how airline and hotel ventures are proving

particularly vulnerable to the jitters in the market. One example is the

overnight termination of a Vietnamese hotel deal that took months of

negotiations with local business interests.

The car market in Thailand shows the need for businesses to keep their

nerve. Roberts reckons there are five main players. Assuming total sales

fall by up to half, any firm that retrenches risks seeing its sales not

so much decline as fall off a cliff.

By contrast, a car company that increased its spending might not only

manage to raise its overall market share but would also stand a good

chance of knocking out weaker competitors for good. ’Markets tend to

consolidate in bad times. It’s worth remembering that you tend to make

money only when other people are losing it. You have to look upon all

this as a hiccup in your ten-year masterplan,’ says Roberts.

Roberts insists that if they have the choice, FMCG brand owners should

put their foot on the gas. It is also a fact that those who stand by

their Asian partners will be remembered, while those who take the first

plane home may find they are not welcomed back.

Nigel Cassidy is business correspondent for Radio 4’s Today



- UDV’s profits in in the Asia Pacific region fell by pounds 35m in

1997. The Johnnie Walker whisky brand was particularly affected.

- Chrysler’s South Korean sales in December fell from 200 cars to


- Asian retail sales were down 20% at the end of 1997 and fell 45% to

50% in Malaysia and Indonesia.

- Advertising spend in South Korea fell 26.3% between December 1997 and

February 1998.


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