Sample Case Study Paper on Chinese advertising industry

Case Study

Situation

The case is about the Chinese advertising industry. The Chinese media industry has always been under strict state control in terms of editorial content. The Chinese government has very strict regulations for both electronic and print media. However, it is interesting to note that, unlike other sectors, the outdoor advertising industry began from a position of chaos. As the industry began, there was very little government control or regulation of outdoor advertisers. The industry was highly fragmented and consisted of numerous independent players, each of which controlled a small sector of the market. Each of these players was independent and there were no large companies with a national presence, as each of the outdoor advertisers carved a niche market for themselves.

However, when China won the right to host the Summer Olympics in 2001, there was a profound change in the outdoor advertising industry. As the Olympics approached, the Beijing city authorities decided to spruce up the image of the city with a beautification program. This involved the tearing down of old buildings as well as some of the outdoor advertising billboards in a bid to reshape the urban landscape. After the rebuilding of some city areas, the Beijing authorities opened new advertising lots and asked interested parties to bid for the new lots. The bid was a sort of competitive open tender, where all the outdoor advertising players were present. The nature of the tenders favored the bigger and wealthy companies, who could afford to pay the relatively large sums of money that were needed to acquire the lots. Therefore, in one fell swoop, the city administration reordered the outdoor advertising industry. At the end of the bidding process, the advertising market had changed drastically with big, dominant advertising companies emerging. Smaller companies merged and others were acquired to leave a few dominant players in the market.

Stakeholders

There are a number of companies, which are in the Chinese advertising scene. They include:

  • Tulip Mega Media
  • Advision
  • Focus Media
  • Clear Media Limited
  • JC Decaux
  • AirMedia Group Inc.
  • Vision China Media Inc.

Target market

Tulip primarily targets the Chinese market. However, with the nature of outdoor advertising being that it requires vast volumes of people to be viable, the target market has been reduced to the urban population. This is restricted mainly to what is considered first-tier cities, for example, Guangzhou, Shanghai, Wuhan, and Beijing. These cities not only have huge populations but also a population that is relatively affluent with a sizeable middle class. These cities command over 65% of the total spending done by the outdoor advertising industry. Outdoor billboards are placed in strategic downtown areas with the highest traffic to maximize their reach. Tulip media has a presence in over 12 cities in China, with major operations in Shenzhen, Beijing, Guangzhou, and Shanghai.

Competition

Tulip is a major player in the mega LED segment of the outdoor advertising industry. The other major player in this segment is Advision. Both Tulip and Advision advertising agencies are based in Shanghai. This means that the two companies are in fierce competition with each other to get a share of the advertising budget of clients. While Tulip had 30 mega LED displays, Advision had planned to build 35 mega LEDs by 2008. Both companies had funding from private equity firms, which had helped them in their growth as well as acquisitions. Although Tulip and Advision are currently in private hands, the owners of Tulip are planning to take it public to better leverage funding from the public for future growth and expansion.

Problems/solutions

Tulip faces a number of challenges even as it seeks to consolidate its market position as a leading player in the mega LED sector. Some of the problems the company faces include:

Increasing competition from new entrants into the mega LED advertising sector. Phoenix Metro Media, a subsidiary of Phoenix Satellite Television Holdings Limited has received a substantial cash injection from the parent company to expand into the mega LED sector. This is a substantial threat to Tulip because of the financial backing that Phoenix Metro is likely to receive from the parent company. Tulip has to invest in more LEDs as well as ensure that it obtains the prime lots in the city to situate its billboards. The company should leverage the good working relations between the city officials and the company owners to strengthen its position within the sector.

Secondly, there is increasing competition from Focus Media, which is increasing its number of roadside LED displays. Although the roadside LED displays may be smaller than mega LEDs, they nevertheless provide advertisers with an alternative outdoor advertising avenue. To counter the threat from Focus Media, Tulip should consider diversifying from the mega LED sector. The over-reliance on the mega LEDs as the company’s primary revenue driver leaves the company exposed to changes in the advertising industry. The company should consider setting up its own roadside LED display network. The company should also consider exploring the possibility of using other media for advertising, for example, public transport and buildings.

Another problem the company faces is uncertainty about future growth in revenue and profitability. The uncertainty is because the Olympics are driving the current demand for advertising services. After the Olympics, it is uncertain if there will be sustained demand for advertising services. Due to this uncertainty, it is important that the company does not overstretch itself. While there is a need to enhance its network of mega LEDs, the company should only place the mega LEDs in areas as well as numbers that will be manageable post Olympics. The company should also think of diversifying its revenue streams so that it is not negatively affected post Olympics. The company currently has a presence in at least twelve cities. Therefore, the company should strengthen its operations in each of these cities. This will help in the diversification of the revenues streams and ensure that the company is not overly reliant on the revenue from a single city.

As currently constituted, Tulip faces a problem of political uncertainty. Its current dominant position in Shanghai has been built on the back of the cordial relationship between the company founders and the city officials. Political goodwill is not permanent, as a change in city officials may lead to a loss of privileges currently enjoyed by the company. The company needs to take steps to guard against future losses due to changes in the political climate. Therefore, there is a need for the management structure of the company to be overhauled so that professionals can run it. Currently, its founders, Zhuang and Wang, run the company. While their value to the company cannot be underestimated, they should leave the running of the company to managers and remain in an oversight role. Once the company is professionalized, it is on a more secure footing as its success cannot be pegged on political connections, which can change for the worse any time.