Killing the messengers - the advertising crisis

September's terrorist attacks produced a lot of collateral economic damage in Asia, but one of the most immediate blows has been to the psyche of the region's print and broadcast media. Regional ad spending was already slumping along with economies in Japan, Hong Kong, Taiwan and Singapore prior to the attack. Since then, business confidence has wilted. "It's as if September 11 drew a thick line under the downturn," says Pinder. "Before that, advertisers may have been on the fence: Do I stay or do I stop the ads? Afterwards, there was no question _ it was time to get out".

Through August, advertising sales at some regional TV stations had already dropped by 15 % to 20 % compared with the same period in 2000, say industry observers. Print publications, whiplashed by the boom/bust evaporation of dotcom and technology ads, were also suffering. According to global advertising research firm CMR International, ad revenue at 21 of Asia's largest English-language magazines and newspapers fell nearly 5 % during the first half of the year to about $140 million.

CMR reported steeper declines for individual publications. Ad revenue for the Asian editions of Business Week and FORTUNE declined by 23.7 % and 18.3 % respectively. (FORTUNE is a sister publication of AsiaWeek. An AsiaWeek executive says the magazine's ad revenues have fallen by a similar amount). Figures from AC Nielsen showed travel and telecommunications were the sectors doing much of the retrenching, with Thailand and Malaysia among the hardest hit countries.

What was a downturn is shaping up to be one for the worst ad droughts in memory. The attacks "are having an impact", says Paichit Thienthong, managing director of Thai media buyer Carat Thailand. Clients are cutting spending by 20 % to 30 % in the fourth quarter, she says. The period is normally a time when spending surges as advertisers unload budgets that might be withdrawn the following year unless used up. Says a senior advertising sales manager for a Singapore cable-TV network: "Clients aren't returning calls, ad agencies aren't committing anything. Everyone's slashing their targets. The situation is dire _ plain and simple."

It's not merely a recessionary decline in company revenues that is causing the pullback. All around the world, September 11 created a more sombre climate in which companies are scrapping humorous or cheeky ad campaigns that suddenly seem inappropriate. Airlines were quick to exit from the scene after the attacks in keeping with a longstanding policy of shelving ads until the media coverage of major airline disasters subsides.

"This is not just about companies trying to preserve cash in a terrible economic climate," says Kim Faulkner, CEO of the Southeast Asian office of global branding consultancy, Interbrand. "Advertisers don't want to be seen sending messages that are not in tune with the mood."

Print publications are reacting to revenue reductions through sometimes drastic cost cutting. In Hong Kong, the English-language South China Morning Post newspaper this month laid off 18 journalists, about 5 % of its editorial staff. Those cuts came not long after a competing tabloid, iMail, fired most of its reporters and editors (about 80 people), reduced the number of pages it produces and announced plans to focus solely on business.

In Singapore, which is going through its worst recession since the 1960s, Singapore Press Holdings (SPH) has cut wages, closed some overseas bureaus, shut down Internet related ventures and cancelled its annual company dinner. Until recently, the company, which produces Singapore Straits Times newspaper, was one of the most profitable publishers in the world, with gross margins of more than 50 %. But newspaper ad revenues in Singapore dropped 27 % in the 12 months prior to September, according to AC Nielsen figures. SPH's revenues for the fiscal year ended August 31 declined 2 % while profit plunged 19 %.

Things could be worse, some advertising executives say. "With our major clients, there have been no significant cut backs in spending," says Miles Young, chairman of Ogilvy and Mather Asia Pacific. Multinationals such as Unilever and Procter & Gamble are going forward with significant campaigns in Asia, he says. "The overall picture in Asia is not one of disaster." China, in particular, has registered a 20 % gain in advertising spending this year, according to ad agency Grey Worldwide. But the market is softening. Says Stephen McKeever, media industry analyst with Lehman Brothers: "The idea that the China market is immune to the declining global environment is a fallacy."

The strength of the U.S. and global economies, rather than the war on terrorism, will determine how soon ad spending in Asia rebounds. "People in Hong King are worried more about 2002 than they are about what happened on September 11," says Viveca Chan, Grey Worldwide's chief executive for China and Hong Kong. With a U.S. recession looming, most expect the slump to be long and deep _ the worst since 1991, says McKeever of Lehman Brothers. "People are expecting that things could get worse before they get better, and that's why big advertisers are holding back on spending," says Patrick Mowe, honorary executive director of Singapore's Institute of Advertising. "Everybody is panicking." That's the worst thing you can do in a crisis. (Courtesy Asiaweek)

Distorted versions of the state of our economy

Since the last day of the nominations for the forthcoming parliamentary election and the campaign trail thereafter, I have been watching some interviews on the electronic media and reading some statements in the printed media on the present state of the Sri Lankan economy. Diverse views and comments have been expressed in these. I have been both amused and amazed at some of them. I thought it is my duty to give my own view on this, lest the public may get a distorted and incorrect picture of the real state of the economy today.

In 1993, the Sri Lankan economy grew at 6.9 %, the highest since 1982 when it was 8.2%. In 1993, the unemployment was 13.8 % and inflation was at 11.7 %. Thereafter the growth rate started falling except for 1997 and 2000 when it was 6.3 % and 6.0 respectively. The average annual rate of growth for the last six-year period 1995-2000 had declined to 5.1% from its previous average of 5.5 % (1990-1994).

The growth rate for the first quarter of 2001 was much less at 1.3 % and the second quarter at 0.4 %, giving an average of 0.9 % for the half year. This is the lowest since 1971. This economic collapse cannot be attributed to the terrorist attack on the Katunayake airport as it occurred in July, but could be attributed to the global recession as well as incompetent economic management. Nevertheless, some say our "economy is sound despite global downturn" (19 November, Daily News). How one can dare to say this with such a glaringly low growth rate is beyond our comprehension.

Asian countries like India and China have not collapsed and have been able to cushion the adverse impact of the global recession because they have been able to maintain strong domestic sectors. Sri Lanka, on the other hand, has depended far too heavily upon low value-added garment exports to the relative neglect of its domestic agriculture and manufacturing (SME) sectors, because of what I would call an export illusion. In the whole six-year period of 1995-2000, production of paddy, the staple food of the people increased by a trifling 2.3% whereas the population had increased by as much as 8.4 %. Subsidiary crops, in fact, declined. For example, the production of potatoes decreased by 67 %, chillies by 30 %, cowpea by 25 % and others by 10 % to 15 %.

Because of the export illusion and the rush for garment exports, plantation agriculture too received step-motherly treatment. All in all, in the five years 1996-2000, net output from each of the entire agriculture sector and export processing grew annually by a mere 2.5 %, whereas that from factory industries, 2/3 of which comprised textiles and garments, increased by nearly four times. This situation could have been averted if there had been better management of the domestic economy by the government.

The present government has also not been able to reduce the budget deficit and the rate of inflation to around 5 % by the year 2000 as repeatedly announced in its vision statements and budget speeches. On the contrary, in the year 2000, that is after six years in office, the estimated budget deficit was 9.8%, and the actual deficit may be significantly more. This is even worse than what it was in 1992-1993. According to the latest estimate of the Colombo Consumers' Price Index, inflation is running at more than 13 % at present, (in October, annualised average change was 13.6 % and the point to point change 14.6 %). This too was worse than in 1992 and 1993, when it was 11.4% and 11.7 % respectively.

The government claims that it has brought down the rate of unemployment to near 8 per cent (7.7 % in the first quarter of 2001). This claim too is highly questionable. In 1998, the definition of employment was broadened so as to include unpaid family workers, thereby arbitrarily showing a lower unemployment rate than the actual. Strictly speaking, unpaid family workers cannot be classified as employed. Dr. Colombage, former Director of Statistics of the Central Bank, puts the unemployment rate at 9 % in the first quarter of 2001, once the unpaid family workers are excluded from the employed figure (The Sunday Times, November 18). Furthermore, whatever increase there was in employment during the last six years of 1995-2000 was also due to emigration for foreign employment mainly to the Middle East rather than to generation of productive employment at home.

There was a dramatic increase in the number annually emigrating for foreign employment to 167,608 (registered numbers only) in 1995-2000 from 47,651 in the preceding six-year period of 1989-1994. If productive employment had increased significantly at home, then the growth rate would not have decreased so much as it had done and the economy would not have collapsed.

The number emigrating for foreign jobs is most likely to come down drastically this year, and unemployment, Dr. Colombage reckons, is likely to exceed 10 %. This problem of unemployment has been further aggravated because of the more pronounced unemployment among the youth and the educated. While there is about 25 % unemployment in the age group 15-24 years, 50 % of those unemployed are with educational qualifications of GCE (OL) or above and 33 % have GCE (AL) or above.

All in all, as shown above, economic fundamentals are weak, or there is serious internal imbalance as judged by the budget deficit, inflation, rate of unemployment and overall growth rate. The rupee has sunk to its lowest level ever vis-…-vis the dollar or sterling or other hard currencies, and the All Share Price Index and the Sensitive/Milanka Price Index have fallen by more than 50 % since 1994, again the biggest fall ever (barring the temporary turnaround on the announcement of fresh parliamentary elections). Hundreds of enterprises have been closed and large numbers of employees have been laid off during this period. All these indicate the extent to which the economy has collapsed. There should be no doubt in any objective mind that it is in dire straits.

However, the government stubbornly refuses to accept this reality. Instead, various members of the government and the supporters of the governing party have come out with various strange yardsticks or evidence in an attempt to maintain that the economy is sound. Let me examine some of them.

The president herself has produced two strange pieces of evidence. One is that the amount of chicken consumed in the country has increased. Surely, she could not have been so na‹ve as not to know that the major reason for this is that our fish-eating community can no longer afford the inordinately high prices of fish relatively to prices of chicken, and has therefore shifted from fish to chicken, a symptom of relative poverty, if at all, rather than of prosperity.

There has also been a shift, one must note, from beef to chicken for religious and health reasons. It must, however, be noted, that even at the relatively low price of chicken, the shift might not have worked among all groups. It might not have been still affordable for the poorer segments of our people. If it were not so, would there be as much as 40 % malnutrition among our children as our president herself unashamedly announced to defend herself from the "onslaught" of Tim Sebastian of BBC.

She has also questioned how 80 % to 100 % increases in wages and salaries of public servants and teachers could have been given by her government if there had been an economic collapse. Shockingly, after being Finance Minister for more than seven years, has she not really understood that they could be met with inflationary or deficit financing, without corresponding increase in real national income? Or is she merely trying to mislead the voter? How could she justify in the same breath, the increases in salaries and pensions offered in October (fourth quarter), this year when the growth rate has been dramatically falling from 1.3 % in the first, to 0.4 % in the second and most probably to less than zero in the third quarter, and the increase in real income or economic prosperity has been hardly any!

Then there are those, not excluding the president, who, at numerous television interviews (there was one such interview a few days ago chaired by Mr. Kingsley Wickremaratne, Presidential Advisor) who used to insist that there had been a marked increase in economic prosperity rather than a collapse during the last six/seven years by virtue of the fact that the per capita income had increased substantially both in Rupee and Dollar terms. Yes, per capita GNP or income had increased from US$ 652 (Rs. 32,215) in 1994 to US$ 841 (Rs .63,752) in 2000. But what they do not realise or deliberately try to hide from the viewer, was the fact that these incomes were at current market prices. At constant prices or 1994 dollar prices the per capita real income had hardly increased during this period. According to the Colombo Consumers' Price Index, the price level had risen by 80 % during this period. The actual rise, as judged by changes in prices of individual, essential consumer goods may be as much as 100 %. Those of us who have been going to the market regularly to buy our provisions would have noted that the prices of rice, coconuts, dhall etc. have risen by even more than 100 %, over their 1994 levels. In the same vein, in some big newspaper advertisements directed to voters, the government has boasted about development showing a rise in education expenditure, using inflated (nominal) values, and not constant (real) values.

It is also amusing to hear or watch others coming out with the increase in the number of telephones or trishaws as symbols of increased economic prosperity during 1995-2000. No doubt, the number of telephones has increased. But where is this increase? It is the members of the small affluent class in the household as well as the business sector who used to have one telephone before, now having two or three or more including cellulars. They are the small group who has benefited from the open economy and globalisation.

It is also true that the number of trishaws has increased by more than 25 % during this period, but not by ten times (or 1000 %) as some have tried to exaggerate. But the average (per capita) income of the trishaw driver has fallen significantly in real terms. 

To conclude, all indications are that the economy is on the verge of complete collapse and urgent and immediate remedies are needed to resurrect it and move forward. Let any party, which has the capacity to understand the problems of the economy and the country, and the capability to manage its affairs well, come into power on its own merit. Anyone who has the genuine love for this country and its people should not distort the facts and mislead or hoodwink the public merely to "catch" votes, and gain power for the sake of very attractive personal perks/benefits it may offer.

Employment : Gone with the wind

Hong Kong Web solutions firm Lemon laid off half of its 50 employees earlier this month, and nothing anyone can say is going to make CEO Neil Runcieman feel better about it. Telling trusted staffers they were out of work "felt horrible" says Runcieman. "Even though intellectually you know it's the right thing to do for your business, that doesn't make it any easier to send people into an environment where you know they'll have a hard time finding a job. All you can do is look at the deck of cards that's been dealt to you and go from there."

As Runcieman can attest, layoffs are among the toughest challenges a manager can face. But as regional economies sputter through the second major downturn in five years, face them they must. The roster of companies announcing major layoffs reads like a Who's Who of Asian business _ Bank of China: 500 workers; Singapore Press Holdings: I00; DBS Vickers: 252; Hitachi: 3,I00. Burgeoning unemployment is even sparking backlash in places such as Hong Kong, where several local politicians, fearful that waves of redundancies would further harm the local economy, volunteered to take pay cuts while urging corporate executives to do the same as a vaccination against mass firings.

The very real danger that layoffs pose to consumer confidence are matched by sometimes unforeseen perils awaiting companies forced to shed staff. Poorly handled layoffs can foster resentment, erode productivity and tarnish a company's reputation. Eliminate too many positions in an all-out effort to reduce costs, and businesses risk crippling their operations. "The institutional pressure to overcut is almost irresistible," says Robin Sears, managing director of executive search firm Korn/Ferry in Hong Kong. "Then you end up with organisations in paralysis because you've cut into the muscle and bone."

Family-owned firms

Some companies, including Singapore Airlines, Singapore's DBS Group and SHK Financial Group in Hong Kong, are opting for salary reductions as an alternative to layoffs. SHK Financial, a brokerage and financial services firm, implemented pay cuts on a sliding scale, with senior management paychecks shrinking as much as 60%. Douglas Chen, head of marketing and corporate communications for SHK Financial, says his previous experience at investment banks showed him just how disruptive large layoffs can be. "It creates a huge shock to the system," says Chen. "I guarantee you that for a week after the announcement, no work will be done."

There are other layoff-related costs, such as severance pay and the less-tangible loss of organisational knowledge. When economies bounce back, rehiring and retraining employees can cost from six months' to two years' salary for every position restored, consultants say. "We don't like to consider layoffs because you lose your service level," says Therese Ortega, spokeswoman for the JW Marriott Hotel in Hong Kong. "The cost of hiring and training people up to the standard we want is quite high, and if the [economy] turns around very fast, there's no training time." The hotel's 800 employees agreed to forgo discretionary annual bonuses recently in hopes of saving jobs. Unfortunately, hope is not always justified. Companies that fail to adapt to economic conditions by carrying an oversized and expensive staff may be courting the ultimate job killer - outright failure.

Unpaid leave

SHK Financial Group sacked about a dozen of its less-motivated workers when it also cut salaries. "Its like [former General Electric CEO] Jack Welch's philosophy that every year you should fire the bottom I0% of the company," says Chen of SHK Financial, "because there's always some fat." Layoffs are never pretty, of course, but they can be made uglier if managers fail to handle them diplomatically. Hong Kong photographer Felix Wong, who in September lost his job when the English-language iMail newspaper slashed its newsgathering operation, says he resented the way employees were fired via an impersonal letter delivered via a courier service. Laid-off workers who went to the office to collect their belongings were met by a gauntlet of flash-popping paparazzi outside and prowling security guards indoors. No one could collect e-mails or contact information from their computers. "I did not understand why they would treat us like that," says Wong, 28, "because we had a good relationship with the company." Layoffs are best handled all at once, say consultants. Spacing them out over weeks or months creates an atmosphere of fear. "People wonder when the next cut is coming and that's bad for morale," says Marjorie Chang, senior manager of global human resources solutions at PricewaterhouseCoopers. Senior managers should be prepared in advance for the questions they will inevitably encounter. They should break the news to employees individually, face-to-face, and clearly explain the reasons.

Memo

"I wanted to do it as quickly as possible so people were not waiting to see if they were the next to be shot," says Runcieman. After that, he called the remaining staff into a meeting so he could answer questions "The CEO seemed sincerely sorry," says a laid-off worker. "He told us, 'just because you don't work here now doesn't mean you are not a friend tomorrow.' That was nice." Once the cuts are made, motivating the survivors is the next challenge. Some might worry they'll be doing more work for the same or less pay, and most will be losing workplace friends. "The best way to keep morale up is to keep them busy, talk to them, and don't expect too much too soon," says Runcieman. Some companies offer help desks, chat rooms or an open cafeteria with free food and drinks where employees can go to work out their grief. "There needs to be a lot of communication with remaining employees reassuring them that these are all the cuts planned," says Hugh Bucknall, regional human capital practices leader for consulting firm, William M. Mercer.

Eventually, a sense of normalcy will return to the workplace. "Asians are very good at saying, 'we've got pride in our company, we want to work together to get through these tough times'," says Bucknall. A stiff upper lip is always a valuable quality in a crisis. "Feeling sorry for yourself doesn't help anyone or anything, nor is it justified," says Runcieman. "After all, you've still got a job."

(Courtesy - Asiaweek)