How are HK agency leads coping with shrinking economy (and a possible recession)?

The outbreak of COVID-19 pandemic since early 2020 dealt a significant blow to global and local economic activities, of which Hong Kong’s economy shrank by 1.4% in the second quarter of 2022, compared with the same period last year. The continued impact of the fifth coronavirus wave, dragged the city into a recession, according to preliminary data released by the Census and Statistics Department on 1 August 2022. 

The advance estimates also showed that the growth domestic product (GDP) in Hong Kong decreased by 1.4% in real terms in the second quarter of 2022 from a year earlier, compared with the decrease of 3.9% in the first quarter. The decline of GDP was mainly attributable to the weak performance in external trade during the quarter. A recession is defined as a contraction of GDP for two or more successive quarters. The last time Hong Kong fell into recession was in 2020 during the initial phases of the Covid-19 pandemic.

Looking ahead, the worsening global economic prospects will continue to weigh on Hong Kong's export performance in the remainder of the year, with elevated inflation in the advanced economies amid supply-side disruptions and persistent tension in Ukraine. The stepping up of monetary policy tightening by many major central banks in response are expected to dampen economic growth significantly, said a government spokesperson.

But this isn’t the first time the city has gone through an economic turbulence. We don't have to think too far back to be reminded of the experiences of Asian Financial Crisis that hit Hong Kong hard in mid 1997 as well as the harshest years during SARS from 2002 to 2003. 

Simone Tam, dentsu International HK’s CEO said, noticeably there are budget increases and decreases in different areas of businesses - including marketing. “As one would expect, traditional media is slightly on the down, but we have seen high growth in areas such as performance marketing, data analytics and eCommerce,” Tam added.

Tam added that there are "recurring conversations" around the adjustment of marketing spend since the beginning of the pandemic, and this is part of the new norm. "More than ever before, as business partners to our clients, it is our job to make their budgets work harder with strong strategic thinking, high creativity, channel planning, content creation, customer experience, performance marketing,” Tam said.  

Echoing with Tam is Terry Tsang, director of Narrow Door, who said that client budget shrank drastically since 2020 due to the pandemic, “It has come back in 2022 but has not returned to previous level,” Tsang added.

How do agency leaders plan for economic downturns? 

Narrow Door’s director Tsang suggested that agencies have to keep a very lean structure and work with clients with good creditability. “We engage freelancers as much as possible as most clients award us on project basis. We also insist on getting deposit before commencing production. For new clients who are looking to pitch, we will ask for a pitching fee,” Tsang added.

While different business sectors are under great economic pressure, it is important to understand clients KPIs and be empathetic, dentsu International HK’s Tam explained. 

With any economic downturn, comes uncertainty that trickles down to staff morale. “We understand that our staff may be worried, therefore at the agency, we over communicate our vision and our growth plans with practical action in place," added Tam. "We share our business update with full transparency at every monthly townhalls, so our people know there is nothing to be worried about as our numbers are fully on track." 

But every difficulty brings opportunity, and agencies would be best placed if they take on a positive outlook, shared Prizm Group's director Jeffrey Hau and senior account director Kelvin Wong. For example, Prizm experienced its highest growth for its eCommerce division in the past two years amidst the lockdowns and difficulties.

"To get prepared for the future, agencies need to nurture teams that carry agile mentalities and are eager to learn technical skillsets and industry domain knowledge. That is beyond doubt crucial. It is sometimes not just for survival, but also a paradigm shift," Wong added. 

Agreeing with Wong is Jarvis Wong, director of Omelette Digital, which said: "Be optimistic, embrace the unpredictability rather than worry about it. With the advantage of being a local agency, we enjoy the freedom to keep our talented team lean and flexible, focusing our entire efforts on figuring out how to provide tailor-made business solutions for brands."

Precautionary steps to take in advance 

As an agency leader, Tsang said he is always aware of the changing needs of the clients and his company will be flexible for any upscaling and downscaling of project during planning stage, “To maintain a stable income, we only retain clients with reasonable profit margins and constantly look for new and promising clients.  On internal financial control, we will keep one year operation cost as cash flow and we will never lay off staff due to redundancy,” Tsang added.

On the other hand, dentsu International HK’s Tam said that an agency’s day-to-day business should always be ready to react to the ever-changing climate instead of relying on specific short-term schemes. “So, I wouldn’t say [these are] precautionary steps, but rather having an agile mindset. We need to understand clearly where our business can grow in the future in lieu of chasing instant trends, but at the same time be able to understand what’s happening around us for us to reset our pace,” Tam added.

Omelette Digital's Wong said that it'd be better to perform a SWOT(strengths, weaknesses, opportunities, and threats) analysis for the team and stay humble to determine what enhancements need to be made, "By doing so, we can stay prepared to seize opportunities whenever they arise," Wong added. 

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