YEAR IN REVIEW 1997: BUSINESS-AND-INDUSTRIAL-REVIEW

ADVERTISING (For a ranking of the Most Valuable Brands Worldwide, see Table.) Bolstered by the traditionally heavy spending associated with both an Olympic Games and a U.S. presidential election year, spending on advertising increased significantly in 1996, with those two events alone pumping as much as $1 billion into the media marketplace. Total U.S. advertising spending in 1996 was expected to climb 7.4%, to $172.8 billion, from $160.9 billion in 1995, according to forecaster Robert J. Coen of McCann-Erickson Worldwide. He estimated that national advertising spending would rise 7.9%, to $101.7 billion, led by strong growth in television and magazines. Local advertising was expected to increase 6.8%, to $71.1 billion. Political advertising had the greatest impact on local television stations in the U.S. in 1996, while the Olympic Games boosted spending nationally. NBC, a unit of General Electric, sold a record $675 million in advertising for the Olympics, with the average spot airing in prime time costing advertisers $550,000. Many advertisers bought package deals for $3 million to $20 million. Worldwide, advertisers spent an estimated $5 billion on Olympics-related campaigns, promotions, and events, a total that moved the trade publication Advertising Age to declare the 1996 Summer Games "the marketing event of the century." For 1996 ad spending outside the U.S., Coen predicted a total of $213.1 billion, up 7% from $199.2 billion in 1995. In all, worldwide advertising in all media, including Yellow Pages and direct mail, was expected to climb 7.2%, to $385.9 billion. Much of the increase was attributed to significant growth in spending in countries like China and Mexico. Signs that 1996 would be a robust year in the U.S. became clear in June when advertisers began buying time for the 1996-97 broadcast television season. Even as its audience was eroding, broadcast TV remained the ad industry's dominant force, with more than $5.6 billion of advertising time sold in what is known as the up-front market. According to Nielsen Media Research, the total share of audience commanded by the six broadcast networks declined from 78% to 74% during the 1995-96 season. The chief reason cited for the decline was that viewers were being attracted to a growing list of alternative programs on cable television. Still, "Seinfeld" and "ER," both airing on NBC, became the first regularly scheduled network TV series to break the $1 million-per-commercial-minute barrier. "Seinfeld" commanded $550,000 per 30-second spot, while "ER" fetched $500,000 for 30 seconds of commercial time. Advertisers continued flocking to the World Wide Web, the Internet's most user-friendly area, with scores of start-up companies creating Web advertising for firms like Levi Strauss, Saturn, and Colgate-Palmolive. Web-based advertising came in two forms; a company could set up its own Web site or buy an ad on someone else's site. Web expenditures were still tiny compared with the advertising dollars spent on newspapers, magazines, and TV. Only $37 million was spent on Web advertising in all of 1995, although the figure jumped to $66.7 million in the first half of 1996, according to Jupiter Communications. Long-term growth, however, might be stalled until the ad industry agreed on a way to measure the number of Web users who saw ads and the impression they made. Another controversy over audience measurement methods erupted when Advance Publication's Cond Nast division publicly dismissed Mediamark Research after complaining that the firm's audience surveys were outmoded and unwieldy. An industry task force convened by the Magazine Publishers of America joined with advertisers and media research companies to find ways to make the data more stable. Seagram officially ended the liquor industry's almost five-decade-old self-imposed practice of not advertising on television by airing a series of 30-second commercials for Chivas Regal and Crown Royal Canadian whiskeys on stations in Boston and Corpus Christi, Texas. The company's stance was that it was seeking to level the playing field with beer and wine, which advertised freely on television. There never had been a federal prohibition of advertising distilled spirits on television. One of the year's largest advertising campaigns came from McDonald's, which in May launched a $75 million introduction of the Arch Deluxe, the signature sandwich of a new line. The so-called deluxe sandwiches were aimed at increasing the chain's adult patronage. Tough new restrictions on the advertising of tobacco, proposed by U.S. Pres. Bill Clinton, would ban all imagery on outdoor advertising, in most magazine ads, and at points of sale. Tobacco companies would be barred from giving away brand name merchandise and from using brand names in sponsoring events or sports teams. Advertising trade groups claimed that the restrictions, which would become effective in 1997, would have an impact of $1,140,000,000 annually in spending on tobacco marketing, and they opposed the ban on the basis that it would restrict the advertising of what were legal products in the U.S. Consolidation among ad agencies continued in 1996. Paris-based Publicis acquired a controlling interest in BCP, the seventh largest ad agency in Canada, and also bought 51% of Romero y Asociados, in Mexico City, and 60% of Norton Publicidade, based in Brazil. D'Arcy Masius Benton & Bowles, meanwhile, agreed to buy N.W. Ayer & Partners, which was the oldest U.S. advertising agency, founded in 1869 in Philadelphia. Omnicom Group acquired Ketchum Communications, a specialty business marketing firm. Despite some progress, women remained unhappy with the way they were depicted in advertising, according to a survey by Saatchi & Saatchi Advertising, a unit of Cordiant. The ads that appealed to the women polled reflected values they considered important, such as the ability to be both caring and competent. This suggested that if advertisers created messages celebrating these values and accurately conveying women's changing roles, they were more likely to succeed. (LAURIE FREEMAN) This article updates marketing. AEROSPACE The economic health of airlines generally continued to rise throughout 1996. Predictions were that profits for the U.S. industry would break all records, despite a substantial rise in spot fuel prices as a result of Middle East tensions and the failure of Iraqi oil to come on-line. Improvements were attributed to severe cost containment, closer control between traffic and capacity, more stable fares, and the pruning of unprofitable operations. British Airways, which maintained its standing as one of the world's most efficient operators, said that it would cut 5,000 jobs (10% of its workforce) and reduce cabin staff wages by 40%. Because airline revenues had improved, there came a surge of orders for new aircraft as well. By August backlogs stood at 1,114 for Boeing, 211 for McDonnell Douglas, and 651 for the European consortium Airbus Industrie. Boeing announced plans to take on an additional 10,000 workers by year's end, although hiring was difficult as workers began to rebel at the continuous stop-and-go pattern of employment characteristic of the aerospace industry. The two principal commercial transport builders, Boeing and Airbus, began positioning themselves for the next round of orders. Boeing's major new project was the 500-seat 747-500/600, to succeed the 747-400, with the company projecting sales of some 350 aircraft through the year 2014. Also a priority was the Boeing 777-100X very-long-range twin-engined transport. Boeing hoped to launch both types by the end of the year. Airbus was looking for international partners--perhaps a consortium of South Korea, Taiwan, and Singapore--to launch the 540-seat, double-deck A3XX long-range, wide-body transport during 1997-98, at an estimated cost of $8 billion. Russia was viewed as another potential A3XX partner, with perhaps a 20-25% stake. Meanwhile, to broaden its product base, McDonnell Douglas was studying the MD-20, a project midway between its 300-seat MD-11 trijet and the 150-seat MD-90 "twin." To power the new U.S. and European four-engined transports, the two U.S. big-engine companies, Pratt & Whitney and General Electric, agreed to pool their resources to produce a more efficient engine of approximately 76,000 lb of thrust. Given the huge cost of developing the new high-bypass power plants, they felt that the big-engine market was not adequate to support three companies (the third being Great Britain's Rolls-Royce). The industry's most spectacular news--the $13 billion acquisition of McDonnell Douglas by Boeing--was announced in mid-December. Moving quickly after McDonnell Douglas had been eliminated from the bidding on the Pentagon's huge Joint Strike Fighter project, Boeing concluded the largest aerospace merger in history and created a behemoth of a company with 200,000 employees and $48 billion in estimated revenues for 1997. The European regional aircraft business consolidated when British Aerospace joined with ATR (itself a consortium of France's Aerospatiale and Italy's Alenia) to form Aero International Regional, a marketing company, for their range of such aircraft. In January Germany's Daimler-Benz AG group abandoned its historic but ailing Dutch subsidiary, aircraft builder Fokker. The Dutch government gave the company short-term funding to continue work on its backlog of regional transport aircraft while potential purchasers were sought; the manufacturer, however, declared bankruptcy in March. By year's end hopes had fizzled that the Korean Samsung group might buy in. Daimler-Benz also disposed of Dornier, another historic name, to a holding company with an 80% share held by Fairchild of the U.S. The French industry also continued in crisis, and the government requested that Aerospatiale and Dassault merge to form a single, national airframe group, with a view toward privatization. Thomson SA would become the core of the national defense and electronics group. The Arab and Pacific Rim countries continued to expand their aerospace visibility by means of the burgeoning number of international air shows in Dubai, Malaysia, Singapore, Indonesia, South Korea, and China. Berlin and Farnborough, Eng., constituted Europe's shows. Farnborough was notable for the first appearance of the experimental Russian Sukhoi Su-37 long-range fighter. It demonstrated an amazing tumble maneuver that in combat would enable its weapon sensors to lock on to an adversary regardless of its position relative to the enemy fighter. Also at Farnborough, Britain signed up to launch production of the Eurofighter 2000--Europe's biggest military aircraft program--and waited for partners Italy, Germany, and Spain to do likewise. The Northrop B-2 stealth bomber flew direct to Farnborough from the U.S. on the first day, circled the show but did not land, and returned to its base. It represented the kind of strategic, long-range operation that U.S. Air Force B-52s had achieved earlier in the summer, operating against Iraq from a U.K. airfield in the Indian Ocean because no other country would base them. The most famous name in U.S. airline history came to the fore again in 1996 when, during September, a revived Pan Am (the original had gone bankrupt in 1991) began scheduled services with three aircraft. The new company, however, intended to operate only an internal, long-haul U.S. route network, a far cry from the international visibility of the famed flag carrier of earlier times. (MICHAEL WILSON) This article updates aerospace industry. APPAREL Allegations of widespread sweatshop and labour abuses, both in the U.S. and elsewhere, plagued the apparel-manufacturing industry in 1996. The discovery of an apparel factory in El Monte, Calif., where undocumented Thai immigrants were being forced to work off the cost of their passage to the U.S. galvanized government and union activists. The issue exploded into the public consciousness when television talk show host Kathie Lee Gifford was accused of using sweatshops in Honduras and New York City in the manufacture of women's apparel bearing her name. Gifford made tearful protestations of innocence and indignation. Such celebrities as Michael Jordan, Jaclyn Smith, and Kathy Ireland were also accused of using sweatshops in the manufacture of their apparel and footwear lines. The U.S. apparel-manufacturing industry struggled to adapt to increased foreign competition brought about by the North American Free Trade Agreement and by the gradual elimination of trade barriers under the World Trade Organization. Apparel manufacturing in the U.S. continued its employment decline, dropping to 833,000 workers by September 1996. Increasing competition from low-wage countries caused more U.S. companies to consolidate their domestic operations and, in some cases, to move production facilities offshore to Mexico and Central America. U.S. consumers again split their apparel dollars equally between U.S.-manufactured and imported clothing. The source of imported apparel continued its shift from traditional suppliers in East Asia (China, South Korea, Taiwan, and Hong Kong) to Mexico and Central America. The adoption of "quick-response" manufacturing practices by U.S. companies, in answer to retailers' demands for short-cycle production and just-in-time inventory, prompted greater U.S. investment in manufacturing facilities in the Western Hemisphere. The recurring spectre of a trade war with China, reinforced by a proposed U.S. government sanction list of apparel and textiles from that country, also caused many U.S. importers to look for more reliable sources of apparel products. Price deflation made consumer apparel one of the best values for disposable income in 1996, yet spending did not increase demonstrably. Among the bright spots were garments appropriate for casual office wear, a category that appeared to confuse many consumers and that prompted huge retail promotions. A survey conducted by Levi Strauss & Co. indicated that as many as 90% of all U.S. workplaces had adopted a casual policy, with more and more companies, such as IBM and the Ford Motor Co., switching to a full-time casual policy. Another interesting shift in apparel consumption was an apparent shift to "investment" purchases; consumers during the 1995 holiday shopping season seemed to buy a few comparatively expensive luxury items, rather than ordinary apparel. (ALLISON WHEELER WOLF) This article updates clothing and footwear industry.