Ad holding companies are stepping up their shopping spree in a hot sector of China's ad industry--independent digital agencies--with WPP's acquisition today of IM2.0. The deal by Young & Rubicam's VML to enter China is the Kansas City-based digital agency's biggest acquisition to date, said Jon Cook, VML's global CEO and president.
Mr. Cook said the company looked at 10 Chinese agencies over three years. Finding the right match was key, especially given how "complex, or nearly impossible" it is for foreign brands to understand China's digital environment, he said in a phone call from Beijing.
VML already has an Asia presence in Singapore, Japan, India and Indonesia but took its time exploring possibilities in China, where local digital agencies have the advantage navigating the many homegrown platforms that have flourished as the government blocks Twitter, Facebook and YouTube. There's also the language barrier, not to mention the importance of local connections, or "guanxi." Local digital agencies' expertise has made them prime M&A targets.
Back in April, Ad Age spotlighted four local Chinese digital agencies worth keeping an eye on. "They may not stay independent for long," our story predicted, noting that Chinese digital shops were being circled by holding companies seeking greater reach in China.
Six months later, VML has snapped up the first of those highly-touted Chinese agencies. Still independent are: Amber Communications, known for its Cola-Cola work at the London Olympics and elsewhere; Vitamine, whose work ranges from Johnson & Johnson's baby care to North Face down jackets; and Advocacy, an advocate of an effective word-of-mouth marketing model tailored to China.
IM2.0, with offices in Beijing and Shanghai, has been one of China's most-lauded digital agencies, with clients including Dell, Adidas, Mondelez, China Merchants Bank and Haier. One well-known campaigns is the Dell "piggybank." On social media, users who are often cash-strapped college students select a computer they covet, and friends help them earn money toward it – for example, by sharing photos of Dell products.
IM2.0's CEO Chris Tung and chief operating officer Yi-Chung Tay -- both former marketing VPs for PepsiCo Greater China --will remain on board. The 230 staffers are an unusual mix: one-third are digital creatives, one-third former marketers, and one-third alumni of the product side of Chinese dot-coms. The venture, subject to approval from regulators, will be called VML IM2.0.
Mr. Tung said IM2.0 was approached by other major groups. Before the purchase, the 10-month vetting process went both ways – IM2.0's management spent time with VML staff from the U.S. and abroad to make sure the fit was right.
The deal comes on the heels of Dentsu's acquisition in late September of Chinese digital agency Trio. Earlier this year Aegis Media, now part of Dentsu, bought digital planning and buying agency Beijing Wonder Advertising. Havas started its own digital agency, Socialistic China, in April, and Publicis Groupe picked up social media service provider Net@lk in July.
For IM2.0, one benefit of joining VML is that its Chinese clients will gain deeper knowledge about marketing themselves abroad.
White goods brand Haier, for example, has sometimes asked his agency to work with Facebook in the U.S., and "now we are happy to say yes, with pride," Mr. Tung said.