Y&R is set to become the first international network to buy a majority stake in an ad agency in Mongolia, a tiny market that has nevertheless attracted growing attention from Western brands.
Under the deal announced Friday, WPP's Y&R Advertising is purchasing a stake in the creative and research agency of a Mongolian conglomerate, MCS Holding. The new agency, with a staff of 50, will partner with WPP's research firm TNS to gain insights into a country still unfamiliar to many marketers.
The Central Asian country is three times the size of France but with a population of less than three million. It's rich in natural resources, and the growing buying power of its consumers has lured foreign brands from Louis Vuitton to Mercedes to KFC to set up shops there.
"Look at all the industries in Mongolia – none have made the decision it's too small," Matthew Godfrey, president of Y&R Asia, said. "If it makes sense from a client perspective to be there, it makes sense from an agency perspective," he said, adding: "We could be starting a trend of other agencies looking at the market a little more seriously."
Mongolia's economy has been one of the world's fastest-growing in recent years but has cooled lately. Its economy grew 11.7% last year, though that pace slowed to 5.3% in the first half of 2014, and the country faces issues including inflation and declining foreign investment.
The country's agency landscape is very local. Another WPP agency, JWT, has a small affiliate in Mongolia called DAS Marketing JWT Mongolia, but it doesn't have a stake in the company.
The partnership with TNS to gain consumer insights is critical, Mr. Godfrey added: "I don't think we'd do it any other way."
Y&R Mongolia will be run by Managing Director Tuul Purevsuren, who will report to Mr. Godfrey.
MCS Holding's Creative and Research Unit – part of a conglomerate with business dealings ranging from mining to real estate to apparel -- was set up in 2008. It offers services from events management to market research to clients including MCS Asia Pacific Brewery, Herbalife and Dell.
Y&R Advertising is present in 91 countries and has clients including Campbell's Soup Co., Colgate-Palmolive, Danone, Virgin Atlantic and Land Rover.