Omnicom Grabs Piece of WPP's China Turf

Partnership With Citic Doubles DDB Network in Country Overnight

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BEIJING ( -- John Wren's Omnicom Group has moved to boost its presence in China, a key ad market in which the world's leading holding company lags its major rival, Martin Sorrell's WPP Group.
Mr. Wren has formed a strategic partnership with one of China's largest state-owned conglomerates, the Citic Group, and, more specifically, has acquired a majority stake in a new joint-venture shop that melds Omnicom's DDB Worldwide and Citic subsidiary Citic Guoan into DDB Guoan Communications Beijing Co.

In doing so, he not only doubled the size of DDB's network in China overnight, but also appears to have scored a point off his rival Mr. Sorrell-Citic was a strategic partner to WPP's Grey Worldwide until Mr. Wren did this deal.

Forming the partnership is one of the U.S. holding company's biggest steps yet in its effort to build a high-profile Omnicom network of agencies in the country. Although Omnicom is the world's largest marketing group-with 2005 worldwide revenue of $10.5 billion-it has struggled to achieve similar status in China, where Fleishman-Hillard, a PR shop that would typically be expected to make less than its ad-agency counterparts, has been its biggest revenue earner.

But the new deal follows an old model. Since January of this year, foreign agencies have been able to legally open in China without local partners, and the success of the venture will depend on Omnicom getting more out of Citic than Grey did.

A WPP spokesman said Grey's joint venture with Citic made only $6 million in annual revenue, about 1% of the holding company's revenue in China. WPP has 13 other joint ventures in China, and they "have all been successful."

Nevertheless, the deal appears to give Omnicom access to the Chinese conglomerate's web of interests, ranging from telecommunications to airlines to manufacturing. Created in 1978 by China's leader, Deng Xiaoping, Citic has become one of the most influential business conglomerates in China, with assets worth about $90 billion.

But industry experts in China aren't sure that will be enough. Joint ventures with Chinese companies may be falling out of favor. In the best scenarios, local companies have been silent and unobstructive partners, occasionally helping on matters like office-rental negotiations. Just as often, clashing cultures and operating styles have turned offices like Lowe Worldwide in Shanghai into political quagmires that foreign players are desperate to shed.

Omnicom's new alliance surprised WPP. Citic told Grey, its partner since 1992, their relationship was over the day before last week's press conference in Beijing to announce the deal with Omnicom.

Executives associated with the companies said the decision can be traced back to a meeting last April in London, where Yan Gang, Citic Guoan Group's executive vice chairman, felt he was treated poorly by Mr. Sorrell, WPP's chief executive. "Mr. Yan desperately wants to get back at Sorrell, whom he thinks is impolite," said one of Mr. Yan's agency executive friends in Shanghai. Mr. Yan, one of China's best-known industry figures, headed straight to Mr. Wren. Omnicom and Citic hammered out a partnership in just six weeks, an astonishing pace for China.

Grey said the move won't have a big impact on its China business. "As with many joint ventures, Guoan has been a relatively silent partner, so there will be little change in our day-to-day business," said Mike Amour, Grey's chairman-CEO, Asia/Pacific, Singapore. Grey will likely operate in China without a local partner, he said.

With the Citic deal, a Beijing advertising veteran said, "Omnicom is trying to get back into the game in a big way. But I'm nervous for them, because they think these guys have connections and can open doors. That's how things happened 10 years ago but I don't think you need that anymore, you need leadership that can take risks and move fast."

Although Citic operates one of the top 10 local agencies in China, its marketing services unit never had much success winning business for Grey. However, Citic's Mr. Yan, who will be chairman of DDB Guoan, is eager to raise his own profile internationally and may take a larger role than he did with Grey.

"Mr. Yan sought out a relationship with us because of creative reputation and international credibility," said Michael Birkin, Omnicom's chairman-CEO, Asia/Pacific. Among his goals, Mr. Yan told Omnicom he expects DDB Guoan to win a Grand Prix at the Cannes Lions Advertising Film Festival within three years.

Mr. Wren spends a lot of time in Asia, and dispatched Mr. Birkin last year to be the first chairman-CEO of the region, from president of Diversified Agency Services, New York.

Senior management changed quickly after Mr. Birkin arrived. Dick van Motman took control of DDB in China, and will be CEO of DDB Guoan. The next step is to fix BBDO. Omnicom recruited Carol Potter, who ran JWT's global Unilever account, to move to Shanghai as CEO-China for BBDO.

The Citic partnership will help Omnicom address two other weak areas: a low profile in Beijing and the need for greater local expertise. "We believe very strongly that the future of our business is working with local partners and local brands and this will give us a footprint to participate in that development, rather than focus on international brands in China," Mr. Birkin said. "One tends to forget the scale of the industry; we're one of 80,000 agencies in this country."

One of Omnicom's biggest clients is happy. "It's good for us and other clients," said Richard Lee, VP-marketing for PepsiCo brands in China. "It will give them a stronger presence in China."
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