Citic deal doubles DDB overnight

But may not help Omnicom long term

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BEIJING--The strategic partnership forged by Omnicom Group’s President-CEO John Wren and one of China's largest state-owned companies, Citic Group, is one of the U.S. holding company’s biggest attempts to build its profile in China so far.

Citic’s advertising subsidiary, Citic Guoan, will be merged with DDB Worldwide to form DDB Guoan Communications Beijing Co., with DDB taking a majority stake in the new company.

The relationship is also a strike at Omnicom rival WPP Group, a Citic partner in China through Grey Global Group for the past 14 years.

"This is an incredibly exciting time for Omnicom in China, which is one of the key strategic markets for us globally," said Mr. Wren, who visited Beijing for the announcement last Friday.

But the new deal follows an old model--since January 2006 foreign agencies can legally open in China without local partners--and success will depend on getting more out of Citic than its previous joint venture partner did.

As China’s ad market has matured, joint ventures with local companies are falling out of favor. Stand-alone status may become a new model for some multinational agencies in China. Bartle Bogle Hegarty, for instance, timed its China entry so the agency could open in Shanghai without being required to take a local partner.

Joint ventures are old model
In the best scenarios, Chinese companies have been silent and unobstructive partners, occasionally stepping in to lend a hand on matters like office rental negotiations.

But just as often, clashing cultures, operating styles, and, in some cases, the unambiguous determination by some local companies to create their own powerful agencies, have turned offices like Interpublic Group of Cos.’ Lowe Worldwide in Shanghai into political quagmires that foreign players are desperate to shed.

Chinese advertising veterans question whether Omnicom’s deal with Citic will be enough to push the U.S. holding company to the forefront in China, territory seized years ago by WPP’s largest Chinese agencies, Ogilvy & Mather and JWT, as well as Japan’s Dentsu.

“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 ten years ago, but I don’t think you need that anymore, you need leadership that can take risks and move fast,” said one former ad agency head in Beijing.

“I question whether doing business with Citic is the way to do that. I can see why they’d be tempted to partner with them, but it plays into the myth about how things work in China.”

Grey “relieved”
While Citic operates one of the top ten local agencies in China, its advertising division never had much success getting the group’s other divisions to employ Grey while they were linked.

Although the WPP agency was surprised by Citic’s abrupt decision last Thursday to part ways, it was also “relieved,” admitted Mike Amour, Grey's chairman-CEO, Asia/Pacific, based in Singapore, who has directly overseen Grey’s China operation since March. (A new Greater China director will take over that role in September. See the People section in this issue for details.)

"As with many joint ventures, Guoan has been a relatively silent partner, so there will be little change in our day-to-day business. They are bringing the [expiration] date forward. The joint venture allows for either party to withdraw with a certain notice period,” he said. Now, Grey is “setting up a fully-owned enterprise in the short term, but we are not closed to local partners” in China.

Although Citic provided him with little explanation about their decision, execs associated with both companies say it can be traced back to a meeting last spring in London, at which Yan Gang, Citic Guoan Group's executive vice chairman, allegedly felt he was treated rudely by WPP’s chief executive, Martin Sorrell.

Mr. Yan, one of China’s most well-known industry figures, switched course to see Mr. Wren, who has a well-publicized rivalry with Mr. Sorrell. Omnicom and Citic hammered their new partnership together in just six weeks, an astonishing pace for China.

“Mr. Yan desperately wants to get back at Sorrell, whom he thinks is impolite and arrogant. He and Omnicom now have a common enemy,” said an agency executive in Shanghai who is closely acquainted with Mr. Yan.

DDB doubled in size
The Citic partnership could help Omnicom address two weak areas, its low profile in Beijing, where none of its creative agencies has a sizable presence, and the need for greater access to local clients.

In addition, it will double the size of DDB, one of Omnicom's weakest operations in China, overnight in revenue and staff numbers.

The deal is “good for us and other clients. They will have a stronger presence in China,” said Richard Lee, VP-marketing, China for Pepsi in Shanghai, who works with DDB and BBDO in China. “But it’s too early to say what results it will provide.”

Headquartered in Beijing, the joint venture will be run by CEO Dick van Motman, who relocated to Shanghai six months ago as DDB's president-CEO, China, with offices in Shanghai and Guangzhou.

"This is a big story for us, we're making great progress," said Michael Birkin, who relocated to Asia last year to be the first chairman-CEO, Asia/Pacific, from president of Omnicom's Diversified Agency Services, New York.

"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."

Birkin tackles China
Although Omnicom is the largest global advertising group with worldwide revenue of $10.5 billion in 2005, its agencies have struggled to achieve similar status in China, where Fleishman-Hillard has been its biggest
revenue earner. Realizing BBDO and DDB were not growing at the pace of the rest of the industry, Mr. Wren dispatched Mr. Birkin last year to kick start to focus on the region and now spends a lot of time in Asia himself.

Mr. Birkin immediately tackled China, resulting in several senior management changes. Mr. van Motman took control of DDB in China and Carol Potter, who most recently ran JWT's global Unilever account out of London, was recruited as CEO, China at BBDO Worldwide in Shanghai.

What matters is not what happened five years ago,” stated Mr. Birkin, “it’s what’s happening now. One tends to forget the scale of the industry, we’re one of 80,000 agencies in this country.”

Citic very ambitious
Yan Gang, Citic Guoan Group's executive vice chairman and a director of the China Advertising Association, is eager to raise his own profile internationally and may take a larger role in the DDB joint venture than he did with Grey.

Citic is “very ambitious,” added Mr. Birkin. “Mr. Yan sought out a relationship with us because of creative reputation and international credibility.”

Among his aspirations, Mr. Yan told Omnicom he expects DDB Guoan to win a Grand Prix at He also wants to develop a closer relationship with Omnicom’s other divisions like Rapp Collins to expand into CRM services, a fast-growing area in China as marketers seek alternatives to the exorbitant rates charged by China’s state-run TV network.

The deal does potentially 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 played an integral role in China's open-door policy and has become one of the most influential business conglomerates in China, with assets worth about $90 billion.

DDB and BBDO, meanwhile, “are making slow progress, [They] have had a number of changes in leadership in the past three years, that doesn’t help at all. The guys with stability like JWT and Ogilvy have a significant advantage with that stability. Their problem now is not getting invited to big
pitches,” said a marketing consultant in Beijing.

Following a two-way pitch between Ogilvy and TBWA, for example, Motorola is finalizing its decision to stick with the WPP incumbent in China, in part because “any company in this country’s mobile sector needs partners with a strong team and strong local leadership in Beijing,” the center of China’s tech industry, said an executive at the U.S. tech company, and TBWA can’t make that case yet. (Ogilvy’s appointment remains unconfirmed by Motorola, however, as the contracts have not been signed.)

Even if the Citic deal can’t give Omnicom the boost it wants in China, it’s “a fantastic organization with a nice a la carte solution. I cannot believe they haven’t solved this, it should be in their DNA to go out and find local talent and develop it, and not just here, also in India,” said another Beijing-based advertising veteran. “It’s definitely not too late for them in China.”

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