Havas China announced the acquisition of Front Networks in late March, almost the same time as Shanghai began its two-months’ lockdown.
Front Networks, the data-led digital agency now under Havas, was somewhat of a social media marketing pioneer in China. It created the very first WeChat Moments advertisement for BMW as the first brands began investing in marketing through WeChat. Over the years, the WeChat ecosystem has since evolved into a vital platform for private traffic in China, now thought to be the next engine for brands' growth.
Before joining Havas, Front Networks did not only work for international brands, but was deeply connected to local brands, helping to market cultural and creative products from the Forbidden City, for instance, such as tumblers from Corner Tower café, while collaborating with China time-honoured brands Dong Lai Shun and fashionable milk-tea brand HeyTea.
In China, digital marketing is so competitive and complex that international agencies acquire local boutiques to keep up with local cultural and innovative trends. But why did Havas choose Front Networks specifically, and spend almost two years investing in the agency despite the economic concerns around the pandemic?
Two months after the deal, with Shanghai’s lockdown ended, Havas Group Greater China chairman and CEO Karl Wu talks with Campaign Asia in an exclusive interview about the acquisition and collaboration during the lockdown, how he views the exodus of creative minds leaving the city, how the network has worked with clients over the past few years, and why international agencies should adopt localisation strategies in China.
Campaign: Why did Havas first choose to collaborate with Front Networks? How did it start, and how was the deal brought to the table on both global and local levels?
Karl Wu: First, Havas Group has great confidence in China and an excellent vision for the country. The Group has been investing heavily for further development in China. Throughout the process, strategic development, which includes capital-level mergers and acquisitions, is one of the most significant fields.
Havas is quite open and has constantly been looking for innovative advertising and communication marketing agencies that have advantages in the field of digital, social, data, and branding experience.
But finding an outstanding company in the industry is not an easy task. In this sense, we are lucky to have Front Networks. Founded in 2004, it has experienced and grown up together with China's Internet economy, from Web 1.0 and Web 2.0 to social media and short video.
Front Networks has been working on digital creative and digital solutions in the same direction as Havas in China. China's unique digital ecosystem is not only reflected in the large digital platforms, including media usage, planning, and buying but also in the content output and how the content supports and complements each other on the platforms. And these are exactly the bottlenecks that many multinational companies encountered in developing in the Chinese market. So, strategically we are complementary, and culturally we are also in tune with each other.
How has the ongoing collaboration worked between Havas and Front Networks since first teaming up?
The negotiation process lasted almost two years because of the pandemic. To be honest, when people are in crisis, when they face difficulties and challenges, they can show their actual abilities and reflect their true thoughts and characters. Because of these challenges, the two companies and the two teams understand each other completely. I think our integration process has been very smooth in the past two months.
We are working on several levels of integration at the same time: the integration of operational systems, such as IT systems, to meet international standards, and the integration of HR systems, as well as financial systems.
In the last two months, we have been developing clients together. Front Networks brought to Havas more capabilities that we did not have in the past, which is also one of the most critical strategic reasons we are doing M&A.
Any challenges with the acquisition? How did the team overcome these obstacles?
I think there are several obstacles. First, we cannot meet in person due to the pandemic. For such a major investment, not only is it significant to communicate face to face, but most critically, both sides will build confidence for a chemistry match.
Second, due to the uncertainty because of the pandemic, it also brought many difficulties for M&A valuations.
Third, an international corporation's compliance and legal operation model is quite different from Chinese companies.
Under such circumstances, we have been able to complete this major investment, even though all our global executives, finance executives, and legal executives have not had the opportunity to come to China until now. It is also self-evident that the challenges have not shaken Havas' commitment and long-term vision for China.
How has the Covid pandemic allowed you to truly see the potential of Front Networks?
Because of the pandemic, we saw the resilience of this company, which made us even more determined that it was a worthwhile investment.
In fact, Front Networks has experienced many challenges since 2004, and the 2008 financial crisis is one of them. This time, the pandemic is another most special event worldwide that they have been through and navigated successfully. So, we have strong confidence. That is the first point.
Secondly, I first met its management team over two years ago. They came to Havas to present to our management team. All the executives I met back then are still working for the company. On the day when we signed the contract, I was moved by this. We all know that there is a very high turnover in our industry, and a stable management team made me see the company more clearly.
Shanghai has been under strict lockdown for the past two months. How did Havas China physically and mentally support its employees during the Shanghai lockdown period?
First, we are a people business and a caring family group.
At the beginning of the lockdown, Havas reacted quickly to deliver supplies to our staff twice when they needed them most. Throughout the process, we also cared about our employees' physical and mental health because working from home is very hard. No matter how early or late, to be honest, sometimes communication can be much less efficient because it is not face-to-face after all.
In addition to sending food, we create numerous games that support physical and mental health for all our branches and teams. For instance, Havas has a health department called Havas Health & You. During the lockdown, they came up with many tips on how to stay healthy and shared them through our video channel.
What has been some of the most memorable work Havas China has done during the pandemic?
Campaign Asia featured Wanchai Ferry's bag that looks like a bun. I think the campaign has done a good job in terms of consumer insight, making Wanchai Ferry (a food brand) more like a lifestyle brand, chic and trendy.
Last year, Havas Events presented the largest branding events for Porsche in China to mark the 20th anniversary of Porsche's entry into the mainland market and the launch of the Porsche 911 limited edition. The most amazing part of it involved designing a stage with two levels at Shanghai Bund. Guests can stand on the second level, a transparent floor made of glass, watching the car drive under their feet with incredible reactions. The event broke out from the stereotype that people cannot see cars running during auto shows.
Havas Events Shanghai also presented a BMW event in Beijing during the Shanghai lockdown, the BMW New 7 Series preview. It was an event for the upgrade of BMW flagship 7 Series and the world premiere of the 7 Series electric vehicles. The Shanghai team could not travel and only worked with a few colleagues in Beijing. They conducted more than ten hours of video calls for discussions every day. In the end, our client said that you have remotely completed the whole event, which is the first-ever experience for the brand.
In the past few years, Hong Kong in Greater China also suffered from the pains of the pandemic and travel restrictions. What would be your expectation for Hong Kong?
The Hong Kong market is unique. In mainland China, sometimes you can go first to reach a large scale that would give you certain business opportunities. Nevertheless, for Hong Kong, we have to focus on precision and differentiation.
In the short term, the market still faces uncertainty. For Havas, we have several key areas to work in, creative, media, ecommerce, and most importantly, financial PR. Hong Kong is still one of the most important capital markets in the world. Last year one financial PR brand of Havas networks (Porda Havas) provided over 100 IPO event services in Hong Kong.
In addition, from the brands’ side, we focused on a few areas that happen to be less affected by the pandemic and travel restrictions, such as luxury, lifestyle, and finance.
When the pandemic is over, with adjustments to travel restrictions, tourism will return to normal. I should say that compared to the past two or three years, I am now very confident in Hong Kong. I think the most challenging moments have passed, and Hong Kong is going to get better and better.
According to media surveys, some foreigners working in Shanghai are planning to leave, many from creative industries. Are you going to plan and prepare for an upcoming 'Great Resignation' now? What do you think about the uncertainty when it comes to talent?
If we look at it from a macro perspective, maybe it is more of a question about whether China's market is still attractive to talent, or more specifically, to overseas talent, that they can get maximum value out of this market. I think it will, and the general direction will not change.
Some people have indeed had difficulties going back home to visit their families because of the pandemic in the past two years. So, there may be some impact in the short term.
Talking about the advertising industry, it is also true that the proportion of foreign talent has decreased compared to earlier years. To some extent, this is due to inherent market trends, such as, the rise of local talent and brands, focusing on further sinking markets (a term that refers to small cities and even rural areas) in China, as well as the localisation of China's media platforms. These trends offer more opportunities for local talent, and overseas professionals also need to be more deeply rooted in China than ever before.
You have mentioned localisation. How can large international agencies compete against nimble, smaller local agencies? Is M&A the best solution?
It is a two-way learning process for our industry. Take the media platform as an example. Many sizable Chinese internet media platforms were learning from advanced overseas business models. After so many years of development and innovation in China, these models constantly adapted to the Chinese market and finally evolved into the so-called Chinese unique digital ecosystem.
When international 4As first entered China, they brought learning opportunities. The rapid development in the past few decades also brought many opportunities. Local advertising agency professionals, entrepreneurs and talents, who have worked in international agencies, have more space and flexibility to start their own businesses and can quickly adapt to changes in China.
Therefore, I think that although international agencies have advantages, they also need to improve in some areas. I think one crucial point is to be open and welcome successful and excellent companies and talent to join us and bring new ideas, practices and thinking.