What followed were a series of mergers and acquisitions by global communications giants that transformed the agency landscape in the eighth largest advertising market in the world after the so-called IMF era. Of the global holding companies, WPP and Omnicom were the most active in making major inroads into the market on the back of their multiple agency brands.
By 2004, WPP had controlling investments in leading local agencies, LG Ad and Hyundai Motor's Diamond agency, along with JWT Adventure, Grey and Ogilvy & Mather. Omnicom's Korean interests comprise BBDO, Lee DDB and TBWA. The latter struck a successful partnership in 1998 with SK, sealing its creative reputation with the award-winning 2002 World Cup 'Be the Reds' ambush campaign for the group's mobile telecoms operator, the market leader with spend last year hitting US$111 million. The other major Western agency groups with a Korean presence are Publicis with a 60 per cent stake in Welcomm in addition to Leo Burnett, and Interpublic with McCann Erickson and FCB Korea. Equally acquisitive, the Japanese have been as quick to get the cheque book out -- Dentsu has a majority stake in Phoenix and Dentsu Innovak, while Hakuhodo owns 51 per cent of Hakuhodo-Cheil and a three per cent stake in Cheil, the market leader by a considerable margin. By 2004, foreign networks controlled six of the top 10 agencies, placing them at the right place and time to cash in on the adspend rebound that followed Korea's co-hosting of the last World Cup. Here was an old-style advertising market -- plenty of mass media campaigns, big billing and still on the full media commission model -- that helped networks plug regional bottomline gaps while recovery elsewhere in Asia remained tentative.
Two years on, the picture looks far from rosy. Freed from joint-venture contractual obligations, chaebols are attempting to turn the clock back on the Government's divestment policy and redress perceived wrongs of IMF-instigated market reforms. One of the first to defect with its sizeable account was Hyundai Motors, which together with associate Kia invested US$120 million on media last year. It left the WPP-owned Diamond enterprise, its former in-house agency, and established Innocean last year. The start-up has three overseas offices and plans for another three as it nears its first anniversary in May.
Not quite chaebol in scale, corporations like Ottogi Food, GS Group and Myung-In Pharmaceutical have also established in-house agencies. Speculation continues to rumble in the market that other defections are on the cards, with the backlash against foreign business never too far away these days in Korea, whether in the financial or farming sectors. In its latest country briefing on Korea, The Economist observes: "Major foreign acquisitions in the financial sector are stoking a backlash against further market opening -- although this remains desirable, especially in service sectors." If anything, Hyundai's defection plus current speculation about the second-ranked LG Ad's future with WPP or that SK may yet take its huge advertising account in-house do serve as salutary reminders of the implicit risks of M&A with the major chaebol-funded advertising agencies.
Certainly, the defections beg the question whether Korea could become another North Asian fortress, much like Japan, where the local giants maintain an iron-grip on large domestic accounts. Each sides' arguments only reveal the extent of the divide. Koreans make much of the need to embrace their way of doing things, insisting that only local shops -- or is it only in-house agencies? -- deliver better insights into local consumer behaviour.
As Welcomm ZenithOptimedia executive media director H J Cho, sees it, foreign agencies have yet to break out of their specialist niche. "Local clients don't seem to have a big respect for multinational agencies," notes Cho. "This is partly because MNC agencies with a long history in the market -- McCann Erickson, Leo Burnett etc -- have been relatively small and mainly handled foreign accounts. They are considered more as specialised agencies for foreign accounts."
On the other hand, multinational shops see the argument about embracing a Korean way of doing business as nothing more than a bid to disguise unwillingness to accept the change that comes with market liberalisation. "There's the sense that you can't have good advertising by delegating it out to someone else," says Miles Young, noting the strong desire among Koreans to retain control in their lives and society. Young, who, as Korea chairman, led efforts to rebuild Diamond after Hyundai's pull-out, adds: "The idea that agencies have partnerships with clients is very alien. The idea that agencies give advice to clients is very novel and not necessarily well accepted. "A controlling client is a very strong phenomenon in Korea and it will take generational change to improve that."
Against this backdrop, Young notes a growing polarisation between in-house and external agencies in Korea, making this market quite unlike any other in Asia. This control can manifest itself in one other crucial way that only adds another layer of difficulty for overseas agencies wanting to retain international operating standards in Korea. "Life is a permanent pitch here. Accounts are reviewed every year," he says.
Along with the pitch merry-go-round, differing views of what is great creative work is another hurdle multinational shops face in the market. "Korean clients also pursue 'best creative', however, the definition may differ to that of Westerners," says Les Edwards, VP and managing partner of DDB Korea, citing a much-admired Hyundai card campaign by local creative boutique Creative Air as an example. "Nothing breakthrough or outstanding in my opinion." Edwards argues that the absence of a viable and independent creative awards show is holding back creative development. "Until we can benchmark our standards locally, Korea is unlikely to make any significant impact at regional or global creative award shows."
Coupled with that, the strict 15-minute limit on TVCs that Kobaco, the terrestrial TV airtime sales controller, maintains is another restraint on creative development, says Young. As difficult as it may be to convince chaebols to buy brave creative, few networks would be willing to risk chaebol accounts defecting once contractual obligations expire. Most of the foreign networks owe their scale in the market to chaebol accounts since globally-aligned clients remain modest enterprises in Korea, without the marketing firepower to pole vault into the Top 20 advertisers league.
Meanwhile, LG Ad is seen as the next major test case in whether it can retain its share of chaebol business when the contract runs out this year. These days, the chaebol appears less rigidly loyal to LG Ad, awarding a number of assignments to other agencies, most notably TBWA, which picked up two LG Electronic brands following a pitch. Eliot Kang, CEO of LG Ad holding company GIIR, did not reply to Media's request for comment.
LG's global ambitions lend weight to speculation that it is only a matter of time before it restarts an in-house shop, though ownership of LG Ad shares by institutional investors such as the Singapore Government may complicate matters for the chaebol. Should LG decide to act, it would only be following the same path as Samsung, which has been aggressively taking Cheil global, something Hyundai is attempting to replicate with its start-up. Innocean's CEO Jamie Park has been quoted saying that the shop is expected to take its place among the top 20 global agencies ranking by 2010, with global billings of US$2 billion, 70 per cent of which will be derived from overseas.
Similarly, the huge surge in SK's export growth has also contributed to rumblings it too may take its huge account in-house, speculation roundly dismissed by Keith Smith, TBWA's regional chairman. The third-ranked TBWA recently moved into new offices, unveiled another football-inspired campaign ahead of this year's World Cup and has picked up a series of wins outside its chaebol alliance. "The overseas ambitions of the major Korean agencies inevitably create a conflict of interests with global agency networks," says an agency consultant, noting that Cheil, Innocean and LG Ad are all expanding their global footprint, while at the same time working with foreign networks. But are the chaebol's global ambitions driven more by vanity than pragmatism? Cultural shortcomings apply both ways. Just as the MNC shops struggle to comprehend Korea, so too would chaebol agencies wrestle with unfamiliar markets, as Cheil's decision after only a year to downsize its New York office in late 2005 appears to indicate. "In many advanced communications markets, Korean agencies will have little to offer beyond co-ordination and links to headquarters in Seoul," says a source.
On the flip side, could the same factor hinder MNC shops' growth ambitions in Korea? Networks point to the market's glacial but sure shift away from traditional media such as the Kobaco-controlled terrestrial TV, which they believe will play to their strengths in the direct and, in particular, the interactive space. Pointing to Korea's rich film-making culture, Young adds: "There is no reason why Korea can't be the Thailand of North Asia. We all have a job to do in educating clients to elevate the standard of creativity."