Six years ago, LG sold its in-house agency LG Ad, later to be renamed HS Ad, to WPP via the UK-based network’s Cavendish Square Holdings. It now comes as little surprise that the Korean electronics giant is moving to reclaim the company and add it to a portfolio of existing in-house ad facilities.
The move is part of an ongoing saga in a market where the majority of advertising was created in-house up until the onset of the IMF crisis in the late 90s. Forced to sell to foreign agencies, the chaebol (family-owned) conglomerates opened up briefly, resulting in a shift that saw 60 per cent of the country’s advertising in international hands.
It was not to last. “We’re seeing a correction,” says Miles Young, Ogilvy Group chief executive and ex-Asia-Pacific chairman, referring to the gradual reclamation, over recent years, by the chaebol of their former agencies.
Another casualty among the international players is TBWA. The agency’s past affiliation with SK Group, which began in 1998 with the acquisition of the company’s in-house facility, has meant that its Korean presence has been largely built on the chaebol giant’s accounts. Having, until earlier this year, been ranked the fourth-largest ad firm in Korea in terms of sales, it has since plummeted to ninth position after SK transferred the bulk of its telecom business to its recently re-established in-house advertising arm, SK Marketing & Company.
While TBWA Group’s international president Keith Smith says the Omnicom agency has retained a large amount of SK business, a report released by the Korea Broadcast Advertising Corporation indicates that its account numbers have fallen by two thirds as a result of the transfer. Smith maintains that, while difficult, it is “not impossible to grow, be successful and have good business in Korea”.
TBWA’s Korean portfolio is supported by global clients such as adidas, Nivea and Apple, as well as local firms such as Daum, Jinro and Bacchus.
However, as one industry observer noted, in the absence of large domestic accounts, foreign agencies cannot expect to compete with the large chaebol agencies.
At the very least, a “strong backbone” of international clients is essential to any kind of presence in Korea, according to Young, who compares the market to Japan, where it is also critical as an outside firm to offer a point of difference. He says international insight and sophisticated trade marketing practice are valuable commodities in a market that remains relatively closed to the outside world. Young adds that the threat from chaebol agencies to multinational accounts is minimal, largely due to Kobaco’s even-handed distribution of media to domestic and Western agencies, in contrast to Japan, where domestic firms wield a significant advantage in terms of media buying power. Aside from a weak creative reputation, the chaebol operating model - which often results in a variety of campaigns that are later discarded - lacks efficiency by Western standards and does not hold appeal for the majority of international clients.
Young adds that chaebol agencies tend to be highly specialised: Hyundai agency Innocean specialises in automotive campaigns, but would be unsuitable for a personal care firm.
Nonetheless, a stagnant economy and the decline of FMCG advertising do not paint an inspiring picture for multinational agencies in the short term.
Young predicts that the situation will change over the next five to 10 years, as stakeholder scrutiny of the efficiency of in-house agencies leads a growing conformity to global business practices. “It would be a terrible shame if we gave up on Korea,” he says, describing potential creative talent as “extraordinarily good”. “But not every agency needs to be there.”
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