A strong local partner in the mainland can give a multinational agency local network and local knowledge. But for many agencies, past experience has proven the China JV to be a perilous route. There are too many stories of companies kept in the dark about costs, cultural conflicts and exit terms that are sketchy, which make China JVs palatable only to firms setting up operations in the mainland’s more remote provinces or to those in a sector that legally requires a JV partner, such as finance or media.
The tensions that have built up between Omnicom and Citic Guoan are only likely to fuel this debate. After months of speculation, DDB is buying back equity from its Chinese joint venture partner, just three years after it secured the deal.
To be clear, Omnicom isn’t admitting defeat and Citic will continue to have a minority stake in the agency. The China conglomerate does, however, appear to have given the holding company more than it bargained for.
The question on everyone’s mind is whether Omnicom rushed into the deal while trying to get one over rival WPP. When the deal was announced, it was seen as a real coup for Omnicom, with it gaining a strategic partnership with one of the most influential business entities in the market.
The genius, of course, was in the timing; Citic Guoan jumped into bed with Omnicom within hours of ending its partnership with Sir Martin Sorrell’s company. But, as soon became clear, WPP hadn’t actually lost that much. The company accounted for around one per cent of its revenues in the region. And, if it had indeed given up a valuable partner, it recovered remarkably quickly.
DDB, meanwhile, admits to having had better success in markets like Shanghai, where it is a wholly owned entity, run to international standards. One of the biggest differences between Citic’s arrangement with DDB and that with its former partner Grey was the fact that the Omnicom agency merged fully with Citic Guoan. So while in the WPP agreement, Citic was a minority investor with no management input, Omnicom’s partnership was structured as a joint company, with Citic’s Yan Gang as chairman. This traditional model unfortunately didn’t sit well with all of its clients, and in fact limited the agency’s opportunities for growth.
Now, as DDB wrestles back control, its biggest challenge is to put in place the right individuals to reshape the agency. And, if nothing else, this latest episode serves as a reminder to holding groups of the delicate balance required to operate Chinese joint venture companies.
