Last month's news of Havas GIMC Advertising, formed under a joint-venture deal between the two agencies seemed to be an anomaly when other holding companies have by and large pursued a growth-by-acquisition strategy. Here is an edited Q&A with Karl Wu, Greater China CEO of Havas Media Group, as he explains the rationale behind the JV exclusively for Campaign China.
What are the commercial considerations behind this joint venture, as opposed to a straight-out acquisition?
There are couple of reasons why. First of all, GIMC is obviously very expensive; it is one of the biggest local agencies competing with Bluefocus.
Instead of an outright acquisition, secondly, a JV is the hard way for growth because you are putting two different working styles together, but it represents a vision of Havas for the China market. It’s a difficult starting point, but the payoff will be much bigger along the way as we are capturing additional revenue streams that may otherwise go to another 4A agency.
If Havas just goes into the newer, lower-tier markets in China by ourselves, it’s problematic, as our footprint is not bigger than any of the other 4A agencies. GIMC can’t go it alone either, as international clients may demand international knowhow. Some of the bigger clients may say ‘hey GIMC, you are too local’. When we have this combined strength, we will achieve better success.
Also, GIMC has a strategic intent in agreeing to this JV. A simple acquisition would not be the answer of developing outbound business opportunities for Chinese brands trying to test the water overseas. For instance, Midea may be happy with GIMC in the domestic market, but to explore overseas opportunities, the JV can help with Midea’s global ambitions.
Many Chinese brands are still in an exploratory stage expanding to overseas markets, unlike Huawei or Lenovo that already have dedicated units in most of the key Western markets. More mature Chinese brands are not just going to Southeast Asian countries but to European and Middle Eastern markets. The Chinese government is also encouraging them to do the same with the 'One Belt, One Road' initiative.
And GIMC had to turn down many such clients (one being a Guangzhou car brand trying to sell in Russia) in the past, which is a pity due to wasted opportunities. China is growing though, so we are never short of opportunities.
Even if GIMC signs a partnership deal with, say for example, Publicis Russia, it may not work. One, both parties are not familiar with each other to have synergy at the working level, even if the big bosses are on a high level. Two, such partnerships are based on goodwill, and not financially committed like a JV.
By forming this JV, Havas and GIMC are like a married couple with the JV as the kid, while the mum and dad still have their own things going on.
What does Havas hope to achieve with GIMC clients since it is, comparatively speaking, smaller than other media agencies in China?
It’s true that Havas is still relatively small in China, and if we only look at the domestic China market, an acquisition of GIMC may solve our problem.
As we are relatively smaller, we are always on the lookout for strategic chances instead of becoming complacent.
The JV fulfills two purposes actually: to grow business opportunities to leverage a much bigger buying clout, and to access lower-tier cities.
If this JV is successful, it will be making history. It will be the first Chinese-based hub to service Chinese companies going global.
We have a three-year standard business plan internally, and it's not about how much money we make now, as Chinese clients' budgets are not going to be big in the beginning, understandably, but how many 'collateral benefits' down the road we can produce.
Our KPIs will include if we are able to win business from China-based brands and if we are able to take up and execute overseas expansion assignments of these Chinese clients.
Is the JV a counter-intuitive approach considering that Havas combined all units under a single P&L since March?
The Havas Village concept is still our cornerstone, and the JV setup is in no conflict with that strategy. As Havas has a controlling share in the JV, it is managed and operated by us, of course with the contribution and support from GIMC. The JV's management philosophy will stem from the heritage of Havas.
Havas GIMC Advertising will be a full-service agency with both creative and media services. That alone is already consistent with the Havas integration strategy. So the JV setup itself is paving the way for a single, consolidated P&L. The only difference is that we have a external partner (GIMC) executing this strategy.