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Sorrell warns Lévy against buying Chinese agency Oriental & Rende

February 28, 2012

In an extraordinary new twist to the Oriental & Rende story I posted the other day, WPP chief executive Sir Martin Sorrell has written to his counterpart at Publicis Groupe, Maurice Lévy, warning him of the dangers of acquiring the Chinese specialist car agency.

Last year, I’m told, WPP subsidiary Ogilvy broke off acquisition talks with O&R after it emerged that the agency – whose main client is VW, Mercedes and Hyundai joint-venture partner FAW – was operating both outside Chinese law and accepted ethical practices. The problem seems to involve under-the-table payments, totalling several million dollars a year, which are being paid to the client management in order to retain business.

It is believed that, in his letter, Sorrell appealed to Lévy’s sense of fair play and emphasised the need for a corruption-free level-playing field in the international advertising business.

Corruption, knowingly or unknowingly, committed in foreign markets is now a major corporate headache. Under section 7 of the UK Bribery Act 2010, it is an offence for commercial organisations registered in the UK, or carrying out business there, to fail to prevent bribery taking place. The burden of proof is on the indicted company to demonstrate that it had adequate anti-corruption controls in place at the time of the offence’s commission. Punishment on conviction ranges up to a 10-year prison sentence and unlimited fines. France has similarly tough anti-corruption legislation governing overseas subsidiaries, involving heavy fines and potential imprisonment.

Whether Sorrell’s letter – to which Lévy is believed to have replied – will have any impact on PG’s decision to buy O&R remains to be seen.

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Publicis Groupe moots deal with Chinese auto specialist agency Oriental & Rende

February 25, 2012

You’ve got to admire the mettle of the man. Publicis Groupe chief executive Maurice Lévy may have his hands full with a corruption scandal at Betterway, one of PG’s principal Chinese subsidiaries, but his appetite for acquisitions in that part of the world is undiminished.

It has come to my attention that PG is close to striking a deal with a Beijing agency called Oriental & Rende. Never heard of it? I’m not altogether surprised. It’s a smallish specialised agency with revenue estimated at $10m in 2011. But don’t underestimate its strategic significance. This is a way into the booming “Made in China” car business. O&R does what used to be called through-the-line work (advertising, PR, events etc) for many of the Chinese automobile joint-venture companies. Its biggest client by far is FAW, which is allied to VW, Mercedes and Hyundai.

It is believed that WPP earlier showed interest in acquiring O&R but, for reasons which are not yet apparent, decided to pull out of discussions.


Strong Interpublic financial results swell optimism in global ad recovery

February 24, 2012

Things really must be getting better in the global advertising economy, the cynical might observe. Interpublic, the world’s fourth-largest and most financially challenged advertising conglomerate, has just reported a decent set of Q4 results.

Despite a heavy kicking from principal clients SC Johnson – which quit after decades at IPG subsidiary DraftFCB – and Microsoft – which withdrew all its media strategy and planning business from media powerhouse Universal McCann – IPG was able to report profits (net income) up nearly 40% (50 cents compared with 36 cents per share) on revenue slightly ahead at $2.07bn.

Admittedly IPG chief executive Michael Roth was wary of calling a recovery. “We have some local wins and some existing clients spending money, but I wouldn’t say that the recovery is taking hold and we’ve seen bottom,” he said during the conference call.

But that cautious scepticism was surely belied by his assertion elsewhere that the company is setting out on the acquisition trail.

Besides, a slew of uplifting data elsewhere seems to suggest that IPG’s positive figures are not an isolated anomaly. Publicis Groupe and Omnicom, respectively numbers 3 and 2 in the world, have already posted Q4 results ahead of analysts’ predictions. WPP has yet to report, but there is no evidence the results will be grim. On the contrary, I have every reason to believe pre-tax profits and revenue will be well ahead of analysts’ expectations.

More circumstantially, but no less significantly, the US Advertiser Optimism Index – roughly equivalent to the IPA/BDO Bellwether Report over here – has just reported the second-highest level of confidence in ad budgets being raised since 2008. The index, published by research company Advertiser Perceptions, measured the sentiment of advertisers and agencies during October and November.

Finally, UK-based WARC has just produced a report suggesting America is leading the world out of (ad) recession. “Marketing spend in the Americas increased sharply in February,” it noted in an update to its monthly Global Marketing Index. Even doldrum European ad markets are experiencing “improving conditions”, it seems.

Let’s hope IPA/Bellwether doesn’t spoil the party with its next quarterly report, which must be coming out quite soon.


Tamara Minick-Scokalo resurfaces in top role at Pearson

February 22, 2012

The career of high-flying international executive Tamara Minick-Scokalo has, it seems, become a staple feature of this blog. So it might be of interest to note that she has just landed another top job.

Pearson, owner among other things of The Financial Times and Penguin, has picked her as president Europe, Middle East, Africa and the Caribbean of its education business.

Minick-Scokalo, who is currently based in Geneva, has had a somewhat chequered résumé in recent years. Twenty years into a marketing career at Procter & Gamble, she briefly switched to senior European marketing roles at EJ Gallo and Elizabeth Arden before surfacing at Cadbury as head of global commerce in 2007. That move was a success, but the subsequent appointment to president of Cadbury Europe was not: she left less than a year later. Only to emerge triumphant and phoenix-like, in 2010, as the new president of chocolate Europe, following Kraft’s takeover of Cadbury.

But the title was an illusion, and carried much less weight than her previous operational role at Cadbury. Minick-Scokalo – like other senior ex-Cadburyites – seems to have found Kraft excessively bureaucratic and the idea of a career centered in Zurich frankly unappetising.

She left less than 6 months later, and – interestingly for such a corporate creature – set up as an entrepreneur. Trax, which is what she founded, is an IT/sales and marketing operation specialising in retail. What will happen to it now, I have no idea.

The international education division, headed by chief executive John Fallon, is viewed as one of Pearson’s most aggressively expanding operations. It has made several large scale acquisitions in recent years, including the Wall Street education business and the China-based Global Education and Technology Group. Minick-Scokalo clearly has experience of corporate integration at the highest level. Nevertheless, her marketing pedigree is probably more in demand at Pearson.


Publicis Groupe raids top Chinese shop Betterway after corruption scandal

February 20, 2012

News reaches me that Publicis Groupe has raided one of its most important marketing services outlets in China, after corrupt practices came to light.

Betterway/Publicis Dialog, the outlet in question, is China’s largest field marketing network, with offices in Shanghai, Beijing, Chengdu and Guangzhou.

The company is said to have raided its subsidiary last week and to have sent all staff home. Arrests are rumoured, but unconfirmed.

The driving force behind Betterway is CEO York Huang, a former Procter & Gamble executive, who joined the company in 2001. In 2006 PG acquired an 80% stake in Betterway. Huang and junior partner Jenny Zhang remained minority stakeholders.

Two years ago, PG claimed Betterway had 346 full-time employees and 15,000 part-time staff operating in over 100 cities. Principal clients include Wrigley, Kraft, Microsoft, J&J, L’Oréal, Coca-Cola and Samsung. Betterway won a substantial contract from China Mobile and China Telecom to represent them at the high-profile 2010 Shanghai Expo.

What has gone wrong? It seems that despite the Chinese marketing services economy growing at over 10% a year, some just can’t get their hands on enough money. The speculation – and I stress that it’s no more at this stage – is certain senior Betterway executives created a ‘shadow’ agency which then pumped revenues into Betterway in order to inflate revenue, and thereby substantially boost their earnouts.

Publicis has had problems dealing with corrupt practices in its Chinese operations before, of course. Readers of this blog may recall that, in September 2010, it fired Vivaki Exchange’s chief executive Warren Hui and general manager Ye Pengtao .

More on the Betterway story when I have it.


The bottom line of Carat’s $3bn General Motors win – no profit for 2 years

February 19, 2012

Say what you like about Joel Ewanick, General Motors’ global marketing supremo, he knows how to drive a financial deal.

The terms on which he vested Carat with the consolidated $3bn global media planning and buying account (minus BRIC countries Brazil, India and China) are now beginning to emerge.

And do they squeak. If what I hear is right, Carat – a subsidiary of Aegis Group – will not receive any profit on the account, which it recently wrested from Publicis Groupe’s Starcom operation, for a full 2 years. GM has agreed to pay no more than labour costs during that period. What’s more, it’s not going to part with a dime before Carat North America, which is handling the new business, is fully staffed up. Formally, Carat takes on that business (it already handles the $600m European account) in June this year.

Not surprisingly, making the arithmetic add up is causing Carat a few headaches. And not just Carat. Starcom has between 230-250 full-time staff running the North American business (the bulk, in global terms). Carat apparently expects to carry out the same tasks with a full-time complement of 175, or about three-quarters of the Starcom team. Starcom’s Detroit media folk, many of whom will have been hoping for continuity of employment through taking the Carat shilling, must now feel as if they are being poured from a quart- into a pint-pot.

So, when we hear Aegis Media Americas CEO Nigel Morris saying of the Carat win: “This is a defining moment for our business and the market. We have designed our organization for convergence and globalization. We have a clearly differentiated operating model that is focused on reinventing the way we work with our clients and their brands. From the outset it was evident that the GM team was looking for a transformative approach with innovation at the core,”  – we now know exactly what he means.

Necessity is, after all, the mother of invention.

For sure, the $3bn account is a totemic win for Aegis – going well beyond its immediate financial calculus; every prospective client likes a winner. But Carat is going to be pedalling hard all the way up the hill to make this deal work.


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