Ad giants' merger presents challenges

How can an industry that barely existed in China 30 years ago meet the challenges stemming from the proposed merger of the industry's second- and third-largest players in the world?

A shockwave spread across the Chinese advertising industry after the announcement in late July of the merger between Omnicom Group Inc and Publicis Groupe SA, two major global advertising and marketing services groups.

Many local ad companies see the merger as a potential threat to their already shaky business at a time of economic slowdown and lackluster consumer spending.

But there are also brave companies, which decided to be more aggressive and meet the challenge by taking an expansionist approach. Industry rumor has it that some large Chinese ad firms are planning major overseas takeovers.

Zhang Jinjie, a researcher at the Chinese Academy of Social Sciences' Institute of World Economy and Politics, said he expected the merger to trigger more acquisitions of Chinese ad firms by international players.

"China is already the third-largest M&A market for the world's ad industry," Zhang said.

The country is seeing increasing investment by WPP Plc - the world's largest advertising and marketing services group - and by Omnicom and Publicis, he said.

After the planned merger, competition in the Chinese ad market will probably be fiercer, according to Yin Tiegang, deputy general manager of Beijing Future Advertising Co Ltd. The creation of Publicis Omnicom Group would combine the two companies' funds, clients, staff and experience, resulting in better services and cash flow, and a pricing advantage.

That is seen by Yin as "a threat" for the development of local companies and advertisers.

The main concern for local small ad companies is how to survive in the shadow of their large rivals, especially that of the global advertising giants.

It would be a nightmare for local companies if large global ad companies started making local acquisitions, from coastal large cities all the way down to second- and third-tier cities, said Liu Libin, editor-in-chief of the Chinese-language International Advertising magazine.

"Local companies should remain alert, otherwise they could find themselves in a very difficult position," Liu said.