Another Business Partner Bad Mouths Sorrell

Last week, WPP CEO Martin Sorrell again found himself the target of a verbal attack from a former associate in an international market. Yan Gang, vice chairman of the CITIC Guoan Group, told CNBC that he pulled out of a Chinese joint venture with the London holding company, in favor of Omnicom, after he said he discovered problems with their joint venture that the WPP CEO refused to discuss, according to a transcript of the broadcast. In the interview, he said he was insulted by Sorrell, comments repeated to reporters in Beijing who were told the WPP deal was off because Sorrell behaved “very rudely” and had “absolutely no manners, no upbringing and no culture.”

The rebuke follows an acrimonious public dispute earlier this year with Marco Benatti, the former head of WPP in Italy, who was fired after he was alleged to have committed financial improprieties. Benatti, who denies that charge, has filed a defamation complaint against Sorrell personally.

Yan’s remarks are all the more remarkable, given he is one of the most prominent advertising figures in China while Sorrell is the industry’s earliest proponent of expansion into China and among its most vocal advocates. WPP moved into that country as early as 1987, with its acquisition of J. Walter Thompson and now has about 5,500 people working there and is the largest media buyer.

Yan, who is on the Beijing 2008 Summer Olympics Committee and is the director of the China Advertising Association, could not be reached by press time. WPP declined comment.

Events appeared to have come to a head between Yan and Sorrell in April at a meeting at WPP headquarters in London. Yan is said to have sent a letter to Sorrell in March, raising concerns about the alliance, according to sources. The joint venture was initiated in 1992 and with renewal looming next year, Yan argued the Chinese were being shortchanged, according to a source.

A WPP representative would only say that the alliance generated 1 percent of WPP’s $500 million in revenue from China, where the company has 13 other joint ventures.

Among the clients Grey works for in China are China Mobile, Procter & Gamble and Volkswagen. Grey said it doesn’t expect any changes in day-to-day business. “We plan to set up a wholly foreign-owned enterprise, which is now legal in China, and Guoan has offered to help us,” said a rep.

CITIC approached Omnicom some six to eight weeks ago, said Michael Birkin, Omnicom’s Asia-Pacific CEO. “The deal was made almost unprecedentedly fast.”

On July 3, the company will open DDB Guoan Communications Beijing, in which Omnicom holds a majority stake. Yan becomes chairman while Dick van Motman, president, CEO, DDB China, assumes those roles at the joint venture operation, which will also have offices in Shanghai and Guangzhou. DDB China, which entered China 12 years ago, currently serves clients like Philips, Johnson & Johnson and PepsiCo while Beijing Guoan Advertising works for China First Auto Works, China Unicom and corporate sibling CITIC Bank, one of the largest banks in China.

“We felt the first manifestation [of the new alliance] should be through the formation of a DDB operation,” said Birkin. “It’s the best cultural fit.”

CITIC Guoan is a division of CITIC (China International Trust & Investment Corp. Group), one of China’s leading conglomerates. CITIC contains more than 75 Chinese government-owned companies and was established in 1978 by then-premier Deng Xiaoping, known for introducing reforms that moved China closer to capitalism.

Birkin said of the association: “We could not have a better blue-chip partner, given its longevity, scale and impeccable commercial reputation. It’s a very dynamic and completely honorable partner.”

Unlike Japan, which is dominated by a few large agency groups, China has a far more fragmented industry profile, having what could be considered some 80,000 agencies. While growth has been driven by multinational marketers, observers like Birkin believe the future lies in handling a mix of multinational and local business. “Having a very strong local partner helps our ability to handle local business,” he said.

Birkin adds : “This [alliance] is a completely consistent approach to the way we develop our business around the world. You have to be locally strong first. When you have people who understand the local marketplace, you’ll be able to do great work and everything else will follow. Whenever a firm is operating in a country in which it isn’t from, you have to be very sensitive. Omnicom is very good at that. Most of the senior positions [in the new venture] will be held by non-Americans.”

Sorrell concurs about the need to nurture local alliances. In an interview with the World Economic Forum earlier this year, he said: “WPP has been developing its China strategy very well, building relationships with locally-based Chinese companies. We are capitalizing on the opportunities offered by China by implementing a regional strategy, not just focusing on the major provinces but nationwide … The most important thing, however, is that we invest in the best people, most of whom will be Chinese.”

China has become a top priority for Omnicom, which has lagged WPP there. Late last week, CEO John Wren was flying back from Beijing, and not reachable, but, in an earlier statement, said: “This is an incredibly exciting time for Omnicom in China, which is one of the key strategic markets for us globally. This is a perfect alliance, with each party bringing unique and unparalleled capabilities to the table.”