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Are big and small agency mergers good for the industry?

Is a merger between a big agency and a small independent agency good for the industry they are in?

Aaron Lau, CEO and president of Cheil Greater China, whose boutique ad agency Bravo was acquired by Cheil Worldwide in 2012, provides a nuanced analysis.

“It’s not about size; it’s about how innovative the agency is.  All agencies must create services that a client values,” Lau said.

“Unfortunately, all big agencies have evolved to become a hypermarket of resources.  Their business model means that they stock up on middle-of-the-road brands.”

He adds that because good talent is so hard to find, often 20% of the staff in big agencies drive 80% of the business.  Big agencies are like the Walmart’s and McDonalds where their key points of differentiation is a range of locations and services.

“When you go to McDonalds, you know you’re not going to be surprised,” Lau said.

Meanwhile, small agencies with no big corporate parents have limited resources but may offer lower prices, special strategic and creative skills, tailoring of resources to client needs or deliver services more quickly.

Then, there are agencies in the middle that have achieved a certain scale in their operations but aren’t everywhere.  They have the scale that the small boutique agencies don’t and also the strategic, technical and creative skills that large agencies lack.

If the post-merger integration goes smoothingly, the merged company formed by integrating a big agency with a small one could become exactly this type of agency.

Lau points out that sometimes big agencies have something else in mind when acquiring small agencies.

“Sometimes the major networks acquire agencies almost as stimulus material to help them change and of course, like with any big organisation, it’s not easy,” Lau said.

“These are some of the things that the network agencies need to come to grips with.”

David Ko, co-founder and MD at Daylight Partnership, sits on the fence on the question of whether big and small agency mergers are good for the industries they operate in.

Ko sold his boutique PR agency Shout Communications to public relations giant Waggener Edstrom in 2005.

“Smaller agencies have a lot of creative freedom and space to innovate.  They don’t have to worry about offending a very big client and they don’t need to go through many layers of management to get permission to do things,” he said.

“Large agencies have very serious revenue considerations and are constrained by long-standing relationships with clients, which make staff members hesitate to try new things because they don’t want to negatively impact the revenue.”

Ko says the space to be boldly innovative is sometimes lost when a small agency becomes part of a big one, which could hurt the industries they operate in because it results in fewer creative ideas circulating.

On the other hand, the possibility of being acquired and reaping a financial reward from selling boutique agencies motivate people to start small agencies in the first place.

“So I am ambivalent – acquisition probably is not so good for industry in terms of creativity but the fact that big agencies like to acquire small agencies provides good motivators for people to start small agencies, which are in turn, sources of creativity,” Ko said.

Lau believes the rules of the capitalistic market will work its magic by eliminating mergers that don’t work out.

“As long as there is a clear need for marketing and creative thinking, the industry will prosper.  Capitalism is based on creative destruction – if something does not work, something else will emerge to destroy it,” he said.

“Right now, some of these major networks are dinosaurs.  It takes a long time for dinosaurs to die, and meanwhile, new players – creative boutiques – are coming in and trying to make a difference.”

[Image]: Shutterstock

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