Stuart Smith's Blog

In the global village, there’s nowhere you can hide – for long. A spreading corruption scandal in the little-known Chinese city of Chongqing (population about 35 million) will be causing the worldwide media bosses of Vivaki Exchange (Publicis Groupe) and OMG (Omnicom) some sleepless nights. It’s a cautionary tale about using Chinese brokers as intermediaries in media negotiation. All the main global networks, with the exception of WPP, use one – though not necessarily the same one. They broker the client rather than the media owner.

Last week, the chief executive and number two at Publicis’ buying point in China, Vivaki Exchange, left (or more likely were forced to leave) abruptly. Vivaki Exchange is an on- and offline amalgam of Publicis’ Solutions Digitas, Starcom MediaVest and Zenith Optimedia, formerly known (in China) as China Media Exchange (CMX). The reason for the two executives’ departure?  Warren Hui (left) and Ye Pengtao had had dealings with a media broker called Chongqing Huayu, which operates in China’s so-called South Western markets (Yunan and Sichuan as well as Chongqing itself). Chongqing Huayu is owned by a certain Zheng Zhixiang, recently arrested by the police in connection with the Chongqing Hilton prostitution scandal (highlighted here in the Daily Telegraph). The allegation is that he had been using the media broker to launder money from the prostitution racket. If convicted, Zheng will probably face the death penalty.

According to well placed sources, the broker Huayu (unusually in China, I’m told) owes money to the two buying points: perhaps Rmb100m (£10m) in the case of Vivaki Exchange; the amount owing to OMG (which uses the same broker) is unknown. Whatever the exact nature of the shortfall, it will now be impossible to make good, owing to the scandal. As a measure of how serious the situation is, both Hui and Ye were interviewed by the police on September 4. They were released after 48 hours, but told not to leave the country pending further investigation. I understand that police enquiries have extended to the general manager of Pepsi’s bottler in south-west China. Pepsi is Huayu’s second largest client. Media buying is handled by OMG via OMD.

China is one of the fastest developing advertising markets in the world. Asia Pacific, of which China is the largest component, will overtake North America in size by 2014, according to recent research sponsored by Starcom MediaVest. China’s ad market is already nearly as big as that of Western Europe.

UPDATE 13/10/10. OMD China has “let go” its managing director of five years Winnie Lee and replaced her with Siew Ping Lim, formerly of WPP-owned Mindshare, who holds the upgraded title of ceo. Lee, who “does not have a clear plan at the moment“, will leave next month. Is her departure by any chance related to the above events?

FURTHER UPDATE 23/11/10. More evidence of stress and strain at OMD China. OMD’s Johnson & Johnson global account director, Ben Jankowski, who relocated to China in June – because, he said, it was the place to be – has quit. He is crossing the line to become global media head of Mastercard early next year. Team turmoil is said to be the cause.