The development of advertising campaigns and their execution are managed by advertising agencies. Just as manufacturing firms have become international so too have US, Japanese and European advertising agencies expanded as the demand for advertising services by MNCs has developed. Thus the international, marketer has a variety of alternatives available. In most commercially significant countries, an advertiser has the opportunity to employ a local domestic agency, its company owned agency or one of the multinational advertising agencies with local branches. There are strengths and weaknesses associated with each. Moreover, the agency company relationships can be complicated and fragile in the international context – Ford and Disneyland Paris recently changed agencies, for example.
A local domestic agency may provide a company with the best cultural interpretation in situation where local modification is sought, but the level of sophistication can be weak. Moreover the cross cultural communication between the foreign client and the local agency can also be problematic. However, the local agency may have the best feel for the market, especially if the multinational agency has little experience in the market. Eastern Europe has been a problem for multinational agencies that are not completely attuned to the market. In Hungary a US baby care company advertisement of a both soap showing a woman holding her baby hardly seemed risqué. But where Westerners saw a young mother, scandalized Hungarians saw an unwed mother. The model was wearing a ring on her left hand. Hungarians wear wedding bands on the right and It was obvious to viewers that this woman wearing a ring in her left hand was telling everyday in Hungary she wasn’t married. This is a mistake local agency would not have made. Finally in some emerging markets like Vietnam local laws require a local partner.
The best compromise is the multinational agency with local branches because it has the sophistication of a major agency with local representation. Further the multinational agency with local branches is better able to provide a coordinated worldwide advertising campaign. This has become especially important for firms doing business in Europe. With the interest in global or standardized advertising, many agencies have expanded to provide worldwide representation. Many companies with global orientation employ one, or perhaps two, agencies to represent them worldwide.
Compensation arrangements for advertising agencies throughout the world are based on the US system of 15 per cent commissions. However, agency commission patterns throughout the world are not as consistent as they are in the United States. In some countries, agency commissions vary for medium to medium. Companies are moving from the commission system to a reward by results system, which details remuneration terms at the outset. If sales rise, the agency should be rewarded accordingly. This method of sharing in the gains or losses of profits generated by the advertising is gaining in popularity and may become the standard. Services provided by advertising agencies also vary greatly, but few foreign agencies offer the full services found in US agencies.
Even a sophisticated business function such as advertising may find it is involved in unique practices. In some parts of the world, advertisers often pay for the promotion with the product advertised rather than with cash. Kickbacks on agency commissions are prevalent in some parts of the world and account in part for the low profitability of international advertising agencies. In Mexico, India and Greece the advertiser returns half the media commissions to the agencies. In many developing countries, long term credit is used to attract clients.