Client following revisited

Abstract

Client following is considered the major motivation of professional businesses for entering a foreign market. However, client following alone cannot explain why a company chooses foreign direct investment (FDI) rather than other entry modes, such as exporting or franchising. It cannot explain how a transnational advertising agency (TNAA) can compete with local firms in an unfamiliar environment. This paper applies the ownership-location-internalisation (OLI) model to gain a more thorough understanding of the motives of TNAAs for entering China. The results support the notion that the presence of clients (i.e. client following) is the major motive, but only part of the story: it is the most important advantage of location. On the other hand, 'competent personnel' is the key advantage of ownership, while 'ensuring quality control' is the principal advantage of internalisation. Internalising their operations in China was seen as a better economic choice for foreign agencies, rather than merely exporting or establishing a franchise. Surprisingly, neither the importance of avoiding the dissipation of tactical knowledge as an advantage of internalisation nor the importance of company size as an ownership advantage was supported by the TNAAs. 593

Drivers of Cross-National Variation in Advertising Spending: A Longitudinal Analysis of the Effects of Freedom and Foreign Direct Investment

“…FDI in the advertising sector may have an even bigger impact on the local ad spending. As noted earlier, transnational advertising agencies tend to expand to the host country to serve their home clients (Cheung et al, 2008). The host country can also expect additional benefits such as those associated with the creation of forward and backward linkages, labor mobility and stimulation of knowledge and technology transfer to local firms (Markusen and Venables, 1999).…”

“…Moreover, when industrialized world-based firms invest abroad, transnational advertising agencies tend to expand to host countries to service their home clients. For instance, global agencies such as Leo Burnett's, Ogilvy & Mather, Bates Asia and Euro serve a number of big Chinese firms (Cheung et al, 2008). Thus: H2 Ceteris paribus, per capita FDI inflow has a positive effect on per capita ad spending.…”