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What we are interested in is relative growth

What we are interested in is relative growth
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First Published: Wed, Mar 17 2010. 09 47 PM IST

Expansion strategy: WPP’s Sir Martin Sorrell says the group is looking primarily at organic growth, but will be interested in smaller acquisitions. Abhijit Bhatlekar/Mint
Expansion strategy: WPP’s Sir Martin Sorrell says the group is looking primarily at organic growth, but will be interested in smaller acquisitions. Abhijit Bhatlekar/Mint
Updated: Wed, Mar 17 2010. 09 47 PM IST
Mumbai: Group chief executive of WPP Plc, Sir Martin Sorrell, was in India for the media and entertainment conference Frames 2010. He said in an interview that India was among the top markets for WPP and wealth creation has shifted significantly towards the so-called Bric countries—Brazil, Russia, India and China. Edited excerpts:
Last year was tough for advertising. Is a recovery under way?
Expansion strategy: WPP’s Sir Martin Sorrell says the group is looking primarily at organic growth, but will be interested in smaller acquisitions. Abhijit Bhatlekar/Mint
We are no longer staring into the abyss; business was getting hit less badly in the second half of last year, and there’s stabilization in the first couple of months this year. As per GroupM’s forecasting, advertising industry (growth) is flat. But most analysts think we are being too conservative and most have put in a revenue increase of 1-2%. There are tremendously wide variations (in projections). Here, in India, in the first two months of this year, our toplines (revenues) are up by 7-8%.
How important is India as a market? Why is there a disparity in investments in India and China?
Our revenues in India are $400 million (Rs18,16 crore), about 3% of our total revenue—$14 billion. China accounts for $900 million, the US is about $4 billion, the UK $2 billion, Germany is a billion. India in terms of size is amongst our top markets.
Having said that, 2009 was a difficult year; India was stagnant, China was under pressure. The issues facing business in Taiwan were tougher than Mainland China or Hong Kong. People often say—is it China or India; and the answer is both. Absolute size is important but relative growth is even more important. What clients are interested in and what we are interested in is relative growth.
Is Omnicom a concern for you, especially in the China market, where it’s won the business of Pepsi and Unilever?
In the question of China and these businesses, Omnicom gave a guarantee (on pricing). Their approach to the Chinese market is different from ours. WPP gives the best estimates of what we can do; we talk to local media owners about what we can do but we don’t make any promises or give any indications without having discussed with media owners on what the position is. Our business in China is more than twice anyone else’s and the gap continues to widen between Omnicom and us.
Is WPP looking to hike its stake in Rediffusion DY&R and Ogilvy?
We hiked the stake in Rediffusion earlier with Dentsu. We were always interested in increasing our stakes but we don’t always believe in 100% ownership. We continue to have our conversation with Rediffusion DY&R. We are not looking to hike stake in Ogilvy and Mather (in which it has a majority ownership).
Are you looking at acquisitions in India? In particular, would you be interested in owning media assets at any point?
We are looking primarily at organic growth, but we would be interested in smaller acquisitions. As for media assets, we are aggressive in seeing what we can do. Our buying power allows us to take positions if it makes sense for our clients. So, yes, we are starting to look at it but no specific focus on that.
How much does digital and new media contribute to overall revenue?
Twenty seven per cent. We want it to be a third. So you would expect it, within three or four years, to be 30-31%. If we make some acquisitions, we should make it to 33% fairly quickly. And we know that you and I might spend 20% of our time online, we know that clients spend 12-14% of their budget. So they’re not spending enough. So there’s this natural gravitation towards that 20%, but by the time we get to that 20%, they (consumers) may be spending more time online.
What are your expectations for 2010?
We’ve got five events. We’ve got the Asian Games in Guangzhou; we’ve had the Winter Olympics which, on balance, was pretty good; we’ve got the (football) World Cup in South Africa; we’ve got Expo starting in May in Shanghai and going through to October. And then we got the mid-term Congressional elections, which is not a sporting event though some would think it is, in November in the US. All those five events probably add about 1% to global growth. So if we were minus 1 before, that would drive the growth to flat.
Is the global economy out of the woods?
I think we are stable. I turned on the television this morning and, on CNBC, Nouriel Roubini, the noted economic bear, was talking about the potential of the double dip. He thinks the second half of this year is going to be quite a difficult period. There is a view on that; I think it’s unlikely. I think what is more likely is that, one, governments can cut spending and it (could) be more painful for us in the short term to reduce deficits. Or, two, they leave the stimulus in place for too long and we inflate our way out of it (the slump). The one thing that I would say about January, February is that relatively, the US got stronger. And that seems to indicate that the stimulus is kicking in a little bit more than we thought historically. But the question is how long does it last.
Are we overestimating the power of social media?
Depends on what your estimates are (laughs). Social networking is an editorial form of publicity rather than a paid form of publicity. If that’s the case, there is a lot of potential there to explore. But it’s not a medium that really lends itself to commercial exploitation. And when you look at the times that people have tried to commercially exploit it, it’s not always failed but often failed.
These are extremely powerful channels and new media. The more you try and invade it with commercial messages, the more at risk you are. Everyone is keen… They get the hits and get the traffic but it’s very difficult to monetize. So, people are searching for ways to build advertising revenues, e-commerce transactions through this media. It may be intrinsically due to their personal nature; they are not media that lend themselves easily to what we’re talking about.
The other thing is that a few years ago, we would have been talking about Second Life and virtual reality sites, but we aren’t now. MySpace was obviously in a much stronger position, two or three years ago than it is now. So, there is going to be a lot of oscillation and a lot of it will be about fads. There will be a lot of volatility.
With social networking sites and targeted online advertising, where do you draw the line at privacy?
I think it’s very difficult. We had Eric Schmidt (chief executive of Google Inc.) at our strategy session in New York last year, and he talked about what Google is able to do now in terms of predictive modelling. So if they see that when I land in Mumbai, I look for the best Indian or Japanese restaurants; when I land in New York, which they know, they can tell me what the best Indian, Japanese restaurants there are. Look, as long as you have the right to opt out (it’s all right).
And what they call inertia selling, when people write or communicate with you and say, ‘here is an offer’ and you have the ability to say no in 30 days, that’s inertia selling. Maybe it should be the other way round—before I enter into a dialogue with you, tell me if you want a dialogue. Don’t enter into a dialogue and tell me I can opt out.
The EU is conducting an enquiry into Google’s algorithms—three small companies in Europe have asked for more information about how the search rankings work. And Google’s reaction was a very positive one. Certainly in the beginning, they said ‘we welcome any enquiry, we have nothing to hide’. Which is a good way to deal with it. There are a lot of issues, privacy issues, people have information. All those issues are surfacing, and I would much prefer to have us regulate it than have someone else regulate it. We’ve seen it on advertising of alcohol, on advertising to kids that governments intervene. Self-regulation is always far better than forced regulation.
anushree.m@livemint.com
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First Published: Wed, Mar 17 2010. 09 47 PM IST
More Topics: WPP | Sir Martin Sorrell | Advertising | India | China |