Mumbai: Fast-growing markets (China, India) and digital technologies (mobile, search) continue to be on the front-burner for Sir Martin Sorrell, chief executive of advertising and communications giant, WPP Group.
Sir Martin is in India as part of a review of the Asian business of WPP—the holding company for agency networks such as JWT India, Ogilvy and Mather India and Contract advertising Pvt. Ltd. It also owns Grey Worldwide and GroupM.
Here is what he had to say on some topical issues. Edited excerpts:
We currently have a business of over $250 million (Rs1,010 crore) in revenues and over 6,000 people. And we see that as a base for expansion, because the domestic economy is growing very rapidly. What we find in fast growing markets such as India is that they are under-advertised or under-branded. So, there seems to be an iron law, which operates in the following way: If GDP (gross domestic product) is growing at 9%-10%, advertising grows at least twice that rate. Our growth in India, for the first five months, has been in excess of 20% and, in China, it has been 30%.
India is not one big country but 27 states and we see regional expansion as very important. Indian economy is growing at 9% and advertising and media/marketing services are growing double that rate.
I see a wave of new age Indian confidence with strong global aspirations. Whether it is Infosys or both the Ambani companies or the Tata group. Who would have thought that an Indian company would buy out Corus? What we are witnessing, and it is uncomfortable for some people in the US, is true globalization.
On this trip, we will be going to Indonesia and Vietnam. In Vietnam, there are 85 million people and a strongly expanding economy. Indonesia has 215 million people. And, finally, there is Pakistan with 165 million people. Indonesia, Vietnam, Pakistan have, in the last year or two, expanded very rapidly. Countries such as Bangladesh will be increasingly important for us.
We did an annual review in Bangalore and reviewed our business in Asia. We now have a very big business in Asia, far bigger than any of our competitors. Our organic growth in China this year will be bigger than our biggest competitor. The gap between us and the competition is widening.
On new growth drivers
In our view, the world is divided into three speeds (growth rates), and regions such as Asia, West Asia, Central and Eastern Europe and Africa are growing very rapidly. There will be bumps along the way in that rapid expansion, but we will invest in those bumps. We made a big mistake in Russia in 1997 when it had difficulties, in reducing the level of our investment there, on the back of what our clients were doing.
What one learns about these markets—which have a high level of population concentration—because the world economies are so interlinked: there are bumps but there is very rapid recovery as well. These areas account for 25% of WPP revenues. And one of our three objectives for growth is geographical: To move from a 40/ 40/20 historical split between US, Western Europe and those regions I just mentioned (Asia, etc.) to a third/a third/a third. We are already up to 25% and we anticipate that we will meet that goal in the next five to ten years.
There are two big global things on our agenda, which really come from what we see our clients, media owners and agencies thinking about. First is growth in these fast-growing markets and the second is technologies. Technology is to my mind more difficult. Intellectually, I find it easier to get around expansion. As long as you have good, strong national management to help you expand in those countries, you can get that done. These two issues—geographic expansion and technology, are the two issues all our clients face.
The technology issue is an increasingly important area for us and you see it mostly in the growth of internet and mobile. In the context of India and China, it is mobile that is driving growth of new technology. You have 180 million mobile subscribers here in India slated to grow to 500 million by 2010. And 500 million mobile users in China, of which 300 million are on China Mobile Communications Corp. which equals the population of the US. These are colossal numbers and we in the West still don’t fully understand their implications.
So technology in India and China with mobile will be the cheap way to access the Internet. The Internet in India is only 2% of the total spends. Worldwide, interactive, internet and search account for about 7-9% of the ad spends. It is still small but growing at a rapid pace. And consumers spend 20% of their time online. So, in our view, there is a natural gravitation towards 20% being the proportion of budgets worldwide that will be spent on interactive, internet and search. At WPP, 25% of our business is in digital, direct, interactive and search and I would be comfortable if it went up to a third.
On digital India
In overseas markets, the spends dedicated to digital is 8-9%. In India, it is far less. Unlike other markets, traditional seems to be growing hand in hand with digital. That’s the difference between slow and developed economies. In Japan, annual media analysis reports saw television, radio and print all register a decrease, while the Internet saw a growth of 65%. Worldwide, budgets for digital are 8% and time spent online is 20%. Though we are making investments in technology in India, we find that traditional clients are not spending enough. To my mind, the distinction between new media and old media is a bogus one. YouTube is a distortion of TV.
We are looking at acquiring companies in the digital space. We have not narrowed down on one as yet.
On rival Publicis
I don’t know whether Digitas (acquired by Publicis for $1.3 billion) is as huge as it is made out to be. Digitas’ revenues can also be accrued to traditional revenues and not just pure digital business. It’s more of a global business acquisition. Digitas is primarily a UK company. It tried to expand and made a couple of acquisitions in France. It doesn’t exist in India at all.
On Microsoft and Google
It’s a tricky situation. I call Google a “Frenemy” because we are the biggest buyer of search on Google, and yet, we are competing against them. We spent $450 million on Google last year. Similarly, we use technology from Microsoft. In addition, Microsoft also happens to be our client. But, that’s life. If you look at the technology industry, people who compete with one another also supply to each other. The good thing is that Google has not penetrated to that degree in Asia. Yahoo has penetrated, to a certain extent, the Japanese market.