WPP Group Plc. CEO Sir Martin Sorrell’s views on what will drive the world of advertising and marketing services are closely followed in global ad world.
Every year, Sir Martin, who, as head of WPP, manages more than 100 group companies and 100,000 employees across the world’s most comprehensive marketing communications group, lays out his vision, mixing research, news, views and analysis in his own inimitable writing style, to provide a road map not just for his team, but also for the industry.
Sensing change: Sir Martin Sorrell, chief executive officer, WPP Group Plc
And, this year was no different, as he gave seven reasons why advertising services will continue to become increasingly relevant.
According to Sir Martin, these are: 1. Globalization or Americanization 2. The eclipse of regional management? 3. Too much stuff, not enough brainpower 4. Web 2.0—more powerful than 1.0 5. Internal alignment drives success 6. Continuing retail concentration 7. Corporate responsibility: a no-brainer?
Coming off WPP’s best year in terms of results with billings, revenues and profit setting records, Sir Martin predicts that 2008 will be a “good year” for global advertising services though America’s economic woes and western Europe’s stagnation remain two principal concerns.
Sir Martin agreed to let Mint publish his views on China and India, titled What We Think, part of a broader look at globalization or Americanization. Edited excerpts:
What has been going on may well not be the globalization of world markets, but their Americanization. Not in the sense that upsets the French or the Germans and results in the banning of Americanisms from French commercial language—an objection to the cultural imperialism of Coke, the Golden Arches or Mickey Mouse. More in the sense of the power and leadership of the US. In most industries, including our own, the US still accounts for almost half of the world market. And given the prominence of US-based multinationals, you could argue that almost two-thirds of the advertising and marketing services market is controlled or influenced from there. If you want to build a worldwide brand, you have to establish a big presence in the world’s largest market—the US.
American strength is based on three factors. First, the size and power of the American market; more than 300 million people in a relatively homogeneous market. Despite the European Union being almost twice the size, it is much more heterogeneous. Second, the power and size of US capital markets. Current difficulties aside, America is still the cheapest place to go to raise debt or equity capital, although more detailed disclosure requirements are discouraging some.
Finally, because of its strength in technology, it is hard to think of many areas where it does not lead. Third-generation mobile phone technology is one, but given the prices European companies paid for the privilege, the distinction is a dubious one.
At times in history, when a country or empire seemed to have total political, social or economic hegemony, things changed and the vacuum was filled by another power. At this point, it seems that China and India will take that role, in the context of the growth of Asia Pacific. In fact, we may now be witnessing a change from Americanization to globalization. In Davos, at the World Economic Forum, over the last few years, the Chinese and Indians exhibited a larger degree of self-reliance and independence, perhaps even overconfidence. Both no longer seem to want to rely on handouts or support. Both economies have reached or are reaching a size and rate of growth that may be self-sustaining and certainly more independent of US influence. While decoupling has not, in our view arrived, there is, probably less coupling. Put another way, when the US sneezes the world does not catch influenza any more, just a cold.
On my most recent trips to Shanghai and Beijing in 2007, it seemed that many Chinese companies with national and overseas ambitions were becoming much more confident and less over awed by the capabilities of Western competition. The listening and learning approach has paid off.
We will probably still rely on the strength of the US, but increasingly we will see the growth of Asian-based multinationals. Not only Japanese-based multinationals such as Sony or Mitsubishi, or South Korean-based chaebols such as Samsung, LG or Hyundai (the Samsung of the car industry). But, Chinese multinationals such as Lenovo, Haier, Konka, Bird, Bright Dairy, China Mobile, China Unicom and CNOOC (they will come again). Eight of the top 30 companies in the world by market capitalization are already Chinese. Also, consider Indian multinationals such as the two Reliances, Tata, Wipro and Infosys. The latter’s headcount is up from 23,000 to 80,000 in four years and continues to grow with a target of 120,000. There is no shortage of candidates. The CEO of Infosys tells me he receives 1.3- 1.4 million applications for jobs each year.
China will increasingly become a service-based economy. In 2005, the mayor of Shanghai called for the 55 CEOs on his International Business Leaders Advisory Council to advise on how to build Shanghai into the world’s leading services centre. In 2006, the focus was on innovation, last year on climate change and planting trees in Shanghai. Similarly, India will seek to be a manufacturing centre for the world and not just focused on services. Who would have thought that Ratan Tata would buy Corus, the rebranded British Steel (the new name created by one of our Branding and Identity companies), or that the underbidder would be a Brazilian company. In addition to Tetley Tea, Tata has acquired Jaguar and Land Rover at the top end of the car industry. At the bottom end, it is launching the Nano at Rs1 lakh—world’s cheapest car.
China and India: back to the future
It is difficult for those of us in the West to comprehend the scale of Asia Pacific’s potential development. China is not just one country; it consists of more than 30 provinces, with so many languages and dialects that Mao Tse-Tung needed an interpreter. The population may well be closer to 1.5 billion rather than 1.3 billion. The Chinese government seems to consistently underestimate its statistics, like those for GDP growth, but it is still equivalent to four or five Americas.
It is true also that currently only 150-200 million Chinese can afford the goods and services we are marketing to them. However, this is already equivalent to more than half an America and this is a dynamic situation, one that will change rapidly in the coming years. Already there are almost 600 million mobile phone subscribers in China, almost 400 million of which subscribe to one company, China Mobile (one of the top five most valuable world brands)—equivalent to one-third more than the total population of the US.
Furthermore, India, itself equivalent to three to four Americas, seems to have been stimulated into more rapid growth, driven perhaps by neighbourhood envy and the Chinese model of state-directed capitalism—although India bills itself as the world’s fastest-growing democracy.
Do not underestimate the potential of the region as rapprochement spreads even to cricket, with the Indian-Pakistani test, one-day and Twenty20 series representing as important a political, economic and social signal as the Beijing Olympics. More than 1.4 billion people watched the Twenty20 series final alone. Equally, look at the dogfight for Hutchison Essar, which Vodafone won in a market which is adding five million mobile subscribers every month, and so is China.
Asia-Pacific will dominate again, proving that this really is back to the future. In 1820, China and India generated around 49% of worldwide GDP. But by the early 19th century, Meissen and Wedgwood were dismantling the high-quality, high-price Chinese porcelain industry, with similar quality but low-priced porcelain. It is the exact reverse today. China and India are forecast to be headed for the same share of world GDP in 2025 as they had in the 18th century, having bottomed out at 8% in 1973.
Currently, China and India represent more than one-third of the world’s population. Asia-Pacific represents one-half. By 2014, Asia Pacific will account for more than two-thirds. WPP already has a strong position in the region. Greater China is already WPP’s fourth largest market and we have a 15% share in mainland China—a market-leading, six-to-one advantage over the next largest competitor. In India, our market share is almost 50%, with a 25% share in South Korea. In Japan, it is almost 10%, behind the dominating Dentsu and Hakuhodo DY Group.
China’s development has been rapid and will continue, but not without bumps. The government is conscious of overheating and an imbalance in rates of development between the coast and the hinterland. There has already been a very soft slowdown in growth, presenting more opportunity for investment, especially in 2008. No multinational company bent on expanding into China or national company seeking to grow inside or outside China will miss out on the branding opportunity presented by the Olympics in Beijing. The Chinese government is already committed to $45 billion (Rs19,240 crore) billion of investment around the games, in contrast to London’s $10 billion for 2012. 2008 should be a unique event and it will not end there. The municipality of Shanghai will be investing $3 billion in Expo 2010 and there will be the Asian Games, in Guangzhou, again in 2010. 2009 offers an opportunity to slow slightly and consolidate more than 20 years of growth, before preparing to surge again in 2010.Watch out for increasingly subtle Chinese military and economic influence.
Take the recent economic contact with Fidel Castro in Cuba to counterbalance Taiwanese tensions. Or Chinese investment in Galileo’s GPS systems, which drew a coruscating response from the Pentagon. Equally, Beijing will not be prepared to rely on America to defend its vital and growing energy supply interests in the West Asia and Russia.
It is busily building trade bridges throughout the oil- and energy-producing areas of the world, particularly Latin America and Africa. Beijing is also changing the political dynamics of Africa, in particular, with more than 800,000 Chinese in Africa participating in projects. Increasingly, Africa is the continent of opportunity, rather than the continent of war, disease and poverty. President Gaddafi’s volte face in Libya has energized North Africa and Egypt, and China’s focus has drawn the attention of Western governments seeking to curry favour, too.
The other challenge to American dominance may well come from the Muslim world. Already, Muslims number 1.6 billion people, around 19% of the world’s population. By 2020, they will account for 2.1 billion or 30% of the projected world’s population. The recent struggles in Afghanistan and Iraq, and possible action against Iran, really only continue the conflicts of the 1950s in Suez, the oil price increases of the 1970s and the invasion of Kuwait in the 1990s. Westerners have made little attempt to understand the Islamic mind and assume wrongly that Muslims share their value systems. They are different and it will be increasingly necessary to make a serious and sincere attempt to understand them.
These events may demand new thinking from the world’s multinational firms. As US-centric companies, for example, seek to develop their businesses and extend their reach into more heterogeneous markets, it may well be that the balance of organizations will shift. There will continue to be a focus on global, max or core brands, with sales of more than $1 billion, particularly to counterbalance the power of global retailers and as companies become less dependent on the US markets. Coca-Cola’s geographic coverage of a quarter in North America, a quarter in Latin America, a quarter in Europe and a quarter in Asia Pacific will become more the norm, rather than Pepsi-Cola’s 56% in the US.
What We Think is reprinted from WPP Plc.’s 2007 annual report.