The Hindu Business Line : For some Sorrell-speak

Sir Martin Sorrell, CEO, WPP, says the group is committed to buying niche agencies and believes India is very fluid with `interesting opportunities.'

The venue is a rich wood-panelled boardroom of the hoary Taj Mahal hotel just off Mumbai's famous landmark: the Gateway of India. The dapper gentleman we were ushered in to meet hardly looked his role of one of the most powerful men in advertising and communications in the world. But, Sir Martin Sorrell, CEO, WPP, indeed is. With revenues of £4.3 billion in 2004, the group has 84,000 people working in over 2,000 offices in 106 countries. Its clients include 330 of Fortune 500 companies and over half of the Nasdaq 100. The WPP group ad agencies in India — JWT and O&M being among the frontline ones — account for over 45 per cent of total ad billings and perhaps even more of the media buying and planning business. In India recently to attend the World Economic Forum, Sir Martin spent time with a posse of media persons. Excerpts from an exclusive interview he gave Catalyst:

The WPP group agencies in India already have a big chunk of the advertising and media buying and planning businesses. Are you looking to scale up further?

Our revenues in India would be $170 million and it's about two-thirds in advertising and media, and the other third is in non-traditional. What we intend to do is develop the brands that we have; there's an increasing emphasis on non-traditional stuff and that's been driven by new technologies and the clients' desire to exploit what the new technologies can offer.

So, in that context would you look at acquiring specialist agencies or niche agencies?

Absolutely. We are very committed to that and we believe there is an opportunity for us. The market is very fluid; there are lots of interesting opportunities. The market is growing at about 13 per cent a year; we now have about 4,500 people in India, compared to 3,000 last year.

We have got the highest quality here. Our Indian business would rank easily as among the best we have anywhere else in the world. We have a superb market position here and the challenge for us is to maintain that and do even better.

Would you look at India as an outsourcing hub?

Well, we do a little bit of outsourcing here, but I am a little bit sceptical about that. When people talk about it, they mention China as a low-cost manufacturing centre; but I don't believe China or India are low-cost, there is high quality at the price at which it is delivered. There is a price-value equation.

The West tends to be snotty and so is the political reaction to outsourcing ... this is free trade. We benefited from free trade, and now that China and India are competing, we are complaining! We shouldn't complain, we should participate and it's an opportunity; this is the benefit of free trade. There could be a downside, the strong will succeed and the weak will fall by.

So, I think our business here is fantastic. We are the market leaders in most markets in Asia; perhaps in Japan, we are number three. I feel good about it; the challenge for us is to continue. I've been coming here from the time I was in Saatchi in the '80s — I've probably made a dozen or so visits in the past 18 years. I've been here only 10 weeks of my life, so it is very superficial, what I know. But I do know that in comparison to our business elsewhere, the business here has done exceedingly well in all the areas we talked about.

You said you would like to get one-third of your revenues from Asia?

Yes, Asia, Latin America, Africa, West Asia, and Eastern Europe. Right now, we are at about 20 per cent and our objective is to get to a third ... if our business grows here at about 13 per cent and in China at about 22 per cent, which is unlikely, as there are likely to be dips. And, if there are dips we will invest heavily, as one of the things we have learnt is that when there are dips in a fast growing market, you don't jump out. Argentina is a classic example. Four years ago, it was a debt case, people were literally throwing themselves out of the window and today it has recovered fully to where it was. It has become a centre of creative talent, which has made a worldwide impact, so there are big lessons to be learnt. If I take the Goldman Sachs report on the BRIC (Brazil, Russia, India, China) countries, we get to 38 per cent of our business; if we just rely on organic growth, we (then) don't have to acquire anything. And, as a result, advertising of a proportion of GDP improves.

So, are you close to acquiring an agency or agencies in India soon?

We've got conversations going and we will announce something soon. It is not in advertising and media but outside that.

You have said advertising and media have changed irreversibly from what they were. . In what way?

Well, it is already changing significantly and rapidly from a year ago. Whether it is eBay, Google or Yahoo!, their approach, the search and advertising related to that, its measurability, its analysis, have had a significant impact and that's the new reality.

Are WPP agencies ready for this change?

We buy about $50 billion of media around the world. About $1.5 billion is already in the interactive space. Wunderman, rmg are all strong brands in that area. Would I be happier if they did better? Yes, of course, if they could get up to 30 per cent of our business. Our technology portal too is good. We are heavily involved in all areas of new technology and media.

But it is very difficult to keep up, people are continuously coming up with new ideas, Google is continuously disintermediating people and it is very difficult to keep a handle on it.

The WPP group is regarded by the industry here as the 800-pound gorilla on the block. You have about 30 per cent of the advertising spends here and 60 per cent of media buying ... ?

I think all in all we should have a 45-50 per cent share.

So, is that a comfortable position to be in?

Comfortable as long as you can maintain it or grow. Business is growing organically by 13 per cent in the first half of the year. We continue to add organically and also through acquisitions, and many of our clients are expanding in India. The Indian market is becoming more open and you're seeing that elsewhere in Asia also. There are massive opportunities in the region and India will benefit; there will be a growth of Indian MNCs and that will be an opportunity to build their brands either in India or outside. And, India will benefit if other countries in Asia too grow.

Ever since media and creative have become separate, several of your agencies say they have no clue as to where media spend goes or how the brand is being built ...

That's a good point, but they should have thought about that 10 or 15 years ago. There are two reasons why media got separated. First, clients thought focus would be better and they certainly thought they would get a better deal if they unbundled, that they would get better prices. The primary mover was the people in the industry - it's the way creative people treated people in media; they were the last five minutes of a presentation dominated by creative. The big salaries were paid to creative people ... the cars, the nice offices all went to creative people and the media people were treated like second-class citizens. They then revolted and went off and started their own businesses. Now, they have all been absorbed, with the exception of Aegis. We've absorbed Tempus, Havas absorbed MPG, IPG bought Western International. They've all gone back into the companies.

I think the point you're raising is important and a number of clients have raised it. Forget about creative for a moment. However, the toothpaste is out of the tube — media people are not going to work with a brand agency anymore; it's not going to happen. So, what you've got is a new full service agency. But the problem was nobody gave sufficient credit to media planning and buying. But, I am an agnostic; I don't know whether the message creates the medium or the other way around. However, it doesn't mean you're denigrating or devaluing the creative part of an agency. But, in mature markets, the value of good creatives is at a premium for great ideas.

There is a big tug of war going on. Those people you spoke to were not there 10 or 15 years ago. We only got ourselves to blame - and I put myself in that camp; we didn't give enough importance to media and frankly, from a business point of view, earlier, they were an extremely profitable part of the operation but people never gave them enough importance.

Also, people in the agency didn't give anything much to below-the-line stuff. When we started WPP in 1985, most people thought we were a rag-bag of disciplines, which weren't really important; now design has become important, branding, the work that Landor or Fitch does ... strategically, they have become very important. Media has become very important because that's where the weight of the investment is. For example, Procter & Gamble spends something like $6 billion on media ... so, my view is it is only we who have to be blamed.

Has it also been a function of the media fragmentation?

That's made media all the more important. If the brand agencies had been more attentive, they could have retained that in their grasp, so to speak. The fragmentation has made media planning more important and the new technologies have made it more important because it's much easier to evaluate them; they are more accountable and more measurable.

There is a view in the media industry that WPP is getting too big and it's making them uncomfortable; that such a large proportion of Indian advertising spends and media buying is accounted for by WPP. Will there ever be a need for you to flex muscles to get better rates or better value for your clients? You're not going to hit people on the head ... ?

(He grimaces) No, no, we're servants, not masters. We have not totally integrated our buying everywhere. You have got to look at the context of what is happening everywhere. There is generally more concentration in media, retail and agencies as a result. This is one of the common themes, that of over-capacity, particularly in the mature markets; and you've to beat that with innovation and branding and that's where we come in ... there is a need for concentration in media buying.

We have a 21 per cent share worldwide in media buying; one or two in every five ads will be ours. I don't think people found that excessively dominant. The market is huge and then you have a local strong competitor in the local market, like Madison. There is enough competition and our clients are of the view that it is a good balance to the concentration happening in media — at the media owners' end, there is concentration there ... look at the networks and publishers.

With the emergence of independent brand consultancies, are agencies not really the brand stewards that they like to see themselves as?

That's an interesting question ... perhaps because of the unbundling of services. The trouble with the traditional agencies is that they never regarded any of these things as important. When we started WPP in 1985, we were regarded as second-class citizens; below-the-line wasn't thought important; design wasn't regarded important as was point-of-sale. Retail design wasn't thought important. But that has changed. The big FMCG companies want distribution at the point-of-sale, so working with Wal-Mart and Tesco and trying to be competitive with private labels becomes more important. Clients want to see fresh ideas in all areas of advertising. Most companies know that successful product design and packaging become critical parts of their business.

So, are we going to see more cataclysmic changes in the way clients use up their advertising money?

Even 12 months ago, we wouldn't have been talking about video iPods, new mobile technologies, we wouldn't have been as impressed about Search. So these changes happen very rapidly, but I'm not clever enough to figure out what the next big thing would be ... What about broadband, who would have thought that fixed line companies would have that opportunity? Now we have television over the Internet. I can get Bloomberg off the Web site streamed onto my TV... my habits too are changing. I'm reading fewer periodicals and more dailies, I'm watching more satellite television ... models are changing, approaches are changing. I've got to believe that technology is growing at such a rapid rate that things are going to continue to change.

So, are you driving this change across the WPP group?

Yes, of course! If the existing structures don't react fast enough, we have to create new structures. You have to disintermediate your own businesses or somebody else is going to do it for you.

Do you plan to hike stake in any of the WPP affiliates in India?

Generally, our philosophy that wherever we have had stakes of 26-27 per cent or so (refers to Rediffusion, where WPP has come to have a stake because of its acquisition of Y&R) ... I think in Rediffusion, we have 27 per cent and we would like to increase our stake, and we will do it with time.

Where we have worked with people for years, where clients and people are complex — and we've audited the business not in a financial sense but in a business sense — and where we are comfortable with the people and clients, it works very well; probably the best model is to acquire 20 per cent, then go up to 30 or 40 ... You know control in our business is a funny thing. You may have control from a numerical point of view, but whether you have control from a business point of view is another.

How much will WPP agencies in India contribute to worldwide revenues?

It should be about two per cent; China is about 4 per cent. It's about 15 per cent for Asia, Asia along with Latin America and West Asia about 25 per cent and we want to take that up to a third. It's growing very rapidly organically, so we don't really need to do much really in terms of acquisitions, just keep improving continuously.

From the time you started out in advertising, is the concept of the agency different today? Radically so?

Yes, it is very different. Even the American agencies have changed dramatically. They were gentlemen's clubs where there was a close relationship with the clients at outrageous rates of 15 per cent and there was a licence to print money. It's much tougher now, much more competitive, I think it's much better now.

Earlier, it was very chummy, a gin- and martini- and golf course-driven industry, but that's changed dramatically. There are still people who hanker after the arty-crafty part of it; sure, advertising is an art but it's also a science.

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