Sir Martin Sorrell, founder and CEO of WPP, the world’s largest advertising and marketing services group, discusses the outlook for the industry and his group's plans for India. Edited excerpts:
What is happening to ad spending globally?
The World Bank-IMF forecast for the world economy this year is about 4.5 per cent, so the world economy is growing again, but there are big variations. The UK might grow at two per cent. Western Europe outside Germany is at the two to three per cent level. And, then, you have the BRICs and the CIVETS at seven to eight per cent. So, you’ve got this dichotomy in world growth and you also have a functional dichotomy between traditional media, which is growing slower, and digital media. We have started 2011 quite strongly. The first two months we were up seven-odd per cent and we’re budgeting five per cent for the full year from 5.3 per cent last year.
Coming to advertising spend, the general feeling in the West is one of caution and events in West Asia and Japan will make them more so. That’s why you have $2 trillion or so sitting on the balance sheets of Western companies unspent. The difference in India, Brazil or China is that people see growth, but the big issue is whether these countries will grow on their own or whether they are linked in any significant way and if so, how much of an impact will that have.
To use a sporting analogy about the advertising market, the BRICs and CIVETS are the Premier League. The Champions’ League, which is second in importance in the UK, would be US and Germany. Division III would be France and maybe UK. Division IV, sadly, Japan, which has not grown for 20 years.
Overall, this year will be solid, whether it will be spectacular or not is another question because there are issues like sovereign debt and the US deficit to consider.
You said revenues from India were $450 million and from China they have crossed $1 billion. Where do you see revenues from these two countries in 2015? Will the gap narrow?
You have to look at the relative size of the economies. China is five times larger than India, and our market share in India is probably three times what it is in China, so the relative figures are correct. But it depends on the pace of growth. I would expect China and India to grow in lockstep in the near term. In the medium and long-term, India is likely to grow faster, because there must be a law of diminishing returns. Also, in spite of what happened in 2009, Western countries are at a higher level of advertising spending as a proportion GNP than the BRICs.
India is still under-branded, under-advertised and under-marketed. In India, advertising spending is 0.4 per cent, in China it is over 1 per cent. In mature economies you can get up to two or three per cent. That’s going to change because of the rise of Indian companies, both within and outside India. Advertising also has a strong tradition here — earlier, David Ogilvy came to India every year by boat! – and there is a deeper understanding of brands. Also, in India, the mobile penetration is so significant you now have three networks with over 100 million subscribers.
You are reportedly unhappy with the digital initiatives in India…
Any acquisitions planned?
We continue to look at them, but the honest answer is that organic growth is the stronger thing for a company to do. You may find that strange coming from me, but acquisitions are something you do when you start a company from zero and want to build it into something before you’re dead. But with new markets, new media and consumer insights, for us, India ticks all those three boxes and what we’ve already got here is formidable stuff. It is just that there should be more because if you grow organically, you organically win more business and you pick up acquisitions where you can.
The other trouble with acquisitions in most of these markets is there is not much scale. We have a very strong position here and the competition has been talking for years about overtaking us. But the gap, if anything, has widened, not narrowed. Obviously, we can’t be complacent or arrogant, so we’ll continue to focus on small and medium-sized. There is plenty out there.
Talking about competition, WPP remains the largest but Publicis is rapidly catching up...
Not here, they aren’t. Not in Asia either. It’s just French hype; you must not be swayed by it.
WPP has been trying to increase its stake in Rediffusion , but Arun Nanda has been resisting this move…
This goes back years and it is a strange situation, because we own 27 per cent. To be blunt, it would be better if we had a more significant stake. Arun Nanda knows where we are. His partner and he have to decide what it is they wish to do.