For the 60-year-old head of the world's No. 2 marketing-communications company, the invitation to speak about brand building affirmed a strategy set long ago. For over a decade, Mr. Sorrell has emphasized the potential of Asia/Pacific-and China and India in particular-as an opportunity.
Now, however, the interest of his largest rival in China and India is picking up. Speaking to Wall Street last October, John Wren, CEO of the world's No. 1 holding company, Omnicom Group, stated his interest in no uncertain terms. "The only regional thrust that is a keen interest to me is Asia, China," he said. More recently, in July, Mr. Wren told investors he approved 10 acquisition targets recommended by Michael Birkin, Omnicom's new Asia/Pacific CEO.
Through a combination of acquisitions and growth from current clients, greater China today is WPP's fifth-largest market, and one where WPP has a 15% share. In India, WPP's share is nearly 50%. "We will be very disappointed if it isn't our third-largest business-behind the U.S. and the U.K.-by 2008," Mr. Sorrell said in late August.
Interpublic Group of Cos. has been present in China for two decades-its McCann Erickson WorldGroup started operations there to serve global clients like Unilever, General Motors Corp. and, more recently, Microsoft. "The Johnny-come-latelys are Omnicom and the French networks," said Steve Gatfield, exec VP at Interpublic, who oversees operations in Asia/Pacific.
On its face, the attraction is obvious: population and consumption. One-third of the world's population today call China and India home, and though only about 200 million Chinese are serious consumers-at least, in the eyes of global marketers-the numbers of such prospects is expected to increase dramatically in the near future as their economies develop. Researchers at investment bank Goldman Sachs in an October 2003 report estimated that China's economy could overtake that of the U.S.-the world's largest-by 2039; India's could be larger than all but the U.S. and China in 30 years. While population and consumption do not automatically translate into success, they are a start. "That's what makes business tick," said Mr. Sorrell. The steady increase-at a faster rate than the U.S.-expected in advertising expenditures as the Chinese and Indian economies mature is attractive.
A near-term catalyst for increased advertising in China is the 2008 Olympic Games in Beijing, expected to begin in mid-2006. "It's a very seminal moment for China to be on a highly visible world stage," said Mike Amour, chairman-CEO, Asia/Pacific for Grey Global Group based in Singapore. "You're going to see international companies spending more in China and Chinese companies promoting themselves both domestically and overseas."
"Our point of emphasis now is in building our specialist areas-digital, event marketing and customer relationship management," said Interpublic's Mr. Gatfield, who has lived in both Hong Kong and Singapore. Non-Chinese multinationals have driven earlier growth, he said; next, he expects Chinese companies such as Haier and Lenovo to spend more. "We completely believe that China will be crucial to our business going forward and we will do every bit as much to grow our business there as other companies," Omnicom's Mr. Birkin said. The holding company operates about 30 business divisions in China, and is staffing up a holding company office in Shanghai. The newest addition: Velvet Yoshinami a former Philip Morris executive, as a senior communications director.
Some expect that many of the estimated 10,000 local Chinese ad agencies (see story, facing page) will be purchased as more foreign agencies-particularly publicly traded ones-seek to enter the market. The public-relations unit of WPP's Ogilvy & Mather last week bought the majority of Hong Kong-based financial-public-relations firm iPR Asia for an undisclosed sum.
"We are in investment mode in China-hiring and training, but turnover is very high and there's a shortage of talent," said Maurice Levy, Publicis Groupe's chairman-CEO.
Publicis is already profitable in China, he said. The group hasn't bought anything in the country in the last two years, but is looking at possible marketing-services acquisitions, he said.
But some doubt whether China will deliver the sort of growth Mr. Sorrell hopes to see. "There are so many possible speed bumps in China," said Omnicom's Mr. Birkin. One big issue: finding capable talent. The level of investment from multinational companies in the region has expanded substantially in the past five or so years, and agencies are often stretched to keep pace. The Chinese government's relatively recent embrace of capitalism has opened a floodgate of opportunity to a work force that is unschooled in marketing-from brand-building to creative. Companies such as Procter & Gamble, for instance, have resorted to recruiting creative executives from art schools because they're creative thinkers. "We believe China will be one of our big countries, but we don't anticipate China will become, revenue-wise, one of our top five countries before 2010," Mr. Levy said.
Mr. Gatfield, who prior to joining Interpublic oversaw Asia/Pacific operations for the former Bcom3 holding company, said, "This is the biggest experiment in modern history, the controlled translation to a market economy." The huge population and fast economic growth are positives, but many challenges exist for the government and its citizens, he notes, such as "ensuring wealth shifts from urban centers to the country and unknowns caused by a limited rule of law, tremendous pressure on talent, and the curious evolution in media ownership. The latter is closely allied to the government and its desire to maintain the cultural integrity of China."
Mr. Sorrell said WPP's biggest competition in China is not from its Western rivals, but Dentsu. The Japanese agency is one of the biggest players in China, and one of its successful approaches is to establish joint ventures with Chinese companies like Shanghai Media Group.
Said one Hong Kong based regional Interpublic executive: "It is going to be upward for everyone, including IPG, but there will be a roller-coaster element to its growth cycle."
Contributing: Laurel Wentz