Patterns in the growth of international advertising parallel those of international business. At the end of World War II, the bulk of U.S. advertising activity was domestic, and 75% of recorded advertising expenditures worldwide were concentrated in the U.S. Since then, the growth in global advertising spending has skyrocketed. In 1950, estimated ad spending totaled $7.4 billion worldwide?$5.7 billion in the U.S. alone. By the beginning of the 21st century, it was estimated that more than $1.5 trillion was being spent annually to market goods and services.
Significant global changes helped fuel a phenomenal growth in international business, including saturated domestic markets, higher profit margins in foreign markets, increased foreign competition in domestic markets, trade deficits and the emergence of new markets (such as the countries of the former Soviet Union).
The role of advertising varies significantly from country to country. For the most part, the developing countries in Asia, Africa and the Middle East appear to be light advertisers. However, economic development is not the sole predictor of advertising expenditures, and other variables, such as culture, must be considered in attempting to understand the role of advertising in a particular country. Media costs in many developing countries tend to be rather low, and this factor must be taken into consideration when making comparisons.
About two-thirds of all media dollars spent around the world are used to market consumer products and services. The remainder is spent by marketers promoting their goods and services to other businesses (i.e., business-to-business advertising). In developing markets, the ratios deviate from this norm. Countries in the Middle East, for example, see nearly a 50-50 split between consumer and business-to-business marketing expenditures. The U.S. accounts for more than one-third of the world's media spending, but on a per capita basis, Japan spends more to advertise consumer goods and services.
Total advertising spending among the top 50 global marketers decreased to $52 billion during 2000 (down from $59 billion in 1997). Anglo-Dutch consumer goods giant Unilever invested the most money in advertising outside the U.S.?nearly $3 billion (plus another $698 million within the U.S.)?according to an Advertising Age report that tracked ad spending in 56 countries and ranked advertisers by non-U.S. spending to reflect global trends. Procter & Gamble Co. was ranked a close second with $2.6 billion, and Nestl? was third with $1.5 billion.
Agency trends
The first U.S. ad agency to establish itself overseas was the J. Walter Thompson Co., which opened an office in London in 1899 and went on to build a large global network by the end of the 1920s. Overall, however, U.S. agency movement to international soil was rather slow prior to 1960 and nearly always led by client expansion. One prominent exception was Doyle Dane Bernbach, which opened an office in Frankfurt in 1961 to serve a German client it had acquired-Volkswagen.
When marketers began to expand to foreign markets, their advertising agencies were faced with only a few options: allow a local agency abroad to handle the account, allow a U.S. agency with an established international network to service the client or open or acquire an overseas branch. Initially, when multinational clients were the exception rather than the rule, the second alternative was the most common practice. However, allowing another agency to handle a client's international business became risky, often resulting in the loss of both the domestic and international account.
The 1960s were characterized by rampant expansion abroad by U.S. advertising agencies. Agencies began to see many advantages to joining their clients in foreign markets; they could service their domestic clients as well as compete for the foreign accounts of other U.S.-based multinational companies and for the accounts of local foreign companies. Thus, as domestic advertising volume began to taper off, foreign markets looked increasingly appealing.
In addition, there was the attraction of potentially higher profits. Overseas, salaries of ad agency employees in the 1960s were as much as 70% lower than in the U.S., while average agency profits were often twice those in the U.S. Setting up offices overseas had the additional benefit of freeing U.S. agencies from a total dependency on the performance of the U.S. economy as a whole. For example, during the 1970 recession, domestic advertising agency billings declined 1%, while the foreign billings of multinational agencies increased 13%.
In contrast to the 1960s, the decade of the 1970s was a period of consolidation and retrenchment for many U.S. ad agencies. While the combined annual billings of multinational agencies continued to increase, many smaller agencies with limited presences overseas were forced to withdraw from foreign markets. Many realized that to compete successfully, they had to maintain offices in almost all of the important countries of Europe, Latin America and the Far East?a commitment that only the largest agencies were prepared to make. In 1970, Advertising Age listed 58 agencies that had international billings; by 1977, that number had dropped to 36.
In the 1980s the profile of the U.S. industry changed substantially. London-based Saatchi & Saatchi purchased three U.S. agencies in 1986: Dancer-Fitzgerald-Sample, Backer & Spielvogel and Ted Bates Worldwide. In 1989, the British WPP Group brought two of U.S. advertising's most glamorous names? JWT and the Ogilvy Group?into its family via hostile takeovers. In 1988, the Publicis Groupe formed the first big French-U.S. alliance with Foote, Cone & Belding Communications, Chicago, a relationship later dissolved. In 1989, Della Femina, McNamee WCRS became a subsidiary of Eurocom, France's top agency; in 1990, Paris-based BDDP bought 40% of Wells, Rich, Greene; and in 1994, the Publicis Group acquired Bloom FCA, with offices in New York and Dallas. Japan's top two agencies, Dentsu and Hakuhodo, respectively, also opened offices in the U.S. in the mid-1990s.
To compete with these huge agencies, smaller shops set up independent agency networks called "indies." These proliferated in the 1980s and particularly in the 1990s as marketers entered relatively new markets in Asia and the Pacific region and in Eastern Europe.
Independent networks typically are sustained by participating agencies through initiation fees and annual dues. "Indies" generally represent themselves as alternatives to the multinationals, less burdened by bureaucracies than the larger agencies and more available to clients. In 2000, Worldwide Partners, based in Aurora, Colo., was the largest independent network, with collective billings in excess of $4 billion from its 145 member agencies.
For 2001, the top agency organizations in the world were WPP Group, Interpublic Group of Cos., Omnicom Group, Publicis Groupe and Dentsu, with combined worldwide gross income of $31.12 billion.
