Special Report: Asia - The view from the top

The networks have a balancing act on their hands in order to capitalise fully on the growth in Asia. Adam Woods talks to the key players about their plans for the region.

Nuclear tests in North Korea, a coup in Thailand and continuing anxiety about bird flu across the continent have stolen the headlines in the past year, reminding the world there is more to Asia than the economic success stories of China and India.

And,, while ten years ago, Europe and North America looked to the East and saw mainly the purring economic machines of the Asian Tigers, these days, the region offers more arresting sights for Western onlookers.

Driven by the growth of those two awakening giants and sustained by the mature markets of Japan and South Korea, Asia is expected by some to nudge past Western Europe to become the second-largest advertising region in the world this year, taking 23.3 per cent to 22.7 per cent (Initiative Spheres of Influence).

By the time of the Beijing Olympics in 2008, China's ad industry is expected to rank second only to the US in terms of revenue, as millions ascend to the middle classes and domestic and foreign brands begin to do battle in earnest for their wallets.

"Asia is a lot of markets, but the most interesting things are happening in Greater China," Patrick Stahle, the new chief executive of Aegis Media Asia-Pacific, says. "It is moving in a very controlled way and they seem to be getting most things right."

Sir Martin Sorrell, whose passion for Asia's growth potential is well-documented, has recently pointed to a neat economic diagram which demonstrates that both China and India's shares of world GDP will return to their boom levels of 1825 precisely 200 years later. "It is a perfect curve," he notes with satisfaction.

Home to more than one-fifth of the world's population, China in particular is a unique case and a very clear candidate for a commercial rebirth. But its dramatic growth has also provided a spur for markets such as Indonesia and Vietnam to reassess their own ambitions.

Back under democratic rule since 2004, Indonesia's adspend is forecast to rise to $5.2 billion by 2007, with a three-year growth rate of 89.8 per cent, putting it second only to Russia among the world's surging ad markets (ZenithOptimedia).

The country is notoriously unstable and is scattered impractically over more than 18,000 islands, but it has far greater natural resources than China and therefore fewer - or rather, different - barriers to growth. As in Vietnam, television attracts almost two-thirds of all advertising. Internet penetration is still very low and so press advertising represents the only serious competition.

Vietnam has a youthful population and a ruling Communist party with a tendency to follow China's lead. The country's population stands at just 84 million, but it has a large indigenous skills base as a result of its historical associations with France and the US.

"Vietnam has got people that are a little less lost to the world than those in the more remote regions of China," the Lowe Worldwide chief executive, Steve Gatfield, says. He is an old hand in the Asia-Pacific region who also heads up Interpublic's network operations globally.

The Indian media landscape represents something of a time capsule: newspapers and magazines claim 56 per cent of advertising between them and the cost of space continues to rise, while the internet, if it takes root at all, will most likely do so via mobile phones. But, while it almost matches China for population size, the growth of its adspend appears to be slowing after three bumper years. And its media market is still scarcely larger than that of Sweden.

Elsewhere, the mature economies of South Korea, Singapore and Japan have all shown indications they may be emerging from their almost decade-long lull, though they figure among the ten slowest-growing countries in terms of adspend.

All the same, Japan remains comfortably the world's second-largest ad market, though it shares South Korea's forbidding attitude towards foreign investment.

All of Asia's key markets have their weaknesses, from the media censorship and transitional tensions of China to the drastic infrastructural deficiencies of India. But barring disasters - and possibly in spite of them - Asia's aggregated momentum is universally projected to carry through for the foreseeable future, bumpy though the ride may occasionally be.

Certainly, none of the network holding companies that are currently pursuing such ambitious expansion plans all over the region should imagine their pursuit of Asian gold will be without the occasional hiccup.

"The whole region needs to be treated like a great big opportunity, but you really need to look after each individual market," Stahle says. "It is like an orchestra. They all need to be playing the same tune, but they are all very different instruments."

THE NETWORKS AT A GLANCE

AEGIS GROUP
Asia revenue 2005 £110m
Staff in Asia 3,537 (1,350 Aegis Media/2,187 Synovate)
Entered Asia 1996 (Aegis Media), 1991 (Synovate)
Last year, Aegis introduced Posterscope to the Philippines and Vizeum to
Malaysia, and its interactive mandate for Coca-Cola in China will give
the group a lead role in the Beijing Olympics.

HAVAS
Asia revenue 2005 EUR58m (£39m)
Staff in Asia 1,400
Entered Asia 1986
Of all the large groups, Havas has the smallest footprint in Asia, which
accounts for just 4 per cent of revenues. The group's organic growth in
Asia-Pacific actually fell 17.2 per cent last year, partly owing to the
Intel split in 05.

INTERPUBLIC GROUP
Asia revenue 2005 $473m (£254m)
Staff in Asia 6,000+
Entered Asia McCann Erickson opened its first Asian agency in Tokyo in
1960.
Asia-Pacific represented around 7.5 per cent of IPG's revenues in 2005,
falling fractionally in 2004, but holding its ground better than the US
and Europe.

OMNICOM
Asia revenue 2005 $1.5bn (£0.8bn - figure includes Latin
America, Africa and the Middle East)
Staff in Asia 62,000 staff worldwide
Entered Asia Omnicom formed in 1986. Like WPP, Omnicom lists
Asia-Pacific among its "other" markets, which collectively account for
14.1 per cent of revenues and rising. Omnicom is in acquisition mode in
Asia-Pacific and in June launched a partnership venture with CITIC Guoan
to create DDB Guoan.

PUBLICIS GROUPE
Asia revenue 2005 EUR434m (£290m)
Staff in Asia 7,572
Entered Asia 1970
Publicis is present in 18 countries and 31 cities across Asia-Pacific
and expects the region to account for around 20 per cent of global
revenues within three to four years, from about 10 per cent now.

WPP GROUP
Asia revenue £1bn (figure includes Latin America, Africa and
Middle East)
Staff in Asia 26,500 (inc associates)
Entered Asia JWT has been in India since 1920. WPP is ahead of the curve
in Asia-Pacific, Latin America, Africa and the Middle East, taking 19
per cent of group revenues there, with 30-40 per cent expected in the
next five to ten years.

*All above figures are for the Asia-Pacific region unless otherwise
stated

SIR MARTIN SORRELL - CHIEF EXECUTIVE, WPP GROUP

Earlier this year, you suggested that we are seeing one of the great power shifts in history, from West to East. Have you seen anything since then that might impede that growth?

I think there are arguments to say that it is probably accelerating. You see continued strong growth in China, increased growth in India; I don't think people have reacted that negatively to the coup in Thailand; in Pakistan there has been continued growth; Indonesia is becoming more and more important.

So I would say no, I haven't seen any checks to the growth in recent months. If you look at the other fast-growing markets, there are more reasons for concern in, say, Latin America.

You ignore these countries at your peril. You can't continue to grow at 8 per cent to 10 per cent of GNP forever, and, of course, there will be bumps and there will be softness - with every country, there is a cycle. But advertising as a proportion of GNP is still a long way behind the Western world right across the region, which means there is still significant room for growth.

Are you concerned that the internal discord in China could result in a tightening of the regime and an economic slowdown?

My sense is that the leadership in China is very well aware of the dangers of economic imbalance between the rural areas and the coastal regions, which are more affluent. They are very intent on making sure that economic growth is balanced. There will be stresses and strains, but if there is a slowdown or a soft landing, or even a hard landing, we would use that opportunity to increase our investment in China, because that is a great opportunity.

How significant an event do you believe the 2008 Beijing Olympics will be in terms of China's growth?

Very significant. It is certainly not just a sporting event, it is a major political, social and economic event, and no self-respecting Western brand, internal Chinese brand or Chinese company trying to build its business in the West, would miss out on this.

Can we expect China and India to emerge as global creative centres as well as manufacturing and service giants?

I think they are going to be very powerful in that regard. You can see that already in the theatre and film coming out of both countries - in fact, many Asian countries. Intellect or intelligence is not distributed financially, it is distributed genetically, and there are a lot of people in these countries, so watch out, because it is those five graduates in a shed somewhere in Shanghai or Beijing that worry me.

ROBERT LERWILL - CHIEF EXECUTIVE, AEGIS GROUP

You have bought companies in Asia and you have set up your own - what are the respective merits of the two?

One of the good things about buying things is that a lot of our big clients in the region are local clients, whereas a lot of groups go in on behalf of big global accounts that want them to be in certain markets. Synovate alone has got six offices in China, and one of the biggest problems we have is finding enough people to do all the work we get.

Asia has been at the forefront of our growth plans since we moved in there about nine years ago, buying what independent agencies were for sale - which has not been a lot - or starting organically and growing. It is a hugely important area for us and we have got a presence inside all the countries that matter now.

The China story has overshadowed the rest of the region in recent months and years, but just how diverse are the opportunities elsewhere?

Some countries are growing faster than others and some - Hong Kong, Singapore,

Malaysia - are relatively mature economies. There are developing markets such as Vietnam which people are focusing on, and which will become significant spenders on marketing services; then there are some closed markets which don't have a large amount of marketing activity, like the old Burma.

India is certainly very powerful - it has 1.1 billion people and 300 to 400 million of them are significantly economically active. Carat has got a very good presence there, and it is one of the places where we are looking to make more acquisitions, so it is a watch-this-space thing.

Every network has ambitious expansion plans for Asia - what are your particular strengths as things stand?

We have a lot of local clients and we also have about three-times as much revenue in digital as other marketing services groups have; we are the agency of record for Coca-Cola in China, and about 15 million Chinese regularly use the iCoke website we have built for them. We will be doing all the interactive digital work for Coca-Cola at the Beijing Olympics.

What kind of growth prospects does Asia offer Aegis Group?

In terms of organic growth, Asia is the fastest-growing region for us. Across the whole continent, we certainly look for double-digit revenue growth, and in some countries, like China, we would be looking for closer to 20 per cent; in digital, we are expecting 30 per cent.

MICHAEL BIRKIN - PRESIDENT AND CHIEF EXECUTIVE ASIA-PACIFIC, OMNICOM

How important is Asia for Omnicom, looking forward?

It's dynamic but, while editorially it is dominating the world, commercially it is not dominating the world at all. North America and Europe are still larger commercially, but we are at the beginning of the 21st century, and I personally have a view that this will be the century when we see Asia coming through very strongly. It is already way more important than it was ten or 20 years ago, but not as important as it will be in ten or 20 years' time.

Working out of Tokyo and Shanghai, which markets do you see as the ones to watch?

In China alone, there is such a massive appetite for everything. You have got 400 million people who have come out of poverty in the past 20 years. Vietnam I think has around two-thirds the population of Japan, and although it has nothing of the wealth, it is a very vibrant economy. Its regulation is loosening up, so for the Procter & Gambles, the Motorolas, these are big opportunities.

India is also booming, but there is a very different dynamic to China. India is the world's largest democracy, and it is very democratic. They are intensely independent people, very creative, with a rich culture, and very ambitious in their own way. But it is very bureaucratic, and you have a country with more than one billion points of view, whereas in China, the collective still very much dominates the individual.

Do you see any dark horses among the smaller nations?

There is no market in Asia of any scale that we wouldn't be interested in developing. We are in the business of providing the best services to our clients. If you were to ask me if I am focusing on Myanmar right now, well, I'm not, but that doesn't mean I'm excluding it forever.

Do you picture Asian centres emerging as global creative hubs in the years to come?

There is a lot of creativity coming out already. BBDO was involved recently in an exercise with a couple of global clients who had asked us to choose teams from four regions to answer briefs on two bits of business, and for both of those, the Shanghai office was felt by the client to have provided the best work.

STEVE GATFIELD - CHIEF EXECUTIVE, LOWE WORLDWIDE; EXECUTIVE VICE-PRESIDENT, IPG

You have focused on Asia in various roles for the past ten years. What are the major socio-economic changes you have seen in the region during that time?

I think the most dramatic change is China, obviously - its industrialisation and speed of economic development is the thing that has been most transformational. Elsewhere, South-East Asia is broadly similar to where it was in 2000, but China is a long way ahead.

What are Interpublic's immediate plans for the larger markets in the region?

We have a very strong asset base in India. We have recently merged Universal with Lodestar to create Lodestar Universal, and that is a key play because our relative strength in India is second only to WPP, and arguably our assets are more contemporary than theirs, because HTA (WPP's lead agency there) is a bit of a leviathan. In China, we have all our brands represented. Our game is to develop our diversified assets further, particularly in the activation field, and we are also looking at partnerships.

What are the most common difficulties you have seen foreign networks come up against in Asia over the years?

I think the issue you face in a fast-growing market is: how do you secure and develop the local talent to sustain the businesses you are trying to build? We are trying to create an environment which is rewarding and empathetic to that talent; which is informed by their culture and their way of looking at the world, but which also draws upon the experience we have in the West.

In certain areas, especially new technologies, there appears to be a lot we can learn from some of the Asian markets. Is that a part of their importance for you?

What we have is the ability to integrate these businesses into a network in a way that we haven't done with emerging markets before - an example being India's technology skills. The old Western model was predicated on: "We invented it here and now we are exporting it to you." But in mobile and gaming, Asia is far advanced and there is a lot we can learn from them.

MAURICE LEVY - CHAIRMAN AND CHIEF EXECUTIVE, PUBLICIS GROUPE

To what extent is Publicis looking to Asia for growth over the coming years?

If you look at the position of Saatchi & Saatchi, Leo Burnett and Publicis on the one hand and Starcom MediaVest and ZenithOptimedia on the other, we are quite happy in the region. We believe we will continue to grow in double digits in the region for the next few years. Asia represents something like 10 per cent of our revenue and our intention is to double the size of our operation in the next three or four years.

India and China are clearly your priorities in the region - what are the latest developments for Publicis there?

We have recently acquired Solutions and we are already reaping the fruits of that acquisition by growing very fast in some areas where we were absent. India is a market historically dominated by Unilever, so this means WPP mainly. We are growing much faster, but we are starting from a base that allows us to bring new solutions, fresh blood and fresh thinking. We are in an acquisition mode, and we are also growing very fast with local clients. In China, we have developed a strong image and we are in great shape. In media, we are number one, and we have combined ZenithOptimedia and Starcom to create China Media Exchange.

Do you foresee a great deal of creative talent coming from Asia and on to the world stage?

I think the potential for creativity is there and it is impressive in terms of the way they approach artwork. In China and Asia, graphics are in their genetic code. Regarding copy, the issue is more complicated. It is not something they are used to, and the language of advertising is not very friendly with the Mandarin. But there is a real contrast between the enthusiasm we see in Asia and the tired approach of our old European countries, and it is very refreshing.

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