Asian Agencies: The Asian Arms Race

In the battle to dominate the advertising market in Asia, organic growth will prove more important than pure expansion, if network chiefs such as Sir Martin Sorrell are to be believed. Richard Lord reports

Asia has the big communications holding companies very excited. It's by far their biggest growth opportunity over the next few decades. And they're jockeying for supremacy in the region.

WPP is the largest of the big four, followed by Omnicom, Interpublic, then Publicis. Omnicom is level with WPP, if you include its Australian affiliate Clemenger. Publicis could also argue that it punches above its weight through the 15 per cent stake that Dentsu, the biggest agency group in Asia by miles, has in the company. (So big is the Japanese market that the second-placed Hakuhodo, like Dentsu a single-agency operation, is bigger than everyone bar WPP.)

As well as being the biggest, WPP has been the busiest. Its recent shopping spree has included: LG Ad and Diamond Ad, two of Korea's biggest players, giving WPP a quarter of the market; Batey Ads, the long-term holder of the Singapore Airlines business, and now part of Red Cell, and Bates Asia - the only region where the Bates name still exists. Remaining independent, but tapping Ogilvy & Mather for worldwide coverage, Bates Asia, and its below-the-line arm, 141, were key factors in WPP's recent $600 million global HSBC win.

Bates Asia's regional president, Jeffrey Yu, says he was "impressed with the fact WPP is a very driven company. Sir Martin Sorrell gets involved with everything. Also, there's WPP's strategic intent in Asia and the kind of growth it is experiencing."

Of its established agencies in Asia, O&M enjoys the pre-eminent reputation.

It performs evenly across the region and boasts top-notch creative. After a few unspectacular years, J. Walter Thompson is back on track, thanks to a strong showing in China. MindShare is dominant there and Mediaedge:cia has started to win sizeable accounts.

Sorrell, WPP's group chief executive, says he wants Asia and Latin America to constitute a third of the group's business within five to ten years, and for Asia to see 50 per cent relative growth. Rather than continuing down the acquisition path, however, he expects the growth to be primarily organic. His first priority is effective geographical coverage of the region, something he feels he's well on the way to achieving. His second is raising non-advertising revenue to two-thirds of the company's total.

"We're very much believers that there's been a shift of wealth from west to east," he says. "We identified Asia as a superior growth prospect early on. I haven't seen others doing the same."

It's a view echoed by Andrew Kefford, the regional president, Asia-Pacific, for the research group Results International. "In terms of geographical and discipline expansion, until this year, the only group making moves was WPP," he says. "WPP's commitment to Asia comes from the very top. Other groups pulled the plug. They weren't capable of expansion anywhere, let alone Asia."

Of course, growing by acquisition rather than organically is risky. There's the danger of over-stretching, something IPG was guilty of before it slammed on the brakes a few years ago. "Acquisition can be dangerous," Lowe's regional president, Nigel Gilbert, says. "All you're buying is people. Organic growth is a far more safe and robust way."

There's also the inevitable challenge, both operational and cultural, of slotting an existing agency into an international network. In Korea, for example, WPP's acquisition of LG Ad was the first time an international group had bought a domestic agency, prompting a rash of hostile articles about the foreign takeover of national assets in the Korean press.

While WPP may ease up on the takeovers, don't expect its rivals to follow.

Kefford predicts a flurry of acquisition activity over the next six to 12 months: "There's a pressure to do something in Asia-Pacific. It was a factor in the HSBC win, the ability to provide the client with what they want in Asia."

Likewise, the TBWA regional president, Keith Smith, says to expect "significant activity from Omnicom within the next year. Omnicom will become a more significant player in Asia-Pacific." Not that it's a minor one now, with its main agencies all strong in the region. Although BBDO is smallish and sometimes seen as a little one-dimensional, its pre-eminence in Australia via Clemenger is undoubted. DDB consistently scores well on new business but poorly on creative output. Omnicom's star agency recently has been TBWA, scoring highly on new business in key markets, and winning handsomely at international awards shows. On the media front, OMD has always been a big hitter, despite a limited presence outside Greater China.

While Smith indicates that Omnicom may be following WPP down the acquisition path, it takes a different attitude when it comes to the role of the holding company versus the individual agencies. "We do things differently," he says. "We're more comfortable growing our agency brands."

Smith is sceptical that the trend for holding company-level pitches, led by HSBC and Samsung, will continue. "If you're doing that on a global basis, there are too many lines and it's too hard to administer. HSBC will be a complete mess, with JWT, Bates and Batey all involved. What's the guy running it going to say: 'JWT's better this month'? It's hard enough to run global business anyway. It works horizontally, between disciplines, but not among competing agencies."

The Leo Burnett Asia-Pacific president, Michelle Kristula-Green, points out that clients such as Procter & Gamble have long aligned their business on a holding company basis; Publicis Groupe already has a global P&G council, which meets every three months. "It's focused on how we improve the offering. We put emotion and rivalry aside," she says.

For Yu, such pitches are a godsend. "It's good for me, as an Asian network: on a worldwide pitch, I'd never get in, but clients can choose Bates as the Asian component of a worldwide account," he says. "Clients will give their business to one group and then choose the best agencies. It's a battle of the Titans now."

Sorrell goes further, arguing that with the birth of Chinese and Indian multinationals, to add to the Japanese and Korean ones, holding company-level pitches and alignments are likely to be a particularly Asian phenomenon in the future.

It's something that IPG has noted. The company is treading a middle path between WPP and Omnicom with a policy of "connectivity" between its agencies.

"The primary driving force is growth," Gilbert says. "It's a recognition that in order to service clients better, we should be drawing on each other's skill-sets. It's about bringing more intellectual and commercial capital to bear on clients' business - and clients are asking for it."

Gilbert believes WPP has gone too far. "Is it sustainable? The danger of operating from the top down is that Sorrell will commoditise his agencies. Asking clients 'Which do you want today?' will unfairly suggest that there's little cultural difference between them."

Among IPG's agencies, McCann is perennially strong in Asia. It's the largest foreign-owned agency in the region, has deep roots here and remains among its foremost networks, particularly in Japan, where it's comfortably the number-one foreign player. Lowe struggled last year, but has strong operations in India and Thailand and a new management team. Foote Cone & Belding is also well-established in the region, but faces a tough challenge defending Samsung. Initiative has done well, snagging the Unilever Nippon business in 2003.

The smallest of the big four, Publicis Groupe, owns two of region's outstanding networks. While Publicis the agency has struggled to establish itself, Saatchi & Saatchi is one of the region's creative powerhouses, while Leo Burnett has rivalled Ogilvy for the title of the region's top network over the past few years. ZenithOptimedia has long been powerful, but is seen as being over-reliant on P&G in China; ironically, the beneficiary when it lost part of the P&G business recently was its Publicis sibling Starcom.

The Publicis Groupe chairman and chief executive, Maurice Levy, says he would like to increase Asia's share of the company's revenues from 9.3 to 15 per cent within five to seven years. "Asia is important and we intend to intensify our investment in the region. The fact we started later has meant we have had to work hard to build our presence. Until 1996, we were just a European network."

Of course, the 800-pound gorilla in any discussion of Asian agency networks is always Dentsu. With 25 per cent of the world's second-largest ad market, the single-agency group dwarfs its competitors, with revenues nearly three times higher than its nearest competitor.

Its 15 per cent stake in Publicis Groupe ought to put the French company in a strong position, but Kefford has his doubts. "I can't see the advantage to either outside Japan," he says. "There's no connection and no co-operation - both have their own agencies."

The reason, according to Miles Young, O&M's regional chairman, is a mismatch of expectations. While foreign agencies aligning with the Japanese giants (WPP has its own relationship, with the third-largest player, Asatsu DK) want to break into Japan's tightly controlled media market, Dentsu is mainly interested in managing the client conflicts that result when you control a quarter of the world's second-largest ad market.

Sorrell accepts that WPP's collaboration with Dentsu, in Dentsu Young & Rubicam, hasn't taken off. "There's a major opportunity to do business with Dentsu," he says. "We haven't capitalised on it as much as we could have."

Outside Japan, the key battleground is sure to be China. Its market could be bigger than Japan's within three years, and as big as the US within ten. WPP is number one there, with 15 per cent of the market, ahead of Publicis in second; Young says that a visit Sorrell made to China during the celebrations of the 50th anniversary of the liberation of China, in 1999, "convinced him that China was going to be the political and economic superpower of this century".

To a large extent, it doesn't matter whether the groups choose to expand by acquisition or organic growth, or choose to strengthen their holding company or agency brands - what matters is how quickly they tackle China.

Or, as Kefford puts it: "China is the engine to drag Asia's economies along. The battle is all about making (China) enough of a priority."