Globalisation or Americanisation
Commercial life has not worked out as Professor Theodore Levitt predicted some 25 years ago in the Harvard Business Review . The world has not been globalised to the extent he forecast, where consumers around the world bought similar products, marketed in the same way everywhere. Indeed, Levitt admitted as much in an interview to celebrate the 20th anniversary of his article. He was exaggerating to make a point, he said.
Truly global products only account for around 10-15% of our worldwide revenues. In fact, consumers are probably more interesting for their differences than their similarities. Recent political developments support this – the collapse of the Soviet Union, the break-up of Yugoslavia, devolution in Scotland and Wales, and Basque nationalism. Indeed, the European Union is really a supply-side led phenomenon, harmonising production and distribution, rather than demand. On January 1, 1993, a Euro consumer was not born.
What has been going on may well not be the globalisation of world markets, but their Americanisation. Not in the sense that upsets the French or the Germans and results in the banning of Americanisms from French commercial language – an objection to the cultural imperialism of Coke, the Golden Arches or Mickey Mouse. More in the sense of the power and leadership of the US. In most industries, including our own, the US still accounts for almost half of the world market. And given the prominence of US-based multinationals, you could argue that almost two-thirds of the advertising and marketing services market is controlled or influenced from there. If you want to build a worldwide brand you have to establish a big presence in the world's largest market – the US.
At WPP, 14 of our top 40 clients are headquartered in Europe, one in Asia Pacific and 22 in the US. Almost all of the latter are located in a north-east corridor created by Boston, Chicago, Detroit, New York and Washington.
Failure to understand the importance of North America can be life-threatening. Take investment banking. A quarter century ago, SG Warburg, Morgan Grenfell, Schroders and Flemings could be counted as strong European brands. Today they have virtually disappeared. Instead, large American banks like Goldman Sachs, Morgan Stanley, Merrill Lynch, JP Morgan, Citigroup and Lehman (but no longer Bear Stearns) dominate the industry.
A few years ago, strong European talent might have expressed misgivings about working in American multinationals. Today, these businesses are more sensitively run and offer more interesting, intellectually stimulating, global opportunities and challenges. The European-based businesses that remain, such as Deutsche Bank, UBS and Credit Suisse, still face the challenge of establishing a good market position in the US.
Neither is it easy to find European-based global companies. BP and Shell certainly get it, as do Unilever and Nestlé. So does Daimler, although Jurgen Schremp's global strategy has been dismantled. Vodafone, GlaxoSmithKline, AstraZeneca, L'Oreal and Sanofi Aventis are other good examples, although doubts in some cases remain. There are not many more.
American strength is based on three factors. First, the size and power of the American market; more than 300 million people in a relatively homogeneous market. Despite the European Union being almost twice the size, it is much more heterogeneous. Second, the power and size of US capital markets. Current difficulties aside, America is still the cheapest place to go to raise debt or equity capital, although more detailed disclosure requirements are discouraging some.
Finally, because of its strength in technology, it is hard to think of many areas where it does not lead. Third-generation mobile phone technology is one, but given the prices European companies paid for the privilege, the distinction is a dubious one.
At times in history, when a country or empire seemed to have total political, social or economic hegemony, things changed and the vacuum was filled by another power. At this point, it seems that China and India will take that role, in the context of the growth of Asia Pacific. In fact, we may now be witnessing a change from Americanisation to globalisation. In Davos, at the World Economic Forum, over the last few years, the Chinese and Indians exhibited a larger degree of self-reliance and independence, perhaps even over-confidence. Both no longer seem to want to rely on handouts or support. Both economies have reached or are reaching a size and rate of growth that may be self-sustaining and certainly more independent of US influence. While decoupling has not, in our view arrived, there is, probably less coupling. Put another way, when the US sneezes the world does not catch influenza any more, just a cold.
On my most recent trips to Shanghai and Beijing in 2007, it seemed that many Chinese companies with national and overseas ambitions were becoming much more confident and less over-awed by the capabilities of Western competition. The listening and learning approach has paid off.
We will probably still rely on the strength of the US, but increasingly we will see the growth of Asian-based multinationals. Not only Japanese-based multinationals like Sony or Mitsubishi, or South Korean-based chaebols such as Samsung, LG or Hyundai (the Samsung of the car industry). But Chinese multinationals such as Lenovo, Haier, Konka, Bird, Bright Dairy, China Mobile, China Unicom and CNOOC (they will come again). Eight of the top 30 companies in the world by market capitalisation are already Chinese. Also, consider Indian multinationals such as the two Reliances, Tata, Wipro and Infosys. The latter's headcount is up from 23,000 to 80,000 in four years and continues to grow with a target of 120,000. There is no shortage of candidates. The CEO of Infosys tells me he receives 1.3 to 1.4 million applications for jobs each year.
China will increasingly become a service-based economy. In 2005, the mayor of Shanghai called for the 55 CEOs on his International Business Leaders Advisory Council to advise on how to build Shanghai into the world's leading services centre. In 2006, the focus was on innovation, last year on climate change and planting trees in Shanghai. Similarly, India will seek to be a manufacturing centre for the world and not just focused on services.
Who would have thought that Ratan Tata would buy Corus, the re-branded British Steel (the new name created by one of our Branding & Identity companies), or that the underbidder would be a Brazilian company. In addition to Tetley Tea, Tata has acquired Jaguar and Land Rover at the top end of the car industry. At the bottom end, it is launching the Nano at 100,000 rupees (£1,300) – the cheapest car in the world.
China and India: back to the future
It is difficult for those of us in the West to comprehend the scale of Asia Pacific's potential development. China is not just one country; it consists of more than 30 provinces, with so many languages and dialects that Mao Tse Tung needed an interpreter. The population may well be closer to 1.5 billion rather than 1.3 billion. The Chinese government seems to consistently underestimate its statistics, like those for GDP growth, but it is still equivalent to four or five Americas.
It is true also that currently only 150-200 million Chinese can afford the goods and services we are marketing to them. However, this is already equivalent to over half an America and this is a dynamic situation, one that will change rapidly in the coming years. Already there are almost 600 million mobile phone subscribers in China, almost 400 million of which subscribe to one company, China Mobile (one of the top five most valuable world brands) – equivalent to one-third more than the total population of the US.
Furthermore, India, itself equivalent to three to four Americas, seems to have been stimulated into more rapid growth, driven perhaps by neighbourhood envy and the Chinese model of state-directed capitalism – although India bills itself as the world's fastest-growing democracy.
Do not underestimate the potential of the region as rapprochement spreads even to cricket, with the Indian-Pakistani test, one-day and Twenty20 series representing as important a political, economic and social signal as the Beijing Olympics. More than 1.4 billion people watched the Twenty20 series final alone. Equally, look at the dogfight for Hutchison Essar, which Vodafone won in a market growing by more than five million subscribers per month, just like China.
Asia Pacific will dominate again, proving that this really is back to the future. In 1820, China and India generated around 49% of worldwide GDP. But by the early 19th century, Meissen and Wedgwood were dismantling the high-quality, high-price Chinese porcelain industry, with similar quality but low-priced porcelain. It is the exact reverse today. China and India are forecast to be headed for the same share of world GDP in 2025 as they had in the 18th century, having bottomed out at 8% in 1973.
Currently, China and India represent over one-third of the world's population. Asia Pacific represents one-half. By 2014, Asia Pacific will account for more than two-thirds. WPP already has a strong position in the region. Greater China is already WPP's fourth largest market and we have a 15% share in mainland China – a market-leading, six-to-one advantage over the next largest competitor. In India, our market share is almost 50%, with a 25% share in South Korea. In Japan, it is almost 10%, behind the dominating Dentsu and Hakuhodo DY Group.
China's development has been rapid and will continue, but not without bumps. The government is conscious of overheating and an imbalance in rates of development between the coast and the hinterland. There has already been a very soft slowdown in growth, presenting more opportunity for investment, especially in 2008.
No multinational company bent on expanding into China or national company seeking to grow inside or outside China will miss out on the branding opportunity presented by the Olympics in Beijing. The Chinese government is already committed to $45 billion of investment around the Games, in contrast to London's $10 billion for 2012. 2008 should be a unique event and it will not end there. The Municipality of Shanghai will be investing $3 billion in Expo 2010 and there will be the Asian Games, in Guangzhou, again in 2010. 2009 offers an opportunity to slow slightly and consolidate more than 20 years of growth, before preparing to surge again in 2010.
Watch out for increasingly subtle Chinese military and economic influence. Take the recent economic contact with Fidel Castro in Cuba to counterbalance Taiwanese tensions. Or Chinese investment in Galileo's GPS systems, which drew a coruscating response from the Pentagon. Equally, Beijing will not be prepared to rely on America to defend its vital and growing energy supply interests in the Middle East and Russia. It is busily building trade bridges throughout the oil- and energy-producing areas of the world, particularly Latin America and Africa.
Beijing is also changing the political dynamics of Africa, in particular, with more than 800,000 Chinese in Africa participating in projects. Increasingly, Africa is the continent of opportunity, rather than the continent of war, disease and poverty. President Gaddafi's volte face in Libya has energised North Africa and Egypt, and China's focus has drawn the attention of Western governments seeking to curry favour, too.
The other challenge to American dominance may well come from the Muslim world. Already, Muslims number 1.6 billion people, around 19% of the world's population. By 2020, they will account for 2.1 billion or 30% of the projected world's population. The recent struggles in Afghanistan and Iraq, and possible action against Iran, really only continue the conflicts of the 1950s in Suez, the oil price increases of the 1970s and the invasion of Kuwait in the 1990s. Westerners have made little attempt to understand the Islamic mind and assume wrongly that Muslims share their value systems. They are different and it will be increasingly necessary to make a serious and sincere attempt to understand them.
These events may demand new thinking from the world's multinational companies. As US-centric companies, for example, seek to develop their businesses and extend their reach into more heterogeneous markets, it may well be that the balance of organisations will shift. There will continue to be a focus on global, max or core brands, with sales of more than $1 billion, particularly to counterbalance the power of global retailers and as companies become less dependent on the US markets. Coca-Cola's geographic coverage of a quarter in North America, a quarter in Latin America, a quarter in Europe and a quarter in Asia Pacific will become more the norm, rather than Pepsi-Cola's 56% in the US.
BrandZ™ Top 100 Most Powerful Brands 2007
Top 20 global brands by value $m
|14||-1||Bank of America||33,092||28,767||28,155||15%||2%|
Source: Millward Brown Optimor
* Coca-Cola's increase is due to a change in methodology to include its bottlers
* IBM's business value increased by 30% and share price has increased 40%
* Apple's business value increased by 124%
* Vodafone's business value increased by 24%, and brand contribution increased by 4 percentage points
Top 20 global marketers 2006
Ranked by total worldwide measured ad spending*
advertising spend $m
media spending $m
|Spend by region in 2006 $m|
|1||1||Procter & Gamble Co.||Cincinnati||8,522||8,184||4.1||3,527||3,395||3.9||1,774||2,671||235|
|3||3||General Motors Corp.||Detroit||3,353||4,059||-17.4||2,208||2,918||-24.3||56||839||94|
|5||4||Toyota Motor Corp.||Toyota City, Japan||3,098||2,840||9.1||1,203||1,075||11.9||1,172||574||38|
|6||6||Ford Motor Co.||Dearborn, US||2,869||2,643||8.5||1,701||1,567||8.6||126||850||74|
|7||7||Time Warner||New York||2,136||2,477||-13.8||1,838||2,076||-11.5||80||184||2|
|9||8||Johnson & Johnson||New Brunswick, US||2,025||2,334||-13.2||1,351||1,675||-19.3||227||340||36|
|10||9||DaimlerChrysler**||Auburn Hills, US/Stuttgart, Germany||2,003||2,118||-5.4||1,425||1,592||-10.5||32||449||29|
|11||11||Honda Motor Co.||Tokyo||1,910||1,833||4.2||878||855||2.7||833||110||13|
|13||12||Walt Disney Co.||Burbank, US||1,755||1,823||-3.7||1,438||1,421||1.2||89||187||0|
|15||13||Nissan Motor Co.||Tokyo||1,670||1,780||-6.2||944||1,024||-7.8||455||187||22|
|17||18||McDonald's Corp.||Oak Brook, US||1,611||1,554||3.7||785||762||3.0||301||431||33|
|19||21||Reckitt Benckiser||Slough, Berkshire, UK||1,550||1,446||7.2||286||288||-0.7||152||1,023||34|
Source: Advertising Age
* From Nielsen, TNS, Ibope, PARC, Steadman, Sigma and others
** For combined DaimlerChrysler. Company sold Chrysler in August 2007
The largest companies in the world at end of 2007
From the FT Global 100
|4||China Mobile||Hong Kong||354||5|
|5||Indi & Coml Bank of China||China||339||7|
|8||Royal Dutch Shell||UK||270||9|
|13||Procter & Gamble||US||228||11|
|16||China Life Insurance||China||204||44|
|17||China Construction Bank||China||203||24|
|21||Bank of China||China||198||28|
|24||Johnson & Johnson||US||191||21|
|27||Bank of America||US||183||23|
|30||China Shenhua Energy||China||168||37|
Source: Financial Times, Analysis: 'Chinese Champions', 17 March 2008
Sources: IMF 2007, World Bank
*Market exchange rate
†Purchasing-power parity (PPP) assumes exchange rates which value currencies at rates such that each currency will buy an equal basket of goods.