Geography, technology and function shape our future

A vast shift in economic power is changing the way the world – and our industry – does business. The US has hitherto accounted for about half of worldwide advertising and marketing services spending, with the most prominent non-American markets being Japan, Germany, Britain, France, Italy and Spain.

Now Asia Pacific, Latin America, Africa, the Middle East and Central and Eastern Europe are becoming more and more significant. This will continue as multinational corporations build their businesses where populations are large and growing faster – seeking to drive top-line like-for-like sales growth, a primary driver of total shareholder return. Even Cuba, with a population of 16 million, may become an opportunity.

Goldman Sachs, which first identified the BRICs nations – Brazil, Russia, India and China – now focuses on the Next 11 – Vietnam, Bangladesh, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Egypt. WPP has leadership or near-leadership positions in nearly all these countries.

In 2008, Eastern Europe was WPP’s fastest-growing sub-region or region at 19%, with the Middle East at 18% and Latin America at 13%. Pakistan, with a population of 165 million, Vietnam with 85 million and Indonesia with more than 230 million – of which 200 million are Muslim – remained faster-growing markets and became even more influential in 2008.

Extrapolate WPP’s current revenues in the BRICs countries (despite the currency challenges in Russia) or BRICI (including Indonesia) at the rates of GDP growth predicted in recently published Goldman Sachs research and assume moderate rises in advertising to GDP ratios. The result is that Asia Pacific, Latin America, Africa, the Middle East, and Central and Eastern Europe will take a growing share of our business: possibly 38% by 2015, excluding any acquisitions.

2008 GDP projections year-on-year

2008 GDP projections year-on-year
Source: IMF

Currently, China and India are home to more than one-third of the world’s population. Asia Pacific represents half. By 2014, Asia Pacific will account for more than two-thirds. WPP already has a strong position in the region. Greater China is WPP’s fourth-largest market in which we have a significant advantage over our competition. In India, our market share is very significant, with a similarly significant market share in South Korea. In Japan, it is almost 10%, but behind both the dominating Dentsu and Hakuhodo DY Group.

There is no doubt the marketing world is becoming two-paced or even three-paced, geographically and functionally. Asia Pacific, Latin America, Africa and the Middle East, and Central and Eastern Europe are outpacing the US and Spain (post-Franco Spain was a standout market in Western Europe, although the current real estate bubble has laid it low). In turn, the US and Spain have been outpacing the rest of Western Europe.

Such shifts in the economic tectonic plates are not new. At other times in history, when a country or empire seemed to have total political, social or economic hegemony, as the US has, things changed and the vacuum was filled by another power. China and India will take that role, in the context of the growth of Asia Pacific. Already they are enjoying their new stature. Over the past few years at the World Economic Forum in Davos, the Chinese and Indians exhibited a greater degree of self-reliance and independence – perhaps even over-confidence. Both are now quick to blame the US for the current crisis. Both no longer seem to rely on handouts or support. Both 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. But as the credit crunch demonstrates, problems in America still exert a powerful influence on the rest of the world.

On my most recent trips to Shanghai, Beijing, Mumbai and New Delhi in 2008, many Chinese and Indian companies with national and overseas ambitions appeared much more assured and less over-awed by the capabilities of Western competition. Their listening and learning approach has clearly 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 also Chinese multinationals such as Lenovo, Haier, Konka, Bird, Bright Dairy, China Mobile, China Unicom and CNOOC. Three of the top 10 companies in the world by market capitalisation are already Chinese.

Consider also Indian multinationals such as the two Reliances, Tata, Wipro and Infosys. The latter’s headcount has grown from 15,000 to 103,000 in the last five years, and shows little sign of slowing. There is no shortage of eager candidates. Infosys still receives more than one million applications for jobs each year.

The 30 largest companies in the world at end of 2008*
From the FT Global 100

500 rank
Dec 2008
500 rank
Sep 2008
Company Country Market
1 1 Exxon Mobil US 406
2 2 PetroChina China 260
3 5 Wal-Mart Stores US 220
4 9 China Mobile Hong Kong 201
5 6 Procter & Gamble US 185
6 7 Indl & Coml Bank of China China 174
7 4 Microsoft US 173
8 17 AT&T US 168
9 10 Johnson & Johnson US 166
10 3 General Electric US 161
11 13 Royal Dutch Shell UK 159
12 15 Chevron US 150
13 16 Nestlé Switzerland 150
14 8 Berkshire Hathaway US 150
15 21 BP UK 142
16 26 Roche Switzerland 133
17 25 Novartis Switzerland 131
18 22 China Construction Bank China 128
19 24 Total France 128
20 31 Pfizer US 119
21 18 JP Morgan Chase US 118
22 11 HSBC UK 115
23 20 IBM US 113
24 28 BHP Billiton Australia/UK 112
25 23 Toyota Motor Japan 110
26 40 GDF Suez France 108
27 30 Volkswagen Germany 107
28 29 EDF France 105
29 36 Vodafone Group UK 105
30 34 Coca-Cola US 105
Source: Financial Times
Market values as at 31 December 2008.

China will increasingly become a service-based economy. In 2005, the mayor of Shanghai asked the 55 CEOs on his International Business Leaders Advisory Council to suggest how Shanghai might become the world’s leading services centre. In 2006, the focus was on innovation, 2007 on climate change and planting trees in Shanghai, 2008 reviewing 20 years of progress in Shanghai and releasing sturgeon into the Yangtze River. 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 also 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.