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Stack of Books

oil on canvas
22 x 20 in

Penny Machines
oil on canvas
23¾ x 29¾ in

Stack of Books
oil on canvas
30 x 24 in

Seven Suckers
oil on canvas
19 x 23 in

Twin Jackpots
oil on canvas
30 x 46 in

oil on canvas
20 x 26 in

Cake Slices
oil on canvas
20 x 16 in

The compass changes direction

Nothing is constant. The way the world – and our industry – does business is changing as its economic centre of gravity shifts. 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, the UK, 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 11 million, may become an opportunity. And also perhaps in due course, if political differences are overcome, Iran with more than 70 million people.

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.

Latin America, Africa and Central and Eastern Europe, while impacted by the global downturn, remained our strongest-performing regions. Pakistan, with a population of 174 million, Vietnam with 88 million and Indonesia with more than 230 million – of which 200 million are Muslim – also remained faster-growing markets and became even more influential in 2009. 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 recent 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: probably 34% by 2015, excluding acquisitions.

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 fifth-largest market, in which we have a significant advantage over our competitors. In India, our market share is very significant, with a similarly significant market share in South Korea. In Japan, it is almost 10%, behind both the dominating although challenged 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 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. They are already 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 recent 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. Both now believe they have little to learn from the nations that got us into this economic mess in the first place.

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, Bangalore (first time) and New Delhi, many Chinese and Indian companies with national and overseas ambitions appeared much more assured and less over-awed by the capabilities of Western competition. In the past they listened and learned; it clearly 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 also Chinese multinationals such as Lenovo, Haier, Konka, Bird, Bright Dairy, China Mobile, China Unicom and CNOOC. Four 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 last’s headcount has grown from 25,000 to 105,000 in the past 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.

No longer a maker of cheap, generic goods, 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. In 2009, the CEOs reviewed the lessons of the past 20 years of the Mayor’s committee (amazing when you think the mayor has been calling for advice for 20 years) in preparation for Shanghai Expo and WPP will be holding one of its 2010 Board meetings in Shanghai later this year around the Expo. 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 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 launched the Nano last year at 100,000 rupees ($2,500) – the cheapest car in the world. And most recently, Geely, the Chinese car manufacturer, acquired Volvo from Ford.

The 30 largest companies in the world*

Rank Company Country Market
1 Exxon Mobil US 325
2 Industrial & Commercial Bank of China China 271
3 Microsoft US 266
4 Ezdan Real Estate Qatar 259
5 BHP Billiton Limited Australia 226
6 PetroChina China 225
7 Apple US 219
8 Wal-Mart Stores US 207
9 China Construction Bank China 207
10 China Mobile Hong Kong 205
11 Berkshire Hathaway US 199
12 General Electric US 198
13 BHP Billiton PLC UK 196
14 Bank of America US 186
15 BP UK 185
16 Royal Dutch/Shell Group Netherlands 185
17 HSBC UK 185
18 JPMorgan Chase US 183
19 Procter & Gamble US 182
20 Google US 180
21 Johnson & Johnson US 179
22 Petroleo Brasileiro SA – PETROBRAS Brazil 174
23 Nestlé Switzerland 172
24 Wells Fargo US 167
25 International Business Machines US 167
26 Chevron US 160
27 AT&T US 156
28 Cisco Systems US 152
29 Vale S.A Brazil 150
30 Rio Tinto Australia 145
Market values as at 9 April 2010.
(Figures rounded up to nearest billion.)

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