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The shifting centre of gravity

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

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. The Economist adds a new dimension – the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa). 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 among our strongest-performing regions. Pakistan, with a population of 187 million, Vietnam with 90 million and Indonesia with more than 245 million – of which 210 million are Muslim – also remained faster-growing markets and became even more influential in 2010. Extrapolate WPP’s current revenues in the BRICs countries 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. That’s why we have upped our revenue share target for these markets from 33.3% to 35-40%.

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 competitors. In India, our market share is very strong, 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 financial crisis has laid it low). In turn, the US and Spain historically, and now Germany, 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 have 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 the recent economic mess in the first place.

Worldwide communications services expenditure 2010f1 $m

 AdvertisingMarket researchPublic relationsDirect & specialist communicationsSponsorshipTotal
North America 155,362 9,687 3,800 88,215 17,088 274,152
Latin America 28,425 1,763 330 23,000 3,700 57,218
Europe 128,176 13,695 2,360 91,504 12,700 248,435
Asia Pacific 146,957 4,915 3,318 32,700 10,400 198,290
Africa, Middle East and Rest of World 15,815 518 118 1,437 2,100 19,988
Total 474,735 30,578 9,926 236,856 45,988 798,083
Worldwide communications expenditure
Source: GroupM
f: Forecast.

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), Hyderabad (also 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. Just look at Millward Brown’s BrandZ analysis of China’s top 50 brands. Consider also Indian multinationals such as the two Reliances, Tata, Mahindra, Bharti, Wipro and Infosys (with whom we have a new joint venture in advertising production). The latter’s headcount has grown from 40,000 to nearly 128,000 in the past five years and shows little sign of slowing. There is no shortage of eager candidates for those jobs: Infosys still receives more than one million applications 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 chief executives 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 in preparation for Shanghai Expo and WPP held one of its 2010 Board meetings in Shanghai 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 in 2009 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*

RankCompanyCountryMarket cap $m
1 Exxon Mobil Corporation US 414,638
2 Apple Inc. US 323,866
3 Industrial & Commercial Bank of China Ltd China 278,252
4 PetroChina Co Ltd China 264,882
5 BHP Billiton Limited Australia 254,122
6 China Construction Bank Corp China 225,966
7 Petroleo Brasileiro SA – PETROBRAS Brazil 225,330
8 Royal Dutch/Shell Group Netherlands 223,623
9 Microsoft Corporation US 215,269
10 Chevron Corporation US 214,355
11 General Electric Company US 209,715
12 BHP Billiton PLC UK 209,512
13 International Business Machines Corporation US 197,784
14 Nestlé S.A. Switzerland 187,057
15 Wal-Mart Stores, Inc. US 186,470
16 Google Inc. US 186,399
17 HSBC Holdings plc UK 183,555
18 JPMorgan Chase & Co. US 182,684
19 China Mobile Limited Hong Kong 181,483
20 Gazprom OAO Russian Federation 180,967
21 Agricultural Bank of China Limited China 175,025
22 AT&T Inc. US 170,545
23 The Procter & Gamble Co US 170,512
24 Wells Fargo & Company US 168,262
25 Oracle Corporation US 164,911
26 Rio Tinto Limited Australia 164,043
27 Pfizer Inc. US 162,703
28 Johnson & Johnson US 161,323
29 The Coca-Cola Company US 149,635
30 Vale S.A Brazil 147,103
* Market values as at end of March 2011.