Advertising legend

Sir Martin Sorrell is in the Middle East, and determined to shake things up. Agencies in the region simply must do better, he tells Richard Agnew.

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By  Richard Agnew Published  October 1, 2006

|~|MSS-standing-200.jpg|~||~|Sir Martin Sorrell is in the Middle East, and determined to shake things up. Agencies in the region simply must do better, he tells Richard Agnew. If any of WPP’s Dubai employees had pulled a sickie and gone for a day at the beach last week, they would have been in for a nasty shock. Just down the road from Media City, in the emirate’s plush Royal Mirage hotel, all of the global ad giant’s top management had gathered in secret for their annual, two-day strategy meeting. There, along with government ministers, academics and many of WPP’s biggest clients, they would have heard chief executive Sir Martin Sorrell saying he wants to tighten his grip over its regional network of agencies. “I’m not satisfied with the scale of our business in the Middle East,” Sorrell tells Arabian Business. “I don’t think we have enough equity in our businesses in the region. We want to expand that, broaden our services, and I want to grow our market share organically as well.” Sorrell’s aim – which will see the company increasing its control over its Arab partnerships such as JWT, Grey Worldwide, Bates PanGulf and Mediaedge:cia – is not a surprising one, considering the region’s well-reported marketing boom. Huge, oil-fuelled advertising budgets are being thrown at the Gulf’s media buyers and owners, generating US$200m in revenues and top-line growth of 25% for WPP’s Middle Eastern investments last year. While Sorrell wants a bigger piece of the pie, increases in marketing spend have also raised the issue of local affiliates’ transparency and accountability. “As we expand in the Middle East, we have to have influence over the companies, as we have to be fully aware of what’s going on,” Sorrell says. “This is not an issue that’s unique to the Middle East, it’s mo a common issue in faster growing markets; Russia being the prime case. “As you expand in these regions, you want to expand your equity interest, as you don’t want to be in a position where you are just an associate. The total amount of our billings to clients are probably ten times [our revenues], so we are responsible for managing budgets of US$2bn-plus, so you definitely have a responsibility to know what’s going on.” Sorrell didn’t comment on any specific problems with WPP’s Gulf businesses, but these sorts of challenges are becoming increasingly significant for him and his company. Having formed WPP in 1986 and built its workforce from two to 72,000, largely on the back of investments in the US and Europe, the last few years have seen Sorrell turning his attention to markets where growth opportunities are greater but regulations are less strong. In the first half of this year, booming sales in India and China helped WPP post a 30% rise in pretax profits to US$540m, and their importance is expected to grow massively in the run up to the Beijing Olympics. “If you spoke to most institutions or analysts and asked them what worries them, it would be China and the internet,” Sorrell says. “China, for me, is an emblem for South America, India, Asia, Africa and the Middle East. In these regions, advertising as a proportion of gross national product (GNP) is at a lower level. So when GNP grows at 10%, advertising grows at 20%.” In these types of regions, Sorrell says he’s willing to take the risk that political issues could reduce those levels of growth. “To get the Middle East into perspective, it’s small in the context of things, but it’s our fastest growing region” he says. “I think it’s likely the oil price will remain at levels where significant amount of resources will continue to be generated. “Political stability raises questions in people’s minds, but if you are running a major multinational corporation, it would be silly to ignore the amount of growth that’s out there. We’re number one in the region but that’s because the others haven’t done much, and I don’t feel we have done enough either.” Aside from geographical expansion, another topic of conversation at WPP’s Dubai get-together would have been the presence of Google chief executive Eric Schmidt. As firms move more of their ad budgets online –15% of WPP’s business is now internet-related and this is expected to double in the next decade – Sorrell predicts that the search giant and WPP will develop a “schizophrenic relationship” where they both cooperate and compete. Google earns millions from ad spending by WPP’s clients, but is also thought to be gradually stepping onto ad agencies’ territory through moves into wholesale buying of print media and radio ad sales. “There’s a section in our Annual Report that’s entitled, ‘Google; friend or foe?’” says Sorrell. “Perhaps I should have said ‘friend and foe’. We are one of their biggest customers and we have outlined an arrangement with Google whereby we work with our clients, where it’s of benefit to them, to expand their investment in Google’s ad platforms.” Sorrell recently wrote, however, that Google could be the ad industry’s next ‘Dark Star’. “Google is very technologically sophisticated, they are investing US$3bn or US$4bn in research and development a year,” he says. “Their market cap is around US$130bn, although their revenue is around the same as ours. Our market cap is US$15bn but they are almost ten times that on the same levels of revenue, which makes me somewhat envious.” Sorrell modestly says he finds it difficult to keep up with trends in new media, but recent times have seen some potentially significant and farsighted investments by WPP in the internet space. It recently announced a partnership with WildTangent, which delivers ads through the web to video game users, as well as setting up a joint venture with US-based Liveworld which has started to develop social networking and blogging campaigns for WPP’s corporate clients. This summer, it also bought a stake in Visible Technologies, which enables firms to monitor how they are being talked about and perceived on community sites such as Myspace and YouTube – sites that are rapidly stealing users from TV and newspapers. As with WPP’s plans for emerging markets, Sorrell says these investments will allow the firm to be “fully aware of what’s going on” on the web, and make sure it is ready to capitalise on the latest trends among users. “It is much more difficult for me – I’m not a nerd - to understand the technology,” Sorrell says. “It changes so rapidly. We have to position ourselves – it’s no different to Rupert Murdoch investing in Myspace or Jamba. “But we don’t have to select technology, unlike media owners. We’re a better investment than a media-owner because they have to select technologies. We have to understand the implications of what’s going on, so we can advise our clients of the best direction to take. The more technologies there are, the more advice we’re asked for, and the more complex the media planning and buying decisions.” He adds: “There are 1.5 billion people in China and I’m sure there’s a Sergey Brin or a Larry Page (Google’s co-founders) knocking around in that group. There may be five or six graduates sitting in a shed in Shanghai about to come up with the next big idea.” Sorrell admits there’s still a reluctance among ad agencies to commit resources to new media, despite these opportunities and threats. “There is always a reticence, because of our US$11bn in revenues US$2bn is from new media, so US$9 bn is by definition from old media,” he says. “The person starting with a clean sheet will always have an advantage. If you are a bicycle manufacturer in India you always have an advantage over an old plant in Europe or the US with employee, pensions and healthcare issues. “However, if you take us and Google, for example, we have the database of clients, and they don’t have the penetration. They have the advantage and disadvantage of not having the history. You want not only the institutional strength, but also the flexibility.” Ultimately, the man whose motto is ‘persistence and speed’ wants to be recognised as someone whose company could react to these sorts of challenges. “Both persistence and speed are relevant and incredibly important in today’s climate – especially speed,” he says. “If you ask me what I would like on my epitaph, it would be that I founded and was instrumental in building the best company in our industry, and that means everywhere in the world.” “We are in the important markets and as markets expand and contract, as they will do, we can throw our weight into them through our client base and our people.” But he’s not getting complacent. “I always wanted the company to become big, but if you’re talking about a firm that’s managing US$50bn worth of media a year, then no, I didn’t expect that. But we could probably go back to being two people in a room if we’re not careful.”||**||

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