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The next 40 years: Martin Sorrell remains 'a violent Chinese bull'

WPP CEO Sir Martin Sorrell explains why despite a slowdown, he thinks Asia represents as big an opportunity for growth as ever

Forty years ago, I was just getting to know the Saatchi brothers. I can’t claim to have known much about Asia at that time. My connection with the region really developed when we started WPP in 1985, and in particular from when we acquired JWT in 1987. My first real experience of China was in 1989, when we held our first WPP board meeting in Guangzhou at the Pearl River Hotel. That train journey from Hong Kong to Guangzhou was when I first realised the significance of the growth, not just of China, but of Asia as a whole.

Asia is now central to most of our clients’ thinking. Whatever the current difficulties or concerns are, there is no doubt that Asia and its development will dominate future growth. China is top of the list in terms of development for almost all of our clients, as are countries like India, Indonesia, Pakistan, Bangladesh, Thailand, the Philippines and Singapore. They are not important to the sacrifice of other markets, say in Latin America, but they are very highly ranked, if not at the top of the rankings, in terms of incremental growth of securing what we call the delta. Forty years ago, Asia was at the bottom of the agenda and largely unknown in clients’ thinking. It is now a totally different era.

Our business may not be the perfect bellwether for Asia in one sense, in that we’re not capital but consumer-orientated. But in China and India, and also Indonesia, Pakistan, or indeed Bangladesh, the economic growth, and the growth of prosperity and the rise of middle class or lower middle class means that consumption is becoming more critically important. With its 12th five-year plan, we see that China is encouraging people to switch from savings to consumption. That means businesses like our own—service businesses—become ever more important.

Nothing in life goes up in a straight line. Everything is cyclical. The great thing about Asia is that underlying it all is secular growth. There will be cyclical oscillations around that secular growth, and what we are going through at the moment is one of those cyclical oscillations. We’ve been through them before: for example the Asian financial crisis that started in Thailand in 1997.

It’s when you think there isn’t a cycle that the trouble starts, whether you’re in a country, in a business, in a city, or in a region. There will ultimately be maturing of the markets. But I agree with the Chinese that the past 200 years have been a blip in history.

I am concerned about slowing growth, but I am realistic about it in that I believe the future of WPP must be pinned to growth in Asia among the other fast growth markets and the functional growth of digital. We are just at the beginning of the growth of digital in markets such as China. We know there are about 200 million smartphones in China. The view of one of our non-executive directors Hugo Shong, who is one of the leading venture capitalists in China, says it will take penetration of 400 million smartphones to get to a tipping point for mobile advertising. The growth of Xiaomi’s MiPhone, for example, will accelerate that.

My views on China have not changed. I remain a violent Chinese bull. I’m a great respecter of the strength of the planned Chinese economy, of their ability to understand the changes taking place and to understand the potential opportunities and indeed challenges. I’m a great believer in Chinese prospects, and I think people in the West have failed to understand the thinking behind the 12th five-year plan, which is not the creation of the new regime in China, but was there in the previous regime.

They have clearly stated they wanted higher quality growth, lower quantum growth. They wanted consumption rather than savings. This is a sign of the growing maturity of the Chinese market, but not necessarily slow growth. Because China’s 2012 GDP was still only at US$8.5 trillion against America’s $16 trillion out of a worldwide $72 trillion, there is obviously a lot to go for. It has surpassed Japan, which is about $5 trillion.

We do not see multinational brands scaling back in China. While it is true that our clients generally are squeezing their capacity in slow growth markets like Western Europe and to a lesser extent in the US, in fast-growth markets they are expanding capacity and building brands behind that expansion. If they fail to do that, there will be no top-line growth at all.

What you have to do is to grow the top line and control your expenses. The problem has been that many clients have been focusing too much on costs. Procurement and finance have been gaining power at the expense of marketing. That can’t help the top line. When clients miss top line forecasts or miss top-line growth, they get punished. Cutting back in order to preserve margin, even in the short term, is a mistake.

To preserve growth, the strategy in China for multinationals has to be to increase awareness. Many Western multinationals have strong loyalty. What they have to do is to increase awareness and distribution much more aggressively. Local brands have awareness and distribution, but they don’t have loyalty.

In terms of agency revenue streams, I believe the future is simple: new markets, new media, data investment management and the application of technology, and finally ‘horizontality’. Asia will be no different, but the growth of media and data investment management, the application of technology and the need for integration will be even greater here than elsewhere. The concertina-ing of the industrial commercial revolution and the phenomenal growth of the middle and lower-middle classes and consequent consumption will mean that Asia will be even more demanding of our strategy. We have now revised our targets for fast-growth markets and for digital to 40-45 per cent of our revenues.

Asia offers tremendous opportunities because of the growth of tablets, smartphones and other devices. Effectively, most of Asia will leapfrog the changes we saw in the US and Western Europe driven by the PC. Mobile is the cheap form of access to the internet, and, as a result, the Chinese, for example, understand far better the technological changes that are taking place and the opportunities and challenges posed by the internet. As far as platforms are concerned, we are unique among our direct competitors in believing that our own platforms are essential to compete against new media owners such as Google, Facebook and Twitter. This is proving to be increasingly important as legacy media owners develop their programmatic buying platforms.

In the fullness of time, I think media buying will become programmatic or automated. And that is what Xaxis is about. The difference is that Xaxis is an independent platform, and not owned by a media owner, but owned by an agency, whose responsibility is to deliver the holy grail: how much should clients spend and where should they spend it? The opportunity for the independent third party in this situation is enormous.

The rise in private social networks is similar to the paradox of luxury goods. As luxury goods become more common, they lose their luxury sheen. The same is true for mass networks. As Facebook becomes the largest country on the planet, it becomes more mundane and mass. The opportunity is really for specialised or more ‘closed’ networks, such as LinkedIn, which offer niches to the user. In other words, in a funny way, it is back to the world of Small Worlds, which is being revamped.

When it comes to industry evolution, the big difference for Asia is growth. With the exception, perhaps, of Japan and Eastern Australia, there is growth in the region and this creates a different frame of mind and approach. Clients are increasing capacity in the fast growth markets like Asia and investing in brands. In the slower-growth markets of the US and Western Europe, they tend to be focused on squeezing capacity, or limiting increases in capacity, and investing in brands to maintain market share. That difference in mindset or approach is crucial. People in Asia are generally more optimistic, more open to new ideas, and more innovative. The fact they may be further away from head office may be a benefit too. In any event, I do see the atmosphere in Asia, despite recent issues and a slowing in the growth rate, as being very different and one of the most important engines of global economic growth.

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