They may have got their strategies right for United States and Europe but Publicis and Omnicom, as individual entities, did not spend enough time in mastering Asia as their number one competitor WPP did. Even though emerging markets did become one of Publicis’ core focus areas in the past few years, WPP’s lead was too massive to even play catch up. The result is that despite the megamerger of the two companies that will impact the face of the industry over a period of time, Asia is still a chink in the Publicis Omnicom armour. WPP continues to be the larger player not only in key markets such as China and India but also in the upcoming bright stars such as Indonesia and Vietnam.
WPP’s scale is evident in China that is poised to become the world’s second largest advertising market by 2015. Even though Publicis and Omnicom do not release financial data for specific markets, consulting firm R3 estimates that the 2012 China revenues for Publicis was USD 430.9 million and USD 283.2 million for Omnicom. R3’s estimate for WPP’s 2012 China revenues was USD 971.4 million. Unlike Omnicom, which has most of its business in China coming from multinational companies, for WPP, over 40 per cent of its revenues is from local Chinese businesses.
The same holds true for India too, where WPP companies such as GroupM, Ogilvy and JWT lead over their immediate competition by wide margins.
The competitive scenario in China, and even in India, is far more heated up than the other Asia markets. Publicis has made numerous acquisitions in China and India in past two years, in keeping with its overall strategy of developing digital expertise with the target of doubling up its business in these markets. Publicis businesses have seen double digit growth rates in both China and India on the back of the acquisitions made in the market, and also organic growth coming from its media and advertising agencies. Omnicom’s media business has grown steadily in India though the same cannot be said about its creative businesses despite the expensive buyout of Anil Ambani’s Mudra Group in 2011.
And it is not just these top three, now top two (pending regulatory approvals), players that are aggressive in China and India. The Dentsu Aegis combine, which is the market leader in Japan, has been picking up pace in China steadily. Will the megamerger lead to any change in strategies in these markets?Tim Andree, Dentsu
In a conversation with DMA, Tim Andree, Executive Vice President, Dentsu Inc (also, Executive Chairman, Dentsu Aegis Network and President & CEO, Dentsu Network) said, “Our strategy has not changed. The benefits of mega-scale to clients and organisations have yet to be proven. Our focus will be on our geographic balance and making strategic investments in media, digital and faster-growing markets. The key driver will not be scale, but rather creating the most robust and complementary portfolio of offerings for our clients in that region.”
Scale is a keyword in this megamerger. David Cooperstein, VP, Practice Leader for CMOs and Marketing Leadership, Forrester Research pointed out to DMA, “The deal will have impact at various levels – one of them being scale across all media buying, including television, print and digital, due to the amount of media spend by the new entity on behalf of their clients.”
How the two companies work with this newfound scale, or how competition looks to work around it, is still a wait and watch.
Has the move to shake up WPP in Asia begun?
Not many can answer that with confidence. WPP’s early focus and continued investment in Asia has given it the lion’s share of the market that it commands. But the scale that has now come to Publicis Omnicom Group may just give it enough to push forward in Asia.
In a conversation with DMA, Sunil Gupta, Managing Partner – South Asia, Results International Group said, “Sir Martin (Sorrell, CEO, WPP) had a vision for Asia two decades ago and the holding company was the first mover in this region, in traditional advertising business and in diversified services as well. It is no surprise that even if you added up Publicis and Omnicom businesses in some of the key Asia markets, WPP would still be a leader and by a wide margin from the Publicis Omnicom Group.”
“Not only at the holding company level of WPP but also at individual agency level, some of the WPP companies, such as GroupM, JWT and Ogilvy, have been very strong and very old brands in Asia. They have built on their offer and this continues to add scale to WPP’s presence in these markets,” he added.
Another area that WPP scored over its competitors was also the foresight to invest into specialist disciplines in markets in Asia. “The story is different when you move westwards, where Omnicom and Publicis are strong in United States and Europe. But both of these companies did not build on their presence, specialist disciplines and verticals in some of the emerging markets in Asia in the scale that WPP has consistently done,” informed Mr Gupta.
He is however quick to add that the new combined group will definitely have more scale and power to invest and consolidate, which will help them push harder in Asia.
What lies ahead?
One of the first expectations at the global level is more consolidation through merger and acquisition at holding company level. In Asia, the expectation is that even the independents can expect more attention from holding companies to add to their size. But consolidation would still be eyed with caution. Mr Andree explained, “More consolidations are likely as some of the larger groups chase scale and organic growth slows, and acquisitions become their strategy. In contrast, we’ve been successful pursuing complementary strategic acquisitions to stimulate post-sale organic growth, and we expect to continue to lead the peer group in organic growth.”
In a previous conversation with DMA, Sir Martin Sorrell too pointed out the move towards consolidation and the establishing on an equilibrium in the industry, which he believes would benefit WPP.
The formation of Publicis Omnicom Group may or may not change the existing rules of the game but it has laid down the foundation for some new rules to be written. Who would be writing these rules though, is another question.