Sir Martin Sorrell doesn’t believe the economy is recovering just yet, but said growth in China, on the Internet, and Western governments’ increasing role as a top advertiser is impacting corporate business and will be key in driving growth. “Things are not getting better; they’re less worse,” he said.
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Sorrell outlined eight points of relevance to global business, but also stressed the importance of focusing on the core fundamentals of profitability and sales to evaluate a company’s success. At WPP, which rakes in $14 billion in revenue annually, “our like-for-like revenues were down 5 percent in the first quarter of the year, 11 percent in the second quarter and 8 percent in the third. It’s less worse,” Sorrell said.
“I sometimes think some of our competitors are running for office because they try and build less worse as an argument for the recession ending. I will only declare victory when I can say our like-for-like revenues are up,” he added.
Sorrell forecast WPP’s growth should come from Britain, Asia, Latin America, Africa and the Middle East and Central and Eastern Europe — regions which rake in 25 percent of revenues — but could grow to about a third of WPP’s sales. Additionally, new media is 25 percent of our business already, “but our clients only spend about 12 to 13 percent of their budgets online. We know people spend 20 to 25 percent of their time online. There’s a natural gravitation pull for online to be 20 to 25 percent of clients’ budgets.”
Sorrell also argued that quantitative research will become even more important as the recovery continues. WPP takes in $4 billion in revenues from its consumer insights division, making it the third-largest information firm behind Thomson Reuters, which earns about $9 billion, and Nielsen and Bloomberg, which each earn about $5 billion from information services.
Several macroeconomic factors also will contribute to growth in the coming years. China and India are two of the fastest economies in the world now, with mind-boggling numbers of scale: “We now have 11,000 people in China who work for us,” said Sorrell. “We have 6,000 people in India. We have more Chinese and Indian people in our business than we have British people.”
The impact on retail is also staggering; Sorrell said Land Rover budgeted to sell around 10,000 cars in India, but will instead sell 30,000. And China’s economy is growing at an 8 percent clip this year, and forecast to grow at 9 percent next year. “In the textile business, there’s a place called Sock City,” said Sorrell, referring to the Chinese factory town of Datang. “They make nine billion socks a year there. That’s one-and-a-half pairs of socks for everyone on the planet. There are 100,000 sock buyers that go to Sock City every year.”
Of the impact of China on media, Sorrell declared that in 2008, “100 percent of the growth in our industry came from two things — the growth in China and the growth in the Internet.”
Sorrell also pointed to the government as a source of new business in media as its spending has increased. “We counted the total extent of government stimulus in the last year is $12 trillion. The worldwide economy is $65 trillion. About 20 percent of the worldwide gross national product is government-funded,” he said.
As the government has given funds to, like in the United States, bail out Wall Street and the automotive industry, it has become owners of everything from homes to cars to other businesses. “The flip side of this is that the government has become an important client. In the U.K., the government is a bigger advertiser than Procter & Gamble or Unilever, spending about 165 million pounds [or about $251 million at current exchange]. So the government, although intrusive, has become a fundamental and important customer all around.”
As brands look for new customers, be them in China or branches of government, Sorrell argued the push-pull toggle between retailers and manufacturers will intensify. Major retailers like Wal-Mart and Tesco are looking to new markets for expansion, but manufacturers are finding the virtues of direct to consumer marketing versus a traditional retail model. He highlighted Procter & Gamble taking a stake in Ocado, the U.K. online home shopping operation, as an example.
As for how companies can innovate as a recovery slowly progresses, Sorrell pointed to several areas of importance. Attracting talented people into an organization is key. “It’s no longer as it was in the 19th and 20th centuries, about producing stuff and getting it to people. It’s about how you differentiate yourselves and how you retain talent.”
Sorrell argued newer companies are going to appear more attractive to younger, more innovative talent. “Young people are attracted to less bureaucratic, more responsive, more flexible companies that are represented by the new technology companies,” he said.
At WPP, a large global conglomerate, a move toward deploying more local managers is helping to retain talent and also seek more forward thinking partners. “They nudge, they advise, they warn. But they are focused on getting the best people inside our organization, identifying the best local companies that we can start to work with (India and China have provided more and more), and its potential acquisitions. Our clients are starting to look at that, too.”
Sorrell also said while companies who impart a unibranded, organic growth structure are over time more successful than those that grow through acquisitions, companies need to be stringent in their internal communications when explaining change within their organization to its employees. “If you said to me what is our biggest challenge for the chairmen and ceo’s of companies we deal with, it is that issue.”
In terms of media companies, Sorrell argued they should explore more paid content models on the Web, and predicted more traditional media firms would cull the marketplace to figure out what sort of information consumers would pay for. He was not charmed by new models, such as video site Hulu, that attract a lot of eyeballs but little revenue. “I’m quite cynical about most of these models, because I don’t see any stickiness there. I see pizzazz. They get a lot of ink, a lot of noise; they get a lot of hype. But if you look at the fundamentals in terms of revenue and profit, these models don’t just work just on volumes or number of hits or inquiries. They work on actual delivery of cash flow.”
Of those that deliver on profits, Sorrell heralded Google, and said its search-based operations have proven to garner that stickiness. Moreover, they’ve also endorsed a pay-for-play attitude. “Google went to the film studios and said, ‘We’ll pay you for content for YouTube.’ So they’ve embraced the pay model.”