For Sir Martin Sorrell, Group CEO of marketing communications services giant WPP, the key to future business success lies in a short and simple mantra: new markets, new media, and consumer insight.
With Asian and emerging economies on the rise and economies in the West on the backfoot, Sorrell says it's necessary to enter new markets, or at least in the case of WPP, to rebalance its geographical presence. Indeed, economies in Asia, Latin America, Africa, the Middle East and Central Eastern Europe will increasingly drive economic growth, while the economies of the US and Western Europe will decline in importance. That's partly because two-thirds of the world's population is expected to be in Asia and other emerging economies by 2014, Sorrell says.
He adds that WPP, which has a portfolio of 271 companies in 107 countries, also intends to increase the size of its new media businesses to two-thirds of total revenue, as it pursues such quantitatively-based businesses to drive revenue growth.
We know that consumers spend 20 per cent of their time online - we also know that our clients only spend 12-13 per cent of their budget worldwide online, that's a disconnect that has to be eradicated, says Sorrell, speaking recently at an American Chamber of Commerce luncheon in Singapore. And in our view, it will be eradicated, let's say, over the next five years or so.
Furthermore, surveys have found that client companies prize, above all, insights about consumers, which in turn drive the value of quantitatively-measurable products and services.
For these reasons, Sorrell says he wants quantitative businesses (such as direct marketing, digital and interactive media, and consumer insight) to make up at least half of future revenues.
Last year WPP, which has a market capitalisation of some 8.5 billion dollars, had pro-forma revenues of 15 billion dollars and billings of 67 billion dollars.
Eight factors for optimism
Besides talking about his business strategy, Sorrell also spoke about eight factors that underpin his optimism about the future of the marketing communications services industry.
First, there will be a shift in the balance of economic power back to the emerging economies of the BRIC countries (Brazil, Russia, India and China). Sorrell predicts that these countries will drive about half of global GNP (gross national product) by 2040. Given their enormous populations, China and India will emerge as the leading creative forces globally and drive long-term economic growth.
Second, there is significant overcapacity in almost every industry, even as the world faces a long-term shortage in human capital. So for companies to stand out, they have to work even harder to differentiate their products and services.
Overcapacity is still a significant factor in most, if not all, industries. That means differentiation in the business we are in becomes more and more important.
The reduction and supply of talent is going to be an increasingly important phenomenon. So companies have to increasingly differentiate themselves on the basis of how they attract, retain, develop, incentivise, motivate people.
Third, the internet is a disruptive force as it disintermediates businesses with lower-cost models, and steals your talent. Sorrell says that young people now prefer to work in smaller high-tech companies where they can shoulder responsibility earlier. He says the impact of the internet is just starting, as a new generation of people who grew up with the web, are coming of age. Sorrell adds that the mobile revolution in Asia will be particularly strong because of the enormous populations in China and India.
Fourth, having strong internal communications is important for success. Pointing to Goldman Sachs and McKinsey, Sorrell says it's no accident that the two companies are the strongest in the professional services industry, as they are ‘uni-branded'. Understanding strategic direction and structural change is critically important, so that's internal communications.
Fifth, opportunities can be found in the rise in retail businesses, where giants such as Tesco, Walmart and Carrefour are becoming even bigger.
Sixth, having a local focus is becoming more important as with having a global focus. Sorrell says local talent will increasingly supplant foreign talent as country managers. Having people at the country level, who understand who the best people are in the market, who the clients of the future are, and who the potential acquisitions are. Those three areas are particularly important.
Seventh, corporate social responsibility (CSR) makes good business sense. Sorrell says that companies are acknowledging that it's good business to embrace good causes, and that it's not just a question of altruism or charity. In the case of WPP, the company is interested in building more efficient office space and conducting more video conferencing because it makes business more profitable and efficient, and not necessarily because doing so reduces pollution.
And lastly, governments are the biggest clients of the marketing communications services industry before elections. So understanding what governments are doing at the national and local levels is important.