FOCUS: EUROPEAN PR - Eastern promise. Public relations agencies are having mixed fortunes in Central and Eastern European countries as the race to join the European Union hots up. Juliette Garside reports

This month a second group of countries began the long and tortuous negotiation process to join the European Union (EU).

This month a second group of countries began the long and tortuous

negotiation process to join the European Union (EU).



The countries in the first wave, which comprises Poland, Hungary, the

Czech Republic, Estonia, Slovenia and Cyprus, began negotiating in 1998

and are hoping to join up in 2003, which will have meant a five-year

transition period. However, few will be surprised if negotiations drag

on beyond the target date. While some countries will be ready by then,

others will not, and the aim is for them all to join at once so that

nobody ends up feeling left out or disenchanted.



Of the 13 countries which are applying to join the EU, ten are in

Central and Eastern Europe. PR agencies in this region, particularly

those with international networks, are watching the process of accession

with excitement.



They believe that the preparations needed for membership, and the

business climate once it has been achieved, will convince more and more

organisations and companies to use their services.



The PR industry in this region is relatively new. It began to emerge as

a discipline in its own right at the beginning of the 1990s when

agencies such as Burson-Marsteller, Dewe Rogerson and The Rowland

Company helped to promote aid agency projects and privatisations. For

the first five years the market was dominated by these players. The

Rowland Company built its business on the back of the European

Commission’s Phare Aid programme, and B-M on promoting the United States

Agency for International Development’s efforts.



However, two years ago, B-M, deciding to concentrate on the world’s

larger markets, sold its Czech and Hungarian offices to their local

managers, keeping only its Polish business. The agencies, which still

operate under the B-M name, continue to be major players in their local

markets, but other brands, including some strong local businesses, have

come to the fore in recent years.



Hill and Knowlton, which has been in Eastern Europe since 1991, has

built a significant network in the area. It has wholly-owned offices in

Budapest, Prague, Rega in Latvia, and Tallinn in Estonia, as well as a

network of affiliates. GCI also has five offices across the region.



A snapshot of some of the top agencies in the three main markets of

Poland, Czech Republic and Hungary shows a mix of international brands,

local agencies and advertising agencies. The larger players in Poland

include B-M, Sigma - which is local and part-owned by Shandwick - The

Roland Company, and local brands Partner of Promotion, Compress and

United PR. In the Republic, B-M is again big, as are Hill and Knowlton,

Eklektik Porter Novelli, advertising agency Ogilvy and Mather, local

business AMI and Interel, a branch of a Brussels-based network. Herald

Communications also has a Prague office. In Hungary B-M, Hill and

Knowlton, local agencies Heart and H&K (not part of Hill and Knowlton

although bearing an uncannily similar name), and ad agency BBDO

dominate.



Income from these businesses is still fairly small. Shandwick’s fee

income across its offices in Poland, Czech Republic, Hungary, Slovakia

and the Baltics was pounds 4 million at the last count. This compares to

pounds 3 million in nearby Germany, for example. Hill and Knowlton made

a comparable pounds 3 million in 1999 from its four offices in the

region.



Poland, with 38 million inhabitants and the land mass of France, is by

far the biggest market in the region. Its media, like its economy, is

thriving. Its public service broadcaster has two terrestrial stations

and one satellite channel, there are a number of commercial terrestrial

stations and between 50 and 60 cable and satellite channels.



The size of the TV industry means broadcast PR agencies, such as

Bulletin International, are able to execute relatively sophisticated

campaigns there. Anna Christofari, media relations manager at Bulletin,

says: ’The key thing about Poland is that thematic channels are going to

grow quite dynamically. With thematic channels broadcasters have got

more time to devote to particular items than terrestrial channels. And

you know you are reaching the audience your client wants you to

reach.’



A few years ago the Czech Republic, which with a population of 10

million is a much smaller country than Poland, was seen as the

trailblazer: the eager reformer that would provide the most lucrative

market for the export of Western goods and services. But reform within

the country has lost momentum and it is now in recession. Now its place

as the great white hope of central and Eastern Europe has been replaced

by Poland. The faltering of the Czech Republic’s economy has taken its

toll on the local PR scene.



Pragma, a well established top 15 Czech agency closed at the end of last

year. Shilland and Co also shut its Prague office last year, and Saatchi

and Saatchi announced in January that it was winding down its Czech

office.



Anthony Hemstad is the founder and majority owner of Eklektik Porter

Novelli, which has offices in the Czech Republic, Poland, Hungary and

Slovakia and is, as its name suggests, part owned by Porter Novelli.



He runs a successful agency, but the biggest fee he has ever earned was

dollars 250,000 (pounds 156,000). ’This is exceptional,’ says Hemstad.

’dollars 4,000 to dollars 10,000 a month accounts are far more common.

It is pretty difficult to get things up above dollars 10,000. Budgets

are becoming bigger especially in Poland, and a bit in Hungary, but the

Czech Republic has been in recession for two years and some companies

there are cutting back budgets.’



What tends to bring fees down is that many clients prefer to work on an

ad hoc basis rather than retaining agencies to work on rolling yearly

contracts. And few clients are prepared to hire agencies to run regional

programmes. For example, 80 per cent of Shandwick’s business is locally

generated. The rest comes from existing Shandwick clients expanding

programmes into the region.



According to B-M’s chief operating officer for Europe Jeff Hunt, the

central and Eastern European PR industry follows a pattern established

in many other emerging markets.



He says: ’There are more clients spending less money. It’s a very

project-oriented kind of market. Developing markets all feel the same in

their opening stages. PR is viewed very tactically, and then you go

through a period of time and it eventually moves up the agenda. Where

the value seems to be the highest is in the areas of corporate counsel

and crisis. Marketing seems to be more tactical.’



While most agencies are happy to take on ad hoc business, Mmd Marketing

Marketing Communications feels confident enough to turn away clients who

will only work on this basis. Mmd is a UK-based agency which does most

of its business in central and Eastern Europe, where it generates about

pounds 2.8 million a year in fees from offices in the three main

markets, plus Slovakian capital Bratislava and Romanian capital

Bucharest. The agency runs multi-country accounts for Coca-Cola, Procter

and Gamble, Visa and Intel. A recent campaign was a promotional tour for

Malibu around Poland, the Czech Republic, and Slovakia.



Mmd chases big budgets because, according to chairman Alistair McLeish,

’Overheads and staff costs are just as high as in the UK’. Part of the

reason for this is that in Poland, for example, for each member of staff

the employer must pay the equivalent of their salary in tax. Salaries

have also been pushed up by the shortage of skilled staff, who are badly

needed in a market where standards of professionalism are getting

higher.



Although PR practice is becoming more professional, the industry is not

developed enough to support specialist agencies. ’It is still wise to be

a little bit diversified,’ says Hemstad at Eklektik, whose clients range

from SmithKline Beecham to Motorola. Shire Hall, for instance, opened an

office in Prague but had to close it because the healthcare PR market

was too small.



According to Terence Billing, Hill and Knowlton executive vice president

responsible for central and Eastern Europe, there are four main sources

of income for agencies in the region: aid projects needing PR support,

state-owned companies preparing for privatisation and re-orienting their

trade from Russia to the West, governments wanting to attract tourists

or inward investment, and foreign companies looking to sell consumer

products.



From this year, the amount of aid to the ten central and Eastern

European countries applying for EU membership is set to quadruple. The

EU will pump 2.6 billion euros into the region between 2000 and 2006.

Agencies such as The Rowland Company which specialise in promoting EU

aid programmes are likely to see their business boom.



Some agency heads don’t think that EU membership will bring any major

changes but Martin Dubois, a director at Porter Novelli in Brussels who

co-ordinates pan-European accounts, says: ’EU membership will make those

countries, their companies and products a lot more visible in the West

and it will make them more visible as markets to Western companies.’

Hunt at B-M agrees. He says EU membership will promote optimism and

enthusiasm about the new members.



Another area of growth is likely to be public affairs.Lutz Meyer,

Shandwick MD for Europe with day-to-day responsibility for mainland

Europe, says: ’Where we see a lot of business potential coming up at the

moment is the public affairs side where not only private companies but

institutions and associations need to prepare themselves for dealing

with Brussels.’



Meyer adds: ’As deregulation gathers pace, as it must if countries are

to meet the EU criteria by the target date, there will be more merger

and acquisition and IPO work in the region.’



The benefits of EU accession will take time to materialise, as

negotiations have a long way to go yet. But the stability and increased

economic activity membership is intended to bring should help the

region’s PR industry not only thrive, but mature.





FOLLOWING THE STEPS TO EU MEMBERSHIP



The countries which have signed up to join the European Union (EU) will

need to meet tough criteria, agreed by EU members in 1993 at the

Copenhagen European Council in 1993.



There is a list of some 30 areas where the applicants must prove that

they match EU standards before being allowed into the ’club’. As well as

areas such as financial control, company law, taxation and free movement

of capital, applicants are judged on their handling of consumers, health

protection, education and training, and social policy and

employment.



The criteria are summarised as follows:



- The stability of institutions guaranteeing democracy, the rule of law,

human rights and respect for and protection of minorities.



- A functioning market economy as well as the capacity to cope with

competitive pressure and market forces within the union.



-The ability to take on the obligations of membership including

adherence to the aims of political, economic and monetary union.



-The adjustment of administrative structures, so that European Union

legislation transposed into national legislation is implemented

effectively through appropriate administrative and judicial

structures.



For PR agencies and their clients, the most important criteria are: the

creation of a functioning market economy and the conditions in which

home-grown businesses can survive in a deregulated and competitive

Europe.



In a recent study of prospective EU members, PriceWaterhouseCoopers

(PWC) set out some of the things needed to get their economies into

shape.



They must liberalise trade and prices to find a balance between supply

and demand, and remove any barriers preventing the establishment of new

companies. The legal system must enforce property rights, laws and

contracts.



Prices and public finances need to be stable. There should be a

well-developed financial sector so that people’s savings can be safely

invested.



There must be an adequate energy supply, telecommunications and

transport, and a certain level of education. There must be a healthy

number of small to medium-sized businesses because small firms tend to

benefit more from improved market access, and because larger companies

can be slow to adjust to new economic conditions. And applicants will be

better placed to enter the EU if they already trade regularly with

member countries. Since 1995 the current applicants have had virtually

free access to EU markets, except in certain areas such as agriculture

and textiles, where some of the countries are particularly strong.



PWC found that of the 13 applicant countries, Slovenia has come closest

to meeting these criteria, followed by the Czech Republic, Cyprus and

Poland. Hungary, Estonia, Latvia, Slovakia and Malta are next, and

Bulgaria, Lithuania, Turkey and Romania are trailing behind. Turkey is

the only one of these not in negotiations, because EU members are not

happy with its record on human rights.



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