2002 GLOBAL RANKINGS: Universal picture - Large agencies arelanding more work in more different markets, but with global pitchesstill rare, restoring strength and growth to US operations is thepriority for most

You can blame IBM. Even though it all took place last summer, people are still talking about it. When the computer giant put most of its global PR business up for review, the sheer excitement of that consolidation fueled conversations for months, agencies waiting to see who would be next to feed a multimillion dollar, multi-market bounty into whose wide-open mouth. After all, the consolidation occurred in the economically parched summer of 2001 - surely a time when other companies would see the benefits of scrapping myriad agencies in favor of just a couple, resulting in an indubitably more malleable situation, with even (shock, horror) an opportunity to leverage pricing across a global agency network. They'd be fools not to.

You can blame IBM. Even though it all took place last summer, people are still talking about it. When the computer giant put most of its global PR business up for review, the sheer excitement of that consolidation fueled conversations for months, agencies waiting to see who would be next to feed a multimillion dollar, multi-market bounty into whose wide-open mouth. After all, the consolidation occurred in the economically parched summer of 2001 - surely a time when other companies would see the benefits of scrapping myriad agencies in favor of just a couple, resulting in an indubitably more malleable situation, with even (shock, horror) an opportunity to leverage pricing across a global agency network. They'd be fools not to.

But it didn't quite work like that. What was overlooked was the fact that hacking 50 agencies down to three was unlikely to have been driven by cost - certainly not in the short term, in any case. According to those close to the process, the cost of orchestrating the pitch meetings and dealing with dozens of contracts is only the very beginning, and they say that the move was far more about moving towards consistency of message.

So after the likes of Procter & Gamble - widely tipped to be the next to go - stuck calmly to the status quo, the conversations grew less breathless, and more inquisitive. Where were the consolidations? Are clients reluctant to go global with their PR?

What is a global account?

As far as an actual definition goes, it is a misconception that a "global account means an agency handles it in every geographic region in which the client operates. Bob Seltzer, CEO of Ogilvy PR, for instance, defines it as "two continents and more. Interpublic Group's Larry Weber says it's "three markets, while H&K's international president Paul Taaffe defines it as, "say ... three regions - but we don't really talk about that. 'Global' is a misnomer."

The fact is, there are really not that many PR accounts that can be defined as such. There is still little to no financial gain to be had by buying all your PR from the same shop (unless you're a big enough client to beat your agency network into a low price and running your business as a loss-leader), and the highly localized flavor of the discipline tends to prevail.

It is more realistic to look at "global accounts in terms of the agencies that are available to serve them. Take the top 20 for example. Topping the list is Weber Shandwick Worldwide, with global revenues of $426.6 million. But by the time you reach number 20, the revenues of Rowland Communications are just one tenth of that, with $42.66 million. The triple-figure revenues stop at Golin/Harris, in thirteenth place with $113.25 million, and then you're at Cordiant's $90,655 - and that's from more than one agency brand. A truly global agency isn't just about pins on maps; it's about whether it can offer full-service, cross-discipline work from a common platform in a vast majority of those footprints.

"It's cross-border and cross-discipline, says Chris Komisarjevsky, Burson-Marsteller CEO. "We think about global from the standpoint that you have a footprint in key markets, providing a range of disciplines for clients for whom you may work in multiple markets around the world." He goes on to explain the most likely candidates for offering global PR business: "There are four key disciplines that are truly global: corporate and financial, public affairs, technology, and healthcare. By and large, those are the disciplines where agencies are retained on a global basis, as decisions are made centrally for these programs, even if they're executed individually."

Andy Hopson, president and COO of Publicis Dialog US, confirms, "There are fewer global accounts on the PR side, so to capitalize, you have to have a global capability that means something. Right now, there are very few agencies that have that. We have it through our sister agencies (which include Rowland and Publicis Consultants), and through the Publicis network."

Indeed, it is through collaboration that a lot of PR agencies are able to service a multi-market account. Not only with other PR agencies, like Publicis Dialog, but with sister ad agencies. Burson's model slots in to parent ad agency group Young & Rubicam's Key Client Relationship (KCR) strategy, with integrated leadership across the major clients - Komisarjevsky names Accenture as an example. Sister media shop Zenith Optimedia Group and design agency Landor, plus a number of other satellite firms, also play a part in these KCRs. Burson also has its own KCRs - 23% of Burson's global revenue is derived from the dozen it holds, but seven of those are shared with Y&R. "These are extraordinarily important relationships, around the world, says Komisarjevsky. "We can execute with a common brief if necessary, in the terms of unique characteristics of the market."

The M&A activity and consolidation that has been occurring in the mega-agencies is widening the gap between them and the "smaller ones, allowing more of them to come into the hallowed grounds of the top 25 global players.

As a contrast to Burson - with its full-service capabilities integrating with advertising, media, direct marketing, and design agencies - is Text 100, the tech PR specialist, hovering just outside the top 20, at number 21. Part of a PR-only holding company - currently named OneMonday but soon to change, now that PwC Consulting has bought it as part of its own rebranding - the agency has been approaching a global presence by stealth, explains CEO Aedhmar Hynes.

"One of the key things that we focus on in terms of talking about global, is that it always has to start with local, she says. "Our local offices have to be top five in their own markets, based on understanding the culture and differences of each individual location. When you start with that, and grow it to 23 offices around the world, you can then start talking globally, as you have the ability to combine best of breed locally into a strong global proposition. If you start at global and work downwards, the concept becomes diluted."

The Text 100 method has been largely organic, and mindful of the fact that PR has to know its market. "We'll send out our own people from other offices to set up the business, but very quickly moving to hire nationals to run it, says Hynes.

Seltzer elaborates on the importance of getting the right balance between the local management teams feeling autonomous, while also homogenizing with the character of the network - especially when a major piece of business comes into the fray. "When you win a piece of global business from a headquarters office - whether it's London, New York or whatever - the local offices that will do the execution usually hate the business, as all the client contact, strategy, etc, is in the center. It becomes just a media placement program in that country. So Seltzer talks to staff about ways of doing it so that the local country doesn't feel disenfranchised. "The whole idea is about how you create a structure that allows you to pitch and serve global business, he says. Lou Capozzi, CEO of MS&L, adds that the individual countries must be allowed to have a certain element of independence.

"They don't need someone from HQ telling them who's best for the job," he advises.

Hynes thinks back to the IBM pitch, which she says proves how global should work. "Instead of pitching out of the US, we brought together talent from the 23 offices in order to show that globalization doesn't come from the US, Asia, or Europe, but from best thinking. Her approach is bolstered further by the fact that Text 100 is now in that magic top 25. "While you don't see much change in the shape of the top 25, as the top ten players are still 10 to 15 times larger, it's amazing to see Hoffman and Text get in there. As long as the big generalists build their business on M&A, the ability to build a specialist agency to compete with them at a revenue-generation level is very difficult. There are a lot of large corporations that look at the top 25, and that's where ranking counts. It's one more tick in the box."

A slow return

It's fairly universally agreed among the top CEOs that the global pitches of the IBM kind are still unlikely to be rushing in any time soon. Weber says, "It will be a slow evolution over the next three to five years, and it will be multiple-practice. The types of briefs you'll see won't just be to introduce a car in five markets; it will be to work on legislative things, to help them with financial issues, CEO issues, that kind of thing."

And even when the pitches do roll around, Weber says they may not be as noticeable as the IBM one, as it may well be conducted in stages. He also adds that clients hadn't always been terribly up front about their intentions as far as a "global pitch went. Historically, he says, "a client in North America would say it was a global pitch, and put out the list of the five biggest PR firms in the world. Then if you won, they'd say, 'We'll give you North America, now you have to win the other countries.' Now, they're less likely to do that; instead of putting it all up for bid, the big Fortune companies are saying, 'Why don't you do some work for us in China, India, or Germany.' While the economy is obviously having our feet drag on that a bit, as it picks up, you'll see Fleishman, Hill & Knowlton, Golin, Weber Shandwick, etc, all having more clients in more markets."

One market that all eyes are on right now is China. Since its acceptance into the World Trade Organization last September, Western agencies have been greedily eyeing the firms there, in preparation for promoting Western brands there, and bringing Chinese brands here. And, as Lou Hoffman, CEO of The Hoffman Agency, points out, "While it hasn't gotten much notice, the new WTO regulations now allow PR agencies to form what are called Wholly Owned Foreign Enterprises. This is fairly important because previously PR agencies could only form representative offices - which technically can't deliver a service or product - or a joint venture with a local Chinese partner."

Ogilvy was the first agency to buy into a domestic PR shop on mainland China since the WTO acceptance, with its June purchase of a 60% stake in H-Line. Several are likely to follow for the big agencies - although some will sit it out in an effort to learn how to overcome potential teething troubles, like adjusting price structures to align with the international networks, and how to raise their service levels to compete on the international stage.

With his parent company Bcom3's new inclusion into the Publicis Groupe, Capozzi is excited about the opportunities in Asia that are brought about by Dentsu's 20% stake in the operation and its 220 PR pros in Tokyo - though he recognizes the challenges. "Asia is in a more formative stage than Europe in terms of development and sophistication, with the media in China still run by the state, he says. Capozzi becomes starry-eyed when he adds, "Asia still has high potential; maybe not over the next year, but in the long run, there are enormous opportunities for PR, due to the region's size and relative lack of sophistication. There is no doubt that Shanghai is the most exciting place as far as opportunities in PR go. It's got to be the most exciting city in the world - the skyline looks like Gotham in the Batman movies."

Komisarjevsky, on the other hand, looks beyond China and at the rest of Asia from an economic point of view, and is more pessimistic. "The most difficult market for us this year is Asia. The economic pressures that the US and Europe felt have now found their way there. While China is strong, Japan and Australia are weak."

Two years ago, much of the buzz was about Latin America. Most agency chiefs were pinning that down as being the next promising region, just like they are with China now - but the sudden downturn put a halt to many plans.

Seltzer was one of those who wowed about the region. "It is coming back, he promises. "After having put our acquisition strategy on hold in the economy of 2001, it is coming back. Global PR is not a fad. Clients have needs, and the need to be in Latin America is not going away."

While things in Argentina are on hold because of the economy, Seltzer continues, "Mexico, under President Fox, is moving towards a much more business-oriented, stable economy. What's going to drive it is the opportunity for companies to enter that marketplace and do well. The treaty that opened up Mexico in all of the North American marketplaces helps that process, too."

Again, however, Komisarjevsky is more skeptical. "For Latin America, you have to look out well into 2003. We all know what happens: when the US catches a cold, Latin America gets pneumonia. We have to see a strong US component before we see that transferred to Latin America."

The Northern European firms are drawing a lot of interest right now.

Indeed, at number 22 on the list, just one place behind Text 100, is Kreab, a Sweden-based public affairs agency. Taaffe notes, "There are some very interesting models coming from the likes of Sweden, Finland, and Norway.

They are very sophisticated countries anyway, relatively wealthy, and with a very high standard of education. But because of the size of the populations, they have to think outside their countries. US companies can be very content with US sales, but they accept diversity and new ideas more in order to stay competitive. It's a bizarre formula, but if you measure PR spend as a percentage of the GDP, it broadly suggests that Sweden, the Netherlands, and Switzerland have the highest PR spend on the planet. They're very sophisticated."

Less sophisticated, but still drawing attention, are the former Eastern European countries. Seltzer - who has a small office in Bucharest which is enjoying growth - says, "Many of these countries are now politically stable, and the economies are picking up."

Burson is primarily served by affiliates in the area, and Komisarjevsky adds, "In any market where the industry is relatively young, the biggest pressure is the level of sophistication. And that's an interesting point about global companies: Any of those who retain the services of PR firms are looking for universally accepted, sophisticated work around the world, which is difficult to deliver upon. Take the paying-for-news example (it is common in many countries for journalists to be paid by PR people and the like to run news stories); it shows some markets are more sophisticated than others."

However, the market that most CEOs are still focusing on is the US. Yes, a close eye is being kept on Europe and Asia in terms of the ripple effect of last year's disastrous US economy. Yes, markets such as China and Latin America are looking promising. And yes, agency heads are keen to grow the percentage of non-US business to about 50% of agency totals. But the directive, especially coming down from the holding-company level, is to restore the US part of the businesses to economic stability and growth.

Weber, who oversees the world's largest PR agency network, WSW, as well as number 13 agency Golin, confirms: "North America is still the most important market. It's where most of the largest budgets are. Get the strength back, they hope, and maybe the other markets will catch a far kinder strain of that cold everyone talks about.

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